REPUDIATORY BREACH – INSISTENCE ON PERFORMANCE OF OBLIGATIONS OUTSIDE THE CONTRACT
A party can terminate a contract pursuant to an agreed contractual mechanism. However, you can also do so by accepting the other party’s repudiatory breach. So, what amounts to a repudiatory breach? Will it amount to a repudiatory breach if you insist the other party complies with conditions that are not part of the contract? The recent case of Sunrise Industries (India) Ltd v. PT. OKI Pulp & Paper Mills & Anor [2023] SGHC 3 (“Sunrise v OKI”) addresses this.
Brief facts. In Sunrise v OKI, the plaintiff, Sunrise Industries (India) Ltd (“Sunrise”) was engaged by the first defendant, PT. OKI Pulp & Paper Mills (“OKI”) to supply and install pipes, fittings and manholes for a pump mill owned by OKI in Indonesia. This was done via two separate contracts: a supply contract for Sunrise to supply OKI with various goods (the “Supply Contract”), and a separate contract (the “Installation Contract”) for Sunrise to install those goods in the mill.
Sunrise was required to, and did obtain, a bank guarantee from the second defendant, Dena Bank Limited (“Dena Bank”), a public bank in India.
Disputes arose from the performance of the contracts, leading to OKI invoking the bank guarantee and causing Sunrise to bring the suit.
Facts – Repudiatory breach. For the purposes of this blog, we focus on the Parties’ arguments on repudiatory breach for the Installation Contract. However, there are other disputes, and we highlight that the Court had found (earlier in the judgment) that Sunrise had breached the Installation Contract.
Returning to the issue of repudiatory breach, OKI argued that it was entitled to terminate the Installation Contract as, among others, Sunrise had “refused to perform its installation work and insisted on imposing additional conditions that had not been agreed, which constituted a repudiatory breach” ([103] Sunrise v OKI).
While cases are always fact specific, this scenario can be of general relevance.
Consider the following scenario: suppose that the contractor tells the employer that unless the employer pays the contractor for works which have not been carried out (and which are not contractually due to be paid), the contractor will stop work.
This hypothetical may potentially be characterized as one where the contractor has refused to carry out its works and insisted on imposing additional conditions that had not been agreed.
Repudiatory breach – the law. The law in this regard is well established and has been helpfully set out by the Court in Sunrise v OKI at [105]. We duplicate [105] Sunrise v OKI below for our readers’ ease of reference:
“105 OKI’s case on their acceptance of Sunrise’s repudiatory breach is also made out. In RDC Concrete at [93], the Court of Appeal held that a party is entitled to elect to terminate a contract when the other 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” [emphasis in original omitted]. The Court of Appeal further explained in iVenture Card Ltd and others v Big Bus Singapore City Sightseeing Pte Ltd and others [2022] 1 SLR 302 (“iVenture”) at [64], that:
A renunciation of contract occurs when one party by words or conduct evinces an intention not to perform or expressly declares that he is or will be unable to perform his obligations in some material respect, and short of an express refusal or declaration, the test is to ascertain whether the action or actions of the party in default are such as to lead a reasonable person to conclude that he no longer intends to be bound by its provisions. For example, the party in default may intend to fulfil the contract but may be determined to do so only in a manner substantially inconsistent with his obligations, or may refuse to perform the contract unless the other party complies with certain conditions not required by its terms: San International Pte Ltd (formerly known as San Ho Huat Construction Pte Ltd) v Keppel Engineering Pte Ltd [1998] 3 SLR(R) 447 at [20].
[emphasis added]
The Court of Appeal went on to explain at [65] that:
… a refusal to perform a contract unless the other party complies with an invalid condition will not necessarily amount to a repudiation and much depends on all the facts and circumstances of the case: Mayhaven Healthcare v Bothma and another (trading as DAB Builders) [2009] 127 Con LR 1 at [30]. The question is whether iVenture Card’s refusal to perform the Service Level Agreement on condition that Big Bus performed the Licence Agreement and the Reseller Arrangement would lead a reasonable person to conclude that it no longer intended to be bound by the Service Level Agreement.
[emphasis added]”
(emphasis in original)
To summarise, a party may renounce the contract by refusing to perform the contract unless the counterparty complies with conditions not required by the contract. However, this refusal must be such that a reasonable person would conclude that the party imposing the conditions no longer intends to be bound by the contract.
Application. On the facts of Sunrise v OKI, the Court held at [106] Sunrise v OKI that Sunrise had shown that it did not intend to abide by the terms of the Installation Contract via an email dated 17 May 2016, as the said email “… request[ed] that OKI do what it was not contractually required to do, whether by the Supply Contract or the Installation Contract…” and that “… If OKI did not comply with Sunrise’s requests, [Sunrise] was not interested to continue the Installation Contract …”
We set out [106] Sunrise v OKI below for ease of reference:
“106 In the present case, the position is made clear by an e-mail sent by Sunrise to OKI on 17 May 2016, the day before OKI elected to terminate the Installation Contract. Sunrise informed OKI that despite repeated reminders and requests, it had not received payment “as per the terms and conditions of the contract”, and hence it would “not be interested to continue the contract”. Sunrise then stated that, if OKI was interested, it could amend its order in the following respects:
(a) extend the contract for delivery and installation;
(b) release the final 10% payment for the Supply Contract; and
(c) release 100% payment for the Installation Contract under an irrevocable letter of credit.
This e-mail is unambiguous. Sunrise had no intention of abiding by the terms of the Installation Contract. It was requesting that OKI do what it was not contractually required to do, whether by the Supply Contract or the Installation Contract. As explained at [4] above, the final 10% under the Supply Contract was only payable upon the issuance of a Certificate of Performance Test, which at this point had not been issued. As for the Installation Contract, Sunrise was only entitled to payment of the first 20% after its supervisor had been working on the Project Site continuously for two months (see [6] above). If OKI did not comply with Sunrise’s requests, it was not interested to continue the Installation Contract. Sunrise has not put forward any other characterisation of this e-mail. This e-mail cannot be reasonably characterised in any other manner.“
Further, the Court held at [107] Sunrise v OKI that by the time the email was sent, Sunrise had demobilised its team and made clear that it would not remobilise the team until OKI arranged for accommodation for Sunrise’s personnel, which was not part of OKI’s obligation under the Installation Contract.
Additionally, the Court also found at [107] Sunrise v OKI that by stating that a reason for delay in installation works was due to OKI’s failure to release payment under the Supply Contract, Sunrise “… was effectively telling OKI that it would only perform if OKI complied with its unilaterally imposed condition to make payment under a separate contract. A reasonable person would certainly conclude that Sunrise no longer intended to be bound by the Installation Contract.”
Hence, the Court held that Sunrise had refused to perform the Installation Contract and OKI was entitled to terminate the Installation Contract.
Conclusion. While Sunrise v OKI does not make new law, it makes clear that if a party to a contract refuses to perform its obligations under the contract unless the counterparty complies with conditions that are not part of the said contract, it may amount to a repudiatory breach. In this regard, [106] – [107] Sunrise v OKI are particularly important as they illustrate what may amount to the imposition of conditions outside the original contract.
We highlight that if a contractor enters into two contracts (A and B) with the same employer for the same project for two connected pieces of work, it is important to remember that (in general) the fact that two contracts are entered into would usually mean that the obligations under each contract must be analysed on its own.
Hence, if payments are delayed under contract A, it does not entitle the contractor to demand payment under contract B. And if the contractor stops work under contract B and demands payment of outstanding sums under contract A as a pre-condition for resuming works under contract B, the contractor may create a situation where he is now in repudiatory breach of contract B.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.