Contract Law

Date01 December 2019
Published date01 December 2019
I. Formation of a contract
A. Offer and acceptance

12.1 The High Court decision of Avra Commodities Pte Ltd v China Coal Solution (Singapore) Pte Ltd1 (“Avra Commodities”) raised basic issues of offer and acceptance. As the court summarised succinctly, the dispute turned on whether the parties concluded a contract by an exchange of four e-mails in March 2017. The plaintiff argued they did whereas the defendant argued they did not.

12.2 The plaintiff argued that it made an offer to the defendant in its first e-mail, which was accepted by the defendant in the fourth e-mail — subject to changes agreed to in the second and third e-mails — when the defendant's representative “confirm [ed] [the plaintiff's] good offer as below”. The plaintiff acknowledged that a material term of the contract — the identity of the load port surveyor — had been left “to be mutually agreed” later, without agreeing a method for doing so. However, the plaintiff argued that this did not render the contract uncertain. Indeed, the parties later agreed on the load port surveyor, similar to how they had

concluded their previous dealings. In contrast, the defendant pressed the point that the parties had left unresolved a material term in the contract.

12.3 In dealing with whether a contract had been formed, the High Court reiterated three basic principles of contractual formation. First, the law adopts an objective approach to ascertain whether a contract had been formed. As the Court of Appeal put it in R1 International Pte Ltd v Lonstroff AG2 the parties' objective intentions must be gleaned from (a) their correspondence and conduct in light of the relevant background, which includes the industry the parties are in; (b) the character of the document which contains the terms in question; as well as (c) the course of dealings between the parties.3

12.4 Second, the offeree can accept an offer in any way that is a final and unqualified expression of assent to the terms of an offer. Thus, an offeree can accept by words or conduct, although it would generally be difficult for a court to find effective acceptance through a failure or omission to speak or act. However, such failure or omission can more easily constitute acceptance where the parties discuss and agree on a set of terms which are sufficiently certain to give rise to a concluded contract, but leave the remaining terms for future discussion and agreement. In this situation, if a party proposes an additional term to those already agreed, and the other party remains silent, it may be easier to infer that the latter had accepted the additional terms albeit by its silence.

12.5 Third, the parties may intend to be bound only after a final and further condition is fulfilled. This may usually be the execution of a formal contract recording their agreement in writing. Parties can also agree to be contractually bound as soon as they agree on a set of terms, and leave additional terms to be negotiated. However, this is subject to the caveat that the initial set of terms agreed must be sufficient by themselves to imbue the contract with the necessary certainty for it to be enforceable.

12.6 Applying these principles in Avra Commodities,4 the High Court found that the parties' communications manifested an objective intention to be bound. This was because the parties had plainly used the language of offer and acceptance in their e-mails, which made it difficult for the defendant to deny otherwise. This was so despite the fact that the parties left further terms to be agreed, specifically that of the identity of the load port surveyor. However, this would leave the issue of whether

the contract was sufficiently certain as this term had not been specifically agreed: this will be discussed below.
B. Consideration

12.7 Although the doctrine of consideration has been criticised by the courts for its artificiality,5 it remains a core element of contractual formation under the common law. There are two principal rules that underpin the doctrine. First, past consideration is not good consideration unless a causal connection between the latter promise and the prior consideration can be found. Second, consideration need only be sufficient but need not adequate.6 This means that it is only necessary to locate what is recognised as consideration by the law; it is unnecessary that the consideration furnished be commensurate with that which is being offered in return.

12.8 In addition to these two rules, it is also clear that consideration is not only required for contractual formation but also variation of the contract. Thus, a promisee who seeks to enforce a promise to vary a contractual obligation must show that he has given something in return that is sufficient consideration for that promise.7

12.9 These rules were subjected to detailed analysis by the High Court in Ma Hongjin v SCP Holdings Pte Ltd8 (“Ma Hongjin”).

