Parfums Rochas SA and Others v Davidson Singapore Pte Ltd and Another

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 02 March 2000
• Neutral Citation: [2000] SGCA 11
• Date: 02 March 2000
• Subject Matter: Whether termination wrongful,Implied term,Quantification of damages,Whether fresh breaches justifies termination,Assessment,Net loss,Construction of terms,Damages,Repurchase of unsold stock upon termination,Contract,Various alleged breaches of contract,Proof of profit margin,Termination,Deduction of shortfall in advertising and promotion expenditure,Method of assessment when loss not quantifiable,Whether party who does not expressly reserve right to terminate taken to have affirmed contract,Discharge,Distribution agreement,Affirmation,Wrongful termination,Extent of distributors' obligation to repurchase unsold stock,Duration of agreement
• Docket Number: Civil Appeal No 142 of 1999
• Published date: 19 September 2003
• Defendant Counsel: Darshan Singh Purain and Harpal Singh Bajaj (Darshan & Teo)
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: Harpreet Singh Nehal (Drew & Napier)

(delivering the judgment of the court): In this case, the appellants appealed against the decision of the learned trial judge, who ordered them to pay damages to the respondents, the distributors of their products, for wrongful termination of the distribution agreement, and to take back certain unsold products from the respondents.

A Background

The first appellants, a French company, the second appellants, another French company, and the third appellants, a German company, are part of the Wella AG group of companies. Their products include Gucci, Rochas and Charles Jourdan perfumes and cosmetics. The first respondents, a Singapore company, and the second respondents, a Malaysian company controlled by the first respondents, are distributors of perfumes and cosmetics for various international companies, including the three appellants.

On 1 July 1993, the first appellants appointed the first respondents as their distributor in Singapore and the second respondents as their distributor in Malaysia. The appointments were made under separate but similar agreements (both hereinafter referred to as the `Rochas agreement`). The contract was for three and a half years and had detailed provisions concerning the respondents` obligations for minimum purchases, payment for goods ordered, advertising and promotion expenditure and reporting. There were also detailed provisions on the termination of the contract and obligations in respect of unsold inventory following the termination of the contract.

In 1995, the Wella group of companies decided to appoint a common distributor in Singapore and Malaysia for all the three appellants` products. After an exchange of letters on or about 20 June 1995, agreement was reached between the appellants and the respondents with respect to the appointment of the respondents as the common distributor. The material terms of the agreement, according to these letters, included the following:

(a) The respondents were appointed as the exclusive Wella fragrances distributor for Singapore and Malaysia.

(b) In addition to the contractually agreed spending (15% of the net wholesale sales) for advertising and promotion, the respondents were required to spend an additional S$300,000 (referred to as `extra-marketing expenses`, over-investment or `over-expenditure`) for marketing, counters, sales promoters and advertising over a period of 36 months from the commencement of the distributorship agreement..

(c) The duration of the agreement was for an initial period of three years and an `automatic renewal` for two years.

(d) The first respondents agreed to take over and pay for the saleable existing stock of the appellants` former distributor.

It is important to note at this juncture that it was accepted by the learned trial judge that in view of the history of the matter and the pre-existing relationship of the parties, it must have been intended that the general terms of the earlier Rochas agreement between the first appellants and the respondents, such as those concerning credit terms for orders, grounds of termination, advertising and promotion and submission of reports by the distributor, were applicable to this new distribution agreement between the appellants and the respondents.

Problems between the appellants and the respondents soon surfaced. From the middle of 1995, the respondents were habitually slow in paying for their purchases. According to the terms of the Rochas agreement, payment was to be settled within 90 days from the date of the invoice. By February 1997, the first respondents` arrears totalled around FF2.152m for Rochas and Scannon products. As at 12 February 1997, the second respondents` arrears totalled around FF257,000. The appellants` patience was severely tested by the respondents` failure to pay on time.

The appellants also alleged that the respondents were in breach of other aspects of the Rochas agreement. The alleged breaches included the following:

(a) failing to spend the contractually agreed amounts for advertising and promotion;

(b) failing to furnish specified regular reports on monthly sales figures, stock inventory and advertising and promotion expenditure;

(c) failing to meet their agreed minimum annual purchase of products;

(d) failing to preserve and/or promote the image of the appellants` products.

