LGST101
Business Law
Writing Guide
Give thanks to the Lord, for He is good.
His love endures forever.
(Psalm 136:1)
Contents:
1.
2.
3.
4.
5.
6.
7.
8.
Framework for Answering Business Law Questions
Random Pointers & Tips To Note
Formation of Contracts:
a. Offer and Acceptance
b. Consideration, Promissory Estoppel
Privity
Agency
Terms and Exemption Clauses
Vitiating Factors
a. Illegality: Restraint of Trade Clauses
b. Economic Duress
c. Undue Influence
d. Misrepresentation
e. Summary Table for Vitiating Factors
Discharge of a Contract
Remedies for Breach of Contract
Tort of Negligence
Appendix A
2
3
6
7
9
11
13
15
17
19
22
23
24
26
29
33
By using this Writing Guide, you agree to the following:
The information contained in this Writing Guide has been prepared solely for the purpose
of advising Business Law students with regard to how to answer questions in written
reports, summaries, tests and examinations.
The author has taken reasonable care in producing this report, and you shall not hold the
author liable for any direct, indirect or consequential loss or damage (regardless of whether
it was foreseeable or not) arising from the use of this Writing Guide.
FRAMEWORK FOR ANSWERING BUSINESS LAW QUESTIONS
Good written structure:
- Write in continuous prose (no point form)
- Show your Prof the reasoning clearly.
Example of a clear logical flow in reasoning for an issue:
Steps
Legal Issue
Examples
(1) Identify the legal
issue and write it out as
a question.
The legal issue is whether A can sue B for (XXX).
e.g.: The legal issue in this case is can TC sue Susan for the statements made during her job
interview.
(2) Apply the relevant
law principles.
In this case, the relevant legal principle is that of (XXX).
e.g.: In this case, the relevant legal principle is misrepresentation.
(3) State the
consequences/effect
on the legal issue.
And we are concerned whether the principle of (XXX) would allow the
contract to be (XXX).
e.g.: In this case, we are concerned whether the principle of misrepresentation would allow the
contract to be rescinded.
Connecting Statement
Requirements / Elements
This raises the question of whether the principle of (XXX) would apply.
State the requirements
for the legal principle
to apply.
List all the steps required for a particular legal issue to apply.
e.g.: For misrepresentation to apply, we need to show that there was
1. A false statement by words or conduct
2. Statement addressed to the party misled
3. Statement induced the party misled to enter contract.
Apply the facts of the case to the requirements and state any
assumptions where necessary. Missing information could also be
included here.
Case Law
Compare case law with
the facts of this case.
The case of (XXX v YYY) can be applied in this scenario.
Compare the facts of the case with respect to the case in the exam.
Therefore, the case of (XXX v YYY) supports/differs from the facts of
this case.
Evaluation
Evaluation of this case compared to case law.
e.g.: In this scenario, I feel that the claims for frustration may not be as strong as the case
law in Blackburn Bobbin Company Ltd v TW Allen & Sons Ltd . This is because ___.
Fulfillment of
Requirements
In this case, the requirements for (XXX) is fulfilled/is not fulfilled.
Give alternative
viewpoints (if time
permits)
If it is not fulfilled, are there any alternative viewpoints?
Final Conclusion
Therefore it is likely that (XXX) applies or (XXX).
e.g.: In this case, the requirement for a misrepresentation is not fulfilled.
e.g.: In this case, we will consider whether the oral statement can be an implied term or not.
e.g.: Therefore, it is likely in such as case that misrepresentation does apply to the facts of the
case and TC has the rights to sue to rescind the contract and claim damages…
Every good and perfect gift is from above, coming down from the Father of the heavenly
lights, who does not change like shifting shadows. (James 1:17)
LGST101 Writing Guide
BJS | Updated as at 26th September 2013
2
General Pointers:
THE FOLLOWING PAGES ARE JUST A ROUGH FRAMEWORK ON HOW TO APPROACH
EACH QUESTION.
YOU ARE REQUIRED TO REMOVE PARTS THAT ARE NOT NECESSARY (IN SOME CASES)
AS WELL AS APPLY THE RELEVANT CASE LAWS. (E.g.: A question may be testing you whether
there is acceptance; so you need not consider whether there was an offer)
The list of questions covered is non-exhaustive, but should be sufficient to allow you to answer almost all
the questions.
WHEN SHOULD I USE CASE LAW?
A case law is most useful when you are trying to evaluate the strength of the argument. E.g. Was
the “practical benefits” conferred onto the promisor compared to the practical benefits conferred
onto the promisor in the case of William v Roffey Brothers?
OR You can use a case to explain why the facts of the problem is same as the case cited OR
explain why the facts of the problem do not coincide with the case (and as such, leads to a
different conclusion)
Generally, case laws are also helpful if you want to show where a general principle came from. E.g.: It was
held in R v Clarke that a person who is ignorant of an offer cannot subsequently accept an offer.
Another way to use cases is to give the case where the elements come from. e.g.: the elements of
promissory estoppel were first established in Central London Property Trust v High Tress House Ltd.
Cases can also be cited to show where certain tests were first established. (e.g. the 2-limb test of
remoteness for damages can from Hadley v Baxendale)
OTHER RANDOM POINTERS ON ANSWERING QUESTIONS
(1)
Question Types and Requirements
(a)
Discuss the rights/obligations of Don with respect to Jennifer.
For such questions, we need to first present the legal issue.
Then consider whether the rights/obligations still stand after considering the legal issue.
It is also good to give a judgment if necessary (e.g.: if A had a right to claim for damages
from B due to ____, what is the chance that he will succeed?)
(b)
Does A have a right of claim towards B?
For such questions, we need to first present the legal issue.
Then consider A’s case against B and any forms of defense from B towards A.
You may also want to evaluate the defence from B towards A.
Note that it is COMPULSORY to raise the defense from B towards A when there
is a need to “REBUT THE PRESUMPTION”.
*** Please remember to give both sides of the pictures.
For questions like what claims do A and B have against each other?
We need to consider A towards B and B towards A.
(2)
Use of Alternative Viewpoints
(a)
Always present the strongest argument/viewpoint (or easiest to identify) first and
explain the flow completely.
(b)
Bring in alternative viewpoints. Preferably argue the flow for both. But due to time
constraints, we may have to choose to argue the strongest viewpoint and just
mention the other viewpoints and quickly touch on why they are not as strong.
(This would show some form of thought with respect to the legal principles)
LGST101 Writing Guide
BJS | Updated as at 26th September 2013
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(3)
Strength of Various Viewpoints
The strength of the arguments could be determined in various ways:
(a)
Which is the stronger case based on the facts of the case?
[which argument do we use is based on how easy it is to prove]
(b)
Nature of the verdict
e.g.: Consider a case whereby a party can choose to sue another party based on
(a) MISREPRESENTATION or (b) IMPLIED TERM BY FACT
[which verdict will be more beneficial to the innocent party]
(1) Negligent misrepresentation
- Innocent party allowed to rescind the contract (voidable
retrospectively)
- Using s2(1) of the Misrep Act, innocent party may be able claim for
damages on the tort of deceit
(2) Implied Term
- CONDITION: Innocent party is allowed to terminate contract
prospectively and claim for damages.
- WARRANTY: Innocent party is allowed to claim for damages.
(c)
Burden of Proof
This is more of a tactical issue but it can still be utilised somewhat.
Who does the burden of proof fall on? Do we have a strong case for it?
If the burden of proof falls onto the claimant but it is an easy case to prove, it might just mean more
work for the lawyers but it will be still an easy case.
If the burden of proof falls onto the defendant to defend himself (such as undue influence class 2A) and
defendant has a difficult case to prove, this is the best case.
If the burden of proof falls onto the claimant and it is a difficult case to prove, it might not be that strong
to even use this argument.
Consider trying to prove a case of misrepresentation. It is probably much more difficult to prove that
there was a case of fraudulent misrepresentation compared to the case of a negligent misrepresentation. It
might therefore be more prudent to prove the case of negligent misrepresentation since you can still claim
for damages under the tort of deceit that allows the innocent party to recover damages as if it was a
fraudulent misrepresentation.
*** A note about strength of arguments: (A) is the most appropriate manner. However,
raising concerns using (B) or (C) can also score bonus marks as it reflects the real world
situations and the issues that lawyers do face in real life cases as well.
TOPICAL ISSUES / CROSS TOPICAL ISSUES / WHEN CAN WE USE ALTERNATIVE
ARGUMENTS
1.
Misrepresentation (with lots of oral statements involved)
(a)
Consider whether an oral statement (that did not become a term) is a puff or a
representation.
(b)
Classify the representations into fraudulent, negligent and innocent.
(c)
Use the strongest case (in terms of strength of arguments) to prove that if it is proven,
the innocent party can rescind the contract (strongest for fraudulent misrepresentation as court
cannot take away the power to rescind) and can claim for damages under the tort of deceit (this
applies for fraudulent and negligent misrep, but it is easier for negligent misrep as the burden of proof is
on the representor).
2.
Frustration or Breach
(a)
Strategic Issue: important to consider which is the party that will claim frustration.
The party claiming frustration will be the one that will be guilty of a breach of contract if
frustration fails.
(b)
Important to consider if frustration fails, how will the contract be discharged?
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BJS | Updated as at 26th September 2013
3.
There will probably be a breach of contract. Need to use the chart on
Textbook Page 502 (2nd edition)/Page 442 (1st edition).
Using Privity and/or Tort of Negligence: Panatown (Promisee) v McAlpine (Promisor)
Remember that there was a mention of a Duty of Care Deed. Recall that a deed is a contract that
does not require consideration.
Under the DCD, McAlpine assumed a duty of care to UIPL, and its assignees, in respect of the
building contract. McAlpine undertook that they would exercise all reasonable care, skill and
attention in respect of all matters which lay within the scope of their responsibilities under the
building contract.
As such, the held was based on the narrow ground that the promisee could claim for damages on
behalf of the 3rd party and not for the loss suffered by itself. However, in this case, as there was a
DCD between the promisor and the 3rd party, the 3rd party has a legal course of action directly
towards the promisor (in tort).
Otherwise, for such questions in the exam where there may be not duty of care deed, you can use
privity and/or prove elements of tort of negligence instead.
4.
Implied Terms vs. Misrepresentation
Refer to Page 4, Point 3(b)
5.
Negligent Misstatements vs. Misrepresentations
Note that sometimes a false statement made will “attract” liability in contract (as a
misrepresentation) or in tort (as a negligent misstatement).
The 1st question to ask in such a case is whether there exists a CONTRACTUAL
RELATIONSHIP between the party making the statement and the party receiving the statement.
If YES, you can use in contract and in tort, but strategically it is better to sue in contract.
Recall MA s2(1)
Plaintiff only needs to show
(a)
There was a misrepresentation (elements of an operative misrepresentation).
(b)
He suffered losses as a result
Then burden of proof shifts to the representor that he had reasonable grounds to believe and did
believe that the statement was true.
