Contract Law

Date01 December 2014
Published date01 December 2014
Formation of contract
Offer and acceptance
Offer and acceptance in different fact patterns

12.1 The rules relating to contractual formation are easy to state but apply with different degrees of difficulty in the varied circumstances of practice. Indeed, as Andrew Phang Boon Leong JA pertinently noted in RBC Properties Pte Ltd v Defu Furniture Pte Ltd[2015] 1 SLR 997 (at [1]):

[w]hilst the law to be applied is objective and universal, the facts that the law is applied to are varied and specific therefore, the decision or result of a case is heavily dependent (in the final analysis) on the specific facts concerned.

2014 saw several cases in which the courts had to apply the rules relating to contractual formation, specifically those to do with offer and acceptance, to different fact patterns. It suffices for the purposes of this review to highlight two of such cases.

12.2 The first case is the Court of Appeal's decision of Woo Kah Wai v Chew Ai Hua Sandra[2014] 4 SLR 166 (Woo Kah Wai) (noted in Alvin W-L See, Contract for the Grant of a Compliant Option to Purchase Sing JLS (forthcoming)), which raised several issues of contractual formation in the context of an option to purchase. This section deals with the issues to do with offer and acceptance, and other sections will deal with other aspects of contractual formation. Woo Kah Wai concerned the sale of an apartment unit. The purchaser had made a written offer dated 10 February 2010 to the vendors to purchase the property. This written offer was handed over to the vendors' agent on 11 February 2010. Much of the appeal turned on the existence of this pre-option contract, as well as the actual duration of the option period, which was stated in the written offer to be three days.

12.3 An option to purchase was prepared by the vendors' agent and dated 11 February 2010. The date of exercise stated in the option was on or before 4.00pm on 13 February 2010, which was three calendar days from 11 February 2010. The purchaser's agent went to collect the option from the vendors' agent on 12 February 2010. He complained that the option period was too short and left the option with the vendors' agent. Eventually, the vendors refused to amend the option and the purchaser's agent collected the option and finally passed it to the purchaser on 13 February 2010. However, by this time, the option had expired. The next three days were a Sunday and two public holidays. The purchaser tried to exercise the option on 17 February 2010, but the vendors refused this on the ground that the option had already expired.

12.4 The purchaser began proceedings against the vendors to specifically perform the sale of the apartment or for damages. The High Court found in favour of the purchaser, and the vendors appealed to the Court of Appeal.

12.5 The Court of Appeal dismissed the vendors' appeal. It held that the elements of offer and acceptance were present. First, there was an offer to purchase the apartment since this was clearly stated in the purchaser's written offer. Indeed, the written offer expressly provided that the vendors must either accept or reject this offer, which showed that the purchaser intended to be bound provided that his promise was accepted by the vendors. Secondly, there was an acceptance of the purchaser's offer since the vendors had signed on an acknowledgment block indicating acceptance, and had left the rejection block blank. This signified the vendors' final and unqualified expression of assent to the terms of an offer. This case shows that while the elements of offer and acceptance will not be difficult to find, they must still be established with reference to the particular facts of a given case. In this regard, express references to offer and acceptance may go some way towards finding their existence as a legal matter.

12.6 The second case in which the court had to apply the rules relating to contractual formation is the High Court decision of Siemens Industry Software v Lion Global Offshore Pte Ltd[2014] SGHC 251 (Siemens Industry Software). This was an appeal by the defendant, Lion Global Offshore Pte Ltd, against the assistant registrar's decision to enter summary judgment in favour of the plaintiff, Siemens Industry Software Pte Ltd. Owing to a copyright dispute over the use of the plaintiff's software by the defendant, the parties entered into a settlement arrangement. This arrangement involved a full and final settlement of the copyright dispute on a no-fault basis, conditional upon the defendant paying $267,500 (including taxes) under a licensed software designation agreement (LSDA) for six software licences. Accordingly, two documents were concluded: a settlement agreement (SA), and the LSDA. When the defendant refused to pay the $267,500, the plaintiff considered that refusal to be a repudiatory breach of the LSDA. The plaintiff elected to continue with the LSDA and delivered six software licences to the defendant. It then issued a letter of demand to the defendant for the $267,500. When the defendant still refused to pay, the plaintiff succeeded in obtaining summary judgment in its favour. The defendant argued on appeal that it should be given leave to defend as there were several triable issues.

