Loh Siok Wah v American International Assurance Company Ltd

• Jurisdiction: Singapore
• Judgment Date: 30 April 1998
• Date: 30 April 1998
• Docket Number: Suit No 2157 of 1997 (Registrar's Appeals Nos 60 and 65 of 1997)
• Court: High Court (Singapore)

Loh Siok Wah

Plaintiff

and

American International Assurance Co Ltd

Defendant

[1998] SGHC 146

Chan Seng Onn JC

Suit No 2157 of 1997 (Registrar's Appeals Nos 60 and 65 of 1997)

High Court

Contract–Contractual terms–Rules of construction–Whether fixed term contract when employee's salary expressed on an annual basis–Contract–Contractual terms–Implied terms–Whether retrenchment benefits implied in employment contract–Terms implied in fact–Terms implied in law–Terms implied by custom and usage

The plaintiff was retrenched after 16 years of working with the defendant. He was paid his salary, Annual Wage Supplement (“AWS”) and annual leave pay pro-rated to 10 August 1997. The plaintiff was also given an ex gratia payment of five months' salary amounting to $70,895.00.

The plaintiff sued the defendant for first, the difference between his total salary from 1 January 1997 to 10 August 1997 and his basic annual salary for 1997 on the basis that he was employed on a fixed yearly contract. Secondly, he claimed for the portion of the AWS from 10 August 1997 to 31 December 1997 on the basis that his AWS should not have been pro-rated but that he should be paid the full AWS of 2.5 months of his basic salary. Thirdly, he claimed to be entitled to retrenchment benefits of one month or alternatively 1.25 months of his salary for each year of service with the defendant based on the terms of the collective agreement with unionised employees and the retrenchment benefits given out previously to certain retrenched employees. It was not disputed that the plaintiff was not a member of the union and that the collective agreement did not apply to him.

The defendant's application to strike out the plaintiff's claim succeeded under O 18 r 19 (a) of the Rules of Court (Cap 322, R 5, 1997) but failed under O 18 r 19 (b). The judge allowed the defendant's appeal and dismissed the plaintiff's cross-appeal. The plaintiff appealed.

Held, dismissing the plaintiff's appeal:

(1) Expressing an employee's salary on an annual basis could notper se turn an employment contract into a fixed term contract of one year renewable every year as that would mean the employer was obliged to employ the employee and pay his wages for the full year, and the employee would have been obliged to serve the full year within a fixed term contract of one year: at [16].

(2) Since there was no evidence of the defendant taking any steps to vary or rescind the original employment contract and to replace it with a new one, the original employment contract must continue to govern their relationship. The plaintiff was therefore not entitled to the balance of his salary and AWS up to 31 December 1997: at [17] and [21].

(3) The defendant never committed itself to the payment of retrenchment benefits even to its unionised employees. If the plaintiff, a non-unionised employee, was promised such guaranteed retrenchment benefits, the defendant would have placed him in a far better position than its unionised employees who must collectively negotiate with the defendant for any retrenchment benefits. This could not have been intended by the defendant: at [27] and [28].

(4) For a term to be implied, (a) it must be reasonable and equitable; (b) it must be necessary to give business efficacy to the contract so that no term would be implied if the contract was effective without it; (c) it must be so obvious that “it goes without saying”; (d) it must be capable of clear expression; and (e) it must not contradict any express term of the contract: at [29].

(5) Tests (b) and (c) were not necessarily cumulative but may be in the alternative: at [32].

(6) There were times when terms must necessarily be implied to make the contract workable but that term was not so plain and obvious that it went without saying. On the other hand, there may be terms which were so plain and obvious that the parties must obviously have had intended those terms to be part of their contract but these terms may not be absolutely necessary for the contract to be workable: at [32].

(7) In employment contracts, the “business efficacy test” was replaced by the test of “necessity”. In the present case, payment of retrenchment benefits was not a necessary requirement for the proper and effective operation of the employment contract between the plaintiff and the defendant. The test was therefore not satisfied: at [34] and [36].

(8) It was reasonably clear that both parties could not be said to have had obviously intended to include that retrenchment term in the contract of employment. Even if such a term could be implied, the other difficulty facing the plaintiff was the quantum of retrenchment benefits to be implied: at [39] and [40].

(9) Payment of any retrenchment benefit to the plaintiff was entirely at the unfettered discretion of the defendant, there being no statutory provision or any written law or any contractual term compelling the defendant to pay any such benefits to the plaintiff: at [41].

(10) Payment of ex gratiaretrenchment benefits was absolutely at the discretion of the employer and it depended entirely on the goodwill and on the financial position of the employer concerned. The defendant was therefore not bound to follow its past practice of paying one or 1.25 months per year of service: at [43] and [44].

(11) There was no evidence of a general custom of employers paying retrenchment benefits in Singapore: at [46].

Ashmore v Corporation of Lloyds (No 2) [1992] 2 Lloyd's Rep 620 (refd)

Associated Japanese Bank (International) Ltd v Credit du Nord SA [1989] 1 WLR 255 (refd)

Bethlehem Singapore Pte Ltd v Ler Hock Seng [1994] 3 SLR (R) 938; [1995] 1 SLR 1 (folld)

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 (folld)

Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555; [1957] 1 All ER 125 (refd)

Liverpool City Council v Irwin [1976] 2 All ER 39 (refd)

Manifest Lipkowy, The [1989] 2 Lloyd's Rep 138 (refd)

Mears v Safecar Security Ltd [1982] 2 All ER 865 (folld)

Mosvolds Rederi A/S v Food Corporation of India [1986] 2 Lloyd's Rep 68 (refd)

Shell UK Ltd v Lostock Garage Ltd [1976] 1 WLR 1187 (refd)

Rules of Court (Cap 322,R 5, 1997)O 18r 19

Kenny Khoo (Wong & Lim) for the plaintiff.K Shanmugam SC and Ronald Choo (Allen & Gledhill) for the defendant.

Chan Seng Onn JC

1 The plaintiff's claim is against his employer, the defendants, for (a) the balance of his annual basic salary and annual wage supplement (“AWS”) for 1997 and (b) retrenchment benefits. The defendants applied to strike out the plaintiff's claim under O 18 r 19 of the Rules of Court. The learned assistant registrar struck out the claim under (a) but dismissed the defendants' application to strike out the claim under (b).

2 The defendants appealed and the plaintiff cross-appealed. I allowed the defendants' appeal, struck out the entire claim of the plaintiff and dismissed the plaintiff's cross-appeal. The plaintiff has since appealed against my decision and I now give my reasons.

Background

3 The plaintiff joined the defendants as the regional operations manager in February 1981. The letter of appointment dated 24 November 1980 sets out the terms and conditions of the plaintiff's employment. The relevant terms are as follows:

Probation

Your initial employment will be on three months' probationary period, subject to termination by either party on one day's notice. On confirmation after the expiry of the probationary period, termination by either party will be on one month's notice.

Salary

Your commencement salary is S$3,600 per month. Future increments will depend on your merit and performance.

Annual Wage Supplement

After confirmation of employment, you will be eligible to receive the Company's AWS...