Contract Law

• Date: 01 December 2013
• Published date: 01 December 2013
• Author: THAM Chee Ho LLB (Hons) (National University of Singapore), BCL (Oxford); Solicitor (England and Wales), Advocate and Solicitor (Singapore), Attorney and Counsellor-at-Law (New York State); Associate Professor, School of Law, Singapore Management University. LEE Pey Woan LLB (Hons) (London), BCL (Oxford); Barrister (Middle Temple), Advocate and Solicitor (Singapore); Associate Professor, School of Law, Singapore Management University. GOH Yihan LLB (Hons) (National University of Singapore), LLM (Harvard); Advocate and Solicitor (Singapore); Assistant Professor, Faculty of Law, National University of Singapore.

Formation of contract

Offer and acceptance

Objective formation of contract

12.1 It is trite law that a contract can only be formed where there is a coincidence of offer and acceptance, and this was aptly demonstrated in Ong Hong Kiat v RIQ Pte Ltd[2013] SGHC 131 (‘Ong Hong Kiat’). The case concerned whether the parties had concluded a contract for the sale of shares in RIQ Pte Ltd between themselves and, assuming that there had been such a contract, whether it had been breached. In considering the first issue, Quentin Loh J observed that ‘offer and acceptance as concepts of contract formation constitute the objective manifestations of an intention to contract’: at [31]. His Honour also noted that the key element of an offer was in an intention that was to be ascertained objectively (at [33]), whereas an acceptance must have a ‘final and unqualified expression of assent to the terms of the offer’: at [36]. These principles are easy to state, and the challenge lies usually in applying them to actual facts, especially where there was no written contract. This was exactly the case in Ong Hong Kiat. What such cases call for is a thorough examination of the facts, and it was on that basis that Loh J found that there was a contract between the parties which, inter alia, obliged the transfer of shares for $345,000.

12.2 The Court of Appeal in Lim Koon Park v Yap Jin Meng Bryan[2013] 4 SLR 150 (‘Lim Koon Park’) similarly reiterated that the formation of a contract is to be determined objectively. It held that once parties have outwardly agreed on the same terms on the same subject matter, then neither can, generally, rely on some unexpressed qualification that he had not in fact agreed to those terms: at [66]. Indeed, the court emphasised that its function is to ensure, as practicably as possible, that the reasonable expectations of honest men are not disappointed: at [75]. Thus, on the facts, one of the parties' subsequent reprobation was not taken to defeat what was otherwise the clear and objective evidence of consensus ad idem.

12.3 A similarly objective approach was adopted in the High Court case of Rudhra Minerals Pte Ltd v MRI Trading Pte Ltd[2013] 4 SLR 1023 (‘Rudhra Minerals’). In that case, Andrew Ang J stated that the test for ascertaining parties' intentions is an objective one and thus the language used by one party has to be construed in the sense in which it would reasonably be understood by the other: at [22]. In that case, the plaintiff entered into negotiations to purchase coal from the defendant at a coal conference. The defendant then sent the plaintiff a ‘Full Corporate Offer’ (‘FCO’), which stated that it was ‘ready, willing and able to offer for sale [coal] in accordance with the terms and conditions set out’. Importantly, the FCO stated that it was ‘subject to further terms and conditions to be mutually agreed’ and that the load port surveyor was to be ‘mutually decided’. The plaintiff acknowledged receipt of the FCO and confirmed purchase of the coal. Subsequently, the defendant refused to carry out the sale of coal on the ground that there was no binding contract between the parties.

12.4 In ascertaining whether there had been a contract reached between the parties, Ang J placed more reliance on the relevant documentary and circumstantial evidence instead of the subjective statements of witnesses. With this approach, his Honour found that there were a number of indications that the parties did intend to enter into a binding contract through the acceptance of the FCO: the parties had reached agreement on most of the major terms of the transaction, including the specifications of the product and its price.

