R1 International Pte Ltd v Lonstroff AG [2014] SGCA 56

The Singapore Court of Appeal in R1 International Pte Ltd v Lonstroff AG considered an appeal against the High Court’s decision allowing an application to set aside an interim anti-suit injunction in favour of the appellant and dismissing the appellant’s application for a permanent anti-suit injunction. The Court of Appeal overturned the decision of the High Court, finding that certain standard terms and conditions of the appellant, including an agreement to arbitrate in Singapore, had been incorporated into the contract between the parties. On this basis, the Court of Appeal granted the anti-suit injunction sought.

Background

The parties had entered into an agreement through which the appellant (“Lonstroff”) would purchase natural rubber from the respondent (“R1”) in five separate transactions. The dispute between the parties concerned the second of these transactions wherein Lonstroff took delivery of a shipment though it subsequently notified R1 that the rubber in question emitted a foul odour. R1 did not deny the assertion of a foul odour but instead maintained that as “smell” was not a contractually specific parameter of the rubber, it was not in breach of the supply contract in relation to the second transaction (the “Second Supply Contract”). This is the subject matter of the substantive dispute between the parties and did not arise before the Singapore Court of Appeal in the present matter.

Lonstroff commenced proceedings in Switzerland in March 2013 on the basis that R1 had breached the Second Supply Contract by supplying defective goods. R1 responded by commencing proceedings in Singapore, seeking an anti-suit injunction to prevent Lonstroff from continuing with the Swiss proceedings. R1 claimed that by commencing the Swiss proceedings, Lonstroff was in breach of an agreement to arbitrate any disputes in Singapore. R1 contended that this agreement had been incorporated as part of the terms of the Second Supply Contract. The basis for this contention was a contract note sent by R1 to Lonstroff in connection with the second transaction (the “Contract Note”). The Contract Note for the second transaction stated that the terms of the International Rubber Association Contract (“IRAC”) for “Technically Specified Rubber” would apply. Under the IRAC, disputes are to be resolved by arbitration in London though parties are permitted to agree otherwise. To this end, the Contract Note included a rider specifying that arbitration would be conducted in Singapore. It was not disputed that Lonstroff never countersigned and returned this Contract Note. Lonstroff argued that the Contract Note was never acceded to and as such it was not bound by the IRAC terms and therefore not obliged to arbitrate.

The transactions

The Court of Appeal, in seeking to determine whether the Contract Note containing the Singapore arbitration clause was binding on the parties, placed some emphasis on how each of the five separate transactions were done. There were some disagreements on the details by the parties, but the court concluded the transactions were undertaken in a largely similar manner as follows. First, the parties would negotiate the sale of rubber by e-mail or telephone. After the basic terms had been concluded, R1 would send an “e-mail confirmation” of the order to Lonstroff, setting out the agreed basic terms, and Lonstoff would, in turn, send a similar “purchase order” to R1. R1 would then send on the Contract Note, with a request that it be countersigned and a copy returned. R1 would subsequently deliver the rubber and issue an invoice, which Lonstroff would accept and pay for.

It was noted that Lonstroff did not sign and return the Contract Note as requested for any of the transactions. Lonstroff did request that its own terms and conditions would apply for each transaction beginning with the third but did not challenge the fact that R1’s usual Contract Note continued to be sent for the third, fourth and fifth transactions. These Contract Notes stated that the IRAC terms would apply and contained the rider in favour of arbitration in Singapore.

Judgment

The court had to determine whether the terms in the Contract Note, including the arbitration clause, had been incorporated into the Second Supply Contract. This determination turned on ascertaining the parties’ objective intentions as gleaned from their correspondence and conduct in the light of the relevant background as disclosed by the evidence. The court determined the relevant background to include the industry in which the parties were in, the character of the document in which the terms in question were in and the course of dealings between the parties.

On the facts before it, the court was satisfied that the terms of the e-mail confirmation became binding when they were sent across and that both parties did contemplate that the basic terms of the e-mail confirmation would be supplemented by a set of standard terms. The court came to this conclusion despite assertions to the contrary by Lonstroff for three main reasons: (1) it was commonplace in the international rubber commodities market for parties to contract on the basis of standard terms with specific terms to be determined at a later date; (2) it was improbable that the parties would have expected to contract purely on the basis of the e-mail confirmations given the size and scope of the subject matter of the supply contracts; and (3) it was evident from the parties’ conduct throughout the course of the five transactions that they both in fact contemplated that the basic terms would be supplemented by a set of standard terms. The court noted that Lonstroff’s own actions in seeking to impose its own terms from the third transaction onwards was in fact an acknowledgement that standard terms would supplement the basic terms in the e-mail confirmation.The real question, in the final analysis, was therefore whether this would be Lonstroff’s standard terms or R1’s (as set out in the Contract Note).

On this question, the Court of Appeal eventually found in favour of R1. The court stated that the fact that the Contract Note was not countersigned by Lonstroff and returned as requested by R1 did not affect their contractual force. In this regard, the court pointed out that although silence by one party may not by itself constitute acceptance of the terms sent by the other party, it does not follow from this that silence is fatal to a finding that the terms sent have been accepted. The effect of silence is context-dependent, and a failure to object might, in some circumstances, constitute assent to the incorporation of the other party’s terms.

The court noted with regard to the second transaction - the transaction at issue - that at no point did Lonstroff demur from the applicability of R1’s Contract Note. In these circumstances, the court was satisfied that the payment of the invoice for the Second Supply Contract without protest signified unequivocal acceptance that the terms of this Second Supply Contract were as set out in the relevant e-mail confirmation read with the Contract Note that was sent pursuant to this transaction. For this reason, the court found that Lonstroff was bound by the arbitration agreement in favour of Singapore. The court also further concluded that the most reasonable inference from the circumstances was that Lonstroff accepted it would have been bound by the terms imposed by R1 in the first two transactions and that it was seeking to ensure (unsuccessfully as it turned out) that this would not happen in the third to fifth transactions. In reaching this conclusion, the court took into account the fact that R1 had simply ignored Lonstroff’s attempt to impose its terms, and Lonstroff, in turn, did not come back again with its standard terms or inform R1 that in absence of an agreement on which standard terms should apply, the parties would be deemed to contract on the bare terms of the e-mail confirmation.

Conclusion

In the premises, the Court of Appeal allowed the appeal and granted R1 the anti-suit injunction sought.

The Court of Appeal’s decision has helpfully clarified the circumstances where a party’s standard terms may be incorporated into the contract between the parties, notwithstanding that the other party may not have countersigned these terms, or expressly acknowledged or agreed to these terms. In the light of the decision, it would be prudent for any contracting party, who disagrees with any of the standard terms sought to be incorporated by the other party, to expressly object to such incorporation or appropriately qualify its acceptance of such terms in writing. This is especially important where the industry practice is such that parties contract on the basis of standard terms.

In the event both parties put forward their own set of standard terms after agreeing on the basic terms, it would also be prudent, for the avoidance of doubt, for either party to clarify that, in absence of an agreement on which standard terms should apply, the parties would be deemed to contract on the bare terms as initially agreed