“It really depends on the facts and varies from case to case” is a lawyer’s answer to this often-asked question, albeit this response is very often not what the client wants to hear as it appears inconclusive and difficult to apply in the day to day operations of a trader.
However, the commercial reality is also that contracts come in all shapes and sizes, and parties may have every different ways of dealing with each other. This diversity results in a very fact-sensitive examination in order to ascertain if an agreement is legally binding contract.
Such a reality has been acknowledged in the recent Court of Appeal decision in the case of China Coal Solution (Singapore) Pte Ltd v Avra Commodities Pte Ltd [2020] SGCA 81.
At [2] of the said judgment, the Court of Appeal held on this issue as follows:
“The decisions sometimes go one way and sometimes the other and the main explanation for differing outcomes in what seem to be the same factual situations is that in fact they are not the same once considered in sufficient detail. Thus, to determine any of these cases the utmost attention has to be paid to the facts…”
In this month’s edition of Notes from the Bar, we discuss the Court of Appeal decision of China Coal Solution (Singapore) Pte Ltd v Avra Commodities Pte Ltd [2020] SGCA 81 (the “Judgement”), where we acted for the successful appellant, and the implications of this decision on the determination of when is a contract binding on the parties.
Facts of the case
- The transaction that led to the parties’ dispute in the Judgement
By way of background, both China Coal Solution (Singapore) Pte Ltd (“China Coal”) and Avra Commodities Pte Ltd (“Avra Commodities”) are companies that trade in coal.
The dispute between the parties centred around the issue of whether the exchange of four emails on 29 March 2017 constituted a binding contract between the parties for the sale and purchase of a shipment of 185,000mt of Indonesian steam coal.
The Judgment at [5] summarised the exchange of the said emails:
“…The exchange in question commenced in the morning of 29 March 2017 at around 11.00am with an e-mail from Avra to China Coal offering to sell the latter about 185,000mt of Indonesian steam coal. China Coal responded at about 2.00pm with a counter-offer which included a revised price. In its reply at about 2.20pm, Avra accepted the price offered for gearless vessels but put in a counter-offer regarding the price for geared vessels. At 4.14pm, China Coal sent the last of this series of e-mails stating “Confirm your good offer as below”. Essentially, by the First Four E-mails, the parties agreed on the quantity and quality of cargo, price, laycan and type of vessel to be deployed. The first of these e-mails also indicated that in respect of sampling or analysis, an “Independent Surveyor [was] to be mutually agreed”…”
After the exchange of emails was completed, in the evening of 29 March 2017, Avra sent China Coal a draft contract entitled “FOB Coal Sale Agreement” containing its standard terms (“the Draft Contract”) for China Coal’s “review/confirmation”.
In particular, the Draft Contract contained clause 26, which reads as follows:
“26. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the Buyer [ie, China Coal] and the Seller with respect to the subject matter herein and supersedes all previous writings, understandings, negotiations, representations or agreements with respect thereto, except where provided otherwise.
This Agreement shall only come into force after being signed by both the Buyer and the Seller. Any amendments to this Agreement shall be in the form of an addendum to the Agreement and shall come into force only after both Parties will have signed the addendum, where after it will form an integral part of this Agreement.
In spite of the foregoing and notwithstanding the Buyer’s obligation to return the Agreement duly signed, 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.”
(emphasis ours)
Between 20 March and 18 April 2017, the parties discussed the details of the Draft Contract. All the terms were finally agreed and Avra executed the final draft of the Draft Contract on 18 April 2017 and send the same to China Coal asking the latter to execute the final draft and to return a scanned copy to Avra. China Coal however did not execute the Draft Contract.
The trial judge found that there was a binding contract between the parties by virtue of the exchange of the 4 emails on 29 March 2017. However, the judge appeared to have omitted to consider the effect of clause 26 in the draft Contract on the said exchange of emails and the effect of the prior course of dealings between the parties.
- Prior course of dealings between the parties
Prior to the transaction that give rise to the dispute between the parties, there were 3 transactions that took place between China Coal and Avra where Avra used its standard form contract containing clause 26. The two transactions between the parties in 2016 and 2017 were uneventful but the 2015 dealing was relevant to the dispute between the parties. The Court of Appeal at [14] of the Judgment summarised the gist of the relevance of the 2015 dealing:
“In the 2015 dealing, the parties’ positions were reversed – it was Avra who failed to execute the draft formal contract and China Coal who insisted that the parties had nevertheless entered into a concluded contract. Avra informed China Coal that it was unable to meet the agreed laycan due to its supplier’s difficulties, and proposed a new laycan which would delay delivery by 15 days. China Coal did not accept the new laycan, replying instead that Avra’s delay had caused China Coal to breach its own delivery obligations in an onward sale and that its legal team would “follow [up on] the issue” with Avra soon. But China Coal did not follow up with any legal action against Avra on the 2015 dealing.”
