SLW COMMENTARY Issue 3/Nov 2o18

Transcription

1 SINGAPORE DAILY LEGAL NEWS SLW COMMENTARY Issue 3/Nov 2o18 The Past becoming the Present: Incorporating Terms by a Course of Dealing Vinmar Overseas (Singapore) v PTT International Trading Pte Ltd [2018] SGCA 65 TAN KAH WAI The playwright Eugene O Neill once wrote, The past is the present, isn t it? It s the future too. 1 This quotation seems strangely appropriate when one considers the following legal scenario: Contracting parties disputing as to whether a term is incorporated into their contract by virtue of a prior course of dealing between themselves. Apart from boldly restating the law on exclusive jurisdiction clauses, the Singapore Court of Appeal in Vinmar Overseas (Singapore) v PTT International Trading Pte Ltd ( Vinmar ) 2 has also sought to state the law on contractual incorporation by a course of dealing. This article shall critically examine the court s treatment of this less discussed area of contractual incorporation. Facts 1. The facts are briefly stated as follows. Vinmar is a Singapore-incorporated company that trades in chemical commodities. PTT is a company that trades oil and petroleum products. Vinmar s representative met PTT s representative to discuss the terms for Vinmar to purchase styrene monomer from PTT. PTT sent an to Vinmar known as the Deal Recap ( Deal Recap ). The Deal Recap did not include any dispute resolution clauses PTT sent an to Vinmar that enclosed a Supply Agreement ( Supply Agreement ). In that , PTT referred to this Supply Agreement as a draft contract and stated that it would revert back with a final contract in due course. In this Supply Agreement, one of the provisions was the Exclusive Jurisdiction Clause. 4 ( EJC ) This EJC provided that any dispute shall be Fourth-Year Undergraduate, NUS Law and concurrent LLM student in King s College London. I would like to thank Associate Professor Paul Myburgh, Allen Sng Kiat Peng, Timothy Chan, and TG Khoo for their generous comments on earlier drafts of this article. All errors remain mine alone. 1 Eugene O Neill, Long Day s Journey Into Night, Yale University Press, 1989 at 75 2 [2018] SGCA 65 ( Vinmar ) 3 Id at [11] 4 Id at [15] 1

2 referred to and finally resolved by High Court of England sitting in London 5 Both the Deal Recap and the Supply Agreement did not include an execution page for the parties signature. 3. A dispute eventually arose between the parties over the cargo of styrene monomer. 6 PTT commenced a suit against Vinmar before the Singapore High Court, claiming that Vinmar had wrongfully terminated the Sales Contracts and caused PTT to suffer loss. 7 Vinmar unsurprisingly applied for a stay of the proceedings here by relying on the exclusive jurisdiction clause in the Supply Agreements. PTT s response was that the EJC was not part of the contract since all the terms were in the Deal Recap Prior to this particular contract, Vinmar entered into 4 sales contracts to purchase chemical commodities. 2 were with PTT. 2 were with PTT Public. PTT is a subsidiary of PTT Public. 9 These contracts were all concluded in the same manner as stated above In the context of a stay of proceedings, a preliminary issue would be whether the exclusive jurisdiction clause was part of the contractual agreement between the parties. Vinmar as the applicant for this stay of proceedings had the burden of proof to prove a good arguable case on this The learned Assistant Registrar and the High Court both held that the exclusive jurisdiction clause was expressly agreed as a written term but declined to grant a stay of proceedings. 12 Vinmar appealed against the High Court s decision. Before the Court of Appeal, Vinmar s counsel had raised an additional argument that the exclusive jurisdiction clause in the Supply Agreements could be incorporated into the disputed sales contract. 13 Decision 7. Steven Chong JA delivered the 5-judge Court of Appeal s unanimous judgment. It was first held that there was no express agreement to the Written Terms. 14 Chong JA then considered the issue of incorporation at length and accepted Vinmar s argument that the EJC was incorporated into the sales contract by virtue of their past dealings. 8. In Chong JA s judgment, the law on incorporation by a course of dealing in Singapore is set out as follows. First, the court approved Professor Furmston s test as the basis for incorporating terms through a course of dealing or past practice. 15 According to Professor Furmston, the test is one where: 5 Id at [10] 6 Id at [16]-[29] 7 Id at [30] 8 Id at [31(b)] 9 Id at [7] 10 Id at [9] 11 Id at [41] 12 Id at [32(a)] 13 Id at [34(a)(ii)] 14 Id at [49]-[51] 15 Id at [53]-[54] 2

