THE CASE FOR DEPARTING FROM THE EXCLUSIONARY RULE AGAINST PRIOR NEGOTIATIONS IN THE INTERPRETATION OF CONTRACTS IN SINGAPORE

• Published date: 01 December 2013
• Citation: (2013) 25 SAcLJ 182
• Author: GOH Yihan LLB (Hons) (National University of Singapore), LLM (Harvard); Advocate and Solicitor (Singapore); Assistant Professor, Faculty Of Law, National University Of Singapore.
• Date: 01 December 2013

This article examines the viability of the exclusionary rule against prior negotiations in the interpretation of contracts in Singapore. It argues that the exclusionary rule should no longer be followed in Singapore through three main points. First, the Singapore courts retain entire freedom to depart from the exclusionary rule as it is not of legislative origin. Second, the Singapore courts should exercise this freedom because there is already local precedent, wherein the Singapore courts have referred to prior negotiations in the interpretation of contracts. Even if these local precedents are wrong, there remain convincing, independent reasons as to why the exclusionary rule should be rejected. Primarily, the rule is not supported as a matter of history and evolved through a misstep in a series of early-20th-century cases. Third, the rejection of the exclusionary rule does not mean that prior negotiations are always admissible in the contractual interpretative exercise: the challenge for the Singapore courts is to recognise exactly why such evidence is inadmissible, instead of following a blanket rule that is (as will be argued) unsupported by either its supposed longevity or substantive justifications.

I. Introduction

1 The exclusion of prior negotiations in the interpretation of contracts stands as a hallmark of English contract law. Although the exclusionary rule's boundaries have been acknowledged by the House of Lords to be uncertain,1 its legitimacy has been reaffirmed by the

same court most recently in Chartbrook Ltd v Persimmon Homes Ltd2 (“Chartbrook”). Due to our historical legal ties to England, the position in Singapore probably leans towards the English position of exclusion as well.3 Yet, there are signs that the viability of the exclusionary rule requires a second look in Singapore. In the important Court of Appeal decision of Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd4 (“Zurich Insurance”), V K Rajah JA accepted academic criticisms against the exclusionary rule and held that “there should be no absolute or rigid prohibition against evidence of previous negotiation or subsequent conduct”,5 even if such evidence may turn out to be inadmissible for non-compliance with other requirements of the Zurich Insurance framework.6 This is a tentative statement at best, and should not be regarded as representing a departure from the exclusionary rule. Indeed, the tentative nature of this statement was confirmed by Rajah JA himself in an extrajudicial article, where his Honour wrote that “Zurich Insurance cautiously suggested that prior negotiations …may be admissible for the purpose of interpretation” [emphasis added].7 Tentative they may be, these statements clearly invite a re-examination of the continued viability of the exclusionary rule in Singapore.

2 The purpose of this article is to perform that re-examination of the exclusionary rule against prior negotiations in the interpretation of contracts in the specific context of Singapore. Its primary thesis is that the exclusionary rule, in whatever form, should no longer be supported in Singapore. This thesis is organised around three major parts. The first part concerns the status and origin of the exclusionary rule in Singapore. In particular, it will be argued that the Singapore courts are theoretically free to depart from the exclusionary rule if there are sound reasons to do so. Although much of contractual interpretation,

particularly the admissible extrinsic evidence, is governed by the Evidence Act,8 the exclusionary rule does not derive its legitimacy from any legislative source. This means that it is purely a common law construct in the Singapore context. In fact, it may even be argued that since the exclusionary rule is not provided for within the Evidence Act, it ought not to be received in the common law. Even if that argument is wrong, it will be submitted that the Singapore courts retain the freedom to depart from the exclusionary rule, owing to its common law origins.

