RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007] 4 SLR(R) 413; [2007] SGCA 39 Facts

1. Sato Kogyo (S) Pte Ltd (Sato) contracted with RDC Concrete Pte Ltd (RDC) for the supply of concrete. 2. Sato ordered to temporarily suspend procurement of concrete from RDC due to problems with the quality of concrete supplied. Sato purchased concrete from other parties in the meantime. 3. Sato deducted from sums due to RDC the costs differential as a result of obtaining supplies from the third parties and RDC. 4. RDC subsequently allowed to resume supply from one of its plants, but failed to meet certain orders due to a shortage of raw materials. Sato again obtained the concrete from third parties and deducted the costs differentials. 5. RDC claims that Sato was not entitled to deduct the costs differentials as the nonsupply fell within the force majeure clause. 6. Sato terminated the contract on the ground of RDCs: (a) (b) Persistent failure to supply the concrete; and Failure to meet LTAs requirements.

Holdings & Claims

2 7. 8. Implied Terms. Sato claimed that it was an implied term that the contract was an exclusive or sole supplier contract (paragraph 22). Sato claimed that being an exclusive or sole supplier contract, Sato was entitled to claim the costs differentials for the occasions when RDC failed to deliver the required concrete. 9. The Court of Appeal held that it was not an express term of the contract that it was a exclusive or sole supplier contract (paragraph 25). 10. The Court of Appeal held that terms could only be implied into contracts if: (a) (b) parties (paragraph 26) 11. The Court of Appeal found that the implication of an exclusive or sole supplier contract would neither lend business efficacy to the contract nor pass the officious bystander test (paragraph 31). 12. In fact, the Court of Appeal found that implying such a term would alter the nature of the bargain as Sato would be found to be in breach even after RDC has supplied the total amount of concrete it is contracted to supply under the contract (paragraph 31). 13. Damages for Breach. The Court of Appeal also reiterated that the trite law on damages and breaches of contracts is as follows: Even if the innocent party is not entitled to terminate the contract or, if so entitled, chooses nevertheless not to terminate the contract, it will, generally Such terms are necessary to give business efficacy to the contract; or The term represents the obvious, but unexpressed, intention of the

3 speaking, always be entitled to claim damages as of right for loss resulting from the breach (or breaches) of contract (paragraph 40). 14. Breach of Contract. First, in the event of a breach of contract, there is no automatic legal right conferred on the innocent party (viz, the party who is not in breach of the contract), to elect to treat the contract as discharged (viz, to terminate the contract) (paragraph 90). 15. An innocent party in a breach of contract may terminate the contract only in the following situations, where the: (a) Contract clearly and unambiguously states that, in the event of a certain event or events occurring, the innocent party would be entitled to terminate the contract (paragraph 91); (b) Where a party, by his words or conduct, simply renounces its contract inasmuch as it clearly conveys to the other party to the contract that it will not perform its contractual obligations at all, that the other party (viz, the innocent party to the contract) is entitled to terminate the contract (paragraph 93); and (c) Term is a condition in that, the intention of the parties to the contract was to designate that term as one that is so important that any breach, regardless of the actual consequences of such a breach, would entitle the innocent party to terminate the contract (paragraph 97). 16. If the term is a less important such that the intention of the parties to the contract was to designate the term as one that is not so important so that no breach will ever entitle the innocent party to terminate the contract, (even if the actual consequences of such a breach are extremely serious), such a term is called a WARRANTY (paragraph 98).

4 17. Hong Kong Fir Approach described as an approach under which an innocent party is entitled to terminate the contract if the nature and consequences of the breach are so serious as to go to the root of the contract and constitutes a fundamental breach of the contract (paragraph 99). 18. The Court of Appeal also found that in using the Hong Kong Fir Approach, a new type of contractual term the intermediate or innominate term - was introduced. Such a term is neither a condition nor a warranty. 19. Whether or not a breach of an innominate term entitles the innocent party to terminate a contract depends on whether the breach is so serious as to go to the root of the contract is it a fundamental breach. 20. The Court of Appeal found that such an approach should not be the case as every term, whether it is a condition or a warranty, has the potential to lead to serious consequences that go to the root of the contract, if breached. Hence, the Hong Kong Fir Approach would literally obliterate the concept of conditions and warranty, making every term an innominate term (paragraph 105). 21. The Court went on to state that in determining whether or not a breach entitles the innocent party to terminate the contract, foremost consideration must be given to the parties intention thus, preferring the condition / warranty approach (paragraph 106). 22. The Court of Appeal took the view that to be fair, the consequences of a breach must also be examined and taken into consideration by a Court, even if the term breached is only a warranty. Of course, according to the Court of Appeal, there would be no need to consider the consequences of a breach of a condition as the breach of a condition would entitle the innocent party to terminate the contract in the first instance (paragraph 107).

5 23. Hence, the Court held that where the term is a WARRANTY, where the consequences of the breach are: (a) Such as to deprive the innocent party of substantially the whole benefit that it was intended that the innocent party should obtain from the contract, then the innocent party would be entitled to terminate the contract, notwithstanding that it only constitutes a warranty; (b) Only very trivial, then the innocent party would not be entitled to terminate the contract. 24. In all breaches, the innocent party is entitled to damages.