Jurong Aromatics Corp Pte Ltd (receivers and managers appointed) and others v BP Singapore Pte Ltd and another matter

• Jurisdiction: Singapore
• Judge: Aedit Abdullah J
• Judgment Date: 03 October 2018
• Neutral Citation: [2018] SGHC 215
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 1178 of 2017 and Originating Summons No 1180 of 2017
• Published date: 05 March 2020
• Year: 2018
• Hearing Date: 24 January 2018,25 January 2018,01 March 2018,23 January 2018,08 February 2018,15 November 2017
• Plaintiff Counsel: Edwin Tong SC, Tham Hsu Hsien, Peh Aik Hin, Lee May Ling & Yeo Kok Quan Nigel (Allen & Gledhill LLP)
• Defendant Counsel: Jaikanth Shankar, Tan Ruo Yu & Teo Zhiwei Derrick Maximillian (Drew & Napier LLC),Balakrishnan Ashok Kumar, Leong Ji Mun Gregory, Aw Chee Yao & Tay Kang-Rui Darius (Blackoak LLC)
• Subject Matter: Debt and recovery,Right of set-off,Insolvency set-off,Equitable set-off,Credit and Security,Charges,Contract,Assignment
• Citation: [2018] SGHC 215

Aedit Abdullah J: Introduction

The plaintiffs, namely Jurong Aromatics Corporation Pte Ltd (“JAC”) and its two receivers and managers (collectively “the Plaintiffs”), seek in Originating Summons No 1178 of 2017 and Originating Summons No 1180 of 2017 declarations against BP Singapore Pte Ltd (“BP”) and Glencore Singapore Pte Ltd (“Glencore”) respectively (collectively “the Defendants”) that the Defendants are not entitled to set-off debts owed to the Plaintiffs under various agreements between the parties. The Plaintiffs also seek a declaration that in failing to pay the sums due, the Defendants are in breach of the agreements, with damages to be assessed. The Defendants resist the Plaintiffs’ claims, contending essentially that set-off is available.

The essential disputes in this case concern the nature of a charge, the effect of a prohibition against assignment clause on assets ostensibly subject to a charge, and the availability or otherwise of set-off.

A winding-up petition against JAC, brought by Glencore, is also pending.

Background

JAC was incorporated on 30 May 2005 as a joint venture project for the purposes of, inter alia, constructing, developing and operating a condensate splitter integrated with an aromatics plant (“the Plant”).¹ The Defendants were both suppliers and customers of JAC.

In March 2011, Glencore and JAC entered into an agreement for the supply of condensate by Glencore to JAC (“the Glencore–JAC Feedstock Supply Agreement”). In that month, Glencore and JAC also entered into an agreement for the purchase by Glencore of cargoes of product produced by JAC from the condensates supplied by Glencore and others (the “Glencore–JAC Product Offtake Agreement”). BP’s arrangements with JAC were similar: there was a BP–JAC Feedstock Supply Agreement and a BP–JAC Product Offtake Agreement.²

The dispute arises out of loans to JAC amounting to approximately US$1.6 billion issued by a syndicate of senior secured finance parties comprising a number of banks and financial institutions (“the Senior Lenders”). The Senior Lenders obtained from JAC a comprehensive security package to secure their loans, by way of a debenture dated 30 April 2011 (“the Debenture”) entered into between JAC, and BNP Paribas Singapore Branch (“the Agent”) (for and on behalf of the Senior Lenders). The Senior Lenders took security in the form of a first fixed charge, covering inter alia present and future book debts, as well as a first floating charge over all assets of JAC both present and future. There was also an assignment between JAC and the Agent on 28 April 2011 (“the Assignment”), under which receivables payable to JAC under the Glencore–JAC Feedstock Supply Agreement and Glencore–JAC Product Offtake Agreement, amongst other agreements, were assigned to the Senior Lenders.³

On 23 December 2014, a set-off agreement was entered into between Glencore and JAC for the set-off of mutual claims arising out of the Glencore–JAC Feedstock Supply Agreement and Glencore–JAC Product Offtake Agreement (“the Set-Off Agreement”).⁴

In 2014 and 2015, JAC encountered difficulties. On 28 September 2015, receivers and managers were appointed, and they took control and managed the assets of JAC.⁵ The Defendants were notified by 29 September 2015 of the appointment of the receivers and managers.⁶

A tolling agreement was entered into on 19 April 2016 between JAC and the Defendants (“Tolling Agreement”), to allow the operations of the Plant to resume while a purchaser for the Plant was sought. Tolling is essentially the processing of raw materials for a fee. Thus under the Tolling Agreement, the Defendants continued to supply feedstock to JAC for processing into aromatics and petroleum products and would thereafter receive and sell the products. In exchange, JAC received a tolling fee. Funds were injected by the Senior Lenders.⁷

