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

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

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.1Defendant’s written submissions dated 20 June 2014, paragraph 4.

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 2010.2Statement of claim dated 24 December 2013, paragraph 3. The notes fell due for payment sequentially, every six months from 6 January 2012 to 6 July 2015.3Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, page 64.

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.4Statement of Claim for S 1173/2013 filed on 24 December 2013, paragraph 5.

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”);5Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, paragraph 8 and page 11. An assembling and commissioning agreement also dated 9 August 2010 between Oltremare and Rals (“the Services Agreement”);6Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, paragraph 8 and page 29. The eight promissory notes which Rals issued to Oltremare on 23 December 2010;7Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, page 46. and A contract between Oltremare and Cariparma dated 19 July 2011 to discount the promissory notes (“the Discount Contract”).8Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, page 58.

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.9Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, page 12. 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 lading10Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, page 12. 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.11Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, page 30.

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.12Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, page 46.

Also on 23 December 2010, as stipulated in the Supply Agreement,13Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, page 12. Rals sent the eight promissory notes14Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, page 44. 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 Unicredit15Affidavit of Hamzah Sikkander Basha filed on 21 January 2014, page 45. 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.16Affidavit of Stefano Bellucci filed on 19 February 2014, paragraph 5; Plaintiff’s submissions...