CIMB Bank Bhd v Italmatic Tyre & Retreading Equipment (Asia) Pte Ltd

• Judge: Vinodh Coomaraswamy J
• Judgment Date: 30 July 2020
• Neutral Citation: [2020] SGHC 160
• Citation: [2020] SGHC 160
• Defendant Counsel: Lim Chee San (TanLim Partnership)
• Hearing Date: 24 July 2019,31 July 2019,11 March 2020,25 July 2019,02 April 2020,30 July 2019
• Plaintiff Counsel: Chan Kia Pheng, Tan Jia Hui and Samuel Lee (LVM Law Chambers LLC)
• Docket Number: Suit No 186 of 2018
• Published date: 12 August 2020
• Court: High Court (Singapore)
• Subject Matter: Insolvency set-off,Contract,Lending and security,Debt and Recovery,Assignment,Evidence,Attendance,Witnesses,Banking,Right of set-off

Vinodh Coomaraswamy J:

In this action, the plaintiff seeks to recover US$2.43m plus contractual interest from the defendant. The plaintiff claims to be entitled to recover that sum as the assignee of its customer’s contractual rights against the defendant.

For the reasons which follow, I allow the plaintiff’s claim.

Factual background

The plaintiff is a bank. One of the plaintiff’s customers was a company known as Panoil Petroleum Pte Ltd (“Panoil”). Panoil sold marine fuel.¹ The defendant is one of Panoil’s trading counterparties.² Panoil is now in liquidation.

In June 2016, the plaintiff granted trade financing facilities to Panoil.³ In July 2016, as security for the facilities, Panoil executed an all-monies debenture (“the Debenture”) in favour of the plaintiff. The Debenture gave the plaintiff a security interest in Panoil’s goods financed by the plaintiff and in all of Panoil’s receivables and documents representing goods financed by the plaintiff.⁴

In July and August 2017, Panoil entered into and performed seven contracts under which it sold and delivered seven cargoes of marine fuel to the defendant’s order (“the Contracts”). Each Contract is evidenced by a sale confirmation and an invoice issued by Panoil. Each delivery is evidenced by a bunker delivery note (“BDN”) issued by an independent inspector. A sale confirmation together with the corresponding invoice and BDN constitutes the documentary evidence for each Contract.⁵

Arising from the Contracts, the defendant owed Panoil a total of US$2.43m together with contractual interest at 2% per month from the due date of each invoice until payment (“the Debt”).⁶ The plaintiff’s claim in this action is that it is entitled to recover the Debt from the defendant as Panoil’s assignee under cll 3.1(c) and 3.1(e) of the Debenture (set out at [53] below).⁷

In August 2017, the Maritime and Port Authority of Singapore (“the MPA”) discovered that Panoil had tampered with its delivery mechanism in order to inflate the amount of marine fuel which Panoil actually delivered to its customers.⁸ The MPA took immediate steps to revoke Panoil’s licences.⁹ Panoil could not continue in business without these licences.

On 29 August 2017, the plaintiff sent by fax and by courier a notice of assignment to the defendant (“the Notice”). The Notice informed the defendant of the contents and effect of the Debenture and asked the defendant to pay the Debt to the plaintiff.¹⁰ To evidence the Debt, the Notice attached copies of the invoices arising from the Contracts.¹¹ It is not disputed that the defendant received the Notice by fax on 29 August 2017 and by courier on 30 August 2017.¹²

On 30 August 2017, Panoil applied to the High Court to place itself in judicial management. On 2 October 2017, Panoil’s application was granted and judicial managers were appointed.¹³ Panoil’s debts could not be restructured and its business could not be rehabilitated. In April 2019, Panoil went into insolvent liquidation. The judicial managers continued as Panoil’s liquidators.¹⁴

Meanwhile, in October 2017, the plaintiff demanded that the defendant pay the Debt to the plaintiff as Panoil’s assignee.¹⁵ The defendant failed to do so. The plaintiff now seeks to recover the Debt from the defendant.¹⁶

The defendant denies liability to the plaintiff. The defendant’s case is that, even before the plaintiff served the Notice on the defendant, Panoil and the defendant had agreed to extinguish the Debt by setting it off against Panoil’s debt to the defendant (“the Set-off Defence”); in the alternative, that Panoil had cancelled the Debt (“the Cancellation Defence”).¹⁷

Preliminary issues

Before I analyse these two defences, I must first deal with two preliminary issues: (a) whether the Contracts incorporate Panoil’s standard terms and conditions of trading; and (b) whether Panoil’s assignment of the Debt to the plaintiff is effective.