Reasons for doing so under MA s2(1):
1. Generally easier to prove – you need not show that there was a ‘special relationship’ or a duty
of care which is much harder to prove than the elements of an operative misrepresentation
2. Burden of proof shifts to the maker of the representation to prove that ‘he had reasonable
ground to believe and did believe up to the time the contract was made that the facts represented
were true’. If you sue in tort, you need to prove all elements.
3. Damages under s2(1) of MA are much more generous: you are given damages under fraud
measure (recoverable so long as causation is established) compared to damages under negligent
measure (need to show causation + remoteness – test of reasonable foreseeability)
If NO, you have to sue in tort.
6.
Damages (Do not forget to start proving from breach)
Do not forget to start answering the question by considering if there was a breach.
7.
Agency vs. Privity (arguing for one strategically)
Based on the facts given, sometimes you may argue that instead of A contracting with B so as to
subsequently assign the rights to C, A may be contracting with B as an agent for C. In this case,
you save the need to apply the Albazero exception.
LGST101 Writing Guide
BJS | Updated as at 26th September 2013
5
FORMATION OF CONTRACTS: OFFER AND ACCEPTANCE
Note that questions for this topic tend to test you on your ability to apply certain principles you have learnt
to the facts of the hypothetical case.
Furthermore, do note that the guidelines stipulated below are severable. You should be removing parts
that are not necessary (based on the facts of the hypothetical case). For example, the facts may be testing
you on whether the offeror can impose silence as a form of acceptance on the offeree. In such cases, you
may not need to even ascertain if the “offer” was an offer or an invitation to treat to begin with.
1 (a)
Is it an invitation to treat or an offer? Repeat 1 (a) until you find an offer.
An offer needs to contain the terms of exchange.
An offer needs to indicates the offeror’s willingness to be bound.
An offer needs to confer on the offeree the power to bind the offeror upon acceptance.
Apply the objective test of agreement. Based on the facts (what was said and what was
done), is it classified as an offer or an invitation to treat?
* Recall that advertisements and priced goods on display are generally taken to invitations to treat, but this is
only a guideline. If the 3 elements above can be shown, they can still be taken to be offers.
1 (b)
What kind of an offer is it? The type of offer has an implication on what constitutes acceptance.
Unilateral
Bilateral
1 (c)
Was the offer terminated? Sometimes, you may also need to ask if the termination was effective.
Revocation (Bilateral): Any time before acceptance + communicated to the offeree
o Revocation (Unilateral): may not be effective if offeree has started performing
Rejection of an Offer
o Counteroffers are taken to be new offers, and the old offer is destroyed.
Lapse of Time
Failure of Condition
Death
1 (d)
2
Was there a mistaken offer? (snapping-up cases)
Was there acceptance? You don’t have to check all the rules, but only those that are relevant.
Acceptance must be an unconditional agreement to all terms of the offer.
o It must correspond exactly with the offer. Failure to agree to all terms constitutes a
counter-offer.
o In the case of standard-term documents, you need to ascertain whether who ‘fired
the last shot’.
Acceptance must be communicated to the offeror.
o 2 Exceptions: Acceptance may be inferred by conduct. No communication is
needed for unilateral offers.
o The general rule is the RECIPIENT RULE: Ensure that acceptance was
communicated and “received’ on the end of the offeror.
The exception is the postal acceptance rule which is based on the
SENDER RULE.
Acceptance must be given in response to the offer.
o Cross-offers: NO CONTRACT formed
o Ignorant of offer: NO ACCEPTANCE.
Silence does not generally constitute acceptance.
o Unless offeree has indicated that his silence could be deemed to be acceptance.
DO NOT FORGET TO MENTION THE IMPLICATION: Was there a contract?
Sometimes, it may be helpful to draw a timeline for your rough working to examine when the contract was formed, or other
scenarios such as whether there is a contract when a letter of acceptance is posted out after a letter that purports to terminate the
offer is posted out. A timeline can also help identify if an offer is withdrawn too late, etc.
Believe in the Lord Jesus, and you will be saved – you and your household.
(Acts 16:31)
LGST101 Writing Guide
BJS | Updated as at 26th September 2013
6
FORMATION OF CONTRACTS: CONSIDERATION
Recall: Consideration is something of value in the eyes of the law given in exchange for another’s promise.
When answering questions with a promise in return for a promise, if you’re using the words promisor and
promisee, make sure you set out who is the promisor or promisee and for WHICH PROMISE. Generally
it is better to set it up such that you use the names. e.g.: In return for Crystal’s promise to pay $50, Valerie
suffered a detriment by promising to part with her car 1 day later.
Note that it is not important to check all elements of what constitutes valid consideration. You can safely
zoom in on the one or two criteria that are problematic.
Example of how to frame a legal issue:
“The legal issue is to ascertain whether Jones’ promise to pay Lydia $200 is legally binding. In this case we
are concerned with the concept of consideration, and we need to ascertain if an existing duty owed to a 3rd
party (in this case, Kenneth) is valid consideration for Jones’ promise. If so, the promise is legally binding.”
1.
Use the benefit-detriment analysis to determine if there was consideration.
2.
Ensure that
Consideration must be requested by the promisor.
Consideration must move from promisee (not necessarily to the promisor)
Consideration cannot be past.
o But past consideration can be consideration if these elements are fulfilled. (Pao On v
Lau Yiu Long)
Act was done at promisor’s request
Parties understood that the act will be compensated (by the promisor)
Such payment would be enforceable if it had been promised in advance)
Consideration must be sufficient.
o
Intangibles & Moral Obligations: NO
o
Existing PUBLIC/LEGAL Duty: NO
Rationale: To prevent blackmail and kickbacks.
Be very clear about what is public duty. Is a security guard for a commercial property
(e.g.: SMU) considered one who does public duty? NO! It is a contractual duty.
o
Something nominal in value: YES
o
Going beyond existing public duty: YES
o
Existing contractual duty owed to 3rd Party: YES
The promisee is exposed to 2 courses of liability if he doesn’t perform.
Existing contractual duties owed to promisor “Same-for-More”: DEPENDS
Contrasting judgment in Stilk v Myrick and William v Roffey Brothers
Elements to check are as follow:
a. A is in a valid contract with B
b. At some stage before A has completed his obligations, B has doubts about
A’s ability to perform completely
Scenario: What if A tells B that he has difficulties in completing the contract?
The nub is to ask does B really have doubts that A cannot finish performing?
[The Singapore case of Sharon v LG seems to suggest the above conclusion. The
facts also seem to mirror the hypothetical scenario given above.]
c. B then promises A additional payment to complete his remaining
obligations on time.
d. B obtains a practical benefit or obviates a disbenefit.
What is the threshold required? See below.
e. B’s promise was not given as a result of duress or fraud.
Do not forget to check duress (after you have covered the topic). As to fraud, it
should be obvious and clear from the facts.
If (a) to (e) are fulfilled, the promise is binding.
LGST101 Writing Guide
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o
BJS | Updated as at 26th September 2013
Comments on Stilk v Myrick & William v Roffey Brothers:
It is important to note that the law can be quite unsettled in this issue. As such,
if you have any uncertainty with regard to this issue it is fine as long as your
stand is reasonable and your reasoning is sound.
Do note that the “practical benefit” referred to in this case is not merely not
having to find a new employee. The practical benefit in this case was that the
Roffey Brothers could avoid getting entangled into a lawsuit with the
developer if Williams could not finish on time. As such, this can be used as
your yardstick to consider “Was there really a practical benefit in the facts of
the (Midterm/Finals) case?
Essentially, what we are trying to do is to use Stilk v Myrick as a general rule
and see if there is any “practical benefit” based on the “yardstick” given in
William v Roffey Brothers. (Note that this yardstick is not a holding in law, but is
based on inferences with the facts of Sharon Global v LG and Sea-Land v Vincent
Cheong.)
If there is a strong case for practical benefit, you can conclude that there is
consideration and the promise is binding (i.e.: William v Roffey Brothers position).
If there is a weak case for practical benefit, you conclude there is no
consideration and the promise is not binding (i.e.: Stilk v Myrick position)
o
Going beyond existing contractual duty: YES
Need to demonstrate that circumstances have changed drastically.
Existing contractual duties owed to promisor “Same-for-less”: NO
Through Foakes v Beer, it was held that part performance (payment of a debt in this
case) was established to be not sufficient consideration, as such the promise is
not binding. This is because the promisor does not receive any benefit in
simply getting prompt payment and already has a contractually enforceable
promise for the whole performance. A lesser sum is not satisfaction for a debt.
Promissory Estoppel: Only to be used when you FAILED to prove that there was consideration.
o
3.
Elements:
Threshold Requirement: Existing legal relations between parties
Clear and unequivocal promise by promisor not to insist upon his original rights
o The 2nd part of this element makes sense as it is only to be used as a shield in
Singapore.
There was reliance on the promise and the promisee altered his position.
o Narrow Approach: Reliance can be shown by the representee suffering a
detriment.
o Broad Approach: Reliance can also be shown by the representor gaining a
benefit when the representee relies on the promise.
It was found to be inequitable for promisor to go back on his promise
Only to be used as a shield, not a sword.
If these elements can be proved, you say that the promisor is estopped from going back
on his promise.
When to use Promissory Estoppel:
A case of “Same for More”: Pre-existing contractual duty owed to other party
If promisee failed to show that there was a “practical benefit”, there is therefore no consideration,
as such the promise for more cannot be enforced. We CANNOT use promissory estoppel in this
case because to use promissory estoppel is to ask for more. Since promissory estoppel is only
allowed to be used a shield (at least in SG), you cannot use promissory estoppel to enforce a
promise for more.
A case of “Same for Less”: Pre-existing contractual duty owed to other party
Generally PE can be used to enforce promises of the “same for less” type despite a lack of
consideration – after agreeing to accept less for the same act, it becomes inequitable for the
promisee if the promisor wants to enforce the original rights, hence you can apply it.
Everyone who calls on the name of the Lord will be saved.
(Romans 10:13)
LGST101 Writing Guide
BJS | Updated as at 26th September 2013
8
PRIVITY
When answering questions on privity (where there is a 3 rd party involved):
STEP 1: Is there privity? If there is privity of contract between 2 parties, it is much easier to
sue/get sued since there is now a direct right of enforcement by either party.
STEP 2A: In cases where the 3rd party wishes to enforce a benefit [due to a loss suffered] (or even
a benefit of an EC):
1. Is the 3rd party permitted to enforce a contract (in terms of benefit) directly (i.e.: by himself)?
Use CRTPA.
(a) s2(3): The 3rd party shall be expressly identified in the contract
by name, or
as a member of a class, or
as answering a particular description but need not be in existence when the contract was entered
into.
If s2(3) is not fulfilled, then NO, the 3rd party cannot enforce the contract directly.
If s2(3) is fulfilled, then move on to (B).
(b) s2(1)(a): the contract provides that the third party may enforce a term of the contract.
If s2(1)(a) is fulfilled, then YES, the 3rd party can enforce the contract directly.
