SLW COMMENTARY Issue 4/Dec 2o18

Transcription

1 SINGAPORE DAILY LEGAL NEWS SLW COMMENTARY Issue 4/Dec 2o18 Examining the application of time is of the essence in the law on Breach of Contract PT Surya Citra Multimedia v Brightpoint Singapore Pte Ltd [2018] SGHC 245 TAN KAH WAI From the classroom to the courtroom, we often hear the phrase time is of the essence. But what exactly do we mean by that when we use it in contract law? Is it a legal rule? Is it an evidential presumption? In answering these questions, the High Court s decision in PT Surya Citra Multimedia v Brightpoint Singapore Pte Ltd ( PT Surya ) 1 highlights the difficult tensions between an eclectic body of precedents on this phrase and the modern law governing parties rights to lawfully terminate a contract. This case comment focuses on the court s treatment of this particular issue. It also examines the various ways in which the courts have used the phrase time is of the essence, particularly in the context of commercial contracts. Facts 1. The plaintiff is PT Surya Citra Multimedia ( SCM ), an Indonesian company that sells wireless communication devices. The defendant is BrightPoint Singapore Pte Ltd ( BrightPoint ), a wholesaler of technology products. 2. SCM and BrightPoint entered into a Sub-Distributorship Agreement. Under this agreement, BrightPoint appointed SCM as a sub-distributor for Blackberry Products in Indonesia. SCM would purchase certain quantities of Blackberry mobile phones and other related accessories from BrightPoint A dispute arose between parties over the distributorship agreement s price protection clauses. Under these clauses, BrightPoint will from time to time provide such invoice price protection as is afforded by the manufacturers of the Products in the event of a price reduction by the relevant manufacturer. 3 The purpose of these clauses was to compensate SCM for potential losses arising from any reduction in the retail prices. 4 Fourth-Year Undergraduate, NUS Law and concurrent LLM Candidate, King s College London. I would like to thank Professor Michael Bridge, Associate Professor Paul Myburgh, Sunita Carmel Netto and TG Khoo for their generous comments on earlier drafts of this article. All errors remain mine alone. 1 PT Surya Citra Multimedia v BrightPoint Singapore Pte Ltd [2018] SGHC 245. ( PT Surya ) 2 Id at [5]. 3 Id at [5]. 4 Id at [1]. 1

2 4. One of the legal issues in this dispute was whether SCM s entitlement to the November Price Protection was subject to SCM fulfilling its obligations to pick up the Blackberry Q5 and Blackberry Q10 units. 5 The High Court had concluded that there was such a condition, as evident from the announcements made on this Price Protection, the parties correspondence and past practice SCM insisted that it had no obligation to fulfill this condition. One of its arguments was that time of delivery was of the essence since the sub-distributor agreement was a sale of goods contract. SCM relied on the line of cases including the Singapore Court of Appeal s decision in Himatsing & Co v Joitaram P R 7 ( Himatsing ) and the House of Lords decision in Bunge v Tradax Export SA Panama 8 ( Bunge ) Following this line of argument, BrightPoint s failure to deliver by the dates stated in the purchase orders would constitute a repudiatory breach. That breach would entitle SCM to terminate the Purchase Orders. 6. Conversely, BrightPoint asserted that there was no presumption that time of delivery is of the essence in a sale of goods contract. BrightPoint relied on the Singapore Court of Appeal s decision in Tian Teck Construction Pte Ltd v Exklusiv Auto Pte Ltd 9 ( Tian Teck Construction ) for this proposition. If BrightPoint was correct, time of delivery would not be essential in their agreement. Therefore, the lapse of the dates of the Purchase Orders would not be material and SCM was obliged to take delivery of the committed stocks. Decision 7. Belinda Ang J, delivering the High Court s judgment, observed that while both parties have raised supposedly conflicting strands of the case law, but these strands have collectively presented a coherent picture of when time stipulations in mercantile contracts and sale of goods contracts are construed as conditions According to Ang J, the starting point of determining whether time is of the essence in a sale of goods contract rests on s 10(2) of the Sale of Goods Act 11 ( SOGA ) which states as follows: Whether any other stipulation as to time [ie, stipulations other than time of payment] is or is not the essence of the contract depends on the terms of the contract After conducting a fairly extensive review of the authorities and academic commentary 13, Ang J determined that the correct legal position was set out in Teo Teo Lee v Ong Swee Lan and others 14. In her view, there are 3 classes of cases where time is of the essence: (a) Where the parties expressly stipulate that conditions as to time must be strictly complied with (b) The nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence, or 5 Id at [17]-[20]. 6 Id at [45]. 7 [ ] SLR(R) 766 ( Himatsing ) 8 [1981] 1 WLR 711. ( Bunge ) 9 [1992] 1 SLR(R) 948; [1992] SGCA 36. ( Tian Teck Construction ) 10 PT Surya at [62]. 11 Cap 393, 1999 Rev Ed Sing. ( SOGA ) 12 Id, s 10(2). 13 PT Surya at [63]-[74]. 14 [2002] SGHC 183 2

