Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (Trading as Rabobank International), Singapore Branch v Motorola Electronics Pte Ltd

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 03 December 2010
• Neutral Citation: [2010] SGCA 47
• Plaintiff Counsel: Gregory Vijayendran and Rachel Chow (Rajah and Tann LLP)
• Docket Number: Civil Appeal No 52 of 2010
• Date: 03 December 2010
• Hearing Date: 28 July 2010,30 July 2010
• Subject Matter: Contract,Evidence
• Year: 2010
• Citation: [2010] SGCA 47
• Court: Court of Appeal (Singapore)
• Published date: 23 December 2010

Chao Hick Tin JA (delivering the judgment of the court): Introduction

This is an appeal against a decision of the trial judge (“Judge”) who dismissed a claim for the recovery of certain unpaid debts on the ground that the claim by the plaintiff (as the assignee of the debt) was subject to a prior equity of the debtor, viz, a right to a contractual set-off.

The parties

The plaintiff in the action, and the appellant in this appeal, is Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (trading as Rabobank International), Singapore Branch (“Rabobank”). It is the Singapore branch of a bank incorporated in the Netherlands. The respondent, the defendant in the action, is Motorola Electronics Pte Ltd (“MEPL”), which engages in the manufacture and marketing of telecommunication products. MEPL is a wholly owned subsidiary of Motorola Inc, which also wholly owns another entity, Motorola Trading Center Pte Ltd (“MTC”).

Background facts

In 2003, Jurong Hi-Tech, a sole proprietorship owned by Jurong Hi-Tech Industries Pte Ltd (“JHTI”), began manufacturing electronic products for MEPL. On 28 July 2004, MEPL and JHTI entered into a Manufacturing and Assembly Agreement (“MAA”)¹. Pursuant to this agreement, JHTI agreed to manufacture electronic products for MEPL using materials purchased from MEPL and/or suppliers approved by the MEPL. Clause 11.2 of the MAA allowed for the set-off of accounts between MEPL and JHTI on the following terms:

Where Materials are purchased directly from [MEPL], [MEPL] shall have the right to offset payments due to it against amounts payable to [JHTI] for such Materials. The payment shall be made in arrears against correct invoices issued by [JHTI] for the same.

The agreement was for one year, subject to a further one year extension. However, there was no evidence that this agreement had been extended or otherwise renewed.

On 5 July 2005, MTC began to supply materials to, and purchase electronic products from JHTI. On 28 March 2006, Motorola Inc (“Motorola Inc”) and JHTI entered into a Manufacturing Services Agreement (“MSA”)², for JHTI to manufacture Motorola Inc products. Under cll 6b and 6c of the MSA, JHTI was obligated to purchase materials from “Motorola” for the manufacture of the products. In cl 2 of the MSA, “Motorola” was defined as inclusive of Motorola Inc and its “affiliates”:

... any corporation or other entity that controls, is controlled by, or is under common control with a party. A corporation or other entity shall be deemed to control another if it owns or controls more than fifty percent (50%) of the voting stock or other ownership interest of the corporation or entity. References herein to Motorola and Company shall be deemed to include references to their Affiliates unless otherwise specified or the context otherwise requires.

Unlike the MAA (which provided for a contractual right of set-off between MEPL and JHTI), the MSA did not provide for a contractual right of set-off between JHTI and “Motorola” as defined in MSA.

On 15 February 2007, Rabobank and JHTI entered into a Master Receivables Purchase Agreement (“MRPA”) under which Rabobank contracted to provide JHTI with receivables financing facilities of up to US$20m. Pursuant to cl 2 read with cl 4 of the MRPA, Rabobank could from time to time be offered receivables owing from MEPL to JHTI, by way of a purchase request served by JHTI on Rabobank. Rabobank had the sole discretion to decide whether or not to accept the offer and acquire those receivables. Under cl 11(c) of the MRPA, JHTI represented itself as the legal and beneficial owner of each receivable offered for purchase, and also that it had not assigned or created any prior encumbrance over each receivable offered.

Pursuant to the MRPA, JHTI made various assignments of debt to Rabobank between 22 June 2008 and 6 October 2008. However, on 7 October 2008, Rabobank decided to focus its attention on corporate borrowers in the food and agricultural sector, and to exit from non-core markets such as the telecommunications, media and internet market, in which JHTI was trading. Thus, starting from 7 October 2008, Rabobank decided not to accept new purchase requests, grant further new drawings or allow a rollover of existing loans in order to facilitate an orderly exit from its business relationship with JHTI. On 13 November 2008, the MRPA was terminated.