If s2(1)(a) is not fulfilled, then move onto (C).
(c) s2(1)(b): the term purports to confer a benefit on him
(Note the term ‘benefit’ here is a benefit that he receives from the contract)
in conjunction with s2(2): s2(1)(b) shall not apply if, on a proper construction of the contract, it
appears that the parties did not intend the term to be enforceable by third parties.
If s2(1)(b) is fulfilled after passing through the test in s(2)(2): then YES, the 3rd party can enforce the contract
directly.
If s2(2) is fulfilled, then NO, the 3rd party cannot enforce a contract directly.
Notes:
It seems that the creation of CRTPA rights are not meant to displace common law rights. s6 of the
CRPTA seems to envisage co-existence of a common law claim by a promise for a third party’s loss
(Narrow Ground), with the CRTPA s2 (where the 3rd party’s own right to enforce arises). This section
essentially prevents double recovery in such cases.
So how is it distinguished from Panatown where a duty of care deed between McAlpine and UIPL meant
that Panatown could not make use of the narrow ground to sue for UIPL’s losses?
[FYI: CRTPA was passed after the Panatown case.]
In this particular case, the House of Lords was considering a DIRECT RIGHT created by the
Duty of Care Deed. However, the CRTPA right created through Section 2 seems to allow for coexistence of both methods to sue for the 3rd party’s loss.
As such, if you choose to say that since the 3 rd party has a direct right of action through CRTPA
section 2 (if it is proven) therefore the promisee cannot use the narrow ground to sue for the 3 rd
party’s loss, it may be perfectly alright to do so, but please make it clear that it is an
extrapolation/extension for the case (this difficulty arises as no court case has looked at this as
of now.)
I have asked you to use CRTPA first. Most people will usually apply the narrow ground first, and if it
succeeds, they will just move on with the question. By looking the CRTPA first, this helps to increase the
depth of your answers.
Furthermore, the narrow ground will only ‘work’ in actual fact if the plaintiff is willing to help the 3rd party.
Therefore, it is worth asking whether the party who suffered the loss is able to sue directly first.
2. If the 3rd party is able to enforce the term directly, or if he is unable to do so, try to apply the
narrow approach and consider whether the promisee can enforce the contract on behalf of the 3 rd party?
Furthermore, do ask if the plaintiff is willing to sue on behalf of the 3rd party or not. (e.g.: business
interests, related companies, subsidiaries, family relationships etc.)
LGST101 Writing Guide
BJS | Updated as at 26th September 2013
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Plaintiffs are entitled to claim on behalf of 3rd parties by applying the Albazero exception:
(a)
Commercial contract for goods (the Albazero)
Or Commercial contract for property (extended in Linden Gardens)
In the cases of non-goods and non-property (such as services, intellectual property, virtual property etc), a
good answer will examine why should this exception be relaxed or why not. Do not just blindly apply
the element to the ‘type of contract’ based on the facts.
(b)
contemplation of the parties that the proprietary interests in the goods will be
transferred to 3rd parties
(c)
transfer of ownership after original contract but before the breach
(d)
intention of both contracting parties for 3rd party to benefit in law [by allowing the
original party to sue on the 3rd party’s behalf to recover for the loss suffered by the 3 rd
party]
You may need to do an exercise like this (from Linden Gardens) for your examination to prove (D):
1. Promisor and promisee contracted with knowledge that development would be occupied, and sold to 3 rd
parties.
2. Prohibition on promisee’s ability to assign the contract to a third party without the promisor’s consent
prevented the 3rd party from suing on the contract.
=> Intention that the promisee should be entitled to claim for the 3rd party’s loss due to promisor’s
defective performance.
(Note that the benefit in law is right to sue for the benefit conferred, i.e.: to get rid of the legal black hole)
Furthermore, do note that the plaintiff is accountable to the 3 rd party if he sues using the
narrow ground. This means that the damages claimed must be passed on to the 3rd party.
Note: Recall if the 3rd party has a direct right of action IN CONTRACT such as a duty of care deed in Panatown (note
that despite the name ‘duty of care’ which connotes tort, it is still a contractual deed), the claim using the narrow
approach would fail.
3. If the Albazero approach fails, plaintiff may only be able to use the broad approach to sue for
substantial damages for itself (whether it chooses to handover such damages to the 3 rd party is another issue
altogether).
Do note that the performance interest claimed by the plaintiff must be a genuine one. The court will
apply an objective test of reasonableness to the performance interest claimed so as to curb what
would otherwise be a windfall accruing to the plaintiff/promise. To quote Chao JA in Prosperland: “At
the end of the day, the entire circumstances of the case must be considered to determine whether the claim made was reasonable
or was made with a view to obtaining an uncovenanted benefit.”
Refer to Appendix A for a clearer understanding of this issue.
Note: If the narrow ground succeeds, the broad ground will NOT succeed since they are actually inconsistent with each other.
OR
STEP 2B: In cases where 3rd party wishes to enforce a benefit of an EC and prevent themselves
from getting sued:
(A)
If the EC falls under the type covered by the UCTA, subject the EC to the tests given in
the topic of “Terms of a Contract”.
(1) Incorporation
(2) Applicability
(3) Blocked by the UCTA
(B)
Apply the elements given in the Himalaya:
(1)
Terms of EC intended clearly to cover the 3rd party.
(2)
One of the original contracting party was contracting on behalf of the 3 rd party for the
EC to protect himself & the 3rd party i.e.: as an agent of the 3rd party.
(3)
Valid principal-agency relationship between original contracting party and 3 rd party.
(4)
Look for consideration: Any difficulties about consideration moving from the 3 rd party
must be justified.
e.g.: In the case of the Eurymedon, the unloading of the goods by the stevedores (performance) was
consideration for the cargo owner’s unilateral contract offered to anyone unloading the goods.
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AGENCY
Questions usually test you on whether there was a formation of agency, and to determine the RIGHTS
AND OBLIGATIONS of the parties, with an emphasis on determining who (the principal or the
agent) is in a contract with the 3rd party.
Cases of Disclosed Principals
Step 1: Was there actual authority in the form of express authority?
If yes, and the act was within authority of the agent, principal is bound to the 3rd party.
If no, go to Step 2.
Step 2: Was there actual authority in the form of implied authority (e.g.: Appointment of Post and
things that are ordinarily done in that business, trade or profession)?
If yes, and it is within authority of the agent, principal is bound to the 3 rd party.
If yes, but it is not within the express authority of the agent, did the principal ratify (expressly or
by conduct/impliedly)?
o If yes, principal is bound to the 3rd party retrospectively (i.e. as if the principal had
agreed to the agent’s actions on the date of the “wrongdoing” of the agent).
o If no, agent is prima facie bound to the 3rd party. Go to Step 3.
Step 3: Sometimes principals may be bound to 3rd parties although there the agent may have
acted beyond his scope of authority and principal does not ratify.
For such a scenario apply: We need to prove apparent authority (Agency by Estoppel)
The elements are:
o Representation created by principal to the 3rd party that the agent has authority to enter
on behalf of the principal into a contract of a kind within the scope of the apparent authority.
This can be express, implied from the apparent principal’s actions or through
the acquiescence or inactivity by the principal.
o Representation was relied upon by the 3rd party (and the agent defies the express
authority given).
There is no need for a detriment to be suffered.
o Principal altered his position as a result of the representation.
Entering into contract is considered sufficient alteration.
The effect is that the principal is ESTOPPED from going back on his representation and
the principal is bound to the 3rd party.
Cases of Undisclosed Principals
Sometimes questions may test you on an undisclosed principal.
Remember that an undisclosed principal only exists if the 3rd party thinks that the agent is in fact acting on
his own behalf.
All you need to do is to
(1)
Looking at the facts of the case: Was there an undisclosed principal?
(2)
If there is, use the effects of undisclosed principals as stated below:
(From Siu Yin Kwan v Eastern Insurance Co Ltd)
Undisclosed principal may sue or be sued on a contract made by an agent on his behalf; acting within
the scope of his ACTUAL authority.
However, the terms of the contract may however, expressly or by implication, exclude the
principal’s right to sue and his liability to be sued. The contract itself, or the circumstances
surrounding the contract, may show that the agent is the true and only principal.
In entering the contract, the agent must intend to act on the principal’s behalf.
The agent of an undisclosed principal may also sue or be sued on the contract.
Any defence which the 3rd party may have against the agent is available against his principal.
Exception to the above: what if there is a case of an undisclosed principal and he acted outside his actual (express) authority?
Answer: Ratification cannot be effective, and the agent himself may become liable and bound to the 3 rd
party himself. (Keighley, Maxsted & Co v Durant)
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Principal-Agent Relationships
You need to know what are the duties of the agent and rights of the agent.
The question will usually be answered in such a manner:
(1)
Is there any breach of the duties of the agent?
(2)
If there was a breach, what would happen to the principal-agent relationship or the agent?
Summary Table to consider who is bound to 3rd Party (Principal or Agent):
DISCLOSED PRINCIPALS
Scenario
Principal
Agent
Agent acted within authority.
Principal is bound to 3rd Party.
Agent owes no liability nor rights against the 3rd Party, unless
(a) Agent undertakes to be personally responsible
(b) Statute (Pre-incorporation contract s41 Companies Act)
Scenario
Principal
Agent
Agent acted outside his authority, ratified by principal.
Principal is bound to 3rd Party.
Agent owes no liability nor has any rights against the 3rd Party.
Scenario
Principal
Agent
Agent acted outside his authority, not ratified by principal, apparent authority not given.
Principal is not bound to 3rd party.
Agent becomes bound to the 3 rd Party.
3rd Party can sue agent for breach of implied warranty of authority.
Scenario
Principal
Agent
Agent acted outside his authority, not ratified by principal, apparent authority given
Principal is bound to 3rd Party.
Agent owes no liability nor has any rights against the 3rd Party.
UNDISCLOSED PRINCIPALS
Scenario
Principal
Agent
Agent acted within his authority.
Principal may sue and be sued on the contract
unless the terms may expressly or impliedly exclude his right to sue and his liability to be sued.
Agent may sue and be sued (Depends on 3rd party) on the contract.
Scenario
Principal
Agent
Agent acted outside his authority.
Principal is NOT bound by the contract. Ratification may not be effective.
Agent may sue and be sued on the contract.
Do to others as you would have them do to you.
(Luke 6:31)
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TERMS OF A CONTRACT
Type 1: Given a ‘written express term’ &
some facts that seem to show that there was a breach of that particular express term.
1.
Consider if there was a breach.
If there is no breach, there is no need to determine the importance of the term (i.e. classify the
term) unless the question says so.
2.
Consider if it is a condition, warranty or innominate term.
Note that the Condition-Warranty approach is to consider the intention of the parties AT
THE FORMATION of the contract. Do NOT take into account the breach that
happened when you use this method.
If your Prof has no preference, use this if you can justify easily and quickly that a term is a
condition because parties attached a lot of weight to it. (e.g.: Amount of monetary
consideration, any item that is the basis for the transaction, etc.)
