First Quarter 2013

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DevelopmentsinSingaporeContractLawin2012 Asst Professor Goh Yihan, Faculty of Law, National University of Singapore

Introduction

In this article, we look back at the more significant contractual cases to be decided in Singapore in 2012, and in so doing, we observe the developments in Singapore contract law.

The cases considered here deal with issues of contractual formation, contractual terms, as well as remedies for breach of contract.

Formation of Contract

Offer and Acceptance

As a preliminary point, it should be noted that whether or not there is an offer and acceptance depends on an objective interpretation of the facts of the case concerned.

In ATS Specialized Inc (trading as ATA Wind Energy Services) v LAP Projects (Asia) Pte Ltd [2012] SGHC 173, the issue was whether there had been a tripartite set-off agreement beetween the relevant parties. Belinda Ang Saw Ean J rightly held that the correct approach to find a contract from the parties correspondence is based on the parties intention as objectively ascertained.

Formation of set-off agreement

In Lim Koon Park v Yap Jin Meng Bryan [2012] SGHC 159, one issue was whether the parties had formed a contract after lengthy negotiations. The High Court rightly accepted that it is the objective approach that applies. However, the Court also stated that the traditional offer and acceptance analysis should be applied in a modified manner. This holding has raised some degree of discussion,

Modified application of traditional offer and acceptance model

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especially since the Court of Appeal in Gay Choon Ing v Loh Sze Ti Terrence Peter [2009] 2 SLR(R) 332, in contrast, held that the traditional analysis should apply.

In Chia Kim Huay v Saw Shu Mawa Min Min [2012] SGHC 172, the High Court held that ordinary contractual principles apply to offers to settle under the regime of O22A of the Rules of Court, to the extent that they are not inconsistent with what the Rules of Court expressly provide. This must be correct as Parliament can choose to overrule aspects of the common law via legislation, such as the Rules of Court. However, the Court did find that the Rules of Court did not provide for when an offer will survive an offerees death. In that regard, the common law rule applies the offer will survive if it is not personal in nature.

Formation of offers to settle

Past Consideration

The Court of Appeal decision of Rainforest Trading Ltd v State Bank of India Singapore [2012] 2 SLR 713 reaffirmed the rule that past consideration is not good consideration. Where it operates, the rule has the effect of preventing an otherwise valid contract from being formed. However, as the Court noted, the potential harshness of the rule is mitigated by an apparent exception, which consists of three requirements:

(a) the act must have been done at the promisors request;

(b) the parties must have understood that the act was to be remunerated; and

(c) such remuneration must have been legally enforceable if it had been promised in advance.

The Court of Appeal in Rainforest Trading also pointed out that it would generally be difficult to argue that a legitimate commercial transaction was unenforceable simply because the consideration provided was past.

Application of and exception to the rule of past consideration

Whilst consideration is generally easily found, it was not found in ATS Specialized Inc (trading as ATA Wind Energy Services) v LAP Projects (Asia) Pte Ltd (discussed earlier). The High Court stated that the requirement for consideration has not been abolished. Indeed, the Court of Appeal in the seminal decision of Gay Choon Ing had actually affirmed that consideration is still a standard requirement for the formation of a contract.

Continued endorsement of the requirement of consideration

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Promissory Estoppel

The doctrine of promissory estoppel was successfully applied in Oriental Investments (SH) Pte Ltd v Catalla Investments Pte Ltd [2012] SGHC 245. The High Court held that promissory estoppel will apply if (a) the promisor made a clear and unequivocal promise; (b) the promisee acted in reliance on the promise; and (c) as a result of the reliance the promisee suffered detriment.

The test for promissory estoppel

Certainty and Completeness

In OCBC Capital Investment Asia Ltd v Wong Hua Choon [2012] SGCA 54, on appeal from the High Court, the Court of Appeal affirmed the basic principles on the effect of a subject to contract clause. The general view is that it raises a presumption that no binding contract has been concluded. However, the inclusion of such a clause is not determinative, and the presumption that a contract has not been concluded can be displaced.

Subject to contract clauses

In HSBC Institutional Trust Services (Singapore) Ltd (trustee of Starhill Global Real Estate Investment Trust) v Toshin Development Singapore Pte Ltd [2012] SGCA 48, the Court of Appeal held that a contractual clause directing the parties to endeavour to agree in good faith within an existing contractual framework was not void for uncertainty as the contractual framework provided a basis for the parties to negotiate in good faith. This required the parties to be commercially honest with each other, and not hide information that the other would reasonably expect to be disclosed.

