Valency International Trading Pte Ltd v Alton International Resources Pte Ltd

• Jurisdiction: Singapore
• Judge: Jordan Tan AR
• Judgment Date: 03 March 2011
• Neutral Citation: [2011] SGHC 50
• Court: High Court (Singapore)
• Docket Number: Suit No 196 of 2010/N (Summons No 302 of 2011/Y)
• Published date: 04 March 2011
• Year: 2011
• Hearing Date: 18 February 2011
• Plaintiff Counsel: Srivathsan A/L Dr R Rajagopalan (Haridass Ho & Partners)
• Defendant Counsel: Toh Kian Sing SC, Ting Yong Hong and Teo Ke-Wei Ian (Rajah & Tann LLP)
• Subject Matter: Civil Procedure,Contract
• Citation: [2011] SGHC 50

Jordan Tan AR: Introduction

This is an application by the defendant to strike out the plaintiff’s statement of claim under Order 18 rule 19 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) on the ground that the plaintiff’s claim is frivolous and vexatious as well as an abuse of the process of the Court. The defendant’s counsel, Mr Toh Kian Sing SC, says this is so because the plaintiff’s claim is obviously unsustainable.

The plaintiff’s claim

The plaintiff’s pleaded case is as follows. Through email correspondence, the parties entered into an agreement on 27 July 2009 for the defendant to sell to the plaintiff 65,000 metric tonnes (more or less 10% at the defendant’s option) of iron ore fines at US$86 per dry metric ton, with a laycan period from 1 to 10 August 2009. To record the terms of this agreement, the plaintiff forwarded a formal purchase contract to the defendant. There was, however, an error in this document. It stated that payment was to be made in two stages with 97% through a letter of credit and a balance of 3% through telegraphic transfer instead of the agreed 100% payment through a letter of credit. Despite this error, a binding agreement had already been concluded through the email correspondence and this contract was a mere formality to record the terms of the agreement.

Four days later, on 31 July 2009, a representative of the defendant sent an email to the plaintiff denying that an agreement had been reached between the parties, citing the error in the formal purchase contract. In so doing, the defendant had repudiated the agreement and the plaintiff has suffered loss. The plaintiff claimed US$1,353,105 in damages.

Sole issue raised

For the purposes of this application, Mr Toh said the defendant would take the plaintiff’s pleaded case at its highest because even then, it is obviously unsustainable. Specifically, even if it were true that an agreement had been concluded, in failing to open a letter of credit before the laycan period, the plaintiff had itself breached a condition precedent to the defendant’s performance. As a result, the defendant need not have performed.

The plaintiff’s counsel, Mr Srivathsan, accepted that the opening of a letter of credit before the laycan period was a condition precedent to the shipment of the goods. However, he argued that in the face of the defendant’s renunciation of the agreement through the email of 31 July 2009 by wrongfully denying its existence, it would be futile for the plaintiff to open a letter of credit. This was why the plaintiff did not open a letter of credit but instead wrote to the defendant, through its representative, on 1 August 2009 (and on 3 and 7 August thereafter) to ask the defendant to sign a version of the formal purchase contract correcting the aforesaid errors.

Because the defendant has taken the position that for the purpose of this application it will take the plaintiff’s pleaded case at its highest, I proceed on the assumption that (1) the agreement for the sale of iron ore fines was valid; and (2) the defendant had communicated unequivocally, through its representative, on 31 July 2009 that this agreement did not exist.

Hence, the single issue raised is whether the defendant’s renunciation of the agreement on 31 July 2009 freed the plaintiff from its obligation to open the letter of credit. If it did not, the plaintiff’s claim is obviously unsustainable and should be struck out because, even taking its case at its highest, the plaintiff has breached a condition precedent with the result that the defendant did not have to perform. If it did, the plaintiff has a viable claim and there is no reason to strike it out.

My decision

The issue raised turns on the question of whether an innocent party, in the face of the wrongdoer’s renunciation of the contract, has an option, in addition to (1) acceptance of the renunciation so as to terminate and sue for damages or (2) affirmation of the contract and to continue to perform, to affirm the contract but be absolved from tendering further performance unless and until the wrongdoer gives reasonable notice that he is once again able and willing to perform (“the third option”).