3 Whether at the time of contracting, each party as a reasonable person was entitled to infer from the past dealings and the actions and the words of the other in the instant case, that the [term][was] to be a part of the contract. (emphasis added in original judgment) Second, Chong JA observed that it is a high threshold for the parties to be entitled to infer a term s incorporation into the contract. 17 The court approved Donaldson J s remarks in SIAT Di Del Ferro v Tradax Overseas SA 18 ( Tradax ) as stated below: Would the parties have agreed that a particular term formed part of the contract if they were reasonable men looking at the matter objectively in the knowledge that no adverse consequences could flow from the answer...the term will only be contractual if the parties answer would have been a definite Yes, Possibly will not do. 19 [emphasis added in original judgment] 10. Chong JA then raised the following legal propositions: (1) In general, it is easier to establish incorporation where both parties are in business as opposed to where one is a consumer. 20 (2) A term may be more easily incorporated if it is not unusual or unreasonable 21 (3) The factors relevant to this analysis would also include the number of previous contracts, how recent the contracts were made, whether they were made in a consistent manner 22 (4) A party may have earlier transactions not with the counterparty but with a different company in the same group of companies. These earlier transactions with these counterparties may also be taken into consideration in determining whether a term can be incorporated In the Court of Appeal s judgment, there were several reasons for why Vinmar had established a good arguable case that the EJC was incorporated into the disputed contract. Chong JA held that the test for incorporating terms by a course of dealing was satisfied. The reasons as to why this test is satisfied were placed into 4 different categories: (1) Having held that the contracts concluded by different entities in the same group of companies would be relevant, there were 4 previous contracts in the one-year period. All 4 contracts had included the EJC Michael Furmston (gen ed), The Law of Contract, 6 th edition, LexisNexis, 2017 at Vinmar at [54] 18 [1978] 2 Lloyd s Rep 470 at Vinmar at [54] 20 Id at [58(a)] 21 Id at [58(b)] 22 Id at [55] 23 Id at [56]-[57] 24 Id at [60] 3

4 (2) All 4 contracts shared the same subject matter of polymer styrene. They were concluded in the same manner. 25 (3) The parties, in this case, were commercial parties that negotiated at arm s length. The EJC was not an onerous or unusual term, in fact, it is commonly found in international sales agreements. 26 (4) There was no evidence that the parties understood the previous course of dealing as one that did not apply to the current transaction. In fact, there was contrary evidence to suggest that the parties had actually acted in accordance with that course of dealings. They had understood that the current contract was made on that basis The Court of Appeal then proceeded to restate the law on exclusive jurisdiction clauses. 28 It chose to deviate from its previous ruling in The Jian He 29 and held that the merits of the case are irrelevant in determining a stay of proceedings. The Court of Appeal thus allowed Vinmar s application. Comment A brief introduction to Incorporation 13. Incorporation is concerned with whether a clause, usually from an external document, is included in the contractual agreement between the parties. This is a difficult yet vital issue in commercial practice. 30 Commercial parties often seek to incorporate a wide range of clauses into their contracts. This could range from clauses excluding or limiting liability to dispute resolution provisions such as the EJC in Vinmar. 14. There are generally three methods for incorporating contractual terms. 31 However, our focus is on what has been academically described as the least satisfactory 32 option: incorporating terms by virtue of a course of dealing. This refers to situations where clauses are incorporated by virtue of being part of a regular series of past arrangements between the parties The reason for why this is the least satisfactory method for incorporation is obvious. It is difficult to predict with any certainty whether a term can be incorporated through this method. Some textbooks have highlighted this difficulty by noting the cases where a similar number of prior contracts do lead to different conclusions The Court of Appeal s decision is commendable in shedding some light on the law of incorporating contractual clauses through a previous course of dealings. 25 Id at [61] 26 Id at [62] 27 Id at [64] 28 Id at [113] 29 [1999] 3 SLR(R) 432; [1999] SGCA Ewan McKendrick, Contract Law: Text, Cases, and Materials, 8 th ed, Oxford University Press, 2018 at See Wartsila v Lau Yew Choong [2017] 5 SLR 268; [2017] SGHC 76 where Belinda Ang J at [105] stated that the three methods are incorporation by signature, incorporation by way of reasonable notice and incorporation via a course of dealing. 32 Ewan McKendrick, Contract Law: Text, Cases, and Materials, 8 th ed, Oxford University Press, 2018 at Richard Lawson, Exclusion Clauses and Unfair Contract Terms, 12 th ed, Sweet & Maxwell Ltd, 2017 at See for instance Mindy Chen-Wishart, Contract Law, 4 th ed, Oxford University Press, 2012 at

