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Grounds publishedDecided 29 Aug 2007
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Court of Appeal

RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd and Another Appeal

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[2007] SGCA 39Case no. CA 151/2006, 152/2006

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

  2. [2] The Plaintiff invited several suppliers to submit quotations for the supply and delivery of ready-mixed concrete for the Project. The Plaintiff eventually contracted with RDC Concrete Pte Ltd (“the Defendant”), an established local supplier of ready-mixed concrete, for the supply of concrete at stipulated rates for the Project. It was not disputed that the Defendant’s revised quotation dated 1 September 2003 and the Plaintiff’s letter of intent dated 16 September 2003 formed the contract between the parties. These two documents will hereafter be collectively referred to as “the Contract”.

  3. [3] Under the Contract, the Defendant was to supply approximately 70,000m of concrete to the Plaintiff at the stipulated prices between 1 September 2003 and 30 June 2006. This was in accordance with cl 2 of the Defendant’s revised quotation, which provides:

  4. [4] In May and June 2004, several tests were conducted on the specific strength of the concrete supplied by the Defendant and it was found that there was an unacceptable amount of cube failure. As a result, on 3 July 2004, the LTA instructed the Plaintiff to suspend the Defendant’s concrete supply for structural elements. The LTA stipulated that the only approved concrete supplier during the suspension period was Pan United Concrete Pte Ltd (“Pan United”). The Defendant continued to supply concrete for non-structural elements during the suspension period.

  5. [5] On 17 November 2004, the LTA approved the Plaintiff’s request to allow the Defendant to resume concrete supply. Supply was, however, restricted to concrete produced at the Defendant’s Kaki Bukit plant. In addition to the Kaki Bukit plant, the Defendant also had plants at Kallang and Gay World. In its letter to the Plaintiff dated 17 November 2004, the LTA stated that it was to be informed in advance if the need to use other plants arose.

  6. [7] When the Defendant was allowed to resume supply from 18 November 2004 onwards, it was undisputed that the Defendant failed, on no fewer than 42 occasions, to supply concrete ordered by the Plaintiff under the Contract. The Defendant was either wholly unable to meet the Plaintiff’s orders or could only supply part of the volume of concrete ordered. The Defendant would give various reasons for its failure to supply the concrete. These reasons can be broadly categorised into two classes: (a) shortage of raw materials, namely, aggregates and cement; and (b) plant breakdowns. Of the 42 occasions of non- or short supply, there were also instances where the Defendant did not provide a reason for its failure to supply.

  7. Clause J of Appendix 1A of the Defendant’s revised quotation (incorporated by cl 5 of the same) similarly provides as follows:

  8. Clause 4 of the Defendant’s revised quotation also provides as follows:

  9. [11] On 30 May 2005, pursuant to cl 8 of the Plaintiff’s letter of intent (set out at [8] above), the Plaintiff terminated the Contract on two grounds: (a) persistent failure to supply concrete when ordered; and/or (b) failure to comply with the LTA’s requirements. It was a term of the Contract that the concrete supplied by the Defendant had to comply with the LTA’s requirements. In particular, cl 3 of the Plaintiff’s letter of intent provides as follows:

  10. Clause 4 of the same provides as follows:

  11. [12] The Plaintiff’s complaint was that the concrete supplied by the Defendant did not pass the tests at 28 days strength and peak core temperature of 70°C. The Defendant maintained that the LTA’s requirements of 70°C and 28 days strength were mutually exclusive and proposed to change the peak core temperature to 80°C. The LTA rejected the Defendant’s proposal.

  12. [13] The Plaintiff then instituted the present action to claim damages for breach of contract. The Defendant counterclaimed for the amounts due under outstanding invoices in respect of concrete that it had already supplied to the Plaintiff.

  13. Issues and findings in the trial court

  14. [14] The following five issues were raised in the trial court:

  15. (a) Was the Contract an “exclusive” or “sole supplier” contract?

  16. (b) Did the failure of the cube tests allow the Plaintiff to claim the cost differentials of obtaining concrete from an alternative supplier incurred during the suspension period (between 7 July 2004 and 17 November 2004)?

  17. (c) After supply was resumed, did the force majeure clauses in the Contract apply so as to exempt the Defendant from liability for the non- or short supply of concrete between 18 November 2004 and 5 April 2005?

  18. (d) Was the Defendant entitled to suspend the supply of concrete on 5 April 2005?

  19. (e) Was the Plaintiff entitled to terminate the Contract on 30 May 2005?

  20. [15] The Judge allowed the Plaintiff’s claim in part. In so far as issue (a) was concerned, the Judge held that the parties had not agreed to enter into an exclusive or sole supplier contract. The main reason for this holding lay in the fact that there was no express term stating that the Contract was exclusive. Further, the absence of a priority term in the Contract indicated that the Plaintiff was not entitled to priority in supply by the Defendant at the expense of the Defendant’s other customers. The Judge also found that the Plaintiff was at liberty to obtain concrete from Pan United even when the Defendant was able to supply the same.

  21. [18] In so far as issue (d) was concerned, the Judge held that the Defendant was entitled to suspend supply on 5 April 2005 as some payments were made by the Plaintiff later than the 30-day credit term allowed under the Contract. Further, the Judge found that some of the deductions made by the Plaintiff from the outstanding amounts due to the Defendant were unjustified.

