High Court · Decided 29 October 2010

MGA International Pte Ltd v Wajilam Exports (Singapore) Pte Ltd

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[2010] SGHC 319Case no. Suit No 545 of 2008

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Belinda Ang Saw Ean J:
Introduction
[1] The plaintiff, MGA International Pte Ltd (“MGA”), is a Singapore-incorporated company whose principal activity is log trading. The plaintiff’s Chairman and Managing Director, Gupta Mukesh (“Mukesh”), owns 30% of MGA’s issued capital and the remaining 70% is held indirectly by Mukesh and his wife through an Indian company called Shipra Ocean Trade Private Limited. The defendant, Wajilam Exports (Singapore) Pte Ltd (“Wajilam”), is in the business of wholesale trading in spices. It also trades in logs and provides trade financing to other log traders. Wajilam’s Managing Director is Tarun Chamanlal Mehta (“Tarun”).
[2] Typically, MGA would finance its purchases of round logs by arranging for Wajilam, a third party, to use its bank facilities to apply for letters of credit. For present purposes, the action concerns and turns on the basis upon which Wajilam provided trade finance to MGA for its purchase of PNG round logs shipped onboard the “Marina I”. Counsel for both sides confirmed on the sixth day of the trial on 18 January 2010 that the narrow issue before the court relates to the quantum of Wajilam’s commission: the question of whether the commission should be the sum of US$376,477.67 or US$70,170.19 depends on what was the commission term upon which Wajilam provided trade finance to MGA. However, if the court rejects the opposing views of the parties, MGA’s argument is that a reasonable sum is to be paid as commission. I should mention that Wajilam does not object to the use of the word “commission” to refer to the remuneration for its services to MGA. Wajilam’s objection was to being called a “commission agent”, which Wajilam insisted it was not. Therefore, in this judgment, for convenience, the word “commission” or “remuneration” is used interchangeably.
Overview
[3] The plaintiff company, MGA, was incorporated in 2003 after Mukesh relocated to Singapore and became a permanent resident. As early as 1987, Mukesh imported logs from Malaysia to sell to buyers in India. According to Mukesh, Indian financial institutions generally issued “usance” letters of credit which would pose a problem for Muksesh as log suppliers in Malaysia wanted their sale to be based on “sight” letters of credit. To resolve this documentary credit mismatch, Mukesh would arrange for a third party to apply to its bank for letters of credit to finance his company’s purchases. In return, Mukesh would reimburse the third party for the value of the letter of credit, bank charges and, in addition, pay a commission for its finance services.
[4] From 1987 until 2000, Mukesh would finance its purchases in the way described by arranging for either Trusha Impex Pte Ltd (“Trusha”), Tat Hin Timber Pte Ltd (“Tat Hin”), or Wajilam to open letters of credit in favour of his suppliers. During that time, besides Malaysian suppliers, Mukesh bought logs from suppliers in other regions like Africa, Solomon Islands, New Zealand, Russia, and Alaska. After 2003, Mukesh also obtained logs from Guyana and Papua New Guinea (“PNG”).
[5] Between June 2006 and November 2007, MGA financed its purchases of round logs by arranging with Wajilam to apply to its bank(s) for letters of credits to be opened in favour of MGA’s suppliers (hereafter referred to as “the trade finance services”). The letters of credits opened in favour of suppliers named by MGA are hereafter referred to as “the import letters of credit” or “the import letter of credit” as the case maybe. It is common ground that the parties treated each and every finance transaction according to shipments as distinct and separate. Most of the shipments were for round logs of Sarawak origin while three other separate shipments were for logs from Guyana. The Marina I shipment was the only one involving round logs from PNG. MGA on its part, agreed to name Wajilam as beneficiary of the letters of credit or other documentary credits opened by its buyers in the India (“the export letters of credit” or “the export letter of credit” as the case maybe). In addition, any cash advances received by MGA from its Indian buyers would be directed to Wajilam. In providing the trade finance services to MGA, Wajilam would be able to discount the bills of exchange; and where necessary, Wajilam would have recourse against MGA as well as the buyers in India as acceptors of the bills of exchange. MGA on its part had also agreed to reimburse the amount of the import letter of credit and expenses connected with the opening of the import letter of credit including late payment interest at the rate of 12% per annum.
[6] Although not expressly discussed, it was also understood that at the end of the finance transaction, Wajilam would prepare what was known as a “transaction statement”, setting out in detail, amongst other things, the following matters:
(i) the cash portion and the proceeds received by Wajilam under the export letter of credit;
(ii) the amount paid under the import letter of credit;
(iii) the expenses and disbursements that Wajilam had paid out in the course of the finance transaction which MGA was required to reimburse Wajilam; and
(iv) the commission payable to Wajilam.
[7] A typical transaction statement would enable both parties to reconcile their accounts after the completion of the transaction in order to determine who should pay whom and the exact amount to be paid.
[8] It is common ground that the purchases of round logs were duly shipped and paid for by MGA under the respective import letters of credit. Hence, to clarify, this case is not about non payment of bills of exchange, documents against acceptance or other forms of documentary credit that had fallen due and went unpaid in respect of the export letters of credit.
[9] Both sides understood, and there is no dispute, that Wajilam would be paid a commission for providing trade finance services to MGA. The present dispute is limited to the amount of commission to be paid (hereafter referred to as “the contractual claim”). MGA’s pleaded case is that commission was calculated by reference to the quantity of the logs bought and resold (ie, 14,034.038 cubic metres (“cbm”) which was in fact the actual quantity of logs shipped), and, based on the parties’ prior dealings, the rate of commission applicable to the subject transaction was US$5 per cbm. In response, counsel for Wajilam, Ms Wendy Tan (“Ms Tan”) argued that there was no agreed rate of commission as pleaded by MGA. Instead, it was an implied term of the contract between the parties that Wajilam had absolute discretion to decide its own remuneration or commission for providing trade finance services (this alleged term will hereafter be referred to as “the discretionary commission term”), and that was the basis upon which Wajilam had provided trade finance services. I noted that the evidence on the key issues as described was primarily oral. The persons involved in the negotiations for the financing of MGA’s purchases of round logs, in so far as it may be relevant, were Mukesh (on behalf of MGA) and Tarun (on behalf of Wajilam). The conversations between the two protagonists were not documented and much will turn on the oral testimony of both men. One additional thing to note is that, in this judgment, I have not referred to a large part of the evidence that was adduced before me because that evidence has no bearing upon the issues to be decided in this action.
The Marina I shipment of PNG round logs
[10] The facts concerning the purchase of PNG round logs, which were shipped onboard the Marina I, are straightforward. In or about early June 2007, Mukesh spoke to Tarun about MGA’s purchase of 14,034.038 cbm of round logs of PNG origin from a Hong Kong company called Borion Enterprise Limited (“Borion”). The sale was initially on FOB terms and MGA as FOB buyer chartered the Marina 1 to carry the logs from PNG to India. The freight was approximately US$1.2m. According to Mukesh, MGA managed to raise only US$400,000 for the freight. Mukesh therefore began negotiations with Borion to change the terms of sale from FOB to CNF terms (with a corresponding increase of the price) so that Borion would bear the freight upfront. Borion eventually acceded to Mukesh’s request to sell the PNG round logs on CNF terms. As such, the purchase price for the PNG round logs was increased from US$4,882,275.16 to US$5,674,115.84 (which sum took into account the US$400,000 advance freight made to Borion). I note that there is no documented evidence before the court as to who paid the freight of US$400,000. Each party claimed to have paid US$400,000 freight to Borion. There is no dispute that the CNF letter of credit value is US$5,832,000.