On 17 November 2008, Rabobank notified MEPL of various assignments of receivables from JHTI. However, omitted from this notification were two assignments made on 28 July and 18 August 2008. Subsequently, Rabobank remedied the situation by a further notification of 17 December 2008. Thereafter Rabobank demanded repayment from MEPL in respect of all those assigned receivables. When no payment was forthcoming, Rabobank filed a claim against MEPL on 22 January 2009, claiming eventually (after amendments) for the total amount of US$5,178,212.41, which represented the total net value of those assigned receivables.

On 20 February 2009, JHTI was placed under judicial management. Its parent company, Jurong Technologies Industrial Corporation (“JTIC”), is presently also under judicial management.

The trial below

At the trial below, Rabobank pleaded a straightforward case that it was entitled to payment from MEPL, being the assignee of the receivables. In response to Rabobank’s claim, MEPL pleaded that pursuant to an express and/or implied agreement entered into between MEPL, MTC and JHTI on or around 5 July 2005 allowing for the tripartite setting-off of accounts, the receivables in question had already been set-off on 22 October 2008 and 21 November 2008, prior to the receipt by MEPL of the notification of assignments. In the light of the position taken by MEPL, the existence of a tripartite set-off agreement of 5 July 2005 and the date of receipt by MEPL of the letter of notification of Rabobank dated 17 November 2008 were central issues to the trial below. The Judge found that MEPL received the letter only on 25 November 2008. In this appeal, the parties do not challenge this finding.

As mentioned before, the pleaded tripartite set-off agreement was an “express and/or implied” agreement. MEPL did not plead an alternative defence of equitable set-off. At the trial, MEPL argued that the express agreement to set-off was embodied in the MAA. The Judge found this argument unconvincing because the MAA only provided for a mutual set-off between MEPL and JHTI. MTC was not a party to that agreement.

On the alternative plea of an implied agreement, MEPL relied on the evidence of various alleged set-offs effected periodically between the parties since 5 July 2005. In this regard, there is the evidence of MTC’s finance manager since 2005 (cost accountant prior to 2005), Mr Coimbatore Sahasranaman Lakshmanan’s (“Lakshamanan”) and Motorola (China) Electronics Pte Ltd’s accounting manager, Mr Vincent Luo Chen’s (“Luo”) who said that there were regular bilateral set-offs between MEPL and JHTI, and tripartite set-offs between MEPL, MTC and JHTI. Luo, who took over the administration of the JHTI account (overseeing the external reconciliation, internal reconciliation and external set-off processes every month) from Ng Cheng Soon (“Ng”) (previously MEPL’s accountant) in October 2008, testified that every month, he would send an email to Lim Chai Lee (“Chai Lee”), JHTI’s accountant, attaching a reconciliation statement that listed all outstanding invoices issued by JHTI to MEPL and MTC, and vice versa. If there were any inconsistencies, Chai Lee would contact Luo. After the external reconciliation, all the invoices issued by any of the three parties which had already fallen due would be removed from the reconciliation statement and placed in a separate set-off statement. A debit note would be raised by MEPL internally while a credit note would be raised by MTC internally for the cross-entity set-off to be approved. A debit note request form would then be raised by MEPL to set-off amounts owing by MEPL to JHTI against amounts owing by JHTI to MTC. A debit note request form (from MEPL) and a credit note request form (from MTC), both dated 24 June 2008 and referring to the “settlement” agreement between MEPL, MTC and the JHT group were adduced as evidence in court to prove the existence of such a process. This step was subsequently omitted to simplify the process. Under the simplified process, a credit note would be raised by MTC for every set-off of sums owed by MEPL to JHTI against sums owed by JHTI to MTC. MEPL would then pay to MTC the sums owed by JHTI to MTC. The said monies owed by JHTI to MTC would then be set-off against the sums owed by MEPL to JHTI, and the invoices which had already been “knocked off” in this process would be removed from the reconciliation statement for the following month.

The set-offs had to be approved by Lakshamanan, Ng, and John Kozlowski, the overall financial controller of Motorola Inc’s businesses in Asia. Emails dated 22 October 2008 (sent by Luo to Ng) and 17 November 2008 (sent by Luo to Ng and Lakshamanan) show that Luo had sought approval by email from the relevant parties before effecting the set-offs. Credit notes to be issued by MTC to effect a set-off between MEPL and MTC were attached to these two emails from Luo.

Luo testified at the trial that the monthly reconciliation statements (as mentioned above, at [11]) would be uploaded on Motorola’s Accounts Payables Inquiry Application (“APIA”)³ which was accessible by JHTI. Extracts of information from this system were adduced before the court below. The extract adduced contained records of invoices which documented MTC’s accounts receivables and JHTI’s receivables. The said monies owed by JHTI to MTC would then be set-off against the sums owed by MEPL to JHTI, and the invoices which have already been “knocked off” in this process would be removed from the reconciliation statement for the...