  22. [19] In so far as issue (e) was concerned, the Judge held that the Plaintiff had discharged its burden of proving that it was entitled to terminate the Contract both on the grounds of the Defendant’s non- or short supply as well as its failure to supply concrete that adhered to the LTA’s specifications.

  23. [20] In addition, the Judge also entered judgment for the Defendant on its counterclaim of $236,802.64. The counterclaim was not disputed by the Plaintiff and is not an issue in this appeal.

  24. [21] In Civil Appeal No 152 of 2006 (“CA 152”), the Plaintiff appealed against the Judge’s findings on issues (a), (b), (c) and (d). In Civil Appeal No 151 of 2006 (“CA 151”), the Defendant appealed on the Judge’s findings with respect to issues (c) and (e). These issues will now be considered in turn.

  25. Issue (a) – Was the Contract an “exclusive” or “sole supplier” contract?

  26. [23] It was not disputed that the Defendant was free to supply concrete to other contractors during the contract period. The only issue in contention was whether the Plaintiff was contractually obliged to purchase all its concrete solely from the Defendant.

  27. [24] The Judge held that the Contract was not an exclusive or sole supplier contract for the following reasons (see the GD at [25]):

  28. (a) There was no term stating that the Contract was exclusive.

  29. (b) The absence of a priority term in the Contract indicated that the Plaintiff was not entitled to priority supply by the Defendant at the expense of its other customers.

  30. (c) A project plant was not specifically set up to supply the Plaintiff with concrete for the Project.

  31. (d) The Defendant fulfilled orders on a first come, first served basis.

  32. (e) The Plaintiff was at liberty to use Pan United even at times when the Defendant was able to supply concrete.

  33. [25] We affirm the Judge’s finding that the Contract was not an exclusive or sole supplier contract. Most importantly, and as the Judge had noted, this was not an express term of the Contract. This should be contrasted with the contract subsequently entered into between the Plaintiff and Island Concrete Pte Ltd on 1 August 2005 wherein cl 2.1 expressly provided that the “prices are specially quoted based on the condition that we will be the sole supplier of ready-mixed concrete to your above jobsite” [emphasis in original].

  34. [26] We reject the Plaintiff’s argument that a sole supplier term could be implied into the Contract. It is established law that a court will only imply terms into a contract where such terms are necessary to give business efficacy to the contract or where the term represents the obvious, but unexpressed, intention of the parties (see, for example, the Singapore High Court decision of Forefront Medical Technology (Pte) Ltd v Modern-Pak Pte Ltd [2006] 1 SLR 927 at [29]–[41]). In order to uphold the concept of sanctity and freedom of contract, courts have generally been reluctant to imply terms into contracts, especially contracts entered into between two commercial parties. Based on the argument that the quotation for 70,000m of concrete was a bona fide estimate of the total volume required for the Project, the Plaintiff sought to imply a term that only one supplier was required for the entire Project. In particular, the Plaintiff argued that the commercial objectives of both parties would be achieved with the implication of such a term as the Plaintiff could get better fixed rates for bulk purchase and the Defendant would be able to supply a substantial volume of concrete to keep its production arm in operation.

  35. [27] It is appropriate to commence the analysis of this issue by revisiting cl 2 of the Defendant’s revised quotation, which provides as follows:

  36. [28] On a literal interpretation of cl 2, the Defendant is obliged to supply approximately 70,000m of concrete to the Plaintiff at the stated prices during the contract period. Conversely, the Plaintiff’s obligation is to obtain up to 70,000m of concrete from the Defendant at the stated rates during the contractual period. Where the Plaintiff orders more than 70,000m of concrete, the stated prices no longer apply and the parties are free to engage in further negotiations for fresh rates.

  37. [29] At this juncture, it is appropriate to refer to the Singapore High Court decision of Nam Kee Asphalt Pte Ltd v Chew Eu Hock Construction Co Pte Ltd [2000] SGHC 45.

  38. [30] In that case, the court was concerned with a contract for the supply of aggregates. The contract provided that the “estimated quantity” to be supplied under the contract was 40,000 tonnes. On the facts, the defendant ordered and paid for only 8,643.42 tonnes. The plaintiff sought to recover the loss of profits vis-à-vis the unsold balance and argued that it was an implied term of the contract that the defendant should purchase from the plaintiff all the aggregates it required in respect of the contract, ie, that the contract was exclusive in nature. Lee Seiu Kin JC (as he then was) rejected this argument, observing thus (at [15]):

  39. [31] In a similar vein, it is difficult to see how the implication of a sole supplier term on the present facts would lend business efficacy to the Contract or would satisfy the test of the officious bystander. In fact, implying such a term would considerably alter the nature of the bargain as the Plaintiff would be deemed to be in breach of the Contract whenever it obtained concrete from alternative suppliers during the contract period, even if it had already purchased the requisite 70,000m of concrete from the Defendant. This result could hardly have been intended by the parties. In fact, Yew, the Plaintiff’s project manager, testified that more than 70,000m of concrete would be needed for the entire Project. Indeed, if the Project had proceeded along faster than expected and resulted in the Plaintiff requiring more than 70,000m of concrete during the contract period, counsel did not suggest that the Plaintiff would be in breach had it then purchased concrete from alternative suppliers. Of significance, too, is the fact that the Judge had accepted the evidence that the Plaintiff had obtained concrete from Pan United even when the Defendant was able to supply.

