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2011 MarsdenLR 583
HIGH COURT MALAYA KUALA LUMPUR
TL MAC MOTORSPORT SDN BHD – Appellant
Versus
MITSUBISHI MOTORS MALAYSIA SDN BHD – Respondent
[Suit No: D11-22-64-2009]
The court established that the calling of a bank guarantee was unconscionable as it contradicted the parties' prior conduct and agreement, constituting a breach of trust in contractual obligations.
Headnote:(A) Contracts Act 1950 - Section 74(1) - Bank guarantee - Unconscionable calling of bank guarantee by distributor after dealer proposed downgrading - Relationship governed by Dealer Sales and Service Agreement (DSSA) and Proforma Invoices. (Paras 54, 75)
(B) Contractual obligations - Conduct of parties leading to a common understanding superseding formal terms of the DSSA - Principles of estoppel and unconscionability applicable. (Paras 41, 49)
(C) Conditions of Payment - Unilateral changes in payment terms and their enforceability raised issues of agreement and consent. (Paras 36, 38)
Facts of the case:
The plaintiff, a dealer of Mitsubishi vehicles, claimed against the defendant, the distributor, for unlawfully calling on a RM500,000 bank guarantee after the plaintiff proposed to downgrade from a 3S centre to a 2S centre, despite fulfilling vehicle purchase targets. The defendant counterclaimed for payment of invoices for 80 vehicles supposedly ordered.
Findings of Court:
The court found the defendant's actions unlawfully unconscionable and ordered the return of the bank guarantee along with interest.
Issues: Whether the calling of the bank guarantee was lawful, whether there was a breach of agreement by the plaintiff, and the enforceability of the payment terms executed by the defendant.
Ratio Decidendi: The court ruled that the defendant's attempt to enforce payment for vehicles not delivered and conduct that belied the original agreement led to an unconscionable act; thus, the calling on the bank guarantee was invalid.
Result: Plaintiff's claims were granted; defendant's counterclaim was dismissed.
| Table of Content |
|---|
| 1. basic contractual relationship and obligations. (Para 1 , 2 , 3 , 4 , 5 , 6) |
| 2. contractual terms define obligations in dealer-distributor relationships. (Para 7) |
| 3. failure in communication regarding vehicle orders resulted in disputes. (Para 8 , 9 , 10) |
| 4. claims made by both parties regarding obligations. (Para 11 , 12 , 13 , 14 , 15) |
| 5. terms and obligations in the dssa and contract of sale. (Para 16 , 17 , 18 , 19 , 20) |
| 6. estoppel may prevent enforcement of contractual rights due to prior conduct. (Para 25 , 28 , 29) |
| 7. unconscionable conduct and variations in payment terms. (Para 32 , 33 , 34 , 35) |
[1] In a business relationship, there must be the element of mutual benefit for the relationship to grow. No one enters into such a relationship unless there is a reasonable return on the investment on time and money. The relationship between a dealer and distributor of motor vehicles is no different. Little wonder that parties might want to set an initial term of a year or two before deciding to continue further. As there are expectations of each other, the obligations of the dealer and distributor would be clearly spelt out in the agreement.
[2] Of prime importance is the number of vehicles that the dealer should sell during the term of the dealership. Here is a case where the dealer has met such an expectation and target but when it decided to downgrade from a 3S centre to a 2S centre towards the end of its dealership, the distributor takes a sudden confrontational stance that led to the distributor forfeiting the RM500,000 bank guarantee furnished by the dealer. The dealer cried foul and the distributor declared the dealer to be in default.
[3] This case explores the true nature of the contractual relationship between the plaintiff/dealer and the defendant/distributor and the rightness and reasonableness or otherwise of the actions that the parties have taken in the events that erupted after the dealer had evinced an intention to downgrade from a 3S centre to a 2S centre.
Parties
[4] The plaintiff at the material time was a dealer of Mitsubishi vehicles and operates a 3S centre which is a sales, service and spare parts centre for Mitsubishi vehicles. The defendant is the distributor for Mitsubishi vehicles. The contractual relationship between the parties is governed by the dealer Sales and Service Agreement (DSSA)dated 9 April 2007.
[5] The duration of the DSSA was from 9 April 2007 till 8 April 2009.
[6] The DSSA provided for a minimum purchase requirement of 141 vehicles for the next 17 months from the commencement date (refer pp 10 and 39 bundle D). The plaintiff purchased a total of 283 vehicles throughout the DSSA (pp 13-16 bundle H).
[7] The plaintiff provided a bank guarantee dated 1 July 2008 in favour of the defendant to the amount of RM500,000 being 'security deposit for purchase of Mitsubishi Passenger Car' from defendant (p 1 bundle D). The bank guarantee was for the period from 1 July 2008 till 31 December 2008.
Problem
[8] The defendant issued Proforma Invoice for vehicles that were ordered by the plaintiff. Vehicles that were not paid within the seven days due date of the Proforma Invoices were redistributed by the defendant to other dealers without notice. Due to a downturn in the economy the plaintiff proposed to downgrade from a 3S centre to 2S centre (service and spare parts only)via its letter of 24 November 2008.
[9] The defendant rejected the plaintiff's proposal to downgrade via letter dated 16 December 2008. After that a series of events happened in quick succession. On 23 December 2008 the defendant issued Proforma Invoice for 80 vehicles all dated 23 December 2008 to be paid by the plaintiff on or before 26 December 2008. However the Contracts of Sale contained only information of vehicle model, quantity and unit price.
[10] The 80 vehicles for which the plaintiff had been invoiced by the defendant had been redistributed on various dates to other dealers already. (pp 1253-1254 bundle G)
[11] The
