Contract Law

AuthorGOH Yihan SC LLB (Hons) (National University of Singapore), LLM (Harvard); Advocate and Solicitor (Singapore); Professor, Singapore Management University, School of Law. LEE Pey Woan LLB (Hons) (London), BCL (Oxford); Barrister (Middle Temple); Advocate and Solicitor (Singapore); Professor, Singapore Management University, School of Law. THAM Chee Ho LLB (Hons) (National University of Singapore), BCL, DPhil (Oxford); Advocate and Solicitor (Singapore); Solicitor (England and Wales); Attorney and Counsellor-at-Law (New York State); Professor, Singapore Management University, School of Law.
Publication year2021
Date01 December 2021
I. Formation of a contract
A. Offer and acceptance
(1) Different approaches in ascertaining existence of contract and interpreting a contract

13.1 The Court of Appeal in The Luna2 held that there were significant differences in the approaches taken towards the interpretation of a contract and the ascertainment of the existence of a contract. In particular, the court pointed out that the parol evidence rule and principles governing the admission of extrinsic evidence applied to the former, whereas there was no restriction on the evidence which the court could consider in the case of the latter. The court made this distinction as it had to determine whether the parties had intended for certain bills of lading to have contractual effect. Accordingly, by this distinction, the court ruled that it

could have regard to the perspectives of not only the shipper and carrier in the present case but also other parties who were generally known to use these bills of lading.

13.2 The court explained that this distinction was sound as a matter of principle. While a court is considering the parties' objective intentions in both interpretation and formation cases, in the former case, a court is ascertaining “what the parties, from an objective viewpoint, ultimately agreed on” [emphasis added].3 The foundational premise is that the parties had reached an agreement. As such, the parol evidence rule and the Zurich Insurance principles apply since the parties' mutual understanding of such an agreement and its terms can only be based on matters that are relevant, reasonably available to both parties and related to a clear or obvious context. In contrast, these principles do not apply to formation cases since the court there is considering the prior question of whether the parties had even reached an agreement in the first place.

13.3 The court also alluded to its own decision in Simpson Marine (SEA) Pte Ltd v Jiacipto Jiaravanon4 (“Simpson Marie”), where it had considered it arguable that the distinction between the evidential rules applicable to the formation and interpretation of contracts is not correct. However, the court in The Luna opined that the court in Simpson Marine was considering the specific question of whether evidence of subsequent conduct could be considered in formation and interpretation cases. That specific question did not affect what the court was now considering to be a fundamental distinction between formation and interpretation, which was also supported by the English cases such as The Starsin.5

13.4 Accordingly, adopting the approach taken by the High Court in Midlink Development Pte Ltd v The Stansfield Group Pte Ltd,6 the court considered that it could consider the established matrix of circumstances, including what the parties objectively understood from their respective perspectives. The court therefore ruled that it could have regard to the perspectives of not only the shipper and carrier in the present case but also other parties who were generally known to use these bills of lading.

13.5 The High Court in Wong Kar King v Lim Pang Hern7 (“Wong Kar King”) demonstrated the breadth of facts that could be considered in ascertaining the existence of an agreement between the parties. In that case, the court had to decide if there was an oral agreement concluded between the parties for the defendant to purchase 29% of the equity in Advanced Holdings Ltd from the plaintiff in exchange for the plaintiff procuring Advanced Holdings Ltd to acquire BD Crane and Engineering Pte Ltd for $9m. Ang Cheng Hock J was not convinced that there was such an oral agreement. First, the learned judge thought it was unrealistic that the parties did not reduce the alleged agreement to writing, especially given the high quantum involved. Second, the defendant could not identify the exact date on which the alleged oral agreement was made. This therefore offended the trite principle that there had to be a single point in time when the necessary consensus ad idem was reached.8 Third, Ang J also found it commercially unrealistic that the parties would have agreed to a commitment of this magnitude without agreeing when the purchase would actually happen. Finally, Ang J found it helpful to consider whether the parties' subsequent conduct in that case supported the existence of the alleged oral agreement, which pointed against such an agreement. Ang J noted that the conduct had taken place before the emergence of the dispute at hand and therefore was unlikely to have been done with the aim of affecting the parties' respective positions in the present action.