  40. [32] We were fortified in our conclusion by noting the conspicuous absence of a “priority term” in the Contract. Notably, a priority term would entail the dedication of a project plant to supplying concrete for a project and would ensure that the customer had priority of supply. In such cases, the project plant could only supply other customers after the project customer’s requirements had been fully satisfied. The Plaintiff must have understood that it would obtain its supply from a “commercial plant” (which would entail the Defendant’s supply of concrete being distributed amongst its many customers), and not from a dedicated project plant. When the Plaintiff required more than the contract quantity, it was always open to the Plaintiff to purchase concrete from other suppliers.

  41. [33] We therefore reject the Plaintiff’s argument that the Contract is an exclusive or sole supplier contract and dismiss the Plaintiff’s appeal on this particular issue.

  42. Issue (b) – Could the Plaintiff claim for the cost differentials incurred during the suspension period (between 7 July 2004 and 17 November 2004)?

  43. Background and issues

  44. [35] This claim is based on cl 8 of the Plaintiff’s letter of intent, which will be set out once again for ease of reference:

  45. (a) Under cl 8, it was a precondition that the Plaintiff had first to terminate the Contract before it could claim the cost differentials. Since the Plaintiff did not terminate the Contract until 30 May 2005, it was precluded from claiming the cost differentials of purchasing concrete from alternative suppliers prior to that date.

  46. (b) The cost differentials of purchasing concrete from an alternative supplier were not a “direct cost” and therefore the Defendant was not liable for the same.

  47. The two sub-issues will be discussed separately.

  48. First sub-issue – Whether termination of the Contract by the Plaintiff under clause 8 was a precondition to recovery of the cost differentials

  49. [40] More importantly, the general position at common law is clear beyond peradventure: even if the innocent party (here, the Plaintiff) is not entitled to terminate the contract or, if so entitled, chooses nevertheless not to terminate the contract, it will, generally speaking, always be entitled to claim damages as of right for loss resulting from the breach (or breaches) of contract: see the House of Lords decision of Raineri v Miles [1981] AC 1050. It is, of course, always open to the parties to contractually modify the common law position by the use of clear and unambiguous words in their contract.

  50. Second sub-issue – Whether the cost differentials fall within the definition of “direct cost” under clause 8

  51. [43] In situations relating to direct loss (and, correspondingly, the first limb of Hadley v Baxendale), the crucial question is whether, on the information available to the defendant when the contract was made, the defendant should, as a reasonable person, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach and, therefore, that the loss should have been within the defendant’s contemplation: see the oft-cited House of Lords decision of C Czarnikow Ltd v Koufos, The Heron II [1969] 1 AC 350 at 385, per Lord Reid. Thus, the court is not concerned with actual knowledge on the part of the defendant. The defendant is taken to know, under the concept of imputed knowledge, that such damage would ordinarily ensue as a result of the breach of contract: see the Singapore High Court decision of CHS CPO GmbH v Vikas Goel [2005] 3 SLR 202 at [82].

  52. Issue (c) – Did the force majeure clauses in the Contract apply so as to exempt the Defendant from liability to the Plaintiff for non-supply of concrete between 18 November 2004 and 5 April 2005?

  53. Background and issue

  54. The issue of pleadings

  55. [50] In our view, this particular issue can be easily resolved on the ground that the Defendant had not even pleaded force majeure in its defence to begin with. In its defence and counterclaim filed on 15 August 2005, the Defendant only made passing reference to the fact that it could not meet the Plaintiff’s requests for supply due to unavailability of materials or plant breakdowns. Thus, para 7 pleaded as follows:

  56. [51] This is insufficient to enable the Defendant to rely on the defence of force majeure as embodied in the clauses set out at [9] above. In our view, the doctrine of force majeure is a matter that must be specifically pleaded before it can be relied on by a party. In this regard, O 18 r 8(1) of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) stipulates matters that must be specifically pleaded as follows:

  57. [52] It is trite law that the court is not entitled to make a decision on an issue which has not been raised by the parties in their pleadings: see, for example, the Malaysian High Court decision of Janagi v Ong Boon Kiat [1971] 2 MLJ 196 and the Singapore High Court decision of Multi-Pak Singapore Pte Ltd v Intraco Ltd [1992] 2 SLR 793, both of which have often been cited as authority for this important proposition in the local context. It is sufficient, on this ground alone, to dispose of this issue. However, we should add that although the courts do not generally countenance the raising of arid and technical procedural objections that would hinder the attainment of justice in the case at hand, they would, equally, reject arguments (such as that now proffered) where there has been such a breach of procedural justice that countenancing it would result in substantive prejudice and injustice to the innocent party (which would be the case in the present appeal in so far as the Plaintiff was concerned). However, as the Judge had found that the force majeure clauses applied to partially exempt the Defendant from liability, and there is a dearth of local case law in relation to the doctrine of force majeure, it would be useful to discuss this issue in greater detail (assuming, arguendo, that the defective pleadings were not fatal to the Defendant’s case on this particular point). To this end, it would be appropriate to first set out some of the basic principles applicable to force majeure clauses.

  58. Some general principles relating to force majeure clauses

  59. [53] The principal purpose of a force majeure clause is to contractually allocate the risks between the contracting parties with regard to the occurrence of future events in specific circumstances, all of which are stipulated within the clause itself.

  60. [54] The most important principle with respect to force majeure clauses entails, simultaneously, a rather specific factual inquiry: the precise construction of the clause is paramount as it would define the precise scope and ambit of the clause itself. The court is, in accordance with the principle of freedom of contract, to give full effect to the intention of the parties in so far as such a clause is concerned.