Alternatively, use Hong Kong Fir Approach. Always state the question “Is the
consequence of the breach so serious that it deprive the party not in default of
substantially the whole benefit which it was intended that he should obtain from the
contract?”
o Envisage the possible breaches of the term. (NOT JUST THE BREACH GIVEN
IN THE QUESTION)
Always deprives: Condition
Never deprives: Warranty
Not very clear: Innominate term. Look at the breach stated in the facts.
Hybrid Approach
o This is the endorsed approach in Singapore; however it may be too tedious for
exams. You will have to check with your professors which method he/she prefers.
3.
*State the consequences.
Is there a right to terminate?
Once there is a breach, damages are available as a right but just mention it as well.
Condition Can terminate and sue for damages
Warranty Cannot terminate but can sue for damages
Innominate Terms
Depends on the severity of the breach given in the case
For midterms, you only need to state the consequences.
For finals, you need to move on and consider if the contract was affirmed [Refer to topic on Discharge] and quantify
the damages [Refer to topic on Remedies.]
Type 2: Given a written contract with some terms &
some facts that seem to show that there was a breach of a term that was not written in the
contract.
1.
Can the term be implied?
Of course, you need to check through the Parol Evidence Rule.
For exams, it is probably implied by FACT.
Use EITHER the Business Efficacy Test OR the Officious Bystander Test. One is enough.
Being an officious bystander is probably easier, so just ask the question “Does it go without saying [objectively]?”
2.
If the term can be implied, repeat all 3 steps of Type 1 Question.
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Type 3: Oral Contract only
1.
Was the oral statement made a puff, a representation or a term?
A set of guidelines (note that it is a guideline, not a criteria.
This is given in Heilbut, Symons & Co v Buckleton. Refer to either my notes (page 5-1 to 5-2)
or a summary can be found at http://www.lawnotes.co.cc/representations-and-terms/
2.
If the oral statement was deemed to be a TERM, repeat all 3 steps of Type 1 Questions.
If the oral statement was deemed a representation, ask if there was misrepresentation (see
Vitiating Factors).
Type 4: Oral Statements made and a Written Contract
1.
Recall the Parol Evidence Rule.
It states that no extrinsic evidences (oral etc.) can be admitted to add to, vary or contradict a
written instrument. (Of course, there may be exceptions found in s94 of the Evidence Act.)
2.
Repeat all 3 steps of Type 1 Question.
If the extrinsic evidence cannot be used, consider the alternative actions (e.g.: s94 Evidence Act).
Type 5: Exemption Clauses (ECs)
Of course, do not forget to check if there is a breach in the 1 st place. If there is no breach, there is no
liability to protect.
1.
Incorporation: Was the clause incorporated at the point of formation of the contract?
Incorporation can be made via signature, via notice or via previous course of dealings.
Signature: A person signing the contract is automatically bound by whatever is written on it.
Notice: It must be shown before or at the point of formation of the contract.
If it is incorporated, move to Step 2.
Otherwise, the EC is not valid.
2.
Applicability: Does it cover the breach in question?
Read the facts to ascertain if the breach is covered by the EC. If it is NOT, then the EC is invalid.
Use the Contra Proferentum Rule to read against the EC if it is ambiguous.
3.
UCTA: Is it blocked by any provisions of the UCTA?
s1
Was there negligence due to the party seeking to rely on the EC?
If No
Not liable if the EC only talks about cases of negligence.
If Yes Move on.
s2(1)
Was it a case of personal injury (physical and mental) or death?
If Yes Liable to full extent. (Exclusion & Limitation clauses are invalid.)
If No subject it to the UCTA Test of Reasonableness. [s2(2) says so]
UCTA Test of Reasonableness
If it is reasonable, the party seeking to rely on it can do so.
For the case of exclusion clause, he is not liable.
For the case of a limitation clause, he is liable to the extent stated in the clause.
If it is unreasonable, the party seeking to rely on it is liable to full extent. (Exclusion and
limitation clauses are invalid.)
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VITIATING FACTORS: ILLEGALITY (RESTRAINT OF TRADE CLAUSES)
For the purpose of this course, you only need to know restraint of trade clauses (for the topic of illegality).
Based on public policy consideration that individuals are allowed to engage in their own trade freely,
restraint of trade clauses are prima facie void. (VOID = There is no ability to affirm or rescind the
contract) However, there are some criteria to look at when we want to see if a restraint of trade clause can
be operative or not.
We therefore ask the following:
(a)
Legitimate Interest:
Does the party seeking to rely on the clause have some legitimate interest to protect?
To do this, it is helpful to look at various types of restraint of trade clauses and the common
legitimate interest that follow.
Employment Contracts (Non-solicitation clauses OR New employment after resignation)
- Trade custom/Trade connection (e.g.: personal knowledge of/influence over customers of
employer)
- Trade secret (but not personal skills and knowledge of the employee)
- Maintain a stable, trained workforce (e.g.: financially trained personnel in Man Financial v David
Wong; note that the higher the position, the more likely that there is legitimate interest.)
Sale of Businesses
- Non competition with any business of the company
- Proprietary interest in goodwill of business, but only of actual business sold.
Exclusive Dealing Agreements
- Fixed R&D costs incurred by the enforcer of the agreement (e.g.: Esso v Harper’s Garage)
If it is a legitimate interest, move on to (b). If it is not, the clause is deemed VOID.
(b)
Reasonable: Is the clause reasonable?
The clause must be reasonable in duration, area (extent of locality) and scope (of the activity
banned) for the clause to have effect.
Remember you must look at the clause as a whole to determine whether it is reasonable or not. It
is easier to analyse whether it is reasonable in duration, area or scope separately; then analyse if it
is reasonable as a whole. It is important to consider it in totality: a more restrictive covenant in
one aspect can be mitigated by a less restrictive covenant in another.
For Employment Contracts (Non-solicitation clauses OR New employment after resignation)
Scope: must be confined to the business of the employment
Area: only an area that is no wider that the employer’s legitimate interest (a country MAY be
reasonable)
Duration: Unlimited durations may be reasonable. Use your judgment.
Other Points to think about include:
Was the consideration adequate in return for the restraint of trade clause?
o The higher the consideration, the greater the restraint allowed.
Were they on unequal bargaining position?
o The more unequal the bargaining position, the smaller the restraint allowed.
Most importantly, the term must be reasonable such that it ONLY protects the legitimate
interest of the party seeking to rely on it. It must not be drafted too widely such that it seeks to
curtail the rights of individuals to engage in their own trade freely. (i.e. It must drafted wide enough just
to protect the legitimate interests of the company BUT NOT to curtail the right to competition).
If it is reasonable, move on to (c). If it is not, the clause is deemed VOID.
(c)
Public Interest:
Does the clause goes against public interest even if (a)/(b) are fulfilled?
If yes, it is void. If no, it is legally binding.
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Public Interest considerations include:
Freedom to trade e.g.: Employees have a right to remain employed. (Herbert Morris v Saxelby)
Does not stifle healthy competition e.g.: If there are only 2 or 3 companies in the industry, a restraint
of trade may be unreasonable as it curtails the economy since we should encourage competition as much as
possible [by having more companies] (Thomas Cowan v Orme)
Availability of rare skills and knowledge
However, we need to distinguish between (1) curtailing the right to be employed by a clause
versus (2) restraints on sale by an artiste of his proprietary interests in his works. The cases that
deal with this are (1)A Schroeder Music v Macaulay and (2) Chua Chian Ya v Music & Movement.
Essentially, what you are trying to do is to balance the interests of the contracting parties
and the interests of the public at large.
(d)
If you find that there is an objectionable part of the clause, can it be struck out (severed)
using the Blue Pencil Test? If yes, then it can be done so. If no, the clause becomes void.
The Test makes you run through and strike out objectionable words in the clause as long as it
does not mutilate the covenant or alter the meaning (i.e. you must take into account the intention
of the contractual parties when severing)
Remember that the unenforceable portion must be capable of being removed with the necessity of adding to or
modifying the wording of what remains.
Example of situations where severance NOT work?:
1.
After you sever a particular part of the clause, the clause becomes even wider in scope.
2.
It alters the meaning such that it does not take into account the original intention of the
parties (If you draft a clause that seeks to curtail the right of individuals to get employed,
the court is going to be less lenient and not sever the contract to save it for you.)
Even though I walk through the darkest valley, I will fear no evil, for you are with me.
(Psalm 23:4a)
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VITIATING FACTORS: ECONOMIC DURESS
If a party enters into a contract under an illegitimate threat to harm his economic interests, the contract
becomes VOIDABLE (There is a right to affirm or rescind).
There are 2 theories to allow for a contract to be vitiated:
(A) Overborne Will: Did the pressure deprive the pressured party of any ability to exercise his free will?
(B) Illegitimate Pressure: Was the pressure illegitimate such that it amounts to a compulsion of will?
Essentially both tests have a common premise: Did the pressure exerted affect the voluntariness
of the victim’s consent?
We therefore ask the following:
(a)
Illegitimate Pressure
At this point, we are determining if the threat is illegitimate. If it is, move on to (b).
First, we need to understand that a pressure comprises of a threat and a demand.
- Threat: Something one purports to do.
- Demand: Something one wants in return for agreeing not to do what one threatened to.
For duress, when A threatens B that he will burn the latter’s home down, that is a threat simpliciter. This threat
simpliciter is irrelevant in duress because A did not demand B to promise something in return. The threat may
cause B to fear for his life, but unless there is an accompanying demand for a promise or agreement (for example to
agree to a very unreasonable contract), the relevant area of the law is criminal, not contractual.
Unlawful Threats
Unlawful threats such as crimes and torts will automatically lead to an illegitimate threat, and thus
an illegitimate pressure.
However, there is a major exception. Threats to breach a contract are unlawful (in tort, civil law
NOT criminal law) but will not be automatically deemed as an illegitimate threat.
Threats to Breach a Contract
First, ask if there is a threat to breach a contract.
- This may sound ridiculous, but it is a necessary consideration. If someone may simply be
stating the inevitable fact that he can no longer perform the terms of the contract unless a
variation is effected, it may not amount to a threat to breach a contract.
- A useful test is as follow: What is the amount of control the party allegedly making the
threat has over the outcome? (The lesser the control, the less likely there would have been
a threat).
Second, was the threatened breach reasonable in the circumstances?
Consider the factors (guidelines) NOT ELEMENTS (DSND Subsea v Petroleum Geo Services ASA)
- Foreseen or self-inflicted consequences: If one had foreseen or was responsible for the
change in circumstances which he is now using to substantiate his threat, it may not be
reasonable.
- Substantive Reasonableness of Demand: A reasonable demand means that the demand
ought to be related to the change in circumstances and proportionate to the difficulties
caused or acting bona fide in a difficult situation.
- Good Faith: Acting in a truthful manner
Lawful Threats
General, these do not give rise to illegitimate pressure so long as the demand is also reasonable.
