Sharon Global Solutions Pte Ltd v LG International (Singapore) Pte Ltd

• Jurisdiction: Singapore
• Judge: Kan Ting Chiu J
• Judgment Date: 20 June 2001
• Neutral Citation: [2001] SGHC 139
• Citation: [2001] SGHC 139
• Defendant Counsel: Vinodh Coomaraswamy and Chua Sui Tong (Shook Lin & Bok)
• Published date: 19 September 2003
• Plaintiff Counsel: P Suppiah and K Elangovan (P Suppiah & Co)
• Date: 20 June 2001
• Docket Number: Suit No 815 of 2000
• Court: High Court (Singapore)
• Subject Matter: Whether good and sufficient consideration provided,Whether plaintiff's declaration amounts to legitimate notice of its inability to perform or an illegitimate threat,Consideration,Threat to break contract,Performance of existing duty,Whether threat amounts to economic duress,Duress,Contract,Defence in formative stages of development,Economic

JUDGMENT:

Grounds of Decision

1. This is a case of a venture which started in hope and ended in acrimony. The plaintiff is a small Singapore company with no significant record or assets. The defendant which is also incorporated in Singapore, is a wholly owned subsidiary of a substantial conglomerate, LG International Corporation ("LG Group") of Korea.

2 The two parties had not engaged in business with one another before. They came together after the defendant rented part of its office premises to a company Oberthur Card Systems Pte Ltd run by Cheong Chung Chin, whose wife is a shareholder of the plaintiff company. Cheong represented to the defendant that someone in the plaintiff company was experienced in the trade of Indian steel products.

3. The person in question is Kamalraj Johnson, the plaintiff’s managing director. He knew of a Venezuelan steel mill Venezolana de Prerreducidos Caroni CA ("Venprecar") which produces Hot Briquette Iron ("HBI"). Eventually Johnson and the plaintiff’s general manager Kim Young Jin agreed to co-operate to purchase HBI from Venprecar and to supply it to Pohang Iron and Steel Company Co Ltd ("POSCO") of Korea. POSCO is a large steel mill and an important customer LG Group. LG Group and POSCO have a long trading relationship and substantial amounts of coal and finished steel products are transacted between them.

4. The defendant was looking to expand its business with POSCO to cover HBI. Both the plaintiff and the defendant were anxious that the transaction with POSCO succeeded. The defendant informed the plaintiff that the performance of the agreement was of great commercial importance to it. The plaintiff in turn informed the defendant that the most important consideration was to secure the order from POSCO and obtain an opening into Korea for HBI, and that it was proceeding with the deal although it was not going to make any money from it.

5. The scheme was that when POSCO confirmed its interest, the plaintiff would purchase the HBI from Venprecar. The plaintiff would then sell the HBI to the defendant which would in turn enter into a back-to-back agreement to sell the HBI on to POSCO.

6. In these proceedings, we are concerned with the agreement of 17 July 2000 between the plaintiff and the defendant, the agreement of 24 July between the defendant and POSCO and most crucially an agreement of 12 August which the plaintiff and the defendant signed to prevent the whole venture from collapse.

7. The salient terms of the agreement of 17 July are

Article :01: Product, Quantity, Price and Packing

Product : Hot Briquette Iron

…

Quantity : 35,000 metric tonnes max.

…

Price : US$112.00 per MT and freight (free out)

Port Pohang/Kwangyang, South Korea

Contract Value: US$3,920,000.00 (United States Dollars Three Millions Nine Hundred And Twenty Thousand only)

Shipment : By 15th August 2000

and

Article :20: Penalty/Claims:

In the event of non-delivery, seller is deemed to have defaulted on the Contract. In that case, the seller will compensate the buyer with an amount not exceeding 2% of the contract value for which a performance bond will be issued. If the shipment is not effected by 15^th August 2000 the seller agrees to pay a penalty to the extent of 0.25% of the invoice value per day of delay from 16^th August 2000 subject to a maximum of 5% of the invoice value.

8. In the agreement with POSCO, the defendant sold the same HBI to POSCO at US$114 per metric ton. The goods were to be shipped in the first half of August. Clause 4.1 of the General Provisions of the agreement provided that the defendant was to furnish POSCO with the particulars of the vessel at least 7 days before the scheduled time of shipment.

9. I shall refer to the terms of the agreement of 12 August and the circumstances in which it was executed later.

10. Before these agreements were signed, the parties had discussions on the project, and the cost of shipment and chartering of vessels were discussed early and regularly.

11. On 20 June, when sale to another Korean company was being considered, the plaintiff informed the defendant that there were offers of US$18 per metric ton. In subsequent communications Johnson regularly updated Kim on the securing a vessel. On 12 July he informed the defendant that "vessel particulars are available with me which we propose to confirm in a day or two", naming the vessel Felicity I. On 17 July he informed Kim that he had decided to go for a vessel of less than 20 years and will finalise the details of the vessel (the Felicity I was older than 20 years).

