TKM (Singapore) Pte Ltd v Export Credit Insurance Corporation Of Singapore Ltd

• Jurisdiction: Singapore
• Judge: G P Selvam JC
• Judgment Date: 14 September 1992
• Neutral Citation: [1992] SGHC 240
• Docket Number: Suit No 6118 of 1986
• Date: 14 September 1992
• Published date: 19 September 2003
• Year: 1992
• Plaintiff Counsel: Peter Goldsmith QC and Molly Lim (Wong Yoong Tan & Molly Lim)
• Citation: [1992] SGHC 240
• Defendant Counsel: James Goudie QC and Cecilia Thomas (Shook Lim & Bok)
• Court: High Court (Singapore)
• Subject Matter: Whether sham transaction,Whether defendants can deduct interest payments received by plaintiffs from the principal amount for which they are liable,Computation of loss,Civil Procedure,s 5 Civil Law Act (Cap 43),Interest rate to apply,Export credit insurance agreement,Power of court to award interest upon interest,Evidentiary value of accounts to prove loss suffered by plaintiffs,Power of court to award interest under Supreme Court of Judicature Act in such claims,Claim in such contract is for damages and not for debt,Beneficiary action,Whether there was intention to create legally binding arrangement with no covert arrangement intended,Interest,Agency,Whether documents represented true relationship between parties,Claim for damages,Claim for damages and not for debt,Companies,Beneficiary permitted to bring direct action against promisor,Company financials,Breach,Action against insurer by agent,Damages,Purpose of insurance policy,Reflection of loss in accounts low in the scale of evidentiary value,Commercial contract involving cross-border transactions,Insurance,Agency agreement,Doctrine applies where contracting party is an agent or trustee acting for the benefit of another,Equity

Cur Adv Vult

(I) Preface

The Nigerian scene

The story of this litigation begins in 1971. It spans Nigeria, England, Hong Kong and Singapore. I shall first set the scene.

UAC (Technical) Ltd of Nigeria was the distributor of Caterpillar tractor/forklift truck spare parts in Nigeria. The parts were shipped from Belgium by Caterpillar Overseas SA (`COSA`). The Caterpillar concession for the parts, however, was held by a company in the United Kingdom, Unatrac Division of UAC International Ltd (`Unatrac`).

UAC (Technical) Ltd was a member of the family of United African Co Ltd of UK. Its ultimate parent was the multinational conglomerate Unilever Ltd of the United Kingdom.

UAC (Technical) Ltd, the receiver of the parts, was required to make payment to COSA against shipment of the goods. For this purpose, UAC (Technical) Ltd had secured financing facilities from a confirming house in London. The arrangement was that the London confirming house, Tozer Kemsley & Millbourn Ltd (TKM-UK), undertook to make payment to COSA for the parts supplied to UAC (Technical) Ltd. COSA sent direct to TKM-UK the shipping documents after shipment. TKM-UK, pursuant to the contract of confirmation, made payment against monthly statements presented to TKM-UK by COSA. For this facility TKM-UK received a discount commission on the invoice value of the goods and interest on the moneys advanced.

The business which began with modest dimensions expanded very fast. In 1971 the volume was o250,000. In 1979, it was in the region of o7.5m or approximately S$30m. Further, by 1979 the distribution business in Nigeria had been transferred to the United African Co of Nigeria Ltd (`UAC-Nigeria`). As required by the Nigerian Promotions Decree, Nigerian nationals became the majority shareholders (60%) of this company. UAC-International, a wholly-owned subsidiary of Unilever Ltd, held the remaining 40%. The Tractor and Equipment Division of UAC-Nigeria (`TED`) assumed the distribution business of the Caterpillar parts from UAC (Technical) Ltd. UAC-Nigeria became one of the largest and most important trading companies in Nigeria. The technical and commercial aspects of the business, however, continued to be managed by Unatrac.

The London scene

A credit line afforded by a confirming house to an overseas buyer carries the risk of the buyer becoming insolvent (commercial risk) or the government of the buyer`s country imposing preventive orders on overseas remittances (political risks). Prudent confirming houses seek protection against these risks from export credit insurance institutions.

The governments of most industrialized countries in order to encourage export to foreign countries afford export credit insurance against commercial and political risks. In the United Kingdom this is done through the Export Credit Guarantee Department (`ECGD`) of the Department of Trade. In the United States the Export-Import Bank (Eximbank) set up by Congress in 1934 serves the same function. Benjamin`s Sale of Goods (3rd Ed) gives an excellent description of the nature and objects of export credit insurance :

Objects. The main object of export credit guarantees is to insure the seller against loss arising from the buyer`s failure to pay the price. The risks covered include the buyer`s insolvency (the commercial risk) and his inability to accept the goods or to remit the price due to factors outside his control, such as government orders (the political risk). In effect, the export credit guarantee serves a purpose similar to that of a confirmed credit. But there are two important differences between the instruments. First, while a confirmed credit is furnished by the buyer and at his expense, the export credit guarantee is effected by the seller and the premium is paid by him. Secondly, a confirmed credit enables the seller to obtain the price of the goods against the tender of the required documents irrespective of a dispute relating to the goods. But the export credit guarantee does not usually cover the seller where the buyer`s rejection of the goods is based on a defect in the goods, such as their failure to comply with a sample.

