Brown Noel Trading Pte Ltd v Donald & McArthy Pte Ltd

• Judge: Karthigesu JA
• Judgment Date: 27 November 1996
• Neutral Citation: [1996] SGCA 72
• Citation: [1996] SGCA 72
• Defendant Counsel: Vangat Ramayah (Wee Ramayah & Partners)
• Published date: 19 September 2003
• Plaintiff Counsel: Jimmy Yim and Lau Kok Keng (Drew & Napier)
• Date: 27 November 1996
• Docket Number: Civil Appeals Nos 64 and 66 of 1996
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether defendant claim against third party damages payable to plaintiff and loss of profit on resale,Waiver,Whether one party has by conduct waived the other party's repudiatory breach of contract,What constitutes waiver,Repudiatory breach,Whether defendant can claim against third party sum paid to plaintiff in settlement,Contract,Foreseeable consequence of breach of contract,Remedies,Damages,Goods bought from third party for resale to plaintiff,Reasonableness of settlement,Breach,Whether termination of contract automatic or need to elect to terminate contract due to other party's repudiatory breach,Termination of contract

Cur Adv Vult

There are two appeals before us. First, there is Civil Appeal No 64 of 1996 in which Brown Noel Trading Pte Ltd, who were the defendants in the proceedings below (the defendants), appeal against that part of the decision of the High Court disallowing their claim for S$235,715 (the equivalent of US$150,000) which they had paid to Sintra Merchants Pte Ltd, the plaintiffs, as damages for breach of the contract made with the plaintiffs. The second appeal is Civil Appeal No 66 of 1996 in which Donald & McArthy Pte Ltd, who were the third party below (the third party), appeal against the whole of the decision of the High Court in which it was held that the third party were in breach of their contract made with the defendants and were liable in damages. Both appeals arose from the same decision of the High Court, and were heard together.

The facts

The relevant facts that gave rise to these appeals were as follows. Sometime in September 1992, a related company of the defendants called Global Exim Pte Ltd (Global), negotiated with the third party for the supply by the third party of a quantity of prime deformed steel reinforcing bars. Global were an import and export company and acted as a middleman. They wanted to procure the quantity of steel bars so that they could in turn supply it to their customer, Sintra Merchants Pte Ltd (Sintra). Thus, they were negotiating with the third party for the purchase of the goods, whilst at the same time they were negotiating with Sintra for the re-sale of the same goods. By these transactions, Global stood to earn a commission of US$2.50 per metric ton of the goods from the third party as well as a profit margin from the re-sale of the goods to Sintra. The negotiations culminated in the making of two agreements on 21 October 1992 by the defendants, one with the third party and the other with Sintra. Just before concluding the agreements, the defendants were substituted as a contracting party in place of Global, as Sintra wanted the defendants to be the contracting party rather than Global on the ground that the defendants had greater financial and trading resources than Global. The third party agreed to the substitution.

The agreement made between the defendants and the third party provided for the supply by the latter of 10,000 metric tons of prime deformed steel reinforcing bars to be shipped to Fangcheng or Shekou, China, latest by 1 December 1992, at a price of US$285.50 per metric ton. The other relevant terms of the contract were as follows:

Payment terms: Irrevocable L/C negotiable and payable 100% value at the counters of negotiating bank in Singapore and allowing TT reimbursement.

Penalty Clause: Should the buyer fail to open L/C favouring seller later than 31st October 1992, the seller shall have the option to either cancel the contract or grant a grace period of 1 to 3 days prior to cancellation. In the event of failure to open L/C as per contract and time stipulated, seller has the right to claim up to 1.0% of the contract value.

The same quantity of prime deformed steel reinforcing bars with the same quality formed the subject matter of the agreement made between the defendants and Sintra and the terms contained in that contract were almost identical to those in the agreement between the defendants and the third party, save that in the agreement with Sintra, the defendants agreed to sell the goods to Sintra at US$291 per metric ton, and that the pattern of the steel bars was specified as `fish-bone shape`. In addition, Sintra agreed to open the letter of credit in favour of the defendants (Sintra`s letter of credit) by 29 October, failing which the same penalty as that provided in the contract between the defendants and the third party would be payable.

The letter of credit in favour of the third party was not opened by the stipulated date, ie 31 October 1992. The defendants` explanation for the delay was that they could not open their letter of credit on time because they had not received Sintra`s letter of credit. As that letter of credit was to be back-to-back with that in favour of the third party, the terms of the latter could not be finalised until the terms of Sintra`s letter of credit were finalised. According to the defendants, their managing director, Mac Yim, spoke to one Aaron Chen, the Vice-President of the third party, requesting for an extension of five days from 31 October 1992 for the defendants to open their letter of credit in favour of the third party, and Aaron Chen agreed to the extension.