We can assume that it is very rare for lawful act duress to arise, although the courts refused to say
that lawful act duress can never amount to duress.
To decide whether a lawful threat is illegitimate, we have to consider the nature of demand and
other factors. In the case of Tam Tak Chuen, the Singapore CA gave the following factors (at para
50) that were adapted from Nelson Enonchong, “Duress, Undue Influence and Unconscionable Dealing”:
“Enonchong classifies the circumstances which, according to the authorities, indicate that when a
threat of lawful action that is not unlawful is illegitimate. These categories are:
(a) where the threat is an abuse of legal process;
(b) where the demand is not made bona fide (which means good faith)
(c) where the demand is unreasonable; and
(d) where the threat is considered unconscionable in the light of all the circumstances.
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Unreasonable Demand
The test for acceptability is reasonableness, not lawfulness. However, it is clear that if the
demand is unlawful, that it will also be unreasonable since reasonableness is a broader concept
than lawfulness.
The perfect example of an unreasonable demand is blackmail. Quoting Lord Atkin in Thorne v
Motor Trade, the “blackmailer normally threatens to do what he has a perfect right to do – namely,
communicate some compromising conduct to a person whose knowledge is likely to affect the
person threatened… What he has to justify is not the threat, but the demand of money.
Therefore, to summarise, we do the following:
1.
Is the threat lawful?
a. If it is, then move to Step 2.
b. If it isn’t, then this element is satisfied unless this is a threat to breach a contract (See
Step 3).
2.
Is the demand unreasonable?
a. If it is, then this element is satisfied.
b. If it isn’t, there is no duress.
3.
If it is a threat to breach a contract, ask:
a. Is there a threat? (If there isn’t, there is no duress; if there is, see Step 3B).
b. Is the threat reasonable? (If it isn’t, there is duress; if it is, there is no duress).
(b)
Overborne will: Was the pressure sufficient to coerce (or put in another way: was there a
pressure such that the practical effect is that there is compulsion on or a lack of practical
choice for the victim?) If it is sufficient, move on to (c).
The guidelines you can use are given in Pao On v Lau Yiu Long. Note that the list is non exhaustive
and conclusive.
1.
2.
3.
4.
Did the victim protest at the alleged point of coercion? (Note that if he didn’t if he did
not find a use in doing so, that is NOT to be held against him.)
Did the victim have any alternative course open to him (e.g. an adequate legal remedy)
Did the victim receive any independent legal advice?
Did the victim take steps to avoid the contract after entering to it? (If he did not, then
this is a bar to rescission called ‘affirmation’.)
Another factor given in other cases (The Alev, Atlas Express v Kafco) is to ask whether the victim
had acted reasonably in taking the other person’s threat seriously?
(c)
Was the illegitimate pressure a “significant cause” of the transaction?
Note that in cases of economic duress, the pressure needs to be a “significant cause” rather than
‘a’ cause (which is the case for duress to the person)
Use the ‘but for’ test to show that without the illegitimate pressure, the victim will not
have entered into the contract. This implies that the pressure is a significant cause
inducing the claimant to enter into the contract.
However, if the “but for” test fails. As suggested in Huyton v Peter Cremer, you can apply a sliding
scale according to which the causal threshold diminishes as the degree of illegitimacy
increases.
If all 3 elements are proved, duress is proved.
Do not be anxious about anything, but in every situation, by prayer and petition, with
thanksgiving, present your request to God.
(Philippians 4:6)
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VITIATING FACTORS: UNDUE INFLUENCE
The doctrine of undue influence is the excessive dependence on or undue persuasion by the defendant,
leading to a lack of real consent in contracting. The effect of undue influence is to make the contract
VOIDABLE. * Learn to distinguish (presumed – Class 2) undue influence, which is premised on persuasion and influence
and duress, which is premised on pressure.
Class 1 Actual Undue Influence:
It is a domination over the victim’s mind such that the latter’s independence of decision was
substantially (if not totally) undermined.
In such cases, there is NO requirement to show manifest disadvantage because this class of undue influence is a species of
fraud, and therefore the victim can set aside the transaction as of right. To quote Lord Browne-Wilkinson in CIBC
Mortgages plc v Pitt, “Actual undue influence is a species of fraud. Like any other victim of fraud, a person who has been
induced by undue influence to carry out a transaction which he did not freely and knowingly enter into is entitled to have that
transaction set aside as of right. … A man guilty of fraud is no more entitled to argue that the transaction was beneficial to
the person defrauded than is a man who has procured a transaction by misrepresentation. The effect of the wrongdoer's conduct
is to prevent the wronged party from bringing a free will and properly informed mind to bear on the proposed transaction which
accordingly must be set aside in equity as a matter of justice.”
The victim needs to prove that:
The defendant was in a position of influence.
o There is no need for any special relationship (of the type mentioned below in Class 2) to
exist between the parties, although, of course, it may do so.
The influence was exercised wrongfully.
o Threats to abandon:
E.g.: in Bank of Scotland v Bennett (1997), the husband used wounding and
insulting language to accuse of his wife of disloyalty in contrast to the ‘loyalty’
of his relatives. He said she would be a ‘waste of rations’ if she refused to
guarantee his business debt and would be splitting up the family. The judges
found ‘moral blackmail amounting to coercion and victimisation’.
o
Excessive control, secrecy and exclusion of others:
In Re Killick v Pountney and another (2000), K has been P’s lodger for 40 years
(since he was 32). As K’s health failed and he entered a nursing home, P took
over his possessions and papers. P banned K from contact with his relatives on
threat of not allowed him to come home after hospital, which terrified him.
K’s will provided very generously for P.
o
Bullying, confrontation and harassment
In Clarke v Prus, after the elderly C’s wife died, he was befriended by the
younger P. C gave P gifts totaling 1.9 million pound over some 20 years. The
Court held that ‘what started out as Mr Clarke’s folly…finished as Mrs Prus’
victimization at the end of his life’ when her requests turned into increasingly
vehement demand made by verbal onslaughts and oppressive harassment.
In Drew v Daniel, Daniel coerced his aged aunt to confer a significant benefit on
him at the expense of her own son in a distressing and lengthy conversation,
coupled by his threat to sue her. He concealed his dealings from her son and
her solicitor. Ward LJ found Daniel’s conduct ‘unacceptable’ in view of Drew’s
vulnerability, naivety in business and fear of confrontation.
The influence induced the contract.
o The ‘a’ test rather than the ‘but for’ test is sufficient (based on Andrew Phang JA in The
Law of Contract in Singapore).
Class 2 Undue Influence
The relationship between parties is such as to give rise to a presumption that one party had influence
over the other, the burden of proof then shifts to the former to show that the victim actually exercised an
independent will when entering into the contract.
(a)
Ask if there is a relationship of trust and confidence.
There are 2 kinds, Class 2A and Class 2B.
For Class 2A, the relationship is presumed automatically.
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Such relationships include: parent-child, guardian-ward, trustee-beneficiary, doctor-patient,
lawyer-client, director-company, religious advisor-disciple.
Note that a employer-employee, agent-principal, husband-wife; sibling relationships are NOT
under Class 2(A). They are under Class 2(B).
For Class 2B, you need to show that there is a special relationship of trust and confidence
and whether the ‘victim’ (V) has reposed trust and confidence in the ‘wrongdoer’ (W).
This arises when “V relies on the guidance or advice of W, where W is aware of that
reliance and where W, the person upon whom reliance is placed obtains, or may well
obtain, a benefit from the transaction or has some other interest in it being concluded”.
Note that the trust and confidence should be directed at whether V trusts W to look after V’s
interests and affairs, rather than whether this is ‘love and affection’.
(b)
Next, ask if the transaction is one that calls for an explanation.
For 2A, it is not sure whether there is a need to show this element. Please check with your Profs whether there is a
need to do so.
Does the transaction ‘call for an explanation’ if it is so large as not to be reasonably accounted
for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary
men act? (Allcard v Skinner, affirmed in Royal Bank of Scotland v Etridge)
Note: If I entered into a transaction such that I promises to let a painting at ½ the price that it deserves to someone
whom I have a relationship of trust and confidence, it doesn’t matter if I could afford it or not (based on my human
wealth). All it matters that the transaction is manifestly disadvantageous to me.
Human wealth is only a concern when we look at the doctrine of infection (Guarantor agreements with banks).
Am I signing away everything (based on my human wealth) if I sign a guarantor agreement?
(c)
If (a) and (b) are proved, undue influence is PRESUMED. The burden of proof then shifts to
the defendant to rebut the presumption (to show that there is no undue influence).
The best way is to show evidence to show that the defendant acted out of his independent
and free will. e.g.: Did P seek independent legal advice? (However, this is not conclusive as well)
Come up with some rebuttal and see if it is likely to be overturned or not.
If the presumption was rebutted, there is NO UNDUE INFLUENCE.
Doctrine of Infection
There is firstly, a need to establish that there is undue influence (or misrepresentation) between
the debtor and the guarantor [elements on previous page]. If there is NO undue influence (or
misrepresentation), there is no undue infection to INFECT the contract between the creditor
(bank) and the guarantor.
However, even in certain cases where it is unclear whether there is a vitiating factor found, the question will still expect you to
assume there was undue influence (since it may not be that clear in the 1 st place) and then apply the concepts.
This may also apply to bank-debtor relationships as evident in the case of Credit Lyonnais Bank Nederland NV v Burch.
The doctrine of infection: The contract between the creditor and the guarantor can be rescinded
by infection of undue influence even if the creditor was innocent.
As such, we use the criteria that were set out in Royal Bank of Scotland v Etridge.
The lender/creditor/bank will have constructive notice where it knows of facts that ‘put it on inquiry’
that there is a risk of Undue Influence.
(1)
Is the bank/lender put on inquiry?
The bank/lender regard banks as ‘put on inquiry’ by a combination of 2 factors.
1.
The relationship between the guarantor and the debtor is NON-COMMERCIAL.
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2.
The loan is not, prima facie, to the financial advantage of the guarantor. The loan is
deemed for the debtor’s benefit if the guarantee is in respect of the debtor’s debt or the debt
of his company.
Even if the guarantor is nominally a shareholder, director, secretary, it does not matter as
these are not reliable indicators of the guarantor’s investment.
However, if the transaction is a normal advance of funds to the husband and wife for their
joint benefit. Then this is to the guarantor’s benefit.
(2)
After the creditor is put on inquiry, what reasonable steps does it need to protect its
position, so that it will be not affected by any vitiating factor on the part of the debtor?
The burden of proof is on the creditor to rebut the resumption.
In RBS v Etridge: Banks should to use a solicitor instead, otherwise it may expose itself to
allegations of misrepresentation, undue influence or negligence.
As such, the following are steps the bank should take:
(1)
The bank must communicate with the guarantor to check if he wishes to use a
solicitor.
(2)
Once a solicitor is nominated, the bank must provide the solicitor with the financial
information necessary to enable the solicitor to advice him properly.
(3)
If the bank has suspicions that the guarantor has been misled, these must be
communicated to the debtor’s solicitor.
