GD Midea Air Conditioning Equipment Co Ltd v Tornado Consumer Goods Ltd and another matter

• Jurisdiction: Singapore
• Judge: Chua Lee Ming J
• Judgment Date: 07 August 2017
• Neutral Citation: [2017] SGHC 193
• Date: 07 August 2017
• Docket Number: Originating Summons No 15 of 2017, Originating Summons No 43 of 2017 (Summons No 720 of 2017)
• Published date: 28 March 2018
• Plaintiff Counsel: Tan Beng Hwee Paul and Devathas Satianathan (Rajah & Tann Singapore LLP)
• Defendant Counsel: Chan Hock Keng, Ang Shunli Alanna Suegene Uy and Goh Wei Wei (WongPartnership LLP)
• Court: High Court (Singapore)
• Hearing Date: 18 April 2017
• Subject Matter: Enforcement,Award,Arbitration,Singapore award,Recourse against award,Setting aside,Refusal of enforcement

Chua Lee Ming J: Introduction

This dispute concerned an arbitral award dated 14 November 2016 (“the Award”) that was issued in Singapore International Arbitration Centre Arbitration No 65 of 2014 (“the Arbitration”). Tornado Consumer Goods Ltd (“Tornado”) was the claimant in the Arbitration; GD Midea Air Conditioning Equipment Co Ltd (“Midea”) was the respondent.

In Originating Summons No 15 of 2017 (“OS 15/2017”), Midea applied to set aside the Award in part. In Originating Summons No 43 of 2017 (“OS 43/2017”), Tornado obtained leave to enforce the Award (“the Enforcement Order”). Summons No 720 of 2017 (“SUM 720/2017”) was Midea’s application in OS 43/2017 to (a) set aside the Enforcement Order and (b) dismiss the originating summons.

I decided in favour of Midea in OS 15/2017 and set aside the Award in part. Consequently, the Enforcement Order was set aside in part and OS 43/2017 was dismissed in part. Tornado has appealed against my decision.

Background

Midea is a company incorporated in the People’s Republic of China (“PRC”). It is in the business of manufacturing air-conditioners and other electrical products. Tornado is a company incorporated in Israel. It is in the business of selling air-conditioners in Israel.

In 2004, Tornado started purchasing residential air-conditioners from Midea on an ad hoc basis for the purposes of sale under its own brands in Israel. Between 2005 and 2011, Midea and Tornado entered into agreements that were renewed on a yearly basis.¹

In August 2011, the parties entered into the following agreements:² The International Exclusive Distribution Agreement on Midea Brand Home Appliances (“the MBA”),³ which governed the supply of Midea-branded air-conditioners to Tornado; and The Exclusive Original Equipment Manufacturer Supply Agreement (“the OEMA”), which governed the supply of air-conditioners and other electrical products to Tornado under Tornado’s own brands.

Both agreements were valid for three years from 1 January 2012 to 31 December 2014.

Clause 2.1 of the MBA required Tornado to purchase products from Midea by means of purchase orders, and achieve the following annual shipped sales volume and/or value target (“Annual Sales Target”): (a) 30,000 sets in 2012; (b) 50,000 sets in 2013; and (c) 70,000 sets in 2014.

Clause 2.2 of the MBA entitled Midea to terminate the MBA by giving 60 days’ prior written notice “at its own discretion and option” if (a) Tornado failed to achieve the Annual Sales Target in any year, (b) Tornado failed to achieve half of the Annual Sales Target by 30 June in any year (“Half-Year Sales Target”), or (c) it seemed “obviously impossible” for Tornado to meet the Annual Sales Target before the end of the year.

Clause 4.1 of the MBA provided that payment for Tornado’s orders “shall be made … in accordance with the payment terms stipulated in [the purchase order] confirmed by MIDEA or corresponding [pro forma invoice]” and that all payments were to be made in the form of telegraphic transfer (“TT”) or letters of credit (“LC”).

Clause 4.2 of the MBA provided that “[a]ny and all payments shall be made in full within 90 days of the date of each [marine] Bill of lading date”.

On 6 January 2012, Tornado commenced the sale of Midea-branded air-conditioners in Israel.⁴ Consistent with cl 4.1 of the MBA, Tornado would order air-conditioners from Midea by sending a purchase order (“PO”) to Midea. Midea would then issue a pro forma invoice (“PI”) indicating the price and payment terms, for Tornado’s acceptance.⁵

As of 30 June 2012, Tornado had purchased and shipped only 4,464 sets of Midea-branded air-conditioners. Under cl 2.1 of the MBA, the Half-Year Sales Target for 2012 was 15,000 sets. Tornado claimed that it met the Half-Year Sales Target by including the orders it made under pro forma invoice PI-TORNADO-1130-2 dated 23 August 2011 (“PI-TORNADO-1130-2”). Midea disagreed, arguing that PI-TORNADO-1130-2 could not be included since the MBA took effect only on 1 January 2012.

Between 26 and 28 November 2012, the parties met at Midea’s headquarters in Beijiao, PRC. During the meeting, handwritten annotations were made to cl 2 of the MBA.⁶ The effect of the annotations was to (a) lower the Annual Sales Targets and (b) postpone the commencement of the reduced Annual Sales Targets from 2012 to 2013. In the Arbitration, Midea claimed that the annotations were a non-binding record of discussions whereas Tornado claimed that they were binding amendments to the MBA.