[11] As usual, Wajilam prepared the consolidated statement dated 14 November 2007 (the “sixth consolidated statement”) and sent it to MGA on the same date. Attached to it was a cash flow statement dated 6 November 2007 for the Marina 1 finance transaction. It showed to MGA’s credit, a cash surplus of US$998,500.18. This sum was derived from the proceeds of the export letter of credit in Wajilam’s favour. The consolidated statement showed the running account balance as of 11 September 2007 as being US$11,730.64 in favour of MGA. This figure of US$11,730.64 was arrived at after deducting from the cash surplus of US$998,500.18, (a) US$892,700.92 being the previous balance in favour of Wajilam, and (b) two other sums of US$78,000 (for a payment made on behalf of MGA by Wajilam on 15 August 2007) and US$16,068.62 (interest on the running balance from 19 July until 11 September 2007). Notably, there was no entry showing Wajilam’s commission for the Marina 1 finance transaction in the sixth consolidated statement.
[12] Two weeks later, on 28 November 2007, Agarwal Soham Ghanshyam (“Soham”) (he is now the Assistant Vice-President of MGA), sent Wajilam an e-mail with a consolidated statement (the “seventh consolidated statement”) attached to it. (At the material time, Soham was the person handling MGA’s accounts and he was responsible for checking MGA’s accounts with Wajilam.) This time around, unlike the previous occasions, it was MGA, instead of Wajilam, who prepared the consolidated statement. The title heading for the seventh consolidated statement was “Wajilam Account 15/07/2007 to 28/11/2007 – ROUGH” and it included entries pertaining to the Marina 1 shipment as well as one other MGA purchase of Guyana logs which the parties had referred to as “the Barama container shipment” (see [34] below for details). Also in the statement was an entry described as “Marina-1 Commission (14,034.038 cbm @ USD 5)” with the corresponding figure of US$70,170.19. In the seventh consolidated statement (based on MGA’s computation), the running account balance as at 28 November 2007 was US$477,424.11 in favour of MGA.
[13] Even though Tarun received Soham’s e-mail and its attachment, he did not respond to it, in particular, the rate of commission at US$5 per cbm of the quantity of round logs shipped onboard the Marina I. Eventually, MGA learnt that Wajilam had taken 50% of the net profit as its commission. That worked out to be US$376,477.67 as compared to MGA’s figure of US$70,170.19 which was based on the rate of US$5 per cbm of the actual quantity of round logs shipped. I now turn to the rival arguments.
MGA’s case on commission
[14] MGA’s pleaded case is that Wajilam was engaged as its commission agent to provide trade finance services on the terms set out in paragraphs 3 to 15 of the Statement of Claim (Amendment No 1). As already mentioned in brief at [9] above, it was specifically pleaded (at paragraph 5) that the commission was calculated by reference to the quantity of the logs bought and resold (ie, 14,034.038 cbm which was in fact the actual quantity of logs shipped), and, based on the parties’ prior dealings, the rate of commission applicable to the subject transaction was US$5 per cbm. It was not disputed by Wajilam that for round logs from Sarawak, Wajilam would receive commission at the rate of US$3 per cbm of the quantity of logs shipped, and for round logs from Guyana, Wajilam would receive commission at the rate of US$5 per cbm of the quantity of logs shipped. In his written testimony at paragraph 34, Mukesh recounted his understanding with Tarun on the matter of commission as follows:
[15] The relevant part of Wajilam’s letter of 25 July 2007 (“the 25 July letter”) is at paragraph 9, where Tarun wrote:
[16] Mukesh confirmed that the rate or amount of commission was not specifically discussed with Tarun when they spoke to arrange the opening of the import letter of credit for MGA’s purchase of the PNG logs from Borion. However, MGA never expected to pay anything more than US$5 per cbm of the quantity of logs shipped given that the sea voyage from PNG to India is shorter than the sailing time from Guyana to India. To elaborate, Mukesh’s evidence was that the commission to be paid to Wajilam was to compensate it for the risks involved in utilising its banking lines to open the import letter of credit before the export letter of credit was opened in its favour.(Usually, the import letter of credit is opened well before the export letter of credit, which is typically opened only when the vessel is near or has arrived at the discharge port.) As the sea voyage from PNG to India would take an average of about 20 to 25 days (as compared to 12 to 14 days for a sea voyage from Sarawak to India, and 40 to 45 days for a sea voyage from Guyana to India), Mukesh reckoned that the rate of commission would, at most, be US$5 per cbm of the quantity of logs shipped, and not as much as US$26.82 per cbm that was charged (taking US$376,477.67 ÷ 14,034.038 cbm of logs shipped). Mukesh’s point as explained by MGA’s counsel, Mr John Seow (“Mr Seow”) in his closing submissions was that the factor to look at was the turnaround time needed to free the credit line that was utilised and committed to a particular transaction. Elaborating, Mr Seow said:
[17] Simply put, MGA’s case was that the formula explained at [16] above had been used in the past dealings between the parties, which had involved logs from either Sarawak or Guyana, to determine the commission to be paid to Wajilam. Although the Marina I shipment involved logs of PNG origin, the formula by which the commission was determined was the same and constituted a contractual term incorporated by the parties’ previous course of dealings (hereafter referred to as “MGA’s incorporated term”). Applying MGA’s incorporated term argument, Wajilam’s remuneration or commission would be US$5 per cbm of the quantity of logs shipped onboard the Marina I. MGA’s fallback argument is that a reasonable sum is to be paid as commission. On the evidence before the court, Mr Seow submitted that the reasonable rate of commission on a quantum meruit basis should also be no more than US$5 per cbm. In summary, MGA’s position was that commission should either be US$70,170.19, or a reasonable sum calculated on a quantum meruit basis.
Wajilam’s case on commission
[18] Counsel for Wajilam, Ms Tan, contended that there was no implied contractual term for Wajilam to be remunerated at the rate of US$5 per cbm of the quantity of PNG logs shipped onboard the Marina I. Rather, it was an implied term of the parties’ contract that Wajilam would be paid commission at a rate or amount as Wajilam deemed fit and/or reasonable. (I earlier referred to this term as the “discretionary commission term” at [9] above.) Ms Tan submitted that the discretionary commission term was a term (a) implied by conduct; or (b) implied to give effect to business efficacy to the parties’ agreement; or (c) incorporated in the agreement based on the parties’ previous course of dealings. In this regard, Ms Tan sought to examine the conduct of the parties throughout their relationship to support Wajilam’s case that on each and every occasion when Wajilam had provided trade finance services to MGA, Mukesh had left the rate or amount of commission to be determined by Tarun. Ms Tan sought to use that modus operandi as the basis for implying or incorporating a term that the commission rate or amount for the Marina 1 shipment would be at a rate or an amount which Wajilam deemed to be fit and/or reasonable in its absolute discretion. In the circumstances, Wajilam was exercising its contractual discretion when it charged 50% of the net profit (ie, US$376,477.67) as its commission for that shipment. Accordingly, MGA’s action should be dismissed.
Outline of this judgment