On 12 February 1997, the appellants wrote to the first respondents and proposed that the amount owed to them be settled in four instalments. Faced with the threat of suspension of further supplies, the respondents agreed but only paid two of the instalments. As at 13 June 1997, around FF1.89m was still outstanding. The appellants also claimed that as at 12 June 1997, the second respondents owed them FF979,175.05.

The settlement agreement

On 13 July 1997, a settlement agreement was reached between the appellants and the first respondents. The settlement agreement provided as follows:

a The first respondents were to repay 80% of the outstanding amounts due to each of the three appellants in three monthly instalments starting from 29 July 1997. The remaining 20% was to be paid in three monthly instalments starting from 29 October 1997.

b For as long as 80% of the outstanding amount remained unpaid, all fresh orders by the first respondents were to be paid for in full via telegraphic transfer or irrevocable documentary credit, and the total amount of goods ordered in any month should not exceed FF80,000, out of which the total order for `Gucci Envy`, a fragrance for men, should not exceed FF50,000. Furthermore, the first order was not to be made until after the first instalment had been paid.

c Once 80% of the outstanding amount had been paid, the first respondents could order up to FF300,000 worth of products on the pre-existing 90-day settlement terms. The appellants would also discuss with the first respondents the terms for the eventual replacement, return or destruction of the latter`s remaining unsold stock.

d Once all of the outstanding amounts were paid, all the foregoing restrictions would be lifted and payment terms would be on the usual 90 days` settlement terms.

The first respondents took the view that the settlement also governed the appellants` relations with the second respondents, a view not shared by the appellants. In any case, on 10 July 1997, the second respondents` manager proposed a separate rescheduling of the outstanding amounts due to the second and third appellants in three instalments respectively. He also requested the third appellants to ship their orders for Gucci products upon payment of the first instalment. This proposal was apparently accepted as it was agreed that upon payment of the first instalment to the third appellants, `Gucci Envy` would be shipped but a limit of FF30,000 worth of orders per month was imposed. This was consistent with the approach taken under the settlement agreement with the first respondents. By 20 September 1997, the second respondents had settled the bulk of the amount owed to the third appellants.

The termination notices

Apparently, the appellants were still dissatisfied with the respondents` performance of their contractual obligations after the settlement agreement and the respondents` new orders for goods were not met. On 8 October 1997, the three appellants each sent separate and identical letters to the first respondents to terminate the distributorship agreement with effect from 31 December 1997. Similar letters were also sent to the second respondents. No reasons for the termination were furnished in the said letters, which merely stated as follows:

We hereby give you formal notice of termination of the distribution relationship existing between our company ... and your company ...

The termination will be effective on 31 December 1997, and therefore all dealings between our company and yourselves will cease on that date ...

Subsequently, the first and second respondents each received a letter dated 17 October 1997, which stated as follows:

After having considered your past practices, your conduct to date, as well as the subsequent situation of our distribution network and the important damages already suffered by our brands ..., and after having also reviewed the terms of the written distributorship agreement of December 1993 between ROCHAS and yourselves, our companies Rochas, Muelhens and Scannon are of the view that they are no longer obliged to deliver any further products to you.

We are therefore instructed that Rochas, Muelhens and Scannon will not be delivering any further products to you henceforth.

In the letter to the first respondents, the appellants also alleged that the first respondents seriously breached the settlement agreement by placing an order for FF80,000 worth of Gucci products without paying for the goods ordered.

The appellants appointed a new Gucci distributor, namely, Prestige Products Distribution. New price lists were issued by Prestige to the first respondents` outlets. The price lists were stated to be `effective November 1997`.

The timing of the termination of the distribution agreement was unfortunate for the respondents as they had looked forward to increased sales during the forthcoming Christmas season. Faced with the termination of their distribution agreement, the first respondents conducted a warehouse sale of the appellants` products at their own premises at Peace Centre from 28 October 1997 to 8 November 1997. This sale was advertised by the distribution of leaflets to pedestrians. The appellants alleged that this warehouse sale damaged their reputation and gave them an additional ground to terminate their distribution agreement with the first respondents. Their solicitors duly issued another notice of termination on 11 November 1997.

The suits

On 16 May 1998, the first respondents initiated proceedings against the appellants and claimed, inter alia, damages for...