Contract Law

Citation(2018) 19 SAL Ann Rev 312
Date01 December 2018
Published date01 December 2018
Formation of a contract
Offer and acceptance

12.1 The general principles concerning the formation of a contract were extensively discussed in the High Court decision of Tan Kok Yong Steve v Itochu Singapore Pte Ltd1 (“Tan Kok Yong Steve”). The plaintiff claimed for the payment of a severance package allegedly promised to him by the defendant, his ex-employer. The defendant did not deny it had offered the severance package to the plaintiff, but argued that it was an ex gratia payment which was revoked as the plaintiff had breached the non-competition undertaking in the employment agreement.

12.2 The plaintiff had been employed to handle the defendant's cement trade in October 2012. After an initially successful period, the relationship between the plaintiff and defendant began to deteriorate in early 2016. By June 2016, the decision was taken within the defendant's management to terminate the plaintiff's employment. On 23 June 2016,

the defendant's human resources general manager (“DW1”) informed the plaintiff that his employment would be terminated after 30 June 2016. However, DW1 also informed the plaintiff that if he were to resign, he would be given a severance package, the details of which were not specified at the time. Although the plaintiff's request to waive a non-competition clause was denied by the defendant, he still decided to resign on 30 June 2016 so as to benefit from the severance package. The defendant issued a confirmation letter in response to the plaintiff's resignation letter. The material terms of the confirmation letter read:

Your letter of resignation dated 30 June 2016 is accepted with much regret.

On mutual agreement the company has decided to an early release. Your last day of service is on 30 June 2016.

We wish to confirm the following:

You will be paid:

a. The salary for 1 – 30 June 2016 (which was paid on 24 June 2016)

b. One month salary in lieu of notice

c. Ex-gratia payment of 3.70 months' basic salary

d. Pro-rated Annual Wage Supplement (AWS) for the year 2016

e. Annual leave balance as at 30 June 2016

f. Variable bonus of 6.33 months

(Basic Salary x 3.55 months) x [(0.75 (BC Rating) x 0.7) + (2.14 (Dept Ratio) x 0.3)] x 1.4 + S$3,700

The total amount payable to you after deduction of deductible CPF shall be paid to you no later than 25 July 2016.

12.3 Subsequently, the plaintiff engaged in commercial conduct that violated the non-competition clause. Therefore, the plaintiff's claim for the severance package was understandably resisted by the defendant. The plaintiff argued that there was a valid agreement concluded between the parties on 30 June 2016 when he tendered his resignation and the defendant sent the confirmation letter in reply. On the other hand, the defendant argued that the severance package was an ex gratia goodwill payment and was not a valid agreement. Alternatively, the defendant also argued that even if there were a purported valid agreement for the severance package, it was void for uncertainty and/or lack of consideration. Both parties were also at odds over the effect of the non-competition clause: the plaintiff argued that its compliance was neither an express nor implied condition of the agreement of the severance package, whereas the defendant argued that it was.

12.4 Leaving aside the validity of the non-competition clause itself, which the plaintiff argued was in restraint in trade, the pertinent issue to be discussed here concerns the enforceability of the severance package.

12.5 Tan Siong Thye J held that, in order to ascertain whether there was a valid contract between the parties, the court had to look at the whole course of negotiations between the parties.2 Accordingly, the learned judge regarded that it would be incorrect to confine the search for evidence of a contract to just the events of 30 June 2016. Rather, the search had to start from 23 June 2016, which was when DW1 first offered the plaintiff the severance package.

12.6 Upon examining the evidence, Tan J was satisfied DW1 did offer the severance package in exchange for the plaintiff's resignation. As to whether this amounted to a valid offer, Tan J relied on the definition of an offer in Aircharter World Pte Ltd v Kontena Nasional Bhd:3

An offer … is an expression of willingness to contract made with the intention (actual or apparent) that it shall become binding on the person making it as soon as it is accepted by the person to whom it is addressed. [emphasis added by the court]

12.7 On the facts, Tan J found that the defendant had made a valid offer to the plaintiff. It was clear that DW1 conveyed to the plaintiff that the severance package would only be available if the plaintiff were to resign. Although DW1 did not detail the monetary value of the severance package, this was not necessary at this initial meeting. Tan J found that the plaintiff was entitled to think that this was a serious offer considering that DW1 was the general manager of the defendant's human resources department. Furthermore, as the learned judge also noted, it was reasonable for the plaintiff to believe that his employment with the defendant was coming to an end given the parties' deteriorating relationship.