  61. [55] Turning to more specific principles, an appropriate starting point would be the following observations by Prof Sir Guenter Treitel, one of the leading academic commentators on contract law in the Commonwealth, in the leading work in this particular area of the law (see Sir Guenter Treitel, Frustration and Force Majeure (Sweet & Maxwell, 2nd Ed, 2004) at para 12-001):

  62. [56] Conceptually, it is true that a force majeure clause operates differently from the doctrine of frustration. Whereas a force majeure clause is an agreement as to how outstanding obligations should be resolved upon the onset of a foreseeable event, the doctrine of frustration concerns the treatment of contractual obligations from the onset of an unforeseeable event: see the decision of this court in Glahe International Expo AG v ACS Computer Pte Ltd [1999] 2 SLR 620 (“Glahe”) at [26]. The prevalent practice of incorporating force majeure clauses into commercial contracts today stems largely from the blunt nature of the doctrine of frustration as a tool to allocate loss. It has often been said that the juridical basis for the doctrine of frustration is unclear, the doctrine is difficult to invoke and the consequences of its operation are drastic, in the sense that the contract is automatically brought to an end. Parties therefore often include force majeure clauses in their contracts to avoid the uncertainty and hardship that might otherwise result from relying on the common law doctrine of frustration. Uncertainty and inconvenience are avoided by incorporating a well-drafted clause that clearly defines the events or circumstances that constitute force majeure. Hardship is also minimised in so far as a force majeure clause can be crafted to provide a more nuanced response to events of force majeure. For example, it may be provided that, in circumstances constituting force majeure, an extension of time may be granted to the party in default, there may be cancellation of the contract at the option of one party, or the defaulting party’s duty to perform the contract will be suspended. The contract is thus not automatically brought to an end.

  63. [57] Despite this conceptual distinction, we are of the view that the principles relating to the doctrine of frustration are, in the vast majority of cases, still relevant to the construction and interpretation of force majeure clauses. In this regard, it is important to note that, by their very nature and function, force majeure clauses would – in the ordinary course of events – be triggered only where there was a radical external event that supervened and that was not due to the fault of either of the contracting parties. It will be immediately noticed that this is also a pre-requisite to the invocation of the doctrine of frustration. However, this, admittedly, is not invariably the case. There might, for instance, be force majeure clauses, the language of which falls short of meeting the criteria required with respect to the doctrine of frustration at common law (this is clearly envisaged, for example, by Prof Treitel in the passage quoted in [55] above and see also Frustration and Force Majeure ([55] supra) at para 12-017). We should think, however, that this would not be common, especially if one accepts the basic premise that the doctrine of frustration centres (in large part at least) on the absence of reasonable control on the part of the contracting parties. As S Rajendran J observed in the Singapore High Court decision of Magenta Resources (S) Pte Ltd v China Resources (S) Pte Ltd [1996] 3 SLR 62 at 78, [60] (“Magenta Resources”) (affirmed in China Resources (S) Pte Ltd v Magenta Resources (S) Pte Ltd [1997] 1 SLR 707, but without apparent consideration of this particular point):

  64. [58] Everything depends, in the final analysis, on the precise language and actual facts of the case at hand (as pointed out both in the quotation above as well as at [54] above). In the present appeal, for example, the force majeure clauses in the Contract (reproduced at [9] above) refer to causes that are “beyond the supplier’s control”. Depending on the precise facts before the court, the cause or event in question could be beyond the supplier’s (here, the Defendant’s) control and, yet, not beyond the other party’s control (here, the Plaintiff).

  65. [59] In this regard, it should be emphasised that the doctrine of frustration can be successfully invoked only if the alleged frustrating event is an external one that is, ex hypothesi, beyond the control of both contracting parties (also bearing in mind the important complementary principle that there can be no self-induced frustration). In the oft-cited words of Lord Radcliffe in the House of Lords decision of Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 729:

  66. Similarly, in the construction of a force majeure clause (similar to those found in the present case), the courts will apply “the presumption that the expression force majeure is likely to be restricted to supervening events which arise without the fault of either party and for which neither of them has undertaken responsibility” [emphasis added]: see the English High Court decision of The Kriti Rex [1996] 2 Lloyd’s Rep 171 at 196, per Moore-Bick J (as he then was).

  67. [60] However, whatever the precise content of a force majeure clause (which, coupled with the precise facts of the case, would determine, in turn, the precise relationship between that clause and the doctrine of frustration), it is important to emphasise that where a force majeure clause excludes the doctrine of frustration, the principal effect and difference between the two is with respect to the nature of the relief. The relief available under a force majeure clause will, of course, be determined by the specific content of that clause itself. In a situation where the doctrine of frustration is sought to be excluded, the clause concerned would expressly stipulate that the contract is not to be discharged despite the fact that the situation would otherwise be one that would have frustrated the contract.