3 (c) A party who has been subject to unreasonable delay gives notice to the party in default making time of the essence. 10. In this second class of cases, Ang J held that whether the contract is mercantile would not be the end of the enquiry. She further cautioned that not all stipulations of time in mercantile contracts are conditions Ang J then considered the two supposedly opposing strands of case law. In her view, both lines of cases were reconcilable as both strands of cases dealt with very different types of contracts. 16 The Himatsing line of cases concerned contracts involving sale of goods. Whereas the Tian Teck Construction line of cases dealt with sale of contracts dealing with property. 12. Hence, Ang J concluded that the approach to determining whether time is of the essence depends on both the type of clause and the type of contract. She proceeded to agree with Lord Lowry s opinion in Bunge, that the treatment of time as conditions in mercantile contracts was not based on any presumption of fact or rule of law. Instead, such treatment was really a practical expedient founded on and dictated by the experience of businessmen On the particular delivery clause in mercantile contracts, Ang J noted that the importance placed on certainty and predictability was such that it would be a significant factor pointing towards the time of delivery being of the essence Ang J then held that there was no presumption of fact or rule of law in that there was no reversal of the burden of proof. 19 The party asserting that time of delivery is essential must prove it. She then reasoned that the plain meaning of s 10(2) of the SOGA supports this view. She also noted that there was no statutory stipulation with regards to the time of delivery. This was in stark contrast to s 10(1) of the SOGA, which provides for such a stipulation for timing of payments Ang J then made an interesting observation: That said, based on the long-standing body of established case law and the importance placed on certainty and predictability of business dealings, the time of delivery of goods in a mercantile contracts is generally taken to be of the essence. The references to a presumption or a prima facie position in the cases and commentaries should be taken to refer to a starting point that time of delivery in mercantile contracts is of the essence, rather than a presumption of fact or a rule of law that reverses the burden of proof. 21 (Emphasis my own) 16. Applying her analysis to the facts of this case, Ang J noted that there was no express stipulation in the sub-distributorship agreement or the Purchase Orders that time of delivery was of the essence. Ang J then took the view that the agreement here was a mercantile contract. Hence, the starting point was that the time of delivery was of the essence PT Surya at [74]. 16 Id. 17 Id at [75], citing Lord Lowry in Bunge. 18 Id at [75]. 19 Id. 20 Id. 21 Id at [75]. 22 Id at [76]. 3