[19] The main question to be decided in the action is: what was the basis upon which Wajilam was to be paid commission? There are two opposing positions: (a) MGA’s position is that it was an incorporated term of the contract that Wajilam would be paid commission at the rate of US$5 per cbm of the quantity of the logs shipped, and (b) Wajilam’s position is that the contract has an implied or incorporated term that Wajilam has absolute discretion to decide the amount of commission to be paid. Ms Tan submitted that the opposing views are different sides of the same coin, and as such, she would only need to deal with issue (b) which is Wajilam’s case on contractual discretion. I agree with Ms Tan’s submissions only to the extent that if Wajilam manages to prove the existence of the discretionary commission term, then obviously MGA’s incorporated term in issue (a) cannot stand. However, it does not follow that MGA’s incorporated term in issue (a) is proven if Wajilam cannot prove issue (b). From this perspective, the parties’ opposing views on the term governing commission rate are not different sides of the same coin, and a third outcome is possible, where the court rejects the opposing views because neither view is tenable. In the event, the court can hold that there was a valid contract by implying a term in fact that a reasonable sum was to be paid as commission. The discussions below will follow the sequence of the various permutations outlined here.
[20] Wajilam’s case on contractual discretion involves a consideration of two matters: First, whether the discretionary commission was a term allegedly agreed orally at the discussion between Mukesh and Tarun way back in June 2006 when Mukesh approached Tarun to finance MGA’s Guyana log purchases (hereafter referred to as “the First Transaction” and see [22] – [25] below). Second, if the answer to the first inquiry is in the affirmative, the next consideration is whether the discretionary commission term was incorporated by a prior course of dealing(s) into the agreement to provide trade finance services for MGA’s purchase of PNG logs in June 2007. In my view and judging from the facts in evidence, the straightforward analysis that relies on a course of dealing to enable the Wajilam to rely on the discretionary commission as an incorporated term of the contract is the correct way of putting Wajilam’s case. Its alternative case for implication of a term (ie, the discretionary commission) by the conduct of the parties, or implied to give business efficacy to the contract is completely misconceived. Conceptual difficulties make the alternative case for implication of the term hopeless, and quite apart from this, there is no need for a term on discretionary commission to be implied into the agreement for business efficacy. I say no more about that misguided assertion.
[21] Both sides relied on prior dealings to imply or incorporate the commission term. In the circumstances, to consider the main question, it is necessary to now set out the past transactions in some detail.
The history of the parties’ relationship
The Vinashin Sun/Royal transaction (“the First Transaction”)
[22] Sometime in June 2006, Mukesh approached Tarun to procure Wajilam’s assistance to open an import letter of credit in favour of a company in Guyana by the name of Barama Company Ltd (“Barama”). Mukesh had successfully negotiated, on behalf of MGA, the purchase of Guyana round logs, and needed financing. At that time, MGA had credit facilities with the following three banks: Bank of East Asia, United Overseas Bank, and Oversea Chinese Banking Corporation (“OCBC Bank”); and the credit limits from those bank facilities were S$1m, approximately S$1.5m, and US$2.5m respectively. At the material time, MGA’s credit line with OCBC Bank was frozen (to use Mr Seow’s terminology) on account of some problems with earlier shipments involving the vessels Annie Sierra and Trinity Sierra. In June 2007, at the time of the Marina I transaction, MGA’s bank facility with the OCBC Bank was US$6m.
[23] It was at this meeting in June 2006 that Tarun and Mukesh agreed to the following arrangement:
(i) Wajilam would open the import letter of credit in favour of Barama and also pay the freight and insurance premium for the shipment of the logs from Guyana to India.
(ii) MGA would arrange for its Indian buyers to open export letter of credit in favour of Wajilam. Any cash advance from the Indian buyers would be directed to Wajilam.
(iii) Wajilam would then deduct, utilising the receipts from the export letter of credit, the following items: (a) the expenses that would be borne by MGA, and (b) Wajilam’s commission.
(iv) Wajilam would return the balance receipts, if any, to MGA.
[24] Since MGA was buying the round logs from Barama on FOB terms and subsequently on-selling them to its Indian buyers on CIF terms, MGA, as the party responsible for chartering the vessel to ship the logs, had the opportunity to make additional profits over and above its trading profits if it managed to secure cheaper freight rates. MGA initially signed a fixture note for the Vinashin Sun in May 2006, but as it turned out, the vessel was delayed and MGA had to ship the logs on another vessel, the Royal. Later on, MGA decided to purchase more logs from Barama, and this time they were shipped onboard the Vinashin Sun. In all, the two shipments of logs from Guyana to the Indian ports of Kandla and Tuticorin came up to approximately 16,516.2806 cbm of round logs.
[25] Wajilam’s commission was agreed at the rate of US$5 per cbm of the quantity of logs shipped. The dispute is as to how the rate was arrived at, and I will come to this aspect of the dispute later. More importantly, both sides conceded that, at that point in time, the arrangement between them in respect of the First Transaction was contemplated as a one-off transaction.
The Dynasty finance transaction
[26] Shortly after the First Transaction was agreed by the parties, MGA and Wajilam entered into a second trade finance transaction in June 2006 (“the Dynasty finance transaction”). This time, MGA had purchased 2,202.3228 cbm of Sarawak round logs from a Malaysian company, Kayuneka Sdn Bhd (“Kayuneka”), on FOB terms for the price of US$400,000. The Sarawak logs were to be shipped on the vessel Dynasty around mid-2006 for carriage to India. Since MGA had already paid for the freight, Wajilam was only required to open the import letter of credit in favour of Kayuneka and to pay the insurance premium for the shipment. Other than that, the same arrangement that was agreed for the First Transaction applied to the Dynasty finance transaction as well. Wajilam opened the import letter of credit in June 2006.
[27] On the matter of commission, Mukesh testified that he and Tarun discussed the rate of commission at a meeting in June 2006, and it was agreed that commission was to be at the rate of US$3 per cbm for the quantity of Sarawak logs shipped. Mukesh’s testimony was rejected by Tarun who denied any such discussion or agreement.
[28] Eventually, Wajilam did not charge any commission for the Dynasty finance transaction. Tarun claimed that since MGA made a loss on the Dynasty shipment, Wajilam decided not to charge any commission. Simply put, it was Wajilam’s case that since MGA had left it to Wajilam to decide on its own remuneration as Wajilam deemed it fit and/or reasonable, it was Wajilam’s prerogative not to charge any commission. By contrast, Mukesh testified that the commission rate had earlier been agreed at US$3 per cbm, and the commission, which amounted to about US$6600, was a small sum to forego and he interpreted the accommodation as a goodwill gesture on the part of Wajilam to promote a newly developed business relationship for future gains.
The four Sawarak shipments
[29] On or about August 2006, Wajilam opened letters of credit in respect of MGA’s purchases of 2,118.9149 cbm and 1,870.9054 cbm of Malaysian round logs of Sarawak origin, which were shipped on the vessel Success (v4/06) and the vessel Seletar (v6/06) respectively. The import letters of credit in question were opened by Wajilam on 18 August 2006. There were two further letters of credit opened by Wajilam for MGA’s purchases of 4,539.7389 cbm and 3,928.1249 cbm of Sarawak logs, which were shipped onboard the vessel Asean Unity (v6/06) and the vessel Asean Victory (v8/06) respectively. The import letter of credit for the Asean Unity (v6/06) shipment was opened on 18 August 2006, and the import letter of credit for the Asean Victory (v8/06) shipment was opened on 19 September 2006. Wajilam’s commission for each of the four Sarawak shipments was based on the rate of US$3 per cbm of the quantity of logs shipped. Tarun maintained that US$3 per cbm was the rate which he had deemed it fit and/or reasonable to charge as its commission. Mukesh disagreed, arguing that it had nothing to do with the alleged oral term on discretionary commission. I took him as adopting the evidence in paragraph 30 of his written testimony (see [16] above).
The Royal Crystal transaction