  68. [61] The force majeure clauses in the Contract in the present appeal are a paradigm illustration. Whilst they are triggered or catalysed only if the relevant event is “beyond the supplier’s control” and, to that extent, appear to embody some of the common law principles relating to the frustration of a contract, the crucial difference lies, as mentioned in the preceding paragraph, in the nature of the relief that will be granted. If these clauses apply, the Contract “shall be suspended or limited until such circumstance ceases” [emphasis added]. In contrast, where a contract is frustrated under the common law, it is automatically discharged by operation of law and the precise relief would be determined by the provisions of the Frustrated Contracts Act (Cap 115, 1985 Rev Ed) (“the Act”) instead (and see generally Andrew Stewart & J W Carter, “Frustrated Contracts and Statutory Adjustment: The Case for a Reappraisal” [1992] CLJ 66). It should also be noted that s 3(3) of the Act itself clearly stipulates thus with respect to its very limited applicability in the context of force majeure clauses (this provision was in fact referred to in the Singapore High Court decision of Chan Buck Kia v Naga Shipping & Trading Co Ltd [1963] MLJ 159 at 160):

  69. [62] On the other hand, where the force majeure clause concerned does not exclude the doctrine of frustration, then, if the supervening event is indeed a frustrating event that, ex hypothesi, lies beyond the boundaries of that clause, the legal consequences as described above (ie, which flow from an application of the common law doctrine of frustration and which entail an application of the relevant provisions of the Act) would follow instead. It is important, however, to note that there is no need to canvass the issue of relief in the present appeal as the only issue before us is whether or not the force majeure clauses in the Contract apply to the facts at hand. Indeed, no attempt was, in any event, made to argue that the doctrine of frustration applied to the present case.

  70. [63] As we have already seen, it is clear that a force majeure clause can seek to exclude the doctrine of frustration. It is important, in this regard, to reiterate the basic proposition that contracting parties are, of course, free to exclude the doctrine and, as emphasised above, the court must give full effect to such an agreement on the basis that these parties are at liberty to allocate the possible risks between them in any manner they see fit. Nevertheless, it is clear that in order to actually exclude the doctrine of frustration, the clause concerned must be clear and unambiguous. It should be noted, however, that the case law suggests that courts will construe force majeure clauses strictly: see, for example, the oft-cited House of Lords decisions of Metropolitan Water Board v Dick, Kerr and Company, Limited [1918] AC 119 (“Metropolitan Water Board”) and Bank Line, Limited v Arthur Capel and Company [1919] AC 435. In other words, what often appears, at first blush at least, to be an express provision covering the event concerned is often interpreted by the courts as not intended by the contracting parties to cover so drastic an event as a frustrating event; hence, the doctrine of frustration would continue, with the attendant consequences or relief briefly outlined in the paragraphs above. Indeed, it has been observed as follows (see Ewan McKendrick, Force Majeure and Frustration of Contract (Lloyd’s of London Press Ltd, 2nd Ed, 1995) at p 36):

  71. [64] Another general principle to note is that a party who relies on the force majeure clause must show not only that it has brought itself within the clause concerned (a separate and extremely important point in itself: see below at [65]) but also that it has taken all reasonable steps to avoid its operation, or mitigate its results: see the English Court of Appeal decision of Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323 (“Channel Island Ferries”) at 327. This principle is not only commonsensical but is also consistent with (and may even be a corollary of) the very nature and function of a force majeure clause which we have in fact elaborated upon above (at [53]). To briefly recapitulate, such a clause presupposes that events falling within its scope and ambit are beyond the control of the contracting parties and that language to this effect will invariably be utilised in the clause itself. Thus, in the English High Court decision of Continental Grain Export Corporation v STM Grain Ltd [1979] 2 Lloyd’s Rep 460 (“Continental Grain Export”), Robert Goff J (as he then was) said (at 473) that a seller who invoked a “prohibition of export” clause (where the rubric of “impossibility” was utilised) had to prove that: (a) no goods of the contract description were available to him to fulfil his contract; and (b) he could not, following notice of the event, obtain any such goods “by the exercise of any means reasonably open to him”. This was approved (in relation to a similar clause) by the English Court of Appeal in Andre & Cie SA v Tradax Export SA [1983] 1 Lloyd’s Rep 254 at 258.

  72. [65] Finally, it should also be noted that a party who relies on a force majeure clause has the burden of bringing himself squarely within that clause: see Channel Island Ferries (at 327); Magenta Resources ([57] supra at 86, [98]); and Chitty on Contracts (Sweet & Maxwell, 29th Ed, 2004) vol 1 at para 14-140.

  73. Market raw material shortages

  74. [67] In our view, the facts allegedly giving rise to market raw material shortages were insufficient to fall within the ambit of the force majeure clauses in the Contract. Consistent with the general principle set out above (at [54]), the precise language and intent of the clauses are crucial as they define (in turn) the precise scope of the clauses themselves. It would therefore be appropriate to set out the clauses once again. As the clauses (set out at [9] above) are word-for-word the same, it would suffice to set out the contents of the clause just once, as follows:

  75. [68] Turning to the analysis of the clause proper, we note, first, that the Defendant failed to produce sufficient evidence proving that there was, in fact, a market shortage of cement. The only evidence before the court was the oral evidence of the Defendant’s general manager who testified in re-examination that a drastic increase in freight charges in late 2004 had led to the reluctance of cement suppliers to commit to shipping cement. This was woefully insufficient.

  76. [69] Secondly, in so far as the alleged shortage of aggregates is concerned, there is evidence that, sometime in mid-2004 to early 2005, there was an acute shortage of aggregates in Singapore from traditional sources in Indonesia. This was due, inter alia, to: (a) a ban by the Indonesian government on the use of explosives for blasting, thereby severely restricting quarry operations; (b) unexpected operational problems by one of the larger Indonesian operators; and (c) suspension of supply by the Building and Construction Authority (“BCA”) from one of the Indonesian operators due to suspected alkali-silica reactivity. As a result, the overall output of the quarries was reduced and stockpiles were depleted to practically zero. Concrete producers were not always able to obtain aggregates in sufficient quantity and at the exact time to produce concrete to meet their customers’ casting schedules. All these facts were documented in a letter written by the Ready-Mix Concrete Association of Singapore to the BCA.