12.7 One of those triable issues concerned issues of offer and acceptance: whether the plaintiff was precluded from proceeding with its claim based only on the LSDA. Essentially, the defendant's argument was that since the SA was made conditional upon the completion of the LSDA, the SA needed to be considered as well.

12.8 Whether this was a triable issue requires the consideration of basic offer and acceptance principles. The law adopts an objective approach towards such ascertainment. Thus, whether a contract is formed (and its constituent terms) depends not on the parties' subjective assertions, but on how a reasonable person would understand the situation.

12.9 Although not expressly stated by the court in Siemens Industry Software, it is clear that it applied these principles. It held that the fact of the SA being conditional on the sale of the six software licences pursuant to the LSDA did not mean that the LSDA was conditional on the SA. The defendant's own subjective assertions on a contrary effect of the SA and the LSDA was thus irrelevant. In any case, the evidence contradicted this assertion as the defendant had stated in an e-mail that it understood that an agreement had been concluded. It was at that point that the coincidence of offer and acceptance occurred. As such, there was no need to consider the SA, and this first alleged triable issue was not in fact triable.

Silence as valid acceptance?

12.10 The rules of offer and acceptance admit of more specific issues apart from that requiring their coincidence. One such issue, considered by the Court of Appeal in R1 International Pte Ltd v Lonstroff AG[2015] 1 SLR 521 (R1 International), is whether there can be a valid acceptance by silence. It must be said that R1 International also concerned other issues of contractual formation, all of which will be dealt with below (at paras 12.1012.13). The case concerned whether a set of terms to arbitrate in Singapore, found in a detailed contract note which had been sent by the appellant to the respondent shortly after their deal was concluded, was incorporated as part of the contract between the parties. The answer to this issue would determine whether the High Court was correct in dismissing the appellant's application for a permanent anti-suit injunction.

12.11 The deal between the parties had come about in the following way. Between January and December 2012, the respondent purchased rubber from the appellant over several transactions. In one of those transactions, the respondent notified the appellant that the rubber it had taken delivery of emitted a foul smell. The appellant did not dispute the presence of the smell, but said that as smell was not a contractually specified parameter of the rubber, it was not in breach of contract.

12.12 The respondent commenced proceedings in Switzerland against the appellant, and the appellant responded by commencing proceedings in Singapore. The appellant sought an anti-suit injunction to prevent the respondent from continuing with the Swiss proceedings. The appellant's basis for doing so was that the respondent was in breach of an agreement found in a contract note to arbitrate any disputes in Singapore.

12.13 Although the respondent never countersigned and returned the contract note, it is important to note the particular way in which each transaction was concluded. First, the parties would negotiate the sale of rubber by e-mail or telephone. Secondly, after the basic terms had been concluded, the appellant would send an e-mail confirmation to the respondent. The respondent would then send a purchase order to the appellant. Thirdly, the appellant would send the respondent a contract note, with a request that the respondent countersign and return a copy. The appellant would then deliver the rubber and issue an invoice, which the respondent would accept and pay for.

12.14 The appellant argued on appeal that it was typical in commodity trading transactions for parties to negotiate and agree on key commercial terms over telephone. This would be recorded in an e-mail sent by the sellers to confirm the trade and key terms. A more detailed set of terms would follow to supplement those key terms. It was therefore said that the respondent, being an experienced buyer in the rubber commodities market, would thus have expected the appellant's further terms, as contained in the contract note, to follow. In so far as offer and acceptance are concerned, the appellant argued that the respondent's failure to countersign the contract note could not be construed as equivocal silence that invalidated acceptance, since the respondent had paid the invoiced amount thereafter. On the contrary, the...

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