5 That being said, 3 short observations could be made over the court s decision. First, it is debatable as to whether the legal test in Vinmar is or should be a test of contractual incorporation or implication. Second, the judgment throws into doubt the long-held belief that consistency of a prior course of dealing is a necessary prerequisite for incorporating contractual terms. Last but not least, the court s decision displays a clear message that contrary to one s misconceptions, the law on incorporation is not wholly dependent on the number of contracts. These observations are fully elaborated below. The legal test in Vinmar: Incorporation or Implication? 17. As mentioned previously, the Court of Appeal introduces the test for incorporating contractual terms as one of whether each party is entitled to infer that a term would be included in the contract from the past dealings. It then proceeds to endorse Donaldson J s remarks in Tradax as suggesting that this is a high threshold. 18. However, if we closely examine Donaldson J s decision in Tradax, he was stating a different legal test altogether. According to Donaldson J, his formula is that an officious bystander will ask both parties if they have intended that this particular term is part of the contract. Both parties, as reasonable men (or women), will look at the matter. They understand that no adverse consequences would flow from their answers. It is only if both parties answer with a definite Yes then would such a term be incorporated. The word possibly would not do Donaldson J s test in Tradax is remarkably similar to the officious bystander limb in the test for implication of terms by fact. In the House of Lords decision of McCutcheon v David Macbrayne Ltd ( McCutcheon ) 36, Lord Reid had introduced a formulation that is similar to the Court of Appeal s decision in Vinmar: If two parties have made a series of similar contracts each containing certain conditions, and then they make another without expressly referring to those conditions it may be that those conditions ought to be implied. If the officious bystander had asked whether they had intended to leave out the conditions this time, both must, as honest men, have said of course not The confusion about implication and incorporation by a course of dealing is further compounded by decisions that refer to incorporation as an exercise of implication, such that the court is supposedly making a finding of incorporation by implication SIAT Di Del Ferro v Tradax Overseas SA [1978] 2 Lloyd s Rep 470 at [1964] 1 WLR 125 (HL) ( McCutcheon ) 37 Id at See for instance Press Automation Technology Pte Ltd v Trans-Link Exhibition Forwarding Pte Ltd [2003] 1 SLR(R) 712; [2002] SGHC 286 at [39] 5

6 21. Swanton once suggested that the references to officious bystander in McCutcheon and Tradax are all just a colourful way to draw attention to the general principle that the courts will always take an objective approach towards incorporating contractual terms. 39 That suggestion seems overly dismissive. There is no indication in both these cases to suggest that Lord Reid or Mr. Justice Donaldson were merely being descriptive and not setting down any hard rules. 22. So what then is the Court of Appeal s test here in Vinmar? Is it a question of whether parties are entitled to infer a term s incorporation or is it really the officious bystander test at play? The Court of Appeal has not explicitly addressed this specific question. However, the provisional answer seems to be the entitlement to infer test. This could be surmised from its analysis on the facts and the rather conspicuous omissions of any references to an officious bystander in the court s judgment. 23. In respect of what the law currently is, it is crucial that one understands that there are both conceptual and practical differences between incorporation by a course of dealing and implication of terms. 24. Let us first briefly discuss the conceptual differences. Implication of terms by fact is an internal inquiry. It asks whether the court can move beyond the normal literal interpretation of the express terms and make the contract workable because of some gap that the parties have not contemplated. On the other hand, incorporation by a course of dealing is an external inquiry. It deals with whether the specific provisions in a particular notice or document are intended to bind the contracting parties. 25. With respect to the practical differences between incorporation and implication, the main thing that currently sets the officious bystander test apart from the entitlement to infer test is the requirement of necessity. In the leading Singapore Court of Appeal s decision of Sembcorp Marine v PPL Holdings 40, Menon CJ adopted Phang & Goh s analysis that for the officious bystander test, only if a court thinks that the parties would, out of necessity for business efficacy, suppress the official bystander s suggestion with those famous words, would the court imply the term concerned (emphasis added in original judgment) However, in the entitlement to infer test, the requirement of necessity is not present. The real issue in that test is whether the facts taken as a whole, are such that the parties continuation of this past course of business can generate an inference that they had intended the term be included in this current transaction. 42 Chong JA s reference to Tradax for the high threshold should therefore not be seen as imposing the officious bystander test. It is what it says. 39 Jane Swanton, Incorporation of Contractual Terms by a Course of Dealing ( ) 1 Journal of Contract Law 223 at [2013] 4 SLR 193; [2013] SGCA Id at [92] 42 See Lord Taylor s judgment in Circle Freight International v Medeast Gulf Exports Ltd [1988] 2 Lloyd s Rep 427 at 433 6