(4)
The bank will require from the guarantor’s solicitor a written confirmation that the
nature of the documents he is asked to sign and the practical implications of the
documents have been clearly explained to him. These should include
Nature/effect of the guarantee
Emphasise the seriousness of the risk
Discuss about the financial means (the value of the property being charged, and
the availability of other assets out of which repayment may be made)
Choice to proceed and ask whether he wishes the solicitor to renegotiate
particular terms.
If elements of constructive notice are proved, the bank is INFECTED and the guarantor
agreement can be deemed voidable.
Finally, brothers, whatever is true, whatever is noble, whatever is right, whatever is pure,
whatever is lovely, whatever is admirable – if anything is excellent or praiseworthy – think
about such things.
(Philippians 4:8)
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VITIATING FACTORS: MISREPRESENTATION
Start by asking if a statement is a puff or a statement that can have legal consequences. Then, use the chart.
1. Is there an operative misrepresentation? Prove all 3 elements!
The cases you have learnt in class help you to establish guidelines/yardsticks to tackle parts (A), (B) and (C).
(A)
a statement of fact by words or conduct that is false
For Statement of Opinion: At the point of making the statement, can the representor
honestly hold the opinion based on the knowledge he has?
For Statement of Intention: At the point of making the statement, did the representor
have the requisite intention he claims to have?
For Silence: Mere silence is not necessarily a misrepresentation but an active
concealment of a material fact may be a misrepresentation.
For a true statement that becomes false subsequently: There is a duty to disclose,
otherwise it constitutes a false statement.
For half-truths: If there was important omissions that seek to distort the representee’s
assessment of the representations, it constitutes a false statement.
(B)
addressed to the party misled (very easily satisfied)
(C)
induces party misled to enter into contract
It just needs to have a material inducement BUT need not be the sole cause.
If the representee has been negligent in verifying the statement, it will not be held
against the representor. (Wishing Star v DSTA)
2. Is there an exemption clause? Does the exemption clause protect the party seeking to rely on it?
For a fraudulent misrepresentation, skip this step. Common law says that an EC cannot block a misrep.
For other misrepresentation, s3 MA says use UCTA Test of Reasonableness
3. If there is a misrepresentation, what type is it?
(A) Fraudulent
(B) Negligent (By Common Law) or (By Statute)
(C) Innocent
4. What consequences/remedies are available?
(A) Rescission: Make the contract voidable (innocent party has a choice to affirm or rescind)
Are there any common law bars to rescission?
1. Contract has been affirmed
2. Time elapsed: Took too long to rescind
3. Restitutio in integrum (restoring parties to original position) impossible
4. Third parties have acquired a proprietary interest in the subject-matter
s2.2MA: Are there any equitable reasons why the court will not allow the contract to be
rescinded? Take into account (1) Nature of the misrepresentation, (2) the loss caused if the
contract was upheld, (3) the loss that rescission would cause to the other party
Note that this only applies for negligent (by statute) and innocent misrepresentation.
(B) Damages/Indemnity: Refer to Table on Next Page if you are unclear
5. If the innocent party manages to prove the right to rescind, does he/she want to rescind?
(e.g.: he may not have suffered a huge loss, business reasons such as maintaining a good working
relationship with the other party, etc.)
Furthermore, note that a bad bargain is not a good reason to prove misrepresentation to rescind a
contract. Courts do bear in mind that.
6. Are there any defences by the representor and how strong is the defence?
Note that is mandatory if you are suing using s2(1) of MA. (i.e. rebutting the presumption)
NOTE (for examination sake)
Breach of Contract: Use the term “Terminate” the contract at the point of breach (Prospectively)
Misrepresentation: Voidable ab initio; Use the term “Rescind” the contract (Retrospectively)
Cast all your anxiety on Him because He cares for you.
(1 Peter 5:7)
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Summary Table for Vitiating Factors
Type of Vitiating Factor
Illegality: Restraint of
Trade Clauses
Economic Duress
Rescission
Void.
Damages
Depends.
Certain parts may be severable to save the
contract (use blue pencil test)
Voidable: Innocent party can rescind or
affirm.
Tactically, more helpful to ask for
injunction instead.
Available under the tort of
intimidation.
(D&C Builders v Rees)
Bars to Rescission include:
Lapse of Time -> the victim should seek
rescission as long as the original pressure
has ceased. (The Atlantic Baron)
Affirmation -> The victim has expressly
or impliedly affirmed the contract.
Undue Influence
Voidable: Innocent party can rescind or
affirm.
Note that rescission is of the WHOLE
CONTRACT when the court orders so.
Bars to Rescission:
Lapse of Time -> delay does not allow for
remedy. (Allcard v Skinner)
Fraudulent
Misrepresentation
For undue influence, restitution in
intergrum is NOT a bar to rescission.
Voidable: Innocent party can rescind or
affirm.
Common law bars to rescission apply.
Negligent
Misstatement
(by Common Law)
Proving special relationship
(Duty of Care)
Negligent Misrep
(by statute)
s2(2) MA cannot remove this.
This box only applies if you have a
contract. (No contract = no rescission)
Voidable: Innocent party can rescind or
affirm.
If voidable contract is affirmed,
right to damages may remain.
Case Law: Rookes v Barnard
To threaten a breach of contract
is an unlawful threat for the
purposes of intimidation. Thus, if
a party to a contract is threatened
by a breach of it into varying it, or
entering into a new contract,
damages for restitution may be
available in addition to rescission
for duress.
Not available.
UNLESS a duty of care existed.
In such cases, you may claim
damages for tort of negligence.
(Hedley Byrne v Heller)
(RBS v Etridge)
Sue for losses suffered under tort
of deceit/fraud.
Damages – all actual losses
directly flowing from the misrep
Sue for damages that are
reasonably foreseeable. (tort of
negligence)
Reduced with contributory negligence.
Common law bars to rescission apply.
Voidable: Innocent party can rescind or
affirm.
Sue for damages as if it was a
fraudulent misrepresentation.
s2(1) MA
Common law bars to rescission apply.
Innocent Misrep
Damages – all actual losses
Courts can take away the power to
directly flowing from the misrep
rescind. s2(2)MA: damages awarded in lieu
Sue for rights to rescind or damages IN LIEU of rescission, but not both.
Original Common Law Remedy:
Voidable: Innocent party can rescind or affirm, but you are suing for the right
to rescind the contract + Ask for Indemnity
New Statutory Remedy:
Ask for Damages in lieu of rescission under s2(2)
Do not know the extent to which damages can be awarded as damages are awarded in lieu of
rescission, thus consequential losses may be unlikely.
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DISCHARGE OF A CONTRACT
There are 4 ways a contract can be discharged: full performance, termination by mutual agreement, breach
and frustration. The focus of this topic in the examination is to look at the last 2 ways.
Questions on Breach of Contract
It is very helpful to refer to the flowchart Figure 16.1 “LEGAL CONSEQUENCES OF A
BREACH OF CONTRACT” in your textbook on Page 502 (2nd Edition)/442 (1st Edition). This
flowchart gives you essentially the framework to answer questions on breach.
Clarifications to be made with regard to the table:
1.
What constitutes a “repudiatory” breach for an anticipatory breach?
Per Treitel’s Law of Contract, 12th Edition:
An “anticipatory breach”, like an actual breach can give rise to a right to terminate and that right
arises immediately, i.e.: before performance is due. Generally the right to terminate will arise only
if the prospective effects of the anticipatory breach are such as to satisfy the requirement of
substantial failure in performance.
An alternative source is to refer to Lord Diplock in Afovos Shipping v Pagnan,
“If one party to a contract states expressly or by implication to the other party in advance that he
will not be able to perform a particular primary obligation on his part under the contract when
the time for performance arrives, the question whether the other party may elect to treat the
statement as a repudiation depends on whether the threatened non-performance would
have the effect of depriving that other party of substantially the whole benefit which it
was the intention of the parties that he should obtain from the primary obligations of the
parties under the contract.”
As such, the conclusion is that an anticipatory repudiatory breach is a breach that would have
been a repudiatory breach if the breach is actual.
2.
Does affirming an anticipatory breach mean that no damages can be claimed?
Not necessarily. Affirming an anticipatory breach means the anticipatory breach is waived.
You then wait for the actual performance (when performance is due).
The contract continues.
On the actual day of performance, either (1) no breach. (The party manages to perform)
Or (2) Actual breach occurs. At this juncture, you can therefore sue for damages (and
terminate if the breach is repudiatory) when the actual breach occurs.
Other Points to bear in mind when using the table:
1.
Has the right to terminate been lost?
Even if there was a right to terminate, if the innocent party has affirmed the contract during the
actual breach, he will not be subsequently allowed to terminate. However, this does not stop
him from claiming for damages.
2.
Has affirmation been communicated to the party in breach?
If the innocent party chooses to affirm, there must be an unequivocal act from the innocent party
to the party in breach to show intention of affirmation. (per Yukong Line v Rendsburg Investment)
3.
Limits to Affirmation: Does the innocent party have a legitimate interest in affirming?
The innocent party must have a legitimate interest in continuing with the contract. (per White and
Carter v McGregor).
Furthermore, the innocent party cannot insist on affirming the contract where the cooperation of
the party in breach is required in order for the innocent party to perform his part of the contract.
4.
Mitigation: Did the innocent party mitigate his losses after the breach occurred?
The innocent party needs to employ reasonable diligence and care to avoid aggravating the injury
or increasing the damages.
However, the innocent party does not need to mitigate after the innocent party has affirmed the
contract after an anticipatory breach by the other party.
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Questions on Frustration
I feel that you should only look at frustration if there is something in the question that seems to suggest that there is
frustration. If there is no obvious sign(s), you may want to spend less time or don’t bother at all.
Assuming that there is no force majeure clause:
1:
Was there frustration?
All the cases you have learnt in class will help you to ascertain if the event can be classified as frustration or not.
(A) and (B) are established in Taylor v Caldwell while (C) is established in Davis Contractors v
Fareham.
A.
B.
C.
2A:
Events must be beyond parties’ control.
It must not be foreseen at the time of contract.
Note that the Singapore position is that a low level of foreseeability suffices to negate frustration. (Per
Glahe International v ACS Computer)
It must make the performance of the contract impossible or radically different.
If there is frustration, what are the effects of frustration on the contract?
Aspects
Future Obligations
Accrued Obligations
Sums paid
Sums payable
Expenses
Benefits
2B:
Frustrated Contracts Act
Released
Released
Recoverable s2(2)
No longer payable s2(2)
Recoverable s2(2)/s2(4)
Recoverable s2(3)
If there is no frustration, could there have been a breach?
If there is no frustration, the contract stands. If there is a breach, the legal remedies are different compared to
frustration. [This arises because frustration is usually argued by the non-performance party. He will argue that his
non-performance is due to frustration. The burden of proof is thus on him to show that there is frustration]
If there is a force majeure clause:
If there is a force majeure clause given in the question, then you need to look at the clause in detail and
identify if the event given in the facts is covered by the clause.
