Summary
The case arises from the bankruptcy of Panoil Petroleum Pte Ltd (Panoil). The Court of Appeal has reversed the High Court’s findings on the interaction between inconsistent and competing contract terms. Depending on which terms prevailed, either: (a) CIMB Bank Berhad (CIMB) would have valid claims by virtue of a debenture granted to it by Panoil against World Fuel Services (Singapore) Pte Ltd (WFS); or (b) WFS would have validly set off these claims.
Both the High Court and the Court of Appeal carried out a close analysis of the inconsistent and competing contract terms, and came to opposite conclusions. This goes to show the complexity in this area of the law. The Court of Appeal provided useful guidance on the analysis to be carried out by a court when applying to a particular kind of contractual matrix the principle that “the more specific document ought to prevail over a standard form document”.
This decision is relevant to commodities trading and financing, in particular, where multiple overlapping and competing contractual arrangements are a recurring issue.
The decision also considers specific issues of Singapore court procedure relative to the weight of indirect and circumstantial evidence adduced in place of available (but not adduced) direct evidence.
What happened between the parties?
In late June 2016, CIMB provided loan facilities to Panoil. Funds advanced to Panoil were purportedly secured by an all monies limited debenture over all of the goods and/or receivables relating to the goods, as well as documents representing the goods financed by CIMB (the Debenture).
Between July and August 2017, Panoil issued 11 sales confirmations (the Sales Confirmations) and 11 related invoices (together, the Contracts) to its counterparty, WFS. The Sales Confirmations related to 11 sales and deliveries of marine fuel oil by Panoil to WFS. The Sales Confirmations were said by CIMB to incorporate Panoil’s Terms and Conditions for Sales of Marine Fuel (the T&Cs). Clause 8.4 of the T&Cs contained an express ‘no set-off’ clause.
Panoil’s rights under the Contracts were among the rights purportedly assigned to CIMB under the Debenture.
In August 2017, CIMB found that Panoil was experiencing financial difficulties. CIMB proceeded to issue and serve on WFS a notice of assignment of Panoil’s rights under the Contracts and the related receivables. In February 2018, CIMB sought to exercise its rights as the legal assignee of those rights by enforcing the Debenture. CIMB brought claims against WFS for sums due and owing from WFS to Panoil under the Contracts.
WFS declined CIMB’s claim and advanced three main defences:
(a) the Debenture was not authentic;
(b) the Debenture did not assign Panoil’s rights under the Contracts to CIMB; and
(c) the Contracts were in fact governed by additional terms contained in (i) various contracts of affreightment and transportation (referred to as the “Umbrella Contracts”) and (ii) an offset agreement (referred to as the “Offset Agreement”), each being an agreement between Panoil and WFS which pre-dated the Contracts.
WFS argued that the Umbrella Contracts and the Offset Agreement gave WFS the right to set-off sums due and owing to Panoil against sums due from Panoil under other transactions between WFS and Panoil. WFS argued that the transactions were all part of a composite ‘buy-sell’ relationship in which Panoil sold fuel oil to WFS before Panoil then bought the same quantity of oil back from WFS. Having exercised its rights of set-off, WFS argued that it no longer owed any sums to CIMB, as alleged assignee of such rights under the Debenture.
CIMB commenced proceedings against WFS in the Singapore High Court.
What did the High Court decide?
The High Court dismissed CIMB’s claim on the basis that CIMB had not sufficiently evidenced the authenticity of the Debenture, as it was required to do pursuant to section 66 of the Evidence Act (Cap 97, 1997 Rev Ed) when it was put to proof by WFS in respect of the issue.
Importantly, however, the High Court noted that it would have found in CIMB’s favour had the authenticity of the Debenture been properly evidenced, on the following grounds:
- Panoil’s rights under the Contracts had been assigned under the Debenture: The assignment clause was sufficiently wide to include Panoil’s rights under the Contracts, being present or future “contract rights” that were due and owing to Panoil by WFS. This issue was not disputed before the Court of Appeal.
- The T&Cs were incorporated in the Contracts and governed the assigned transactions: Following a ‘battle of the forms’ analysis and supported by evidence of bunkering industry practice, the Sales Confirmations were the final documents exchanged between the parties and contained the essential terms of the Contracts. The Court of Appeal considered the dispute on the assumption that the T&Cs were incorporated in the Contracts.
- The T&Cs’ ‘no set-off’ applied and took precedence over the other contractual arrangements in place: Importantly, the High Court found that, even had the Umbrella Contracts and the Offset Agreement applied to the relevant transactions, their terms would have been superseded by those of the T&Cs, applying the principle that a more specific document ought to prevail over a general or standard form document.
What did the Court of Appeal decide?
The Court of Appeal dismissed CIMB’s appeal against WFS, but for altogether different reasons from those given by the High Court. Effectively, the Court of Appeal reversed both of the High Court’s key decisions, holding that: (a) CIMB did establish the authenticity of the Debenture; and (b) WFS had established its rights of set-off.
