Out of the Box Pte Ltd v Wanin Industries Pte Ltd

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 06 February 2013
• Neutral Citation: [2013] SGCA 15
• Date: 06 February 2013
• Docket Number: Civil Appeal No 61 of 2012
• Published date: 13 February 2013
• Plaintiff Counsel: Kesavan Nair (Genesis Law Corporation)
• Hearing Date: 17 October 2012
• Defendant Counsel: Aqbal Singh (Pinnacle Law LLC)
• Court: Court of Appeal (Singapore)
• Subject Matter: Remedies,Contract,Remoteness of damage

Sundaresh Menon CJ (delivering the grounds of decision of the court): The Facts

The appellant company, Out of the Box Pte Ltd (“OOTB”) is in the business of marketing and distributing beverages. Sometime in early 2007, OOTB conceptualised and developed a new sports drink that it called “18 for Life” (“18”). OOTB appeared to have a particular focus on media services in the golfing industry. This might account for the choice of the name for the new drink, evoking the number of holes played in a typical game of golf. OOTB had high hopes for their new beverage and seemed to contemplate that it might emerge as a major brand. Perhaps because of its background in marketing, distribution and media, OOTB’s efforts to realise its considerable ambitions for 18 were channelled into marketing and advertising the new beverage. These efforts appear not to have been matched by a similar level of industry in the formulation, design or manufacture of the beverage itself. In fact, OOTB sub-contracted that entire responsibility to the respondent company, Wanin Industries Pte Ltd (“WI”).

The parties entered into a Contract Manufacturing Agreement (“the Contract”) on 11 June 2008. For all of OOTB’s ambitions for 18, the Contract was a remarkably simple document. It was a little more than a page in length. Under it, OOTB agreed: to accept the price of $10.50 per carton of 18; to pay a sum of $15,000 for the production of a mould; to pay $200 “per color for production of cylindrical drum for the labels”; to pay in advance for the quantity ordered; and to order at least one trailer load of 18 and to be responsible for unloading the goods. On its part, WI agreed to supply 18 for at least two years. WI also agreed to “[a]ccept the return of defective product but with substantiate evidence [sic]”, and to fulfil orders in a timely manner. Lastly, WI agreed to offer OOTB a special price of $10.30 per carton for the first 4,000 cartons ordered.

In short, there was almost no capital investment by OOTB to speak of; nor was there any sign of OOTB establishing any manufacturing capacity in respect of the beverage. Moreover, aside from the payments to be made for the mould and the production of the cylindrical drum, the extent of OOTB’s obligation under the Contract was to purchase 1,200 cartons of 18 (this being the equivalent of one trailer load) at a price of $10.30 per carton. This translated into a committed outlay on OOTB’s part of $12,360.

There was no particular quality specification or recipe. Such was the scant nature of the Contract. There was certainly nothing in the Contract that would have given WI any indication or hint of OOTB’s grandiose plans and ambitions for 18. Nonetheless, OOTB embarked on an aggressive marketing campaign to advertise 18.

Sometime in 2008, a shipment of 18 supplied by WI changed colour. On inspection, the bottled drink was also found to be contaminated with insects. This was a disaster for OOTB’s plans. As a result, OOTB had to recall all stock of 18 from the market. The Agri-Food and Veterinary Authority of Singapore (“AVA”) also issued a consumer advisory informing the public that all stock of 18 had been recalled and warning them against consuming any 18. The 18 brand was, without question, damaged beyond repair. OOTB therefore abandoned its marketing campaign and discontinued the planned venture altogether.

On 22 April 2009, OOTB commenced Suit No 317 of 2009 against WI for breach of the Contract. On 9 September 2009, the High Court granted summary judgment in favour of OOTB and ordered WI to pay damages to be assessed. WI appealed unsuccessfully against the High Court’s decision to grant summary judgment and the matter then proceeded to the assessment of damages.

At the assessment of damages, OOTB claimed “reliance damages” amounting to $779,812.30. These were expenses that OOTB said it had incurred in reliance upon the Contract and which had been wasted as a consequence of WI’s breach. The bulk of the expenses claimed by OOTB were advertising costs. The Assistant Registrar (“the AR”) assessed OOTB’s damages in the sum of $655,280.70. The AR made some adjustments to the value of the two largest components of OOTB’s claims: firstly, the use of some advertising credits that belonged to OOTB and which it had used to promote 18 (“the ActMedia expenses”) and secondly, the redemption of a prize it had won for an advertising campaign that it had earlier conducted for an entirely unrelated line of products (“the Clear Channel expenses”).