[30] The next shipment that followed was for 19,863.7594 cbm of Sarawak logs. After MGA had secured the supplier and Indian buyers for the shipment, Mukesh approached Glory Ship Management Pte Ltd to enquire about freight rates. After he learned that the freight rate would be in the region of US$53 to US$55 per cbm, Mukesh decided to approach Wajilam in the hope of obtaining cheaper freight. Subsequently, Tarun succeeded in chartering the Royal Crystal at a cheaper freight rate. The import letter of credit for this shipment was opened by Wajilam on 8 November 2006. MGA paid Wajilam 50% of the profit earned as commission instead of the usual US$3 per cbm for Sarawak logs. This transaction was viewed as an exception by Mukesh since Tarun had chartered the vessel “Royal Crystal”. He also stated in his written testimony that it was specifically agreed with Tarun, and this agreement was reached in “late October 2006, or early November 2004, or shortly after”, to pay Wajilam a commission of 50% of the profit derived from the transaction. Tarun subscribed to the opposite view arguing that Wajilam was exercising its contractual discretion when it charged 50% of the profit as its commission.
The Dana Muheiddine transaction
[31] The following transaction concerned logs of Guyana origin and shipped onboard the vessel Dana Muheiddine. The import letter of credit for this purchase was subsequently opened by Wajilam on 21 November 2006. Before that, in or about October 2006, MGA had separately purchased from Wajilam, on CFR terms, a cargo of Ghanaian teak round logs which were to be shipped from Takoradi, Ghana to Kandla, India, also onboard the vessel Dana Muheiddine. Wajilam then entered into the fixture of the vessel for this transaction instead of MGA. Tarun deposed that there were no discussions or negotiations on the rate of commission as the amount of commission was left to Wajilam to decide. He followed the First Transaction as Guyana logs were involved and adopted the same rate of US$5 per cbm of the quantity of logs shipped. Mukesh agreed that the rate of commission was US$5 per cbm for Guyana logs but disagreed that the rate had anything to do with the alleged contractual discretion.
The seven Sarawak shipments
[32] After the Dana Muheiddine transaction, there were a total of seven shipments of Sarawak logs to India: the vessels were the Seletar (v2/07), Oriental Glory (v3/07), Asean Unity (v3/07), Seletar (v3/07), Success (v5/07), Asean Victory (v4/07), and Asean Mariner (v4/07). Again at Mukesh’s request, Wajilam opened import letters of credit for MGA’s purchases. The import letters of credit were opened in March 2007, April 2007 and May 2007. Tarun maintained that US$3 per cbm was the rate which he had deemed it fit and/or reasonable to charge as Wajilam’s commission. Mukesh disagreed. As Sarawak logs were involved, the applicable rate was US$3 per cbm. It had nothing to do with the alleged contractual discretion.
The Marina 1 transaction
[33] As stated in [10] above, in early June 2007, Mukesh spoke to Tarun about MGA’s purchase of 14,034.038 cbm of logs of PNG origin from Borion. Subsequently, two import letters of credit were opened by Wajilam: the first was on 22 June 2007, and the second one was on 2 July 2007. Wajilam argues that it was exercising its contractual discretion when it charged 50% of the net profit as its commission. This contention was rejected by MGA.
The Barama shipment in containers
The Oriental Glory (v9/07) transaction
[35] This was the last transaction between the parties. The shipment was for logs of Sarawak origin which were shipped onboard the vessel Oriental Glory (v9/07). Wajilam opened the import letter of credit in November 2007. Again there was no discussion or negotiation on the rate or amount of Wajilam’s commission. Wajilam maintained that commission was left to it to decide, and that it was exercising its contractual discretion when it charged the rate of US$3 per cbm as its commission. Again, this contention was rejected by MGA.
The running account and the account statements
[36] After the successful conclusion of the first few shipments, the parties began, out of convenience, to maintain a running account between them. This was largely because there would be a new trade finance agreed to before the previous one was completed. The amounts due in the running account would be updated from time to time in what was referred to as “consolidated statements”, which were prepared by Wajilam and sent to MGA for verification and acceptance. It was Soham’s responsibility to verify the statements from Wajilam.
The first consolidated statement
[37] The first consolidated statement was dated 24 November 2006, and it reflected the running account balance as US$1,602,784.98 in favour of Wajilam as at that date. The first consolidated statements covered the shipments on the following vessels:
(i) the Vinashin Sun/Royal;
(ii) the Dynasty; and
(iii) the four Sarawak shipments (see [29] above).
Attached to the first consolidated statement were the individual transaction statements concerned.
[38] There was one transaction statement for the Vinashin Sun shipment, and another for the Royal shipment. In the Vinashin Sun transaction statement, an entry described as “Commission to Wajilam Exports at USD 5/- per cbm” can be found with the corresponding figure of US$35,777.20. In the Royal transaction statement, there was also an entry for Wajilam’s commission at the rate of US$5 per cbm with the figure of US$47,004.21 stated.
[39] For the four Sarawak shipments, each and every one of the transaction statements had an entry described as “Commission to Wajilam Exports at USD3/- per cbm” and the following figures: US$16,562.18 for the Success (v4/06) transaction statement; US$5,612.72 for the Seletar (v6/06) transaction statement; US$13,619.22 for the Asean Unity (v6/06) transaction statement; and US$11,784.37 for the Asean Victory (v8/06) transaction statement.
[40] In contrast, there was no entry for commission in the Dynasty transaction statement.
The second consolidated statement
[41] The second consolidated statement was dated 31 January 2007 and the amount due from MGA to Wajilam was updated to US$988,068.27. The finance transactions involving the vessels listed below were included in the consolidated statement:
(i) the Dana Muheiddin; and
(ii) the Royal Crystal.
[42] In the transaction statement for the Dana Muheiddin, Wajilam’s commission was US$45,919.47 based on US$5 per cbm. Although there was no entry for Wajilam’s commission in the Royal Crystal transaction statement, MGA was given credit for only 50% of the profit derived from the Royal Crystal shipment.
The third consolidated statement
[43] The third consolidated statement was in fact two statements in one and it reflected the amounts due from MGA to Wajilam on two different dates. As of 31 March 2007, the amount due from MGA to Wajilam was shown as US$907,133.44 whereas as of 30 April 2007, the amount due, after taking into account the Oriental Glory (v3/07) shipment, the amount due from MGA was reduced to US$741,739.44. Soham confirmed the correctness of this figure of US$741,739.44 in an e-mail dated 17 May 2007.
[44] Attached to the third consolidated statement were two transaction statements. In the Seletar (v2/07) transaction statement, Wajilam’s commission rate and commission amount were reflected as US$3 per cbm and US$8,496.16 respectively. The commission rate and commission amount reflected in the Oriental Glory (v3/07) transaction statement were US$3 per cbm and US$9,036.79 respectively.
The fourth consolidated statement
[45] Although the fourth consolidated statement was dated 9 May 2007, it did not update the running account balance, but merely supplied the supporting accounts for the period of time between the second and third consolidated statements (31 March and 30 April 2007). The running account balance in the fourth consolidated statement was reflected as US$790,986.67. That was in fact used as the opening figure in the third consolidated statement. Therefore, the running account balance as of 9 May 2007 remained the same as the amount in the third consolidated statement: the sum of US$741,739.44 in favour of Wajilam.
The fifth consolidated statement and the 25 July letter
[46] The fifth consolidated statement was dated 19 July 2007, and it was sent to MGA as an attachment to a letter dated 25 July 2007 (ie, the 25 July letter). By then, the running account balance due from MGA to Wajilam had increased to US$892,700.92. The following statements were included with the fifth consolidated statement:
(i) the “interest calculation statement” for the Barama container shipment;
(ii) the “interest calculation statement” for the Vinashin Sun/Royal shipments;
(iii) the “interest calculation statement” for cash advances and other finance transactions;
