28 March 2018

Benzline Auto Pte Ltd v Supercars Lorinser Pte Ltd & Anor [2018] SGCA 2

In Benzline Auto Pte Ltd v Supercars Lorinser Pte Ltd & Anor, the Singapore Court of Appeal ruled that a party who had paid a deposit in anticipation of concluding a contract which eventually failed to materialise was not entitled to a refund.

Facts

The case relates to negotiations for a sub-dealership agreement between a dealer of cars, Benzline Auto Pte Ltd (“Benzline”), and the direct retailer of cars, Supercars Singapore Pte Ltd, and its subsidiary, Supercars Lorinser Pte Ltd (collectively, “Supercars”).

The proposed sub-dealership agreement between Benzline and Supercars was intended to be on a “back-to-back” basis with a master dealership agreement between Benzline and Sportservice Lorinser Sportliche Autoausrustung GmbH (“Lorinser”). Lorinser is in the business of selling modified Mercedes-Benz cars, which Lorinser orders from the manufacturer, Daimler AG (“Daimler”) and which Lorinser modifies itself.

While negotiating the sub-dealership agreement, Supercars paid a deposit of S$300,000 to Benzline.

Eventually, the parties were unable to conclude the sub-dealership agreement as they could not agree on the terms of the sub-dealership agreement. Supercars refused to agree to a particular provision in the draft sub-dealership agreement which mirrored a similar provision in the proposed master dealership agreement between Benzline and Lorinser. Such a provision had appeared in previous drafts of the master dealership agreement which had been provided to Supercars for comments. Accordingly, at the time Supercars paid the deposit of S$300,000 to Benzline, Supercars ought to have been aware of the disputed provision in the master dealership agreement, which would have to be mirrored in the sub-dealership agreement then still under discussion between Benzline and Supercars.

As Benzline and Supercars were unable to agree on the terms of the sub-dealership, Benzline eventually contracted with a competitor.

Supercars demanded a refund of the S$300,000 deposit which it had paid to Benzline in the course of the negotiations on the sub-dealership agreement.

Supercars subsequently commenced proceedings in the High Court for the return of the S$300,000 deposit. Supercar contended that it was entitled to restitution of the deposit on the ground of a failure of basis.

Decision of the High Court

The High Court judge (“Judge”) found that the payment was made on the basis that it would be refunded if the sub-dealership agreement was not concluded. The Judge therefore ordered Benzline to pay Supercars S$300,000. Dissatisfied, Benzline appealed to the Court of Appeal.

Decision of the Court of Appeal

The law on unjust enrichment

The Court of Appeal explained that the three requirements of a claim in unjust enrichment are: (a) enrichment of the defendant, (b) at the expense of the plaintiff, and (c) circumstances which make the enrichment unjust. Only the third requirement was in dispute.

The specific unjust factor relied upon was a failure of basis. As the Court of Appeal explained, the idea underlying a failure of basis is that where a benefit has been conferred on the joint understanding that the recipient’s right to retain it is conditional, and the condition is not fulfilled, the recipient must return the benefit. Thus, there were two parts to the inquiry: (a) what the basis for the transfer in respect of which restitution is sought was, and (b) whether that basis failed.

Basis for the transfer

The Court of Appeal found that the payment of the deposit by Supercars to Benzline, which was eventually paid on to Lorinser and subsequently to Daimler, was made for the specific purpose of enabling Lorinser to pay a deposit to Daimler, thus setting in motion the production process and avoiding an unacceptable delay in the eventual delivery of the cars. Taking into account the conduct of the parties, the Court of Appeal found that the implied basis for the payment was that Benzline would offer Supercars the sub-dealership on terms which would be materially similar to the draft master dealership agreement between Benzline and Lorinser, a copy of which had been provided to Supercars.

On the evidence, there was no express or implied understanding that entry into the sub-dealership agreement formed part of the basis of the payment. The court noted that to an objective observer, it was unlikely that Benzline would willingly confer on Supercars the ability to claw back the payment simply by refusing to sign the sub-dealership agreement.

Failure of basis

The Court of Appeal found that the basis of the payment did not fail. While Benzline was prepared to move forward with the sub-dealership agreement, it was Supercars which chose to reject the offer by refusing to agree to provide a standby letter of credit, a term that had already been included in the draft master dealership agreement between Benzline and Lorinser, which Supercars had seen.

The Court of Appeal therefore set aside the order made by the High Court that Benzline pay Supercars the sum of S$300,000.

Comment

Payments described as “deposits” are common in commercial transactions and when the outcome anticipated by the party who paid the deposit does not materialise, the question of whether the deposit is refundable may arise. Generally, deposits are liable to be forfeited unless the deposit is purely an advance payment of part of the purchase price or the contract between the parties expressly provides that the deposit is refundable upon termination of the contract. As this case demonstrates, it is important for the party paying the deposit to make clear the purpose of the payment and to ensure the inclusion of an express term providing for a refund of the deposit if the purpose is not achieved.

 

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