Cassa di Risparmio di Parma e Piacenza SpA v Rals International Pte Ltd

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 16 October 2015
• Neutral Citation: [2015] SGHC 264
• Plaintiff Counsel: Elaine Tay and Wong Jun Ming (Rajah & Tann Singapore LLP)
• Docket Number: Suit No 1173 of 2013 (Registrar’s Appeals Nos 166 and 168 of 2014)
• Date: 16 October 2015
• Hearing Date: 20 June 2014,27 October 2014,16 March 2015,20 October 2014
• Subject Matter: Stay of court proceedings,Promissory notes,Assignment,Mandatory stay under International Arbitration Act,Arbitration,Agreement,Banking,Payment
• Year: 2015
• Citation: [2015] SGHC 264
• Defendant Counsel: Adrian Tan and Kenneth Chua (Stamford Law Corporation)
• Court: High Court (Singapore)
• Published date: 30 September 2016

Vinodh Coomaraswamy J: Introduction

A contract between a buyer and a seller of goods contains an arbitration agreement. In accordance with the contract, the buyer draws promissory notes in favour of the seller as deferred payment for the goods. The seller negotiates the notes to its bank without recourse and, as part of the same transaction, assigns to the bank its contractual right to receive payment for the goods from the buyer. The bank duly presents the notes for payment. All of the notes are dishonoured. The bank, relying only on its rights as the indorsee and holder of the notes, brings an action against the buyer. Can the buyer use its arbitration agreement with the seller as the basis to stay the bank’s action under s 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the Act”)?

That question sets two fundamental principles in competition for primacy. The first is that arbitration is a consensual dispute resolution procedure. That principle has two corollaries. First, no person ought to be compelled to arbitrate a dispute unless he has agreed to do so. Second, a person who has agreed to do so should not be permitted to resile from his agreement or to fragment the resolution of the parties’ dispute by specious or technical arguments as to the scope of the agreement.

The second fundamental principle is that a promissory note, being a subset of bills of exchange, is the equivalent of cash. It is therefore essential for commerce to have certainty that the payment obligation represented by a bill (including a note) is at all times convertible into cash quickly, simply and effectively.

Both of these principles are of high importance in our jurisprudence, and indeed in the jurisprudence of any international commercial and financial centre. Which principle ought to prevail when they compete is therefore of equally high importance.

Not surprisingly, the parties have before me taken diametrically-opposed positions on this issue. Having considered the parties’ submissions, I have held that the seller’s assignment to the bank of its right to receive payment from the buyer under their contract carried with it to the bank, in respect of that right, both the benefit and the burden of the arbitration agreement between the seller and the buyer. But I have also held that it is unarguable that the bank’s claim against the buyer on the promissory notes falls within the scope of that arbitration agreement. I have therefore dismissed the buyer’s application to stay this action in favour of arbitration. The result is that the bank’s claim against the buyer on the promissory notes will be resolved in court and not in arbitration.

The buyer has, with my leave, appealed to the Court of Appeal against my decision. I therefore now set out my reasons.

Factual background The parties

Cassa di Risparmio di Parma e Piacenza SpA is the bank. It is incorporated in and carries on business in Italy. It is known informally as “Cariparma” and that is how I shall refer to it.

Rals International Pte Ltd (“Rals”) is the buyer of the goods and the maker of the promissory notes. Rals is a company incorporated in Singapore which carries on the business of processing raw cashew nuts and exporting processed cashew nuts.¹

Oltremare SRL (“Oltremare”) is the seller of the goods and the payee of the promissory notes. Oltremare is a company incorporated in Italy which manufactures and sells machines to process cashew nuts.

Cariparma, as holder and indorsee, sues Rals in this action on eight promissory notes which Rals drew in favour of Oltremare on 23 December 2010.² The notes fell due for payment sequentially, every six months from 6 January 2012 to 6 July 2015.³

Cariparma commenced this action after the first four of the eight promissory notes had been dishonoured. The substantive relief which it seeks in this action is, broadly speaking, to recover from the defendant the value of the notes.⁴

Cariparma came to be the holder of the eight promissory notes as the ultimate result of four contractual relationships. Those four are, in chronological order: A supply agreement dated 9 August 2010 between Oltremare and Rals (“the Supply Agreement”);⁵ An assembling and commissioning agreement also dated 9 August 2010 between Oltremare and Rals (“the Services Agreement”);⁶ The eight promissory notes which Rals issued to Oltremare on 23 December 2010;⁷ and A contract between Oltremare and Cariparma dated 19 July 2011 to discount the promissory notes (“the Discount Contract”).⁸

I now summarise in turn the effect and import of each agreement.