(iv) five transaction statements for five of the Sarawak shipments, namely, Asean Unity (v3/07), Seletar (v3/07), Success (v5/07), Asean Victory (v4/07), and Asean Mariner (v4/07);
(v) the “cash difference statement” for five of the Sarawak shipments;
(vi) the “bank charges and interest statement”; and
(vii) a consolidated statements for five of the Sarawak shipments.
The text of paragraph 9 of the 25 July letter is already set out in [15] above.
The sixth consolidated statement
[47] I have already mentioned in detail the sixth consolidated statement dated 14 November 2007 in [11] above. Notably, there was no entry of Wajilam’s commission for the Marina 1 finance transaction in the sixth consolidated statement.
[48] It was undisputed that MGA had received all six of the abovementioned consolidated statements.
The seventh consolidated statement from MGA
[49] I have also mentioned in detail the seventh consolidated statement in [12] above, and will not cover the same material here.
[50] Tarun admitted to receiving Soham’s e-mail and the seventh consolidated statement as an attachment but did not respond to it.
The genesis of the dispute in this action
The e-mails from MGA asking for the accounts
[51] In December 2007, Mukesh began e-mailing Tarun for what he had termed “the old account”. In an e-mail dated 21 December 2007, Mukesh wrote:
[52] Around two weeks later, Mukesh wrote to Tarun again on 5 January 2008:
[53] Tarun replied e-mail on the same day as follows:
[54] To that, Mukesh responded, also on the same day:
[55] More than a week later, on 17 January 2008, Mukesh sent an e-mail chaser:
[56] Tarun’s replied as follows:
[57] Mukesh’s response was as follows:
[58] Mukesh wrote to Tarun twice, on 24 and 28 January 2008 repeating his request for “the old a/c”.
[59] Finally, on 18 February 2008, Tarun wrote to Mukesh to notify him that the accounts would be finalised soon and acknowledged the delay in producing the accounts:
[60] The next day, on 19 February 2008, it was Soham’s turn to write to Tarun, asking him to “finalise [MGA’s] account” and to give them the balance after deducting any outstanding “DA bills”.
[61] Three days later, on 21 February 2008, Mukesh wrote to Tarun asking for payment:
[62] The following day, on 22 February 2008, Soham again wrote to Tarun with the same request.
[63] Subsequently, MGA’s solicitors issued Wajilam a letter of demand on 11 April 2008 demanding a sum of US$512,594.35, which was the sum total of US$477,424.11 (the running account balance in favour of MGA as of 28 November 2007 according to the seventh consolidated statement: see [12] above) and US$35,170.24 (the interest from 22 August 2007 until 31 March 2008 at 12% per annum).
Discussions and decision on the contractual claim for commission
[64] The material facts that are not in dispute are:
[65] Neither party is taking the position that there was no contract even though remuneration was not actually discussed at the time Tarun agreed to provide trade finance services to MGA for its purchase of PNG logs. Both sides relied on prior dealings to imply or incorporate the commission term.
MGA’s incorporated term
[66] MGA’s incorporated term depended on the formula explained at [16] as the basis upon which Wajilam was “engaged” to provide trade finance services. Mr Seow conceded that his argument on MGA’s incorporated term would only succeed if the court accepts Mukesh’s evidence on the formula at [16]. In my view, Mr Seow’s argument on MGA’s incorporated term is not made out due to a number of inconsistencies contained in MGA’s own pleadings and evidence. First, nowhere in MGA’s pleaded case was there any mention of the formula explained at [16]. The assertion that the commission rate per cbm was dependent on the duration of the sea voyage only surfaced as a factor in Mukesh’s written evidence (see [16] above). Second, not only was the alleged formula not pleaded, the formula is inconsistent with the position taken in the pleadings. The pleaded case is that the terms of MGA’s “engagement” of Wajilam’s services are those set out at paragraphs 3 to 15 of the Statement of Claim (Amendment No 1), of which paragraph 5 deals specifically with commission, and how it was to be calculated by reference to the actual quantity of the logs shipped and the rate per cbm was dependent on the origin of the logs. Third, the inherent inconsistencies in Mukesh’s written testimony militate against the veracity of the MGA’s incorporated term. Inconsistencies can be found by comparing different parts of Mukesh’s own written testimony. In particular, Mukesh claimed in paragraph 34 of his written testimony that the rate of US$5 per cbm was specifically intended for Guyana logs, and that the parties were expected to negotiate the rate or amount of commission if the origins of the logs were not Sarawak and Guyana (see [14] above). Since it was common ground that the Marina I shipment was the first trade finance transaction involving PNG logs, and if paragraph 34 of Mukesh’s testimony is to be believed, parties would have had to expressly agree on the rate of commission for the Marina I shipment because it involved a new source of logs. Hence, on the one hand, MGA was claiming that the remuneration for Marina I had to be expressly agreed because it involved a new source of logs, and on the other, it was arguing that the term of remuneration was incorporated through the parties’ previous course of dealings in transactions that did not involve PNG logs. Finally, even MGA’s own witness, Ngui Ing Chuang (“Mr Ngui”) did not support Mukesh’s testimony on the vital point that voyage duration was a factor. Mr Ngui testified that, in his experience, the length of sea voyage was never a consideration in determining commission in trade finance.
Wajilam’s discretionary commission term
[67] It must be remembered that there was no actual discussion between Tarun and Mukesh as to the commission payable to Wajilam for financing the Marina I shipment of PNG logs. According to Wajilam’s pleaded case, it had contractual discretion to decide on its own remuneration or commission. This carte blanche authority was given at the First Transaction, and repeated in subsequent shipments on the same basis. In the premises, for the trade finance services provided to MGA for the purchase of the PNG logs, Wajilam had deemed it fit to fix its remuneration at 50% of the net profit.
[68] I will first decide whether the discretionary commission term was allegedly agreed orally in the First Transaction. Consideration of Wajilam’s case as to incorporation which rests on a prior course of dealing only arises if there is a finding that there was an agreement on discretionary commission.
[69] I begin with Wajilam’s pleaded case. The plea in the Defence (Amendment No 1) is that the discretion on remuneration or commission was agreed between Tarun and Mukesh when they discussed the First Transaction in June 2006. The relevant part of paragraph 4 of the Defence (Amendment No 1) reads:
[70] On the question of remuneration, Tarun recounted his June 2006 conversation with Mukesh in paragraph 15 of his written testimony as follows:
[71] In contrast, MGA’s case is that there was some discussion on the amount of commission payable to Wajilam for providing trade finance services in respect of the First Transaction but not in the way recounted by Tarun. I interpret Mukesh’s evidence as denouncing as absurd the grant of absolute discretion to Wajilam to decide on Wajilam’s commission as it would be tantamount to giving Wajilam a blank cheque to fill in whatever figure it wanted. He pointed out in his testimony that no businessman would take an open position without first knowing the numbers. In my judgment, Mukesh’s account of the facts seemed more probable than Tarun’s version.
[72] Mukesh explained the sequence of the discussion as follows:
[73] Explaining further, Mukesh said:
[74] Ms Tan’s submissions focussed on the manner in which the parties dealt with each other to support her contention that it was not so commercially implausible to have given carte blanche authority to Wajilam to decide on its own remuneration. She relied on Tarun’s evidence that (a) Tarun and Mukesh were close friends and that Mukesh trusted Tarun to be fair and reasonable in deciding Wajilam’s commission; (b) MGA was in financial difficulties on account of two troublesome shipments involving the vessels, Annie Sierra and Trinity Serra in June 2006. Against this factual matrix, and being “cash strapped” as Tarun puts it in his written testimony, MGA was in no position to dictate terms. Evidence of the state of MGA’s banking facilities was put before the court. In addition, the pattern of past conduct and previous course of dealings were said to bear out the existence of the oral term on discretionary commission. Needless to say, Mukesh rejects the evidence as completely untrue, and in any case maintained that the notion of discretionary commission was commercially implausible and illogical. I will now discuss the various arguments in turn.
