Case Note

Citation(2012) 24 SAcLJ 275
Published date01 December 2012
Date01 December 2012
AuthorGOH Yihan LLB (Hons) (National University of Singapore), LLM (Harvard); Advocate and Solicitor (Singapore); Assistant Professor, Faculty of Law, National University of Singapore.

Continued Refinement after Zurich Insurance

Sheng Siong Supermarket Pte Ltd v Carilla Pte Ltd [2011] 4 SLR 1094

This piece discusses the following aspects of contractual interpretation in Singapore raised in the recent Singapore High Court case of Sheng Siong Supermarket Pte Ltd v Carilla Pte Ltd[2011] 4 SLR 1094: (a) the distinction between interpretation and implication of terms in fact; (b) the occasions in which extrinsic evidence is admissible for the interpretation of contracts in Singapore; and (c) the distinction between “admissible extrinsic evidence” and “permissible interpretation”.

I. Introduction

1 The law relating to the interpretation of contracts in Singapore is unique. In the first place, it involves the interpretation of a statute, viz, particular provisions of the Evidence Act1 which govern various aspects of contractual interpretation. One might question if the approach taken in statutory and contractual interpretation is consistent in Singapore,2 but that is not the aim of this note. More relevantly, contractual interpretation in Singapore must now be discussed in the

light of the important Court of Appeal decision of Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd3 (“Zurich Insurance”). At the risk of gross over-simplification, the Court of Appeal held in that case that proviso (f) to s 94 of the Evidence Act is “a fundamental rule of interpretation”4 and, as such, governs contractual interpretation in Singapore by allowing extrinsic evidence to be admitted in the interpretation of contracts, which has to be done via the contextual approach. From that premise, the Court of Appeal proceeded to restate the fundamental rules of contractual interpretation in Singapore, culminating in a six-point summary5 which has since been cited many times by the local courts.

2 The recent High Court decision of Sheng Siong Supermarket Pte Ltd v Carilla Pte Ltd6 (“Sheng Siong”) is one of the latest cases to cite7Zurich Insurance and is illustrative of the continued refinement of contractual interpretation in Singapore. It therefore provides us with a good opportunity to discuss and evaluate the state of contractual interpretation in Singapore some three years after Zurich Insurance was decided. In particular, this note offers commentary on the following aspects of contractual interpretation in Singapore: (a) the distinction between interpretation and implication of terms in fact; (b) the occasions on which extrinsic evidence is admissible for the interpretation of contracts in Singapore; and (c) the distinction between “admissible extrinsic evidence” and “permissible interpretation”.

II. Facts and decision in Sheng Siong

3 But first, as is the custom in pieces of this nature, a summary of the facts and decision in Sheng Siong is appropriate at this juncture. Put shortly, the case concerns the interpretation of a leasehold agreement, specifically whether that agreement is conditional upon the premises concerned being capable of use as a supermarket.

4 The plaintiff, Sheng Siong Supermarket Pte Ltd (“Sheng Siong”), entered into negotiations in October 2008 to set up a supermarket and a food court in the premises of a building owned by Carilla Pte Ltd (“Carilla”), the defendant. In November 2008, the parties through their representatives exchanged e-mail messages, one amongst which stipulated that Carilla was to build “two internal travellators,

a sub-station [sic], central air-cons, and a cargo lift to suit the supermarket operations”.8 In January 2009, Carilla sent a main term sheet (“MTS”) to Sheng Siong for its approval. Sheng Siong replied that Carilla should obtain approval from the relevant authorities for Sheng Siong to set up its supermarket and food court operations on the premises concerned. Crucially, Sheng Siong stated via e-mail in the same month that “if either one of these business is being [sic] rejected or disapproved by authorities, we were [sic] not consider to rent the said premises”.9 The parties signed a final version of the MTS on 14 January 2009. Clause 10 of the MTS read:

40% of GFA is for retail and 60% GFA is for entertainment, offices, child care, etc. Tenant usage comprises supermarket, wet market, thematic F&B, offices and others.