13.6 More broadly, Ang J's approach in Wong Kar King is consistent with the Court of Appeal's pronouncement in The Luna that a court is able to consider a broad array of extrinsic evidence in ascertaining the existence of an agreement between the parties.

(2) Communication of acceptance

13.7 In BGC Partners (Singapore) Ltd v Yap Yuk Hee,9 the High Court had to consider whether an acceptance was effectively communicated. See Kee Oon J held the general rule to be that communication of acceptance is necessary for a valid and binding contract to exist. Referring to Chitty on Contracts,10 the learned judge explained that the rationale for this rule is to avoid unfairness to the offeror to bind him before he knows that his offer had been accepted.

13.8 On the facts, See J held that there had not been effective communication of acceptance. There were no copies of the fully executed and dated agreements conveyed to the offeror. Indeed, cl 6(c) of the agreement required the offeree to return signed copies to the offeror.

B. Consideration
(1) Past consideration

13.9 The High Court applied the trite principle that past consideration is not good consideration in Fu Hao v Evancarl Ltd.11 In that case, the defendants argued, among others, that the alleged written agreements between the parties were invalid as they were not supported by good consideration. The defendants argued that they had entered into the so-called first and second procurement agreements in consideration of the plaintiff entering into a sale and purchase agreement. However, that sale and purchase agreement was signed before the rest of the agreements were concluded. As such, the defendants contended that this was a situation of past consideration that invalidated the alleged written agreements between the parties.

13.10 The High Court rejected this argument. Lee Seiu Kin J referred to the Court of Appeal's holding in Gay Choon Ing v Loh Sze Ti Terence Peter,12 where it held as follows:13

It should also be noted that an absence of linkage between the parties can also occur if the consideration is past — hence, the oft-cited principle that ‘past consideration is no consideration’. However, the courts look to the substance rather than the form. Hence, what looks at first blush like past consideration will still pass legal muster if there is, in effect, a single (contemporaneous) transaction (the common understanding of the parties being that consideration would indeed be furnished at the time the promisor made his or her promise to the promisee). [emphasis in original]

13.11 Lee J held that no issue of past consideration would arise where the agreements concerned were entered into contemporaneously, that is, at or around the same time. On the present facts, the learned judge found that the parties had intended for the written agreements to constitute a contemporaneous agreement. As such, the fact that the constituent agreements were not signed precisely at the same time did not give rise to a problem in consideration.

(2) Forbearance from suing as consideration

13.12 In Jasviderbir Sing Sethi v Sandeep Singh Bhatia,14 the High Court considered whether a bare forbearance from suing could amount to valid consideration. The plaintiffs argued that they provided consideration in relation to the so-called “Repayment Contract” by forbearing from suing the defendants for certain fraudulent representations the latter had made.

13.13 Vinodh Coomaraswamy J accepted as a starting point that a forbearance to sue could constitute valid consideration for a contract provided that, first, there were reasonable grounds for the underlying claim, and, second, the plaintiff honestly believed that the postponed claim had a fair chance of success.15 However, the learned judge held that it was not sufficient for a promisee to simply forbear to sue a defaulting promisor so that the forbearance would constitute valid consideration. In addition, the element of bargain which is at the root of the doctrine of consideration requires the promisor to request the consideration as the price of the promise. Thus, in the present case, if the plaintiffs had decided unilaterally not to sue the defendants, then their forbearance to sue would not be the price of the defendants' promise and could not constitute valid consideration for the promise. On the facts, Coomaraswamy J found that the defendants had not asked the plaintiffs from suing.

C. Intention to create legal relations

13.14 In Jasviderbir Sing Sethi v Sandeep Singh Bhatia, Coomaraswamy J also had to consider if the parties concerned had intended to create legal relations. The learned judge held that the test of whether parties intended to create legal relations is objective. It is trite that parties are presumed to have intended to create legal relations if they enter into agreements in a business or commercial context. In contrast, parties are presumed not to have intended to create legal intentions if they enter into agreements in a social or domestic context. The problem in the present case was that the plaintiffs and the first defendant had both business and social relationships.

13.15 Coomaraswamy J considered the High Court case of Oei Hong Leong v Chew Hua Seng16 (“Oei Hong Leong”) to be instructive as it likewise concerned a situation where the parties had...

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