Subsequently, a purchaser for the Plant, ExxonMobil Asia Pacific Pte Ltd (“ExxonMobil”), was found. ExxonMobil and the Plaintiffs entered into a Put and Call Option Agreement dated 9 May 2017, as amended by two supplemental deeds (collectively, the “PCOA”). In addition, agreements were entered into between BP, Glencore, ExxonMobil and JAC on 16 June 2017 (“the Transitional Agreement” and “the Transitional Supplemental Agreement”) to allow for a ‘hot transition’ to take place. A ‘hot transition’ would allow the Plant to be transferred to ExxonMobil without having to be shut down. This required that provisions be made in relation to the raw materials used and the products manufactured during the transfer process.⁸

On 28 August 2017, the sale of the Plant was completed.⁹

The Plaintiffs currently seek to claim amounts due from the Defendants. In relation to both Defendants, ie, Glencore and BP, the Plaintiffs claim: the tolling fee debt arising from the Tolling Agreement dated 19 April 2016 (“tolling fee debt”); and the final payment amount arising from the Transitional Supplemental Agreement dated 16 June 2017 (“final payment amount debt”).

In relation to Glencore, the Plaintiffs also additionally claim the debt arising from the Set-Off Agreement dated 23 December 2014 between Glencore and JAC (“Set-Off Agreement debt”).

The Defendants claim that they are entitled to set-off the Plaintiffs’ claimed amounts against debts owed to them by JAC under their respective Feedstock Supply Agreements with JAC (“feedstock debt”).

In summary therefore, the relevant contracts and transactions are:¹⁰ the Glencore–JAC Feedstock Supply Agreement dated 9 March 2011 and the BP–JAC Feedstock Supply Agreement dated 16 March 2011; the Glencore–JAC Product Offtake Agreement dated 31 March 2011 and the BP–JAC Product Offtake Agreement dated 16 March 2011; the Assignment between the Agent and JAC on 28 April 2011; the Debenture between the Agent (for and on behalf of the Senior Lenders) and JAC dated 30 April 2011; the Set-Off Agreement dated 23 December 2014 between Glencore and JAC; the Tolling Agreement dated 19 April 2016 between BP, Glencore and JAC; the PCOA dated 9 May 2017 between ExxonMobil and the Plaintiffs; and the Transitional Agreement executed by BP, Glencore, JAC, and ExxonMobil, and the Transitional Supplemental Agreement between BP, Glencore, and JAC, both dated 16 June 2017.

Summary of the Plaintiffs’ case

The Plaintiffs argue that as the receivables of JAC are charged and are now beneficially owned by the Senior Lenders, mutuality of debt is not established and thus insolvency set-off cannot apply. All of the receivables are caught by the Senior Lenders’ security package given that pursuant to the Debenture, the Senior Lenders were given both a first fixed charge and a first floating charge over all undertakings and assets of JAC.¹¹

In relation to the tolling fee debt and final payment amount debt, these were incurred after the commencement of receivership, and therefore would have been assigned in equity to the Senior Lenders on creation in the light of the crystallised floating charge. This operated automatically under the law. The debts were not expressly excluded from the Senior Lenders’ security package either. ¹²

In addition, according to the Plaintiffs, the prohibition against assignment clauses in the Tolling Agreement and Transitional Agreement do not affect the Senior Lenders’ security interest in the tolling fee debt and final payment amount debt. Such clauses may entitle the Defendants (the debtors) to refuse to deal with the Senior Lenders (the assignees) and continue to make payment to JAC (the assignor), but they cannot affect the assignment or security arrangement between JAC and the Senior Lenders, in particular the proprietary effects of such assignment. The prohibition against assignment clauses also only apply to prohibit JAC from entering into assignments going forward, as from the dates of the Tolling Agreement and Transitional Agreement respectively. They have no effect on the tolling fee debt and final payment amount debt given that these receivables were subject to the security interest of the Senior Lenders by virtue of a floating charge which was entered into and which crystallised before the Tolling Agreement and Transitional Agreement were entered into. Moreover, on a proper interpretation of the prohibition against assignment clauses, the clauses cannot exclude the Senior Lenders’ beneficial interests.¹³ Therefore, there is no mutuality between the tolling fee debt and final payment amount debt (owed by the Defendants) on the one hand, and the feedstock debt (owed by JAC) on the other. Hence, no right of set-off arises.

In addition, the Set-Off Agreement debt is also caught by the Debenture under both the fixed charge and the floating charge (once it crystallised), and the Senior Lenders’ interest in the debt is likewise unaffected by the prohibition against assignment clause in the Set-Off Agreement.¹⁴ Further, the Set-Off Agreement debt is also subject to the Senior Lenders’ security by virtue of the direct assignment of the Set-Off Agreement debt to the Senior Lenders pursuant to the Assignment. There has been no subsequent release of the security back to JAC pursuant to a deed of reassignment, contrary to Glencore’s submission.¹⁵ Mutuality of debt is therefore also destroyed as between the Set-Off Agreement debt (owed by Glencore) and feedstock debt (owed by JAC).

The Plaintiffs further submit that contrary to the Defendants’ arguments, there has been no relinquish of control in the charges by the Senior Lenders which would lead to a waiver, decrystallisation or other discharge of the security. The appointment of receivers and managers itself constitutes assertion of control by the Senior Lenders. In any event, the receivers and managers have acted in consultation with the Senior Lenders. The concept of decrystallisation is also unsupported by any case authority.¹⁶

According to the...