The Supply Agreement

Under the Supply Agreement, Oltremare agreed to manufacture and deliver to Rals – and Rals agreed to buy – equipment to shell and process raw cashew nuts. Oltremare was obliged to commence delivery of the equipment at Rals’ factory in Vietnam in December 2010 and to complete it by March 2011.

In exchange for the equipment, Rals agreed to pay Oltremare €1,950,185 in ten instalments of 10% each.⁹ The first two instalments were to be paid in cash in October 2010 and November 2010. The last eight instalments were to be paid by the eight promissory notes. The Supply Agreement not only stipulated that the payment mechanism for the last eight instalments would be promissory notes but also stipulated in its Annex C the precise form of the notes.

The first of the eight promissory notes was to fall due for payment six months after the date of the bill of lading¹⁰ for the last shipment under the Supply Agreement. Each of the remaining seven notes was to fall due every six months from that date.

The effect of all of this was that Oltremare granted Rals four years’ credit from the date of the last shipment of equipment under the Supply Agreement to pay in full the final 80% of the purchase price due to Oltremare by eight equal instalments. In exchange for the credit, Rals agreed to pay Oltremare interest of €30,481.50 with each promissory note. The face value of each promissory note was therefore €225,500, being €195,018.50 plus the agreed interest of €30,481.50. The combined face value of the eight promissory notes was €1,804,000.

The Supply Agreement is expressly governed by Singapore law. It also provides expressly for arbitration in the following terms:

Clause 9	Arbitration
	All disputes arising in connection with this Agreement shall be settled by a direct conciliation between the parties. Failing this conciliation, the dispute will be settled in accordance with the rules of Conciliation and Arbitration Rules of the International Chamber of Commerce in Singapore.

The Services Agreement

At the same time as Oltremare and Rals entered into the Supply Agreement, they also entered into the Services Agreement. Under the Services Agreement, Oltremare undertook to assemble and commission at Rals’ factory in Vietnam all of the equipment which it had sold to Rals under the Supply Agreement. Oltremare was obliged to commence the assembly and commissioning in January 2011 and to complete it by May 2011 at the latest.¹¹

The Services Agreement did not stipulate a separate price which Rals was to pay Oltremare for the contracted services. Instead, it expressly provided that the price for these services was included in the purchase price stipulated in the Supply Agreement.

Clause 7 of the Services Agreement sets out a separate arbitration agreement in identical terms to Clause 9 of the Supply Agreement (see [18] above).

The promissory notes

On 23 December 2010, Rals duly drew the eight promissory notes in favour of Oltremare. It is not clear why the notes were not delivered within 60 days from the date of the Supply Agreement as required by Clause 5 of that agreement. Nothing, however, turns on this point.

Each of the eight promissory notes is in the form stipulated by Annex C to the Supply Agreement. Each note therefore: (i) has a face value of €225,500; (ii) is expressly issued in Singapore; (iii) is payable “to the order of Oltremare”; and (iv) is payable at the Standard Chartered Bank at Battery Road in Singapore.¹²

Also on 23 December 2010, as stipulated in the Supply Agreement,¹³ Rals sent the eight promissory notes¹⁴ to Oltremare’s bank in Italy, Unicredit Banca (“Unicredit”). The notes were accompanied by Rals’ letter of instructions to Unicredit. The form of this letter too was stipulated in the Supply Agreement. In the letter, Rals instructed Unicredit¹⁵ to hold the notes and to release them to Oltremare only against its presentation of certain stipulated documents.

The Discount Contract

In February 2011, Oltremare approached Cariparma seeking to discount the eight promissory notes.¹⁶ As a result, on 19 July 2011, Cariparma and Oltremare entered into the Discount Contract.¹⁷ The Discount Contract is expressly governed by Italian law and confers exclusive jurisdiction over disputes on the courts of the City of Parma, in Italy.

Article 2(1) of the Discount Contract sets out Oltremare’s essential obligation under that contract: to assign the eight promissory notes to Cariparma without recourse.¹⁸ In exchange, and subject to certain conditions precedent, Cariparma agrees under Article 2(4)¹⁹ to pay to Oltremare the value of each note discounted at just under 3.6% per annum²⁰ and after deducting various taxes and fees.

Under Article 2(3) of the Discount Contract, Oltremare assigns to Cariparma, together with the eight promissory notes, two additional contractual rights. The first right is the receivable of €1,804,000 which Rals owes to Oltremare under the Supply Agreement. The second right is the benefit of an export credit insurance policy issued to Oltremare by Italy’s export credit guarantee agency, Sace S.p.A (“Sace”).²¹

Article 3(1) of the Discount Contract records Oltremare as making certain declarations to Cariparma. These declarations are...