The Contracts incorporate Panoil’s terms and conditions

The plaintiff relies on cl 8.2 of Panoil’s Terms and Conditions for the Sale of Marine Fuel (“Panoil’s T&Cs”) to meet the Set-off Defence. The defendant denies that the Contracts incorporate cl 8.2 of Panoil’s T&Cs. Clause 8.2 of Panoil’s T&Cs expressly obliges the defendant to pay Panoil under the Contracts without deduction, set-off or counterclaim:¹⁸

Payment for each delivery of marine fuel shall be in United States Dollars or Singapore Dollars as specified in the invoice and such payment shall be made by the Buyer free and clear of any deduction, set-off, counter claims, whatsoever on cash in advance or by telegraphic transfer to Seller’s bank after each delivery is completed as directed by Seller on the date show on the invoice.

[emphasis added]

The parties’ arguments

The plaintiff’s primary submission is that each Contract expressly incorporates Panoil’s T&Cs, and therefore cl 8.2.¹⁹ It relies on the following endorsement which appears under a column headed “Terms” in each sale confirmation:²⁰

This sales [sic] is subjected [sic] to the standard terms and conditions of Panoil which is [sic] updated from time to time.

The plaintiff’s alternative submission is that each Contract incorporates cl 8.2 of Panoil’s T&Cs by the parties’ prior course of dealings or as an implied term. Between April 2017 and June 2017, the parties entered into six transactions, identical in structure to those underlying the Contracts. In that course of dealing, consistently with cl 8.2, the defendant paid Panoil in full within the number of days after delivery stipulated in the invoice, free and clear of any deduction, set-off or counterclaim.²¹

The plaintiff’s final alternative submission is that a clause excluding set-off is common in the marine fuel trade.²²

The defendant’s submission is that it is not bound by cl 8.2 of Panoil’s T&Cs²³ because: (a) the sale confirmations on which the plaintiff relies are fabricated; (b) even if they are not fabricated, the defendant did not sign and stamp the confirmations; (c) even if the defendant did sign and stamp the confirmations, a final draft of Panoil’s T&Cs was not in existence when Panoil issued the confirmations; (d) even if a final draft of Panoil’s T&Cs was in existence at that time, Panoil did not make those terms and conditions known to the defendant; (e) the defendant received the confirmations by email from Panoil long after Panoil had delivered the marine fuel; and (f) the defendant would never have accepted a term excluding set-off.²⁴

For the reasons which follow, I reject each of the defendant’s submissions. I therefore accept the plaintiff’s submission that the Contracts incorporate Panoil’s T&Cs and, in particular, cl 8.2.

The law on incorporation of contractual terms

The “law adopts an objective approach towards questions of contractual formation and the incorporation of terms” (R1 International Pte Ltd v Lonstroff AG [2015] 1 SLR 521 at [51] (“Lonstroff”)). Whether a term is incorporated into a contract therefore turns, as is usual in matters of contract, upon ascertaining the parties’ objective intentions from their communications and conduct in light of the relevant background at the time they entered into the contract.

The relevant background includes the industry in which the parties are in business, the character of the document which contains the terms in question as well as the course of dealings between the parties (Lonstroff at [51]). For example, if the parties ordinarily agree on a set of essential terms first while continuing negotiations on the other, more detailed terms, the terms agreed later will be more readily found to have been incorporated into their contract (Lonstroff at [52]). Further, even if a party does not expressly communicate acceptance of the terms in question, the party’s positive, negative or even neutral conduct is capable of evincing acceptance (Midlink Development Pte Ltd v The Stansfield Group Pte Ltd [2004] 4 SLR(R) 258 at [50] and [52]).

Terms may also be incorporated by notice. As the learned authors of The Law of Contract in Singapore (Andrew Phang Boon Leong gen ed) (Academy Publishing, 2012) (“The Law of Contract in Singapore”) observe at para 7.22, incorporation by notice “is, by its very nature, heavily dependent on the particular facts of the case concerned”. Actual notice is not required, and notice which is objectively reasonable will suffice.

Circle Freight International Ltd (trading as Mogul Air) v Medeast Gulf Exports Ltd (trading as Gulf Export) [1988] 2 Lloyd’s Law Reports 427 illustrates these principles. In that case, the English Court of Appeal held that the standard terms and conditions of an industry body were incorporated into the parties’ contract by reference and by a course of dealing. Each invoice which the plaintiff issued to the defendant carried the following express endorsement: “all business is transacted by the company under the current trading conditions of the Institute of Freight Forwarders, a copy of which is available on request”. The plaintiff sent an invoice bearing this endorsement to the defendant on at least 11 occasions over six months preceding the consignment which gave rise to the dispute. The English Court of Appeal held that the contract covering the disputed consignment incorporated the industry body’s trading conditions. As Taylor LJ said at 433:

[I]t is not necessary to the incorporation of trading terms into a contract that they should be specifically set out provided that they are conditions in common or usual terms in the relevant business. It is sufficient if adequate notice is given identifying and relying upon the conditions and they are available on request. Other considerations apply if the conditions or any of them are particularly onerous or unusual.

Taylor LJ’s final point is echoed in the observation of Belinda Ang J in Wartsila Singapore Pte Ltd v Lau Yew Choong and another suit [2017] 5...