1. Whether CIMB had proven the authenticity of the Debenture
The Court of Appeal reversed the High Court’s finding that CIMB had not properly adduced evidence of the Debenture’s existence and authenticity. Because CIMB had declined to call the Panoil signatories as witnesses to confirm the authenticity of their signatures, the High Court had found that CIMB had failed to prove their authenticity and that of the Debenture itself.
The Court of Appeal considered whether the indirect and circumstantial evidence presented by CIMB was sufficient to prove the authenticity and existence of the Debenture. It found that such indirect or circumstantial evidence could be relied on, even where direct evidence would have been available but CIMB had failed to adduce it.
The Court of Appeal went on to hold that the indirect and circumstantial evidence of the Debenture’s existence was “overwhelming”. Among the factors considered were: (a) the Debenture’s registration with ACRA; (b) Panoil’s common seal affixed onto the Debenture; and (c) the fact that both CIMB and Panoil had at all times operated under the belief that the Debenture had been validly executed.
2. Whether WFS was entitled to a contractual right of set-off under the Contracts
The Court of Appeal considered whether WFS was entitled to rely on the Offset Agreement for a right of set-off. If so, it would be unnecessary for WFS to rely on the Umbrella Contracts as well.
Whether the Offset Agreement applied to the subject transactions
The Court of Appeal concluded that the Offset Agreement applied to the subject transactions. The Offset Agreement clearly stated that it was entered into “[i]n consideration for entering into contracts for the supply, service, distribution and/or purchase of fuel products and/or marine lubricants”. This showed that the Offset Agreement was intended as a so-called ‘master contract’ to prima facie apply to all contractual transactions between WFS and Panoil going forward.
The key issue was therefore whether this prima facie intention had been specifically altered by the parties in respect of the Contracts.
The High Court had found that the Contracts did not expressly refer to the Offset Agreement, and drew the conclusion that it was not intended by the parties to cover the subject transactions. The Court of Appeal, however, disagreed. Whilst such references would certainly have supported WFS’ case, it was not necessary for the Contracts explicitly to refer to the Offset Agreement for it to apply to them.
The Court of Appeal went further and noted that the fact that Panoil and WFS had not consistently exercised set-offs between amounts mutually owed did not demonstrate any intention that the Offset Agreement would not apply. In any event, CIMB had not pleaded that WFS had permanently waived its right to a set-off or was estopped from asserting its rights.
Whether the Offset Agreement took precedence over the T&Cs
The Court of Appeal then went on to consider the real question, in its view, as to whether the Offset Agreement had been superseded by the ‘no set-off’ provision in the T&Cs (clause 8.4 T&Cs).
The High Court had followed Sintalow Hardware Pte Ltd v OSK Engineering Pte Ltd [2017] 2 SLR 372 (Sintalow), the most recent authority on the approach to be taken where: (a) there is inconsistency between terms in different applicable contractual documents; and (b) the contract does not expressly provide an order of precedence between clauses and documents. Applying Sintalow, the High Court had concluded that, because “the more specific document ought to prevail over a standard form document”, clause 8.4 of the T&Cs took precedence over the Offset Agreement.
The Court of Appeal drew a number of distinctions between the present case and Sintalow:
- In Sintalow, a master contract containing general terms and conditions was found to be superseded by a more specific agreement. In the present case, the Offset Agreement did not contain broader and more general terms than the T&Cs. On the contrary, the Offset Agreement was a short, one-page document specifically intended to confer to the parties mutual set-off rights. The parties had expressly focused on and intended for set-off to be available to each of them. Conversely, clause 8.4 of the T&Cs was part of a general set of terms and conditions, and the T&Cs considered multiple issues alongside the no set-off provision.
- In Sintalow, the specific agreement, which was found to take precedence over the more general master contract, had been signed by both parties. In contrast, the Sales Confirmations and the T&Cs were pre-printed documents unilaterally issued by Panoil. The Offset Agreement, on the other hand, had been signed by both Panoil and WFS.
The Court of Appeal concluded that neither the Offset Agreement nor clause 8.4 of the T&Cs could be said to have been incorporated specifically in any of the Contracts. Each was meant to apply generally to transactions between Panoil and WFS. The Offset Agreement, however, clearly superseded clause 8.4 of the T&Cs in terms of priority, because it had been specifically agreed to between Panoil and WFS.
The Court of Appeal concluded that the principle in Sintalow that “the more specific document ought to prevail over a standard form document” would in fact support WFS’ case that the Offset Agreement took precedence over clause 8.4 of the T&Cs.
Having found, in WFS’ favour, that the Offset Agreement applied to the subject transactions, the Court of Appeal decided that it was not necessary to consider whether the Umbrella Contracts also applied.
Key takeaways
This decision highlights the complexities surrounding competing and inconsistent contractual provisions, all potentially applicable to the same transaction.
The fact that the High Court and the Court of Appeal took opposing views on the very same set of facts serves to show that establishing a hierarchy between overlapping contracts is by no means straightforward, and that clear written and signed agreements are preferable, particularly in the context of set-off.
Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style, Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.
In-depth 2021-069