If yes, then the allocation of the risks arising from the event (that falls under the scope defined in the force
majeure clause) should be based on the consequences stated in the force majeure clause, rather than the
FCA. (per FCA Section 3(3))
However, if it is not, then you should consider whether that event can lead to frustration or not.
“Come to me, all you who are weary and burdened, and I will give you rest”.
(Matthew 11:28)
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REMEDIES
Reminder: Damages are a common law remedy that are available as of right, whereas specific
performance and injunction are equitable remedies that are awarded at the discretion of the courts. Thus,
not any breach may be compensated through remedies such as specific performance and injunction.
Quantifying Damages
As long as you establish that there is a breach (the framework can be found in ‘Terms’ and ‘Discharge),
you can generally claim damages. Whatever was covered in the previous topic on discharge does not matter
since the right to claim damages arises almost immediately when there is a breach, and is independent of
the right to terminate. However, the measure of damages may be different when there is termination and
when there is no termination.
Note that the overarching principle of damages is that it is meant to be compensatory, rather than
punitive. You should bear this in mind when assessing the amount of damages to award.
Liquidated Damages
If there was a breach and a liquidated damage clause is given, all you need to establish is whether the
liquidated damage clause is valid or is actually a penalty.
This depends on the construction of the contract and inherent consequences of each particular contract
judged at the point of formation.
The criteria is given in Shenoy & Loo, Pg 474-5 and is established in Dunlop Pneumatic Tyre Co Ltd v New
Garage & Motor Co Ltd.
Penalty if the sum is unconscionable when compared with greatest loss expected from breach
Penalty if breach is only of failure to pay money and sum stipulates a higher sum Note that interests
are generally permitted but if there is a very unreasonable higher sum compared to the original sum, it will still be struck
down as a penalty.
(Presumption of penalty) if the same sum is stipulated for range of eventualities some more serious
than others. This is because it may be very difficult for every single breach to attract the same seriousness of
consequence. However it is possible to rebut this point.
Can be genuine pre-estimate even if it appeared impossible to estimate consequences of breach; all
court need find is genuine attempt to do so.
Note that if the LD clause is proven to be a penalty, the liquidated damages clause will be struck down
as a penalty. The plaintiff then has to go through and prove unliquidated damages.
Question: If the breach is a “minor breach” and the loss is lesser than the amount stipulated in the
liquidated damage clause, will the LD clause be still effective?
Answer: Yes, the courts will not bother if the clause is deemed to be reasonable. Recall
Freedom/Autonomy to contract principle.
Unliquidated Damages
Recap (Steps from ‘Terms’ and ‘Discharge’)
After proving that there is a breach
condition/warranty/innominate term.
(Refer
to
‘Terms’)
and
whether
it
is
a
You will then, in the case of a condition or a innominate term with “serious” consequences, consider
whether the right to terminate is lost or whether a party can affirm.
After that, (regardless of condition, warranty or innominate term), your job is to assess the damages that
should be awarded. Refer to the table on the next page.
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(a)
Ask if there is causation: Did the breach cause the loss?
Use the ‘but for’ test.
If it is found that P would still have suffered harm/loss notwithstanding D’s breach, then we can
conclude that D’ breach did not cause the harm/loss suffered by P.
If it succeeds, move on to step (b).
(b)
Ask if the loss is too remote. If it is, no damages are claimable. Damages are only recoverable
if it is not too remote.
Use the two-limb test set out in Hadley v Baxendale:
1)
First, apply the 1st limb. Does the loss arise naturally in the ordinary course of things?
If yes, move on to step (c). If no, move on to (b) 2).
2)
Apply the 2nd limb: If the loss is special, was it within the parties’ contemplation?
If the loss is unusual and does not flow naturally from breach and is due to special circumstances, it must be
something that was within the contemplation of the parties at the time of the contract.
A general rule of thumb to use for (b): Both parties must have communicated to one
another about the special loss that arises from the breach. The key is that it must be
reasonably CONTEMPLATED, which is a higher level than reasonably foreseeable (in
tort). Quoting Professor McKendrick,“Parties to have a contract have the opportunity to disclose to one
another the losses that they may suffer in the event of a breach, whereas there is typically no such opportunity
in a tort claim. This being the case, a contracting party who had the opportunity to disclose an unusual loss
but did not do so is not well placed to recover that loss from the other party.”
(c)
Quantification of Loss / Assessment: Quantify the loss.
There are 2 ways you can choose to determine the loss. The claimant needs to choose
whether to claim by the expectation measure or the reliance measure. The general rule is that the
loss is usually assessed at the point of breach.
If you use expectation loss, you are calculating damages so that the plaintiff is put in a position
as he would have been had the contract being properly and completely performed.
2 Methods to calculate expectation loss:
1)
difference in value (arising due to the breach): this is the usual mode of calculation.
2)
Cost of cure (of defect): it must be reasonable to award as it is generally higher. Note
that if you ask for this method of calculating, it must not be PUNITIVE. (However, if the
court awards cost of cure, the court will not be concerned whether the innocent party uses the money to
remedy the breach or not – Radford v De Froberville).
In certain cases, the difference in value is zero. However, courts have introduced a measure that
leans towards difference in value but does not award zero damages. This is what is known as
damages for loss of amenity. (e.g.: Ruxley v Forsyth – swimming pool for diving, Yap Boon Keng Sonny v
Pacific Prince – bedrooms)
If you use reliance loss, you are giving damages so that the plaintiff is put in a position as he
would have been had the contract not been entered into.
Other points to note:
Make sure that there is no double counting. This may arise when you claim for gross expectation
loss and reliance loss.
Sometimes you can only claim reliance loss. This includes cases where profits are too speculative.
Sometimes you can only claim expectation loss. This includes cases where you entered into a bad bargain.
(d)
Mitigation
You need to briefly scan through the question to see that the innocent party has taken reasonable
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steps to minimise his losses and not unreasonably incur expenses and increase his losses AFTER
the breach.
However, this rule does not apply for an action for a fixed sum. (White & Carter v McGregor)
If the causation/remoteness elements have been fulfilled, and the innocent party has mitigated
the losses, he can claim for damages assessed in 3(c).
Non-Pecuniary Losses
General Rule: Damages for mental distress cannot be recovered for breach of contract.
Exceptions:
Damages may be awarded for mental distress in some cases where the purpose of contract was to
provide enjoyment and peace of mind. (Jarvis v Swan Tours – holidays, Jackson v Horizon Holidays –
holidays, Kay Swee Pin v Singapore Island Country Club – country club)
Pleasure is a distinct and important contractual obligation. (Farley v Skinner – airplane noise)
Action For A Fixed Sum
Note that if the breach is the failure to make payment, if you wish to only claim for that amount owed (and
not any losses suffered), it will be easier to ask for an action for a fixed sum.
Equitable Remedies
As previously mentioned, if you wish to consider arguing for equitable remedies, you should assess how
strong the claim will be in light of the circumstances.
(A) Specific Performance
Note that courts would only grant this with respect to contracts involving chattels (where the goods
were unique in character), such as art and heirloom. In Singapore, property may be allowed as well.
If not, you need to show the court that:
you can derive intangible benefits from the product.
none of the following pointers will be met [when the courts will NOT award specific
performance]
to do so would cause severe hardship to the defendant
it is a contract involving some form of personal service.
it is a contract that requires a constant supervision.
(B) Injunction
This is useful when money is not of the essence. E.g. when you want to stop an ex-employee from
revealing trade secrets of the company than claiming damages from the breach of restraint of trade
clause.
Greater love has no one than this, that he lay down his life for his friends.
(John 15:13)
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TORT OF NEGLIGENCE
Clarification: What is the difference between “Misstatements” and “Misrepresentation”:
A misstatement is a false statement.
A misrepresentation needs to be a false statement + addressed to party concerned + induced the other party to enter into a
contract. (i.e. it must satisfy the elements for an operative misrepresentation)
ELEMENTS OF NEGLIGENCE
1.
Did the party “alleged to be negligent” owe a DUTY OF CARE to the other party?
2.
Did the party “alleged to be negligent” BREACH the duty of care?
3.
Causation: Did the negligent act/misstatement/omission CAUSE the loss?
4.
Loss/Damages: Are the losses suffered REASONABLY FORESEEABLE?
1.
Is there a DUTY OF CARE?
Please use the test that was introduced in Spandeck Engineering v DSTA for all kinds of
losses. To enhance your understanding, please refer to my notes or the SLR Report Paras 73-86.
(The content is the same, word for word.)
(a) Threshold Question: Was there factual foreseeability?
This came from Lord Wilberforce’s test in Anns. This means the question “Did the defendant
(aka party alleged to be negligent) ought to have known that the claimant would suffer
damage from his (the defendant’s) carelessness?”
Note that the Singapore CA acknowledges that if this is the approach to be used, it would be
fulfilled in almost all cases. This is because the use the “factual concept of reasonable
foreseeability” (i.e. looking at reasonable foreseeability from a factual perspective) is akin to
casting a ‘net’ of a very wide nature such that this criterion will almost always be satisfied.
However, this is still a necessary criteria in any claim in negligence. If the court is not satisfied
that such an element is fulfilled, the claim does not even take off. As such, it is a threshold
element that is almost always be satisfied; but if it isn’t the claim for negligence does not take off.
(b) 1st Stage: Was there a relationship of PROXIMITY?
The 1st stage of the test (after the threshold question) is applied to determine if there is sufficient
LEGAL proximity between the claimant and the defendant for a duty of care to apply. As
acknowledged in Caparo v Dickman, the content of the requirement of proximity is not capable of
precise definition, but the focus of this inquiry is on the closeness and directness of the relationship
between the parties.
As set out in Deane J in an Australian High Court case called Sutherland, when looking at
proximity, it can include physical, circumstantial and causal proximity:
Proximity involves the notion of nearness or closeness and embraces
physical proximity (in the sense of space and time),
circumstantial proximity such as an overriding relationship of employer and employee
or a professional man (e.g.: Accountants, Lawyers, Doctors, Architects) and his client, as
well as
the causal proximity in the sense of the closeness or directness of the causal connection
or relationship between the particular act, omission or misstatement and the loss or
injury sustained.
The Singapore CA, in Spandeck, looked at the fact that proximity can include physical,
circumstantial and causal proximity to develop the concept that proximity is based on
(1)
Voluntary assumption of responsibility/liability [e.g. through contracting to provide
advice] &
(2)
Reliance by the recipient
Such that “Where A voluntarily assumes responsibility for his acts or omissions towards B, and B
relies on it, it is only fair and just that the law should hold A liable for negligence in causing
economic loss or physical damage to B”.
As such, for proving relationship of proximity, we are focusing on the closeness of the
relationship between the parties, including physical, circumstantial and causal proximity,
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supported by the twin criteria of (1) voluntary assumption of responsibility and (2) reliance.