12. After the execution of the agreement of 17 July Johnson assured Kim on 18 July that he was confident to have the vessel within 2 days and on 20 July he promised to supply the defendant with the particulars of the vessel.

13. Johnson had in fact not secured any vessel and had been less than candid when he made those assurances. He was not conversant in chartering vessels. He relied on shipbrokers he had not used before, but did not instruct them to take firm steps to get a commitment on any vessel. On 21 July he admitted that he had made no progress on a newer vessel, and was turning his attention back to the Felicity I, but by 26 July the Felicity I was still not secured.

14. On his own evidence serious questions arose over Johnson’s competence in handling the matters. However the evidence fell short of bad faith, and in any event, bad faith did not form any part of the defendant’s pleaded case.

15. As time went on, the defendant became anxious over its ability to fulfill its obligation to POSCO to confirm a vessel at least 7 days before the scheduled shipment in the first half of August.

16. By 28 July Kim suspected that the plaintiff was not able to secure a vessel at US$18 a metric ton, and informed Johnson the defendant was not in a position to terminate the transaction because LG Group had a lot of other business with POSCO, "(w)e have mind to share freight with you."

17. On the following day at a meeting between Kim, Mr Huh Yeon Soo the defendant’s managing director and Cheong, Kim told Cheong that "the defendant was willing to assist and was even willing to consider sharing in the cost of increased freight."

18. No progress was made despite the offer. By 3 August, Johnson was still trying in vain to secure a vessel and the defendant despaired at losing credibility with POSCO and at not being allowed to participate in future tenders.

19. By 8 August when the time to nominate a vessel to POSCO was running out, the plaintiff had still not secured a vessel. The parties met twice on that day to find a solution. The first meeting at the plaintiff’s office in the afternoon ended in acrimony without result.

20. A second meeting took place at the plaintiff’s office that night. Kim recounted the events of that meeting in his affidavit of evidence-in-chief -

85. The meeting lasted between 3 to 4 hours. I recall that it was past midnight when an agreement was finally reached. At the meeting, Cheong and Johnson informed us that the Plaintiff had finally managed to locate a vessel for charter but that the cost of freight was US$27.50 per MT. This represented a substantial increase of US$9.50 per MT from the original cost of US$18.00 per MT.

86. We were then told by Cheong and Johnson that, unless the Defendant agreed to compensate the Plaintiff by sharing the increased cost of freight, the Plaintiff would refuse to confirm the charter of the vessel. They stated clearly that the Plaintiff was ready to default on its obligations under the Agreement.

87. Mr Cheong and Johnson both stated explicitly that they were willing for us to penalise them under the Performance Bond. This was despite us informing them repeatedly that we could not, in light of our existing relationship with POSCO, breach our obligations to POSCO.

…

89. In addition, Cheong and Johnson unreasonably insisted that the Defendant’s share of the increased freight cost should be US$5.50 per MT. This meant that the Plaintiff would only have to bear US$4.00 per MT notwithstanding the fact that the present difficulties were purely of the Plaintiff’s own making.

…

93. It gradually became clear that the only way the Defendant could ensure the Plaintiff’s performance of the Agreement was to agree to the Plaintiff’s demands for compensation, however unreasonable. There was simply no reasonable alternative open to the Defendant. Given that loading had to be completed by the 1^st half of August 2000 (i.e. by 15 August 2000), there was not enough time for the Defendant to secure an alternative vessel. There was also not enough time for the Defendant to seek alternative suppliers of the HBI given the relative scarcity of HBI in the open market and the fact that the Defendant was new to the trade in HBI.

94. Further, any failure on the part of the Defendant to perform its obligations under the POSCO consequences (sic) would have serious commercial consequences. It would also have affected the Defendant’s reputation and standing with its parent company in South Korea, LG Corp. I verily believe that Cheong and Johnson were well aware of the pressure faced by the Defendant to successfully perform the POSCO Agreement and that they used this to their advantage by demanding for compensation from the Defendant.

…

98. It was only after Mr Huh had agreed to the Plaintiff’s demands that steps were taken by Johnson to confirm the vessel. …

21. A little more of the meeting came out during the cross-examination of Johnson when he was referred to Kim’s affidavit

Q: Para 86 – did you and Cheong inform the Defendants that?

A: Yes. It was the Defendants from 28/7 advising us that they had the mind to share the freight. They are a big company and the Plaintiffs cannot absorb the gap. I cannot bear the $27.50 alone. I wanted to fix the Felicity.

Q: You said you intended to honour your obligations regardless the amount of...