5 Clause 10, along with all the other terms in the MTS, was to have been incorporated into the standard tenancy agreement to form the final tenancy agreement. Had this been the case, there would be a clear-cut failure of a condition precedent in the event that approval for the supermarket was not granted. As it turned out, however, this clause was later omitted from the final version of the standard tenancy agreement. Nevertheless, Annex 1 of the standard tenancy agreement included a plan of the premises concerned that depicted a supermarket. The Second Schedule to the standard tenancy agreement likewise contained a list that included a cargo lift, a passenger lift, travellators and escalators, all of which were consistent with use as a supermarket. But there was no express provision similar to the one in the MTS that provided that the premises concerned were to be used as a supermarket.

6 In March 2009, Sheng Siong signed the final tenancy agreement and paid Carilla $453,210 being the agreed security deposit, and $22,954 being the sum for stamp duties. In April 2009, Carilla proceeded to obtain approval from the Housing and Development Board (“HDB”) – the relevant authority – that the premises concerned be used as a supermarket and food court. After this application was rejected, Carilla proposed to Sheng Siong that the use of the premises be changed from “Supermarket” to “Retail”. Sheng Siong did not agree to this proposed change. Carilla then suggested in May 2009 that Sheng Siong appeal to HDB. This was done in June 2009 but rejected in the same month, with a suggestion that the premises concerned be used as a “hotel or hostel”.

7 Carilla then informed Sheng Siong that it was to “adjust [its] operation at the [premises concerned] so as to be in line with the usage as allowed by HDB”.10 After some further correspondence between the

parties, Carilla informed Sheng Siong in late June 2009 that it was to comply with HDB's direction. If Sheng Siong failed to do so, it would lose all the moneys already paid to Carilla, and would also incur additional “holding costs”. After communications broke down between the parties, Sheng Siong began legal proceedings for the return of the moneys it had paid over to Carilla in March 2009. Carilla counterclaimed for a declaration that the final tenancy agreement had been repudiated by Sheng Siong's breach and that the moneys paid over by Sheng Siong be forfeited in Carilla's favour.

8 From these facts, the pertinent issue was whether Carilla could enforce the final tenancy agreement against Sheng Siong notwithstanding that the premises concerned could not be used as a supermarket. The High Court decided in favour of Sheng Siong. After considering several pieces of extrinsic evidence, it found that there was an “express provision” in the final tenancy agreement that made the agreement conditional on permission being granted for the premises concerned to be used as a supermarket. This “express provision” was in fact the plan of the premises (annexed to the standard tenancy agreement which formed part of the final tenancy agreement) that depicted a supermarket.11 Because this condition had not been met, the High Court found that the final tenancy agreement had been frustrated.12 Consequent to the Frustrated Contracts Act,13 Sheng Siong was entitled to recover the sums paid over to Carilla,14 subject to a suitable deduction being made for expenses incurred by Carilla in relation to the preparation of the proposal to HDB.15

9 Leaving aside the frustration issues, the focus of this piece is the High Court's use of extrinsic evidence in interpreting the final tenancy agreement.

III. A preliminary issue of characterisation: Interpretation or something else?

A. The distinction between interpretation and existence of an express term

10 Before we discuss the relevant principles on the use of extrinsic evidence in contractual interpretation, there is first a preliminary issue of characterisation that should be addressed. Although the parties submitted on whether there was an express condition precedent that the final tenancy agreement was conditional on permission being granted for use as a supermarket, the High Court characterised the issue as being one of “interpretation of the [Final] Tenancy Agreement”16. In doing so, it seems to have merged the issue of whether there was an express term, and the interpretation of such a term. It should be said that the existence of a term – whether express or implied – is distinct from the meaning of the term; the interpretation of a term presupposes that the term already exists.17 Therefore, it may be more accurate to characterise the issue as the interpretation of an express term. Having said that, however, it is understandable why the High Court had characterised the issue as being one of “interpretation”: Sheng Siong had submitted that the plans reflected usage as a supermarket,18 whereas Carilla argued that the plans should not be interpreted “as reflecting an express provision that the lease was conditional on the premises concerned being capable for use as a supermarket”.19 Thus, the parties' submissions appear to be concerned with the interpretation of an (assumed) express term, while (it seems) mischaracterising the issue as being concerned with the existence of such a term.

B. The distinction between interpretation and implication of terms in fact

11 More importantly, it is Sheng Siong's alternative submission that there is an implied term to similar effect that raises a more important distinction. Although the High Court did not deal with the issue – since it had already found that there was an express...

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