Recent Developments In Singapore Contract Law In 2013

Third Quarter 2013
Recent Developments In Singapore
Contract Law In 2013
Asst Professor Goh Yihan, Faculty of Law, National University of
Singapore
Introduction
In this article, we look back at the more significant contract law cases decided in
Singapore in the first half of 2013.
The cases considered here deal with issues of contractual formation, contractual
terms, as well as remedies for breach of contract.
Completeness & Certainty
In Stone World Sdn Bhd v Engareh (S) Pte Ltd [2013] SGHC 22, the High Court
reaffirmed the trite principle that parties must reach agreement on essential terms
for a contract to be certain and complete and hence enforceable. In doing so, the
Court cited the well known English case of May and Butcher, Limited v The King
[1934] 2 KB 17, where the House of Lords established the principle that:
The essential terms of a
contract
“[U]ndoubtedly price is one of the essentials of sale, and if it is
left still to be agreed between the parties, then there is no
contract.”
This case was also referred to with approval by the High Court in Norwest
Holdings Pte Ltd (in liquidation) v Newport Mining Ltd [2010] 3 SLR 956 (reversed on
appeal, but not on this point).
However, as a qualification to the above principle, such agreement on the
essential terms can be ascertained from previous transactions between the parties
and the custom of trade. Thus, in Hillas & Co v Arcos Ltd (1932) 147 LT Rep 503,
the House of Lords held that the terms of a contract could very well be
ascertained from previous transactions between the parties. This proposition was
cited with approval by the High Court in Grossner Jens v Raffles Holdings Ltd [2004]
1 SLR(R) 202.
Ascertainment from
previous transactions
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Terms
Right of Rejection
In Sun Qi (formerly trading as Power King International) v Syscon Pte Ltd [2013]
SGHC 38 (“Sun Qi”), the High Court dealt with, inter alia, the right of rejection in
a sale of goods context.
Invocation of the right of
rejection in a sale of goods
• Briefly stated, the case involved the sale of cranes. The first set of cranes
was delivered in December 2008 and the second set was delivered in
January 2009.
• When the plaintiff sued the defendant for outstanding payments, the
defendant countersued for breach of an implied term of quality, as well as
for misrepresentation.
• The basis of the defendant’s claims was that problems with the first set of
cranes surfaced in February 2009. Consequent to these problems, the
defendant sent service requests to the plaintiff repeatedly till May 2009.
The plaintiff conceded that the problems were indeed breaches of an implied term
of quality. The question, however, was whether the plaintiff was entitled to the
defence of acceptance by use, that is, whether the defendant had lost its right to
reject the goods by virtue of its use of the cranes for a considerable length of time.
The defence of acceptance by use was referred to some time ago by the Court of
Appeal in Eastern Supply Co v Kerr [1973] SGCA 7 (“Eastern Supply”). In that case,
the Court stated that “once a buyer is deemed to have accepted the goods, he
loses his right to reject for breach of conditions”. Applied to the facts of Sun Qi,
the issue was whether the defendant lost its right of rejection through acceptance
by (a) using the first set of cranes for five months after delivery and (b) keeping
the second set of cranes without use for seven months. In dealing with this issue,
the Court referred to the following sections of the Sale of Goods Act:
The elements of the defence
of acceptance
35(2) Where goods are delivered to the buyer and he has not
previously examined them, he is not deemed to have accepted
them under subsection (1) until he has had a reasonable
opportunity of examining them….
35(4) The buyer is also deemed to have accepted the goods when
after the lapse of a reasonable time he retains the goods without
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intimating to the seller that he has rejected them.
The High Court rightly noted that the length of time that constitutes “a reasonable
time” may vary, depending on the type of product involved and whether the
defect can be readily discovered or its cause made known. Indeed, this very factdependent
nature of the concept of “a reasonable time” is borne out by previous
cases:
What constitutes “a
reasonable time” in various
situations
• In Eastern Supply, the purchaser had an opportunity of having the car
concerned examined by an expert when defects became apparent within
the first few days. Hence, the “reasonable time” concerned was shorter.
• In Compact Metal Industries v PPG Industries [2006] SGHC 242, the
purchaser could reject the paint concerned some six months after delivery
because the facts showed that to be a reasonable time. The problem
became apparent only after the paint had been applied, and also
depended on determination by a separate contract concerning the panels
the paint was to be used on, which took time.
• In Super Continental Pte Ltd v Essential Engineering & Construction Pte Ltd
[2010] SGHC 365, the purchaser was allowed to reject goods although one
year had passed. This was because, although problems with the goods
had surfaced shortly after delivery, there were repeated steps at rectifying
the problem. These steps were part of the reasonable opportunity to
examine the goods.
