MGA International Pte Ltd v Wajilam Exports (Singapore) Pte Ltd

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 29 October 2010
• Neutral Citation: [2010] SGHC 319
• Court: High Court (Singapore)
• Docket Number: Suit No 545 of 2008
• Year: 2010
• Published date: 08 November 2010
• Hearing Date: 28 October 2010,12 January 2010,11 January 2010,31 March 2010,13 January 2010,14 January 2010,29 October 2010,18 January 2010,15 March 2010,15 January 2010
• Plaintiff Counsel: John Seow and Vellayappan Balasubramaniyam (Rajah & Tann LLP)
• Defendant Counsel: Wendy Tan and Charmaine Fu (Stamford Law Corporation)
• Citation: [2010] SGHC 319

Belinda Ang Saw Ean J: Introduction

The plaintiff, MGA International Pte Ltd (“MGA”), is a Singapore-incorporated company whose principal activity is log trading. The plaintiff’s Chairman and Managing Director, Gupta Mukesh (“Mukesh”), owns 30% of MGA’s issued capital and the remaining 70% is held indirectly by Mukesh and his wife through an Indian company called Shipra Ocean Trade Private Limited. The defendant, Wajilam Exports (Singapore) Pte Ltd (“Wajilam”), is in the business of wholesale trading in spices. It also trades in logs and provides trade financing to other log traders. Wajilam’s Managing Director is Tarun Chamanlal Mehta (“Tarun”).

Typically, MGA would finance its purchases of round logs by arranging for Wajilam, a third party, to use its bank facilities to apply for letters of credit. For present purposes, the action concerns and turns on the basis upon which Wajilam provided trade finance to MGA for its purchase of PNG round logs shipped onboard the “Marina I”. Counsel for both sides confirmed on the sixth day of the trial on 18 January 2010 that the narrow issue before the court relates to the quantum of Wajilam’s commission: the question of whether the commission should be the sum of US$376,477.67 or US$70,170.19 depends on what was the commission term upon which Wajilam provided trade finance to MGA. However, if the court rejects the opposing views of the parties, MGA’s argument is that a reasonable sum is to be paid as commission. I should mention that Wajilam does not object to the use of the word “commission” to refer to the remuneration for its services to MGA.¹ Wajilam’s objection was to being called a “commission agent”, which Wajilam insisted it was not. Therefore, in this judgment, for convenience, the word “commission” or “remuneration” is used interchangeably.

Overview

The plaintiff company, MGA, was incorporated in 2003 after Mukesh relocated to Singapore and became a permanent resident. As early as 1987, Mukesh imported logs from Malaysia to sell to buyers in India. According to Mukesh, Indian financial institutions generally issued “usance” letters of credit which would pose a problem for Muksesh as log suppliers in Malaysia wanted their sale to be based on “sight” letters of credit. To resolve this documentary credit mismatch, Mukesh would arrange for a third party to apply to its bank for letters of credit to finance his company’s purchases. In return, Mukesh would reimburse the third party for the value of the letter of credit, bank charges and, in addition, pay a commission for its finance services.

From 1987 until 2000, Mukesh would finance its purchases in the way described by arranging for either Trusha Impex Pte Ltd (“Trusha”), Tat Hin Timber Pte Ltd (“Tat Hin”), or Wajilam to open letters of credit in favour of his suppliers. During that time, besides Malaysian suppliers, Mukesh bought logs from suppliers in other regions like Africa, Solomon Islands, New Zealand, Russia, and Alaska. After 2003, Mukesh also obtained logs from Guyana and Papua New Guinea (“PNG”).

Between June 2006 and November 2007, MGA financed its purchases of round logs by arranging with Wajilam to apply to its bank(s) for letters of credits to be opened in favour of MGA’s suppliers (hereafter referred to as “the trade finance services”). The letters of credits opened in favour of suppliers named by MGA are hereafter referred to as “the import letters of credit” or “the import letter of credit” as the case maybe. It is common ground that the parties treated each and every finance transaction according to shipments as distinct and separate. Most of the shipments were for round logs of Sarawak origin while three other separate shipments were for logs from Guyana. The Marina I shipment was the only one involving round logs from PNG. MGA on its part, agreed to name Wajilam as beneficiary of the letters of credit or other documentary credits opened by its buyers in the India (“the export letters of credit” or “the export letter of credit” as the case maybe). In addition, any cash advances received by MGA from its Indian buyers would be directed to Wajilam. In providing the trade finance services to MGA, Wajilam would be able to discount the bills of exchange; and where necessary, Wajilam would have recourse against MGA as well as the buyers in India as acceptors of the bills of exchange. MGA on its part had also agreed to reimburse the amount of the import letter of credit and expenses connected with the opening of the import letter of credit including late payment interest at the rate of 12% per annum.