[75] Wajilam’s submission that MGA was in no position to dictate terms and would have willingly agreed the term as to discretionary commission in order to secure financial assistance for the First Transaction breaks down at the outset. On Tarun’s testimony, the discretionary commission was not a term that Tarun had insisted on leaving Mukesh with no choice but to give in to Tarun. I refer back to Mukesh’s explanation on why he was comfortable with the rate of US$5 per cbm and he took it (see [73] above).
[76] Wajilam’s claim that Mukesh and Tarun were close friends was not borne out by the evidence before me. I was equally not persuaded that the evidence bear out the degree or level of trust, or dire financial dependence on Wajilam so that MGA was willing to grant Wajilam absolute discretion to determine its own remuneration. There was no clear evidence that MGA was entirely dependent on Wajilam financially. During the opening stages of cross-examining of Mukesh, Ms Tan attempted to show that MGA’s bank credit lines had been fully utilised around the period of June 2006 so that MGA had no choice but to look to Wajilam for financial assistance for its business operations. However, MGA was able to produce at the trial, evidence that, at the relevant time, it still had access to its other banks’ credit lines and log traders (like Tat Hin) to finance its purchases from June 2006, and that it was not as financially dependent on Wajilam as the latter wanted the court to believe. Mukesh’s reason for obtaining financial assistance from Wajilam was because MGA’s business was growing very fast, and he had wanted to take advantage of the opportunities to do more business.
[77] Whilst Tarun accepted that the rate of US$5 per cbm was raised by him and accepted by Mukesh, his spurious answer to Mr Seow’s question as to how that particular rate was arrived at left me with a negative impression that he was trying to preserve the myth of the discretionary commission term. Tarun’s evidence was unsatisfactory as it lacked business sense. To elaborate, Tarun said that the discretion did not require him to justify the rate of US$5 per cbm. He claimed that the rate of US$5 per cbm was an arbitrary figure that he had plucked out of the air. His answer was the same when questioned on the rate of US$3 per cbm for the Sarawak logs.
[78] Evidence of the sequence of the discussion may plausibly be interpreted as negotiations towards an agreement: an offer from Mukesh based on 2% of the purchase price of the quantity of the logs shipped followed by Tarun’s counter offer of US$5 per cbm, and finally Mukesh’s acceptance or acquiescence of the rate of US$5 per cbm. Alternatively, even on Tarun’s testimony that it was he who had asked for US$5 per cbm and Mukesh had not counter proposed anything, the fact of the matter was that Mukesh did not reject the rate of US$5 per cbm for the reasons explained in [73], and he quietly accepted Tarun’s proposal. Mukesh’s evidence is that he found the rate acceptable after doing some mental calculations. I prefer Mukesh’s evidence as it was not improbable for a trader of his experience to know the business, and to quickly make a business decision on whether the proposed rate of US$5 per cbm was tolerable for him. Either analysis as explained yields the same answer, and I so find, that a commission or remuneration at the rate of US$5 per cbm was a term that was mutually agreed orally in June 2006 between Tarun and Mukesh at the time of the agreement for the First Transaction.
[79] Ms Tan had relied on the subsequent conduct of the parties after the First Transaction to further support her contention that carte blanche authority was given to Wajilam to decide on its own remuneration. Ms Tan pointed to several examples to demonstrate the exercise of discretion. Broadly speaking, Ms Tan maintained that in each and every finance transaction, Mukesh had left the amount of remuneration to be determined by Tarun, and that pattern of conduct was consistent with the existence of the oral term on discretionary commission. Typically, the amount of the remuneration determined by Tarun was made known in the transaction statement which Ms Tan claimed Mukesh had accepted without question or discussion until the Marina I. She also cited as examples the commission structure Wajilam charged for the Royal Crystal shipment; the Dynasty where commission was waived, and the unilateral imposition of late payment interest by Wajilam. I will now comment on the examples cited by Ms Tan.
[80] Ms Tan cited the Royal Crystal financial transaction as evidence to support Wajilam’s contention. In that case, the commission was 50% of the profit and MGA accepted it. Mukesh disagreed with the slant of Tarun’s evidence. He said that the rate there was specifically agreed before shipment (see [30] above): it was agreed because Tarun had secured the vessel at a freight rate lower than the prevailing market rate and that enabled additional profits to be derived from the freight differential (about US$3.80 per cbm). In the circumstances, Mukesh did not object to the remuneration at 50% of the profit even though commission for Sarawak logs would ordinarily be US$3 per cbm. In my judgment, the overall evidence point to Mukesh agreeing to pay the extra remuneration. Even at 50% of the profit, which translated to a rate of US$5.10 per cbm, Mukesh said he still enjoyed a savings in freight albeit a smaller sum of about US$1.70 per cbm. That led to Wajilam being remunerated differently from the other shipments of Sarawak logs. I refer to my comments at [84] below which are relevant to my finding in favour of Mukesh’s evidence.
[81] The other example relied upon by Ms Tan as evidence of the existence of the discretionary commission was the Dynasty shipment where trade finance services were similarly provided by Wajilam. The import letter of credit was for US$400,000. As already mentioned at [28] above, MGA did not earn any profits from the on-sale in India, and Wajilam did not charge commission for the trade finance services provided. Mukesh confirmed that he was alerted by Soham that Wajilam had not charged commission for the Dynasty transaction. He did not raise it with Tarun but instead interpreted the omission as a gesture of goodwill in the interest of future business seeing that the Dynasty was the second deal, so to speak. It did not appear to me that Tarun’s decision to forego remuneration was a point decidedly in favour of Wajilam’s contention. I should mention that I agree with Mr Seow that it would have been more probable that the parties would have discussed commission for this second transaction as both parties conceded that the First Transaction was one-off in that at that time no further or future transactions were contemplated by the parties. Mukesh said that the parties agreed to the commission rate of US$3 per cbm of the quantity of Sarawak logs shipped. Tarun’s version is that there was no discussion on commission for the Dynasty transaction; commission was left to Wajilam to decide and the rate of US$3 per cbm was an arbitrary figure he had plucked out of the air (see [77] above).
[82] Ms Tan also drew attention to the fact that Wajilam had imposed interest on the outstanding balance in the running account at 12% per annum and MGA had accepted it without objection thereby demonstrating that MGA were willing to accept any term imposed by Wajilam. According to Ms Tan, late payment interest of 12% per annum was first imposed in November 2006. At that time, the balance due to Tarun was $1.6m from the First Transaction. Mukesh’s evidence was that he had accepted the 12% interest because it was a relatively small amount compared to the volume of business that was coming in at that time. I saw that as an example of another charge that was mutually acceptable to both sides, and I do not accept the slant given to the evidence by Wajilam.