Therefore, summarising the principles in these cases, the Court held that:
“A reasonable opportunity of examining the goods in such a
context should not be limited to an examination upon taking
over the machinery, which may or may not reveal a potential
problem, but should include the opportunity to: (a) test the
machinery, perhaps through use; (b) conduct investigations
and/or trials into the cause of any problem that arises; and (c)
seek repairs or adjustments, if appropriate.”
Reasonable opportunity to
examine goods
Returning to the facts of Sun Qi, the Court held that the reasonable time to reject
the cranes had not lapsed as:
• The defendant made repeated service requests to the plaintiff; in
accordance with s 35(6) of the Sale of Goods Act, a buyer is not deemed to
have accepted simply because he makes requests for repairs.
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• The plaintiff held itself out to be an expert on the cranes, and the
defendant thus could not be faulted for not having the goods examined
by an expert.
• The problems with the cranes were latent and would have taken time to
surface.
Non-Absolute Obligations
In BR Energy (M) Sdn Bhd v KS Energy Services Ltd [2013] SGHC 64, the High Court
reaffirmed basic principles concerning “best endeavour” clauses. The Court’s
holding can be summarised in the following four points:
The legal principles of a “best
endeavour” clause
(a) An undertaking to use best endeavours is not a warranty to produce
the desired results, nor does it require the obligor to make heroic
efforts to do everything conceivable. However, it does require the
obligor to do everything known to be usual, necessary and proper for
ensuring the success of the endeavour.
(b) A “best endeavour” clause obliges the obligor to take all those
reasonable steps in good faith which a prudent and determined man,
acting in his own interests and anxious to obtain the required result
within the time allowed, would have taken. It has been said that the
obligor must leave “no stone unturned” (see Sheffield District Railway
Company v Great Central Railway Company [1911] Times LR 451 at 452),
subject to the limits of reason, to achieve the objective or carry the
process to its logical conclusion.
(c) Whether the “best endeavour” test has been satisfied is a question of
fact in each case.
(d) The test to determine whether an obligor has exercised its best
endeavours is an objective one. It is, however, also a composite test in
that the obligor may also take into account its own interests.
The Court also noted that there is no “hard and fast rule” as to whether an “all
reasonable endeavours” clause and a “best endeavour” clause are different. It all
depends on the facts of each case since the interpretation of such clauses, as with
the interpretation of all contractual clauses, is contextual and dependent on, inter
alia, the factual matrix.
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Terms Implied in Fact
Last year, the Court of Appeal in Foo Jong Peng v Phua Kiah Mai [2012] 4 SLR 1267
determinatively rejected the approach articulated by Lord Hoffmann in Attorney-
General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 that the implication of
terms in fact is a facet of interpretation. This position was affirmed by the same
Court in eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd [2013] SGCA
27. In that case, the Court affirmed that the law relating to terms implied in fact is
governed by a complementary understanding of the “business efficacy” and
“officious bystander” tests.
Confirming the test for terms
implied in fact
Illegality
The High Court decision of ANC Holdings Pte Ltd v Bina Puri Holdings Bhd [2013]
SGHC 97 is a significant one in relation to the principle of illegality in contract
law. In that case, the plaintiff agreed to assist the defendant’s subsidiary in
securing housing projects in Saudi Arabia. The plaintiff claimed for commission
due under the written agreement.
Bribery and the principle of
illegality
The interesting aspect of the case concerning illegality arose because the
defendant’s witnesses gave evidence that both parties intended to bribe officials
to secure the projects. The question for the Court was whether the defendant
could now rely on this alleged illegality given that it was never pleaded.
In dealing with this issue, the Court made the following important (and
fundamental) observations concerning illegality:
• Strictly speaking, ex turpi causa is not a defence. In adversarial litigation, a
defence becomes a live issue only if a party to the litigation raises it. Ex
turpi causa is in truth a doctrine founded not on principle but on high
policy. Applying the doctrine and upholding the underlying policy has
the effect of affording a defendant a defence, but only incidentally so.
The doctrine of ex turpi
causa differentiated from
criminal illegality
• The ex turpi causa doctrine is a fundamental doctrine of general
application to all areas of the law, such as contract and tort.
• The ex turpi causa doctrine is often called the doctrine of “illegality”. But
according to Lord Mansfield CJ, the doctrine is triggered by “an immoral
or an illegal act”. So a criminal wrong can, of course, trigger the doctrine.
But so too can a civil wrong. So too, can behaviour which is reprehensible
or grossly immoral even if it is not otherwise a criminal or civil wrong.
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Thus, “illegality” as a term must be understood broadly.
• Lord Mansfield CJ expressly contemplated that the evidence of the
turpitude may arise either from the plaintiff’s own statements “or
otherwise”. So, the ex turpi causa doctrine is engaged regardless of the
manner in which it comes to the court’s attention provided that the
plaintiff’s claim arises out of his own turpitude.