The third option has been considered and rejected in English jurisprudence. In Fercometal SARL v Mediterranean Shipping [1989] 1 AC 788 (“Fercometal”), Lord Ackner, with whom the other law lords agreed, stated (at 805):

When A wrongfully repudiates his contractual obligations in anticipation of the time for their performance, he presents the innocent party B with two choices. He may either affirm the contract by treating it as still in force or he may treat it as finally and conclusively discharged. There is no third choice, as a sort of via media, to affirm the contract and yet to be absolved from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform. Such a choice would negate the contract being kept alive for the benefit of both parties and would deny the party who unsuccessfully sought to rescind, the right to take advantage of any supervening circumstance which would justify him in declining to complete. [emphasis original]

Nonetheless, there is of course some time given to the innocent party before he is due to perform to decide whether to terminate or affirm the contract (see Stocznia Gdanska SA v Latvian Shipping Co (No 2) [2002] 2 Lloyd’s Rep 436; Chitty on Contracts vol 1 (London: Sweet & Maxwell, 30th Ed, 2008) (“Chitty on Contracts”) at [24-002]).

The Australian position is different. It accepts the existence of the third option. In Peter Turnbull & Co Pty Ltd v Mundas Trading Co (Australia) Pty Ltd (1954) 90 CLR 235 (“Peter Turnbull”), a decision of the High Court of Australia, the parties had entered into an agreement for the sale of a quantity of oats to be shipped from Sydney. The appellant was obliged to nominate a ship to load the oats from Sydney in January or February 1951 and to give the respondent 14 days’ notice of such nomination. In January, the respondent informed the appellant that they could not ship from Sydney and would ship from Melbourne instead. The appellant did not accept this proposal. The respondent persisted in its assertion that it could only ship from Melbourne. The sale did not go through and the appellant sued for damages. The issue before the court was whether the appellant’s failure to nominate a ship and give notice of such nomination precluded it from claiming damages for the respondent’s breach.

Dixon CJ held (at 248) that the respondent’s persistence in its position that it could not ship from Sydney, excused the appellant from its obligation to nominate a ship and to give notice of such nomination. Webb and Kitto JJ agreed. Kitto J took the view (at 251) that:

The principle, which applies whenever the promise of one party, A, is subject to a condition to be fulfilled by the other party, B, may, I think, be stated as follows. If, although B is ready and willing to perform the contract in all respects on his part, A absolutely refuses to carry out the contract, and persists in the refusal until a time arrives at which performance of his promise would have been due if the condition had been fulfilled by B, A is liable to B in damages for breach of his promise although the condition remains unfulfilled.

Taylor J dissented. He rejected the third option, making the following observations (at 262):

[The future rights of the innocent party] must also be determined according to his election; he may retain the benefit and risk of the contract or he may rescind and recover damages. But that he may not have both is, I should think, clear beyond doubt. Nor, having elected to keep the contract on foot, may he, after having failed to fulfil a condition precedent to his right to performance on the part of the other party, rescind upon a refusal, then continued, to perform the contract for, ex hypothesi, whatever ground is assigned for such a continued refusal the other party is not then under any obligation to perform the contract.

Peter Turnbull was one of the cases cited by counsel in Fercometal (see Fercometal at 792), but it was not discussed in the judgments of the law Lords. Nonetheless, the decision of the House of Lords to reject the third option makes it clear that it did not take the same position as the Australian High Court in Peter Turnbull.

The Australian High Court had the opportunity to reconsider its position in Peter Turnbull in the light of Fercometal. In Foran and another v Wight and another (1989) 168 CLR 385 (“Foran”), the vendors of certain property informed the purchasers two days before the date of completion that they were unable to register a right of way which was required of them under the sale and purchase agreement. On the date of completion, neither party took steps to complete. Two days thereafter, the purchasers gave the vendors a notice of rescission. The purchasers sought a declaration that they had rescinded the contract and sought a return of the deposit. The...