Contracts between the firms were ‘discharged by frustration’ due to Indonesia’s ban on sand exports in 2007
Today Online 4 Jun 14;
SINGAPORE — The Court of Appeal has agreed with a concrete maker that a ban by Indonesia on sand exports to Singapore in 2007 was reason enough to halt supplies to a construction firm, ending a long-running dispute between the two companies.
The export ban was “a supervening event” and not “within the reasonable control” of Alliance Concrete Singapore and Sato Kogyo, making it impossible for the contracts between the two firms to be carried out, the court held.
In 2006, Alliance, a manufacturer of ready-mix concrete (RMC), agreed to provide the material to Sato Kogyo for three construction projects. However, on Jan 23, 2007, Indonesia, citing environmental reasons, announced that it would stop exporting sand — a key ingredient for producing RMC — to Singapore.
Following the ban, Sato Kogyo was unable to procure enough sand from the Building and Construction Authority’s (BCA) sand stockpile to pass to Alliance to enable the concrete maker to produce the amount of RMC that had previously been agreed upon.
In February 2007, Alliance informed Sato Kogyo that the original contract costs were affected by the export ban. Alliance proposed that a new contract be signed, as the prices they had previously agreed upon no longer applied due to the ban having given rise to force majeure.
Alliance stopped supplying RMC to Sato Kogyo from Feb 25, 2007, but told the construction firm in April that it would be able to resume supplies and sent a quotation revising the prices of RMC for two of the projects.
On May 29, Alliance informed Sato Kogyo that its credit limit had been exceeded and requested payment. Sato Kogyo then halted all orders of RMC from Alliance.
On July 27, Alliance sued Sato Kogyo for failing to pay for the RMC that had already been supplied, but the construction firm counter-sued for losses incurred in seeking alternative suppliers when the sand export ban took effect.
The High Court ruled last year that the ban was not a reason for Alliance to stop supplying RMC to Sato Kogyo. Justice Tan Lee Meng held then that there were alternative sources of sand, noting that the BCA had a supply system to offset any shortfall.
However, Judge of Appeal Justice Andrew Phang overturned the High Court’s decision last Friday, ruling that the contracts were “discharged by frustration” when the export ban took full effect on Feb 6, 2007.
Justice Phang found that no viable alternative source of sand seemed to be available from Feb 16 until the end of April that year, especially as one of Sato Kogyo’s clients preferred Indonesian sand to be used to produce the RMC.
He also held that Alliance had acted reasonably in informing Sato Kogyo of the shortfalls in the deliveries of sand from the construction firm.
The Court of Appeal ruled that Sato Kogyo must make a lump-sum payment to Alliance for the RMC supplied, but the cost of procuring sand for the concrete maker to produce the RMC will be deducted from that sum.
