TT Talk - Legal eagle: contract certainty
An interesting case from Singapore, in circumstances where no formal contractual relationship had been formed. It acts as a reminder that it is always prudent for all parties to a transaction to be certain of the terms that will apply and ensure that formalities are followed.
Avra was shipper and China Coal was buyer of three shipments of Indonesian steam coal. The parties exchanged emails, agreeing quantity, quality, price and vessel details. Avra then sent a draft contract to China Coal containing its standard terms, which it made clear were non-negotiable, and followed this by a signed final draft. China Coal did not execute this final draft.
China Coal requested to proceed with only one cargo out of the three, due to market downturn, and claimed that it was not contractually required to proceed with all three because the emails were insufficiently certain and complete to give rise to a contract. Alternatively, it alleged that it had no intention to create legal relations when the emails were exchanged. Avra resisted this by issuing proceedings against China Coal for material breach, and anticipatory or repudiatory breach, of contract.
The Singapore High Court at first instance held that a binding contract of sale and purchase had been concluded on the basis of the emails. Both parties had the intention to create legal relations, and the agreement was certain and complete. China Coal was found liable for around US$1.6 million in damages and interest.
China Coal appealed to the Singapore Court of Appeal, which found that the parties did not intend to create legal relations on the basis of the emails. The emails formed only part of a transaction, governed by Avra’s standard terms, on which Avra had insisted. One of these terms was an “entire agreement clause”, which stated:
“This Agreement shall only come into force after being signed by both the Buyer and the Seller”; and “the Buyer’s nomination of a performing vessel shall signify binding acceptance of… this agreement, even if the Buyer has not executed this agreement.”
The clause therefore contemplated two alternative conditions before the contract came into existence – either the contract had been signed or the buyer had nominated a performing vessel. Neither of these conditions had been met.
The Court found support for its view from the previous course of dealings in three transactions between the parties as commodity traders over two years. In particular, Avra in one transaction had itself declined to perform in similar circumstances, although this did not result in proceedings and there was some doubt whether Avra had relied on an argument that no contract had come into existence.
Clearly it is legally possible to have a binding contract based solely on exchange of emails, and without both parties executing the contract document. But this can be overturned by wording and conduct, as was the case here.
This case indicates that (in Singapore) the intention to create legal relations must be evident for a binding contract to come into existence. Conditions necessary to constitute a contract depend on the facts of each case, which may sometimes require detailed examination. Additionally, a Singapore court will look at the past business conduct of the parties.
CHINA COAL SOLUTIONS (SINGAPORE) PTE LTD v AVRA COMMODITIES PTE LTD
 SGCA 81
We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.
We look forward to hearing from you.
Risk Management Director, TT Club
Risk Management Director
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TT Talk - Legal eagle: the power of choice
The importance and impact of careful drafting of contracts is exemplified in this UK Supreme Court decision. While the ruling brings clarity to English law, it represents congruence with other jurisdictions. It is most prudent to be deliberate in documenting law and jurisdiction choices in contracts.