China Coal Solution (Singapore) v Avra Commodities

DMC/SandT/20/14

Singapore

China Coal Solution (Singapore) Pte Ltd v Avra Commodities Pte Ltd

Court of Appeal of the Republic of Singapore [2020] SGCA 81, 20 August 2020: Judgment delivered by Judith Prakash, JA

Tan Boon Yong Thomas, Hoon Yi Shyuan and Nurulhuda Atiqah Binte Sawal instructed by Haridass Ho & Partners, for the Claimant

Tan Wee Kong and Poh Ying Ying Joanna instructed by JLex LLC, for the Defendant/Appellant

ALLEGED BREACH OF TRADING CONTRACT: WHETHER CONTRACT HAD BEEN FINALLY CONCLUDED: RELEVANCE OF STANDARD TERMS AND CONDITIONS: RELEVANCE OF PREVIOUS DEALINGS BETWEEN THE PARTIES

Summary

This was an appeal on liability by China Coal Solution (Singapore) Pte Ltd (“the Appellant/Defendant”) related to an alleged breach of contract with Avra Commodities Pte Ltd (“the Plaintiff”) for a transaction involving three shipments of Indonesian steam coal (“the Cargo”). The Court of Appeal held that the parties had not entered into a formal agreement on the basis of four emails exchanged and that a party who insisted on the standard terms of agreement, would not be easily allowed to resile from its position by alleging that those terms did not apply.

Case Note contributed by Sri Azali BB (Human Resource Management & Business Law), Paralegal at Penningtons Manches Cooper LLP Singapore

Background

China Coal Solution (Singapore) Pte Ltd and Avra Commodities Pte Ltd were companies involved in commodity trading. The parties had begun transactions with each other in 2015. The present dispute arose from the March to April 2017 transaction, which involved three shipments of Indonesian steam coal, in which Avra Commodities was the Shipper and China Coal was the Buyer.

On 29 March 2017, Avra and China Coal exchanged four emails (the “First Four Emails”) in which Avra started off by offering to sell the cargo. After some negotiations, the parties had agreed on the quantity and quality of the cargo, the price, the laycan and the type of vessel to be deployed. Thereafter, Avra sent a draft contract (“the Draft Contract”) to China Coal for review and confirmation. The Draft Contract included terms which reflected the matters agreed on in the First Four Emails and an entire agreement clause (Clause 26) which included “subject-to-signature” and “Buyer’s nomination” provisos.

On 6 April 2017, China Coal proposed amendments to the Draft Contract. Avra Commodities rejected most of these amendments, insisting that these were either “non-negotiable terms from [the] shipper” or “standard terms as accepted in business confirmation and previous contracts”.

On 18 April 2017, Avra executed the final draft of the Draft Contract but China Coal did not do so. On 4 May 2017, China Coal requested to proceed with only one cargo out of the three, due to the then current market downturn. On 29 May 2017, Avra’s lawyers wrote to China Coal purporting to terminate formally the contract on the basis of China Coal’s “material breaches” or “anticipatory repudiatory and/or repudiatory breach” of contract. Avra filed a lawsuit against China Coal for breach of contract on 7 August 2017, which led to the appeal.

Decision of the High Court

The High Court Judge held that a binding contract of sale and purchase of coal had been concluded on the basis of the First Four Emails, as both parties had the intention to create legal relations and that the agreement was certain and complete. The Judge found that China Coal was liable for about US$1.6 million in damages and interest.

Appellant’s Appeal on Liability

China Coal appealed in respect of the Judge’s decision on liability, placing a special emphasis on Clause 26 of the Draft Contract (the entire agreement clause) in its arguments. The key issues on the appeal were:

1. Whether (and, if so, when) a contract came into existence with China Coal and Avra; and

2. Whether that contract was unenforceable due to uncertainty or incompleteness

Decision of the Court of Appeal

The Court of Appeal said that the dispute turned on the characterization of the First Four Emails and found that parties did not intend to create legal relations on the basis of the emails alone. The emails were part of “one single transaction” governed by Avra’s standard terms, including the subject-to-signature proviso.

The wording of Clause 26 was key to establishing whether a binding contract had existed between the parties. Paragraph 2 and paragraph 3 of the Clause, stated that:

“This Agreement shall only come into force after being signed by both the Buyer and the Seller. ...

“the Buyer’s nomination of a performing vessel shall signify binding acceptance of all the terms and conditions of this agreement, even if the Buyer has not executed this agreement.”

It was clear that the clause provided two absolute situations in which the contract would have existed and that the parties intended to be bound only if the formal contract document was either signed by both parties, or the Buyer (China Coal) had nominated a performing vessel. On the facts of the case, neither of these two were fulfilled by China Coal.

The Court contrasted the fact of this case with those in R1 International Pte Ltd v Lonstroff AG [2015] 1 SLR 521 case. In the latter case, although the parties had a similar process of transacting with each other through email exchanges, the court found that the basic terms agreed upon in the email confirmation became binding when they were sent across and that the language in the cover emails sent by Seller attaching the contract notes did not contain any proviso or imply that the terms of the contract notes would not be binding unless a countersigned copy was returned.

The Court of Appeal found that Avra had insisted upon the standard terms of its formal contract which contained Clause 26. Hence, the Court of Appeal held that Avra could not now allege that China Coal could not rely on Clause 26 in its defence.

The Court also took into account the way that the parties had approached the 2015 dealings, which showed that the exchange of emails was not binding without the execution of a formal contract. In the 2015 transaction, Avra eventually did not perform and China Coal did not take any legal action. Thus, in this present dispute, Avra could not rely on the first four emails to conclude that a binding contract had come into being.

Comment

This case provides a very good insight in to the approach that a Singapore Court is likely to take in order to determine the existence of a binding contract between parties, in the case where a formal contract document was not executed. An agreement on certain terms via the initial email exchange does not necessarily conclude a binding agreement. For a binding contract to come into existence, the intention to create legal relations must be evident. Whether a subsequent act such as countersigning a copy is essential to constitute a contract, depends on all the facts and circumstances of the case.

Additionally, this appeal case also addresses the parties’ usual approach and behaviour to their business dealings, which was very helpful in weighing up the situation. A party which has always been insistent on their standard terms throughout their business dealings (including the transaction that led to the dispute), cannot simply resile from the standard terms at a later stage. It is only reasonable for the other party to rely on the wording of the standard terms to justify their argument in the dispute.