Magenta Resources (S) Pte Ltd v China Resources (S) Pte Ltd

• Jurisdiction: Singapore
• Judge: S Rajendran J
• Judgment Date: 14 June 1996
• Neutral Citation: [1996] SGHC 122
• Citation: [1996] SGHC 122
• Defendant Counsel: Tan Tee Jim and Leonard Goh (Allen & Gledhill)
• Published date: 19 September 2003
• Plaintiff Counsel: Manjit Singh and Samuel Chacko (Manjit & Pnrs)
• Date: 14 June 1996
• Docket Number: Suit No 266 of 1992
• Court: High Court (Singapore)
• Subject Matter: Discharge,Call by buyer,Whether political unrest included within meaning of 'Act of God' in clause,Need to refer to examples included in clause to define scope of term,Contract,Credit and Security,Whether in breach of contract,Construction of clause,Whether direct evidence needed of circumstances,Performance bond,Force majeure

Cur Adv Vult

Magenta Resources (S) Pte Ltd (plaintiffs) entered into a contract on 12 October 1991 to supply 50,000 metric tons of `prilled urea of USSR origin` c & f China to China Resources (S) Pte Ltd (defendants), then known as Intraco Resources Pte Ltd. On the same day the plaintiffs entered into a back-to-back contract with their suppliers International Business Development Center (IBDC) in Switzerland for the supply of the said urea whilst the defendants entered into a contract with Sintra Merchants Pte Ltd (Sintra) to supply the said 50,000 metric tons of prilled urea to China. The first shipment of 25,000 metric tons was to be made within 45 days of receipt of a workable letter of credit (LC) and thereafter deliveries were to be made at intervals of 30 days of receipt of workable LC.

Pursuant to the contract, the defendants opened an LC in favour of the plaintiffs on 21 October 1991. The LC was valid until 26 December 1991 and stipulated that the first shipment of 25,000 metric tons was to be effected not later than 30 November 1991. Clause 7 of the contract provided that if the defendants wished to have any special markings on the bags of urea they were to provide the markings 45 days before the shipment. The defendants wanted special markings to be made and sent the stencils for the markings to the plaintiffs on 28 October 1991. The plaintiffs forwarded the stencils to their suppliers by courier. Mr Roger Eu (Eu), the managing director of the plaintiffs, estimated that it would have taken about five to seven days for the stencils to reach their ultimate destination. In view of the late provision of the stencils for the markings, the plaintiffs requested that the latest shipment date in the LC be amended to read 14 December 1991. This and other necessary amendments to the LC were agreed and an amendment to the LC was issued on 28 October 1991. The expiry date of this amended LC was 9 January 1992.

Clause 16 of the contract required the plaintiffs to arrange for their bankers to provide the defendants` bankers, on receipt of a workable LC, a performance bond for an amount equivalent to 2% of the LC value. On 29 October 1991, the defendants notified the plaintiffs that if the performance bond was not submitted by that day there was a strong possibility that their buyer would cancel its contract in which event the plaintiffs would be held liable.

On 31 October 1991, Banque Francaise du Commerce Exterieur (`BFCE`), the plaintiffs` bankers, provided the required performance bond to the Development Bank of Singapore, the defendants` bankers, by way of a standby LC in favour of the defendants in the sum of US$95,150. On 1 November 1991, the defendants telexed the plaintiffs to say that as the plaintiffs had failed to submit the performance bond on 29 October 1991 and as their buyers in China had cancelled the contract with them they were cancelling the contract with the plaintiffs with immediate effect.

On receipt of the above telex, Eu immediately got in touch with Mr Sam Chong Keen (Sam), the managing director of the defendants. Sam explained to Eu that he had to cancel the contract because his Chinese partner, because of the falling price of urea, had cancelled the contract with him and asked Eu for assistance in cancelling the contract. Eu told Sam that so long as he was not out of pocket and it would not jeopardise his position with his suppliers he would try to assist. Eu then sent a telex to the defendants rejecting the purported cancellation. In the telex he pointed out that cl 16 of the contract required the plaintiffs to provide the performance bond on receipt of a workable LC and that the plaintiffs had done so within a reasonable time after receipt of the workable LC on 28 October 1991. The telex then went on to say that if the defendants wished to cancel the contract for other reasons the plaintiffs would get in touch with their suppliers and revert. It was Eu`s evidence that he, thereafter, spoke to his suppliers and the defendants and tried to arrange for a cancellation of the contract on mutually acceptable terms but nothing fruitful came out of these discussions.