WI appealed and OOTB cross appealed against the AR’s decision. The High Court judge (“the Judge”) who heard the two Registrar’s Appeals allowed WI’s appeal in part and held that OOTB had not adequately proven its loss in respect of the ActMedia expenses and the Clear Channel expenses. The Judge held in Out of the Box Pte Ltd v Wanin Industries Pte Ltd [2012] 3 SLR 428 at [9] that: 9 There was no evidence that the value of the relevant services was commensurate with their “sticker” price. This was because the latter could have an element of arbitrariness depending on the balance of the advertising credits remaining at the time that they were used (which [OOTB] had to utilise fully or else allow to lapse). Notwithstanding that uncertainty, it is [OOTB’s] responsibility to provide some means of gauging the extent of its loss. [OOTB] must satisfy the court both as to the fact of damage and as to its amount, or else be awarded nominal damages at most. Furthermore, it is for [OOTB] to prove that the expenses claimed would be recouped on the balance of probabilities. Due to the ill-defined nature of [OOTB’s] loss, the current situation is not one which justifies the imposition of the burden on [WI]. Taking into account [OOTB’s] inability to provide the necessary evidence, I disallow its claim for the Act Media and Clear Channel expenses.

[emphasis added]

The Judge awarded OOTB nominal damages of $1,000 each in relation to the ActMedia expenses and the Clear Channel expenses essentially on the basis that OOTB had not sufficiently proved the quantum of the loss. However, the Judge affirmed the other components in the AR’s award of damages. The net result of the appeal was a reduction of the AR’s award to $329,254.30. OOTB appealed against the decision of the Judge to award only nominal damages for the ActMedia expenses and the Clear Channel expenses. This was the sole issue before us as WI did not appeal against that part of the Judge’s decision affirming the other heads of OOTB’s claim. After hearing the arguments, we dismissed the appeal. We now give our reasons for doing so. In essence, as it became evident in the course of the oral arguments, OOTB’s claimed heads of damages were too remote in our judgment.

The applicable law

In Photo Production Ltd v Securicor Transport Ltd [1980] 1 AC 827, Lord Diplock explained that for every breach of contract that sounds in damages, the contract breaker’s primary responsibility to perform the contract is replaced by a secondary responsibility to pay damages (at 848–9):

Leaving aside those comparatively rare cases in which the court is able to enforce a primary obligation by decreeing specific performance of it, breaches of primary obligations give rise to substituted or secondary obligations on the part of the party in default, and, in some cases, may entitle the other party to be relieved from further performance of his own primary obligations. …

Every failure to perform a primary obligation is a breach of contract. The secondary obligation on the part of the contract breaker to which it gives rise by implication of the common law is to pay monetary compensation to the other party for the loss sustained by him in consequence of the breach; but, with two exceptions, the primary obligations of both parties so far as they have not yet been fully performed remain unchanged. …

[emphasis added]

However, the secondary obligation to pay damages is not an unlimited liability. In broad terms, once the threshold of showing that the damages are causally connected to the breach has been crossed, a prima facie liability to pay damages arises. However, there are some limits to the extent of such prima facie liability. Causation alone will not suffice, since many things can be said to be “caused” by a particular event in the sense that if the event had not transpired then the ends in question might not have ensued. Therefore, in any given case causation is a necessary but not a sufficient condition for the imposition of liability on the contract breaker.

There are at least two limitations on the extent of a contract breaker’s liability for damages. The first is where the parties have expressly agreed to allocate the risk of certain losses in their contract, for instance by way of exclusion or limitation provisions. By such clauses, the parties might agree that the contract breaker will not be liable at all for certain types of loss or that it will not be liable beyond a certain quantum of loss. But there are limits to human foresight. This, coupled with the optimism that frequently accompanies the conclusion of many a contract, means that often, parties do not specifically address their minds to the question of damages or more generally of remedies at the time they enter into the contract.

It then becomes necessary to examine whether the second type of limitation applies: that is where the law imposes limits on the extent of the contract breaker’s liability by rules that help a court decide whether the particular type of damages claimed is too remote and hence irrecoverable. The rules as to remoteness of damage serve to impose a horizon on the extent of the contract breaker’s liability. Losses that are within this notional boundary are in principle recoverable while those beyond it are not. But although this horizon is not illusory, equally it is not a rigid or empirically...