Reed Smith Client Alerts

In our client alert dated 8 March 2021 we reported on the Singapore Court of Appeal’s judgment in CIMB Bank Bhd v. World Fuel Services (Singapore) Pte. Ltd.1 The case related to issues arising out of an assignment of receivables to a bank and the exercise of rights of set-off by the debtor. We reported that, in that case, a master set-off agreement was construed as taking precedence over the terms of subsequent contracts, including standard terms and conditions, in the context of a claim by CIMB for assigned receivables.

On 20 May 2021, the Court of Appeal delivered a new judgment in a case also involving CIMB: Italmatic Tyre & Retreading Equipment (Asia) Pte. Ltd. v. CIMB Bank Bhd. In this case the court approved but distinguished the World Fuel judgment on its facts. The court also observed that set-off could apply even after an assignee of a debt gave notice of assignment if the set-off agreement was entered into prior to the assignment.

What happened between the parties?

In June 2016, the respondent (the Bank) extended trade-financing facilities to Panoil Petroleum Pte Ltd (Panoil), a marine fuel supplier. In July 2016, as security for those facilities, Panoil executed a debenture in favour of the Bank granting it a security interest in goods financed by the facilities and in all receivables and documents relating to such goods.

In July and August 2017, Panoil entered into and performed seven contracts under which it sold and delivered seven cargoes of marine fuel to the appellant, Italmatic (the Contracts). Each Contract was evidenced by a sale confirmation incorporating Panoil’s standard terms and conditions (the Panoil T&Cs).

Italmatic owed Panoil a total of US$2.43 million plus interest for the cargoes.

As a result of Panoil’s financial prospects, the Bank served a notice of assignment on Italmatic on 29 August 2017, notifying Italmatic of the terms of the debenture and asking it to pay the above amount to the Bank. When Italmatic failed to do so, the Bank commenced High Court proceedings against it.

In the High Court, Italmatic argued that the cargoes had been paid for by an exercise of its rights of set-off under an agreement dated 1 July 2015 between the parties (the Set-Off Agreement). The Set-Off Agreement permitted mutual set-off by the parties of their undisputed invoices. The rights of set-off were purportedly exercised by an exchange of ‘set-off letters’ dated 13 August 2017.

Italmatic argued that alternatively its debt to Panoil was cancelled when Panoil agreed to invoice Italmatic’s end customer directly. This was evidenced by ‘cancellation letters’ exchanged between the end customer and Panoil on 17 and 18 August 2017.

The Bank disputed the authenticity of the Set-Off Agreement, the set-off letters, and the cancellation letters and put Italmatic to strict proof. The Bank also argued that the rights of set-off were precluded by clause 8.2 of the Panoil T&Cs, which required payment without any set-off or counterclaim. Italmatic countered that clause 8.2 was nullified by the set-off letters.

The judge held that: (a) the set-off letters were fabrications, meaning Italmatic had never exercised its rights of set-off; (b) in any event, clause 8.2 of the Panoil T&Cs precluded Italmatic’s ability to exercise any such rights; and (c) the cancellation letters were also fabrications.

Italmatic appealed the decision.