Thus, on the basis of these principles, the Court concluded that illegality can
operate even if not pleaded. This is not to afford the defendant an additional
defence not otherwise pleaded, but is rather to uphold the policy behind the
doctrine. However, in doing so, the court must also take into account the
following propositions articulated in Edler v Auerbach [1950] 1 KB 359, and
accepted by the High Court in Koon Seng Construction v Chenab Contractor [2008] 1
SLR(R) 375:
When the Court may
consider the doctrine of
illegality and relevant
evidence
(a) Where a contract is ex facie illegal, the court will not enforce it,
whether the illegality is pleaded or not.
(b) Where the contract is not ex facie illegal, evidence of extraneous
circumstances tending to show that it has an illegal object should not
be admitted unless the circumstances relied on are pleaded.
(c) Where facts not pleaded which, taken by themselves, show an illegal
objective have been revealed in evidence, the court should not act on
them unless it is satisfied that the whole of the relevant circumstances
are before it.
(d) Where the court is satisfied that all the relevant facts are before it and
it can see clearly from them that the contract had an illegal object, it
may not enforce the contract, whether the facts were pleaded or not.
On the facts, proposition (c) was clearly relevant. Thus, counsel for the plaintiff
was right to object to the line of questioning by counsel for the defendant that
suggested bribery. However, on the facts, the court was also satisfied that there
was illegality from the documentary correspondence.
A second point that emerged from the case concerned the issue of whether a
lawful contract performed in an illegal manner remained enforceable. In this
regard, the Court, referring to St John Shipping v Joseph Rank [1957] 1 QB 267, held
that there was no principle that the performance of a lawful contract in an illegal
manner can never preclude a party from suing on the contract. In doing so, the
Court implicitly accepted that the distinction between a contract illegal as formed
Comparing contracts illegal
as formed and contracts
illegal as performed
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and illegal as performed may be a false one.
Indeed, a contract illegal as performed itself becomes void where the illegal
performance has, by virtue of the legislative intent, “turned” the contract into one
that is prohibited. The situation is then essentially similar to one where the
contract is illegal as formed.
Remedies
Loss of Chance
In MK Distripark Pte Ltd v Pedder Warehousing & Logistics (S) Pte Ltd [2013] SGHC
84 (“MK Distripark”), the High Court made some interesting observations on
claiming for damages arising from loss of a chance. The question was whether
damages could be claimed for loss of a chance where the chance was not the
subject of the contract.
A previous Court of Appeal decision of Straits Engineering v Merteks [1995] 3
SLR(R) 864 seemed to have left open the question of whether the chance
concerned must be the subject matter of the contract. In that case, there was a
contract to sell shares that was breached, and the plaintiff claimed damages for a
loss of chance to expand its business.
The test for damages arising
from loss of chance
Loss of chance where the
chance is not the subject of
the contract
As the Court in MK Distripark explained, it was unclear if the Court of Appeal
viewed the subject matter of the contract as being the sale of the shares or, more
broadly, a chance for the plaintiff to expand its business using the proceeds from
such shares. If the Court of Appeal had adopted the former view, then that case
may well be viewed as departing from the position that the subject matter of the
contract must be the chance concerned in order for damages to be claimable in
respect of loss of that chance. However, in the present case, the Court need not
decide the issue as the subject matter was clearly the chance that is now argued to
have been lost.
Remoteness
In PPG Industries (Singapore) Pte Ltd v Compact Metal Industries Ltd [2013] SGCA 23,
the Court of Appeal affirmed that the traditional rules of remoteness (that is, the
two-limb test in Hadley v Baxendale) continued to apply in Singapore. More
significantly, the same Court in Out of the Box Pte Ltd v Wanin Industries Pte Ltd
[2013] 2 SLR 363 again rejected Lord Hoffmann’s characterisation of remoteness
as being governed by an “assumption of responsibility” test after a length
A practical guide to the test
for remoteness of damages
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examination.
While retaining the traditional Hadley approach, the Court also laid down the
following points for consideration in a remoteness case:
(a) First, what are the specific damages that have been claimed?
(b) Second, what are the facts that would have had a bearing on whether
these damages would have been within the reasonable contemplation
of the parties had they considered this at the time of the contract?
(c) Third, what are the facts that have been pleaded and proved either to
have in fact been known or to be taken to have been known by the
defendant at the time of the contract?
(d) Fourth, what are the circumstances in which those facts were brought
home to the defendant?
(e) Finally, in the light of the defendant’s knowledge and the
circumstances in which that knowledge arose, would the damages in
question have been considered by a reasonable person in the situation
of the defendant at the time of the contract to be foreseeable as a not
unlikely consequence that he should be liable for?
The clear approach taken by the Singapore courts may be contrasted with the still
unclear understanding of the “assumption of responsibility” test in England: see,
eg, John Grimes Partnership Ltd v Gubbins [2013] EWCA Civ 37.
The Singapore approach vs
the “assumption of
responsibility” test
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