7 If there is doubt as to what the parties had clearly intended, then the court would refrain from incorporating the terms altogether. 27. This still leaves us with the question. We can understand that currently there are theoretical and practical differences between implication and incorporation. But as a matter of what the law ought to be, is the Court of Appeal correct in adopting the entitlement to infer test? 28. Proponents of the entitlement to infer test would assert that adopting the officious bystander and its necessity standard would render most terms unable to be incorporated. If we simply transplant the officious bystander test to incorporation, the presence of the provision that one party seeks to incorporate shows that there is already no true gap to be filled through implication. Furthermore, not all provisions are considered necessary for business efficacy. For instance, the contract in Vinmar could still have been performed without the exclusive jurisdiction clause. To impose the requirement of necessity also renders incorporation of terms by a course of dealing fundamentally inconsistent with the two other methods of incorporation, which have no such requirement. 29. On the other hand, proponents for the officious bystander test may adopt the following argument. One can sympathize with the need to keep incorporation and implication conceptually distinct. Yet, there is nothing objectionable in imposing a standard of necessity. As a matter of policy, why should the law be so eager to allow parties to use incorporation here when they could have simply used an express incorporation term? If one follows this argument, then one may even question if we should even have incorporation by a course of dealing. 30. It is submitted that the arguments for both sides are finely balanced. It displays the ideological tensions between pragmatically striving to uphold commercial bargains and the view that commercial parties should themselves be more conscientious and diligent in their legal drafting. The court s decision in Vinmar by declining to refer to the officious bystander test, has leaned towards the former view. However, it would suffice to say that it would be greatly appreciated if the Court of Appeal could further clarify its views on this issue. The consistency of prior dealings - factor or requirement? 31. What do we really mean by consistency of prior dealings here? While the court in Vinmar did not address this question, consistency here should refer to only whether the past practice itself is internally consistent. In other words, we do not refer to the differences between the present disputed contract and the past transactions. 32. The House of Lords decision in McCutcheon serves to illustrate this point. In McCutcheon 43, the shipping company intended to incorporate the exclusion clause in a risk note into the claimant s contract. The House of Lords held that 43 [1964] 1 WLR 125 (HL) 7

8 there was no consistent course of dealing but for very different reasons. Lords Guest 44, Pearce 45 and Hodson 46 held that the inconsistency lies in the fact that the present disputed contract was an oral contract but the past practice was on the basis of written contracts. However, Lord Reid thought it was only inconsistent because the past practice itself was inconsistent. The claimant was only occasionally asked to sign the risk note It is submitted that Lord Reid s view in McCutcheon is correct and should be followed. 48 To adopt the majority s approach in McCutcheon would render incorporation by course of dealing almost impossible since it would exclude cases where the terms have been properly introduced in past contracts but not in the instant transaction The Court of Appeal in Vinmar has suggested that the consistency of prior dealings is a relevant factor in the analysis. However, with no pun and disrespect intended, this actually is inconsistent with the weight of past precedents 50 and academic opinion 51 which all take the view that consistency is necessary before the term in question can be incorporated. 35. It is submitted that consistency of prior dealings or past practice should be a requirement for incorporating a contractual term. Let us take the example of parties had contracted for a mere one-off dealing. In the absence of reasonable notice or signature, it would be difficult to see how a reasonable person could safely infer a term s incorporation. 52 This is especially if one takes into account the Court of Appeal s observation that the threshold is a high one. In other words, how would it be possible for the parties to actually say, Yes, we do want the term to be included, when the past practice itself is inconsistent. At best, the parties may answer possibly, but as Chong JA already held, the word possibly is not a sufficient answer for a term to be incorporated. Incorporation is not a game of numbers 36. How many contracts must there be and how frequent must the parties have contracted for there to be a course of dealing? Academics (and probably law students) have lamented that there are no sufficient guidelines in applying this particular factor Id at Id at Id at Id at Ewan McKendrick, Contract Law: Text, Cases and Materials, 8 th ed, Oxford University Press, 2018 at See Elizabeth Macdonald, Incorporation of Contract Terms by a Consistent Course of Dealing (1998) 8 Legal Studies 48 at See for instance McCutcheon at 138 (Lord Pearce), MGA International v Wajilam Exports (Singapore) Pte Ltd [2010] SGHC 319 at [93]; R1 International v Lonstroff AG [2014] 3 SLR 166; [2014] SGHC 69 at [32]. 51 See for instance Andrew Phang Boon Leong (gen ed.), The Law of Contract in Singapore 2 nd ed, Academy Publishing, 2012 at and Michael Bridge, The Sale of Goods, 3 rd ed, Oxford University Press, 2014 at As was held by Venning J in the New Zealand Court of Appeal decision in Steel Co v Pipes NZ Limited [2016] NZCA 175 at [60] 53 Phang & Goh, Contract Law in Singapore, Wolters Kluwer, 2012 at [1107]-[1109] 8