3 Assuming that the Singapore courts can, in fact, depart from the exclusionary rule, the second part of this article argues that they should. In the first place, some Singapore cases have already made use of prior negotiations in the interpretation of contracts, notwithstanding the exclusionary rule. Thus, as a matter of precedent, there is authority to support a departure from the rule. In any event, whatever the correctness of these local precedents, it will be shown that there are substantive reasons as to why the exclusionary rule should be rejected. Many of these reasons have been covered elsewhere,9 but this article highlights a reason based on history, which has not been extensively raised before. It will be suggested that, despite claims of a long lineage,10 the truth is that the exclusionary rule became an independent rule divorced from any historical reason through a series of cases in the 20th century. The elevation of the rule to an independent one became cemented, following the House of Lords decision of Prenn v Simmonds.11 While Prenn v Simmonds is often cited in support of the rule, it in fact represents an incorrect departure from the true historical reasons as to why prior negotiations were excluded. It will be shown that, before Prenn v Simmonds, prior negotiations were not rejected because of their status as such, but because the criterion of ambiguity was not satisfied to allow for the admission of any extrinsic evidence to interpret contracts.

Apart from this historical reason, this part of the article also canvasses other substantive reasons against the exclusionary rule.

4 Following these arguments as to why the exclusionary rule should be departed from, the third part of the article argues that such a departure does not warrant the unhindered admissibility of prior negotiations in the contractual interpretative exercise. The challenge of the Singapore courts is, then, to locate the true basis for the exclusion of such evidence, instead of following the (evident) English approach that rejects such evidence simply because of their nature. It will be argued that, in the Singapore context, the true basis for the rejection of prior negotiations can be found in two sources: first, the principle of objectivity that underlies contractual interpretation and, indeed, contract law itself; and second, the criterion of ambiguity in the Evidence Act. It is only from adhering to these two sources that prior negotiations can be excluded (and included) on a proper and principled basis. There is no need to have a specific rule targeted at prior negotiations, however narrowly conceived.

II. The Singapore courts retain the freedom to depart from the exclusionary rule

5 The article begins with a consideration of whether the Singapore courts can depart from the exclusionary rule. This is not as straightforward as it might seem: the Evidence Act governs much of contractual interpretation in Singapore. That Act, being legislative in origin, trumps any judge-made law. As such, if the exclusionary rule originated from the Evidence Act, then whatever its desirability, the Singapore courts will be bound to apply it.12

A. The exclusionary rule stated

(1) Two versions of the exclusionary rule

6 In considering the ability of the Singapore courts to depart from the exclusionary rule, first, we need to be clear as to exactly what the rule is. In the House of Lords decision of Investors Compensation Scheme Ltd v West Bromwich Building Society (“Investors Compensation”), Lord Hoffmann explained the rule in the following terms:13

The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only,

legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

7 Stated in this way, the exclusionary rule is very broad: all prior negotiations are excluded, except for the purpose of rectification. This is so even if the prior negotiations are not declarations of subjective intention: indeed, in the quotation from Investors Compensation above, prior negotiations are treated as being separate from such declarations by the use of the conjunctive word “and”. In contrast to this broad view of the exclusionary rule, the cases reveal another, narrower view of the exclusionary rule. By this view, the exclusionary rule applies only when prior negotiations are used for certain purposes, such as to advance the parties' subjective intentions. Although prior negotiations are admissible under such a version, it remains that there is a specific exclusionary rule against prior negotiations, and that admission is the exception rather than the norm. It is important to differentiate between the two versions of the exclusionary rule so that we can be certain which applies in Singapore.

(a) Broad version

8 The predominant view in England is that it is the broad version of the exclusionary rule that applies there. For example, in Banque Sabbag SAL v Hope,14 which concerned the coverage of an insurance slip over war risks, Mocatta J held that oral evidence of what had been said between the contracting parties could not be admitted in evidence.15 The parties' intentions could only be derived from the contract itself or its performance.16 Similarly, in considering whether subsequent conduct may be admitted in the interpretation of a contract, Lord Wilberforce in L Schuler AG v Wickman Machine Tools Sales Ltd17 (“Wickman Tools”) held that, as a general rule, extrinsic evidence is not admissible for the interpretation of a written contract, and that the parties' intentions must be ascertained...