ENVISIONING THE JUDICIAL ABOLITION OF THE DOCTRINE OF CONSIDERATION IN SINGAPORE

• Published date: 01 December 2011
• Author: KOO Zhi Xuan LLB (Hons) (National University of Singapore); Justices‘ Law Clerk, Supreme Court of Singapore.
• Date: 01 December 2011

The doctrine of consideration in contract law serves as an absolute “formula of denial” to the enforceability of otherwise legally binding agreements today. In this article, the justifications offered in defence of the doctrine will be thoroughly investigated, but each will eventually be found wanting. A study of the civilian legal system will also cast doubt on the necessity of the doctrine in contract formation. This author proposes that the Singapore judiciary abolish the doctrine, but retain the notion of “reciprocity” or “bargain” to serve as an evidentiary presumption for the intention to create legal relations - the “marrow of contractual relationships” indeed.

The modern approach in contract law requires very little to find the existence of consideration. Indeed, in difficult cases, the courts in several common law jurisdictions have gone to extraordinary lengths to conjure up consideration. (See for example the approach in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 All ER 512.) No modern authority was cited to me suggesting an intended commercial transaction of this nature could ever fail for want of consideration. Indeed, the time may have come for the common law to shed the pretence of searching for consideration to uphold commercial contracts. The marrow of contractual relationships should be the parties‘ intention to create a legal relationship.[1]

I. Introduction

1 In Chwee Kin Keong v Digilandmall.com Pte Ltd2 (“Chwee Kin Keong”), the plaintiffs were a group of friends who attempted to take advantage, knowingly, of the mistaken price of laser printers posted on the defendant‘s (sellers) website. When the defendant realised the error and informed the plaintiffs that it would not be meeting their orders, the plaintiffs commenced legal action against the defendant. The Singapore High Court eventually held for the defendant on the basis of mistake, but in the process the court rebutted the defendant‘s contention that there was no consideration.3 Although Rajah JC (as he then was) easily held that there was “ample consideration” due to the “mutual promises” involved in the transaction,4 his Honour openly questioned the utility of the doctrine and commented suggestively on its possible demise as quoted above.

2 This article attempts to develop Rajah JC‘s comment and envision a legal landscape without the doctrine of consideration in Singapore contract law. In doing so, an accommodative approach is proposed. This approach acknowledges most of the criticisms by “abolitionists”5 against the doctrine of consideration, but appreciates the significance of the element of “reciprocity or bargain” which the doctrine brings to contract law, an element often highlighted by “defenders”6 against the abolition. While the accommodative approach seeks to abolish the use of the doctrine as an independent, absolute “formula of denial”,7 it incorporates the element of “reciprocity or bargain” into the judicial search for the “marrow of contractual relationships”8 - the parties‘ intention to create legal relations.

3 The envisioned proposal recognises, or rather presupposes, the jurisprudential reality that the search for “parties‘ intention to create legal relations” is an act of judicial interpretation inevitably infused with normative values. The often-used presumption that agreements in a domestic or social setting are not intended to have any legal effect,9 for example, is part-descriptive and part-normative. It will be submitted in this article that the common law has evolved to a phase where the element of “reciprocity or bargain” in an agreement can serve as a presumption in aiding a judge determine whether the parties had intended to create legal relations. By removing the “gatekeeper”10 function of the doctrine of consideration and conceptually transforming it into an evidentiary presumption, the problems of the modern doctrine of consideration can be eliminated, while the benefits of aiding judges to better discern the intention of the parties will be reaped.

II. The doctrine of consideration in Singapore under fire

A. Sunny Metal

4 The attack on the doctrine of consideration by the Singapore judiciary began but did not end with Chwee Kin Keong. In Sunny Metal & Engineering Pte Ltd v Ng Khim Ming Eric11 (“Sunny Metal”), Andrew Phang J (as he then was) picked up on Rajah JC‘s comment and furthered the criticism of the doctrine by suggesting that “the doctrine of consideration may be outmoded even outside the context of purely commercial transactions”.12 This proved to be an interesting dictum given the fact that consideration was not even an issue in the High Court case which involved a deed between the parties. Phang J offered his reasons for doubting the utility of the doctrine even in non-commercial transactions, stating that:13

[T]he combined effect of Williams v Roffey Bros & Nicholls (Contractors) Ltd[14]… and the well-established proposition that consideration must be sufficient but need not be adequate [make it]

all too easy to locate some element of consideration between contracting parties. This would render the requirement of consideration otiose or redundant, at least for the most part. On the other hand, there are other possible alternatives available that can perform the tasks that the doctrine of consideration is intended to effect.