On 15 November 1991, the defendants, by telex, again informed the plaintiffs that their buyers had cancelled their contract with them and they therefore had no choice but to cancel their contract with the plaintiffs. The plaintiffs replied that they will try and cancel their contract with their suppliers but will hold the defendants responsible for all losses arising from the cancellation. On 18 November 1991, the plaintiffs informed the defendants that agreement could not be reached on the cancellation. A meeting was then held at the defendants` offices on 19 November 1991 and by telex dated the same day the defendants asked the plaintiffs to go ahead with the shipping marks.

Eu testified that the disruption caused by the defendants` abortive attempts to cancel the contract resulted in the suppliers holding back on getting the cargo ready for shipment. He explained that 25,000 metric tons of urea would be packed in approximately 500,000 bags. Just to mark such a large quantity of bags would require considerable labour and time and no prudent supplier would like to be stuck with so many pre-marked bags in the event the contract was cancelled. He said that when the defendants` tried to cancel the contract on 1 November 1991 the suppliers would not have received the stencils yet but even when they did, in view of the negotiations on cancellation, it would be understood that the suppliers would delay work on the contract.

By telex dated 22 November 1991, the plaintiffs informed the defendants that the suppliers, when told to proceed with the shipping marks, had demanded an extension of the latest shipment date (which by the terms of the LC was 14 December 1991) by eight days to 22 December 1991. The defendants refused this request on the grounds that the plaintiffs` suppliers had all along maintained that they would ship the cargo. The plaintiffs`, by their telex of 27 November 1991, regretted the defendants` refusal to extend the shipment date and informed the defendants that they would try to have the urea shipped on or before 14 December 1991, failing which they trusted the defendants would accept a reasonable delay as the delay was directly attributable to the defendants` instructions to the plaintiffs to try and cancel their contract. No evidence was led of there being any response to this telex from the defendants.

On 2 December 1991 the plaintiffs informed the defendants by letter that they had received news that all discussions/negotiations regarding the shipment had to be halted for the moment. The letter went on to say:

The USSR was undergoing political changes right now and we understand that the entire country is awaiting the results from the referendum to be held last Sunday by Boris Yeltsin as to the future between Russia and the Ukraine. No one is functioning or willing to comment right now, or at least until after Tuesday/Wednesday Russian time, when some election news should be out. We regret the delay and will contact you as soon as we received any news.

On 11 December 1991, the plaintiffs, based on information from their suppliers, sent a telex to the defendants advising that loading will commence on 17 December 1991 at the port of Novorossisk and that the estimated sailing date was 25 December 1991. The telex however ended on the following cautionary note:

We would like to draw your attention on the delay which is due to circumstances beyond our control, ie force majeure in Russia. As a result of the political changes, there is confusion and uncertainty. There are also new requirements on documentation, procedures and permits are also necessary at local authority. At the same time your attempt to cancel the contract for which we try to assist but subsequently found it impossible. This have also halted the progress of the shipment.

It may be noted that on 9 December 1991 the Union of the Soviet Socialist Republic (USSR) formally ceased to exist as a political entity.

Eu testified that during that period he was constantly in touch over the telephone with his suppliers. On 12 December 1991, he received a fax from them that:

The various Republics are initiating their own regulations and laws, therefore we have had to renegotiate transportation and other logistical points. As of now all such changes are being made with maximum efficiency and success. The shipment will be made according to our agreement with the exception of the delivery date. This date must be amended under the force majeure clause.

As the suppliers had asked for an extension of time under the force majeure clause, Eu felt that he, in turn, ought to invoke the force majeure clause against the defendants. Accordingly, on 13 December 1991, he gave the following notice to the defendants:

Our supplier has just cfn tt due to d recent n continuing political upheavals in d USSR, leading to d decentralization of local authorities n formation independent republics, d said urea cld not be transported n exported as originally planned under d previous licences(s) n permit(s) ie in early Dec. D previously issued licence/permits for d urea apparently were no longer recognised or accepted at face value by d various local authorities, who required new licence/permits to replace or amend/validate d old licence(s) n permits(s). This caused immense transportation problem n has resulted in d port of loading to b changed more than once n there4 exceeding diff to cfn d vessel. Tremendous communicatn problems in n out of USSR was also compounded d delay.

D upheavals n changes in licence/permits stopped n delay all trptn n shpt arrgmts tt had been for early Dec 91 which had d effect of halting ou urea shpmt. We hv bn assured by our supplier tt they r sparing no efforts including expense to fulfil d contr obligations.

...