Singapore's High Court examines employee’s authority in high-stakes transactions
Singapore's High Court recently dealt with a case involving an alleged exclusive agency agreement between a Chinese import-export company (Jiangsu New Huaming International Trading Co Ltd or JNHM) and two companies, an Indonesian company (PT Musim Mas or PTMM) specialising in the production of oleochemical products and a Singaporean company (Inter-Continental Oils & Fats Pte Ltd or ICOF) that sells and markets the Indonesian company's products.
The Chinese company, JNHM, claimed that the defendants, the Indonesian and Singaporean companies (PTMM and ICOF, respectively), had breached the agreement, resulting in significant losses and damages.
The case revolves around the authenticity and enforceability of the alleged exclusive agency agreement, with the Indonesian and Singaporean companies denying its existence and the authority of their employee to enter into such an agreement.
The court's decision sheds light on the complexities of international business relationships and the importance of clear communication and documentation.
The Chinese company’s claims
The Chinese company asserted that it had been appointed as the Indonesian company's exclusive commercial agent in China in 2003, with the arrangement later being extended to the Singaporean company.
According to the Chinese company's director, the agency arrangement was formalised in an "International Agency Contract" (IAC) in March 2013, which was allegedly negotiated and executed by an employee who was believed to be the Indonesian company's chief executive officer at the time.
However, the Indonesian and Singaporean companies denied the existence of the IAC, claiming that the employee, who was actually the head of the oleochemicals division of the Singaporean company and not an employee of the Indonesian company, lacked the authority to appoint the Chinese company as their agent. They maintained that they worked with the Chinese company on an ad hoc basis, paying commissions for each sales contract performed with a customer.
"PTMM denies entering into any formal exclusive written agency agreement with JNHM, claiming instead that it only paid JNHM a commission for each sales contract duly performed with a customer," the court noted.
The employee's role and alleged bribery
During the proceedings, the Chinese company's director claimed that he had made cash payments to the employee amounting to a third of the commissions earned from the sale of the Indonesian company's products in China.
These payments, totalling US$771,650, were allegedly used to persuade the employee to enter into the IAC on behalf of the Indonesian company and extend its terms to the Singaporean company.
The defendants argued that if these payments were indeed made, they constituted bribes, rendering the IAC a voidable contract. They elected to rescind the IAC after the alleged bribes were first mentioned in the Chinese company's director's affidavit.
The Court's findings
After examining the evidence and considering the parties' submissions, the High Court dismissed the Chinese company's claim. The court found inconsistencies in the Chinese company's director's testimony regarding the circumstances surrounding the formation of the IAC, undermining the credibility of his account.
"I do not find [JNHM’s director’s] evidence to be reliable, and there is little objective evidence to support JNHM's claim of the entry into the IAC by PTMM in March 2013," the court stated.
The court also noted that the IAC contained highly onerous obligations for the Indonesian company, which were not commercially sensible, and that the parties' conduct after the alleged conclusion of the IAC was inconsistent with its existence.
"It is inexplicable that a commercial entity would act in such a manner, and indeed, there is no cogent explanation or evidence as to why JNHM might have done so. As such, I am led to the inexorable inference that there was, in fact, no breach by the defendants as the IAC did not exist," the court emphasised.
Regarding the alleged bribery, the court stated that even if the payments were made, they would have constituted bribes, rendering the IAC voidable. The court explained that "as a bribe deprives the principal 'of the loyal service of its agent or employee', it entitles the innocent party the 'option to avoid the contract procured by a bribe … by rescission from inception of the contract, if counter-restitution is possible'."
Importance of clear documentation and communication
This case highlights the significance of clear documentation and communication in international business dealings. The absence of conclusive evidence supporting the existence of the exclusive agency agreement and the inconsistencies in the testimony of the Chinese company's director played a crucial role in the court's decision to dismiss the claim.
"Ultimately, I agree with the defendants that there is clearly a disturbing incongruity between JNHM's claim that the IAC was signed and concluded in March 2013, and the fact that the JNHM's Customer List includes the names of two companies that only came to be known as such after the IAC's alleged inception. This throws the authenticity of the IAC into further doubt," the court observed.
The court's decision serves as a reminder for businesses to ensure that their agreements are properly documented, and that the authority of individuals, such as the employee in this case, entering into contracts on behalf of their organisations is clearly established.
By doing so, companies can avoid costly legal disputes and protect their interests in the event of disagreements or misunderstandings.
