WHEN DOES A PARTY WAIVE ITS RIGHT TO TERMINATE FOR REPUDIATORY BREACH?
In Government of the City of Buenos Aires v HN Singapore Pte Ltd [2023] SGHC 139, the key issue before the Court was whether a party had waived its right to terminate the contract for a repudiatory breach of contract by the other party.
The dispute. In this matter, the Government of the City of Buenos Aires, Argentina (‘Buenos’) entered into a contract with HN Singapore Pte Ltd (‘HN Singapore’) (‘Proposed SPA’), under which Buenos agreed to purchase 500,000 units of Covid-19 test kits manufactured by Guangzhou Wondfo Biotech Co., Ltd (‘Wondfo’) in China from HN. The number of test kits requested was then reduced from 500,000 (as stated in the Proposed SPA) to 300,000 due to a mistaken processing of the order by Buenos, but the parties agreed to move forward with an order for 300,000 test kits.
On 2 April 2020, the director of HN, Mr. Eng, issued a pro forma invoice to Buenos stating that:
“(a) HN would deliver 300,000 test kits to Buenos in exchange for a total price of US$1,770,000 (“the Purchase Price”).
(b) The test kits would be in “Chinese packaging”, with a unit price of US$5.90.
(c) The test kits would be of “China” origin and of the Wondfo brand; and
(d) The “[e]stimated date of arrival in Buenos Aires” would be “15(+5) days upon receiving of [sic] payment”.”
On 6 April 2020, Buenos paid the Purchase Price in full.
On 12 April 2020, the parties agreed to a variation of the SPA (the ‘Varied SPA’), the terms of which were that:
“(a) HN Singapore would deliver 182,475 test kits (‘the Test Kits’) to [Buenos] in exchange for the same Purchase Price of US$1,770,000 (which [Buenos] had already paid);
(b) The Test Kits would be of “China” origin, of the Wondfo brand, and from a specific Wondfo factory in China;
(c) The Test Kits would be in “English packaging”, with a unit price of US$9.40.
(d) The delivery time would be “15(+5) days upon payment”, ie, by 26 April 2020.”
On 20 April 2020, HN Singapore entered into a sale and purchase agreement with Wondfo for the purchase of the Test Kits at a total price of US$821,137.50.
But HN Singapore failed to deliver the Test Kits to Buenos by the agreed delivery date of 26 April 2020.
The parties then liaised and corresponded on the delivery of the Test Kits thereafter, including on 23 May 2020, where Mr Eng informed Buenos that the Chinese government did not award the required export approval to Wondfo, and hence the Test Kits were not cleared for delivery to Buenos.
Ultimately, on 27 May 2020, Buenos terminated the Varied SPA by email on the basis that the non-delivery on 26 April 2020 constituted a repudiatory breach by HN Singapore of the Varied SPA.
The action. In this action, among other things, Buenos claimed against HN Singapore and Mr. Eng (collectively, the “Defendants”) for repudiatory breach of contract.
We pause to note that it was decided by Justice Lee Seiu Kin that the Varied SPA captured the final terms of the agreement between the Parties ([75] – [78]).
Buenos’s arguments. Buenos argued that the failure of the Defendants to deliver the Test Kits by 26 April 2020 amounted to a repudiatory breach of the Varied SPA, which Buenos had accepted by way of the email sent on 27 May 2020 (at [38]).
HN Singapore’s arguments. While the Defendants accepted that they failed to deliver the Test Kits by 26 April 2020, the Defendants argued that Buenos had “waived the non-delivery, did not treat the non-delivery as a breach or [did not treat the non-delivery] as amounting to a repudiation of the [Varied SPA], and affirmed the [Varied SPA], until 27 May 2020.” (at [39])
The Defendants relied on the following acts as demonstrating the said “waiver” (at [39]):
(a) Buenos continued to work with HN Singapore for the delivery of the Test Kits even after the non-delivery of the Test Kits on 26 April 2020;
(b) Buenos was kept informed by HN Singapore of the status of the Test Kits (including the progress in production, fresh regulations in China, and Wondfo’s efforts to expedite export and delivery); and
(c) Buenos liaised with HN Singapore for the provision of a letter of commitment to Wondfo, which Wondfo had requested for, to enable the Test Kits to be exported.
Was HN Singapore in repudiatory breach of contract? Lee J noted that it was undisputed that HN Singapore failed to deliver the Test Kits to Buenos by 26 April 2020. Therefore, it appeared, on first glance, that HN Singapore breached the Varied SPA (at [86]).
