Valency International Trading Pte Ltd v Alton International Resources Pte Ltd

Jordan Tan AR:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[15] The Australian High Court had the opportunity to reconsider its position in Peter Turnbull in the light of Fercometal. In Foran and another v Wight and another (1989) 168 CLR 385 (“Foran”), the vendors of certain property informed the purchasers two days before the date of completion that they were unable to register a right of way which was required of them under the sale and purchase agreement. On the date of completion, neither party took steps to complete. Two days thereafter, the purchasers gave the vendors a notice of rescission. The purchasers sought a declaration that they had rescinded the contract and sought a return of the deposit. The vendors contended that the notice of rescission was invalid on the ground that the purchasers themselves were not ready and willing to complete on the due date for want of funds. The vendors succeeded.

[16] On appeal, the High Court held (with a majority of four to one) that the purchasers’ notice of appeal was not invalid and that they were entitled to the return of their deposit. Various reasons were given by the majority for this decision. Brennan and Dawson JJ took the view that although the purchasers were required to show that they were ready and willing to perform, the fact that the vendors had intimated that they were unable to complete relieved the purchasers of the need to show more than that they were not incapacitated from raising the necessary funds and had not resolved against doing so, and on the evidence they had discharged that burden. Brennan J (at 421-422) made the following observations:

[17] It appears that although Brennan J finds support for acceptance of the third option (though the learned judge seemed to prefer not to use that terminology) in the decision in Peter Turnbull, his reasoning is different. Dixon CJ and Kitto J’s conclusion in Peter Turnbull that an intimation by the wrongdoer of an intention not to perform absolves the innocent party from performance was derived from an extrapolation of principles stated in Jones v Barkley (1781) 99 ER 434 (“Jones”) (if the wrongdoer manifests an intention not to perform his part, it is not necessary for the innocent party to go father, and do a nugatory act) as well as Ripley v M’Clure (1849) 154 ER 1245 (“Ripley”) and Cort v The Ambergate &c Railway Co (1851) 117 ER 1229 (“Cort”), both of which state the same principle as that stated in Jones. In Cort, it was further stated, by Campbell CJ, that Ripley could be explained in terms of a waiver, in that the wrongdoer’s refusal to perform was evidence of a continuing refusal and waiver of the condition precedent which the innocent party had to perform.

[18] Dixon CJ states (at 247) that the principle in Jones “in [his] opinion, controls the decision of [the] appeal [before him].” Kitto J also acknowledges (at 250) that “the principle which is decisive [of the appeal before him] is that which is illustrated by [Campbell CJ’s] statement in [Cort] of the decision in [Ripley].” Brennan J’s reasoning for accepting the third option, that the intimation of the wrongdoer of its intention not to perform and the reliance of the innocent party thereon raises an estoppel in favour of the latter, is therefore quite different.

[19] Furthermore, with respect, I do not think that the part of Lord Ackner’s observations on estoppel referred to by Brennan J (see [16] above, second quote of Lord Ackner’s observations) supports his general proposition that an innocent party is absolved from performance if the wrongdoer conveys to the former his intention not to perform so that the former’s performance is nugatory. Lord Ackner’s observations must be read in context. Lord Ackner characterises that passage quoted by Brennan J as a response to an “essentially ... new point” raised by counsel (which is separate from the issue of whether there exists the third option) (see Fercometal at 805). Lord Ackner then goes on to comment whether, on the facts, an estoppel could arise. It is clear that Lord Ackner was not making a general pronouncement of law acknowledging the existence of the third option (as defined above at [8]) but an assessment on the facts as to whether an estoppel could arise.

[20] Be that as it may, the decision in Foran affirms the position in Peter Turnbull, although the rationalisations may be different. The Australian position remains different from the English position.

[21] Locally, the Court of Appeal in Straits Engineering Contracting Pte Ltd v Merteks Pte Ltd [1995] 3 SLR(R) 864 (“Straits Engineering”) has cited Peter Turnbull favourably. In that case, the appellant had entered into an agreement to sell all the shares in one of its wholly owned subsidiary to the respondent. The appellant subsequently insisted on a sale on the basis of a “clean company” without trade debtors and trade creditors. The respondent disagreed and brought a claim against the appellant, alleging breach of contract, for specific performance and damages. The judge found that there was no agreement that the sale would be on the basis of a “clean company”. The Court of Appeal allowed the appeal in part in relation to the judge’s assessment of the damages.

[22] The Court of Appeal, nonetheless, cited Peter Turnbull and Foran favourably in dicta. L P Thean JA (delivering the judgment of the court) made the following observations:

L P Thean JA then referred favourably (at [27]) to Brennan J’s decision in Foran.

[23] In Siti and another v Lee Kay Li [1996] 2 SLR(R) 934 (“Siti”), L P Thean JA (delivering the judgment of the court) referred to and reiterated the point made in [24] of Straits Trading (quoted above at [22]).

[24] It must be noted that in both Straits Trading and Siti, Fercometal was neither cited nor discussed. This is why Mr Toh submitted that those decisions were decided per incuriam.