The Court of Appeal’s Decision
The Court of Appeal, on the facts of the dispute between the parties, found that there was no binding contract formed based on the exchange of the four emails on 29 March 2017.
In the Judgment, the Court provided a useful summary of the legal principles to be considered in relation to the determination of the binding nature of an agreement at [24] of the Judgment:
“The inquiry into the formation of a contract is an objective one. The court looks at the parties’ objective intentions as disclosed by their correspondence and interactions and in the light of the relevant background against which the contract has allegedly been made. This includes the industry the parties are in, the character of the documents allegedly containing the contract as well as the course of dealings between the parties. In order to conduct the objective assessment, the whole course of the parties’ negotiations, both before and after the alleged date of contracting, must be considered. Finally, even if the parties have reached agreement on all the terms of the proposed contract, they may nevertheless intend that the contract shall not become binding until some further condition like the execution of a formal document has been fulfilled.”
(emphasis ours)
At [29] of the Judgment:
“Clause 26 is not a plain vanilla entire agreement clause, as would have been the case had it only contained paragraph 1. The parties saw fit to provide, by way of paragraphs 2 and 3, for two exclusive situations in which the contract would come into existence (that is, by signature, or by the buyer’s nomination of a performing vessel). Since the parties made careful provision for the mode of operation of their contract, the clear wording of cl 26 in its entirety should be upheld.”
One major factor that led to the Court of Appeal overturning the trial judges conclusion was the fact that it was Avra’s standard form that Avra had insisted on and in refusing to depart from their standard form, they must accept the entire package that comes with the said standard form.
Further, the Court of Appeal took the view that Clause 26 of the draft Contract is very specifical and clearly worded. It is clear from the wording that the parties had elected to have a specific method of operations for the draft Contract – that the contract comes into operation when it is signed by both parties or when China Coal nominates a vessel to receive the cargo. In doing so, the Court of Appeal acknowledged that business transactions can proceed at speed; and parties can choose to include clauses worded like clause 26 to set out the nature of their agreement and eliminate any possibility of a short form contract was intended to supercede the full-length contract eventually concluded.
The Court of Appeal’s comments in this regard are found at [31] of the Judgement:
“whether a subsequent act such as countersigning a copy is essential to constitute a contract depends on all the facts and circumstances. In our judgment, a material fact here is the wording of cl 26, which makes it clear that parties intended to be bound if and only if the formal contract document was either signed by both parties, or the buyer (ie, China Coal) nonetheless nominated a vessel to receive the cargo. As we pointed out to counsel for Avra during the hearing, business transactions can proceed at speed. Parties may choose to include clauses like cl 26 precisely to apply the brakes, by dispelling any notion that they intended for a short form contract (to fill the apparent legal void) that would be superseded by any full-length one eventually entered into.”
The Court of Appeal also held that the manner in which parties dealt with each other in this case was of assistance. In this regard, the Court of Appeal held at [35] of the Judgement:
“Fourth, how the parties approached the 2015 dealing is of some assistance. Although the Judge found this to be equivocal and counsel for China Coal conceded that it was not the best of evidence to rely on, we consider that the 2015 dealing, at minimum, sheds light on the parties’ general attitude or approach towards their mode of contracting. Avra no doubt did not expressly allege that the exchange of e-mails was not binding without the execution of a formal contract, but the fact of the matter is that it did not perform. Nor did China Coal take any follow-up legal action. Parties appear to have preferred to let sleeping dogs lie, save for keeping alive the possibility of a quid pro quo in future transactions should their positions be reversed”
(emphasis ours)
Our Comments
Firstly, we need to highlight that it is legally possible to have a legally binding contract based solely on an exchange of emails. The fact that one party does not sign on the contract document on its own does not affect the legally binding nature of the contract.
However, such a contract would not be regarded as legally binding if the parties, by their conduct or words used in their exchange, shows that something more needs to be done in order to render the contract as legally binding, for example, if it is expressly provided that it is not binding unless it is signed.
Therefore, if your intention is that you do not wish to be legally bound based on your email exchange only, then you must say so expressly and make your intentions clear from the start.
Secondly, it is very common for traders to rely on their standard form templates when contracting. While this can be helpful as most of the important clauses are probably contained in the standard form template, the risk is that sometimes this may be done blindly without understanding the effect of some of the clauses in the standard form template.
Before relying on your standard form template, it would be wise to review the template first and ensure that all the terms are applicable, including the boilerplate clauses which most people tend to ignore.
Please do not hesitate to contact us should you have any queries relating to the above.
Photo by Scott Graham on Unsplash
