Materials Industry and Trade (Singapore) Pte Ltd v Vopak Terminals Singapore Pte Ltd

• Judge: Ang Cheng Hock J
• Judgment Date: 28 November 2019
• Neutral Citation: [2019] SGHC 276
• Citation: [2019] SGHC 276
• Docket Number: Suit No 1153 of 2017
• Published date: 03 December 2019
• Hearing Date: 15 March 2019,14 March 2019,17 April 2019,13 March 2019,13 June 2019,12 March 2019,16 April 2019
• Plaintiff Counsel: Eng Zixuan Edmund, Brinden Anandakumar and Chuah Hui Fen, Christine (Fullerton Law Chambers LLC)
• Date: 28 November 2019
• Defendant Counsel: Chew Kei-Jin, Tan Silin, Stephanie and Tay Shi-En, Hannah (Ascendant Legal LLC)
• Court: High Court (Singapore)
• Subject Matter: Interpretation,Credit and Security,Commercial Transactions,Agency by estoppel,Lien,Contractual terms,Agency,Sale of goods,Contract,Subsequent conduct

Ang Cheng Hock J: Introduction

This dispute concerns the actions of a storage company in disposing a cargo of about 2,000 metric tonnes of Palm Methyl Ester (“PME”), which was stored in one of its tanks, because of the outstanding liabilities of its customer, who had long-term exclusive use of the tank. The plaintiff, who had sold the cargo of PME to the customer, claims that it was still the owner of the PME when it was disposed of by the defendant, the storage company. This disposal was alleged to be in breach of the plaintiff’s right to possession of the PME cargo as its owner. It has thus brought this action for damages. The defendant, on the other hand, insists that it was simply asserting its rights under its contract with its customer, which provided for the defendant to have a contractual lien to retain and dispose of the PME, and apply the sale proceeds in discharge of the outstanding liabilities owed to it.

Facts Relevant parties

The plaintiff is a private company incorporated in Singapore which specialises in the trading of oil and gas products.¹ The defendant is an independent tank storage service which is in the business of storage and handling of liquid chemicals, gases and oil products.² The defendant owns a storage terminal and related facilities located at 51 Banyan Avenue, Jurong Island, Singapore (the “Banyan Terminal”).

In 2014, the plaintiff entered into an agreement to sell 2,000 metric tonnes of PME to IBRIS Bio-fuels Pte Ltd (“IBRIS”). The details of this agreement are set out at [14]–[16] below. IBRIS was a private company whose business concerned the production and extraction of vegetable oil and sugar, bio-fuels refining and bio-energy power generation.³ This included PME, a biodiesel produced from palm oil. The PME purchased from the plaintiff was stored at the Banyan Terminal, where IBRIS had the exclusive use of several of the defendant’s storage tanks pursuant to a service agreement. IBRIS was wound up following a creditors’ voluntary liquidation on 14 August 2015.⁴

IBRIS’s service agreement with the defendant

The current dispute arises from the clash between the legal effects of IBRIS’s sale and purchase transaction with the plaintiff on the one hand, and on the other hand, IBRIS’s long-term business arrangements with the defendant. Both the plaintiff and the defendant argue that they had the immediate right of possession of the PME cargo by reason of their respective written agreements with IBRIS. I shall therefore set out these agreements in some detail, beginning with the service agreement entered into between IBRIS and the defendant.

In or around 25 August 2006, the defendant entered into an agreement with a biodiesel production company known as Natural Fuel Pte Ltd (“NFPL”) to “design, construct, operate and maintain the storage tanks, pipelines and equipment (“the Dedicated Facilities”) at the [Banyan] Terminal … for the dedicated use of [NFPL]”.⁵ It was agreed that there would be seven storage tanks with a combined storage capacity of 105,000 cubic metres. NFPL owned and operated a biodiesel manufacturing facility at 2 Banyan Place, Jurong Island, Singapore 627700 (“2 Banyan Place”) which is adjacent to the Banyan Terminal. The objective of NFPL’s agreement with the defendant was for NFPL to have a convenient storage location near to its manufacturing facility.

The construction of the seven tanks was completed in early 2008 and cost approximately S$37.2m.⁶ However, in or around April 2009, NFPL went into receivership and its agreement with the defendant was terminated shortly thereafter.⁷ NFPL’s manufacturing facility at 2 Banyan Place was then acquired by IBRIS. Separately, the defendant decided to modify storage tanks which had been initially designed and constructed for NFPL so that they could be marketed to its petrochemical customers.⁸

In or around April 2010, whilst these modification works were still ongoing, IBRIS approached the defendant to lease about 50,000 cubic metres of storage tanks. IBRIS wanted these storage facilities for its exclusive use, in the same way that NFPL had, for the storage of its bio-fuel products and/or raw materials. The defendant agreed to provide storage tanks and related facilities for IBRIS’s dedicated use. On 19 July 2011, IBRIS entered into a service agreement with the defendant (the “Service Agreement”).⁹ The initial lease term was for the period from 1 August 2011 to 31 July 2016.¹⁰ As per the Service Agreement, the following tanks were provided by the defendant for IBRIS’s use: 1 x 20,000 cubic metres carbon steel tank (“Tank 1102”); 1 x 20,000 cubic metres carbon steel tank (“Tank 1104”); 1 x 10,000 cubic metres carbon steel tank (“Tank 1106”); and 1 x 2,600 cubic metres carbon steel tank for the period of 1 August 2011 to 31 January 2012 and thereafter 1 x 5,000 cubic metres carbon steel tank for the period of 1 February 2012 to 31 July 2016.

