Contract Law

Date01 December 2015
Published date01 December 2015
Formation of contract
Offer and acceptance

12.1 The coincidence of offer and acceptance is a basic but necessary requirement of every valid contract. Whether this requirement is satisfied is largely dependent on the precise facts of the case concerned. Due to the fact-centric nature of the enquiry, it is difficult to draw general propositions from the cases, but the High Court's approach in Lim Beng Cheng v Lim Ngee Sing[2016] 1 SLR 524 (‘Lim Beng Cheng’) provides some guidance in this regard.

12.2 The principal question in that case was whether the parties entered into an agreement in October 2010, under which the defendant promised to transfer a 46.5% stake in a property to the plaintiff. The defendant contended that the alleged contract was merely a proposal that he never accepted. Judith Prakash J rejected this contention, finding it clear that a binding agreement was indeed formed. Importantly, her Honour found that the language used in the document suggested that it was meant to be binding between the parties. In particular, the document had used words such as ‘the agreed settlement’, ‘in view of this agreement’ and ‘it is agreed’. The learned judge's focus on the contractual language is in line with the Court of Appeal's approach in Woo Kah Wai v Chew Ai Hua Sandra[2014] 4 SLR 166 (noted in Alvin W-L See, ‘Contract for the Grant of a Compliant Option to Purchase’[2015] Sing JLS 241 and discussed in (2014) 15 SAL Ann Rev 217 at 217–218, paras 12.2–12.5), where the court also emphasised the parties' express references to the words ‘offer’ and ‘acceptance’ as being crucial towards its finding of a binding contract.

12.3 Prakash J in Lim Beng Cheng also considered it important that the parties signed the document after spending an hour preparing it. In her Honour's view, if the document was a mere proposal, the parties would not have signed it, much less spent a considerable amount of time preparing it. Furthermore, Prakash J also rejected the defendant's contention that he would not have agreed to the terms, which were ‘onerous and commercially insensible’ (Lim Beng Cheng at [50]). On the facts, her Honour struggled to find any commercial insensibility of the kind that would cast doubt on the genuineness of the defendant's consent. Finally, Prakash J also dismissed as an afterthought the defendant's argument that the parties' subsequent conduct showed that the document signed in October 2010 was meant to be a proposal. Indeed, the defendant did not deny his obligation to transfer the promised share of the property concerned to the plaintiff until 2013.

12.4 More broadly, Prakash J's approach in Lim Beng Cheng is entirely consistent with, and an apt reminder of, the objectivity principle that underlies the ascertainment of offer and acceptance (see generally, The Law of Contract in Singapore (Andrew Phang Boon Leong gen ed) (Academy Publishing, 2012) at paras 03.006–03.014). Indeed, as Blackburn J said in the classical case of Smith v Hughes(1871) LR 6 QB 597 at 607, regardless of a man's real intention, he would be bound if his conduct reasonably leads another party to enter into a contract with him. This also accords with the Court of Appeal's adoption of the promisee-objectivity approach in Tribune Investment Trust Inc v Soosan Trading Co Ltd[2000] 2 SLR(R) 407 (‘Tribune Investment’), where the court said (at 422–423) that ‘the language used by one party, whatever his real intention may be, is to be construed in the sense in which it would be reasonably understood by the other’. These general principles were undeniably applied in Lim Beng Cheng, in which Prakash J adopted a decidedly objective approach towards the language used in the document, as well as the parties' conduct before and after the conclusion of the agreement.

12.5 As a legal matter, Prakash J's treatment of the defendant's argument, that the parties' subsequent conduct showed that the original document remained a proposal, requires some clarification. Although her Honour rightly found on the facts that the defendant's argument was a mere afterthought, the issue could have been dealt with on the legal principle that the parties' subsequent conduct cannot alter the existence of the contract between them (see, eg, Perry v Suffields Ltd[1916] 2 Ch 187). The ‘exception’ to this principle is if the parties' subsequent conduct shows an agreement to rescind the original contract. However, the defendant's argument in Lim Beng Cheng was not on such a basis, and had seemingly proceeded on the legally impermissible approach that the parties' subsequent conduct had somehow altered the objectively ascertained nature of the original agreement.

