Contract Law

Citation(2017) 18 SAL Ann Rev 304
Date01 December 2017
Publication Date01 December 2017
AuthorGOH Yihan LLB (Hons) (National University of Singapore), LLM (Harvard); Advocate and Solicitor (Singapore); Associate Professor, Singapore Management University, School of Law. LEE Pey Woan LLB (Hons) (London), BCL (Oxon); Barrister (Middle Temple); Advocate and Solicitor (Singapore); Associate Professor, Singapore Management University, School of Law. THAM Chee Ho LLB (Hons) (National University of Singapore), BCL, DPhil (Oxon); Advocate and Solicitor (Singapore); Solicitor (England and Wales); Attorney and Counsellor-at-Law (New York State); Associate Professor, Singapore Management University, School of Law.
Formation of contract
Offer and acceptance
Coincidence of offer and acceptance

12.1 The High Court case of Hon Chin Kong v Yip Fook Mun1 illustrates the basic principle that there must be a coincidence of offer and acceptance for a binding contract to be formed. In this case, the plaintiff sought to purchase the defendants' shares in CDX Singapore Pte Ltd (“CDX”). The defendants were the sole directors and shareholders of CDX. The parties agreed for the plaintiff to take over CDX from the defendants. However, the plaintiff encountered financial difficulties and requested to make payment in three tranches. The defendants agreed to this, with the first payment of $300,000 being a “down payment deposit”. It was further agreed that the shares were to be transferred only after the second and third payments had been made.

12.2 The plaintiff only made the first payment. As such, the contemplated sale and purchase did not materialise. The plaintiff then

demanded the return of the first payment. When the defendants refused, the plaintiff sued for its return.

12.3 The defendants resisted the claim by saying that the first payment was a deposit which could be forfeited when the plaintiff failed to make further payments. However, the plaintiff argued, inter alia, that the payment was not a deposit because the parties did not have a binding contract between them.2

12.4 Kannan Ramesh J examined the facts and determined that a contract had been formed as there was a coincidence of offer and acceptance between the parties. First, the plaintiff expressed serious interest in purchasing CDX in an e-mail on 7 May 2013. The first defendant offered to sell CDX at a total price of $850,000 in an e-mail of 11 May. The plaintiff then counter-offered a price of $800,000 in his e-mail titled, “RE: Your offers (ACCEPTED)” on 11 May. Although this was not an acceptance as such – since the plaintiff's counter-offer constituted a fresh offer – the learned judge found that the plaintiff's use of the word “accepted” in the e-mail subject, as well as his suggestion that they open a bottle champagne to celebrate, and asking when to settle the paperwork, showed that the plaintiff had the clear intention to enter into a binding agreement. The defendant then counter-offered a final price of $828,000 on 20 May. The plaintiff's reply on 24 May, “Confirned [sic] la. $828k” showed that he accepted this offer. The plaintiff also expressed his gladness that they at least “sealed the deal”. The entire sequence of events showed that the plaintiff had full intent to be bound were the defendant to accept – the classic definition of an acceptance, as it was put by the Court of Appeal in Gay Choon Ing v Loh Sze Ti Terence Peter.3 There being a coincidence of offer and acceptance, the learned judge found that there existed a contract between the parties.

Postal acceptance rule

12.5 In a somewhat unusual circumstance, the High Court in 1L30G Pte Ltd v EQ Insurance Co Ltd4 had to decide whether the postal acceptance rule applied. EQ Insurance provided 1L30G with a performance bond. 1L30G made a first demand on the bond in February 2015, which was paid out by EQ Insurance. On 19 January 2017, 1L30G made a second demand on the bond, but this time, EQ Insurance refused to pay. It argued that the bond had expired on

26 October 2014, even before the first demand. EQ Insurance therefore requested a return of the sum paid under the first demand. 1L30G therefore sued for the second payment, as well as for a declaration that it was entitled to the first payment.

12.6 Key to the case was EQ Insurance's argument that the bond had already expired pursuant to its cl 3, which stated that it would automatically be extended for 180 days on 26 October 2014 unless a notice of non-renewal was given. EQ Insurance claimed that it gave such notice by posting a letter dated 27 June 2014. It further argued that even if the notice was not actually received by 1L30G, cl 3 would be satisfied by virtue of the postal acceptance rule.

12.7 Lee Seiu Kin J allowed 1L30G's claim. His Honour found as a matter of fact that EQ Insurance had posted the letter dated 27 June 2014. However, the postal acceptance rule did not apply because cl 3 required 1L30G to have “notice”, suggesting that this required actual notice of the non-renewal letter before the bond could expire. This was supported by the fact that the non-renewal would trigger certain rights that 1L30G could exercise. For these rights to be effective, 1L30G should have had actual notice of non-renewal. Thus, because 1L30G did not receive the 27 June 2014 letter, the notice of non-renewal was not effective and there remained an active bond between the parties.