Although not expressly discussed, it was also understood that at the end of the finance transaction, Wajilam would prepare what was known as a “transaction statement”, setting out in detail, amongst other things, the following matters: the cash portion and the proceeds received by Wajilam under the export letter of credit; the amount paid under the import letter of credit; the expenses and disbursements that Wajilam had paid out in the course of the finance transaction which MGA was required to reimburse Wajilam; and the commission payable to Wajilam.

A typical transaction statement would enable both parties to reconcile their accounts after the completion of the transaction in order to determine who should pay whom and the exact amount to be paid.

It is common ground that the purchases of round logs were duly shipped and paid for by MGA under the respective import letters of credit. Hence, to clarify, this case is not about non payment of bills of exchange, documents against acceptance or other forms of documentary credit that had fallen due and went unpaid in respect of the export letters of credit.

Both sides understood, and there is no dispute, that Wajilam would be paid a commission for providing trade finance services to MGA. The present dispute is limited to the amount of commission to be paid (hereafter referred to as “the contractual claim”). MGA’s pleaded case is that commission was calculated by reference to the quantity of the logs bought and resold (ie, 14,034.038 cubic metres (“cbm”) which was in fact the actual quantity of logs shipped), and, based on the parties’ prior dealings, the rate of commission applicable to the subject transaction was US$5 per cbm. In response, counsel for Wajilam, Ms Wendy Tan (“Ms Tan”) argued that there was no agreed rate of commission as pleaded by MGA. Instead, it was an implied term of the contract between the parties that Wajilam had absolute discretion to decide its own remuneration or commission for providing trade finance services (this alleged term will hereafter be referred to as “the discretionary commission term”), and that was the basis upon which Wajilam had provided trade finance services. I noted that the evidence on the key issues as described was primarily oral. The persons involved in the negotiations for the financing of MGA’s purchases of round logs, in so far as it may be relevant, were Mukesh (on behalf of MGA) and Tarun (on behalf of Wajilam). The conversations between the two protagonists were not documented and much will turn on the oral testimony of both men. One additional thing to note is that, in this judgment, I have not referred to a large part of the evidence that was adduced before me because that evidence has no bearing upon the issues to be decided in this action.

The Marina I shipment of PNG round logs

The facts concerning the purchase of PNG round logs, which were shipped onboard the Marina I, are straightforward. In or about early June 2007, Mukesh spoke to Tarun about MGA’s purchase of 14,034.038 cbm of round logs of PNG origin from a Hong Kong company called Borion Enterprise Limited (“Borion”). The sale was initially on FOB terms and MGA as FOB buyer chartered the Marina 1 to carry the logs from PNG to India. The freight was approximately US$1.2m. According to Mukesh, MGA managed to raise only US$400,000 for the freight. Mukesh therefore began negotiations with Borion to change the terms of sale from FOB to CNF terms (with a corresponding increase of the price) so that Borion would bear the freight upfront. Borion eventually acceded to Mukesh’s request to sell the PNG round logs on CNF terms. As such, the purchase price for the PNG round logs was increased from US$4,882,275.16 to US$5,674,115.84 (which sum took into account the US$400,000 advance freight made to Borion). I note that there is no documented evidence before the court as to who paid the freight of US$400,000. Each party claimed to have paid US$400,000 freight to Borion. There is no dispute that the CNF letter of credit value is US$5,832,000.

As usual, Wajilam prepared the consolidated statement dated 14 November 2007 (the “sixth consolidated statement”) and sent it to MGA on the same date. Attached to it was a cash flow statement dated 6 November 2007 for the Marina 1 finance transaction. It showed to MGA’s credit, a cash surplus of US$998,500.18. This sum was derived from the proceeds of the export letter of credit in Wajilam’s favour. The consolidated statement showed the running account balance as of 11 September 2007 as being US$11,730.64 in favour of MGA. This figure of US$11,730.64 was arrived at after deducting from the cash surplus of US$998,500.18, (a) US$892,700.92 being the previous balance in favour of Wajilam, and (b) two other sums of US$78,000 (for a payment made on behalf of MGA by Wajilam on 15 August 2007) and US$16,068.62 (interest on the running balance from 19 July until 11 September 2007). Notably, there was no entry showing Wajilam’s commission for the Marina 1 finance transaction in the sixth consolidated statement.

Two weeks later, on 28 November 2007, Agarwal Soham Ghanshyam (“Soham”) (he is now the Assistant Vice-President of MGA), sent Wajilam an e-mail with a consolidated statement (the “seventh consolidated statement”) attached to it. (At the material time, Soham...