Out of the Box v Wanin Industries
DMC/SandT/14/17
Singapore
Singapore Court of Appeal
Out of the Box Pte Ltd v Wanin Industries Pte Ltd [2013] SGCA 15: Sundaresh Menon CJ, Chao Hick Tin JA and Andrew Phang Boon Leong JA: 6 February 2013: [2013] 2 SLR 363
Genesis Law Corporation for the Appellant, Out of the Box Pte Ltd.
Pinnacle Law LLC for the Respondent, Wanin Industries Pte Ltd.
CONTRACT: REMOTENESS OF DAMAGE: BEVERAGE DISTRIBUTOR ENGAGING MANUFACTURER TO PRODUCE NEW SPORTS DRINK: MANUFACTURER UNAWARE OF DISTRIBUTOR’S PLAN TO PROMOTE POPULAR DEMAND FOR GENERIC THROUGH AGGRESSIVE ADVERTISING: MANUFACTURER SUPPLYING DEFECTIVE SHIPMENT OF DRINKS IN BREACH OF CONTRACT: ABANDONMENT OF PROMOTION: WHETHER WASTED ADVERTISING EXPENSES CLAIMED BY DISTRIBUTOR TOO REMOTE
Summary
In this case, the Singapore Court of Appeal rejected the broader approach to determining remoteness of damage put forward by Lord Hoffman in The Achilleas – whether the contract breaker had assumed responsibility for the losses incurred - and set out an analytical framework for deciding questions of remoteness of damage. The Court also approved of Robert Goff J’s statements in The Pegase, and held that it was not only important to consider what knowledge a contract breaker had or should be taken to have had at the time he entered into the contract, but also important to have regard to the circumstances in which that knowledge had been acquired. On this basis, most of the damages suffered by Out of the Box were too remote to be recoverable from Wanin Industries.
This note has been contributed by Leong Lu Yuan of Ang & Partners, Singapore. Ang & Partners are the International Contributors to this website for Singapore.
Facts
The appellant (“OOTB”) and respondent (“WI”) entered into a contract under which WI was to manufacture and supply a generic sports drink to OOTC. The contract was a bare-bones contract, less than a page long and appeared to be nothing more than a routine contract for the supply of modest quantities of a generic sports drink. Aside from payments for the production of a mould and cylindrical drums, the extent of OOTB’s obligation under the contract was to purchase a minimum of 1,200 cartons of 18 at a price of SGD10.30 per carton. This would have generated an income of SGD12,360.00. The contract did not contain any particular quality specification or recipe for 18.
Unknown to WI, OOTC planned to spend substantial sums in marketing the drink as “18 for Life” (“18”), a drink targeted at the golfing industry.
In 2008, a shipment of 18 supplied by WI was found to be contaminated by insects. OOTB was required to recall all stock of 18 from the market, and the AgriFood and Veterinary Authority of Singapore issued a consumer advisory informing the public that all stock of 18 had been recalled and warning against consuming 18. As the 18 brand was damaged beyond repair, OOTB abandoned its marketing campaign and ceased to sell 18.
OOTB was granted summary judgment in respect of its claim against WI for breach of the Contract. At the assessment of damages, OOTB claimed damages in the amount of SGD779,812.30 which it said had been incurred in reliance upon the Contract and which had been wasted as a result of WI’s breach. The bulk of these expenses were advertising costs.
OOTB’s damages were assessed in the sum of SGD$655,280.70 before the assistant registrar. On appeal to the High Court, the damages were further reduced to SGD329,254.30. The reduction was made on the ground that OOTB was unable adequately to prove its loss in respect of parts of the damages claim, specifically, the use of advertising credits that belonged to OOTB which were used to promote 18 (“the ActMedia expenses”) and the redemption of a prize it had won for an advertising campaign for an unrelated line of products (“the Clear Channel expenses”). Accordingly, OOTB was only entitled to nominal damages in respect of these expenses.
OOTB appealed to the Court of Appeal against the Judge’s decision to award nominal damages for the ActMedia expenses and Clear Channel expenses.
The Court of Appeal dismissed OOTB’s appeal on the ground that OOTB’s claimed heads of damages were too remote.
Judgment
1. After examining the principles governing remoteness of damages in contract in Hadley v Baxendale (1854) 156 ER 145 (Fn.1), Victoria Laundry (Windsor) Ld v Newman Industries [1949] 2 KB 528, and the House of Lords decision in The Achilleas [2009] 1 AC 61, the Court of Appeal set out the analytical framework for deciding questions of remoteness of damage, which entailed making the following inquiries:-
(a) First, what are the specific damages that have been claimed?
