SPORTS CONNECTION PTE LTD V DEUTER SPORTS GMBH

[2009] SGCA 22, Court of Appeal of Singapore, Andrew Phang Boon Leong JA, Chao Hick Tin JA, VK Rajah JA, 1 Jun 2009

Contract – Breach of contract – Wrongful termination – Exclusive distributorship agreement for sports goods containing non-competition clause – Whether non-competition clause a condition – Whether the appellant’s sale of competing products constituted a breach so serious as to entitle the respondent to terminate the distributorship agreement – Application of Hong Kong Fir

From 1992 to 27 January 2005, Sports Connection was the exclusive distributor of Deuter products in Singapore, as well as other countries in the region. During this period, the parties entered into a number of written agreements. This was the appeal of the judge’s decision in which he dismissed the claimant’s action against Deuter for wrongful termination of a letter of agreement dated 28 November 2002. That agreement contained a non-competition clause whereby Sports Connection agreed not to sell products which were in competition with Deuter’s products without prior written consent. The Court of Appeal allowed the appeal, holding that the respondent had not been entitled to terminate its contract with the appellant. On the evidence, the non-competition clause was not a condition. If the term was not a condition, it must therefore be a warranty. Applying Hong Kong Fir to the warranty, the seriousness of the breach was such as to entitle the innocent party to terminate the contract. The court would apply the Hong Kong Fir approach as imputed to the parties as a general rule and not as a fallback rule. The fallback rule approach would in practise leave the court virtually no scope at all for applying Hong Kong Fir. Such an approach was excluded by the conceptual incompatibility between the condition-warranty approach and the Hong Kong Fir approach which differed in that the former looked at the nature of the term concerned whereas the latter looked at the actual consequences of the breach. The appropriate question was whether, once it had been established that a term was not a condition, the presumption that it was an intermediate term rather than a warranty was an irrebuttable presumption (so that the concept of warranty was effectively effaced) or a rebuttable one. The court held that it was the latter. There must be scope, however limited, for agreement to a term whose breach under no circumstances would give rise to termination, provided clear and unambiguous language was used. Whether the breach was serious enough to result in termination was a question of fact and not of which of the competing formulations that might be used to describe the breach. No formulation was needed other than that laid down in Hong Kong Fir itself: deprivation of “substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration”. Examination of the actual consequences of breach of the non-competition clause at the time when Deuter purported to terminate the distributorship agreement revealed that Deuter in this case had not been so deprived.