Pursuant to cl 19.1 and Appendix C of the Service Agreement, IBRIS was to pay the following fixed monthly fees which would be subject to yearly adjustments from 1 August 2012:¹¹ S$578,600.00 per month from 1 August 2011 to 31 January 2012; S$605,000.00 per month from 1 February 2012 to 31 July 2012; and S$687,500.00 from 1 August 2012 to 31 July 2016. IBRIS was also obliged to pay variable fees for electricity, internal transfer/blending, tank cleaning and waste disposal.¹² Under cl 19.2.1, all sums were due and payable “without demand and without deduction” no later than 30 days after the date of the defendant’s invoice.¹³

The Service Agreement specified the products to be stored in the tanks as “[b]iodiesel, RBD Palm oil, rapeseed oil, soy bean oil and any other feedstocks that can be handled through the Facilities, meeting the Product Specifications”.¹⁴ PME is included within this description.

For the purpose of these proceedings, there are three other important clauses in the Service Agreement which I should highlight. Under cl 20, the defendant was to have a right of lien and retention over IBRIS’s products stored at the Banyan Terminal in the event that the security provided by IBRIS was either insufficient or invalid. Flowing from this, cl 22 provided for the defendant to have a right of disposal over IBRIS’s products. This would allow the defendant to sell the stored products and use the sale proceeds to pay off any outstanding liabilities due to it. Lastly, pursuant to cl 39, IBRIS was required to provide two bank guarantees to the defendant. The first guarantee was to be provided before 1 August 2011 for the period from 1 August 2011 until 31 July 2012 for a sum of S$4,960,000. The second guarantee of S$5,625,000 was to be provided before 1 July 2012 for the period from 1 August 2012 until the expiration or termination of the Service Agreement. The relevant portions of these three clauses I have referred to are set out below:¹⁵ 20. RIGHT OF LIEN AND RETENTION

Subject to Clause 39.1 and in the event the security provided by the Customer under Clause 39.1 is not sufficient or ceases to be valid for the purposes described in Clause 39.1, [the defendant] shall have a right of lien and retention over the Product and all sums, documents which [the defendant] shall now or hereafter hold of or on behalf of [IBRIS] or which is now or hereafter due to [IBRIS], to secure the payment of all such sums payable by [IBRIS] to [the defendant] and the discharge of all liabilities of [IBRIS] to [the defendant] under this Agreement.

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22. RIGHT OF DISPOSAL 22.1 Circumstances

Without prejudice to Clause 22.2: (1) If [IBRIS] fails to remove the Product due to any reason whatsoever upon or before the expiry or sooner termination of this Agreement; or (2) if [IBRIS] fails to pay to [the defendant] any sum due under and in accordance with Clause 19.2.1 due to any reason whatsoever, except due to the default of [the defendant] or where a sum is disputed in good faith, for any period longer than sixty (60) days after [the defendant’s] notification given under Clause 19.2.2(5),

[the defendant] shall, in the event the security provided by [IBRIS] under Clause 39.1 is not sufficient or ceases to be valid for the purposes described in Clause 39.1 (including to secure the due and proper performance and observance by [IBRIS] of its obligations under this Agreement), be entitled, by giving [IBRIS] not less than seven (7) days’ prior notice, to remove the Product from the Dedicated Facilities to any place in or outside the Terminal and may dispose of and/or destroy the Product in such manner as [the defendant] deems fit and at the risk and expense of [IBRIS] (including disposal of the Product by sale, by private treaty or public auction).

22.2 Disposal

If [the defendant] shall decide to dispose of the Product pursuant to and in accordance with Clause 22.1 by sale by private treaty or public auction: (1) [the defendant] shall be entitled to open or break open without being liable for any damage caused thereby, any container or any other package containing the Product; and (2) any proceeds of sale shall be applied by [the defendant] in the following manner: a. firstly, in payment of all sums of whatever nature due from [IBRIS] to [the defendant] under this Agreement; b. secondly, in payment of the expenses of the removal and disposal and any storage of the Product in the period between such removal and disposal; c. thirdly, in payment of any sums due from [IBRIS] to the Legal Authority and d. fourthly, in payment of other claims or liens of which notice has been given by third parties to [the defendant] and by rendering any surplus to [IBRIS] immediately.

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39. SECURITY 39.1 Sums, period and form

[IBRIS] shall: (1) before 1st August 2011 and until 31st July 2012, furnish security for the sum of Singapore Dollars Four Million Nine...