12.8 It could also be argued that this was not a case where the postal acceptance rule applied. The postal acceptance rule only applies in relation to offers made to enter into contracts. There was no such offer here. Rather, the correct date when the performance bond terminated is to be resolved by a process of construction as to when the notice of non-renewal was to be triggered.5

12.9 The learned judge also expressed some sentiments on the postal acceptance rule, which provides that the acceptance would be deemed to have taken place at the time of posting rather than receipt. In his Honour's view, although the rule introduced certainty for the accepting party, it introduced uncertainty for the offering party. Thus, the rule would only apply if both parties intended for it to apply, just as much as they could intend for the normal rules of notification to apply. Whether it applied thus depended on the parties' intentions, rather than the nature of communication. The fact that communications were instantaneous would only be a factor that showed that parties did not intend for the postal acceptance rule to apply, but this was by no means conclusive.

“Subject to” clauses and formation

12.10 There were at least two cases where the Singapore courts had to deal with whether the parties had qualified their discussions with each other so as to prevent the formation of a binding contract between them. The Court of Appeal in Toptip Holding Pte Ltd v Mercuria Energy Pte Ltd6 (“Toptip”) had the opportunity to deal with whether a contract had been formed. Toptip is a Singapore company dealing in bulk commodities. Mercuria, in turn, is the Singapore subsidiary of a global energy and commodity group, and dealt with the chartering out of vessels to carry dry cargo. Mercuria began negotiations with Toptip in October 2014 for the charter of a vessel, on the basis that Mercuria, which did not own any vessel, would be the disponent owner of the vessel if a charterparty was concluded.

12.11 The circumstances of the negotiations were as follows. Toptip had purchased iron ore pellets from Samarco. Under the terms of the sale contract, Toptip had to arrange for a suitable vessel to transport the cargo but Samarco had the right to reject the nominated vessel. Toptip engaged Shu, a ship chartering broker, to find a vessel. Shu was the one who negotiated with Mercuria on Toptip's behalf.

12.12 Toptip's requirements for the vessel were set out in an enquiry e-mail sent to Mercuria. Mercuria responded with a bid incorporating the following “subject review” clause: “[otherwise] subject review of charterers' pro forma charterparty with logical amendment”.7 At the end of the parties' discussions, a vessel was eventually nominated by Mercuria and a draft charterparty prepared by Shu. However, Mercuria then informed Toptip through Shu that it was rejecting the transaction because it found the draft charterparty unacceptable. Toptip accepted this rejection but had to secure a substitute charterparty. It sued Mercuria for the difference in freight it had to pay for the new charterparty compared to the freight it had to pay had Mercuria not withdrawn from the business. The trial judge dismissed this claim on the basis that no valid charterparty had been formed between the parties due to the subject review clause.

12.13 On appeal, Judith Prakash JA, writing for the Court of Appeal, allowed Toptip's claim. The Court of Appeal concluded that Mercuria's bid, when construed in the overall context, was a complete and certain offer that was capable of acceptance notwithstanding the subject review clause. Indeed, the bid expressly stated that it was an offer on a firm basis. Thus, when Shu replied to accept the “offer”, a contract was

formed, which was subsequently repudiated by Mercuria. Moreover, Mercuria had remained silent and did not respond to clarify that its bid was not an offer and hence no contract could be formed. It also did not indicate any objection to the main terms or any reservation as to the particular form which the charterparty must take. If at all, Mercuria's conduct was consistent with a belief that a contract had been formed: it nominated the vessel and asked Toptip for the kind of documents that Samarco would need for the latter's approval.

12.14 As a matter of law, a subject review clause did not by itself preclude the formation of a contract. This depended on its meaning. Such a clause could either be a condition precedent to the formation of a contract or a condition subsequent. The exact meaning depended on the circumstances. Here, the subject review clause was a condition subsequent which did not prevent the formation of a contract. There was, for example, no indication on the facts that the subject review clause was intended to supersede the clear indication that the offer was made on a “firm basis”.

12.15 The Singapore International Commercial Court had to deal with a similar issue in Tozzi Srl v Bumi Armada Offshore Holdings Ltd8 (“Tozzi Srl”). In this case, the plaintiff and the first defendant had entered into an agreement for the plaintiff to work exclusively with the defendants. This was to support the defendants' bid for a project in Indonesia. In...

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