4 17. In spite of this starting point, Ang J reached the final conclusion that the time of delivery for the Blackberries was actually not of the essence. In other words, the time stipulation was not a condition. Ang J reasoned that the contract s subject matter was deemed new product information. This meant that the order quantities and the tentative delivery date were always subject to change. This was also explicitly stated in confirmation s sent by BrightPoint. 23 Comment 18. In this comment, we are concerned with whether a party can lawfully terminate a sale of goods contract if the other party breaches a time stipulation that is potentially a promissory condition in SOGA. Section 11(2) of SOGA provides that if a stipulation is a condition, the breach of which may give rise to a right to treat the contract as repudiated In respect of time stipulations, it is only when time is of the essence that parties can lawfully terminate the contract if there is any delay in performance. 25 The inquiry as to essence here is about whether a time stipulation can be construed to be so fundamental to the contract s efficacy that a breach of it discharges the other party from its contractual obligations In order to make sense of this area of the law, we must understand that there are 2 salient issues at play: (i) (ii) The relevance of the historical rules of equity as reflected in s 4(9) of the Civil Law Act 27 ( CLA ) for the construction of time stipulations. The different ways in which the courts have used the phrase time is of the essence in construing whether time stipulations are conditions The historical rules of equity Time is prima facie not of the essence 21. First, it is necessary for us to discuss the historical distinction between the common law and equity s view of time stipulations. 28 To put it briefly 29, the common law viewed time stipulations as being of the essence. Equity however took the view that subject to several exceptions, time stipulations are prima facie not of the essence In 1875, the British Parliament enacted s 25(7) of the Supreme Court of Judicature Act ( SCJA ). The text of which is largely in pari materia with s 4(9) of Singapore s Civil Law Act. 32 To be clear, s 4(9) of the CLA states that: Stipulations in contracts, as to time or otherwise, which would not, before 23 rd July 1909, have been deemed to be or to have become of the essence of such contracts in a 23 Id. 24 Section 11(2), SOGA. 25 John E Stannard, Delay in the Performance of Contractual Obligations, 2 nd ed, (Oxford University Press, 2018) at ( Stannard ) 26 United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 ( United Scientific ) at 945D. (Lord Simon of Glaisdale) 27 Cap 43, 1999 Rev Ed Sing. ( CLA ) 28 Stannard at 2.02 where the author stated that it would be impossible to understand the topic without some grasp of its historical development. 29 A more detailed exposition can be found in Lords Diplock and Simon s judgments in United Scientific. 30 United Scientific at 927D-927E & 37 Vict c Teo Teo Lee v Ong Swee Lan and others [2002] 2 SLR(R) 760; [2002] SGHC 183 at [29]. 4

