Introduction to the Case
We represented the Singapore subsidiary of a global conglomerate supplying confectionary goods (the “Plaintiff”), in a dispute with its local distributor (the “Defendant”). Our client, the Plaintiff commenced legal proceedings against the Defendant for unpaid invoices, totaling USD 199,876.60.
While the unpaid invoices were not disputed by the Defendant, the Defendant advanced a counterclaim alleging wrongful termination of the Distribution Agreement. The Defendant sought damages and reimbursement for various items, including trade returns, marketing and advertising expenses, damaged goods, annual net purchase discount, and non-fulfilment charges.
The Court had to determine if the Plaintiff was entitled to terminate the distribution immediately, and whether the Defendant’s reimbursement claims were valid.
Our Dispute Resolution team successfully obtained a Court ruling in favour of our client, the Plaintiff, dismissing the Defendant’s wrongful termination claim, and allowing only some of the reimbursement claims.
Background Leading to the Termination of the Distribution Agreement
The parties entered into a written distribution agreement for the Defendant to distribute the Plaintiff’s products to various retailers in Singapore for a period of two years, from March 2017 to February 2019.
On 28 February 2018, the Banker’s Guarantee, which was a contractual obligation under the Distribution Agreement had expired and the Defendant did not replace it.
On 2 April 2018, the parties’ representatives had a meeting where the Plaintiff informed the Defendant of the Plaintiff’s intention to terminate the Distribution Agreement. On 11 April 2018, the Plaintiff sent an email to the Defendant attaching a letter dated 2 April 2018 stating that Plaintiff was giving Defendant three months’ notice of termination, intended to reflect the notice period provided for in the Distribution Agreement.
Following which, the parties discussed matters relating to the termination, where:
- The Defendant requested for compensation of SGD 187,856 for its capital expenditure under the Distribution Agreement, with a breakdown of the amount via email;
- The Defendant sent an email dated 12 April 2018, putting on record that parties had concurred during the meeting that this was an early termination rather than termination for breach of contract;
- The Plaintiff acknowledges that it was not a termination for breach of contract and proceeds to discuss matters such as reimbursement amounts and repurchase of stocks from the Defendant.
The parties had further discussions, and decided to extend the termination for another three months for the Plaintiff to settle its arrangements with an alternative distributor. The Defendant insisted on the Plaintiff retracting the termination letters to proceed with the April and May 2018 Purchase Orders (“PO”). The Plaintiff issued a letter cancelling the prior Termination Letters to maintain business operations temporarily, although parties understood that the Plaintiff was still intent on ultimately terminating the Distribution Agreement.
The parties continued to correspond on various matters, including the outstanding invoices owed to the Plaintiff, as well as reimbursement claims for the Defendant. Parties also continued corresponding on the POs for April and May 2018 as well as the renewal of the defendant’s banker’s guarantee under the Distribution Agreement. The Defendant declines to renew the banker’s guarantee in anticipation that the Distribution Agreement would end by 30 September 2018.
On July 2018, the Plaintiff issued a letter to the Defendant terminating the Distribution Agreement immediately due to material breaches committed by the Defendant for failing to procure a banker’s guarantee, along with other clauses. The Defendant alleged that the Plaintiff should have been estopped from terminating the agreement, hence alleging wrongful termination and counterclaimed for damages.
Wrongful Termination Counterclaim
The Court agreed with our arguments to dismiss the wrongful termination counterclaim for the following reasons:
1. Right to Immediate Termination
The Plaintiff was entitled to terminate the Distribution Agreement immediately, which accrued upon:
The Defendant committing a material breach;
- The Defendant committing a material breach;
- The Plaintiff giving written notice to the Defendant, requesting that the breach be remedied;
- The Defendant’s failure to remedy the material breach within 30 days of receiving such notice.
2. Material Breach for Failure to Provide a Banker’s Guarantee
The Defendant’s failure to procure a Banker’s Guarantee constituted a material breach.
- The Banker’s Guarantee was to serve as security against payment for Plaintiff’s supply of goods and would remain important even in the context of termination.
- Such a breach left Plaintiff without any security against their supply of goods, and the present action illustrates the consequences of the breach. Had the Banker’s Guarantee been in place, the Plaintiff would not have needed to commence legal proceedings and could have relied on the Banker’s Guarantee for payment.
3. Sufficient Notice
Although the Plaintiff did not send a formal written notice in accordance with the contract’s specific requirements, the Court found that the multiple email requests from Plaintiff’s representatives to the Defendant for the banker’s guarantee sufficiently met the notice requirements.
4. Plaintiff’s Waiver of Right to Immediate Termination
The Court rejected the Defendant’s argument the Plaintiff waived its right to immediate termination. The Defendant argued that it had not committed any material breach because parties had transition to a new course of dealing where the focus was to bring the distribution agreement to a conclusion. This created an expectation that the Defendant did not need to provide the banker’s guarantee.
The Court found that the Plaintiff’s actions of sending multiple requests for the banker’s guarantee indicated that the Plaintiff expected the Defendant to meet its contractual obligations. Hence, the Defendant could not reasonably believe that they were relieved of their contractual obligations.
After reviewing the evidence and arguments, the Court awarded our client USD 126,876.70, after allowing some reimbursement claims, and dismissed the Defendant’s counterclaim for wrongful termination.
The Claimant was represented throughout the proceedings by Amos Cai from our Disputes Resolution Practice.
If you would like information and/or assistance on commercial disputes, you may contact:
Amos Cai
Director, Head of Dispute Resolution
E: amoscai@yuenlaw.com.sg
Denise Teo
Director, Dispute Resolution
E: deniseteo@yuenlaw.com.sg
Learn more about the expertise and work of Amos Cai and Denise Teo.
