Contract Law

Date01 December 2012
Published date01 December 2012
Formation of contract

Offer and acceptance

Objective formation of contract

12.1 Whether or not there is an offer and acceptance depends on an objective interpretation of the facts of the case concerned. Looked at from this perspective, the concepts of offer and acceptance constitute the objective manifestations of an intention to contract.

12.2 These trite principles were applied by the High Court in a few cases in 2012. First, in ATS Specialized Inc v LAP Projects (Asia) Pte Ltd[2012] SGHC 173 (‘ATS Specialized Inc’), the issue was whether there had been a tripartite set-off agreement between the relevant parties. In that case, the plaintiff, ATS Wind Energy Services (‘ATS’), claimed a sum of money from the defendant, LAP Projects (Asia) Pte Ltd (‘LAP’), for trucking services that it had provided to LAP. Because ATS International Service Inc (‘ATSI’), a company that was owned by the same parent company that owned ATS, owed money to LAP, the parties attempted to reach a consensus on a tripartite set-off agreement between all parties.

12.3 In deciding whether there had been a tripartite set-off agreement, Belinda Ang Saw Ean J rightly held that the correct approach to find a contract from the parties' correspondence is based on the parties' intentions as objectively ascertained, citing Tribune Investment Trust Inc v Soosan Trading Co Ltd[2000] 2 SLR(R) 407. There are two important aspects to this proposition. The first is that evidence of the parties' subjective intentions are, generally speaking, inadmissible. As Ang J noted in ATS Specialized Inc, assertions of one party's subjective intention unexpressed to the other are inadmissible.

12.4 Second, in discerning the formation of a contract, a rather precise conception of ‘promisee’ objectivity is used, rather than a conception of ‘detached’ objectivity. When applying ‘promisee’ objectivity, we ask whether a reasonable person in the promisee's position would understand there to be a contract; if the answer is yes, then there will be a contract. In this sense, the objective test of agreement is partly subjective in that it takes the promisee's position into account.

12.5 In Lim Koon Park v Yap Jin Meng Bryan[2012] SGHC 159 (‘Lim Koon Park’), 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 applied, but the court then qualified the application of the objective approach by stating that it applied with ‘some modifications’ to the traditional analysis of offer and acceptance (at [75]). This is interesting because the Court of Appeal has in recent times stressed the importance of adhering to the traditional concepts of offer and acceptance.

12.6 The High Court referred to the Court of Appeal's decision of Projection Pte Ltd v The Tai Ping Insurance Co Ltd[2001] 1 SLR(R) 798, which accepted the approach in Lord Denning's speech in Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd[1979] 1 WLR 401 (‘Butler Machine Tool’). In that case, Lord Denning advocated a different way of finding a contract rather than follow what he termed the mechanical concepts of offer and acceptance. In his view, it was better to look at the overall context, including the parties' correspondence and conduct, to discern whether a contract had been formed.

12.7 In 2009, the Court of Appeal in Gay Choon Ing v Loh Sze Ti Terrence Peter[2009] 2 SLR(R) 332 (‘Gay Choon Ing’) referred to Lord Denning's approach in Butler Machine Tool and said that it is probably the traditional approach of offer and acceptance, as opposed to Lord Denning's approach, that applies in Singapore. However, the Court of Appeal in Gay Choon Ing also said that there was no real difference between Lord Denning's approach and the traditional approach. Evidently, however, it was more comfortable with the traditional language of offer and acceptance. To that extent, therefore, there was probably no need for the High Court in Lim Koon Park to advocate ‘some modifications’ of the offer and acceptance approach when applying the objective approach to discern the formation of a contract. Indeed, from the way the court approached the documentary evidence in Lim Koon Park, it is difficult to see how it had actually departed from the traditional analysis of offer and acceptance, since the court was concerned with whether there had been consensus reached on a particular issue. In so far as there is any evidential difficulty in preferring one party's version of events over the other, that does not involve any modification to contractual principles inasmuch as that is an evidential question.