9 37. According to the Court of Appeal here in Vinmar, the answer to this lament is simple: there is no fixed number. 54 Chong JA then proceeded to list several authorities that pointed towards different conclusions: (i) In Kendall v Lillico 55, 3 to 4 transactions each month for 3 years were sufficient. (ii) In Circle Freight International Ltd v Medeast Gulf Exports Ltd 56, 11 transactions in 6 months were also held to be sufficient (iii) However, in Hollier v Rambler 57, 3 or 4 transactions over 5 years were insufficient to constitute a course of dealing (iv) Chong JA also cited Transformers & Rectifiers Ltd v Needs Ltd 58, for the proposition that 3 or 4 occasions over a relatively short period may suffice However, as Swanton observed in her article, there should not even be guidelines over the number of contracts since incorporation here is always a question of what each party led the other to believe were the terms he or she was prepared to transact upon in the future It is also submitted that as a practical point, less weight or focus should be given to the mere number of prior contracts. The Court of Appeal s listing of authorities might seem unhelpful but it actually serves to underline one point that it is dangerous for parties to rely on the number of contracts as a key argument for or against incorporation. Incorporating contractual terms is always a question of fact and degree. It is not simply a game of numbers. 40. The courts have in fact disregarded the number of previous contracts and examined the commercial realities of the factual matrix. In a previous Court of Appeal decision in Trans-Link v Wadkin Robinson Asia Pte Ltd 61, the question was whether the standard freight forwarding association trade terms could be incorporated into the contract. The appellants had submitted that there was a course of dealing by relying on the two prior contracts. However, Thean JA considered that there was really no evidence of a sufficient course of dealing since the two prior contracts were all effectively part of one entire commercial transaction This focus on commercial reality also applies inversely. Even if the counterparty in the earlier transactions is a different party, a sufficient course of dealing may still be established if that party belongs to the same group of companies as the party in the current contract. 63 The court would still take that into account in establishing whether that is a sufficient course of dealing. This was exactly what happened in Vinmar. To hold otherwise would mean that 54 Vinmar at [55] 55 [1969] 2 AC [1988] 2 Lloyd s Rep [1972] 2 QB [2015] EWHC 269 (TCC) at [42(ii)] 59 Vinmar at [57]. That being said, Chong JA did not indicate whether he approved or rejected that statement. 60 Jane Swanton, Incorporation of Contractual Terms by a Course of Dealing ( ) 1 Journal of Contract Law 223 at [1996] 1 SLR(R) 424; [1996] SGCA Id at [22] 63 Vinmar at [56]-[57] 9

10 many commercial transactions would be unnecessarily frustrated. The court is taking a contextual objective analysis, and a reasonable commercial party at the time of contracting, may not be concerned with the legal niceties of separate legal personality. Conclusion 42. While there may be some debatable aspects of its statement on the law, the Court of Appeal s message in Vinmar remains clear. At the end of the day, contractual incorporation by a course of dealing remains a highly intensive question of fact and degree. That was the legal position in the past. It is the legal position at present. It is also likely to be the legal position in the future. About SLW Commentaries SLW Commentaries are short reviews or commentaries of the latest Singapore Supreme Court judgments, taking an analytical and big picture approach on legal developments. Although consisting primarily of commentaries on Supreme Court judgments, SLW Commentaries also include well-written articles on recent legislative changes. Interested contributors may write to SLW for more information. 10