Case Update: Court of Appeal grants permanent anti-suit injunction in R1 v Lonstroff

In an earlier post regarding the case of RI International Pte Ltd v Lonstroff AG[2014] SGHC 69, we wrote about how the Singapore High Court confirmed (albeit in obiter) that the Singapore courts have the power to grant a permanent anti-suit injunction in aid of international arbitration proceedings seated in Singapore. The High Court also expressed a tentative view that such powers would extend to foreign arbitration proceedings as well (see Case Update: Power of the Singapore Court to grant permanent anti-suit injunction in aid of arbitration proceedings).

However, on the facts of the case, the High Court held that there was in fact no arbitration agreement between the parties and that Lonstroff AG (“Lonstroff”) was therefore entitled to commence proceedings in the Swiss Court.

The Singapore Court of Appeal in R1 International Pte Ltd v Lonstroff AG, [2014] SGCA 56 has reversed the decision of the High Court. The Court of Appeal held that “a set of terms containing an agreement to arbitrate in Singapore, which is found in a detailed contract note that was sent by the Appellant [R1] to the Respondent [Lonstroff] shortly after the deal had apparently been agreed, was incorporated as part of the contract between the parties” (see paragraph [3]).

The Court of Appeal noted that “the arguments in the appeal did not focus on the power of the court to grant an anti-suit injunction to support the arbitration”. Nonetheless, the Court of Appeal did grant R1 the anti-suit injunction it had sought on the basis that there was a valid and binding arbitration agreement between the parties (see paragraph [77]).

Background and decision of the High Court

The parties were business entities which had dealt with each other over a series of transactions involving the sale and purchase of rubber. The Plaintiff was R1 International Pte Ltd (“R1”), a Singapore company. The Defendant was Lonstroff, a Swiss company.

The dispute between the parties concerned a certain order of rubber which Lonstroff claimed was defective. R1 refused to offset payment against the cost of delivery and Lonstroff commenced proceedings in the Commercial Court of Canton of Aargovia (“Swiss Court”). R1 then requested the Singapore Commodity Exchange (“SICOM”) to set up an arbitration tribunal to hear the parties’ dispute. However, SICOM refused to do so until the Swiss proceedings were suspended and both parties agreed to refer the dispute to it.

R1 then commenced proceedings in the Singapore courts to obtain an anti-suit injunction to prevent Lonstroff from continuing with proceedings in the Swiss Court. R1 alleged that Lonstroff was in breach of a SICOM arbitration agreement between the parties. On that basis, R1 obtained an interim anti-suit injunction. Lonstroff sought to discharge that injunction while R1 sought to make the anti-suit injunction permanent.

Lonstroff argued that there was in fact no arbitration agreement between the parties and it was therefore entitled to commence proceedings in the Swiss Court. The Singapore High Court agreed.

There were a total of 5 orders placed by Lonstroff to R1. In each of these orders, parties would negotiate commercial terms. Lonstroff would confirm their acceptance of R1’s offer by telephone and this would in turn be confirmed by R1 by email (“Email Confirmation”). Subsequent to that, R1 would then send a pre-signed sales contract after each confirmation (“Contract Note”). However, Lonstroff never signed any Contract Note.

Each Contract Note contained an arbitration clause which provided that,

“Subject to the terms, conditions and rules (including the arbitration clauses and rules) of the International Rubber Association Contract for technically specified rubber in force at date of contract.”

12(C) of the Index to the International Rubber Association Contract (“IRAC terms”) provides that any dispute arising out of the contract shall be settled at the designated centre of arbitration which, in respect of shipments to Europe would be London unless the parties agreed otherwise.

However, it was only in the second and subsequent orders that the sales contract further provided for arbitration in Singapore. This was done through an additional clause right after the arbitration clause. The additional clause provided that, “In the event of any arbitration, it will be conducted in Singapore”. Furthermore, the Contract Note for the fourth and fifth transaction specifically provided that the arbitration would be conducted by SICOM.

R1 sought to argue that there was a SICOM arbitration agreement between parties in the second order either by way of a trade custom or, alternatively, that the IRAC arbitration clause providing for arbitration in London had been incorporated into the contract by a previous course of dealing.