For the whole of 2012, Tornado purchased and shipped 14,350 sets of Midea-branded products under the MBA, short of the Annual Sales Target of 30,000 sets. Tornado again claimed that its orders under PI-TORNADO-1130-2 should be included for 2012, bringing the figure for 2012 to 26,662 sets. Midea again disagreed on the ground that the MBA only became effective on 1 January 2012.

The payment terms for the Midea-branded products supplied in 2012 were “1 MILLION USD ROLLING DEPOSIT BY TT, 100% BY LC AT 90 DAYS AFTER B/L DATE”.⁷ The reference to the “1 MILLION USD ROLLING DEPOSIT” was a reference to a US$1m deposit which Tornado had placed with Midea (“the Deposit”).

In January 2013, Midea returned the Deposit to Tornado at Tornado’s request. This resulted in a change to the payment terms. Between January and September 2013, the payment term for orders made by Tornado was 5% by TT upon confirmation of the order and the remaining 95% by LC payable within 90 days from the date of each bill of lading.⁸

On 16 July 2013, Midea entered into a supply agreement with Tornado’s competitor, Electra Consumer Products (1951) Ltd, for a five-year term, starting from 2014 (“the Electra Agreement”).⁹ In the Arbitration, Tornado claimed that Midea’s actions were calculated to end its relationship with Tornado so that it could move ahead with the Electra Agreement. Midea contended that the Electra Agreement excluded all Midea-branded products; Tornado disputed Midea’s contention.

On 29 August 2013, Tornado sent Midea a purchase order for 13,170 sets of Midea-branded air-conditioners. On 25 September 2013, Midea sent Tornado pro forma invoice 1325 (“PI-1325”)¹⁰ for the order. The payment term stated in PI-1325 was “30% TT + 70% LC at sight”.

By 31 December 2013, Tornado had purchased and shipped 17,673 sets of Midea-branded products under the MBA for 2013¹¹, short of the Annual Sales Target under the MBA.

On 10 and 12 January 2014, Tornado placed two orders for a total of 55,292 sets of Midea-branded products.¹²

On 13 January 2014, Tornado sent Midea a letter of credit for US$3,201,441.50 (which was the full amount for the order under PI-1325) payable 90 days after shipment, and informed Midea to start the production in respect of the products in PI-1325 immediately. Tornado also requested Midea to send the pro forma invoices for its 10 and 12 January 2014 orders.

On 14 January 2014, Midea replied, declining to produce the sets covered in PI-1325 as Tornado’s confirmation of PI-1325 was more than three months after it was first sent by Midea. Midea also stated that the prices set out in PI-1325 were no longer applicable.¹³

On 28 January 2014, Midea gave Tornado 60 days’ written notice of termination of the MBA, pursuant to cl 2.2 of the MBA (“the Termination Notice”). The grounds for termination were stated as Tornado’s failure to achieve its Annual Sales Target for 2013 and Tornado’s refusal to do so after several rounds of communication.¹⁴

On 29 January 2014, Tornado placed further orders for 54,494 sets of Midea-branded products. Midea stated that it could not accept the orders based on the old prices and conditions. Midea also referred Tornado to the Termination Notice.¹⁵

On 12 March 2014, at Tornado’s request, Midea sent Tornado a revised price list. On 13 March 2014, Tornado placed orders using the new prices (while reserving its rights). On 20 March 2014, Midea sent a pro forma invoice for 6,095 sets (“PI-2014”) with the payment term stated as “100% TT before delivery, 30% TT in 3 days after confirmati[on] of the PI, 40% TT before production, and the remaining 30% TT before delivery of the products”.¹⁶ Tornado accepted PI-2014 under protest.

The Arbitration

On 3 April 2014, Tornado commenced the Arbitration against Midea pursuant to cl 15.1 of the MBA. Clause 15.1 of the MBA provided as follows:

All disputes in connection with this Agreement or the execution thereof shall be settled through amicable negotiations. In case no settlement can be reached through negotiation within sixty days after the date such negotiation was first requested in writing by a Party, the dispute shall then be submitted for arbitration in Singapore before Singapore International Arbitration Centre in accordance with its Arbitration Rules.

The Arbitration concerned only the termination of the MBA by Midea. The OEMA had been terminated earlier by Midea in August 2013 and was the subject of a separate arbitration for which a separate arbitral award dated 3 February 2017 had been issued.¹⁷

Tornado’s Notice of Arbitration included the following claims: It was agreed during the meeting on 26 November 2012 that the payment terms for future orders under the MBA and OEMA would be for 5% of the order to be paid via TT upon confirmation of the order and the remaining 95% to be paid by LC within 90 days from the date of each bill of lading (“the alleged Agreed Payment Terms”)¹⁸ The Termination Notice was invalid because (i) in issuing PI-1325, Midea had breached the alleged Agreed Payment Terms and but for Midea’s breach of the alleged Agreed Payment Terms, Tornado would have achieved the Annual Sales Target for 2013, (ii) Midea did not attempt good faith discussions with Tornado prior to issuing the Termination Notice, and (iii) Midea failed to give Tornado 60 days’ notice to remedy the alleged breach.¹⁹

In its statement of claim in the...