Contract Law

Citation(2007) 8 SAL Ann Rev 150
Published date01 December 2007
Date01 December 2007
Formation of contract
Sanctity of contracts

10.1 The case of Tee Soon Kay v AG[2007] 3 SLR 133 presented the Court of Appeal with an opportunity to restate the fundamental importance of upholding the sanctity of contracts. In this case, the appellants were a group of public officers who had opted to irrevocably convert from the pension scheme to the Central Provident Fund (‘CPF’) scheme in 1973. More than 30 years later, the appellants commenced the present proceedings and contended, unsuccessfully, that they were entitled to return to the pension scheme on the ground, inter alia, that the purported condition of irrevocability was ultra vires and unconstitutional. Once the arguments on unconstitutionality fell apart, the appellants” application was, in substance, a request that the court sanction its breach of contract. Such a request, if permitted, would ‘dismantle the very foundation and structure of the law of contract itself’ (at [109]). Andrew Phang Boon Leong JA thus observed:

The law of contract is, simply put, premised on parties fulfilling promises made to each other pursuant to a legal agreement entered into between them. What, therefore, the appellants are attempting to do is to ignore the very foundation of what a legal contract is about in the first instance. If parties were allowed to walk away from contracts simply because they felt that the contract entered into was no longer

to their advantage, chaos would ensue. Indeed, this would be an understatement. The very concept of an ordered society depends on parties observing the law in general and the promises validly made under law to each other in particular. This is not only obvious and axiomatic; it is utterly essential to a proper functioning of society itself.

Certainty and completeness

10.2 The well-established principle that an agreement lacking in essential terms cannot constitute a binding contract was applied in Colliers International (Singapore) Pte Ltd v Senkee Logistics Pte Ltd[2007] 2 SLR 230. In that case, an estate agent”s claim against the vendor for commission purportedly due in respect of a sale of the vendor”s property failed because no agreement was in fact reached on the quantum of the commission. This does not suggest, of course, that a contract would invariably fail if the parties have yet to agree to a price, or that a genuine bargain could be struck down on the ground that it lacks some subsidiary or inessential term. In the present case, however, the term disputed was by no means minor or subsidiary in nature. On the contrary, the amount of commission went to the heart of the parties” agreement. The agent”s claim that a binding contract had resulted via conduct also failed because the relevant agreement could not be inferred from the mere fact that the vendor had completed the sale with the purchaser. The agent appreciated that there was a real risk that it would not be remunerated when it proceeded to facilitate the transaction without first securing a firm commitment on its commission, and such a risk had indeed materialised. In any event, even if there had been a binding contract, the claim for commission would still have failed because the agent was a factor, but not the effective cause of the sale.

10.3 In T2 Networks Pte Ltd v Nasioncom Sdn Bhd[2008] 2 SLR 1 (see also para 10.4 below on ‘Consideration’) Judith Prakash J rejected an argument that the parties were bound by a settlement agreement on the ground, inter alia, that the agreement lacked certainty. Although it was clear that the parties had in fact agreed to certain payment obligations, they had not in fact agreed to a payment schedule. On the evidence available, it was not possible to imply that payment would be made within a reasonable time as it was clear that one of the parties would not have agreed to such a term.


10.4 The alleged settlement agreement in T2 Networks Pte Ltd v Nasioncom Sdn Bhd[2008] 2 SLR 1 (see para 10.3 above on ‘Certainty and completeness’) was also found to be invalid for lack of consideration. In that case, the plaintiff, a company providing

telecommunications and internet services, had entered into a number of agreements to provide its services to the defendant, a company incorporated in Malaysia. The plaintiff claimed against the defendant for payments due and owing on these agreements. In defence, the defendant argued that the plaintiff was precluded from making these claims by the terms of a settlement agreement binding the parties. Judith Prakash J held that the promises comprised in this agreement were invalid for lack of consideration. First, the agreement provided for the transfer of 51% of the shares in the plaintiff to the defendant”s nominees but no consideration was stated for this transfer. Secondly, the defendant undertook to ‘settle the outstanding debts to [the plaintiff]’ but this promise was not in and of itself sufficient consideration since the defendant was already legally bound to pay those sums. Although the promise to pay an existing debt could constitute consideration if it were made as a compromise of a disputed claim, this was not the case because no material dispute existed between the parties at the relevant time. Finally, the defendant”s undertaking to make payments for sums owing by the plaintiff to third party creditors was also found to be invalid as there was no evidence that the defendant had agreed to or assumed the plaintiff”s legal obligations to the third parties.