(b) Second, what are the facts that would have had a bearing on whether these damages would have been within the reasonable contemplation of the parties had they considered this at the time of the contract?
(c) Third, what are the facts that have been pleaded and proved either to have in fact been known or to be taken to have been known by the defendant at the time of the contract?
(d) Fourth, what are the circumstances in which those facts were brought home to the defendant?
(e) Finally, in the light of the defendant’s knowledge and the circumstances in which that knowledge arose, would the damages in question have been considered by a reasonable person in the situation of the defendant at the time of the contract to be foreseeable as a not unlikely consequence for which he should be liable?
2. In the course of the judgment, the Court of Appeal also examined the decision of The Achilleas, specifically the new test proposed by Lord Hoffman for determining remoteness of damage, which focused on whether the defendant had assumed responsibility for the losses in question. The Court referred specifically to paragraphs 21, 25 and 26 of Lord Hoffman’s judgment.
3. The Court believed that Lord Hoffman had viewed the proper approach to the question of remoteness of damage as a question of interpreting the contract, and referred to its own decision in MFM Restaurants Pte Ltd v Fish & Co Restaurants Pte Ltd [2011] SGCA 36, in which it had rejected Lord Hoffman’s approach to remoteness of damage in The Achilleas, to the extent that it deviated from the rule in Hadley v Baxendale.
4. The Court took the view that there were two types of cases which should not be conflated – or, indeed, confused - and emphasized the need for conceptual clarity in differentiating between them:-
4.1. Cases involving the interpretation of a contract to determine what risk was contractually assumed by a party; and
4.2. Cases where the question was remoteness of damage.
5. The Court stated that it was not helpful to frame the question of remoteness as one concerning the contractual assumption of risk or the true interpretation of the contract, as this was a separate inquiry which generally would not bear directly on the question of remoteness. The Court did, however, accept that contractual assumption of risk might constitute a factor to be considered in ascertaining whether the damage was too remote based on the relevant facts, especially under the second limb of the rule in Hadley v Baxendale.
6. The Court also made the following comments on the analysis of whether claimed damages are too remote:-
6.1. There is a substantial degree of fact sensitivity embedded in the analysis of whether the claimed damages are too remote, as the question of remoteness is assessed by reference to the factual matrix in which the parties were situated at the time they entered into the contract.
6.2. The Court approved of Robert Goff J’s statements in The Pegase [1981] 1 Lloyd’s Rep 175 (at 182 – 183), in which he stated that apart from examining what knowledge the contract breaker had or should be taken to have had at the time of the contract, it was also important to have regard to the circumstances in which that knowledge had been acquired. The Court took the view that these considerations were critical to the determination of whether in all circumstances it was just to hold the contract breaker liable for the losses that had occurred, which would in turn depend on the facts that were known (or should be taken to be known) to the contract breaker and that may be taken into account when assessing what ought to have been reasonably foreseeable to him at the time of the contract.
6.3. Different heads of loss might seem to be of the same type or nature, but turn out to be of different types upon proper analysis. In this regard, the Court pointed to the case of Victoria Laundry (in which loss of profits from the laundry business were regarded as a different type of loss from losses from particularly lucrative dyeing contracts) and The Achilleas (where there were two distinct types of losses – a well-contained, quantifiable loss reflected in the difference in charter rates for the period of delay in redelivery, and an open-ended and unquantifiable loss or risk of the owner having to vary arrangements under a subsequent fixture which the charterer had no knowledge of).
6.4. While the value of a contract – here a minimum of some SGD12,360.00 - does not limit the damages that a plaintiff can claim for the defendant’s breach, it would form part of the factual matrix that a court would consider in assessing what would have been reasonably foreseeable by the defendant in all the circumstances at the time the contract was entered into.
7. OOTB’s appeal was dismissed for the following reasons:-
7.1. WI received SGD12,360.00 revenue from the Contract, but unknown to WI, OOTB had spent in the region of SGD779,812.30 on advertising and promoting 18.
7.2. Neither OOTB’s intention to market 18 intensively nor OOTB’s business strategy - which would entail greater risks than might have been faced by the average beverage distributor - were not made known to WI. These facts had a direct bearing on the losses that materialized but, without knowledge of these additional facts, WI could not have foreseen these losses and there was no basis upon which WI could fairly be held liable for them.
Fn.1 The rule in Hadley v Baxendale is that the damages which a party ought to receive in respect of a breach of contract should be:-
(a) damages which may be fairly and reasonably be considered to have arisen naturally/according to the usual course of things from the breach (“the first limb of the rule in Hadley v Baxendale”); or
(b) damages which may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it (“the second limb of the rule in Hadley v Baxendale”).