5 court of equity, shall receive in all cases the same construction and effect as they would have received in equity before that date What exactly is the effect of s 4(9) of CLA on the law? It is submitted that equity s view on time stipulations has prevailed. Hence, according to Lord Fraser of Tullybelton in United Scientific Holdings Ltd v Burnley Borough Council ( United Scientific ) 34, time is presumed to be not of the essence unless: (a) Parties expressly stipulate that conditions as to time must be strictly complied with (b) The nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence, or (c) a party who has been subject to unreasonable delay gives notice to the party in default making time of the essence It is not difficult to see that Lord Fraser s categories in United Scientific are exactly the same categories that Ang J in PT Surya had referred to as classes of cases where time is of the essence. This leads us to a potential problem - why should the court in PT Surya suggest that time is of the essence is a default starting point, when s 4(9) suggests the exact opposite? In other words, is s 4(9) of the CLA consistent with the conventional view that time is of the essence in commercial contracts? 25. The answer to this problem hinges on one s view of the scope of s 4(9). In this regard, the case law has generated two contrasting views: (i) (ii) The narrow view is that s 4(9) applies only to cases where the contracting party seeks an equitable remedy for breaches of contract. 36 The broad view is that s 4(9) applies to all contracts, regardless of whether the remedy is equitable in nature It is submitted that the narrow view of s 4(9) is correct. This is because s 4(9) was only enacted to acknowledge the court s power to grant equitable relief in situations where plaintiffs are unable to enforce the contract in the common law. Equity s intervention is limited only to the granting of relief Hence, the equitable rules in s 4(9) do not affect the general principles of contractual construction. 39 The legal construction of the contractual terms must be, in equity the same as in a court of law. 40 As Baker rightly observed, bringing in a different set of equitable rules for construing terms only serves to introduce a note of confusion. 41 The broad approach also contradicts authorities predating the SCJA which stated that time is of the essence in commercial contracts The High Court in PT Surya did not explicitly address s 4(9) of the CLA and its relationship with the general principles on construing contractual terms as conditions. If we follow the narrow view of s 4(9) s scope, one may assume that the omission was 33 s 4(9), CLA. 34 United Scientific at 958B. The Singapore Court of Appeal in Tian Teck Construction endorsed this at [15]-[16] as applicable to the CLA. 35 This category did not arise on the facts of PT Surya and thus falls outside the scope of this comment. However, do see Samarenko v Dawn Hill House Ltd [2013] Ch See for instance Stickney v Kimble [1915] AC 385 at This was purportedly Lord Diplock s view in United Scientific at 928. See also Carter, Courtney and Tolhurst An assimilated approach to discharge for breach of contract by delay, 2017 CLJ 76(1), at J W Carter, Carter s Breach of Contract, 2 nd ed, (Hart Publishing, 2018) ( Carter ) at Id at Tilley v Thomas (1867) LR 3 Ch App 61 at 78. (Cairns LJ) 41 PV Baker, The Future of Equity (1977) 93 LQR 529 at As pointed out by Lord Roskill in Bunge at 728F. See also Behn v Burness (1863) 122 ER

6 deliberate since s 4(9) is deemed irrelevant. However, in the absence of clear precedents, it is difficult to readily infer such a position from the court s silence. Hence, this is an issue that deserves further judicial clarification. The many ways of using Time is of the essence 29. We now move on to the second legal issue, which is the judicial usage of the phrase time is of the essence. From the case law, we can discern at least 3 different ways in which the courts have utilized the phrase time is of the essence : (i) (ii) (iii) As a practical expedient or shorthand; As a default position in commercial contracts, which can be rebutted by strong contrary evidence; or As a legal conclusion rather than a tool of reasoning Method 1: Time is of the essence as a practical expedient/shorthand 30. For lack of a better term, time is of the essence is merely used as shorthand in lieu of a detailed exercise of contractual construction. For instance, Wee Chong Jin CJ in Himatsing stated that it is also clear law that in most mercantile transactions, as regards stipulations other than those relating to time of payment, time is of the essence of the contract In relation to this point, Lord Lowry had opined in Bunge that the treatment of time stipulations as conditions is a practical expedient founded on and dictated by the experience of businessmen What does Lord Lowry mean by practical expedient? Lord Lowry s observations can only be understood in light of the specific factual matrix in Bunge international commodity string contracts. String contracts are where multiple parties deal with the same appropriated cargo. Only the first seller physically delivers. Only the last buyer takes physical delivery. The intermediate parties along this string are brokers with no physical interest in the cargo at all. 45 It is in such contracts where, today s buyer may be tomorrow s seller So why would time is of the essence be seen as a practical expedient in the international commodity trade? There are at least four reasons for this. (i) (ii) First, commodity prices do fluctuate rapidly. For string parties managing a complex array of contracts, timely performance of one s obligations is crucial. 47 This is especially so for CIF contracts where sellers must tender the proper shipping documents to the buyer to fulfill their contractual obligations. 48 Failure to tender documents that strictly comply with the terms of the credit (including an express time stipulation) would result in the bank refusing payment. Second, commercial parties in such time sensitive markets need to immediately know their legal position so that they can make swift decisions in the event of an alleged breach of contract Himatsing at [13]. 44 Bunge at 719G. 45 MG Bridge, International Sale of Goods, 4th ed, (Oxford University Press, 2017) at Bunge at 720E. 47 Toepfer v Lenersan-Poortman [1978] 2 Lloyd s Rep 555 at China Steel Corporation v Pan Asia Shipyard Engineering Co (Pte) Ltd [1988] 1 SLR(R) 389; [1988] SGCA 3 at [7]. 49 The Mihalis Angelos [1971] 1 QB 164 at 205D-205F (Megaw LJ) 6

