Yam Seng PTE Ltd v International Trade Corporation Ltd

A term of good faith may be implied in fact into an ordinary commercial contract where, construed against its relevant context, that is the parties’ presumed intention. The content of the term is objective and context-sensitive. It includes the core requirement of honesty and may reflect the communication, cooperation and trust required by a long-term distributorship.

A party who knowingly gives false commercial information on which the other party is likely to rely commits a breach of that duty. Where the dishonesty destroys the trust essential to the relationship, it is repudiatory. An unequivocal threat to disregard an exclusive distributorship right may independently amount to repudiation. Damages for wasted expenditure give effect to the ordinary contractual expectation measure, subject to the defendant showing that the expenditure would have been wasted even with due performance.

The claimant was the exclusive distributor of Manchester United-branded fragrances in specified duty-free and domestic territories under a long-term distribution agreement. It terminated after the defendant repeatedly delayed supply, withdrew toiletry products, gave misleading information about Singapore domestic retail pricing, and asserted that it could appoint another distributor for products in Hong Kong and Macau.

The claimant sought damages for repudiatory breach of contract, alternatively damages for misrepresentation. It alleged that the defendant had falsely represented, before the agreement, that it had signed licences permitting it to manufacture and sell the products. The defendant denied breach, repudiation, reliance and loss, and counterclaimed for an unpaid invoice and lost profits.

The central issues were whether relevant duties were implied into the agreement, whether the defendant’s conduct was repudiatory, and the proper measure of damages.

1. Judgment for the claimant. The claimant validly terminated the distribution agreement on 29 July 2010. The defendant’s counterclaim failed.

2. The agreement required the defendant to ship orders promptly. Earlier delays and the failure to produce promised products were breaches, but the claimant affirmed those breaches by continuing the contract and placing further orders. They could not later justify termination.

3. The pre-contractual letters promising product launch dates were collateral warranties. The defendant therefore breached the agreement by failing to make products available as promised, including its ultimate refusal to supply toiletries.

4. A duty of good faith was implied in fact in this commercial distributorship. Its content depended on the agreement’s context and included an objective duty of honesty. The defendant knowingly left the claimant to rely on false information that the Singapore domestic retail price had been increased. That dishonesty concerned an important commercial matter and destroyed the trust necessary for the relationship. It was repudiatory.

5. The defendant’s assertion that it could appoint another distributor for toiletry products in Hong Kong and Macau conveyed a clear intention to disregard the claimant’s exclusive rights. In the context of the earlier breaches, this was a further repudiation. Either repudiatory breach entitled the claimant to terminate.

6. The claimant did not prove lost future profits. It could recover its net expenditure incurred in performing the agreement because the defendant had not shown that the expenditure would have been wasted even if the agreement had been performed.

7. The claimant was also induced to enter the agreement by false representations concerning the defendant’s licences. Under Misrepresentation Act 1967, section 2(1), it could recover the same net loss. Quantum was left for agreement or further assessment.

not stated in the judgment.