Lee J then considered the decision of the Court of Appeal in RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007] 4 SLR(R) 413 (‘RDC Concrete’), where the Court of Appeal set out three scenarios in which an innocent party is entitled to terminate a contract in the absence of an express provision to do so, being (at [87]).
Lee J found that there was no renunciation of contract by HN Singapore, as even after the non-delivery of the Test Kits on 26 April 2020, HN Singapore continued to work with Buenos for the delivery of the Test Kits. Therefore, a reasonable person would not conclude that HN Singapore no longer intended to be bound by the Varied SPA, and hence this was not a case of a Scenario 1 breach under RDC Concrete (at [88]).
Lee J also found that the delivery date of 20 days upon receipt of payment was not a condition of the Varied SPA. This was because “… events in this case took place during a time of great uncertainty and urgency. The plaintiff was well aware of the difficulty faced by local and international markets in providing critical supplies to combat the pandemic …” ([89]).
Hence, while Lee J agreed that “time was of the essence” to Buenos for the delivery of the Test Kits, Buenos’s primary objective was to secure the Test Kits, and hence it was “implausible that [Buenos] would intend to terminate the Varied SPA just because [HN Singapore] delivered the Test Kits to [Buenos] one day late….” (at [89]), and hence this was not a case of a Scenario 2 breach under RDC Concrete (at [89]).
As for a Scenario 3 breach under RDC Concrete, Lee J held that the benefit intended by the parties under the Varied SPA was for Buenos to receive delivery of the Test Kits by 26 April 2020 for Buenos to use the Test Kits to prevent and treat Covid-19 (at [91]).
As HN Singapore’s breach as of the date of termination, 27 May 2020, caused Buenos to not receive any of the Test Kits promised under the Varied SPA, Buenos was deprived of substantially the whole benefit it intended to obtain from the Varied SPA, and hence HN Singapore committed a Scenario 3 breach, which entitled Buenos to terminate the Varied SPA (at [91]).
Whether Buenos waived its right to terminate the contract. Having found that there was a repudiatory breach, did Buenos waive its right to terminate the Varied SPA?
Lee J noted that there were three requirements for the doctrine of waiver by election to operate (at [95]):
“(a) First, the innocent party must have acted in a manner consistent only with affirming the contract, ie, treating the contract as still alive.
(b) Second, the innocent party must have communicated his election, ie, his choice to affirm the contract, to the party in breach in clear and unequivocal terms.
(c) Third, there must be sufficient knowledge on the part of the innocent party. At minimum, the innocent party must be aware of the facts giving rise to his right to terminate the contract. ...”
Lee J found that Buenos continued to treat the contract as alive after the delivery deadline had lapsed on 26 April 2020:
(a) Buenos did not deny that it continued to liaise with the Defendants on matters relating to the Varied SPA between 27 April 2020 and 27 May 2020 (at [97]).
(b) In particular, Buenos repeatedly asked the Defendants for the arrival date of the Test Kits (at [97]).
Nonetheless, Lee J found that Buenos had not waived its right to terminate the contract.
This is because, as set out at [100], “… [Buenos] was entitled to treat the Varied SPA as alive to assess whether it had been deprived of substantially the whole benefit it intended to obtain from the Varied SPA. The fact that [Buenos] treated the Varied SPA as alive between 27 April 2020 and 27 May 2020 was, at best, an election to affirm the contract for the time being and not an election to affirm the contract for an indefinite period of time. Subsequently, when HN Singapore repeatedly postponed its estimated deadlines for delivery by a month, and given the climate of uncertainty and urgency, [Buenos] was entitled to terminate the Varied SPA.”
Conclusion. So, when a party fails to perform its side of the bargain in a contract, it is in breach of contract. Depending on the breach, the party may even be in repudiatory breach of the contract.
Further, just because the “innocent” party continues to engage the party in breach with a view to achieving completion of the contract, it does not necessarily mean that there was no repudiatory breach, nor does it necessarily mean that the “innocent” party has waived its right to terminate the contract.
This is especially important for the “innocent” party as you do not always have to accept the repudiatory breach immediately. As this case makes clear, it is possible to “affirm” the contract for the time being. However, what is important is to ensure that such “temporary” affirmation does not cross the line and result in a “permanent” waiver of the right to terminate.
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