[83] Ms Tan also suggested that the commission stated in the transaction statements submitted to MGA were final and conclusive so as to constitute evidence of Wajilam’s unfettered authority to charge whatever commission it fancied. In my view, the contention is untenable. Returning to the First Transaction, the commission there was discussed and agreed by the parties. Mukesh said the same thing happened for the Dynasty and Royal Crystal finance transactions but this was disputed by Tarun. Leaving aside for a moment the First Transaction as well as the finance transactions involving the Dynasty and the Royal Crystal, it is common ground that for the other subsequent transactions, commission was not discussed before the agreement to provide trade finance services, but it was understood (and this is common ground) that commission would be paid. For those transactions, typically, the commission or remuneration would be stated on the transaction statement. However, MGA was not bound by the transaction statement. MGA was entitled to review, verify and revise the figures submitted in the transaction statement. It was not a case where MGA was not entitled to open up or revise the figures there. I find that the individual statements and consolidated statements submitted to MGA were capable of verification and acceptance by MGA. Indeed paragraph 1 of the 25 July letter is consistent with this finding. It reads:
[84] Of significance is paragraph 9 of Wajilam’s 25 July letter that recapitulated the agreed rates for logs from Sarawak and Guyana, and recognised, at the same time, that if Wajilam had chartered the vessel as was the case for the Royal Crystal, the commission rate of US$3 per cbm for Sarawak logs would not apply. By implication, this meant that the rate would have to be separately agreed and this point corroborates Mukesh’s evidence outlined in [30] above. The same rates of commission contained in the 25 July letter were used for the Barama container shipment (completed after 25 July 2007) and the Oriental Glory.
[85] Notably, by 25 July 2007, Wajilam had financed a total of 17 shipments of logs originating from Sarawak and Guyana and destined for India. The 17 shipments were financed over a period of 13 months from June 2006 to July 2007 (including the Barama Container shipment). I am satisfied that the letter of 25 July was written at a time when the trade finance relationship had settled down and the parties were content with the existing arrangements. In view of this, the alleged discretionary term, if it ever existed, was supplanted by the 25 July letter. In addition, since PNG logs had never been financed before the Marina I shipment, the alleged discretionary term, if it existed since the First Transaction, could not have been applicable to PNG logs. Quite naturally, paragraph 9 of the 25 July letter did not mention PNG logs from the commercial relationship recorded in the letter.
[86] I disbelieve Tarun’s evidence on the discretionary commission term for another reason. It was quite clear that MGA financed the purchase of the PNG logs by arranging with Wajilam to open the import letters of credit using its banking facilities. Wajilam’s expectation was to be repaid the value of the import letters of credit opened on MGA’s behalf (“the principal sum”), expenses incurred by Wajilam in relation to this advance, and late payment interest at the rate of 12% per annum. In addition to all that, MGA was expected to pay a commission to Wajilam who assisted in the finance of the purchase of the PNG logs. Based on the arrangement, Wajilam played the role of a financier, and not that of an investor. However, Tarun used words like “invested” and “equity participation” in cross-examination to explain why in his discretion it was fit to charge 50% of the net profit for the Marina I finance transaction. It became obvious that the true reason for Wajilam’s decision to charge 50% of the net profit as its commission was that he had regarded Wajilam as being an equal equity partner in the Marina 1 finance transaction and he had simply wanted a share in the profits for making the transaction possible. The relevant portions of his oral evidence are set out here:
[87] In my judgment, there is no evidence that the parties were to share equally in the profits. Tarun maintained without any basis that what Wajilam did should be equated to having invested capital in the business. As I said, this was not the arrangement. There was no agreement or common understanding between Tarun and Mukesh to the effect that Wajilam and MGA were equal parties in the Marina I venture. Crucially, the charge of 50% of the net profit is plainly equivalent to a payment on a participation basis. The discretionary commission as an implied term argued for by Ms Tan seeks to give Wajilam a right to equal participation when it was never agreed. The alleged implied term would have the effect of making Wajilam equal parties in the venture and serve only to replace Wajilam’s agreed role as financer (which was akin to a bank giving credit facilities) with that of an investor.
Conclusion on the opposing positions
[88] In summary, the overall evidence do not bear out Wajilam’s assertions that the trade finance services were consistently provided by Wajliam based on a rate or amount of commission that was left to the absolute discretion of Tarun. In my judgment, Wajilam’s assertion on discretionary commission fails. Equally, the evidence militates against MGA’s incorporated term that the rate of commission was US$5 per cbm of the quantity of PNG logs shipped onboard the Marina I. For the same reasons set out above, I find that there was no agreed rate or amount of commission payable to Wajilam in respect of the trade finance services provided to MGA for its purchase of PNG logs shipped onboard the Marina I. In other words, there was no agreed basis upon which Wajilam was to be paid commission on either of the opposing views.
[89] Now that the opposing views have been rejected as completely untenable, the legal position on the facts in evidence is that the court will imply a term that a reasonable sum is to be paid as commission. It is not disputed that commission was payable by MGA to Wajilam. What was not expressly mentioned was the rate or amount of the commission. In the circumstances, the court will imply that a reasonable sum would be paid as commission. I will be assessing the quantum of the commission in another part of the Judgment (see [112 - 126]). In the meantime, I digress to address, for completeness, two related sub-issues in Wajilam’s case on contractual discretion. The sub-issues are: (a) incorporation by prior dealings, and (b) unfettered discretion.
Incorporation of an oral term by prior course of dealing
[90] Wajilam’s case as to incorporation rests on a prior course of dealing. The question is whether the discretionary commission term (assuming it existed for the purpose of the discussion here) was incorporated by a prior course of dealing into the Marina I finance transaction.
[91] The cases on incorporation usually concern the making of contracts and the incorporation of one party’s written terms of business. There are cases where there was a course of dealing and the other party knew that the plaintiff intended to deal on the terms of its delivery notes or invoices with standard terms printed on the reverse side (eg Circle Freight International Limited v Medeast Gulf Exports Limited [1988] 2 Lloyd’s Rep 427 (“Circle Freight”). In other words, prior course of dealing was relied upon as importing one party’s standard terms and conditions into the contract.
[92] It is not controversial that incorporation of terms by prior course of dealing is an objective one. The factors to consider for incorporation of terms by prior dealing is succinctly summarised in the case of Capes (Hatherden) Ltd v Western Arable Services Ltd [2010] 1 Lloyd’s Rep 477 (“Capes (Hatherden) Ltd v Western Arable Services Ltd”) at [35] in the following manner:
[93] Similarly, E. Peel, Treitel: The Law of Contract (London: Sweet & Maxwell, 12 Ed., 2007) states the consideration as follows (at p 244):
[94] In Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71, the plaintiff’s car was repaired by the defendant on three or four occasions over a period of five years. On two occasions, the plaintiff had been asked to sign a form excluding liability for damage caused by fire to the customer’s car on the premises. On the occasion which was the subject of claim, there had been an oral contract to repair the car without being asked to sign a form excluding liability. The Court of Appeal held that the exclusion of liability in the defendant’s standard form was not incorporated into the oral contract. Salmon LJ held that three or four transactions over five years were not a sufficient course of dealing. One other ground that could have been relied upon (but was not) was the fact that the pattern of previous dealing between the parties had not been consistent.