(1) Consideration need not be sufficient

12.10 As to the first rule, the High Court in Ma Hongjin summarised the applicable considerations as follows:9

The court does not inquire as to the adequacy of the consideration ‘so long as there is sufficient consideration furnished by the promisee in the eyes of the law’ [emphasis in original] (Gay Choon Ing at [86]). The law requires only that the promisee's act, forbearance or promise has some economic value, even if that value cannot be quantified: Treitel on the Law of Contract (Edwin Peel ed) (Sweet & Maxwell, 14th ed, 2015) at para 3–027. So long as this requirement is satisfied, it does not matter if, in an objective sense, that economic value is not in any way commensurate with what the promisee receives in return. [emphasis in original]

12.11 This passage lays down clearly the underlying considerations behind the rule that consideration need only be sufficient, not adequate. However, as is well known, the application of this rule raises some difficulties when it is asked whether a promisee's performance of an existing contractual obligation can be consideration for an additional promise by the promisor. Traditionally, such performance was not sufficient consideration as it does not confer a legal benefit to the promisee. However, the English Court of Appeal in Williams v Roffey Bros & Nicholls (Contractors) Ltd10 (“Williams”) distinguished between legal and factual benefit, such that consideration can be taken to be sufficient if it confers either type of benefit.11 As the High Court in Ma Hongjin12 pointed out, Williams has been accepted by a number of Singapore cases. The court further stressed that, strictly speaking, it is not the promisee's performance of an existing contractual obligation that itself constitutes sufficient consideration. Rather, it is the factual benefit that accrues to the promisor separately from such performance that constitutes sufficient consideration. As the court puts it, “the factual or practical benefit must be extrinsic to that performance”.13

12.12 Further, the High Court in Ma Hongjin also held that, in order for factual or practical benefit to constitute sufficient consideration, it must be objectively ascertained to be so, rather than dependent on what the parties subjectively thought.14

(2) Past consideration is no consideration

12.13 The High Court in Ma Hongjin also referred to the well-known rule that past consideration is no consideration. It made clear that this rule does not just look at chronology. Rather, it is the causal connection between the consideration and the promise that matters. It suffices that, at the time of an earlier act, a later promise was contemplated. This would establish that the consideration and promise are part of the same transaction.

(3) Variation requires consideration

12.14 The High Court in Ma Hongjin15 also explained that consideration is needed for a contractual variation. This is despite contrary authorities elsewhere and doubts expressed here. For example, the New Zealand Court of Appeal had ruled that consideration is not needed for a contractual variation to be binding so long as there was reliance.16 Similarly, the High Court in S Pacific Resources Ltd v Tomolugen Holdings Ltd17 expressed regret that the strict insistence on consideration for variation might frustrate the parties' expectations that the variation would be honoured. However, the High Court in Ma Hongjin regarded it as clear that the Court of Appeal had in Gay Choong Ing18 clearly affirmed the need for consideration in Singapore law, including for contract variation. Thus, it considered itself bound by authority to require consideration for variation.

12.15 That said, the High Court differentiated between bilateral and unilateral variations. The former involves one contracting party promising to a variation in one part of the contract, in exchange for the other party's promise to vary another part of the contract. In this case of a bilateral variation, the parties' respective promises to vary would count as consideration for each other. In contrast, if only one party promises a variation, then the consideration required to support it cannot be found in the other party's promise to vary the contract. In this case of a unilateral variation, the consideration needed to support this promise to vary must be found “outside” the promise to vary.

12.16 Finally, the High Court in Ma Hongjin, agreeing with the High Court decision of Benlen Pte Ltd v Authentic Builder Pte Ltd,19 held that parties may agree to a clause that binds them to a future variation which is not supported by consideration at the time of the variation: the parties may agree to a certain set of rules providing for their own variation of their contract. This, as the court explained in Ma Hongjin, does not offend the need for consideration because any future variation under the clause is sufficiently connected to the consideration that was given earlier in time for the clause itself. A slightly...

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