Sports Connection Pte Ltd v Deuter Sports GmbH

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 01 June 2009
• Neutral Citation: [2009] SGCA 22
• Docket Number: Civil Appeal No 114 of 2008
• Date: 01 June 2009
• Year: 2009
• Published date: 04 September 2009
• Plaintiff Counsel: Francis Xavier SC, M Reza, Tang Hui Jing (Rajah & Tann LLP), Shahiran Ibrahim (Samuel Seow Law Corporation)
• Citation: [2009] SGCA 22
• Defendant Counsel: Aqbal Singh, Josephine Chong (UniLegal LLC) respondent
• Court: Court of Appeal (Singapore)
• Subject Matter: Breach,Non-competition clause was not a condition,Contract,Whether breach was sufficiently serious so as to permit innocent party to terminate contract,Breach of non-competition clause,Damages,Remedies,Award and calculation of damages when both parties were in breach

1 June 2009 Judgment reserved.

Andrew Phang Boon Leong JA (delivering the judgment of the court):

Introduction

1 This is an appeal against the decision of the trial judge (“the Judge”) in Suit No 280 of 2005 (see Sports Connection Pte Ltd v Deuter Sports GmbH [2008] SGHC 109 (“the GD”)). In his decision, the Judge dismissed the claim of Sports Connection Private Limited (“the Appellant”) against Deuter Sports GmbH (“the Respondent”) for wrongful termination of a letter of agreement dated 28 November 2002 (“the Distributorship Agreement”). The Judge also granted interlocutory judgment in favour of the Respondent with respect to its counterclaim for breach of the Distributorship Agreement, with damages to be assessed.

The parties

2 The Appellant is a Singapore company that engages in the import, export, retail and wholesale of both local and foreign brands of backpacks as well as other outdoor, camping and athletic products. The Respondent is a well-known German-registered company that engages in the manufacture, export and sale of backpacks and outdoor products under the “Deuter” trade mark. From 1992 to 27 January 2005, the Appellant was the exclusive distributor of Deuter products in Singapore, as well as other countries in the region. During this period, both the Appellant and the Respondent entered into a number of written agreements.

Background facts

3 In a letter of intent dated 25 May 1995 (“the 1995 Letter”), the Respondent expressed its intention to use the Appellant as its “sole distributor” of Deuter backpack products “in Singapore and Malaysia for three years”.^{[note: 1]} The 1995 Letter also stipulated that it should “be the intent of [the Appellant] to place all orders directly with [the Respondent], advertise and promote Deuter packs and place preseason orders”.

4 The parties entered into another agreement in December 1999 (“the 1999 Agreement”), which gave the Appellant “exclusive rights to distribute Deuter products in Brunei, Indonesia and Thailand” for a period of three years, beginning on 1 January 2000 and ending on 31 December 2002.^{[note: 2]} The 1999 Agreement also stated:^{[note: 3]}

During this time [the Appellant] shall make every effort to promote and sell the Deuter products to achieve market penetration and high quality brand positioning. Each year (or more often if appropriate) both parties agree to an annual meeting to discuss the progress and business strategies in these markets.

An addendum to the 1999 Agreement (“the 1999 Agreement Addendum) was entered into on 29 March 2001 to expand the Appellant’s exclusive distributorship of Deuter products to “Singapore, East/West Malaysia, Thailand and Brunei”. In the 1999 Agreement Addendum, the Respondent also agreed to the following:^{[note: 4]}

[The Respondent] agrees not to directly or indirectly execute any conflicting business with the current staff of [the Appellant] during their employment or within a period of two (2) years after their employment.

5 The parties entered into another agreement on 28 November 2002, ie, the Distributorship Agreement (see [1] above). Pursuant to the Distributorship Agreement, the Appellant was given “exclusive rights to distribute Deuter products in Singapore, East/West Malaysia, Brunei, Thailand and Indonesia” for a period of three years, ending on 31 December 2005. Both parties also, for the first time, agreed upon a non-competition clause which stated that “[p]roducts which are in competition with Deuter range of products may not be sold by [the Appellant] without prior written consent from [the Respondent]” (“the Non-Competition Clause”). The Judge accepted that there was an “understanding” between the parties that the Non-Competition Clause in the Distributorship Agreement would not be activated if the Appellant purchased US$1m worth of Deuter products annually (“the Purchase Target”). This understanding is not in dispute between the parties for the purposes of the present appeal.

6 For the sake of completeness, and because this is a crucial document, we set out the body of the Distributorship Agreement in full:^{[note: 5]}

Beginning January 1^st, 2003, and for the next three years we hereby agree to give [the Appellant] the exclusive rights to distribute Deuter products in Singapore, East/West Malaysia, Brunei, Thailand and Indonesia.