[95] The course of dealing in the Circle Freight case consisted of 11 contracts in the previous six months (between March and August 1983). On each occasion, the contract had been made orally by telephone but the invoice for the carriage charges sent at a later date had stated that all business was transacted by the carrier under the conditions of the Institute of Freight Forwarders (“ITF”). The Court of Appeal held that the ITF conditions were incorporated into the contract.
[96] Returning to the pleaded case Wajilam states at paragraph 7 of the Defence (Amendment No 1) that:
[97] The authorities above concern the incorporation of written terms into the contract. On this occasion, Wajilam is seeking to incorporate an oral term into an oral agreement. Ms Tan did not refer me to any cases where the term to be incorporated into an oral agreement was an oral term. Be that as it may, the test to be satisfied “is not what the parties actually thought were their rights and liabilities but what each by his words and conduct led the other party to believe were the liabilities which he was accepting and the concomitant rights which he was granting” (per HHJ Havelock-Allan QC, sitting as a High Court Judge in Capes (Hatherden) v Western Arable at p 484). In that regard, where there is a course of dealing between parties the court must examine the whole of it to see what the position is. In this case, even if, for the sake of argument, there was as pleaded such an oral term on discretionary commission at the outset of the First Transaction, the discretion on commission would have been supplanted by the 25 July letter which negated any intention of incorporation in the future.
[98] That is not all. To succeed, not only must the pattern of previous dealing between the parties have to be consistent, there must be evidence that MGA knew that whenever Wajilam provided trade finance services, it would be on the basis of the discretionary commission. Apart from the one occasion in June 2006 where it was alleged that Mukesh left it to the discretion of Tarun to decide on its own remuneration (ie, the First Transaction), Tarun’s evidence, as I recall, is that commission was never discussed in subsequent transactions. That brings to focus the absence of continuous notice of such a term which is a factor against incorporation. In addition, Wajilam had not financed PNG logs for MGA before June 2007. In June 2006, at the time the First Transaction was discussed, Tarun and Mukesh did not contemplate other future transactions. In the circumstances, it is not reasonable to hold that when Wajilam agreed to open an import letter of credit for MGA’s purchases in June 2006 (ie, the First Transaction), Wajilam had done so on the basis that for future purchases (including PNG logs) its remuneration would be left to Wajilam to decide.
[99] On the related point as to whether there was a consistent course of dealing, the evidence is conflicting on the aspect of Wajilam’s role. For instance, in paragraph 9 of Mukesh’s written testimony, he explained the role of the third party who made available its letter of credit facilities to Mukesh as follows:
[100] In earlier transactions, Tarun accepted Wajilam’s role as financer. However, when it came to the Marina I, Tarun claimed a bigger role which was not discussed and agreed to in the Marina I finance transaction (see [86] - [87] above).
[101] Mukesh and Tarun’s idea of Wajilam’s role was quite different and, hence, there was no consistency in their prior dealing and the Marina I. In the circumstances, I am not persuaded by Wajilam’s plea that the discretion to determine the rate or amount of commission was to be implied from the previous course of dealing.
A subsidiary point: unfettered discretion
[102] I will briefly comment on Ms Tan’s submission that Wajilam’s discretion was absolute and there was no requirement for Wajilam to justify at all its decision to charge 50% of the net profit as its commission.
[103] A contractual discretion is not usually as unfettered as Ms Tan would like this court to believe. The authorities on contractual discretion recognise that there is a corresponding expectation that the discretion would be exercised fairly and rationally. Guidance can be drawn from Horkulak v Cantor Fitzgerald International [2005] ICR 402 (“Horkulak”), an employment case, on the court’s approach to contractual discretion at [30]:
[104] Rix LJ in Socimer Bank Ltd v Standard Bank Ltd [2008] 1 Lloyd’s Rep 558 (`“Socimer”) summarised the position in relation to exercise of contractual discretion as follows (at [66]):
[105] In JML Direct v Freesat UK Ltd [2009] EWHC 616, Blackburn J referred to Socimer and Horkulak as authority for the proposition that discretion conferred on one party by the other is not wholly unfettered contractual discretion. As Rix LJ observed in Socimer, the concern is that the discretion is not abused. Hence, the courts will impose an implied term that the discretion should be exercised in good faith and not arbitrarily, capriciously or irrationally. “Irrationally” in this connection, (Blackburn J accepts the explanation in Socimer) is not an objective test of reasonableness but is used in an analogous sense to the Wednesbury unreasonableness (see Socimer at [66]).
[106] The courts will not intervene so long as the contractual “discretion is exercised honestly and in good faith for the purposes for which it was conferred, and provided also that it was a true exercise of discretion in the sense that it was not capricious or arbitrary or so outrageous in its defiance of reason that it can be properly categorised as perverse” (see Ludgate Insurance Co Ltd v Citibank [1998] Lloyd’s Rep IP 221 at [35] summarising the principles drawn from cases like Weinberger v Inglis [1919] AC 606; Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896; Docker v Hymans [1969] 1 Ll R 487; and Abu Dhabi National Tanker Company v Product Star Shipping Company Limited [1993] 1 Lloyd’s Rep 397).
[107] With these principles in mind, I turn to Tarun’s evidence on this matter. Both sides have confirmed through counsel that a commission of US$376,477.67 is equivalent to a rate of US$26.82 per cbm of the quantity of logs shipped (viz, 14,034.038 cbm). This rate at US$26.82 per cbm was more than five times the highest rate of US$5 per cbm that was experienced in their commercial relationship. Was Wajilam’s decision to fix an amount that was five times more than what MGA had previously paid as commission made honestly and in good faith such that it can be said that the exercise of discretion was not capricious, arbitrary, or irrational?
[108] Wajilam’s case was that it was not required to justify the exercise of its absolute discretion. Tarun nevertheless gave the following reasons for charging 50% of the net profit as commission for the Marina 1 finance transaction:
(i) Wajilam had effectively paid for the freight as the cargo was purchased on CNF terms;
(ii) the total amount of the import letters of credit was approximately US$5,832,000 ;
(iii) the export letters of credit for the Marina 1 transaction were usance letters of credit for 180 to 270 days, in contrast to the typical usance period for the Sarawak shipments of 90 to 120 days, and 120 to 180 days for the Guyana shipments; and
(iv) the running account, at that time, showed that MGA owed Wajilam an amount somewhere between US$741,739.44 and US$892,700.92 (see the third and fifth consolidated statements at [43]-[44] and [46] above).

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MGA International Pte Ltd v Wajilam Exports (Singapore) Pte Ltd

Grounds of decision

Introduction

Overview

The Marina I shipment of PNG round logs

MGA’s case on commission

Wajilam’s case on commission

Outline of this judgment

The history of the parties’ relationship

The Vinashin Sun/Royal transaction (“the First Transaction”)

The Dynasty finance transaction

The four Sawarak shipments

The Royal Crystal transaction

The Dana Muheiddine transaction

The seven Sarawak shipments

The Marina 1 transaction

The Barama shipment in containers

The Oriental Glory (v9/07) transaction

The running account and the account statements

The first consolidated statement

The second consolidated statement

The third consolidated statement

The fourth consolidated statement

The fifth consolidated statement and the 25 July letter

The sixth consolidated statement

The seventh consolidated statement from MGA

The genesis of the dispute in this action

The e-mails from MGA asking for the accounts

Discussions and decision on the contractual claim for commission

MGA’s incorporated term

Wajilam’s discretionary commission term

Conclusion on the opposing positions

Incorporation of an oral term by prior course of dealing

A subsidiary point: unfettered discretion