The Incorporation of Standard Terms into a Concluded Agreement

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1 The Incorporation of Standard Terms into a Concluded Agreement Introduction A contracting party s standard terms and conditions often form a vital part of its business practice. However, its incorporation into agreements is sometimes less than direct. In R1 International Pte Ltd v Lonstroff AG [2014] SGCA 56, the Singapore Court of Appeal examined when standard terms can be incorporated into an agreement which has already been concluded. The parties in this case had entered into a series of agreements for the supply of rubber. The basic terms would first be negotiated by telephone or , followed by an confirmation. The Appellant would subsequently send a contract note, which included a provision that its standard terms would apply. The Court of Appeal held that the Appellant s standard terms had in fact been successfully incorporated, even though the contract note which was never signed was sent after the basic agreement had been concluded. From the surrounding circumstances, it was found that the parties had contemplated that the initial agreement would be supplemented by standard terms, and that the Respondent had assented to the Appellant s standard terms by failing to protest its inclusion. The Appellant was LLP. Brief Facts successfully represented by Paul Tan and Matthew Koh of Rajah & Tann Singapore The parties had entered into a series of five transactions in which the Appellant would supply rubber to the Respondent. The transactions followed a largely similar pattern: (i) (ii) (iii) (iv) The parties would negotiate the basic terms of the transaction by telephone of . The Appellant would then send a Confirmation to the Respondent setting out the basic terms, and the Respondent would send a purchase order to the Appellant. The Appellant would subsequently send a Contract Note which incorporated the Appellant s standard terms and conditions, with the request that it be countersigned and returned. The Appellant would deliver the rubber and an invoice. On its part, the Respondent would accept delivery and pay the invoice. The dispute arose over the second transaction, as the Respondent alleged that the rubber delivered was not of an acceptable standard. The Respondent thus commenced proceedings against the Appellant in Switzerland. The Appellant then began proceedings in Singapore, seeking an anti-suit injunction. The Appellant claimed that the Swiss proceedings were in breach of an agreement to arbitrate disputes, which was contained in its standard terms. In turn, the Respondent argued that the Appellant s standard terms had not been incorporated into their agreement. 1

2 Holding of the Court of Appeal The High Court initially dismissed the Appellant s application. However, upon appeal, the Court of Appeal overturned the decision and granted the Appellant s anti-suit injunction against the Swiss proceedings, finding that the arbitration agreement along with the rest of the Appellant s standard terms had in fact been successfully incorporated into the parties agreement. General law The Court of Appeal took an objective approach to the formation of the contract and the incorporation of terms. Therefore, whether or not the standard terms had been incorporated would depend on the objective intentions of the parties in light of their conduct and correspondence and the relevant background. The Court also recognised that it is not uncommon for parties to agree on a set of binding essential terms while discussing further subsequent details. In such a case, the subsequently specified terms may be more readily found to have been incorporated into the agreement. Finally, the Court accepted that a failure to object to contractual terms may constitute assent to their incorporation in certain circumstances. The Court cited certain English cases which supported the position that such silence bore greater weight where basic terms had been concluded and further details were anticipated, meaning that a lack of objection would more readily be taken as assent to the further terms. Application On the facts, the Court of Appeal held that the parties had contemplated that the basic terms of the Confirmation would be supplemented by a set of standard terms. (i) (ii) (iii) The Appellant had produced evidence that it was common practice in the international rubber commodities market for parties to contract on basic commercial terms with the understanding that standard terms would follow. The size and scope of the subject matter of the transactions suggested that it was unlikely that the parties intended to contract on the bare bones of the Confirmation . It could be inferred from the parties conduct throughout the five transactions that they both contemplated that the basic terms would be supplemented by standard terms. The Appellant had sent its standard terms in each transaction, while the Respondent had attempted to submit its own standard terms from the third transaction onwards. The Court also accepted that the applicable standard terms would be the Appellant s standard terms, as contained in the Contract Note which followed the Confirmation . This was despite the fact that the Respondent had not signed the Contract Note. In light of the understanding that the basic terms would be supplemented by standard terms, the Respondent s acceptance of delivery, payment of invoice, and failure to raise any objection to the Contract Note indicated acceptance of the Appellant s standard terms. Therefore, the Respondent was bound by the Appellant s standard terms, including the arbitration agreement. By instituting proceedings in Switzerland, the Respondent was in breach of the agreement. The Court thus granted the Appellant s application for an anti-suit injunction. Concluding Words 2 Ordinarily, where an agreement has been concluded, parties would not be able to unilaterally vary or add to the terms. However, as expressed in this decision, it is not uncommon for parties to enter into an agreement on basic terms with the understanding that further details would follow. This may be a function of businesss efficiency, industry practice, or urgency of time.

3 The Court of Appeal s decision thus bears significant impact on the issue of the incorporation of standard terms. It sets out a less strict and more practical approach towards subsequent incorporation of terms into a concluded agreement, allowing the effective function of contracts which are concluded across multiple stages. Parties wishing to consult on the incorporation of standard terms or other contractual issues may contact our team below. Please feel free to also contact the Knowledge and Risk Management Group at eoasis@rajahtann.com Contacts Paul Tan Partner D (65) F (65) paul.tan@rajahtann.com Matthew Koh Associate D (65) F (65) matthew.koh@rajahtann.com Samuel Seow Practice Trainee D (65) F (65) samuel.seow@rajahtann.com 3

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