12.8 Tan J similarly found that the plaintiff had validly accepted the defendant's offer. The learned judge accepted the definition of a valid acceptance in Gay Choon Ing v Loh Sze Ti Terence Peter4 as “a final and unqualified expression of assent to the terms of an offer”.5 In this case, the plaintiff makes clear his intention to resign from the defendant in his letter of resignation. Furthermore, DW1 also sent the plaintiff the confirmation letter that stated clearly that the defendant accepted the

plaintiff's resignation. Accordingly, Tan J concluded that there was a valid agreement between the parties in relation to the severance package.
Consideration

12.9 Another formation issue in Tan Kok Yong Steve6 concerned whether the agreement for the severance package was supported by consideration. The defendant denied that there was consideration as the plaintiff's resignation was not requested by the defendant and the resignation was of no benefit to the defendant.

12.10 As to the defendant's first argument here, Tan J agreed that an act of promise will only constitute valid consideration if it had been requested by the promisor.7 On the facts, it is clear that DW1, acting on behalf of the defendant, was the “promisor” who promised the plaintiff payment of the severance package in exchange for his resignation.

12.11 On the defendant's second argument here, Tan J found that the plaintiff's resignation had benefited the defendant. Although the defendant was entitled to terminate the plaintiff without giving any reason by giving the requisite notice period, the plaintiff's resignation in the circumstances still benefited the defendant by sparing it the trouble of dealing with the plaintiff's union. Even assuming that the defendant had valid reasons to terminate the plaintiff's employment, it would still have to expend resources to convince the union that this was indeed the case. Thus, the plaintiff's resignation was the most expedient way for the defendant to end his employment, and there was no doubt that the defendant benefited from this arrangement. More broadly, Tan J's treatment of the facts accords with how courts both in Singapore and abroad find consideration most readily in commercial matters.8

Intention to create legal relations

12.12 In the High Court decision of Tan Swee Wan v Johnny Lian Tian Yong,9 George Wei J held that agreements made in the business and commercial context are generally presumed to be legally binding. However, this presumption may be rebutted where, for example, the

terms are so uncertain or incomplete such that the parties would not have reasonably been taken to intend an agreement. In that case, Wei J found that the alleged oral agreement failed because, even though it had arisen in a commercial or business context, there was much uncertainty over the date or period over which it was formed and the terms such that it was not possible to conclude that any agreement had been made.
Certainty and completeness

12.13 Yet another formation issue in Tan Kok Yong Steve10 concerned whether the agreement for the severance package was uncertain and hence unenforceable. The defendant had argued that the agreement for the severance package was uncertain as DW1 had not discussed any figures with the plaintiff.

12.14 In response to this argument, Tan J held that, while certainty of terms is an essential requirement for the enforceability of contracts, what is “sufficiently certain” is a matter of degree such that courts do not expect contracts to be drafted with utmost certainty.11 More specifically, Tan J held that a contract would not be rendered:12

… uncertain even though there is a term to be determined in the future, provided that the contract itself provides the means for ascertainment of that term.

Applying that to the present case, the learned judge found that the confirmation letter had in fact specified the formula to ascertain the monetary sum of each component of the severance package to be paid. Since the confirmation letter formed part of the contract between the parties, the agreement did not fail for uncertainty since the letter did provide a method to ascertain the eventual figure to be paid under the severance package.

12.15 However, where a contract is still fraught with uncertainty or incompleteness despite the court's best efforts to ascertain the parties' intentions, it would not be enforceable. Such was the case in the District Court decision of Schenker Singapore (Pte) Ltd v WK Asia-Pacific Environmental Pte Ltd,13 where District Judge Chiah Kok Khun found a contract unenforceable as there were no particulars given on the rates basis and no evidence adduced on what the parties might have...

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