12.5 While it is clear offer and acceptance must be ascertained objectively, just exactly how that is done could call for further discussion. Should offer and acceptance be decided on the basis of the ‘last shot’ doctrine, or through an examination of all the relevant correspondence? Interestingly, the Court of Appeal in Lim Koon Park appeared to endorse a passage in an academic text that suggested that a court must look at the whole correspondence exchanged between parties to decide whether the parties had, on a true construction, agreed to the same terms: Edwin Peel, Treitel: The Law of Contract (Sweet & Maxwell, 13th Ed, 2011) at para 2–017 (‘Treitel: The Law of Contract’). This raises the question of the correct approach to be applied when considering whether a contract had been formed, and on what terms, in the face of continuing negotiations between the parties. In last year's SAL Ann Rev, it was questioned whether the High Court was right to have endorsed Lord Denning's approach in Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd[1979] 1 WLR 401; [1979] 1 All ER 965 (‘Butler Machine’) on this issue. 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. It was also pointed out that the Court of Appeal had in Gay Choon Ing v Loh Sze Ti Terence Peter[2009] 2 SLR(R) 332 (‘Gay Choon Ing’) referred to Lord Denning's approach in Butler Machine and said that it is probably the traditional approach of offer and acceptance 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. The present endorsement of the passage in Treitel: The Law of Contract seems to suggest that it is indeed difficult to draw a sensible distinction between the traditional approach and Lord Denning's approach. At the end of the day, what the court is concerned with is ascertaining objectively, from all the circumstances, what the parties actually agreed to.

12.6 That a contract is formed only upon offer and acceptance applies to all situations, including insurance contracts. In Zhu Yong Zhen v AIA Singapore Pte Ltd[2013] 2 SLR 478 (‘Zhu Yong Zhen’), the plaintiff argued that a Policy Benefit Illustration, which was shown to her by the defendant's insurance agent, was part of the eventual insurance policy she purchased from the defendant. The Policy Benefit Illustration was critical to the plaintiff's case that the insurance policy was to be interpreted on terms favourable to her, and that the defendant had breached those terms. Dismissing the plaintiff's claim, Chan Seng Onn J noted that a contract of insurance normally arises from an offer made by an insured and an acceptance of that offer by the insurer: citing Poh Chu Chai, General Insurance Law (LexisNexis, 2009) at p 154. On the facts, the learned judge held that the plaintiff made an offer when she completed an ‘Application for Life Insurance’. This document required the plaintiff to provide details of her health so as to enable the defendant to decide whether to accept the plaintiff's offer. In addition, Chan J also noted that the substance of the insurance policy and riders being applied had yet to be stipulated, which indicated that no contract had been formed at the time the Policy Benefit Illustration was shown to the plaintiff. Accordingly, the plaintiff only made an offer via the document entitled ‘Application for Life Insurance’ to pay certain premiums in exchange for the defendant providing insurance coverage. This offer did not include the Policy Benefit Illustration because that document did not provide specific details of the policy or riders. As such, the insurance contract was formed on the basis of the plaintiff's offer, rather than the Policy Benefit Illustration.

Subsequent conduct in ascertaining agreement

12.7 In Bridgeman Pte Ltd v Dukim International Pte Ltd[2013] SGHC 220 (‘Bridgeman’), the High Court had to consider whether the parties' conduct subsequent to the contract could be used to determine its terms. In that case, the plaintiff delivered automative diesel oil to the defendant's customers during a two-month period, and the defendant had paid the plaintiff for some of the oil. This was done pursuant to an oral agreement entered between the parties, which apparently contained no indication of price between the parties. The plaintiff subsequently claimed against the defendant for outstanding amounts, whereas the defendant counterclaimed on the basis that it had overpaid the plaintiff. A preliminary issue identified by the learned judge was whether the court could look at subsequent conduct between the parties to ascertain the agreed price for the oil under the oral agreement.

12.8 In relation to this issue, the learned judge held that the position in Singapore is not clear. Her Honour referred to the judgment of V K Rajah JC (as his Honour then was) in Midlink Development Pte Ltd v The Stansfield Group Pte Ltd[2004] 4 SLR(R) 258 at [53] (‘Midlink’), where it was said that Rajah JC had suggested that ‘regard could be had to subsequent conduct in ascertaining contractual terms’: Bridgeman at [11]. However, with respect, Rajah JC did no such thing. Instead, his Honour had simply held that absent a written tenancy agreement, the terms that govern a tenancy should be governed by the context of the prior relationship, the parties' negotiations and sometimes their subsequent conduct. This is quite different from using subsequent conduct to insert a term into an existing agreement. The judge in Bridgeman then referred to Chan Seng Onn J's judgment in Econ Piling Pte Ltd v NCC International AB[2008] SGHC 26 (‘Econ Piling’), where it was again suggested that his Honour had taken into acount the parties' conduct after entering into an alleged agreement to dissolve a partnership, in determining whether such an agreement existed in the first place: Bridgeman at [11]. Once again, and with respect, this is quite different from considering...