Various aspects of offer and acceptance and the Rules of Court

12.8 In the interesting High Court case of Chia Kim Huay v Saw Shu Mawa Min Min[2012] 4 SLR 1096 (‘Chia Kim Huay’), the High Court held that ordinary contractual principles apply to the extent that they are not inconsistent with what the Rules of Court (Cap 322, R 5, 2006 Rev Ed) (‘RoC’) expressly provide. Normally, procedural rules, which the RoC prescribes, should not trump substantive law. However, where the RoC affects substantive law, as the court found that O 22A does (at [28] and [31]), then perhaps it is not wrong to hold that the RoC, despite being predominantly about procedure, can and should trump the conflicting common law principles. If this view is taken, then this is an eminently reasonable approach and reflects the supremacy which our legal system accords to statutory materials over the common law. However, if one takes the view that the RoC is procedural only, then the court may have gone too far in saying that the Rules have the effect of modifying the common law principles.

12.9 Briefly stated, the core issue in Chia Kim Huay concerned whether the defendant's offer to settle pursuant to O 22A of the RoC was validly accepted by the plaintiff. Essentially, each party made two offers to settle. Crucially, the defendant made its second offer to the plaintiff on 17 June 2011. On 23 August 2011, the plaintiff made also a second offer to the defendant. The question was whether the defendant's 17 June 2011 offer had been accepted by the plaintiff.

12.10 The plaintiff's purported acceptance came about in the following manner: on 27 August 2011, despite having made an offer to settle on 23 August 2011, the plaintiff purported to accept the defendant's 17 June 2011 offer by way of fax and also by way of a letter posted the same day. Matters were complicated because the plaintiff passed away on 29 August 2011. On that very day, the defendant received the plaintiff's acceptance fax. On 31 August 2011, the defendant received the plaintiff's acceptance by post.

12.11 Applying ordinary contractual principles to these facts, the plaintiff could not have validly accepted the defendant's 17 June 2011 offer. Since the plaintiff's 23 August 2011 offer amounted to a counter—offer, that would indicate that the 17 June 2011 offer had been rejected by the defendant.

12.12 However, if the plaintiff's 23 August 2011 offer did not amount to a counter-offer, the question would then arise as to whether the defendant's offer of 17 June 2011 would still be open to be accepted despite the plaintiff's demise on 29 August 2011: Was the plaintiff's acceptance of the 17 June offer effective upon posting of the acceptance letter on 27 August 2011, on 29 August 2011 when the acceptance fax was received by the defendant (despite the plaintiff's demise that same day), or on 31 August 2011 when the acceptance letter was received? If the plaintiff's death affected the validity of his acceptance, could his personal representatives accept the offer on his behalf? If we apply ordinary contractual principles, the plaintiff would probably be taken to have accepted the defendant's offer of 17 June 2011 on 27 August 2011 by way of the postal acceptance rule, since that tells us that acceptances by post take effect at the time of posting, and not receipt, by the offeror.

12.13 The High Court first found that the plaintiff's offer of 23 August 2011 did not operate as a counter-offer to extinguish the defendant's offer of 17 June 2011. This was because O 22A r 6(2) of the RoC mandates that an offer to settle remains open until it is extinguished in one of two ways, neither of which concerns a counter—offer made by the offeree.

12.14 Second, the High Court found that the plaintiff could not have accepted by fax because the defendant never agreed to be served by fax. Next, and importantly, the court found that the postal acceptance rule did not apply because s 2(5) of the Interpretation Act (Cap 1, 2002 Rev Ed) read with the RoC provides that service by post is effected only at the time of receipt, not postage. In other words, the common law postal acceptance rule did not apply. So acceptance took place only after the plaintiff's death, when his personal representatives purported to accept.

12.15 The remaining issue was thus whether the plaintiff's death terminated the defendant's offer made on 17 June 2011. This involved a consideration of common law principles since this was not covered by the RoC – the relevant principle being that an offer will not survive an offeree's death if it is an offer personal to the offeree. The High Court found that it was not personal in nature and so could be accepted by the plaintiff's personal representatives.

Consideration

Past consideration rule

12.16 It is well established that consideration for a promise must be causally related to the promise itself. Thus, a promise that is given as a mere expression of gratitude for past services is unsupported by valid consideration: that promise is given for past consideration which is no consideration. However, the courts look to the substance rather than the form of the parties' transactions to determine if consideration was truly past. The Court of Appeal decision of Rainforest Trading Ltd...

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