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

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 08 March 2010
• Neutral Citation: [2010] SGHC 70
• Date: 08 March 2010
• Docket Number: Suit No 74 of 2009
• Published date: 17 March 2010
• Plaintiff Counsel: Gregory Vijayendran, Sung Jingyin and Olivia Low (Rajah & Tann LLP)
• Hearing Date: 20 January 2010,19 January 2010,18 January 2010
• Court: High Court (Singapore)
• Subject Matter: Assignment,Contract

Lai Siu Chiu J: Introduction

This case is a unique situation where the law of set-off meets the law of assignment, involving a curious creature known as a ‘tripartite contractual set off agreement’ and the notion of a ‘silent assignment’ that was manifested in a facultative agreement to assign. Commercial men, either due to lack of foresight or diligence or good legal advice or whatever, sometimes fail to appreciate or underestimate the risks involved in the transactions they enter into or the omissions they make in relation thereto. With specific reference to the law of assignment, this case is an example of what can go wrong when no timely notice of assignment to the debtor is given by the assignee of a debt.

In this dispute, Motorola Electronics Pte Ltd (“the defendant”) is a company incorporated in Singapore and carries on the business of manufacturing and selling telecommunications equipment. Both the defendant and another Singapore company called Motorola Trading Center Pte Ltd (‘MTC’) are wholly-owned subsidiaries of Motorola Inc., a company listed on the New York Stock Exchange of the United States of America.

Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. (“the plaintiff”) is the Singapore branch of a bank incorporated in the Netherlands and it carries on banking business generally including the provision of corporate and investment banking services.

The plaintiff claimed against the defendant the sum of US$5,178,212.41, which represented the total net value of receivables under invoices which were issued by Jurong Hi-Tech (‘JHT’) to the defendant, and which had been subsequently assigned by Jurong Hi-Tech Industries Pte Ltd (‘JHTI’) to the plaintiff. JHT is a sole proprietorship owned by JHTI. JHTI was a company engaged in the assembly of printed circuit boards and electronics and the manufacture of plastic and metal precision components. JHTI has been under judicial management since 20 February 2009. Both JHT and JHTI were subsidiaries of a listed entity called Jurong Technologies Industrial Corporation which itself is under judicial management.

The Facts

JHTI had been manufacturing electronic products for the defendant since 2003. The products include printed circuit board assemblies and modules which were used in the manufacture of Motorola telecommunications equipment. The defendant’s position was that since 2003, the defendant would set-off on a monthly basis, amounts due to it for the materials it supplied to JHTI, against amounts it owed to JHTI for electronic products which JHTI had manufactured for the defendant.

On 28 July 2004, the defendant and JHTI entered into an agreement known as the Manufacturing and Assembly Agreement (“MAA”), under which JHTI agreed to manufacture electronic products for the defendant using materials and components purchased from the defendant and/or other suppliers approved by the defendant.

Under cl 2.1 of the MAA, JHTI would purchase all materials and components required for manufacturing from suppliers as so notified by the defendant. Notwithstanding this clause, the defendant reserved the right to require JHTI to purchase requisite materials from the defendant directly, under the same clause.

Clause 11.2 of the MAA which is a set-off provision states:

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

On 5 July 2005, MTC began to supply materials to, as well as purchase electronics products from, JHTI. MTC specialises in the “buy-sell” business of Motorola whereby MTC would buy raw materials in order to sell them to suppliers (such as JHTI in the present case) that manufacture electronic products. The products are then sold to various Motorola companies around the world.

The defendant’s position was that since 5 July 2005, sums owing by the defendant and MTC were set off on a monthly basis (which typically took place in the last 10 days of each month) against sums owing by JHTI to the defendant and MTC; specifically, the accounts receivable of MTC arising from the sale of raw materials to JHTI were set off against the accounts payable of MTC and the defendant.

On 28 March 2006, Motorola Inc. and JHTI entered into a Manufacturing Services Agreement (‘MSA’) for JHTI to manufacture Motorola products. Under cll 6b and 6c of the MSA, JHTI was required to purchase materials from Motorola Inc. for the manufacture of Motorola products. There was no set-off provision in the MSA. The defendant submitted that the defendant and MTC were parties to the MSA as cl 2 therein stated:

“Affiliate” means 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.