If we are tested on negligent misstatements, you can also look at the criteria in Caparo that shows
how to prove relationship of proximity for duty to exist in the accuracy of statement:
(1) The advice is required for a purpose (whether particularly specified or generally described) which is
made known, either actually or inferentially, to the adviser at the time when the advice is given
(2) Adviser knows (actual knowledge) or ought to (inferred knowledge) that his or her advice will be
communicated to the advisee (specifically or as a member of an ascertainable class) in order to be
used by the advisee for the above purpose
(3) Adviser knows either actually or inferentially that the advice will be acted upon by the advisee
for that purpose without any independent enquiry.
(4) Advice acted upon by the advisee to his detriment.
In cases of psychiatric harm, the Singapore case of Ngiam Kong Seng v Lim Chiew Hock affirmed
the use of the 3 criteria given by Lord Wilberforce in the case of McLoughlin v O’Brian:
o
o
o
Are they the classes of persons whose claims are recognised (relational/circumstantial)
The proximity of the victims to the accident (spatial/physical)
Means by which shock is caused (perceptional – includes sight, hearing of the events or
of its immediate aftermath/causal)
Note that this criteria was originally developed for secondary victims. However in Singapore, we
do not differentiate secondary victims from primary victims. [The rule given in Page v Smith and
found in Shenoy & Loo 6.45 has been rejected by the Singapore CA in Ngiam Kong Seng.] Hence,
the 1st element of the test may sound convoluted at 1st glance.
Thus, to make sense of the test, we will look at the elements for 2 groups of people. We classify
them as:
Persons who are physically injured in the accident.
Persons who are present at the accident and not physically injured/Persons who are not
present at the accident.
For the 1st group (i.e. the strictest definition of primary victim per se), we are questioning the
proximity of the tortfeasor to the victim himself in terms of whether there was voluntary
assumption of responsibility and reliance.
For the 2nd group (anyone who is present but not injured although he is reasonably foreseen to
have been physical injured = primary victim in a “loose” sense and all others = secondary
victims), we are questioning the proximity of the person who has suffered psychiatric harm and
the person who has suffered physical injuries.
(c) 2nd Stage: Are there any PUBLIC POLICY reasons not to allow for this claim?
If there was a positive answer to the preliminary question of factual foreseeability and the first
stage of the test on legal proximity, a prima facie duty of care arises. The court then has to apply
policy considerations to the facts to determine whether or not to negate this duty.
Examples of such considerations may include:
The presence of a contractual matrix which has clearly defined the rights and liabilities of
parties and the relative bargaining positions of the parties. The court may not want to
intervene to alter the rights and liabilities that parties have decided upon.
Would allowing a claim to go through lead to potential opening of legal floodgates?
Would allowing a claim result in a situation of indeterminate liability on the tortfeasor?
Note: The 2 stages (i.e. b and c) should be applied incrementally from decided cases.
Note that you do not need to memorise cases that state that you owe a Duty of Care in this
scenario and not in another scenario. But if you have any cases to back you up, please go ahead
and use them.
2.
Was there a BREACH OF THE DUTY OF CARE?
The pertinent question to ask is what is the standard to be expected from the relationship of duty
of care. Use the test of the reasonable man as objectively determined (measured by the
prevailing knowledge at the material time of the event in question).
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General Factors include:
(A) Likelihood of injury (TB 6.58): The lower the likelihood, the lower the standard of care.
(B) The severity of injury (TB 6.59): The more severe the injury, the higher the standard of care.
An example of this is the case of Sunshine Crane where there was a tanker carrying nitric acid. The Court
held that there is a higher standard of care expected when handling hazardous materials.
(C) Costs of avoiding the injury (TB 6.60): The higher the cost incurred by the tortfeasor to
avoid the injury for the claimant, the lower the standard of care.
Note that there is also prevailing standard of care for professionals (TB Pg 145-6). This will not
be expected of you in the examination.
3.
CAUSATION
Use the “But for” Test:
If it is found that P would still have suffered harm notwithstanding that D was not negligent, then
we can conclude that D’ alleged negligence did not cause the harm suffered by P.
Alternatively, if there are multiple causes, you may use the ‘Material Contribution’ Test.
4.
DAMAGE / LOSS
Test of Reasonable Foreseeability: The loss is not too remote when the type of loss which
actually occurred was reasonably foreseeable, although the precise extent was not foreseeable.
Note that this test is on the TYPE OF INJURY OR DAMAGE compared to the test for duty
of care which focuses on CLASSES OF PERSON.
Types of Losses:
Note that in previous English cases and Singapore cases prior to Spandeck v DSTA, there are various tests to use
for different kind of losses. However, the Singapore CA has held in Spandeck v DSTA to use one single test to
establish Duty of Care regardless of whether the loss was an economic loss or physical damage. If the court chooses
not to award damages for negligent acts leading to pure economic losses, this is then attributed to the fact that there
may be public policy reasons for doing so or the loss might not have been reasonably foreseeable.
5.
(a)
Negligent Acts/Omissions resulting in physical loss/damage:
Use the test of reasonable foreseeability for negligent acts. (TB Pg 135)
No duty of care arising from mere omissions (not to burden persons with the obligation
of preventing harm)
(b)
Negligent Statements resulting in physical loss/damage:
Refer to Textbook Page 140-141.
(c)
Negligent Acts/Omissions resulting in pure economic loss:
The law is generally hesitant to grant damages for negligence that results in pure
economic loss. However, in Singapore, such claims are allowed if it deals with property.
(d)
Negligent Statements resulting in economic loss:
The test in such cases tend to be subsumed under the test for proximity under duty of
care.
(e)
Negligent Acts resulting in psychiatric harm and mental distress:
The test in such cases tend to be subsumed under the test for proximity under duty of
care. However, do note that feelings such as grief are not compensated. Thus, there is a
need to prove the presence of a medical/psychiatric illness.
Defences
Are there any defences available to the tortfeasor?
Complete Defences: Illegality, Voluntary assumption of risk by claimant
Partial Defences: Contributory Negligence and Personal Injuries Act (Cap 54, Section 3(1))
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Exclusion clauses may exempt or limit liability in tort. However, they must be subjected to the
provisions in the UCTA. (Section 1(1)b allows the UCTA to operate against EC for negligence in
tort.) Relevant provisions are Section 2(1), 2(2), 2(3) and 11(3).
Do not let this Book of the Law depart from your mouth; meditate on it day and night, so that
you may be careful to do everything written in it. Then you will be prosperous and successful.
(Joshua 1:8)
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APPENDIX A
Despite the page number, it is recommended that you attach this page to the topic of Privity.
When considering what constitutes performance interest when suing for substantial damages using the
BROAD GROUND, the CA report of Family Food Court v Seah Boon Lock gives us some guidelines. The
relevant paragraphs have been copied below and the bold sections are of particular interest.
53 It should further be noted that the performance interest claimed by the plaintiff/promisee must
be a genuine one (see, for example, the oft-cited English High Court decision of Radford v De Froberville
[1977] 1WLR 1262). In this regard, the court will apply an objective test of reasonableness to the
performance interest claimed so as to curb what would otherwise be a windfall accruing to the
plaintiff/promisee (see the leading House of Lords decision of Ruxley Electronics and Construction Ltd v
Forsyth [1996] 1AC 344 (“Ruxley”)). There has hitherto been some controversy as to whether or not the
plaintiff/promisee must demonstrate that it has an intention to utilise the damages sought to realise the
performance interest which was the subject matter of the contract (see, for example, John Cartwright,
“Damages, Third Parties and Common Sense” (1996) 10 JCL 244 at 253–254; “Contract Damages” ([48]
supra) at 560–563; Alexander FH Loke, “Cost of Cure or Difference in Market Value? Toward a Sound
Choice in the Basis for Qualifying Expectation Damages” (1996) 10JCL 189 at 204–210; and “The
Common Law at Work” ([34] supra) at 174–175; see also the observations of Lord Lloyd of Berwick in
Ruxley (at 372) and those of Lord Goff, Lord Jauncey and Lord Millett in Panatown ([32] supra) at 556, 571
and 592–593, respectively). In Prosperland (CA) ([28] supra), Chao JA said (at [57]) in relation to this
particular issue:
A related matter raised is whether it must be shown by the building employer that he has already
carried out the repairs or intends to do so before he is entitled to claim for substantial damages. On
the basis of the broad ground that a plaintiff recovers substantial damages for the loss in not getting what he contracted
for, that should not be a prerequisite before such damages may be claimed. If, for example, an owner of a house
were to engage a contractor to erect a koi pond and it was so badly done that it was of no use and
the owner decided to abandon the project, there is no reason why he must have proceeded with the
repairs, or intended so to do, before he may claim for substantial damages. At the end of the day,
the entire circumstances of the case must be considered to determine whether the claim
made was reasonable or was made with a view to obtaining an uncovenanted benefit.
[emphasis added]
54 The above approach is calculated to arrive at a just and fair result between the parties. How
these principles are to be translated for application in an actual assessment of damages remains to be seen,
with the precise facts concerned being (as mentioned above) of the first importance. Suppose, in the
example given in Prosperland (CA) at [57], the contract value of the koi pond is $50,000, but the koi pond is
so badly built that it has to be abandoned. The owner will recover his $50,000 for total failure of
consideration. Presumably, he can also recover damages for loss of the enjoyment of keeping koi, and need
not ask another contractor to construct another koi pond in order to recover such damages; otherwise, the
original contractor would have an unmerited windfall (viz, not having to pay damages for the owner’s
loss of enjoyment). The question of the owner receiving “an uncovenanted benefit” (per Chao JA at [57]
of Prosperland (CA)) would not arise as he would have lost the enjoyment of keeping koi.
55 Returning, more generally, to the objective test of reasonableness laid down in Ruxley, it is
clearly a legal constraint on recovery by the plaintiff/promisee for loss of the performance interest.
Indeed, writers have emphasised the role that this test can play as a legal control mechanism in so far as
claims for loss of the performance interest are concerned (see, for example, “Third Party Damage” ([48]
supra) at 404 and 410, and Alexander FH Loke, “Damages to Protect Performance Interest and the
Reasonableness Requirement” [2001] Sing JLS 259, especially at 259–260 and 263–266).
56 It should, in fact, be pointed out that, apart from the principle of objective reasonableness laid down in
Ruxley, the traditional legal control mechanisms relating to contractual claims would also apply,
and these mechanisms are both general as well as significant. They include the principles of
causation, remoteness of damage (as to which see also Bowstead and Reynolds ([29] supra) at para9-013),
mitigation of loss and the requirement of certainty of loss. It should be mentioned that, in so far as
the doctrine of remoteness of damage is concerned, this is separate and distinct from the element of
contemplation or foreseeability contained in the narrow ground (see the passages quoted at [36], [38] and
[39] above); to this extent, a learned author’s attempt to correlate the broad ground with the first limb in
Hadley v Baxendale (1854) 9Exch 341; 156ER 145 and the narrow ground with the second limb in that same
case (see “Third Party Damage” at 396–397 and 406) is, with respect, erroneous.
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