A further, subsidiary, object of export credit guarantees is to assist the seller to raise finance. Most export credit guarantees cover the seller`s contracts under which payment is due within six months. While the export credit guarantee does not by itself provide finance for such a period, it enables the seller to obtain the necessary finance from his bankers, whose interests can be safeguarded either by an assignment to them of the export credit guarantee or by the furnishing of an independent guarantee of the credit guarantor. This aspect points to a further similarity between the export credit guarantee and a confirmed credit. The latter gives added currency to bills of exchange drawn by the seller on the buyer and in this way enables the seller to obtain discount facilities. But while in the documentary credit system finance is to be arranged by the buyer, the export credit guarantee system involves, in effect, an extension of credit by the seller to the buyer. The seller`s ability to provide such finance is frequently an advantage as the availability of attractive credit terms may assist him to secure export contracts.

Any insurance business to be economically viable requires a wide premium base. Credit insurance companies are no exception. So they often widen their customer base by underwriting overseas business - that is business not connected with their country. TKM-UK had secured credit insurance from ECGD in respect of exports by COSA from Belgium to Nigeria. This business produced much gain to TKM-UK.

The Singapore scene

Export Credit Insurance Corporation Singapore Ltd (`ECICS`), the defendants, was set up in 1975 to offer credit insurance after the fashion of ECGD. Unlike ECGD, ECICS was not a department of the government. One of the broader objects of ECICS was to develop an external trade business by issuing policies in respect of goods which were not exported from or imported into Singapore.

ECICS employed a Mr John Sorbie, an erstwhile employee of ECGD, as their general manager. In March 1980 Mr John Sorbie and Mr Kwah, the assistant general manager of ECICS, held discussions with representatives of TKM (Far East) Ltd of Hong Kong (`TKM-Hong Kong`) a sister company of TKM-UK. The purpose of the meetings was to explore the possibilities of the TKM group using the services of ECICS. TKM was keen to develop a confirming business in South-east Asia and ECICS was prepared to insure the business on attractive terms. It was then decided by the TKM group to refer all future confirming business in this area to ECICS.

In order to obtain a policy from ECICS it was necessary for the policy holder to establish a registered office in Singapore. This resulted in the incorporation of TKM (Singapore) Pte Ltd (`TKMS`), the plaintiffs, as a Singapore incorporated company in May 1980. But TKMS did not have a decision maker or any operational staff in Singapore. It was a one-man operation. TKM-Hong Kong took charge and was responsible for the administration of TKMS. In August 1980 ECICS issued its policy in favour of the plaintiffs. It was a Comprehensive (Confirming House) Policy (Shipments).

By January 1981 the scheme was fully operational. In that month an agreement was entered into between several TKM sister companies (the TKM group) and TKMS (the group agency agreement).

The salient parts of the agreement were as follows:

(1) The Group hereby collectively appoint the Agents as their agents in the Republic of Singapore to:

(a) arrange for credit insurance for the Group in respect of trade transactions financed by the Group as and when required with the Export Credit Insurance Corporation, Singapore (hereinafter called `ECICS`);

(b) handle the billing, invoicing and all other charges as and when instructed by a member of the Group arising out of the finance of the Group; and

(c) co-ordinate and liaise with the business houses located in Singapore in respect of business financed by the Group

on terms and subject to the conditions hereinafter set out.

(2) This Agreement shall be deemed to have commenced on 1 January 1981 and shall continue in force from that date and thereafter from year to year subject to the provisions as to determination hereafter contained.

(4) The Agents hereby undertake and agree with the Group that they will at all times during the continuance in force of this Agreement observe and perform the terms and conditions set out in this Agreement and in particular -

(a) will use at all times their best endeavours to promote the interests of the Group in Singapore;

(b) will arrange credit insurance through ECICS when requested by members of the Group for business financed by the Group;

(c) will undertake to arrange such credit insurance to the Group on the same terms and conditions as the Agents receive from ECICS;

(d) will include in its invoicing and billing the handling fees incurred by the Group and will ensure such fees are transmitted to the Group upon collection by the Agents for or on behalf of the Group.

(5) The Group and the Agents hereby agree -

(a) that the Agents will receive a commission of 27% of the Group`s commission of financing business derived from exports from Singapore and will bear 20% of any losses arising therefrom; and

(b) that the Agents will receive a commission of 30% of the Group`s commission of financing business derived from imports to Singapore and will bear 45% of any losses arising therefrom;

(c) that the Agents will receive an additional commission of 7% on business for which credit insurance are placed with the ECICS and will bear 5% of any losses arising therefrom; and

(d) that premiums for credit insurance, whether through ECICS or other agencies are to be borne in the same proportion, by the Agents, as the...