On 15 February 2007, the plaintiff and JHTI entered into a Master Receivables Purchase Agreement (‘MRPA’) to provide receivable financing facilities of up to US$20m to JHTI. The “Debtor” referred to in the agreement was the defendant, where the sums owing by the defendant to JHTI were the subject matter of the receivables under MRPA. Clause 2 of the MRPA stated:

Subject to the terms and conditions of this Agreement, the Bank [the plaintiff] may from time to time be offered Receivables by the Company [JHTI] serving a Purchase Request [found in Schedule 1 of the MRPA] on the Bank and the Bank at its sole discretion may agree to acquire any of those Receivables.

Under cl 4 of the MRPA, the plaintiff would purchase receivables by its acceptance of the purchase request through the acceptance form in Schedule 2 of the document. Under cl 5.2, if a purchased receivable was unpaid, the plaintiff could look to JHTI for payment. Under cl 11(c), JHTI represented itself as the legal and beneficial owner of each receivable offered for purchase and that JHTI had not assigned and inter alia, created any encumbrance over each receivable offered.

On or about 12 September 2008, the plaintiff decided to cease its commercial relationship with JHTI. On 7 October 2008, the plaintiff decided not to accept from JHTI new purchase requests or grant further new drawings or allow a rollover of existing loans to the latter. On 13 November 2008, the plaintiff cancelled the receivables financing facilities extended to JHTI under the MRPA.

The plaintiff notified the defendant in writing of the assignments of the purchased receivables by way of a letter dated 17 November 2008. It was not in dispute that the defendant received this letter on 25 November 2008. The letter dated 17 November 2008 had enclosed notifications of assignments variously dated between 31 July 2008 and 29 September 2008.

The plaintiff wrote on 4 December 2008 to the defendant setting out the sums that were owing pursuant to the notifications.

The defendant acknowledged receipt of the letter dated 17 November 2008 in a letter dated 8 December 2008 to the plaintiff.

Subsequently, the plaintiff sent a letter dated 17 December 2008 to the defendant to enclose copies of further notifications because the plaintiff’s earlier letter dated 17 November 2008 had omitted two notifications of the assignments of receivables dated 28 July 2008 and 18 August 2008.

The evidence

The defendant’s position was that the assignment of receivables between the plaintiff and JHTI was subject to an express or implied tripartite contractual set-off agreement between JHT, MTC and the defendant. The agreement was to set off sums owing by the defendant and MTC to JHTI, being payment for the sale by JHTI of electronic products, against sums owing by JHTI to the defendant and MTC, being payment for materials and components supplied by them to JHTI. Specifically, the defendant contended that the invoices which formed the subject matter of the assignment were part of a set-off which had taken place on 22 October 2008 and 21 November 2008, between the defendant, MTC and JHTI.

The plaintiff’s response was that there was no evidence to support the finding of such an agreement, express or implied and, that such an agreement was unsustainable in law specifically due to lack of mutuality.

The plaintiff’s case

Tan Wah Yam (“Tan”) was/is the plaintiff’s chief credit analyst. Tan gave evidence that pursuant to the MRPA in [12], JHTI would from time to time present invoices (together with purchase requests) to the plaintiff for the purchase of receivables from the defendant. The plaintiff would purchase such receivables by way of credit advices accepting the respective purchase requests.

On 11 November 2008, Richard Lee Seow Hong (“Richard”), (the plaintiff’s managing-director for relationship management from August 2005 to September 2009) contacted Lim Buay Eng (“Pauline”), the Asia region credit director of the defendant (and an old contact of Richard). The ‘principal purpose’ of this call was to enquire who in the defendant’s organisation should the plaintiff’s notifications of assignment be sent. Richard recalled touching base with Pauline generally on the receivables due to JHTI from the defendant. In that conversation, Pauline had enquired what facilities had been granted, what were the amounts of the facilities and probed further into details of the facilities. Richard did not reveal very much for reasons of banker-customer confidentiality.

The plaintiff decided to give express notice of assignments to the defendant by its letters dated 17 November 2008 and 17 December 2008....