10.5 In (2006) 7 SAL Ann Rev 171 at 173—174, we noted at paras 10.7—10.8 that in the case of Abdul Jalil bin Ahmad bin Talib v A Formation Construction Pte Ltd[2006] 4 SLR 778, Judith Prakash J had endorsed the view that it was unnecessary for a party relying on the doctrine of promissory estoppel to establish that he had suffered detriment. As this holding was not challenged by counsel on appeal, the Court of Appeal did not see fit to comment on the same in Abdul Jalil bin Ahmad bin Talib v A Formation Construction Pte Ltd[2007] 3 SLR 592.

10.6 In Tee Soon Tay v AG[2007] 3 SLR 133 (see para 10.1 above on ‘Sanctity of contracts’), Andrew Phang JA helpfully discussed the scope and rationale of the doctrine of promissory estoppel. The learned judge explained (at [114]) that ‘the doctrine was developed in order to avoid the injustice that would otherwise result when a contracting party pleaded an absence of consideration’ and is therefore underpinned by the notion of unconscionability. The learned judge further noted that uncertainty still surrounds the question whether this doctrine could be invoked as a cause of action, although such a development had in fact taken place in Australia, and there was indication that the traditional position could be reviewed in the future.

10.7 The question whether an estoppel by convention applied to prevent a party from denying that an assumed state of affairs existed

arose in Travista Development Pte Ltd v Tan Kim Swee Augustine[2007] 3 SLR 628 (see paras 10.15—10.17 below on ‘Construction of terms’). Here, the defendants had on 12 December 2006 contracted to sell their property to the plaintiff. As the plaintiff was a foreign-incorporated company, the sale was conditional upon the plaintiff obtaining a Qualifying Certificate (‘QC’) from the Singapore Land Authority (‘SLA’) and cl 9(b) of the agreement provided, inter alia, that the plaintiff was to use ‘best endeavours’ to obtain the approval and to do so ‘without delay’. Clause 3.2 of the agreement further provided that the completion of the sale was to take place within six weeks from the date of receipt of the QC or within three months from the date of the agreement, whichever was the later. The SLA approved the plaintiff”s application for the QC on 29 December 2006 but the QC would only be issued upon the plaintiff furnishing a banker”s or insurer”s guarantee to guarantee the plaintiff”s compliance with the terms of the QC. Having been informed of the approval, the defendants assumed that the plaintiff would swiftly comply with the said condition and procure the issue of the QC. On that basis, both parties” lawyers made preparations for the transaction to be completed on 12 March 2007, that date being the ‘later’ date determined in accordance with cl 3.2.

10.8 Completion did not, however, take place on 12 March 2007 as the plaintiff had not obtained the guarantee in time and the defendants terminated the agreement on that ground. Thereafter, the plaintiff commenced proceedings seeking a declaration that it was entitled to complete the transaction six weeks after the issue of the QC. In the High Court, Judith Prakash J found that the defendants were entitled to terminate the agreement as the plaintiff had not employed best endeavours to obtain the QC in time. Prakash J further held, obiter, that the parties” conduct gave rise to an estoppel which prevented the plaintiff from denying that 12 March 2007 was the expected completion date. Having permitted transfer forms dated 12 March 2007 to be sent to the defendants, the plaintiff was aware of the defendants” expectation to complete the transaction on that date but took no step to inform the defendants that the QC would not be issued in time. On these facts, it was unconscionable to allow the plaintiff to deny that 12 March 2007 was the expected completion date.

10.9 The Court of Appeal affirmed the High Court”s finding on the issue of breach but disagreed with its conclusion on the issue of estoppel (see Travista Development Pte Ltd v Tan Kim Swee Augustine[2007] SGCA 57). The evidence did not establish that the parties had acted on a shared assumption. At its highest, the respondent-vendor had assumed that the appellant-purchaser would use its best endeavours to obtain the QC but that was not a sufficient basis for assuming that the completion date would definitely be 12 March 2007. Even if the purchaser had used

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