  77. [70] Despite the presence of the above facts, we find that the Defendant had not discharged its burden of proving that the force majeure clauses applied vis-à-vis the shortage of aggregates. It is important, in this regard, to note the precise language utilised in the force majeure clauses concerned which have been reproduced at [67] above. In particular, the phrase “beyond the supplier’s control” is of crucial significance. This phrase applies, inter alia, to market raw material shortages, as evidenced by the phrase “such as” which is interposed between that particular phrase and the rest of the clause which refers to “market raw material shortages”. In other words, “market raw material shortages” are but one instance of a “cause beyond the supplier’s control” [emphasis added]. That being the case, it is clear that “market raw material shortages” would not constitute an event of force majeure within the meaning of the clause unless such shortages were “beyond the supplier’s control” (here, beyond the Defendant’s control). This is clearly not the case in the present appeal, as it was still within the Defendant’s power to purchase aggregates from the market, albeit at a higher price. It will also be recalled that a defendant who wishes to invoke a force majeure clause must prove, inter alia, that it could not obtain the goods “by the exercise of any means reasonably open to [it]” (per Robert Goff J (as he then was) in Continental Grain Export ([64] supra) at 473). In our view, it was open to the Defendant to obtain aggregates from the market at a higher price. The Contract had merely become more onerous for the Defendant to perform, but the circumstances certainly did not constitute force majeure within the meaning of the relevant clauses in the Contract.

  78. [71] This conclusion is consistent with the earlier decision of this court in Glahe ([56] supra). In that case, the parties had entered into a contract for the sale and delivery of computers to Moscow. The court had to consider whether the imposition of customs duty and/or the Russian inflation were events that fell within the force majeure clause, which provided as follows:

  79. [73] Similarly, the English Court of Appeal in Brauer & Co (Gt Britain), Ltd v James Clark (Brush Materials), Ltd [1952] 2 Lloyd’s Rep 147 held that a 20% to 30% increase in prices merely made it more unprofitable for the sellers to perform their contractual obligations, but did not constitute circumstances of force majeure.

  80. [75] Be that as it may, on a consideration of all the circumstances, we find that the alleged shortage of aggregates did not, in any event, fall within the scope and ambit of the force majeure clauses in the Contract. The Plaintiff’s appeal on this issue therefore succeeds. We now turn to the issue of whether non- or short supply resulting from plant breakdowns falls within the ambit of the force majeure clause (assuming that it had been specifically pleaded).

  81. Plant breakdowns

  82. [76] The Judge held that the non- or short supply due to plant breakdowns did not fall within the scope and ambit of the force majeure clauses in the Contract because in the event that the Kaki Bukit plant broke down, the Defendant had two back-up plants and two friendly suppliers to accommodate the supply of concrete to the Plaintiff (see the GD at [95]). The Judge also found that the Defendant was estopped from arguing plant breakdowns to avoid liability because it had represented to the Plaintiff during negotiations that back-up plants were available (see the GD at [98]).

  83. [77] On appeal, the Defendant’s main argument was that there was no contractual requirement to provide a back-up plant and, further, that at the time of the breakdowns, only the Kaki Bukit plant had been approved by the LTA for the supply of concrete for the Project.

  84. [79] On the facts, we find that the Defendant was unable to prove that the plant breakdowns were unforeseen and beyond its control. Indeed, it also had not taken reasonable steps to avoid or mitigate the consequences of a plant breakdown. After the LTA had allowed the Defendant to resume supply of concrete in November 2004, the LTA stipulated that only concrete from the Kaki Bukit plant may be supplied. More importantly, however, the LTA also stated that it should be informed in advance in the event that the need to use other plants belonging to the Defendant should arise. It was thus open to the Defendant, very early on, to avoid or mitigate the consequences of any breakdown in the Kaki Bukit plant by seeking the LTA’s approval to use the Gay World and Kallang plants. It also followed, therefore, that the opportunity to avoid the event that happened (viz, the plant breakdowns) was clearly within the defendant’s control. However, the Defendant failed to take any steps in this direction and opted, instead, to rely solely on the operation of the Kaki Bukit plant. This was not a reasonable cause of action to adopt since a plant breakdown must have been a foreseeable event, especially when only one plant was being utilised.

  85. [80] The Defendant’s argument that there was no contractual requirement to provide a back-up plant is misconceived. Where a party seeks to rely on a force majeure clause, the law places a burden on it to satisfy the court that it falls within the scope and ambit of that clause. In a related vein, the party must also show that there was truly nothing it could have done to avoid the operation of the event or to mitigate its results. This is merely an extension of the general principle that a party must be strictly held to its contractual obligations and should only be released from them where supervening events make it impossible, and not merely onerous, to fulfil them. As noted at [57] above, the words “frustration” or “force majeure” typically connote some sort of impossibility on the defendant’s part to perform his contractual obligations. More importantly, this general principle has been clearly embodied within the force majeure clauses in the Contract – in particular, by the need for the Defendant to show that the plant breakdowns were not only “unforeseen” but also (and this, in fact, follows logically) that such breakdowns were “beyond the supplier’s [the Defendant’s] control”. In this regard, the fact that the Contract may not have provided for all possible eventualities in the event of the Defendant’s breach does not, and cannot, extinguish the Defendant’s duty to mitigate the results of the supervening event.