[25] Subsequent to those decisions, Fercometal has received the endorsement of the High Court. Choo Han Teck J in Silverlink Holdings Ltd v Rockline Ltd and others [2011] SGHC 10 (“Silverlink Holdings”) at [11]-[12] accepted counsel’s argument based on Fercometal, commenting that: “[i]t cannot be the case that the wrongful party continues to be bound by the terms of a repudiated contract, while the innocent party is not.” Fercometal was also endorsed by Lai Siu Chiu J in Stork Technology Services Asia Pte Ltd v First Capital Insurance Limited [2006] 3 SLR(R) 652 at [92] and by G P Selvam J in MP-Bilt Pte Ltd v Oey Widarto [1999] 1 SLR(R) 908 at [56]. Siti and Straits Trading were not discussed in these decisions.

[26] I respectfully agree with the position taken by the High Court and would depart from the dicta of the Court of Appeal in Siti and Straits Trading. Mr Toh had sought to convince me that in any event the Court of Appeal’s pronouncements in Siti and Straits Trading in reference to Peter Turnbull and Foran could be distinguished from the present application on the ground that the cases before the Court of Appeal were concerned with concurrent obligations and not a condition precedent with which this application is concerned. With respect, I do not agree. Peter Turnbull was a case concerning a breach of a condition precedent on the part of the innocent party as a result of an intimation of an intention not to perform by the wrongdoer: the innocent party had to nominate a ship and given notice of such nomination before the wrongdoer could perform. Dixon CJ’s observations (in Peter Turnbull at 246-247) also make it clear that the principle enunciated in Peter Turnbull applies with equal force to situations concerning a breach of a condition precedent and not just to a situation concerning concurrent obligations:

[27] Hence, although the decision in Peter Turnbull was based on Jones, a case concerned with concurrent obligations, it was clear that the principle enunciated in Peter Turnbull was intended to also cover situations concerning a condition precedent. Furthermore, when the High Court of Australia had the opportunity to reconsider Peter Turnbull in Foran, a case concerning concurrent obligations, it did not qualify Peter Turnbull to limit its application to such cases. The Court of Appeal in Straits Trading and Siti also made no such qualification when referring to Peter Turnbull.

[28] Furthermore, I do not think such a distinction can be justified as a matter of principle if one examines the rationale underlying the decision in Peter Turnbull to accept the existence of the third option. It seems to me that the third option was developed as a result of a commonsensical concern on the need to reduce commercial wastage. Simply put, if the wrongdoer makes it clear that he is not going to perform so that the innocent party’s performance would be an act in futility, why should the law require the innocent party to perform? This is a valid concern regardless of whether the innocent party has to perform a condition precedent or carry out a concurrent obligation. If the wrongdoer has made it clear that he will not perform, the innocent party’s acts in fulfilment of a condition precedent or a concurrent obligation would be futile in both situations.

[29] And it is for these reasons that I do not think Straits Trading and Siti can be distinguished in the way urged by Mr Toh. But I would depart nonetheless from the position stated in the dicta of those cases.

[30] I agree with the position taken in Fercometal for two reasons. First, even through the innocent party’s performance in the face of a clear refusal to perform by the wrongdoer is an effort in futility, where repudiation has not been accepted, the contract is kept alive for both parties and does not exist for one but not the other (see also Chitty on Contracts at [24-011]; Silverlink Holdings at [12]). To hold otherwise would be contrary to basic principles of fairness as between contracting parties for one side is held to the bargain, while the other is not.

[31] Second, although the appeal to prevent commercial wastage resulting from the futile acts of the innocent party (see also [28] above) is, at first blush, a persuasive argument for the recognition of the third option, the existing principles of contract law in the absence of the third option allow for substantially the same result to obtain without its problems (as stated in the preceding paragraph). The innocent party may accept the renunciation, terminate and renegotiate a new contract. In so doing, the innocent party may still claim damages and be absolved from acting in futility because it is no longer required to perform. Although successful renegotiations would require the assent of the wrongdoer, so would the third option which requires the wrongdoer to give reasonable notice that he is once again willing to perform for the contract to be back on track.

[32] For these reasons, I accept the position in Fercometal and reject the existence of the third option.

[33] I agree with Mr Toh that the plaintiff’s claim is obviously unsustainable even taking the plaintiff’s case at its highest. The plaintiff did not accept the renunciation of the agreement and instead persisted in seeking its performance through the email communication on 1 August 2009 asking the defendant to sign the corrected version of the formal purchase contract. The contract was not terminated and the plaintiff had to satisfy the condition precedent by procuring a letter of credit. It failed to do so and therefore the defendant’s failure to perform is not wrongful.

[34] There is one last point I would address. The plaintiff had sought, in the alternative, to rely on the doctrines of waiver and estoppel. If by reference to these doctrines, Mr Srivathsan had sought to persuade me of their applicability in the form envisioned by Brennan J, ie as a general principle of law that a renunciation by a wrongdoer absolves the innocent party from performance, I cannot agree for reasons already stated (see also [19] above). If he is instead arguing that on the facts an estoppel or waiver can be found, I would simply say that the facts pleaded do not support the finding of an estoppel or waiver of the condition precedent requiring the plaintiff to open the letter of credit. The defendant may have intimated that it would not perform and that it took the view that there was no agreement between the parties but this without more does not ground an estoppel or waiver.

[35] For the reasons stated, I strike out the plaintiff’s statement of claim and dismiss the plaintiff’s action.