7 (iii) (iv) Third, it provides consistency in judicial reasoning and results for different contracts in the same string. 50 Fourth, if the term is not invariably construed as a condition, this requires parties to give reasonable notice, which may not be commercially practical in string contracts. 51 Limiting the scope of the practical expedient 34. Given how far the courts have developed a sophisticated approach to construing terms 52, it seems peculiar to suggest that the courts could liberally use such crude shorthand to determine the parties rights of termination for all commercial contracts. 53 As the case of PT Surya has shown, there will be commercial contracts where time is simply not of the essence. 54 This is because the unique policy considerations that support this shorthand simply cannot be transposed into every commercial contract. 35. So apart from international commodity contracts, when could time is of the essence be applied as a practical expedient? It is likely that it will only be applied in highly speculative markets. 55 One example is the trading of shares and securities, where the time for delivery or transfer is deemed essential since share prices can considerably fluctuate in value. 56 The categories here are not closed, but the scope for this practical expedient should still be narrowed. Method 2: Time is of the essence as a default position 36. As seen from the decision in PT Surya, the third method is to use time is of the essence as a default position in the court s legal analysis. Applying it as a starting point has its advantages. It provides certainty to commercial parties while also retaining the court s flexibility to deviate from this default position where the circumstances do suggest otherwise. 37. One should note that the court in PT Surya was correct in rejecting the unfounded notion that time is of the essence is a presumption that reverses the burden of proof. However, once we put that rejected notion aside, there actually is very little difference between a presumption that does not reverse a burden of proof and a starting point. One could very well interpret the High Court s decision to be this: time is of the essence is a presumption but it is not a presumption that reverses the burden of proof. Method 3: Time is of the essence as a legal conclusion 38. Judges do use time is of the essence merely to describe its conclusion that the contractual stipulation is a condition. Hence, the phrase is usually mentioned after the courts have undertaken the exercise of construing the stipulation. For example, Ang J in PT Surya had stated that given the understanding that the delivery dates were not 50 Bunge at 720. (Lord Lowry) 51 Bunge at 720G. (Lord Lowry) 52 See for instance Man Financial v Wong Bark Chuan David [2008] 1 SLR(R) 663; [2007] SGCA 53 at [159]- [173]. 53 Stannard at This was also Lord Diplock s observation in United Scientific at 924C-924D. 55 Kim Lewison, The Interpretation of Contracts, 6 th ed, (Oxford University Press, 2015) at Lee Seng Cheong and others v Seah Bak Seng [2008] 2 SLR(R) 745; [2008] SGHC 1 at [27]-[28]. 7

8 final and confirmed, it cannot be the case that the time of delivery of Blackberry Q5 and Blackberry Q10 was of the essence 57 Conclusion 39. Judge Learned Hand once wisely observed that [W]ords are chameleons, which reflect the colour of their environment. 58. This humble comment has tried to present a rudimentary framework that hopefully helps us understand the varied colours of this fascinating chameleon in contract law, a chameleon that we call time is of the essence. About SLW Commentaries SLW Commentaries are short reviews or commentaries of the latest Singapore Supreme Court judgments, taking an analytical and big picture approach on legal developments. Although consisting primarily of commentaries on Supreme Court judgments, SLW Commentaries also include well-written articles on recent legislative changes. Interested contributors may write to SLW for more information. 57 PT Surya at [76]. 58 Commissioner of Internal Revenue v National Commission of Carbide (1948) 167 F 2d 304 at