  86. Conclusion

  87. Issue (d) – Was the Defendant entitled to suspend supply of concrete on 5 April 2005?

  88. [82] On 5 April 2005, the Defendant suspended its supply of concrete to the Plaintiff due to non-payment for all concrete supplied up to February 2005 and this included the non-payment of the 5% retention sum. This suspension of supply was effected pursuant to cl K of Appendix 1A of the Defendant’s revised quotation (incorporated by cl 5 of the same), which provides as follows:

  89. Clause 4 of the Defendant’s revised quotation provides as follows:

  90. [83] It is necessary to examine the various deductions made by the Plaintiff. They consisted of the following items (as set out in the GD at [111]):

  91. No.

  92. Item

  93. 1

  94. Safety fine imposed on 11 May 2004

  95. 2

  96. T Y Lin design check cost for poor concrete

  97. 3

  98. LTA cost omission of poor concrete supplied for 16 panels affected by low cube strength

  99. 4

  100. Cost differentials from obtaining concrete from alternative suppliers:

  101. (a) from 7 July 2004 to 17 November 2004

  102. (b) from 18 November 2004 to 5 April 2005

  103. 5

  104. 6% administrative charge imposed by the Plaintiff

  105. 6

  106. Standby cost of batching plant due to non-delivery of concrete on 27 February 2005

  107. 7

  108. Retention sum of 5%

  109. [86] In our view, the Plaintiff was not entitled to unilaterally or retrospectively impose the 6% administrative charge on the Defendant. Such an administrative charge was not provided for in the Contract and it was not suggested that it operated as an implied term of the Contract. Further, no evidence was tendered that the unilateral imposition of such charges was a market practice. In sum, there was absolutely no basis for the imposition of the administrative charge. As a result, the Plaintiff had wrongfully withheld this sum from the Defendant. On this basis alone, we find that the Defendant was entitled to suspend its supply, and it is therefore unnecessary to consider Items 1, 3 and 6 which were not, apparently and in any event, dealt with expressly by the Judge in the GD. The Plaintiff’s appeal on this issue is therefore dismissed.

  110. Issue (e) – Was the Plaintiff entitled to terminate the Contract on 30 May 2005?

  111. Background and issues

  112. [87] On 30 May 2005, pursuant to cl 8 of the Plaintiff’s letter of intent (set out at [8] above), the Plaintiff terminated the Contract on two grounds:

  113. (a) that the Defendant had continuously fallen short in supply and/or was unable to supply the concrete when ordered by the Plaintiff; and/or

  114. (b) that the Defendant’s supply was unable to meet the LTA’s requirements.

  115. [88] The Judge held that the Plaintiff was entitled to terminate the Contract on both grounds. The Defendant appealed on both findings. We propose to discuss each ground separately. Before proceeding to do so, however, it would be helpful to first briefly outline the general legal position with respect to a breach of contract at common law – not least because this is a confused and confusing area of contract law. It is nevertheless one of the key areas of the law of contract that often arises – and in a practical context as well. It therefore stands in urgent need of clarification, not least in the local context.

  116. General position at common law

  117. [89] We consider, first, the general right to terminate a contract for breach and, secondly, the right to claim damages.

  118. The general right to terminate a contract for breach

  119. (1) The various situations

  120. [90] Turning to the first issue, it is important to note, at the outset, that, in the event of a breach of contract, there is no automatic legal right conferred on the innocent party to the contract (viz, the party who is not in breach of contract) to elect to treat the contract as discharged (ie, to terminate the contract). The circumstances under which such a party is entitled to elect to terminate the contract at common law depends on which particular situation exists. These situations (shorn of more specific and difficult legal issues, as well as special rules with respect to certain specific types of contracts) can be classified into two broad categories. The first broad category is clear and comprises one situation only. The second comprises three situations, the last two of which (whilst distinct) may (depending on the precise facts of the case at hand) conflict with each other. The two broad categories as well as the specific situations therein may be summarised as follows:

  121. (A) WHERE THE CONTRACT CLEARLY AND UNAMBIGUOUSLY PROVIDES FOR THE EVENT OR EVENTS PURSUANT TO WHICH THE INNOCENT PARTY IS ENTITLED TO TERMINATE THE CONTRACT

  122. [91] The first broad category (Situation 1) deals with the situation where the contract clearly and unambiguously states that, in the event of a certain event or events occurring, the innocent party will be entitled to terminate the contract. A clear example of this is, in fact, cl 8 of the Plaintiff’s letter of intent in the present appeal (set out at [8] above). Hence, the other situations are not directly applicable in the present appeal. However, for the sake of completeness and, more importantly, because this entire area is, as already mentioned, one of the more significant (yet complex) areas of the law of contract and there is little by way of clarification in the local case law, we set out briefly the remaining situations as well.

  123. (B) WHERE THE CONTRACT DOES NOT CLEARLY AND UNAMBIGUOUSLY PROVIDE FOR THE EVENT OR EVENTS PURSUANT TO WHICH THE INNOCENT PARTY IS ENTITLED TO TERMINATE THE CONTRACT

  124. (I) INTRODUCTION

  125. [92] The second broad category deals with the situation where the contract does not clearly and unambiguously refer to the right to terminate the contract (unlike Situation 1 above). Under this broad category, there are at least three possible situations under which the innocent party may elect to terminate the contract. The first (Situation 2) is separate and distinct from both Situation 1 above as well as the other two situations under this broad category (Situations 3(a) and 3(b), respectively). The two last-mentioned situations (viz, Situations 3(a) and 3(b)), although separate and distinct, may (under certain fact situations) conflict with each other.