During this time [the Appellant] shall make every effort to promote and sell the Deuter products to achieve market penetration and high quality brand positioning. Each year (or more often if appropriate) both parties agree to an annual meeting to discuss the progress and business strategies in these markets.

Products which are in competition with Deuter range of products may not be sold by [the Appellant] without prior written consent from [the Respondent].

[The Respondent] agrees not to directly or indirectly execute any conflicting business with the current staff of [the Appellant] during their employment or within a period of two (2) years after their employment termination.

This agreement continues until December 31^st, 2005 and can be renewed, with signed confirmation, for continuous distribution rights no later than one month prior to this date. This agreement can be terminated by consent of both parties or if there is an essential change in the running of or financial situation of one of the businesses, which has the effect of influencing the results which the other party could legitimately expect from the execution of this agreement.

It is the intention of both parties to work together for the next three years towards a mutually beneficial business relationship.

[emphasis added]

7 The relationship between the Appellant and the Respondent continued pursuant to the Distributorship Agreement until 2004, when cracks (unfortunately) began to develop in it. On the evidence, there were three main reasons why the relationship started to sour. First, the Respondent viewed the Appellant’s discounting of Deuter products over a period of time as excessive. Second, the Respondent was unhappy that there had been a reduction of the Appellant’s wholesale business from 500 retailers’ accounts to 50 retailers’ accounts. Finally, the Respondent took issue with the Appellant’s sale of competing products in its retail stores.

8 Consequently, there was a lengthy exchange of e-mails between Mr Terry Yee (“Mr Yee”), the Appellant’s managing director, and Mr William Hartrampf (“Mr Hartrampf”), the Respondent’s export manager, between 18 November 2004 and 20 January 2005. Both parties endeavoured to settle their differences, and, subsequently, on 17 January 2005, an amendment to the Distributorship Agreement (“the Amendment Agreement”), which was agreed to take effect from 28 November 2002, was entered into. Pursuant to the Amendment Agreement, the Appellant agreed “not to publicly advertise any discount on Deuter products” and that “[a]ny public advertisement to discount Deuter products can be made only after receiving prior written consent from [the Respondent]”.^{[note: 6]}

9 In this regard, Mr Hartrampf confirmed during cross-examination that the Amendment Agreement had indeed resolved the disputes between the parties relating to the discounting of Deuter products and the reduction in the number of retailers’ accounts. It is, therefore, common ground (and, in fact, undisputed) that these two issues cannot be used by the Respondent as grounds for the termination of the Distributorship Agreement. Indeed, the Judge held that the discounting of Deuter products by the Appellant prior to the Amendment Agreement could not have been a breach of the Distributorship Agreement. The Judge further held that the Respondent could not rely on the discounting issue to terminate the Distributorship Agreement as the Amendment Agreement had settled and resolved the parties’ differences pertaining to this particular issue. Indeed, we are of the view that the evidence fully supports the Judge’s findings with regard to both these issues.

10 Accordingly, and this is not disputed by the parties in the present appeal, the sole remaining ground which the Respondent can rely on in order to terminate the Distributorship Agreement is the Appellant’s sale of competing products in its retail outlets in breach of the Non-Competition Clause (see [5] above). That said, the following are, in fact, the more significant e-mails which were exchanged between the parties on the remaining issue relating to the sale of competing products.

(a) E-mail from Mr Hartrampf to Mr Yee, dated 11 December 2004:^{[note: 7]}

Dear Terry [ie, Mr Yee],

Paragraph 3 of [the Distributorship Agreement] says: “Products which are in competition with Deuter range of products may not be sold by [the Appellant] without prior written consent from [the Respondent].” We have never given you written consent to sell competing products.

For many years you have achieved nearly U$1.0 million in annual purchases. This year (2004) your current purchases plus pending shipments amount to U$750,000. In your Dec.3rd e-mail you propose for 2005 another drop to $500,000. One of the reasons must be because you are carrying so many competing products from the above mentioned brands.

We have hydration packs, big sized packs like 50, 60, 70, 80L packs, accessories, ladies bags and trolley bags. (See Deuter catalog). Please, confirm with a fixed date when you [will] stop selling the competing products from: Osprey, Eagle Creek, Camelbak, High Sierra, Cerro Torre, Outdoor Products, Vertikal, Urban Equipment and Overland.

Regards, Bill [ie, Mr Hartrampf]

[emphasis added, underlined emphasis in original]

(b) E-mail from Mr Yee to Mr Hartrampf, dated 16 December 2004:^{[note: 8]}

Dear Bill,

I don’t deny, what you alleged here. It is more true in Martin’s days compared to now, since I don’t practise duplication of goods.

Can you spare Eagle Creek and High Sierra, once I confirm dropping Osprey and CamelBak? I hope so, since there is no U$500,000 intention, as...