Sure Can Trust Ltd - Case Study

Tutorial 7

1. Howcan Pte Ltd enters into a contract of sale with Panda Ltd in China for the sale of perishable goods, F.O.B (free on board: ie: buyer has to make the shipping and other arrangements). Howcan Pte Ltd then gets Sure Can Trust Pte Ltd to transport perishable goods from China to Singapore. The ship is supposed to transit via Vietnam. The goods are shipped out of China, but due to improper planning on the part of Sure Can Trust Pte Ltd, they are wrongly dispatched in Vietnam and further, Sure Can Trust Pte Ltd has not bothered to remedy the situation. Howcan Pte Ltd managed to trace the goods, but by that time, the goods have already gone bad. Howcan Pte Ltd is thinking of writing off its losses instead of suing Sure Can Trust Pte Ltd as the latter is in liquidation. However meanwhile, the liquidator of Sue Can Trust Ltd wants payment for shipping the goods from China to Vietnam.

1. How did the contract come to an end?

The contract ended by a fundamental breach of contract. A fundamental breach occurs when one party without expressly or implicitly repudiating the contract, commits a fundamental breach of the contract, such as breach of Condition. Since delivering the perishable goods to Howcan at a reasonable condition would have been an obvious and implied term of the contract even if it is not expressly stated in the contract. By failing to transport the goods to Singapore, Sure Can Trust Ltd has committed a fundamental breach of condition.

1. Is Sure Can Trust Ltd entitled to any payment?

Whether Sure Can Trust Ltd is entitled to payment for shipping the goods from China to Vietnam.

A contract can come to an end either by performance, agreement, repudiatory or fundamental breach and frustration.

Several exceptions to the rule that payment is conditional upon complete performance are:

1. Substantial performance
2. Divisible contracts
3. Prevented performance
4. Acceptance of partial performance
5. Apportionment act

The relevant case is Ocean Projects Inc v Ultatech Pte Ptd

The defendants were engaged to transport the goods from Houston to Dumai by ship. They loaded the goods from Houston but, due to some reason, unloaded them in Singapore without going to Dumai. Thus they did not complete the voyage. The court held that the defendants were not entitled to any payment for shipping the goods from Houston to Singapore.

Howcan Pte Ltd gets Sure Can Trust Pte Ltd to transport perishable goods from China to Singapore by ship via a transit in Vietnam. However, the goods are shipped out of China but are wrongly dispatched in Vietnam. Furthermore, Sure Can Trust Pte Ltd did not bother to remedy the situation. Similar to the relevant case, Sure Can Trust Pte Ltd did not completely perform his obligations under the contract as the goods did not reach Singapore. Therefore, Sure Can Trust Pte Ltd cannot seek any payment from the other party.

This rule that payment is conditional upon complete performance, however, has several exceptions. One of which is the acceptance of partial performance. It is stated that if one party has not completely performed his obligations, and the other party, by words or action imitates that he accepts the incomplete performance, the party who has not completely performed the contract may nonetheless be able to claim on a quantum meruit basis.

The relevant case is Sumpter v Hedges

Sumpter was engaged by Hedges to construct a structure on Hedge’s land. Sumpter failed to complete the job, so Hedges had to complete the rest of the job. Sumpter sued for the value of work done. The court held that he need not be paid, as Hedges had no choice but to accept the partially completed structure.

With Howcan Pte Ltd choosing to write off its losses instead of suing, it may be seen as an acceptance of the partial performance. However, similar to the relevant case above, this would be seen as no acceptance as Howcan Pte Ltd has no choice but to accept the incomplete performance since the goods being transported has already gone bad by the time Howcan Pte Ltd managed to trace them.

In conclusion, Sure Can Trust Pte Ltd is not entitled to any payment as he did not completely perform his obligation to transport the goods from China to Singapore. As Howcan Pte Ltd has no choice but to accept his incomplete work, Sure Can Trust Pte Ltd cannot claim payment on a quantum meruit basis. Sure Can Trust Pte Ltd, however, may be liable for the damages suffered by Howcan Pte Ltd due to their incomplete performance of the contract.

1. From a business/practical point of view, how could Howcan Pte Ltd have protected itself?

Howcan Pte Ltd could have expressly stated in the contract that the obligation is an entire one whereby the goods have to be delivered from China to Singapore within a stipulated time, considering the perishable nature of the goods. Should Sure Can Trust Pte Ltd fail to meet the conditions stated, Howcan Pte Ltd need not pay them and can sue Sure Can Trust Pte Ltd for the losses incurred.

Howcan Pte Ltd could have also checked the credibility and timeliness of Sure Can Trust Pte Ltd by consulting other businesses in the same industry or by reading reviews left by previous customers of Sure Can Trust Pte Ltd before engaging them for the service. Considering that Sure Can Trust Pte Ltd went into liquidation shortly after this transaction shows that they were already facing financial difficulties prior to this transaction. Howcan Pte Ltd could have ensured that Sure Can Trust Pte Ltd is financially sound before entering into this contract.

1. Able Pte Ltd, a company involved in renovation agrees to renovate Mr Oh Noh’s house. But after the hacking had started, the company realizes there is no way it can finish on time, as it has over committed itself by doing many other renovations in many other places at the same time. It is also short of workers. So Able Pte Ltd completely stops renovating Mr Oh Noh’s house as it is the least profitable project of the lot.

1. Is the company excused by reason of frustration if it does not perform the contract?

The issue is whether Able Pte Ltd can be excused by reason of frustration if it does not fulfil the performance under the contract.

Frustration is the happening of an unexpected event beyond the control of the parties, after the making of the contract, but before the completion of the contract, which makes further performance of the contract, either illegal, impossible or radically different from what was originally envisaged by the parties.

Able Pte Ltd could argue that the contract is radically different from what was originally envisaged by the parties. On the facts, Able Pte Ltd could argue that shortage of workers causes performance of contract to be radically different from what was originally envisaged. However, generally, if there are insufficient labours or increase in performance costs, these would not make the contract radically different from what was originally envisaged. In Davis Contractors Ltd v Fareham UDC (1956), the contractors argued that the contract was frustrated by labor shortages and increase in costs. However, the court held that the contract was not frustrated. Although Able Pte Ltd happened to experience labor shortage, Able Pte Ltd cannot be excused by reason of frustration if it does not perform its obligations under the contract.