Receivable Finance – Conflicting Trade Documents, Set-Off & Other Pitfalls
CIMB Bank Bhd v World Fuel Services (Singapore) Pte Ltd [2020] SGHC 117
The Singapore High Court ("the Court") ruled on issues relating to the authenticity and admissibility of the debenture in court, coverage of the debenture as well as conflicting trade documents and set-off issues affecting receivable financing.
Facts
CIMB Bank Berhad ("Bank") provided banking facilities to Panoil Petroleum Pte Ltd ("Panoil") which were secured by a deed of debenture ("the Debenture") executed by Panoil. Pursuant to the Debenture, Panoil assigned to CIMB all its rights against World Fuel Services (Singapore) Pte Ltd ("WFS") in relation to certain trading transactions. The Bank issued a notice of assignment to WFS, and subsequently sought to exercise its rights as legal assignee under the Debenture against WFS.
Issues
The issues before the Court were:
- the authenticity and admissibility of the Debenture;
- the coverage of the Debenture; and
- the documents that governed the trading transactions between Panoil and WFS.
High Court Decision
A. Authenticity and admissibility of the Debenture
The Court held that a party is legally entitled to object to the authenticity of a document and insist that the party wishing to admit it into evidence comply with the provisions of the Evidence Act. In this regard, even where primary evidence of a document is produced, its authenticity may be in issue. As such, a party may still insist that the other party prove the authenticity of the signature on the original document that is produced in court.
There are various ways to prove that the authenticity of a document. The following may be called as a witness: (a) the person who signed the document;
- the person who witnessed the document being signed;
- a person who is acquainted with the handwriting of the person who signed the document; and (d) a handwriting expert.
In this case, the Bank had the burden of proving authenticity of the two signatures on the Debenture purportedly belonging to Panoil's previous directors. The Court stressed that it is insufficient for authenticity to be proven merely by producing an original of the Debenture. The Court reiterated that where direct evidence of authenticity was available, even expert evidence may also be insufficient to prove authenticity. The Bank could call the two previous directors of Panoil as witnesses to prove the authenticity of the Debenture but did not do so. The Court therefore held that the Bank had not proved the authenticity of the Debenture and dismissed its claims.
Separately, the Court also noted that that the Debenture was introduced only one day before trial. The Court also noted some suggestions that the Debenture produced at the trial was only a draft. For example, certain template drafting options in the Debenture in relation to the service of the notice of assignment were not chosen and completed. The solicitor's attestation was also incomplete without the lawyer's name and key details such as the date that the affixation of the common seal of Panoil.
The Court also found that authenticity is distinct from and a precondition to proving admissibility of the Debenture. Therefore the question of admissibility did not arise in this case.
Although this issue was determinatively decided in favour of WFS, the Court went on to consider the merits of the Bank's remaining claims in obiter.
B. Coverage of the Debenture
WFS contended that the Panoil's rights under the underlying sales documents with WFS were not assigned under the specific assignment and charging clauses of the Debenture.
The Court held that the Debenture had both specific as well as general assignment and charging clauses. The capitalised terms "Receivables", "Goods" and "Relevant Agreements" used in the specific assignment and charging clauses are specifically defined in the Debenture. On the other hand, the general assignment and charging clause do not capitalise the terms "contract rights", "receivables" and "debts". By not capitalising these terms, the parties must have intended to distinguish these terms from their capitalised equivalents under the specific assignment and charging clauses. These terms must therefore be given their plain and ordinary meaning in accordance with the ordinary rules of contractual interpretation.
The Court held that it is clear that the language of the general assignment and charging clause is sufficiently wide to include Panoil's rights under the underlying sales documents with WFS, these being present or future "contract rights" that were due and owing to Panoil.
C. Documents that governed the trading transactions between Panoil and WFS
- Battle of forms
CIMB and WFS disputed which set of documents governed the trading transactions between Panoil and WFS, an issue which would have differing set-off consequences. CIMB contended that it should be governed by the sales confirmations from Panoil to WFS ("Panoil Sales Confirmations") while WFS contended that it should be governed by other of its agreements (including its contracts of affreightment, a transportation agreement and an offset agreement) ("WFS Agreements").
The Court applied a 'battle of the forms' analysis whereby a court would examine each offer or counter offer by the respective parties, and only find a concluded agreement when a final and unqualified acceptance has been made. In this regard, the Court noted that the Panoil Sales Confirmations were the final documents sent before the contract had been performed.
The Court also held that it will apply an objective approach on issues of contractual formation. This involves ascertaining the parties' objective intentions gleaned from the parties' correspondence and conduct in the light of the relevant background disclosed by the evidence. The relevant background includes the industry in which the parties are in, the character of the document which contains the terms in question and the course of dealings between the parties.
- WFS's right of set-off
The Court held that there was a prohibition against set-off in the Panoil Sales Confirmations. WFS had reasonable notice of it because (a) such a prohibition was a common term in the bunkering industry; (b) WFS was a sophisticated commercial party; (c) the incorporating clause in each of the Panoil Sales Confirmations was prominent; and (d) WFS possessed a copy of the terms and conditions governing the Panoil Sales Confirmations.
WFS on the other hand tried to rely on a contradicting clause in the WFS Agreements that permitted setoff.
The Court applied the principle that the more specific document should prevail over a standard form document or a less specific document to the extent of their inconsistency. As the Panoil Sales Confirmations were the specific contractual documents with specific terms such as the price, mode of payment, date of delivery, its terms will accordingly supersede the WFS Agreements which lack any of the specific details of each sales transaction.
Conclusion and Learning Points
This case is a timely reminder of the evidentiary issues relating to the admission of documents in court.
More importantly, this case illustrates the complexity and pitfalls when taking security over receivables arising from a complex trading relationship involving multiple and conflicting conduct and documentation. Banks can mitigate the risk with enhanced due diligence on (i) the modus operandi of the company's business and trading, (ii) the trading arrangements, agreements and course of dealing between the parties, (iii) the customs and practices in the industry and (iv) constant monitoring of the trading relationship and fund flows between the parties. To the extent possible, notices of assignment should be served on the counterparties with acknowledgment and/or consent (if required) from the counterparties. Where there are potential set-off or other third party issues, it should be addressed and agreed upfront with the company and its counterparties to have clarity on each parties' rights and obligations in relation to set-off and other third party issues.
Originally published 13 July, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
