The world of trade finance is never straightforward. Multiple facilities, competing claims, set-offs, assignments, debentures and multiple parties are, to the say the least, what make the backbone of trade finance. Navigating this complex landscape is tough, and raises a plethora of legal issues and uncertainties.
This complex landscape is evident in the case of CIMB Bank Bhd v World Fuel Services Singapore Pte Ltd [2021] SGCA 19, where the Court of Appeal considered and analysed the same issues of diametrically opposite competing contracts, and arrived at a completely opposite conclusion than that of the High Court.
This decision is important in highlighting the downfalls of complex multi-party trade financing agreements, and provides guidance on the Court’s approach to interpretation in the realm of competing contracts. Though the Court also considered points on the authenticity of documents, and the manner in which authenticity should be proved, this update will focus on the crux of the matter – the battle of the trade financing contracts.
Facts
Panoil Petroleum Pte Ltd (“Panoil”), now under judicial management, had entered into 11 sales transactions (with corresponding invoices) (“Sales Transactions”) with World Fuel Services (Singapore) Pte Ltd (“WFS”), a bunker trader. Prior to entering into the Sales Transactions, CIMB Bank Bhd had offered Panoil, loan facilities. In return, Panoil executed a debenture (“Debenture”) in favour of CIMB over all goods and/or receivables and documents representing goods financed by CIMB as security. CIMB further alleged that Panoil’s rights, title, interest and benefit under the Sales Transactions had been assigned to CIMB by virtue of the Debenture.
When Panoil faced financial difficulties, CIMB gave notice to WFS of the assignment and demanded for payment of the invoices, as well as late payment interest. CIMB claimed that the Sale Transactions, by way of their sales confirmations, had incorporated Panoil’s standard terms and conditions, under which Clause 8.2 precluded the right of set-off.
WFS, on the other hand, argued that the Sales Transactions were not governed by the standard terms and conditions, but by two sets of contracts:
(1) “Umbrella Contracts”, which comprised on Contracts for Affreightment and Transportation Contracts; and
(2) An “Offset Agreement” which provided for the mutual setting off of certain payable sums.
Therefore, WFS argued that under the Offset Agreement and the Umbrella Contracts, it was entitled to set off the sums due under the Sales Transactions and its invoices to Panoil.
The Court of Appeal, therefore, had to consider whether the Umbrella Contracts and the Offset Agreement applied to the Sale Transactions, and whether Clause 8.2 of the terms and conditions superseded the Offset Agreement.
The Decision
The Court of Appeal disagreed with the High Court, and found that the Offset Agreement superseded Clause 8.2 of the terms and conditions.
The High Court had based its reasoning on the case of Sintalow Hardware Pte Ltd v OSK Engineering Pte Ltd [2017] 2 SLR 372 (“Sintalow”), which stood for the proposition that “a more specific document ought to prevail over a standard form document”, when there is no express order of precedence provided by parties. Therefore, the High Court Judge reasoned that Sales Transactions were the specific contractual agreements that governed each of the 11 sales, whereas the Umbrella Contracts and the Offset Agreement are merely a general Master Contract, and lacked any specific details in each of the Sales Transactions. Thus, Clause 8.2 superseded the Offset Agreement.
The Court of Appeal, however, distinguished Sintalow on two grounds.
Firstly, in the case of Sintalow, the Master Contract contained general terms and conditions. The Offset Agreement, on the other hand, was a short one-page document that specifically addressed the sole issue of the right of set-off. The Court of Appeal found this suggestive of the fact that the parties had focused on this sole issue, and thus entered into a contract intending for the right of set-off to apply to their transactions. Contrastingly, Clause 8.2 was part of a pre-printed set of general terms and conditions and was merely one provision in a set of terms canvassing multiple issues.
Secondly, and crucially, the Court of Appeal found that the specific contracts referred to in the case of Sintalow were signed by both parties. In the present case, Panoil had unilaterally issued the sale confirmations of the Sales Transactions (which incorporated Clause 8.2) to WFS, and were standard terms, whereas the Offset Agreement was signed by both parties.
Therefore, as the Offset Agreement was specifically agreed to between Panoil and WFS, it was the more specific document and thus prevailed over the standard terms and conditions of Panoil.
Additionally, the Court of Appeal found it of no importance that the Sales Transactions made no reference to the Umbrella Contracts or the Offset Agreement, or that WFS and Panoil had not exercised their rights to set-off previously. The only issue that mattered was which document was the more specific document.
The Court however, highlighted that if the Offset Agreement was a pre-printed document unilaterally issued, there would be a true “battle of forms”, where the last document sent would contain the terms governing the transactions.
This case provides a welcome clarification on how to navigate the sea of documents that govern trade financing. It highlights the importance of being clear and nuanced in the documents, and for all parties – the Banks, the buyers, the sellers to be aware of the total foray of documents that may govern the transactions. If you seek to enforce a standard term, better to be safe and specifically agree to it between parties so that you are not caught unawares in times of dispute.
Take note: in the battle of the forms, it is not always the case of the last one standing. The less general your document, the higher the chance of emerging successful.
For More Information
If you have any questions about this Alert, please contact Niranjanaa Ram, any of the attorneys in our Singapore office or the attorney in the firm with whom you are in regular contact.
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