Agreements to endeavour to cooperate in good faith

Terms of Contract

Terms Implied in Fact

The Court of Appeal in Foo Jong Peng v Phua Kiah Mai [2012] SGCA 55 rejected the proposition that the implication of terms is to be approached as an exercise in the interpretation (or construction) of the instrument as a whole, finding such an approach to be too uncertain in its application The Court of Appeal, however, accepted that the process of the implication of terms does involve interpretation, albeit a specific form of interpretation which is separate and distinct from the general interpretation of express terms.

The relevance of interpretation in the implication of terms

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Terms Implied in Law

In Lim Suat Hua v Singapore HealthPartners Pte Ltd [2012] 2 SLR 805, a term was implied into an employment contract to allow the employer to claim against the employee for leave taken in excess of entitlement. This appears to have been a term implied by law as the Court couched its reasoning in general terms.

Contractual Discretion

In Edwards Jason Glenn v Australia and New Zealand Banking Group Ltd [2012] SGHC 61, the High Court reaffirmed the well-established principle that contractual discretion is generally not unfettered, and that such discretion must be exercised honestly and in good faith for the purposes for which it was conferred.

Honesty and good faith in contractual discretion

Contractual Interpretation

In Ashlock William Grover v SetClear Pte Ltd [2012] 2 SLR 625, the Court of Appeal restated that the contextual interpretation of a contract does not involve an inquiry into the parties subjective states, but instead involves an objective judgment based on the identified matters.

The Court of Appeal in Master Marine AS v Labroy Offshore Ltd [2012] 3 SLR 125 affirmed the two-step analytical framework in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 concerning the interpretation of contracts in Singapore. The first step is to consider whether the extrinsic evidence sought to be adduced can in fact be admitted. The second step concerns the task of interpretation. This involves the application of the contextual approach under the terms of proviso (f) of s 94 of the Evidence Act.

The test and framework for contractual interpretation

Exception Clauses

In Kay Lim Construction & Trading Pte Ltd v Soon Douglas (Pte) Ltd [2013] 1 SLR 1, the High Court held that it is a matter of interpretation to decide whether the relevant exception clause operated to exclude the particular liability that had arisen. In interpreting such clauses, the courts adopt a strict approach (which encompasses the contra proferentum rule), although they are not free to reject the application of such clauses where the words used are clear and unambiguous. The Court also applied, without much controversy, the Unfair Contract Terms

Interpreting the scope and operation of exception clauses

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Act.

Restraint of Trade Clauses

The Court of Appeal in Mano Vikrant Singh v. Cargill TSF Asia Pte Ltd [2012] 4 SLR 371 held that certain clauses which required employees to forfeit their bonuses if they joined a competitor were in restraint of trade and would have to be justified by reasonableness. It held so because it regarded the forfeiture of a benefit that had accrued to an employee to be in restraint of trade.

Remedies

The Singapore Court of Appeal has in Out of the Box Pte Ltd v Wanin Industries Pte Ltd [2013] SGCA 15 reaffirmed the applicability of the orthodox test for remoteness as embodied in Hadley v Baxendale. In doing so, the Court of Appeal again rejected the assumption of responsibility test (articulated in 2009 English decision of The Achilleas) to determine whether damages are too remote in a contractual claim.

The following are several key points from the decision:

The Court of Appeal drew a clear distinction between interpretation and remoteness. In its view, it is important to distinguish between cases that concern the interpretation of a contract to identify the specific nature of the obligation undertaken, and cases that are concerned with matters of remoteness.

When deciding whether claimed damages are too remote, the Court would consider the relevant facts, specifically:

(a) the facts that bear on the question of the liability for the damages that subsequently ensue upon the defendants breach;

(b) the circumstances in which those facts came to the defendants knowledge;

(c) in the light of those circumstances, the extent to which such knowledge should be taken into account when assessing the defendants liability; and

(d) having regard to the knowledge that may properly be attributed

Applicability of the traditional test for remoteness of damages

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to the defendant at the time of the contract, what would have been foreseeable at that time to the reasonable person in his position to be the not unlikely consequences of his breach.

The Court of Appeal also provided an analytical framework for questions of remoteness:

(a) First, what are the specific damages that have been claimed?

(b) Second, what are the facts that would have had a bearing on whether these damages would have been within the reasonable contemplation of the parties had they considered this at the time of the contract?

(c) Third, what are the facts that have been pleaded and proved either to have in fact been known or to be taken to have been known by the defendant at the time of the contract?

(d) Fourth, what are the circumstances in which those facts were brought home to the defendant?

(e) Finally, in the light of the defendants knowledge and the circumstances in which that knowledge arose, would the damages in question have been considered by a reasonable person in the situation of the defendant at the time of the contract to be foreseeable as a not unlikely consequence that he should be liable for?

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