The Singapore High Court rejected both arguments. The High Court held that R1 had not sufficiently proved any alleged trade custom in the rubber trade that the majority of contracts concluded by international rubber traders were based on IRAC terms. Accordingly to the High Court, R1 had “neither adduced evidence on the prevalence of IRAC terms in the rubber trade nor shown that the use of IRAC terms is of an incontrovertible nature” (see paragraph [25]). Furthermore, the High Court considered that Lonstroff was “not an international rubber trader but an end user of the product so it is believable that it may not be aware of the practice of international rubber traders even if one exists” (see paragraph [24]).

The High Court also dismissed the course of dealing argument. Prior to the second order, there had only been a single dealing between parties. The High Court held that one prior transaction was “insufficient to found a course of dealing between [the parties]” (see paragraph [32]). The High Court also noted that there was “no continuity in the transactions” given that from the second order onwards, R1 modified the IRAC arbitration agreement to either an IRAC arbitration in Singapore or a SICOM arbitration instead.

Furthermore, even if there had been a previous course of dealing between the parties, the High Court held that the SICOM arbitration clause would not have been incorporated by reference. This is because the sales contract with the SICOM arbitration clause had only been sent after the rubber had been delivered. The High Court held at [34],

“The SICOM arbitration agreement was not incorporated since the contract had been concluded and performed between both parties before Lonstroff was notified of the SICOM arbitration agreement. There was also no discussion pertaining to the incorporation of the SICOM arbitration agreement during negotiations between the parties. Hence, the SICOM arbitration agreement was not incorporated by reference.”

Decision of the Court of Appeal

The Court of Appeal noted that R1’s “submissions on appeal were very different from those advanced before the [High Court]” (see paragraph [40]). The approach taken by R1 on appeal was that the terms of the Email Confirmation were in turn supplemented by either party’s standard terms which were sent across post the Email Confirmation. In this respect, R1 argued that the relevant agreement pertaining to the second order in dispute (“Second Supply Contract”) was “governed by R1’s standard terms since Lonstroff did not protest the terms but instead paid for the goods delivered” (see paragraph [45]).

The Court of Appeal summarised the law as it related to the incorporation of terms into an agreement as follows:

  • [T]he law adopts an objective approach towards questions of contractual formation and the incorporation of terms” – the court would “ascertain the parties’ objective intentions gleaned from their correspondence and conduct in light of the relevant background as disclosed by the evidence”. The court would look to “the industry in which the parties are in, the character of the document which contains the terms in question as well as the course of dealings between the parties” (see paragraph [51]).
  • The court accepts that “it is not uncommon for parties to first agree on a set of essential terms which the parties may be bound by as a matter of law and on the basis of which they may act, even while there may be ongoing discussions on the incorporation of other usually detailed terms” (see paragraph [52]).

    The effect of which is that a contract based on the essential terms had arisen and the failure to agree on the further negotiated terms does not impugn the contract. However, those negotiated terms, if subsequently agreed to by the parties, in turn “may be more readily found to have been incorporated as part of the contract”.

  • The effect of silence by a party to terms sent by the counterparty is “context-dependent”. The Court of Appeal explained at [53] that, “In many cases, while there may not be actual communication of acceptance, the parties’ positive, negative or even neutral conduct can still evince acceptance”. As such, “a failure to object might in the circumstances be found to constitute assent to the incorporation of the other party’s terms” (see paragraph [54] et seq).

The Court of Appeal held that while the Email Confirmation was binding the moment R1 sent it across to Lonstroff, parties concurrently “contemplate[d] that the basic terms of the Email Confirmations would be supplemented by a set of standard terms” (see paragraph [59]).

  • There was a practice in the international rubber commodities market for parties to contract on the basis of standard terms. R1 had led extensive evidence that it was “market practice in this industry for the parties initially to only discuss the commercial terms of each trade…the specification of the rest of the terms of the transaction was a matter that would generally be followed up by the operations team…subsequently” (see paragraph [60]). In this respect, the Court of Appeal noted that Lonstroff “failed to even make a bare denial of this fact” (see paragraph [61]).