Sintra opened their letter of credit in favour of the defendants on 29 October 1992, which the defendants received on the following day. The defendants then arranged for a back-to-back letter of credit to be opened in favour of the third party. On 2 November 1992, the defendants` bank, Credit Lyonnais, issued a letter of credit in favour of the third party. On the same day, the defendants faxed to the third party stating: `We have today opened our L/C for the above cargo via Credit Lyonnais to your banker Swiss Bank Corporation ... Please confirm receipt in due course ...`. The letter of credit was dated 3 November and was delivered to the third party who accepted it.

About a week later, Aaron Chen informed Mac Yim that the third party were having problems of supplying the defendants with the goods, and offered goods with alternative specifications. This was followed by a fax dated 10 November 1992 confirming the same; that fax was sent to Global by a company, Chemet Handel Trading (S) Pte Ltd, which is an associate company of the third party.

The defendants then enquired with Sintra whether they were willing to accept the alternative goods offered, and the latter refused. Mac Yim then faxed to Aaron Chen the response from Sintra. At the same time, he told Aaron Chen that the defendants would continue with their effort to persuade Sintra to accept the alternative goods. On 13 November Aaron faxed a letter to Mac Yim referring to the various telephone discussions and stating that they (the third party) were `working hard` to obtain the goods fulfilling `the exact requirements` of the defendants` customer. Following that, on 24 November the third party through Aaron Chen faxed to the defendants another letter stating that the material fulfilling the requirements would only be ready for shipment in the later half of January 1993 and that for shipment in December 1992 they could offer goods with alternative specifications. The content of this letter was passed on to Sintra who rejected the proposal. Subsequently, no goods fulfilling the requirements of the contract were forthcoming, and on 20 January 1993, Sintra decided that they had waited long enough for the goods, and put the defendants on notice of their claim for damages for breach of contract. On the same day, the defendants in turn put the third party on notice of their claim for damages for breach of contract.

On 20 January 1993, the defendants received a letter from the third party and learnt for the first time that the third party had cancelled the contract owing to the defendants` failure to open a letter of credit by 31 October 1993. The defendants immediately replied on 21 January reminding the third party of the verbal agreement between Aaron Chen and Mac Yim to extend the dateline for the opening of the letter of credit by 5 days. On the same day, the third party wrote to the defendants stating, among other things:

There was never any verbal or written agreement to allow any extra day for opening of the L/C. We never waived the condition. It was only due to the late opening of your L/C, we missed the deadline. As a matter of fact we did not receive your L/C until 05.11.92 in our bank.

...

(3) As the L/C was not received in time, the previous contract was cancelled. However to co-operate with you we offered alternative materials, which has nothing to do with the contract entered into.

As a result of the defendants` failure to supply the goods, Sintra commenced an action against them on 29 March 1993 claiming damages for breach of contract. The defendants in turn instituted third party proceedings against the third party. On 13 July 1993, the defendants settled Sintra`s claim for the sum of US$150,000, after the latter had filed an application for summary judgment. Hence, only the defendants` claim against the third party and the latter`s defence proceeded to trial.

The defendants claimed as damages the following:

(a) a sum of US$55,000 for loss of profits on the sub-sale to Sintra;

(b) currency exchange losses arising therefrom; and

(c) a sum of S$235,715 (the equivalent of US$150,000) which the defendants had paid to Sintra in settlement of the claim against them.

The defence of the third party was twofold. First, the defendants had breached the agreement by failing to open a letter of credit by 31 October 1992, there being no agreement between them for an extension of time. Secondly, the letter of credit opened by the defendants was not in conformity with the agreement and the defendants were in repudiatory breach. In consequence, they counterclaimed a sum of US$28,550 as liquidated damages based on 1% of the contract value as stated in the penalty clause in the contract.

Decision below

Before the trial judge four issues were raised. The first was whether the third party granted an extension of time to the defendants to open the letter of credit. Under the terms of the contract the defendants were obliged to open the letter of credit by 31 October 1992, but the letter of credit was not opened until 3 November 1992 and a copy was delivered to the third party only on 5 November 1992. On the basis of the documentary evidence and the evidence of one Samir Devmurari, who was at the material time in the employ of the third party as a marketing executive, the trial judge found that an extension of five days had been granted to the defendants to open the letter of...