Yam Seng Pte Ltd v International Trade Corp Ltd
Citations:  EWHC 111 (QB);  1 All ER (Comm) 1321;  1 Lloyd’s Rep 526;  1 CLC 662;  BLR 147; 146 Con LR 39;  CLY 587.
The claimant and defendant entered into a contract. The contract granted the claimant exclusive rights to distribute the defendant’s fragrances in the Middle East, Asia and Australia. The parties’ relationship began to deteriorate as the claimant alleged several breaches of contract, including:
- Late deliveries;
- Refusal to make agreed products available;
- Attempting to get the claimant to give back distribution rights for Hong Kong and Macau;
- Claiming that the claimant had lost those rights under a made-up contract term when they refused to return the rights;
- Undercutting the agreed prices on the domestic market;
- Providing the claimant with false information which the defendant knew the claimant would rely on in its sales strategy;
- Generally failing to perform the contract in good faith.
The claimant ultimately terminated the agreement. They sued for damages for breach of contract, or alternatively for rescission of the contract and damages for misrepresentation. The defendant responded that the claimant had wrongfully terminated the contract. They argued that there was no repudiatory breach, or if there was, the claimant had affirmed the contract afterwards. They also argued that there was no duty to perform the contract in good faith.
- Had the defendant committed a repudiatory breach?
- Had the claimant affirmed the contract after any repudiatory breach?
In relation to each breach, the High Court held as follows:
- The late shipments were not bad enough to deprive the claimant of the whole benefit of the contract. They were therefore not repudiatory breaches. Even if they were, the claimant continued with the contract after the late shipments. This showed that they affirmed the contract.
- The failure to make certain products available was more serious, but still not a repudiatory breach. Once again, since the claimant continued with the contract, the court would treat them as having affirmed any repudiatory breach.
- The attempt to get the claimant to give back the distribution rights, combined with the claim that the claimant no longer had those rights, was a repudiatory breach. It communicated to a reasonable person that the defendant could no longer be relied on to adhere to the contract.
- This contract contained a duty to act in good faith when executing the contract. The defendant breached this by giving the claimant information they knew was false and that the claimant would rely on. This breach was repudiatory. Undercutting domestic prices would have been a breach of good faith, but the defendant had not in fact done this.
The judge held that the claimant had failed to show what profit it had lost due to these breaches. However, they were entitled to damages to reflect the net expenditure wasted in performing the contract.
As for the misrepresentation claim, the court found that the defendant had made negligently false statements which induced the contract. However, the damages were unlikely to be different than the award made for breach of contract.
This Case is Authority For…
A breach is repudiatory if it ‘goes to the root’ of the contract or deprives the innocent party of substantially the whole intended contractual benefit. A repudiatory breach does not automatically terminate the contract. Instead, it grants the innocent party the choice to affirm the contract or to terminate it.
English law has been described as hostile to the notion of a contract term to act in good faith. However, Leggatt LJ said the law was ‘swimming against the tide’. Most civil law jurisdictions and many common law jurisdictions recognise such a duty. Even English law recognises the duty in certain contexts, such as agency contracts. A duty of good faith has been enshrined in English consumer rights legislation (eg Unfair Terms in Consumer Contracts Regulations 1999).
Leggatt LJ acknowledged that English law was not ready to imply a duty of good faith into all contracts as a matter of law. However, he thought that the ordinary principles of implied terms in fact might lead to particular contracts having duties of good faith. If a reasonable bystander would understand the parties to have intended a duty of good faith, therefore, there will be an implied contract term to this effect.
Leggatt LJ described a duty of faith as having two core aspects: a duty of honesty and fidelity to the bargain. Good faith is assessed objectively according to whether a reasonable and honest person would regard the conduct as ‘commercially unacceptable’. It is not enough that the behaviour is merely ‘improper’.
In particular, many contracts are likely to include implied duties on the parties to act honestly. This is because honesty is the background assumption of most commercial dealings.
Leggatt LJ criticised the decision in Royscot Trust v Rogerson  2 QB 297, which held that damages for negligent misrepresentation are measured in the same way as damages under the tort of deceit. He did not think that this conclusion was justified by policy or the wording of the Misrepresentation Act 1967. However, he felt bound by the decision.
Leggatt LJ also discussed whether the possibility that the claimant would have made an alternative transaction was relevant to damages for misrepresentation. He noted that there was past case-law going both ways. On the balance, he thought that the case-law supported the proposition that alternative transactions should be taken into account. The burden of proving that the claimant would have entered into an alternative transaction (and what it would be) rests on the party trying to prove it, namely:
- The defendant, if they are trying to argue that the claimant would have lost money on an unprofitable transaction had they not been induced to enter that particular contract; or
- The claimant, if they are trying to argue that the misrepresentation lost them the opportunity to enter into a more profitable transaction.
In the present case, there was insufficient evidence on what any alternative transaction would be to take into account the impact of such a transaction.