B. Gay Choon Ing

5 Two years later, sitting in the Court of Appeal, Phang JA was given the opportunity to comment on the doctrine of consideration again. In Gay Choon Ing v Loh Sze Tie Terrence Peter15 (“Gay Choon Ing”), the learned judge of appeal had to address the issue of whether there was good consideration supporting a “Points of Agreement” document and a waiver letter,16 in which the defendant had promised to relinquish his claims against a third party in exchange for the plaintiff ‘s promise to sell him his beneficial interest in some shares.17 His Honour held that there was sufficient consideration because the defendant had suffered a “detriment at the plaintiff ‘s request”.18 His Honour then rightly held that “the fact that the plaintiff had not personally benefited (in an obvious manner) from the defendant‘s signing of the waiver letter was not relevant”,19 as long as a link existed between the parties which could be easily found in this case due to the “element of request”.20

6 More importantly, Phang JA then wrote an 11-page critique titled “A coda on the doctrine of consideration”21 at the end of his judgment. Building on the two criticisms he raised earlier in Sunny Metal, his Honour noted that there is “no legal impediment from the perspective of precedent which can prevent the Singapore courts from extending the reach of Williams v Roffey” to other factual variants.22 As for possible alternatives, his Honour listed the vitiating doctrines of economic duress, undue influence and unconscionability as being “more clearly suited not only to modern commercial circumstances but also (more importantly) to situations where there has been possible ‘extortion‘”.23

7 This substantial attack was, however, followed by the recognition that the alternatives mentioned are “subject to their own specific difficulties”24 and a concluding practical resignation that:25

… the maintenance of the status quo … may well be the most practical solution in as much as it will afford the courts a range of legal options to achieve a just and fair result in the case concerned … [notwithstanding] problems of theoretical coherence. [emphasis in original]

III. The modern doctrine of consideration

A. History and doctrine

8 In Gay Choon Ing, Phang JA also opined that the precise historical origins of the doctrine of consideration are not entirely clear.26 Simpson argues as well that the doctrine originally “meant the factors which the promisor considered when he promised, [the circumstances] which motivated his promising”.27 This seems to be the general consensus - that it originated around the 16th century, and functioned as a means “of filtering serious promises that were enforceable from those that were not”.28 For a promise to be enforceable, the promisee should be able to show “something for which the promise was made”.29

9 The evolution of the common law led to the modern doctrine of consideration which stands considerably different from its historical origin. Consideration has been, in Dawson‘s words, “made over” and transformed from “an amorphous word drawn from common speech, into a technical requirement for contract formation”30 [emphasis added]. This observation finds support in Phang JA‘s view of the “modern purpose of the doctrine” being one which exists to “put some legal limits on the enforceability of agreements even when they would otherwise be legally binding”.31 In short, the modern doctrine of consideration is used in common law jurisdictions today as an absolute “formula of denial”, the very subject of this author‘s critique in this article.

B. The rules of the modern doctrine of consideration

10 The evolution to become an absolute “formula of denial” came in tandem with the crystallisation of rules commonly attributed to the doctrine of consideration today. These rules place “legal limits on the enforceability of agreements” because should one of them be contravened, the consequence of unenforceability follows.

11 Firstly, consideration must move from the promisee in return for the promise. A person can enforce a promise only if he himself provided consideration for it.32 Closely related to this rule is the requirement that there has to be a “necessary link” between the promisor‘s promise and the act or forbearance of the promisee.33 This rule prevents a promisee from binding the promisor when the act or forbearance performed by the promisee was not performed in return for the promise.

12 Secondly, consideration must be sufficient but need not be adequate. To be sufficient, consideration must “mean...