  126. (II) SITUATION 2

  127. [93] In the first situation under this broad category (Situation 2, overall), where a party, by his words or conduct, simply renounces its contract inasmuch as it clearly conveys to the other party to the contract that it will not perform its contractual obligations at all, that other party (viz, the innocent party to the contract) is entitled to terminate the contract.

  128. [94] It should be noted that we do not consider here the more complex situation where the party allegedly renouncing the contract bona fide (albeit erroneously) concludes that it was justified in not proceeding with the contract (for a recent discussion of this specific issue, see the Singapore High Court decision of GIB Automation Pte Ltd v Deluge Fire Protection (SEA) Pte Ltd [2007] 2 SLR 918, especially at [76]–[77] (and the authorities cited therein – in particular, the leading House of Lords decision of Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277)).

  129. [95] There is also a suggestion in a leading textbook that where a contracting party deliberately chooses and is, indeed, “determined” to perform its part of the contract “only in a manner substantially inconsistent with his obligations” (per Lord Wright in the House of Lords decision of Ross T Smyth & Co, Ltd v T D Bailey, Son & Co [1940] 3 All ER 60 at 72, which is termed “substantial breach” by the author) then that, too, will also justify the innocent party’s termination of the contract (see Sir Guenter Treitel, The Law of Contract (Sweet & Maxwell, 11th Ed, 2003) at p 809 (and the authorities cited therein)). With respect, however, and having regard to the substance of (and, more importantly, controversy in relationship between) Situations 3(a) and 3(b) below, the preferable view, in our opinion, appears to be that whether or not the innocent party is entitled to terminate the contract concerned will depend, in the final analysis, upon whether or not the tests pursuant to Situations 3(a) and 3(b) below are satisfied and in the manner or order proposed below.

  130. [96] We acknowledge, however, that there is some merit in Prof Treitel’s suggestion inasmuch as it can be argued that if the defaulting party chooses to perform the contract in a manner substantially inconsistent with its contractual obligations, it is, in substance and effect, renouncing the contract concerned. However, not having heard detailed arguments on this point, we will leave it open for further consideration should a suitable occasion arise in the future. It is interesting to note, however, that if the approach proffered below is adopted, the same result would, in substance, be achieved. In other words, and anticipating somewhat in advance the analysis that is to follow, if the party in breach had breached a condition of the contract, the innocent party would be entitled to terminate the contract but if the party in breach had breached a warranty instead, the innocent party would still be entitled to terminate the contract if there had been a substantial breach.

  131. (III) SITUATION 3(A) – CONDITION/WARRANTY APPROACH

  132. [97] In the second situation (Situation 3(a)), the focus is on the nature of the term breached and, in particular, whether the intention of the parties to the contract was to designate that term as one that is so important that any breach, regardless of the actual consequences of such a breach, would entitle the innocent party to terminate the contract (this is, however, not to say that the consequences of breach are irrelevant inasmuch as the parties have, ex hypothesi, envisaged, in advance, and hypothetically, serious consequences that could ensue in the event of the breach of that particular term). In traditional legal terminology, such a term would be termed a “condition”.

  133. [98] If, however, the intention of the parties to the contract was to designate that term as one that is not so important so that no breach will ever entitle the innocent party to terminate the contract (even if the actual consequences of such a breach are extremely serious), then such a term would be termed a “warranty” (see also, and in a more general vein, the classic exposition by Bowen LJ (as he then was) in the leading English Court of Appeal decision of Bentsen v Taylor, Sons & Co [1893] 2 QB 274 at 281). This “condition-warranty approach” is in fact (in so far as the sale of goods context is concerned) enshrined within the Sale of Goods Act (Cap 393, 1994 Rev Ed). It should be mentioned, at this juncture, that the innocent party would (as we shall see below at [114]) nevertheless be entitled to all the damages that it can establish in law.

  134. (IV) SITUATION 3(B) – THE HONGKONG FIR APPROACH

  135. [99] In the third situation (Situation 3(b)), the focus is not (as in the second (Situation 3(a) above)) on the nature of the term breached (ie, whether it is a “condition” or a “warranty”) but, rather, on the nature and consequences of the breach. In particular, where the breach in question will “give rise to an event which will deprive the party not in default [viz, the innocent party] of substantially the whole benefit which it was intended that he should obtain from the contract” [emphasis added], then the innocent party is entitled to terminate the contract. The words just quoted are from the oft-cited judgment of Diplock LJ (as he then was) in the seminal English Court of Appeal decision of Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 70 (“Hongkong Fir”). Not surprisingly, perhaps, this approach has been termed “the Hongkong Fir approach”. It is an approach under which the innocent party is entitled to terminate the contract if the nature and consequences of the breach are so serious as to “go to the root of the contract” (see the House of Lords decision of Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 422, per Lord Upjohn) and constitutes a “fundamental breach” of contract (see also per Lord Diplock in the House of Lords decision of Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 (“Photo Production”) at 849, where the learned law lord also referred to the concept of the “condition” in the sense referred to in Situation 3(a) above).

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