    To the extent that such a practice was known in the industry, then Lonstroffcould and should reasonably have contemplated” that detailed terms would follow the Email Confirmation. This is notwithstanding that prior to the Second Supply Contract, there had only been a single dealing between the parties. The Court of Appeal pointed out that in the proceedings before the Swiss Court, “Lonstroff held itself out to be known in the rubber trade” (see paragraph [62]).

  • It was “improbable that the parties would have expected to contract purely on the bare bones of the Email Confirmations” given the size and scope of the deals. The Court of Appeal considered that the IRAC terms (incorporated into the Contract Note) dealt with “a number of potentially important matters” (see paragraph [63]).

    While the Email Contract was itself a valid and subsisting agreement even without the IRAC terms, the Court of Appeal considered that the parties “would have reasonably expected terms dealing with such matters to be incorporated into each of those [rubber] supply contracts” (see paragraph [64]).

  • It was “evident” from the parties’ conduct that both parties “in fact contemplated that the basic terms would be supplemented by a set of standard terms”. To the extent that Lonstroff had sought to impose its own standard terms, its conduct evinced such an understanding and “showed that Lonstroff recognised that the Email Confirmations, while containing the essential commercial terms, did not contain all the terms of the various supply contracts between the parties” (see paragraph [65]).

    In this respect, the Court of Appeal rejected Lonstroff’s argument that such conduct was a point in its favour. The Court of Appeal also pointed out that since Lonstroff only sought to assert its standard terms in the 3rd to 5th transaction, the “most reasonable inference” was that it accepted it was bound by the terms of the Contract Note in the first two transactions (see paragraph [75]).

In light of the above, the Court of Appeal considered it “clear” that Lonstroff was bound by the terms of the Contract Note in respect of the Second Supply Contract (see paragraph [70]). The Court of Appeal was “satisfied that, on an objective view, 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 (i) the second Email Confirmation read with (ii) the Contract Note that was sent pursuant to this transaction” (see paragraph [71]).

Accordingly, Lonstroff was bound by the arbitration agreement in favour of Singapore notwithstanding that (a) Lonstroff did not sign the Second Contract Note (see paragraph [68]) and (b) that Contract Note contained the phrase “please return a signed copy accepted” (see paragraph [69]). In this respect, the Court of Appeal held that in light of “an objective assessment of all the facts and circumstances”, R1’s request that the Contract Notes be counter-signed and return “did not affect the contractual force of the unsigned Contract Notes”. Furthermore, the preamble in the Contract Note (“we confirm having sold to use”) and its formulation in the past tense, “suggest[ed] that R1 was merely seeking to record the terms on which it thought it was dealing with Lonstroff” (see paragraph [76]).

 Conclusion

The Court of Appeal stressed that cases involving the incorporation of terms into an agreement were necessarily heavily dependent on the factual matrix, including for example, industry practice. Nonetheless, this case demonstrates the importance of ensuring that negotiated terms are captured in an agreement that both parties are amenable to. This would be far more prudent than leaving it to chance in a battle of the forms and/or risking important terms being left unresolved.

Separately, in a previous post, we had discussed the UK Supreme Court decision of Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35. The UK Supreme Court held that the English courts have the power to issue anti-suit injunctions in support of arbitration agreements where proceedings have been brought in a court forum which is outside of the EU (Brussels/Lugano regime). This is the case even where the applicant for the anti-suit injunction has not commenced, and has no intention or wish to commence, any arbitration proceedings.

Save for the obiter observations made by the High Court in RI International Pte Ltd v Lonstroff AG[2014] SGHC 69, this issue remains unaddressed by the Singapore courts.

About Shaun Lee

International Dispute Resolution and Arbitration lawyer. Fellow of the Chartered Institute of Arbitration. Panel of Arbitrators and Panelist for DNDR at the KLRCA.
This entry was posted in Arbitration, Singapore and tagged , , , , . Bookmark the permalink.

2 Responses to Case Update: Court of Appeal grants permanent anti-suit injunction in R1 v Lonstroff

  1. Pingback: SLW Commentary – Arbitration in 2014: Looking Ahead to 2015 | Singapore International Arbitration Blog

  2. Pingback: Singapore Law Gazette – Arbitration in 2014: Looking Ahead to 2015 | Singapore International Arbitration Blog

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