12.6 A more specific aspect of offer and acceptance was discussed in the Court of Appeal decision of Ong & Ong Pte Ltd v Fairview Developments Pte Ltd[2015] 2 SLR 470 (‘Ong & Ong’). The primary issue in that case was whether general contractual principles applied generally to the offer to settle (‘OTS’) regime under O 22A of the Rules of Court (Cap 322, R 5, 2006 Rev Ed). The court held that they did not, contrary to the High Court's analysis in Chia Kim Huay v Saw Shu Mawa Min Min[2012] 4 SLR 1096 (discussed in (2012) 13 SAL Ann Rev 195 at 197–198, paras 12.8–12.15). However, the court also emphasised that this did not mean that contractual principles have no place at all under the OTS regime: Ong & Ong at [53].

12.7 Apart from that issue of civil procedure, the court also had occasion to consider whether a fundamental change in circumstances, occurring between the time an offer was made and before it was accepted, could cause the offer to lapse. This issue had previously been considered by the High Court in Norwest Holdings Pte Ltd v Newport Mining Ltd[2010] 3 SLR 956 (‘Norwest Holdings’) (see (2010) 11 SAL Ann Rev 239 at 241, para 11.7). As was discussed in (2011) 12 SAL Ann Rev 182 at 187, para 11.15, Belinda Ang Saw Ean J considered that the contemporary juridical basis for an offer lapsing due to changed circumstances was premised on the explanation in either Financings Ltd v Stimson[1962] 1 WLR 1184 (‘Financings Ltd’) (which had implied a condition into the offer that the subject matter of the offer must remain in substantially the same condition as it was at the time of the offer, failing which the offer lapses), or Dysart Timbers Ltd v Roderick William Nielsen[2009] 3 NZLR 160 (‘Dysart Timbers’) (which had required the change in circumstances to be fundamental before the associated offer could be said to have lapsed). In the end, however, her Honour dismissed the explanations employed in Financings Ltd and Dysart Timbers as unconvincing due to the artificiality of implying a term to unanticipated changes in circumstances. Instead, her Honour thought that the doctrine of offer and acceptance and common mistake were adequate to explain the consequences of changed circumstances which occur after an offer was made and before the offer was accepted. Although the decision generated some degree of academic interest (see, eg, Christopher Hare, ‘Changed Circumstances and Lapsing Offers’[2010] LMCLQ 379 and David McLauchlan & Rick Bigwood, ‘Lapse of Offers Due to Changed Circumstances: A Contract Conversation’(2011) 27 JCL 222), the Court of Appeal declined to comment on the correctness of Ang J's views when the case went on appeal before it (see [2011] 4 SLR 617).

12.8 In Ong & Ong, the Court of Appeal had to consider the appellant's argument that a fundamental change in circumstances in that case freed it from being bound to the OTS. In the course of doing so, the court appeared to accept the explanation provided in Dysart Timbers in relation to the lapse of an offer caused by a fundamental change in circumstances. In particular, the court alluded to the views expressed in The Law of Contract in Singapore ((Andrew Phang Boon Leong gen ed) (Academy Publishing, 2012) at paras 03.096–03.098) that, contrary to the view expressed in Norwest Holdings, the doctrines of offer and acceptance, and common mistake, cannot properly explain why an offer would lapse in a fundamental change in circumstances. The court then said (at [73]) that ‘there seem[ed] to be room for the application of the doctrine of fundamental change in circumstances per Dysart Timbers’. While it is not entirely clear whether the court accepted the explanation provided in Dysart Timbers, the better view is that it has, given that it proceeded to examine whether there was any fundamental change in circumstances on the facts of Ong & Ong itself.

Consideration

12.9 The issue of whether the forbearance of an invalid claim furnished sufficient consideration arose in Lim Beng Cheng (above, para 12.1). The defendant argued that the only consideration provided by the plaintiff, in support of the agreement between them, was the withdrawal of a caveat over another property, which the plaintiff was supposedly bound to do in any case. While Judith Prakash J found that the plaintiff had provided good consideration elsewhere, her Honour considered that the plaintiff's forbearance to sue on a doubtful or even ‘clearly invalid’ claim is good consideration, if there are reasonable grounds for the promisor's claim and if the promiser honestly believes he has a fair chance of success (Lim Beng Cheng at [58], citing Abdul Jalil bin Ahmad bin Talib v A Formation Construction Pte Ltd[2006] 4 SLR(R) 778 (‘Abdul Jalil’) at [42]). The learned judge considered that this principle applied to the plaintiff's promise to withdraw the caveat. On the facts, the plaintiff was actually not entitled to lodge the caveat since it claimed an interest as purchaser in respect of a contract for sale dated April 2008, and the plaintiff only obtained an interest in November 2008. The plaintiff did not lodge a caveat after November 2008 because the April 2008 caveat had not been discharged, and he believed in good faith in October 2010 that he was entitled to maintain the...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT