INTRODUCTION TO
BUSINESS LAW
IN SINGAPORE
Ravi Chandran
INTRODUCTION TO BUSINESS LAW IN SINGAPORE
Sixth Edition
Copyright © 2020 by McGraw-Hill Education (Asia). All rights reserved. No part of
this publication may be reproduced or distributed in any form or by any means, or
stored in a database or retrieval system, without the prior written permission of the
publisher, including, but not limited to, in any network or other electronic storage or
transmission, or broadcast for distance learning.
This book is of a very general nature and should not be taken as offering legal
advice for specific situations. The author and the publisher accept no responsibility
for any error or omission.
10 9 8 7 6 5 4 3 2 1
25 24 23 22 21 20
When ordering this title, use ISBN 978-9-814-82138-4 or MHID 9-814-82138-1
Contents
Preface
Law Report / Case Citation Abbreviations
Table of Cases
Table of Legislation
Chapter 1
Law, Legal Proceedings and Lawyers
The Essence of Law
Law and Ethics
Law and Business
Laws of Singapore
Sources of Law
Criminal and Civil Law
Methods of Resolving Civil Disputes
Methods of Enforcing Civil Judgments
Obtaining Legal Advice
Chapter 2
Setting up the Business
Sole Proprietorship
Partnership
Companies
Limited Liability Partnership
Limited Partnership
Joint Ventures
Chapter 3
Managing the Business
Members
Company Secretary and Auditor
Directors
Chapter 4
Protecting Intellectual Property
Trade Marks
Patents
Registered Designs
Copyright
Chapter 5
Raising Finance and Giving Security
Loan and Overdrafts
Mortgages or Charges Over Land
Mortgages or Charges Over Chattels
Company Charges
Security in Respect of Choses in Action
Guarantees
Public Issue of Securities
Pledges
Liens
Hire Purchase
Chapter 6
Entering into a Contract
Definition
Offer
Acceptance
Consideration
Intention to Create Legal Relations
Writing
Variation of Contract
Parties to the Contract
Chapter 7
Understanding Terms of a Contract
Express Terms
Implied Terms
Classification of Terms
Exclusion or Limitation Clauses
Chapter 8
Avoiding Matters Affecting Contracts
Incapacity
Illegality
Contract Against Public Policy
Misrepresentation
Duress
Undue Influence
Mistake
Unconscionability
Chapter 9
Terminating a Contract
Performance
Agreement
Repudiatory or Fundamental Breach
Frustration
Chapter 10
Suing for Breach of Contract
Damages
Specific Performance
Injunctions
Restitution
Limitation of Actions
Summary of Contractual Disputes
Chapter 11
Dealing with Product Liability
Scope of the Sale of Goods Act
Implied Terms
Excluding Liability Imposed by the Sale of Goods Act
Liability of the Manufacturer and Others
Passing of Property
Risk
Delivery
Sale by Person Who is Not the Owner
Seller’s and Buyer’s Remedies
Consumer Protection (Fair Trading) Act
International Sales
Chapter 12
Dealing with Employees
Meaning of the Term “Employee”
Contract of Employment
Duties of the Employee
Duties of the Employer
Termination of Contract of Employment
Trade Unions and Industrial Relations
Foreign Workers
Chapter 13
Dealing with Agents
The Essence of Agency
Agent-Principal Relationship
Principal-Third Party Relationship
Agent-Third Party Relationship
Chapter 14
Preventing Other Liabilities
Tort of Negligence
Tort of Passing Off
Tort of Vicarious Liability
Tort of Breach of Confidence
Chapter 15
Ending the Business
Winding up
Receivership
Judicial Management
Scheme of Arrangement
Appendix A
Sample Contract
Appendix B
Finding out More
Index
About the Author
Preface
The first edition to this book was published some 20 years ago.
Today, I feel the need for such a book remains very much the same
as it was at the beginning.
In contrast to other books, I believe this book seeks to address
the real needs of the business or business student better. Various
scholars teaching law in business schools have called for such an
approach.1
For instance, in relation to the law of negligence, the important
issue for businesses to consider is not the precise test when a duty
of care would be imposed, but rather, what businesses can or should
generally be doing, to reduce instances of negligence liability that
may possibly arise. In this edition I have tried to expressly highlight
more such considerations a business or business student should be
thinking about.
I would like to take this opportunity to thank the editorial team of
McGraw-Hill for their patience, understanding and support. I would
also like to thank the many institutions of higher learning which have
adopted this book as part of their course over the last so many
years. Last but not least, I would like to thank my students for having
raised so many questions thereby helping me improve each edition.
I have tried to state the law as at November 2019. However, it
should be highlighted that the Insolvency, Restructuring and
Dissolution Act is discussed as if it has come into force, so as not to
confuse lay readers with two sets of legislation.
Ravi Chandran
October 2019
_____________
1 See for instance, Marc Lampe, “A New Paradigm for the Teaching of Business
Law and Legal Environment Classes” [2006] 23(1) Journal of Legal Studies
Education, at 1; Jennifer Ireland, “A New Curriculum for Business Law: ‘The
Business Facing Model’” [2012] 5 Journal of Australasian Law Teachers
Association, at 123.
Law Report/Case Citation
Abbreviations
More important cases are contained in law reports. The
abbreviations, for the various law reports and cases which are not in
law reports but cited in this book are explained below.
Abbreviation
Full name of report
AC
ALL ER
App Cas
B & Ad
B & Ald
Beav
Bing
BCLC
Appeal Cases
All England Reports
Appeal Cases
Barnewall & Adolphus
Barnewall & Alderson
Beavan
Bingham
Butterworth’s Company Law
Cases
Butterworths Property Reports
Barnswall & Cresswell
Best & Smith
Campbell
Common Bench
Common Bench, New Series
Chancery
Chancery Division
BPR
B&C
B&S
Camp
CB
CB NS
Ch
ChD
Country of
publication
England
England
England
England
England
England
England
England
Australia
England
England
England
England
England
England
England
CL & FIN
CLR
COM CAS
DLR
E&B
Ex
F
F&F
H&C
ICR
IPR
IRLR
KB
LJ Ex
Lloyd’s Rep
LR QB
LT
Man & G
MLJ
MSCLC
M&W
PD
QB
QBD
RPC
SGHC
Salk
SLR
SLR (R)
Sol J
TLR
TR
WLR
Clark and Finnelly’s Reports
Commonwealth Law Reports
Commercial Cases
Dominion Law Reports
Ellis & Blackburn
Exchequer
Faculty Decisions
Foster & Finlayson
Hurlstone & Coltman
Industrial Cases Reports
Intellectual Property Reports
Industrial Relations Law
Reports
King’s Bench
Law Journal Reports
Exchequer
Lloyd’s List Law Reports
Law Reports Queen’s Bench
Law Times Reports
Manning & Granger
Malayan Law Journal
Malaysian and Singapore
Company Law Cases
Meeson & Welsby
Probate Divorce Admiralty
Division
Queen’s Bench
Queen’s Bench Division
Reports of Patent, Design and
Trade Mark Cases
Singapore High Court
Salkeld
Singapore Law Reports
Singapore Law Reports
(Reissue)
Solicitors’ Journal
Times Law Reports
Term Reports
Weekly Law Reports
England
Australia
England
Canada
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Malaysia
Singapore
England
England
England
England
England
Singapore
England
Singapore
Singapore
England
England
England
England
WR
Weekly Reporter
England
Table of Cases
The following is the list of cases that are cited in this book:
Name of Case / Page
A
Adams v Lindsell (1818) 1 B & Ald 681…143
Adani Wilmar Ltd v Cooperative Centrale Raiffeisen-Boerenleenbank
BA [2002] 4 SLR (R) 216…259
Adinop Co Ltd v Rovithai Ltd [2018] SGHC 129…367
Aero-Gate Pte Ltd v Engen Marine Engineering Pte Ltd [2013] 4 SLR
409…226
Alicia Hosiery Ltd v Brown [1970] 1 QB 195…126
Allegan Inc v Ferlandz Nutra Pte Ltd [2016]…4 SLR 919...93, 364
Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd [2014]
3 SLR 857…230
Aluminium Industrie Vassen BV v Romalpa Aluminium Ltd [1976] 1
WLR 676…276
Alvin Nicholas Nathan v Raffles Assets (Singapore) Pte Ltd [2016] 2
SLR 1056…241
Amar Singh v Kulubya [1964] AC 142…193
ANC Holdings Pte Ltd v Bina Puri Holdings Bhd [2013] 3 SLR 666…
192
Anglia Television Ltd v Reed [1972] 1 QB 60…240
Ang Tin Gee v Pang Teck Guan [2011] SGHC 259…38
Armagh Shoes, Re [1984] BCLC 405…121
ASM Technology Singapore Pte Ltd v Towa Group [2018] 1 SLR
211…99
Atlas Express Ltd v Kafco Ltd [1989] 1 ALL ER 641…209
ATS Specialised Inc v LAP Projects (Asia) Pte Ltd [2012] SGHC
173…140, 144
Attwood v Lamont [1920] 3 KB 571…197
Attwood v Small (1838) 6 Cl & Fin 232…203
Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] 1
SLR 317…156
Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunningham
[1906] 2 Ch 34…62
Avery v Bowden (1855) 5 E & B 714…228
B
Baldry v Marshall [1925] 1 QB 260…178
Banque Nationale De Paris v Tan Nancy [2001] 3 SLR (R) 726...343
Barclays Bank v O’Brian [1993] 3 WLR 786…211
Barnett v Chelsea and Kensington Hospital Management Committee
[1969] 1 QB 428…357
Barrings plc, Re [1999] 1 BCLC 433…78
Barton v Armstrong [1976] AC 104…208
Beale v Taylor [1967] 1 WLR 1193…260
Bee Cheng Hiang Hup Chong Foodstuff Pte Ltd v Fragrance
Foodstuff Pte Ltd [2003] 1 SLR 305…93
Behn v Burness (1863) 3 B & S 751…173, 225
Bell v Lever Bros Ltd [1932] AC 161…213
Bentley v Craven (1853) 18 Beav. 75…38
Beswick v Beswick [1968] AC 58…158, 159
Bernard Desker Gary v Thwaits Racing Pte Ltd [2003] SGHC 175…
169
Betram, Armstrong & Co v Godfray (1830) 12 ER 364…333
Blackburn Bobbin Co Ltd v TW Allen Ltd [1918] 2 KB 467…230
Blyth v Birmingham Waterworks [1856] 11 Exch 781…354
Birkmyr v Darnell (1704) 1 Salk 27…123
Bisset v Wilkinson [1927] AC 177…200
BNJ v SMRT Trains Ltd [2014] 2 SLR 7…355
Bolton v Stone [1951] AC 850…355
BOM v BOK [2019] 1 SLR 349…214
Boston Deep Sea Fishing v Ansell (1888) 3 ChD 339…308
Brace v Calder [1895] 2 QB 253…245
Brader Daniel John v Commerzbank AG [2014] 2 SLR 81…146, 154
Bradford v Robinson Rentals Ltd [1967] 1 WLR 337…358
Britestone Pte Ltd v Smith & Associates Far East, Ltd [2007] 4 SLR
855…270
British Reinforced Concrete Engineering Co Ltd v Schelff [1921] 2 Ch
563…196
Buckman Laboratories (Asia) Pte Ltd v Lee Wei Hoong [1999] 3 SLR
333…195
Butler v Fife Coal Company Ltd [1912] AC 149…321
Byrne v Van Tienhovan (1880) 5 CPD 344…136
C
Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3d) 371…76
Caparo Industries plc v Dickman [1990] 2 WLR 358…353, 354
Car & Universal Finance Co v Caldwell [1965] 1 QB 525…282
Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484…132, 134, 142
Cathay Decoration & Construction Pte Ltd v Universal Marmi Graniti
Pte Ltd [2010] SGDC 486…286
Caterpillar Inc v Ong Eng Peng [2006] 2 SLR 669…362
Cavendish Square Holdings BV v Makdessi [2016] AC 1172…247
CDL Hotels International Ltd v Pontiac Marina Pte Ltd [1998] 2 SLR
550…362, 363
Cellulose Acetate Silk Co Ltd v Widnes Foundry Ltd [1933] AC 20…
249
Central London Property Trust Ltd v High Trees House Ltd [1947] KB
180…157
Ceramic Brickworks (S) Pte Ltd v Asia-Tech Construction &
Engineering Pte Ltd [1996] 1 SLR 200…266
Chai Cher Watt v SDL Technologies Pte Ltd [2013] 1 SLR 152…261
Chan Chee Kien v Performance Motors Ltd [2015] SGHC 54…261,
263
Chapelton v Barry UDC [1940] 1 KB 532…177
Chaplin v Hicks [1911] 2 KB 786…240
Chappell & Co v Nestle Co Ltd [1960] AC 87…146
Chapple v Cooper (1844) 13 M & W 252…187
Cheesman v Price (1865) 35 Beav. 142…40
Che Som bte Yip v Maha Pte Ltd [1989] 3 MLJ 468…189, 211
Chew Kong Huat v Ricwil (Singapore) Pte Ltd [2001] 1 SLR 355…77
Chia Kok Leong v Prosperland Pte Ltd [2005] 2 SLR 484…239
Chow Kwok Chuen v Chow Kwok Chi [2008] 4 SLR 362…375
Chwee Kin Keong v Digilandmall.com Pte Ltd [2004] 2 SLR 594…143
Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502…213
Cicada Cube Pte Ltd v National University (Singapore) Pte Ltd [2018]
2 SLR 940…97
City Equitable Fire Insurance Co Ltd, Re [1925] Ch 407…78
CLAAS Medical Centre Pte Ltd v Ng Boon Ching [2010] 2 SLR 386…
196
Clegg v Olle Andersson [2003] 1 ALL ER 721…267
Coco v A N Clark [1969] RPC 41…367
Colliers International (Singapore) Pte Ltd v Senkee Logistics Pte Ltd
[2007] 2 SLR 230…337
Collins v Godfroy (1831) 1 B & Ad 950…149
Commercial Plastics Ltd v Vincent [1964] 3 ALL ER 546…195
Condor v The Barron Knights Ltd [1966] WLR 87…229
Consmat Singapore (Pte) Ltd v America National Trust and Savings
Association [1992] 2 SLR 828…180
Cook v Deeks [1916] 1 AC 554…44
Cope v Rowlands (1836) 2 M & W 149…191
Corten Furniture v Merzario Pte Ltd [1992] Singapore High Court,
Unreported…331
Cox v Coulson [1916] 2 KB 177…28
Creative Technology Ltd v Huawei International Pte Ltd [2017] SGHC
201…207
Cresswell v Board of Inland Revenue [1984] IRLR 190…307
Crowson Fabrics Ltd v Rider [2008] IRLR 288…308
Culindo Livestock (1994) Pte Ltd v Ananda UK (China) Limited [2014]
SGHC 178…266
Cutter v Powell (1795) 6 TR 320…218, 221
D
Davis v Beynon-Harris (1831) 43 TLR 424…188
Davis Contractors Ltd v Fareham UDC [1956] AC 696…231
De Bussche v Alt (1878) 8 ChD 286…336
De Cruz Andre Heidi v Guangzhou Yuzhitang Health Products Co Ltd
[2003] 4 SLR 682…151
De Francesco v Barnum (1890) 45 ChD 430…188, 208
Defu Furniture Pte Ltd v RBC Properties Ltd [2014] SGHC 1…206,
207
Demby, Hamilton & Co v Barden [1949] 1 ALL ER 435…278
Denny, Mott & Dickinson v James B Fraser & Co Ltd [1944] AC
265…229
Derry v Peek (1889) 14 App Cas 337…204
Dextra Asia Co Ltd v Mariwu Industrial Co (S) Pte Ltd [2006] 2 SLR
154…99
Dickinson v Dodds (1876) 2 ChD 463…137
Dimmock v Hallet (1866) LR 2 Ch App 21…202
Disney Enterprises Inc v M1 Ltd [2018] 5 SLR 1318…111
Donoghue v Stevenson [1932] AC 562…349
Donovan v Invicta Airways Ltd [1970] 1 Lloyds Rep 486…307
Drysdale v New Era Steamship Co Ltd (1936) 55 Lloyds Rep 49…
323
Dublin City Distillery Ltd v Doherty [1914] AC 823…126
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915]
AC 79…248
Dynasty Line Limited (in Liquidation) v Sukamato Sia [2014] 3 SLR
277…77
E
Eastern Distributors Ltd v Goldring [1957] 2 QB 600…281
Edgington v Fitzmaurice (1885) 29 ChD 459…201, 203
Elphick v Barnes (1880) 5 CPD 321…274
Emjay Enterprises Pte Ltd v Skylift Consolidator (Pte) Ltd [2003] 2
SLR 268…179
Eng Chiet Shoong v Cheong Soh Chin [2016] 4 SLR 728…253
En Frozen Pte Ltd v Singmah Steel Refrigeration Pte LTd [2014]
SGHC 21…265
Entores Ltd v Miles Far East Corpn [1955] 2 QB 327…142
Essell v Hayward (1860) 30 Beav. 158…40
Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC
269…196
Exklusiv Auto Services Pte Ltd v Chan Yong Chua Eric [1996] 1 SLR
433…168
F
Fairview Developments Ptd Ltd v Ong & Ong Pte Ltd [2014] 2 SLR
318…160
Family Food Court v Seah Boon Lock [2008] 4 SLR 272…239, 345
Farley v Skinner [2002] 4 SLR 801…242
FE Global Electronics Pte Ltd v Trek Technology (Singapore) Pte Ltd
[2006] 1 SLR 874…99
Felthouse v Bindley (1862) 11 CBNS 869…141
Fibrosa Spolka Ackcyjna v Fairbairn, Lawson Combe Barbour Ltd
[1943] AC 32…229
Fico Sports Inc Pte Ltd v Thong Hup Gardens Pte Ltd [2011] 1 SLR
40…171
First Currency Choice Pte Ltd v Main-Line Corporate Holdings Ltd
[2008] 1 SLR 335…99
Fong Maun Yee v Yoong Weng Ho Robert [1997] 1 SLR (R) 751…
346
Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd [2011] 3 SLR
980…44
Ford Motor Co v Armstrong (1915) 31 TLR 267…248
Forefront Medical Technology (Pte) Ltd v Modern-Pak Pte Ltd [2006]
1 SLR 927…170, 171
Freely Pte Ltd v Ong Kaili [2010] 2 SLR 1065…290
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964]
2 WLR 618…342
Fujifilm (Singapore) Pte Ltd v Ultimate Packaging Pte Ltd [2012]
SGDC 468…268
Furs Ltd v Tomkies (1935) 54 CLR 583…76
Fu Yuan Foodstuff Manufacturer Pte Ltd v Methodist Welfare
Services [2009] 3 SLR (R) 925...223
G
Gay Choon Ing v Loh Sze Ti Terence Peter [2009] 2 SLR 332…133,
140, 145, 151, 157
Geddling v Marsh [1920] 1 KB 668…264
Glahe International Expo AG v ACS Computer Pte Ltd [1999] 2 SLR
620…231, 232
Glassbrook Brothers v Glamorgon County Council [1925] AC 270…
149
Global Yellow Pages Ltd v Promedia Directories Pte Ltd [2017] 2
SLR 185…111
Goh Chan Peng v Beyonics Technology [2017] 2 SLR 592…308
Go Dante Yap v Bank of Austria Creditstalt AG [2011] 4 SLR 599…
352, 354
Goh Jong Cheng v MB Melwani [1991] 1 MLJ 482…214
Goh Lay Khim v Isabel Redrup Agency Pte Ltd [2017] 1 SLR 546…
337
Golden Season Pte Ltd v Kairos Singapore Holdings Pte Ltd [2015] 2
SLR 751…104
Goldsoll v Goldman [1914] 2 Ch 603…197
Grace Electrical Engineering Pte Ltd v Te Deum Engineering Pte Ltd
[2018] 1 SLR 76…356
Grant v Australian Knitting Mills Ltd [1936] AC 85…265
Griffiths v Peter Conway Ltd [1939] 1 ALL ER 685…265
Grinsted Edward John v Britannia Holdings Pte Ltd [1996] 1 SLR (R)
743…82
Guy Neale v Nine Squares Pty Ltd [2015] 1 SLR 1097…36
H
HR Harmer Ltd, Re [1958] 3 ALL ER 689…67
Hadley v Baxendale (1854) 9 Ex 341…244
Harlington & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd
[1991] 1 QB 564…260
Haron bin Mundir v Singapore Amateur Athletic Association [1992] 1
SLR 18…242
Harris v Associated Portland Cement Manufacturers [1939] AC 71…
320
Harris v Nickerson (1873) LR 8 QB 286…134
Hartley v Hymans [1920] 3 KB 475…279
Hartley v Ponsonby (1857) 7 E & B 872…150
Hartog v Colin & Shields [1939] AII ER 566…213
Harvela Investments Ltd v Royal Trust Co of Canada Ltd [1985] 2
ALL ER 966…136
Hawrish v Bank of Montreal (1969) 2 DLR (3d) 600…168
Healey v Howlett & Sons [1917] 1 KB 337…275
Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) 9 Ex 341…352
Hewlett-Packard Singapore (Sales) Pte Ltd v Chin Shu Hwa Corinna
[2016] 2 SLR 1083…157
Hill v Chief Constable of West Yorkshire [1989] AC 53…351
Hillas & Co Ltd v Arcos Ltd (1932) 38 Com Cas 23…144
Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] 1 Ch 169…
308
Hochester v De La Tour (1853) 2 E & B 678…224
Hoenig v Isaacs [1952] 2 ALL ER 176…219
Ho Kang Peng v Scintronix Corp Pte Ltd [2014] 3 SLR 329…80
Hon Chin Kong v Yi Fook Mun [2018] 3 SLR 534…250
Hongkong and Shanghai Banking Corporation v Jurong Engineering
Ltd [2000] 2 SLR 54…342
Hongkong Fir Shipping Co v Kawasaki Kaisen Kaisha [1962] 2 QB
26…174, 226
Hongkong & Shanghai Banking Corp v San’s Rent A Car Pte Ltd t/a
San’s Tours & Car Rentals [1994] 3 SLR 593…344
Hong Leong International Hotel (Singapore Pte Ltd) v Chotek (Pte)
Ltd [1995] 1 SLR (R) 105…343
Hong Leong Finance v Tan Gin Huay [1999] 2 SLR 153…116
Honey Secret Pte Ltd v Atlas Finefood Pte Ltd [2016] SHGC 164…
263
Houghton v Trafalgar Insurance [1954] 1 QB 247…179
Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations)
Ltd [1978] QB 574…204
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821…77
Hup Huat Food Industries (S) Pte Ltd v Liang Chiang Heng [2003]
SGHC 244…94
Hup Seng Co Ltd v Chin Yin [1962] MLJ 371…65
Hyde v Wrench (1840) 3 Beav 334…139, 140
Hytech Builders Pte Ltd v Tan Eng Leong [1995] 1 SLR (R) 576…76
I
Inche Noriah v Shaik Allie bin Omar [1929] AC 127…210
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989]
QB 433…176
J
J Lauritzen AS v Wijsmuler BV, The Super Servant Two [1990] 1
Lloyd’s Rep 1…232
Jackson v Rotax Motor and Cycle Co [1910] 2 KB 937…264
Janata Bank v Ahmed [1981] IRLR 457…307
Jarvis v Swan Tours Ltd [1973] 1 ALL ER 71…242
John McCann & Co v Pow [1975] 1 ALL ER 129…335
Johnson & Johnson v Uni-charm Kabushiki Kaisa [2007] 1 SLR
1082…90
JSI Shipping (S) Pte Ltd v Teo Foong Wong [2007] 4 SLR 460…357
Jurong Data Centre Development Pte Ltd v M + W Singapore Pte Ltd
[2011] 3 SLR 337…121
Jurong Readymix Concrete Pte Ltd v Kaki Bukit Industrial Park Pte
Ltd [2000] 4 SLR 723…78
K
Kay Swee Pin v Singapore Island Country Club [2008] SGHC 143…
243
Keates v Lord Cadogan (1851) 10 CB 591…201
Keppel v Wheeler [1927] 1 KB 577…334
Kleinwort Benson Ltd v Malaysia Mining Corpn Bhd [1989] 1 ALL ER
785…152
Koh Get Kee v Low Beng Hui, [1987] Singapore High Court,
Unreported.…366
Koh Lin Yee v Terrestrial Pte Ltd [2015] 2 SLR 497…269
Koh Wee Meng v Trans Eurokars Pte Ltd [2014] 3 SLR 663…263
Krell v Henry [1903] 2 KB 740…231
Kuroeka Enterprises Pte Ltd v CPF Board [1991] Singapore High
Court, Unreported.…305
L
1L30G Pte Ltd v EQ Insurance Pte Ltd [2017] SGHC 242…143
L’Estrange v Graucob [1934] 2 KB 394…177
Lansing Linde Ltd v Kerr [1991] 1 ALL ER 418…195
Latimer v AEC Ltd [1953] AC 643…356
Leaf v International Galleries [1950] 2 KB 86…206, 213
Lee Chee Fai Kevin v Monetary Authority of Singapore [2012] 2 SLR
913…251
Lee Chee Wei v Tan Hor Peow Victor [2007] 3 SLR 537…250
Lee Feng Steel Pte Ltd v First Commercial Bank [1997] 1 SLR 280…
345
Lee Huay Kok v Attorney-General [2001] 3 SLR (R) 287…72
Lee Seng Cheong v Seah Bak Seng [2008] 2 SLR 745…173, 225
Lew Chee Fai Kevin v Monetary Authority of Singapore [2012] 2 SLR
913...85
Leong Chee Kin v Ideal Design Studio Pte Ltd [2018] 4 SLR 331…67
Lifestyle 1.99 Pte Ltd v S$1.99 Ltd [2000] 2 SLR 766…363
Lim Hsi-Wei Marc v Orix Capital Ltd [2010] 3 SLR 1187…31
Lim Kok Koon v Tan Cheng Yew [2004] 3 SLR 111…32
Lim Kok Wah v Lim Boh Yong [2015] 5 SLR 307…65
Lim Tow Peng v Singapore Bus Services Ltd [1976] 1 MLJ 254…324
Lim Weng Kee v PP [2002] 4 SLR 327…81
Lister v Hesley Hall Ltd [2001] IRLR 472…365
Lloyd v Grace, Smith & Co [1912] AC 716…345
Luxor v Cooper [1941] AC 108…338
M
Mahesan v Malaysia Government Officers’ Co-operative Housing
Society Ltd [1979] AC 374…336
Main-Line Corporate Holdings Ltd v DBS Bank Ltd [2012] 4 SLR
147…99
Management Corporation Strata Title Plan No 2297 v Seasons Park
Ltd [2005] 2 SLR 613…159
Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 5 SLR
663…194
Man Mohan Singh v Zurich Insurance [2008] 3 SLR 735…358
Mansource Interior Pte Ltd v CSG Group Pte Ltd [2017] 5 SLR
203…157
Marc Rich & Co v Bishop Rock Marine Co Ltd [1996] 1 AC 211…350
Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524…232
Market Investigations, Ltd v Minister of Social Security [1968] 3 ALL
ER 732…304
Mash & Murrell v Joseph Emmanuel [1961] 1 ALL ER 485…263
Mason v Clifton (1863) 3 F & F 899…337
McArdle, Re [1951] Ch 669…147
Mcdonald’s Corp v Future Enterprises Pte Ltd [2005] 1 SLR 177…90
Mckew v Holland and Hannens and Cubitts [1969] 3 ALL ER 1621…
357
Medivac International Management Pte Ltd v John Walter [1988] 1
MLJ 5…309
Mercantile Credit Co Ltd v Garrot [1962] 3 ALL ER 1103…30
Metro (Pte) Ltd v Wormald Security (S.E.A.) Pte Ltd [1981] 2 MLJ
172…181
Microbeads v Vinhurst Road Markings Ltd [1975] 1 ALL ER 529…
259
Midlink Development Pte Ltd v The Stansfield Group Pte Ltd [2004] 4
SLR 258…141
Millar, Son & Co v Radford (1903) 19 TLR 575…337
Miles v Clark [1953] 1 WLR 537…36
MK Distripark Pte Ltd v Pedder Warehousing & Logistics (S) Pte Ltd
[2013] 3 SLR 433…240
Mona Computer Systems (S) Pte Ltd v Singaravelu Murugan [2014]
SGHC 49…239
Moore & Co Ltd Laudauer & Co Ltd, Re [1921] 2 KB 519…261
Morris v Henlys Ltd [1973] ICR 482…307
Morris v Murray [1991] 2 QB 6…360
Moscow Narodny Bank Limited v Fetim [1997], Singapore High Court,
Unreported…116
Motilal v Guthrie Agency (M) Ltd [1968] 1 MLJ 211…324
N
Nagasima Electronic Engineering Pte Ltd v APH Trading Pte Ltd
[2005] 2 SLR 641…101
Nanofilm Technologies International Pte Ltd v Semivac International
Pte Ltd [2018] 5 SLR 956…107, 110
Nash v Inman [1908] 2 KB 1…186
National Foods Ltd v Pars Ram Brothers (Pte) Ltd [2007] 2 SLR
1048…262, 265
Neefies v Crystal Products Co Ltd [1972] IRLR 118…323
New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975]
AC 154…183
Next of Kin of Ramu Vanniyar Ravichandran v Fongsoon Enterprises
Pte Ltd [2008] 3 SLR 105…341
Ng Chu Chong v Ng Swee Choon [2002] 2 SLR 368…36
Ngee Ann Development Pte Ltd v Takashimaya Singapore Ltd [2017]
2 SLR 627…171
Ng Giap Hon v Westcomb Securities Pte Ltd [2009] 3 SLR (R)
518...170
Ng Huat Seng v Munib Mohammad Madni [2017] 2 SLR 1074…336
Ng Sing King v PSA International Pte Ltd [2005] 2 SLR 56…67
Ng Teck Sim Colin v Teh Guek Ngor Engelin [1995] 2 SLR 380…36
Nicholl & Knight v Ashton Edridge & Co [1901] 2 KB 126…229
Nippon Paint (Singapore) Co Pte Ltd v ICI Paint (Singapore) Pte Ltd
[2001] 1 SLR 1…363
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979]
QB 705…209
Norwest Holdings Pte Ltd (in liquidation) v Newport Mining Ltd [2011]
4 SLR 617…152
Nova Plastics Ltd v Froggatt [1982] IRLR 146…308
Novelty Pte Ltd v Amanresorts Ltd [2009] 3 SLR (R) 216…362
NTUC Foodfare Co-operative Ltd v SIA Engineering Co Ltd [2018] 2
SLR 588…350
NTUC Income Insurance Co-operative v Next of Kin of Narayasamy
[2006] 4 SLR 507…319
O
Ocean Projects Inc v Ultratech Pte Ltd [1994] 2 SLR 369…218
Ong Chow Hong v Public Prosecutor [2011] 3 SLR 1093…72, 80
Ong Han Ling v American International Assurance Co Ltd [2018] 5
SLR 549…345
Ong Hong Kiat v RIQ Pte Ltd [2013] SGHC 131...141
Olley v Malborough Court Ltd [1949] 1 KB 532…175
Ochroid Trading Ltd v Chua Siok Lui [2018] 1 SLR 363…190
Out of the Box Ltd v Wanin Industries Pte Ltd [2012] 3 SLR 428…
240, 245
P
Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd
[1965] AC 867…283
Panatron v Lee Cheow Lee [2001] 3 SLR 405…204
Pao On v Lau Yiu Long [1980] AC 614…147, 150, 209
Paris v Stepney Borough Council [1951] AC 367…356
Partridge v Crittenden [1968] 2 ALL ER 421…134
Peachdart Ltd, Re [1983] 3 ALL ER 204….276
Pearce v Brooks (1866) LR 1 Ex 213…192
Pepper v Webb [1969] 2 ALL ER 216…306
Performing Right Society Ltd v Harlequin Record Shops Ltd [1979] 2
ALL ER 828…110
Personal Automation Mart Pte Ltd v Tan Swee Sang [2000] SGHC
55…76
Peter Pan Manufacturing Corp Ltd v Corsets Silhouette Ltd [1963] 3
ALL ER 402…337
Peters v Fleming (1840) 6 M & W 42…186
Pharmaceutical Society of Great Britain v Boots Cash Chemicals
[1952] 2 QB 795…133
PH Hydraulics & Engineering Pte Ltd v Airtrust (Hong Kong) Ltd
[2017] 2 SLR 129…241
PH Hydraulics & Engineering Pte Ltd v Intrepid Offshore Construction
Pte Ltd [2012] 4 SLR 36…112
Philip Head & Sons Ltd v Showfronts Ltd [1970] 1 Lloyd’s Rep 140…
273
Phillips v Williams Whiteley Ltd [1939] 1 All ER 566…355
Photo Production Ltd v Securicor Transport Ltd [1978] 3 ALL ER
146…179
Planche v Colburn (1831) 8 Bing 14…220
Planassure PAC v Gaelic Inns Pte Ltd [2007] 4 SLR 513…359
Press Automation Technology Pte Ltd v Trans-Link Exhibition
Forwarding Pte Ltd [2003] 1 SLR 712…177, 182
Preston Corpn Sdn Bhd v Edward Leong [1982] 2 MLJ 22…132
Public Prosecutor v Koh Soe Khoon [2006] SGDC 84…84
Public Prosecutor v Tan Hak Siang [2003] SGDC 330…82
Public Prosecutor v Wang Ziyi Able [2008] 2 SLR 61…86
Punt v Symons & Co Ltd [1903] Ch 506…77
Q
QB Net Co Ltd v Earnson Management (S) Pte Ltd [2007] 1 SLR 1…
367
R
Rabiah Bee Bte Mohamed Ibrahim v Salem Ibrahim [2007] 2 SLR
655…28
Railway & General Light Improvement Co, Re (1880) 42 LT 206…78
Rainforest Trading Ltd v State Bank of India, Singapore [2012] 2 SLR
713…147
Ramesh s/o Krishnan AXA Life Insurance Singapore Pte Ltd [2016] 4
SLR 1124…321
Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109…138
Rank Film Production Ltd v Dodds (1983) 2 IPR 113…110
RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007] 4 SLR 413…
223, 234
Reckitt & Coleman Products v Borden Inc [1990] 1 ALL ER 873…362
Redgrave v Hurd (1881) 20 ChD 1…204
Reese Bros Plastics v Hamon-Sobelco Australia Pty Ltd (1988) 5
BPR 97…142
Richardson v Williamson (1871) 40 LJQB 145…346
Rigby v Ferodo Ltd [1987] IRLR 516…324
Roberts v Gray [1913] 1 KB 520…187
Robertson Quay Investment Pte Ltd v Steen Consultants Pte Ltd
[2008] 2 SLR 623…245
Rogers v Parish (Scarborough) Ltd [1987] QB 933…262
Rohini d/o Balasubramaniam v HSR International Realtors Pte Ltd
[2018] 2 SLR 463…360
Routledge v Grant (1828) 4 Bing 653…137
Rowe v Radio Rentals Ltd [1982] IRLR 177…309
Rowland v Divall [1923] 2 KB 500…259
Royal Bank of Scotland plc v Etridge (No 2) [2002] AC 773…212
S
Sabyasachi Mukherjee v Pradeepto Kumar Biswas [2018] SGHC
271…336
Saloman v A Saloman & Co Ltd [1897] AC 22…42
Samin v Government of Malaysia [1976] 2 MLJ 211…366
Sarika Connoisseur Café Pte Ltd v Ferrero Pte Ltd SPA [2013] 1
SLR 531…92, 95, 96, 363, 364
Saunders v Anglia Building Society [1971] AC 1004…214
Sayers v Harlow UDC [1958] 1 WLR 623…359
Scammell v Ouston [1941] AC 251…144
Scancarriers v Aoeteroa International Ltd [1985] 2 Lloyd’s Rep 419…
136
Schroeder Music Publishing Co Ltd v Macaulay [1974] 3 ALL ER
616…196
Scott v London and St Katherine Docks Co (1865) 3 H. & C. 596…
356
Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC
324…67
Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] 4 SLR 193…
170
Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 854…270
Sharon Global Solutions Pte Ltd v LG International (Singapore) Pte
Ltd [2001] 3 SLR 368…156, 209
Shirlaw v Southern Foundaries Ltd [1939] 2 KB 206…170
Simgood Pte Ltd v MLC Shipbuilding Sdn Bhd [2016] 1 SLR 1129…
251
Sim v Rotherham Council [1987] 1 Ch 216…307
Sinanide v La Maison Cosmeo (1928) 139 LT 365…104
Singapore Manual & Mercantile Workers Union v Raj Brothers [1969]
1 MLJ xxxi…326
Skandinaviska Enskilda Banken AB v Asia Pacific Breweries
(Singapore) Pte Ltd [2011] 3 SLR 540…342, 365
Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2012] 4
SLR 308…195
Smith v Baker & Sons [1891] AC 325…360
Smith v Chadwick (1884) 9 App Cas 187…203
Smith v Eric S Bush [1989] 2 WLR 790…353, 354
Smith v Land and House Property Corpn (1884) 28 ChD 7…200
Smith v Leech Brain & Co [1962] 2 QB 405…359
Smith v Mawhood (1845) 14 M & W 452…191
Spandeck Engineering (S) Pte Ltd v Defence Science & Technology
Agency [2007] 4 SLR 100…349, 352
Speedo Motoring Pte Ltd v Ong Gek Sing [2014] 2 SLR 1398…286,
288, 295
Sports Connection Private Limited v Deuter Sports [2009] 3 SLR (R)
883...173, 225
Spurling v Bradshaw [1956] 2 ALL ER 121…176
Stilk v Myrick (1809) 2 Camp 317…149
Straits Colonies Pte Ltd v SMRT Alpha Pte Ltd [2018] 2 SLR 441…
205
Sumpter v Hedges [1898] 1 QB 673…220
Sun Qi v Syscon Pte Ltd [2013] SGHC 38…201
Susilawati v American Express Bank Ltd [2008] 1 SLR 237…211
T
T2 Networks Pte Ltd v Nasioncom Sdn Bhd [2008] 2 SLR 1…248
Tan Eck Hong v Maxz Universal Development Group Pte Ltd [2019] 3
SLR 161…67
Tan Kim San v Lim Cher Kia [2001] 1 SLR 607…203
Tarling v Baxter (1827) 6 B & C 360…276
Tay Joo Sing v Ku Yu Sang [1994] 3 SLR 719…253
Taylor v Caldwell (1863) 3 B & S 826…229
Teacher v Calder (1889) 1 F 39…239
Tesa Tape Asia Pacific Pte Ltd v Wing Seng Logistics Pte Ltd [2006]
3 SLR 116…355
The Asia Star [2010] 2 SLR 1154…246
The Mihalis Angelos [1971] QB 164…173, 225
The Moorcock (1889) 14 PD 64…170
The “Rainbow Spring” [2003] 3 SLR 362…344
The Singapore Professional Golfers’ Association v Chen Eng Waye
[2013] 2 SLR 495…51
Thomas Cowan Orme (1961) MLT 41...197
Thomas Edward Brinsmead & Sons Ltd [1897] 1 Ch 45…375
Thompson v London Midland & Scottish Railway [1930] 1 KB 41…
177, 178
Thompson v Meade (1891) 7 TLR 698…336
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163…176
Tiger Airways Pte Ltd v Swissport Singapore Pte Ltd [2009] SGHC
178…167
Ting Siew May v Boon Lay Choo [2014] 3 SLR 609…192
Ting Sing Ning v Ting Chek Swee [2008] 1 SLR 197…44
Tjong Very Sumito v Chan Sing En [2012] 3 SLR 953…209
Tokyo Investment Pte Ltd v Tan Chor Thing [1993] 3 SLR 170…193
Triangle Auto Pte Ltd v Zheng Zi Construction Pte Ltd [2001] 1 SLR
370…249, 250
Trigen Industries Ltd v Sinko Technologies Pte Ltd [2003] 1 SLR (R)
183...345
Tsakiroglou & Co Ltd v Noblee and Thorl GmbH [1962] AC 93…230,
231
Turpin v Bilton (1843) Man & G 455…333
TV Media Pte Ltd v De Cruz Andrea Heidi [2004] 3 SLR 543…270,
358
U
United States Trading Pte Ltd v Ting Boon Aun [2008] 2 SLR 981…32
V
Valentini v Canali (1889) 24 QBD 166…187
Vandashima (S’pore) Pte Ltd v Tiong Sing Lean [2006] SGHC 132…
252
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB
528…245
Virtual Map (Singapore) Pte Ltd v Singapore Land Authority [2008] 3
SLR 86…110
Virtual Map (Singapore) Pte Ltd v Suncool International Pte Ltd
[2005] 2 SLR 157…102, 110
Vita Health Laboratories Pte Ltd v Pang Seng Meng [2004] 4 SLR
(R) 162…67, 78
W
W & M Roith Ltd, Re [1967] 1 ALL ER 427…77
W & P Piling Pte Ltd (in liquidation) v Chew Yin What [2007] 4 SLR
218…69
Wagon Mound 1 [1961] AC 388…358
Walker v Northumberland Country Council [1995] IRLR 35…321
Walker v Wimborne (1975) 137 CLR 1…77
Ward v Tesco Stores Ltd [1976] 1 WLR 810…357
Warner Brothers Pictures Inc v Nelson [1937] 1 KB 209…252
Weaver v Tredegar Iron and Coal Co Ltd [1940] AC 955…319
Williams v Roffey Bros & Nichollas (Contractors) Ltd [1991] 1 QB 1…
150, 155, 222
With v O’Flanagan [1936] Ch 575…202
White Hudson & Co Ltd v Asian Organisations [1964] 1 WLR 1466…
363
Whitewell v Arthur (1865) 35 Beav. 140…39
Whittington v Seale-Hayne (1990) 82 LT 49…207
Wong Lai Keen v Allgreen Properties Ltd [2009] 1 SLR 148…172
Wong Chee Siong v Tan Boon Hwa [2010] SGHC 222…251
Workspace Consultants Pte Ltd v Teo Seng Siew [1998] SGHC
372…134
Y
Yap Boon Keng Sonny v Pacific Prince International Pte Ltd [2009] 1
SLR 385…243
Yap Guat Beng v Public Prosecutor [2011] 2 SLR 689…70
Yenidje Tobacco Co Ltd [1916] 2 Ch 426…375
Yeo Geok Seng v Public Prosecutor [2000] 1 SLR 195…80
Yong Kheng Leong v Panweld Trading Pte Ltd [2012] 1 SLR 173…76
Yorkshire Woolcoombers Association, Re [1903] 2 Ch 284…119
Yuen Chow Hin v ERA Realty Network Pte Ltd [2009] 2 SLR (R)
786…336
Z
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design &
Construction Pte Ltd [2008] 3 SLR 1029…168, 334
Table of Legislation
The following is the list of constitutional and statutory instruments that
are cited in this book. Free copies of all statutes applicable in
Singapore are available online at: https://sso.agc.gov.sg/. Statutes
marked with an asterisk denote English statutes that are made
applicable in Singapore by virtue of the (Singapore) Application of the
English Law Act.
Instrument/Page
Constitution
Article 12…322
Article 45…19
Apportionment Act…218, 220
s. 3…220
Arbitration Act…14
s. 49…14
Bills of Sale Act…118–120, 122, 126, 127
s. 2…118, 119, 120, 122
s. 3…122, 129
s. 4…118
s. 5…118
s. 10…118
s. 13…118, 129
Business Names
Registration Act…24–27, 29, 57, 70
s. 4…25
s. 5…24, 29
s. 6…25
s. 8(3)…26
s. 10…25
s. 17…25
s. 22…26
s. 31…25
s. 34…27
s. 35…25
Business Trusts Act…23
Carriage by Air Act…301
Carriage by Air (Montreal Convention, 1999) Act…302
Carriage of Goods by Sea Act…301
Casino Control Act…191
Central Provident Fund Act…18, 316
s. 7…316
s. 24…18
s. 58…316
First Schedule…316
Children Co-Savings Development Act…314–316
s. 2(1)…314
s. 9…314
s. 9A…315
s. 10…315
s. 12B…316
s. 12E…315
s. 12F…315
s. 12H…315
s. 12I…315
s. 12J…315
Civil Law Act…33, 122, 153, 186, 190
s. 5…190
s. 6…122, 153
s. 17…33
s. 35…186
Companies Act…4, 18, 29, 41, 44–48, 54–57, 59, 61–73, 79–83,
119, 122, 276, 343, 374, 381, 384, 396
s. 4(1)…46, 69
s. 17(2)…45
s. 17(3)…29
s. 17(4)…29
s. 18…62
s. 18(1)…46
s. 19…48,
s. 19(4)…48
s. 20…48
s. 20A…62
s. 22…48, 61
s. 26…63–64
s. 26A…64
s. 31(2)…46
s. 35(1)…48
s. 36…48
s. 37…48
s. 39…63
s. 41…343
s. 131…119, 122
s. 145(1)…69
s. 145(2)…69
s. 145(5)…73
s. 148…70
s. 148(1)…70
s. 148(2)…71
s. 149…71
s. 149(1)…71
s. 149(6)…71
s. 149B…65, 73
s. 152…62, 73
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
154…71, 72
154(1)…71
154(2)…72
155…72
155B…73
156…79, 80
156(1)…79
156(3)…79
156(13)…79
156(15)…80
157…72, 80, 81
157(1)…72, 80, 81
157(2)…80
157(3)…81
157A…62, 73
160…63
161…63
162…81, 82
162(1)…81
162(3)…81
162(4)…81
162(5)…81
162(6)…81
162(8)…81
163…46, 82
163(1)…82
164(8)…67
168…82
168(1)…82
168(5)…82
169…82, 83
171(1)…54, 68
171(3)…68
171(1AA)…54, 68
171(1AB)…68
171(1E)…68
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
172…75
172A…75
175(1)…64
175(4)…64
175A…64
176…65
177…65
177(2)…65
177(3)…65
179…66
179(1)…66
181…66
184…65
184(2)…65
184A…65
189…67
190(1)…61
196(A)…61
197…55
201…65
203…67
205…56, 68
205(1)…68
205(2)…65
205C…47, 56, 68
210…384
210(2)…386
210(4)…386
210(3AB)…386
211B…386
211C…286
212(1)…381
216…67
216(1)…67
216(2)…67, 374
216A…44
s. 334A…381
s. 387C…65
Competition Act…198, 199
s. 34…199
Consumer Protection (Fair Trading) Act…116, 165, 177, 178, 215,
257, 286–295, 298
s. 2…287
s. 2(1)…287–289
s. 4…289
s. 4(1)…290
s. 5(3)…293
s. 5(3)b…288
s. 6(1)…293
s. 6(2)…288
s. 7(4)…293
s. 7(9)…293
s. 11…294
s. 12(1)…294
s. 12B…286
s. 12B(3)…286
s. 12D…286
s. 13(1)…295
First Schedule…288
Second Schedule…290
Consumer Protection (Fair Trading) (Cancellation of Contracts)
Regulations…294
Consumer Protection (Fair Trading) (Opt-Out Practices)
Regulations…141
Contracts (Rights of Third Parties) Act…159, 160, 183, 392
s. 2(1)…159
s. 2(2)…159
s. 2(3)…159
s. 7…159
Contributory Negligence and Personal Injuries Act…359
s. 3(1)…359
Conveyancing and Law of Property Act…117, 118, 153
s. 24…117, 118
s. 53…153
Copyright Act…4, 94, 100, 102–113, 122, 309
s. 7…104
s. 7(1)…104, 105, 108
s. 7(2)…111
s. 7A…104
s. 10…110
s. 15(3)…108
s. 25(3)…94
s. 26(1)…108
s. 27…106
s. 27(4)…106
s. 28(2)…107
s. 28(3)…107
s. 30(3)…107
s. 30(4)…107
s. 30(5)…107
s. 30(6)…107
s. 31…109, 110
s. 35…111
s. 35(1A)…111
s. 35(3)…111
s. 36…111
s. 37…111
s. 39…111
ss. 44–49…111
ss. 50A–53…111
s. 74…100
s. 81…106
s. 82…108
s. 83…108
s. 84…109
s. 85…109
s. 86…109
s. 87…106
s. 88…106
s. 89…106
s. 90…106
s. 91…106
s. 92…107
s. 93…107
s. 94…107
s. 95…107
s. 96…107
s. 103…109, 110
s. 109…111
s. 110…111
s. 111…111
s. 114…111
s. 119…112
s. 120…112
s. 120A…112
s. 136…113
s. 136(3A)…113
s. 194…109, 122
s. 198…111
s. 246(1)…113
s. 246(2)…113
s. 249…113
Part IXA…111
Criminal Procedure Code…7, 8
s. 151…8
s. 359…7
Electronic Transactions Act…134, 143, 153
s. 7…153
s. 13…143
s. 14…134
Employment Act…4–7, 221, 304, 306, 310–316, 323, 324
s. 2…306, 310
s. 10(3)…323
s. 11…323
s. 11(2)…324
s. 14(1)…324
s. 14(2)…323
s. 21…313
s. 27…313
s. 35…311
s. 36…311
s. 36(2)…311
s. 37…311
s. 38…312
s. 38(1)…312
s. 38(2)…311, 312
s. 38(4)…312
s. 40(1)…312
s. 53…311
s. 66B…311
s. 76…314
s. 87…311
s. 87A…315
s. 88…313
s. 88(4)…313
s. 88A(1)…312
s. 88A(6)…312
s. 89…313
s. 89(2)…313
s. 89(4)…313
s. 89(7A)…313
s. 90…311
s. 90(2)…312
s. 95A…306
s. 96…313
s. 126A…306
s. 126B…306
Employment Claims Act…16
s. 3(1)…16
s. 3(2)…16
s. 12(7)…16
s. 19…16
Employment of Foreign Manpower Act…327
Evidence Act…167
s. 93…167
s. 94…167
Frustrated Contracts Act…234, 235
s. 2(2)…234, 235
s. 2(3)…235
Health Products Act…257
Hire-Purchase Act…129, 153, 169
s. 3…129, 153
s. 6B…129
s. 13…129
s. 15…129
s. 25…130
First Schedule…129
Housing and Development Act…18
s. 51…18
Income Tax Act…7, 396
Industrial Relations Act…325–327
s. 18…325
s. 20…326
s. 21…326
s. 25…326
s. 25(2)…326
s. 26…326
s. 31…326, 327
s. 44…326
Industrial Relations (Recognition of a Trade Union of Employees)
Regulations…325
Insolvency, Restructuring and Dissolution Act…17–20, 42, 43, 45, 68,
71, 120, 371–385
s. 16…18
s. 17…71
s. 21…18, 71
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
36…18
37…18
47…376
50…376
71…384
86(1)…120
89…383
90…383
91…383
95…384
91(8)…384
96…384
99(2)…385
107…385
108…385
108(5)…385
110…385
111…384
112…385
119…372
121(1)…45, 68
121(2)…45
124(1)…373
125…374
125(2)…374
125(1)…373
126(1)…375
126(2)…375
128(3)…373
129…376
130…376
133…376
134…376
144(1)…377
144(2)…377
147…381
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
s.
155(3)…379
160…372
161(6)…375
162…72
163(1)…372
163(4)…372
164…376
164(2)…376
166…372
167…376
170…376
177…377
180…381
194…376
203(1)…379–381
203(2)…380
203(4)…380
203(6)…120, 380
206…378
218…379
224…378
225…378
229…120, 378
238…42, 379
239…43, 379
240…379
307…17
308…17
310…18
311…18
312…17
327…18
329…18
332…18
352…18
372…18
s. 392…19
s. 393…19
s. 394…19
s. 394(2)…19
s. 395…19
s. 396…19
s. 397…19
s. 406…18
s. 412…18
Part 6…382
Part 14…19
Part 15…20
International Arbitration Act…14
s. 24A…14
Interpretation Act…27
s. 2…27
Intestate Succession Act…27, 39
Land Titles Act…117, 118
s. 45(1)…117
s. 68(3)…117
s. 69…117
s. 77…117
s. 115…118
Land Titles (Strata) Act…23
Limitation Act…10, 253
s. 6…10, 253
s. 24A(2)…10
s. 29…253
s. 32…253
Limited Liability Partnership Act…42, 43, 49–51, 55–57, 59, 70, 71,
372, 375, 377, 378, 379, 381, 382
s. 2…50
s. 4…51
s. 5…51
s. 8…51
s. 9…50
s. 10…50
s. 15…49
s. 18…50
s. 22…50
s. 23…50
s. 24…51, 55
s. 25…55
s. 33…70
s. 34…71
s. 36…71
First Schedule…50
Fourth Schedule…382
Fifth Schedule…42, 43, 372, 375, 377, 378, 379, 381
Limited Partnership Act…52–53, 55–57, 59, 70
s. 3(2)…52
s. 3(3)…52
s. 3(4)…52
s. 4…53
s. 6(1)…52
s. 6(2)…53
s. 8…51, 53
s. 11…52
s. 16…53
s. 27…55
s. 29…70
First Schedule…53
Minors Contracts Act…123, 187, 189
s. 2…123, 189
s. 3…187
Misrepresentation Act…204–207
s. 2(2)…206, 207
s. 3…207
Moneylenders Act…115, 116, 190, 215
s. 14…190
s. 23…215
Notary Public Act…118
Partnership Act…27–29, 33–40, 56
s. 1…27, 60
s. 2…28
s. 4…29
s. 5…30
s. 6…30
s. 9…33
s. 10…32
s. 12…33
s. 17(1)…34
s. 17(2)…34
s. 17(3)…34
s. 20(1)…35
s. 23(2)…39
s. 24(1)…36
s. 24(2)…36
s. 24(5)…36
s. 24(6)…37
s. 24(7)…34
s. 24(8)…37
s. 25…37
s. 29…37, 70
s. 30…37
s. 32…38
s. 33…39
s. 35…39, 40
s. 36(1)…32, 34
s. 36(2)…34
s. 39…40
s. 44…40
s. 45…27
Patents Act…94, 97, 309
s. 13…98
s. 14(1)…98
s. 14(2)…98
s. 14(4)…98
s. 15…98
s. 16…99
s. 17(1)…97
s. 19…97
s. 36…99
s. 41…99
s. 56…99
s. 66…99
s. 66(2)…94, 99
s. 66(3)…94
s. 67…99
Penal Code…4, 6
Personal Data Protection Act…368, 369
s. 2…368
s. 4…369
s. 13…369
s. 24…369
s. 25…369
s. 29…368
s. 53…369
Second - Fourth Schedule…369
Registered Designs Act… 100–102
s. 2…100
s. 5…101
s. 21…101
s. 30…101
s. 30(5)…101
s. 32…101
s. 36…101
s. 40…101
s. 41…101
Retirement and Re-employment Act…317
s. 4(3)…317
s. 7…317
s. 7A…317
s. 7C…317
Sale of Drugs Act…257
Sale of Food Act…257, 263
Sale of Goods Act…128–130, 135, 169, 173, 186, 225, 257–269,
271–286, 287–289, 293, 298
s. 3(3)…186
s. 12…259, 260, 280, 298
s. 12(1)…259
s. 12(2)…259, 260
s. 13…260, 261, 266–270, 289
s. 14…261–267, 269, 286
s. 14(2)…262–267
s. 14(2B)…262
s. 14(2C)…264
s. 14(3)…264–267
s. 15…266, 267, 269, 286
s. 15A…268
s. 16…272
s. 17…272
s. 18…272–275
s. 19…275, 276
s. 20…271
s. 20(1)…276, 278
s. 20(2)…278
s. 20(3)…278
s. 21(1)…280–282
s. 21(2)a…281
s. 21(2)b…282
s. 23…282, 283
s. 24…283
s. 25…130, 283
s. 29(2)…278
s. 29(3)…279
s. 30…280
s. 30(1)…279
s. 30(2)…279
s. 30(2A)…280
s. 30(3)…279
s. 30(5)…280
s. 32(1)…279
s. 35…267
s. 35(6)…267
s. 37…278
s. 41…284
s. 44…285
s. 48…285
s. 49…271, 284
s. 50…271
s. 50(1)…284
s. 50(2)…284
s. 50(3)…284
s. 51(1)…285
s. 51(2)…285
s. 51(3)…285
s. 53(1)…286
s. 53(2)…286
s. 57(2)…135
s. 61…272, 273
Securities and Futures Act…72, 83–86, 122, 124, 125
s. 81SS…122
s. 197…86
s. 198…86
s. 199…86
s. 214…83
s. 218(1)…83
s. 218(2)…83, 84
s. 218(3)…84
s. 218(5)…84
s. 218(6)…84
s. 219…84–86
s. 221…84, 85
s. 232…85
s. 232(2)…85
s. 234…86
s. 234(6)…86
s. 240…125
s. 243…125
s. 253…125
Small Claims Tribunals Act…15, 293
s. 5…15
s. 23…15
Supply of Goods Act…169, 258
Trade Disputes Act…327
s. 3…327
Trade Marks Act…25, 88, 89, 94, 122, 362
s. 2…88
s. 5(2)…89
s. 6…89
s. 7(1)…89
s. 7(2)…89, 90
s. 7(4)…90
s. 8(1)…90, 91
s. 8(2)…90, 91
s. 8(4)…91
s. 18…91
s. 27…92
s. 27(1)…92
s. 27(2)…92
s. 27(3)…92, 93
s. 28…93
s. 28(1)…93
s. 28(4)…93
s. 29…94
s. 31…94
s. 31(5)…94
s. 31(6)…94
s. 32…94
s. 33…94
s. 36…91
s. 38…91, 122
s. 42…91
s. 46…94
s. 49…94
s. 55…93, 95
s. 55(2)…95, 96
s. 55(3)…93, 95, 96
Trade Unions Act…325
s. 2…325
s. 8(1)…325
s. 19…325
Unfair Contract Terms Act…165, 175, 179–183, 268, 269, 352, 361,
390
s. 2…179, 180, 183
s. 2(1)…179, 361
s. 2(2)…179, 361
s. 3…179, 180, 183
s. 4…390
s. 6(1)…268
s. 6(2)…269
s. 11(1)…180
s. 11(4)…182
s. 11(5)…180
s. 26…183
First Schedule…182
Work Injury Compensation Act…304, 318–320, 351, 354, 380
s. 2…319
s. 3(1)…319
s. 3(5)…319
s. 4…319
s. 4(1A)…319
s. 13…320
s. 14…320
s. 23(1)…320
s. 33…320
Third Schedule…320
Fourth Schedule…319
Workplace Safety and Health Act…7, 317, 318
s. 11…317
s. 12…317
s. 15…318
1
Law, Legal Proceedings
and Lawyers
THE ESSENCE OF LAW
Law is essentially a set of rules. If there are no rules in a society,
needless to say, it will be completely chaotic. Thus, it is absolutely
necessary that there be laws for a society to function properly and
peacefully. In addition, with respect to business specifically, laws
introduce certainty thereby reducing the risks associated with running
a business. Of course, it is also absolutely crucial that there are
mechanisms in place in a society to enforce laws.
In Singapore, there are laws dealing with all sorts of matters and
there are also in place well-established mechanisms to enforce those
laws. However, in this book only key aspects of the law as it affects a
business will be examined.
LAW AND ETHICS
Legal rules and ethical considerations may often point towards the
same direction. For instance, generally, killing someone would be
both against the law and viewed as being unethical.
However, there could be situations where something could be
illegal under the eyes of the law, and yet may not be viewed as
unethical (for instance, perhaps beating a traffic light to rush someone
to hospital). Similarly, something could be viewed as unethical, and
yet it could be perfectly legal under the law (for instance, adultery).
In this book, we will be concerned with the law and not ethics,
though a business should concern itself with ethical issues as well.
Besides being the right thing to do, laws may change over time or the
business may not know about the laws, but if at least, a business
always gives due consideration to ethical issues, the chances of
running afoul of the law are likely to be far less. In addition, not
heeding ethical considerations can affect the reputation of a business
thereby possibly having an impact on its bottom line.
LAW AND BUSINESS
Law and business are intertwined. Many if not most aspects of a
business, such as setting up the business, buying or leasing a place
for the business, choosing a name for the business, getting financing
for the business, getting insurance for the business, buying equipment
needed for the business, hiring employees for the business,
marketing the business, providing goods or services of the business
and liquidating the business, can have legal implications or
consequences.
While lawyers may be sought for legal advice in respect of these
issues, it is good for a person running a business to have some
awareness of these issues. This is so for several reasons. Firstly,
lawyers may sometimes come in only after a problem has arisen. If
the person running the business has some basic legal knowledge, he
or she may be able to prevent at least some very basic problems
from arising. Secondly, by having such knowledge, at least for very
simple and straightforward matters, that person would be able to
assess what the legal position is, without having to resort to legal
advice, which may prove to be a hassle and time consuming. Thirdly
in the more likely scenario that legal advice must still be sought, if that
person has some basic legal knowledge, he or she might have a
better understanding of the issues and might be in a much better
position to protect the interests of the business.1
LAWS OF SINGAPORE
The laws of one country are not identical to those of another. Each
country has its own unique system of law. In the course of this book,
only the laws of Singapore will be examined.
However, historically, having inherited its laws from Britain,
Singapore’s laws are to some extent similar to those of Britain and to
those applicable in other Commonwealth countries, though there are
also differences. As for other countries, there may be more
differences. The extent to which they are different would of course
depend on the country in question and the particular aspect of the law
one is considering.
Despite these differences, being able to understand the laws in
one country would aid one in understanding the laws in another,
should the need arise. Moreover, though the solutions to a legal
problem may vary from country to country, the underlying problems
are often the same and hence understanding one country’s laws
creates an awareness of potential legal problems that can arise
anywhere. Thus, even if a business decides to expand overseas,
many of the issues covered in this book could still be relevant.
SOURCES OF LAW
There are two major sources of law in Singapore. They are legislation
and case law or common law. Thus, in essence, the legal “solution” to
any legal dispute or problem lies in looking up the relevant statutes
and/or cases.
Legislation refers to statutes2 or acts passed by Parliament and
subsidiary legislation3 made by various administrative bodies pursuant
to powers given by the statutes. There are over 300 statutes, such
as the Penal Code, the Employment Act, the Companies Act and the
Copyright Act, and many of these statutes have had subsidiary
legislation made pursuant to them.
Where the provisions of the statute are concerned, while the judge
can interpret the provisions of the statute, the judge cannot change
them. Thus for instance, if the Employment Act states that the
employee must not be earning more than $2,600 before certain rights
prescribed under the Act are applicable, the judge cannot change that
amount to $3,000.
In contrast, the judge has a lot more discretion when it comes to
case law or common law.4 This is because it is the judge who “writes”
the case. When two people litigate and the court delivers its
judgment, that judgment becomes a case. Once a case has been
decided, generally future cases that are the same will be bound by
the earlier decision provided that the earlier decision was made by a
higher court5 in the same hierarchy.6 This is known as the doctrine of
precedent. This ensures consistency, predictability and fairness.
Even if a future case is not the same, but similar, the court might
decide to adopt the reasoning used in the old case. What would be
considered similar can be subjective, and this gives the judge a lot of
discretion. For instance, if there is a case that states that bankers
must not be negligent towards their clients, a judge in a subsequent
case involving a client suing his lawyer might state that in the same
way, lawyers should not be negligent towards their clients. In this way
case law can grow in an incremental way and, over a period of time,
a body of law can accumulate in a particular area or field. Thus for
instance, in respect of contract or the law of torts such as negligence,
by and large, the relevant rules emanate from case law or common
law and not from legislation.
This ability of judges to make law is unique to countries that follow
the “common law” system. Countries in the Commonwealth, as well
as others such as the United States of America, follow such a
system. Another system of law followed by many other countries is
the “civil law” system. Under this system, all law is codified by
Parliament. As such there is not much room for judges to make law
and the doctrine of precedent is not well-established. Countries such
as France, Germany, Vietnam, Indonesia, China and Japan follow the
“civil law” system.
It should be mentioned that both statute law and case law are not
static and can grow and change over time. In relation to statutes,
new statutes can be introduced and old ones can be amended or
repealed. Once an existing statute is changed or a new statute is
introduced, generally it will only have prospective effect and not
retrospective effect. Thus for instance, if a statute comes into force
on the 1st of April and under the statute it is a crime to do X, and Y
committed X before 1st April of that year, generally Y would not be
guilty of that crime. In relation to cases, as highlighted earlier, new
cases can extend legal boundaries over time. It is also possible that
old cases are no longer followed and new law is created. For
instance, a higher court may decide not to follow a lower court’s
decision which has been followed for a long time. Again once case
law changes; that would not have retrospective effect. Thus for
instance, if X sues Y for infringement of privacy and the court holds
that there is no such cause of action, but after several years, A sues
B for infringement of privacy and the matter goes all the way to the
highest court, which then recognizes such a cause of action, that
decision of the highest court will only have a bearing on A and B and
not on X and Y.
It should also be noted that some legal disputes may be governed
by statutes alone, some by cases alone and some by both. Take for
instance, non-payment of salary to an employee. For employees
covered under the Employment Act7, salary has to be paid within 7
days. Let’s assume that A is obviously an employee and covered by
the Employment Act and that the employer is not disputing this.
However, the employee alleges that he has not been paid his salary
on time and the employer alleges that he has. In such a situation, if
the matter comes before the court, it is up to the court to decide as
to which party it believes. However, in essence, the dispute would
only be concerned with the Employment Act. On the other hand, if A’s
employer is also arguing that A is not an “employee” but an
independent contractor doing work on a freelance basis, then in such
a situation, the dispute could be governed by both the Employment
Act and case law. This is because, though the Employment Act has a
definition of who is an “employee”, the definition is not entirely clear
and hence reference may still have to be made to previously decided
cases to see when a person can be considered an employee.
Further, if we assume that both A and his employer accept that A is
an “employee”, but he is not covered by the Employment Act, and A
alleges that he has not been paid his salary within 7 days and his
employer states that he is under no obligation to do so, there is no
statute governing the matter. Thus, in such a situation, if the matter
comes before the court, the judge would have to solely look at past
cases to see whether they provide any guidance on the matter.
Finally, it should be highlighted that in addition to legislation and
case law or common law, when it comes to international matters such
as air transport or sea shipment, there could be some international
conventions governing the matter. Some such conventions are binding
on Singapore and would apply in respect of certain transactions, if
Singapore were a party to those conventions. Others apply if the
parties to the transaction agree that those conventions should apply.
In the course of this book, some such international conventions will
also be referred to.
CRIMINAL AND CIVIL LAW
It is a common misconception that if a person does something that is
not legally right, then that person will end up in jail or will have to pay
a fine. However, generally this is only true of criminal proceedings.
There is another category of proceedings, namely civil proceedings,
which does not involve such consequences. It is important to be
aware of this distinction at the very outset. A business is more often
concerned with civil matters rather than criminal matters. For this
reason, this book is largely focused on civil matters.
Criminal proceedings are concerned with forbidding certain kinds
of wrongful conduct and punishing those who perpetrate it. Generally,
matters which harm the society or which are against public interest or
safety are made criminal, pursuant to various statutes such as the
Penal Code.8 If a person perpetrates such a crime and is caught, the
public prosecutor9 may come into the picture. If a prosecution takes
place and the court finds that the case against the accused person
(or defendant) has been proved beyond reasonable doubt, the
accused person would be adjudged guilty. He would then be
convicted and could face, among other sanctions, a jail sentence or a
fine. If the court finds him not guilty of committing the offence he has
been charged with, he would be acquitted of that offence. Murder,
rape and theft are some examples of criminal matters. Breaches of
the Employment Act, Workplace Safety and Health Act and Income
Tax Act are some examples of situations where criminal actions may
be brought against businesses.
Civil proceedings are concerned with regulating private rights and
obligations between parties. If a person has a private right infringed,
that person may decide to sue the person who has so infringed thatYffeedin
right. The person who institutes the action in a court of law is known
plaintiff The one
that is
9
I
Defendant
The one that is beingsued
as the plaintiff, and the person who is being sued is known as the
defendant. If the court finds that the plaintiff has proved the case on
the balance of probabilities, the defendant will be made liable and
may have to compensate the plaintiff in the form of damages. If the
plaintiff does not prove the case, the defendant will be held not liable.
Breach of contract and tort actions such as suing for negligence are
some common civil matters which may involve a business.
However, some matters may give rise to both criminal and civil
proceedings. Thus for instance, if X drives recklessly and injures Y,
that may give rise to both criminal and civil proceedings. The public
prosecutor may decide to prosecute X for driving recklessly and, if
convicted, he may be sentencedr to a jail term or may have to pay a
fine. If X is asked to pay a fine, that fine goes to the State and not to
Y. If Y in the illustration above wants to be compensated, Y
typically10 would have to institute a separate civil action against X and
seek compensation. In such a situation, there is no connection
between the civil and criminal actions in that they generally are not
heard by the same court or at the same time due to various reasons.
An example of a situation where a business can be exposed to both
civil and criminal liability is a health or safety breach at work.
Table 1.1 summarises some differences (generally stated)
between criminal and civil proceedings.
Table 1.1:
Differences between criminal and civil proceedings
Criminal Proceedings
Civil Proceedings
Purpose
To punish the perpetrator of the
crime; to deter others from
committing the same crime.
To seek a remedy for a private
wrong.
Parties
Public prosecutor prosecutes
the defendant.
Plaintiff sues the defendant.
Discretion to
initiate an
action
The discretion whether or not
to initiate an action lies with the
The discretion whether or not
to initiate an action lies with the
plaintiff.
State.11
Burden of
proof
Public prosecutor must prove
the case beyond reasonable
Plaintiff must prove case on
the balance of probabilities.
doubt.12
Decision of
the Court
Guilty or not guilty.
Liable or not liable.
Sanctions
Jail sentence, fine, caning,
others.
Damages, injunctions,13
specific performance,14
others.
METHODS OF RESOLVING CIVIL DISPUTES
Each time a legal right is infringed, it does not necessarily mean that
the innocent party concerned will take out some legal action. This is
due to various reasons. For instance, the innocent party may not have
suffered a loss, or instituting an action may be too much of a hassle,
or the parties may have a continuing relationship and so it may be
more prudent to ignore the infringement and move on. Thus, in
practice, there could be many situations when a legal right is infringed
and yet no action is taken. However, assuming the innocent party
decides to take some legal action, the question that arises is – what
sort of action can be taken?
The previous section (and common newspaper coverage) might
have given the impression that the only sort of legal action that can be
taken is to go to court and commence litigation. However, besides
litigation, there are various other methods of resolving civil disputes.
The fastest and cheapest way to resolve a dispute is probably
through negotiation, and often parties attempt to resolve their dispute
amicably by negotiation. If that fails, there are various options open to
the parties. Some of these methods will now be highlighted.
Going to trial
p
Litigation
Litigation refers to having a trial in a court of law. There are
essentially three levels of courts in Singapore. The lowest level
comprises the State Courts. The Magistrate’s Court and District
Court are part of the State Courts, where civil actions can be
commenced if the value of the claim being disputed is below certain
stated amounts.15 At the next level is the High Court. Generally in
cases where the monetary value of the matter being disputed is
above $250,000, a civil action must be commenced in the High Court.
The High Court also exercises appellate jurisdiction, in that it hears
appeals from lower level courts and tribunals such as the
Magistrate’s Courts, District Courts, the Small Claims Tribunal and
the Employment Claims Tribunal. At the topmost level is the Court of
Appeal, which is only an appeal court. It hears appeals from the High
Court.16 In the High Court, typically a single judge presides over a
case whereas in the Court of Appeal, it is usually three. In some
countries, the litigation process may involve a jury or members of the
public. The jury would determine questions of fact, while the judge
years
would determine questions of law.17 In Singapore, the jury system G
has long since been abolished and the judge or judges determine both forbreach
questions of fact and law. There are time limits within which a civil ofContract
claim must be brought to the courts. For instance, in the case of a
breach of contract or tort action, it is generally 6 years from the date
3 for
on which the cause of action accrues. Whereas, in cases involving years
personal injury, the time limit is generally 3 years.18 Further where itpersonal
is possible to make an appeal, there are short time limits within which injury
an appeal must be lodged.
Going through the litigation process has its advantages and
disadvantages. One of the main advantages of litigation is its finality.
Once the court has made a decision, the parties must abide by the
decision unless they are able to appeal against the decision to a
higher court, and as stated, the Court of Appeal is the highest
appellate court in Singapore.19 This is unlike embarking on some
Advantage
Provides finality
and unsent of
be obtained
1 No Privacy
other party does
Goodwill ofbusiness
could
not
beaffected
need
to
2 Highcosts
Disadvantages
Court and
it is acrimonious
legal feed
tends to create a win losesituation
g Createalotofbitterness hard to maintain
business relationship
afterward
other dispute resolution methods such as mediation, where this
element of finality may be lacking. Further, to commence litigation, the
consent of the other party does not have to be obtained, unlike some
other means of dispute resolution.
However, litigation has its disadvantages as well. Firstly, going to
feel
trial could involve a lot of money. The amount of court fees involved legal
would depend on the type of action, the level of the court and the Courtfees
length of the trial. In addition to court fees, typically legal fees20
would also be payable to lawyers. Secondly, litigation could take
time. In some countries, getting a date for trial can take many years.
In Singapore, it is relatively much faster. Nonetheless, there could be
other methods of dispute resolution such as mediation, which could
be faster. Thirdly, litigation tends to be acrimonious and tends to
create a win-lose situation. Thus, if the parties intend to continue their
business relationship after litigation, that would be an uphill task as
litigation can create a lot of animosity and bitterness. Fourthly, there
is no privacy in litigation, unlike in some other methods of dispute
resolution. Hence the goodwill of a business could be badly affected if
a decision against it is made and this is reported in the press. Fifthly,
it is not possible to pick and choose the judge, unlike in some other
methods of dispute resolution where the parties may pick someone
whom they feel has the technical expertise in a particular field. Finally,
there may be problems “enforcing”21 a court judgment in other
countries. This issue becomes important in cases where the
defendant does not have any assets in Singapore and refuses to pay.
Whilst it is possible for a Singapore court judgment to be enforced in
Commonwealth countries or in other countries with which Singapore
has a bilateral treaty, in respect of other countries, there may be
difficulties. If it is not possible to enforce the judgment in another
country, for instance by getting a court order in that other country to
seize the defendant’s assets there to satisfy the judgment debt, the
plaintiff would be left with merely a paper judgment which would be of
no value.
4 Hard to
enforce in other
5 Cannotpick
countries
methods
Judge Unlike other
ofdispute resolution
Aside from all this, it should also be highlighted that in order to
make Singapore an international legal hub, the Singapore
International Commercial Court (which can try transnational
commercial disputes and which may involve foreign judges and
lawyers) has recently been set up.
Mediation
Mediation or conciliation can be defined as a more formalised version
of negotiation which is carried out with the help of a trained mediator.
Mediation may be attempted not only for small disputes, but for large
ones as well. Mediation can also be attempted for cross-border
disputes. In Singapore, mediation can be conducted by different
organisations, but only two will be elaborated upon.22 The first is
mediation conducted through the Singapore Mediation Centre.
The Singapore Mediation Centre is a non-profit organisation that
is funded by the government.23 Mediation is aimed at amicably
reaching a settlement, unlike litigation, which as stated, tends to be
acrimonious. In order to go for such mediation, both parties have to
agree to submit their dispute to mediation. This agreement can arise
before or after the dispute has arisen. Mediation can be applied for
all sorts of situations, but it is ideal when the parties have a genuine
desire to find a mutually acceptable solution to their problems. If the
parties have a give and take attitude or are in a long-standing
relationship, mediation may be ideal.
Mediation has its advantages and disadvantages. As for
advantages, it is relatively cheap. For instance, if the claim is more
than $60,000 only an amount of $963 (inclusive of GST) per party per
day has to be paid to the Singapore Mediation Centre. A day of trial
in the courts could cost much more. Secondly, it is relatively fast and
disputes can be mediated within a few weeks. Thirdly, there is
privacy. Fourthly and most importantly, as stated, it is amicable and
works towards creating a win-win situation. The parties work with
each other with the help of the mediator, and not against each other.
Advantages
1 RelativelyCheap
2
Relatively
fast can be
mediated within a
few weeks
3 Privacy
4
Works towards a
win winsituation
5 Widerrange ofsolutionscanbeexplored
The mediator merely helps the parties find a mutually acceptable
solution. The mediator does not decide who is right or wrong and
does not pass a binding judgment which the parties are forced to
accept. Thus, the parties have complete control over the eventual
outcome. Fifthly, the range of solutions that can be explored is much
wider as compared to a court judgment. For instance, in formal court
proceedings, the remedies are typically in the form of damages,
whereas at mediation, more creative solutions can be explored.
If a settlement agreement is reached during mediation, that
agreement will be binding on the parties and can be enforced, like
normal contracts. It may also be internationally enforceable in
countries which are parties to the United Nations Convention on
International Settlement Agreements Resulting from Mediation,
though the number of countries that are parties to this convention is
currently not as wide as that relating to international arbitration.
As for disadvantages, the main disadvantage of mediation is that
it may not be final. If the parties cannot reach an agreement or
settlement, then the parties may have to embark again on some other
form of dispute resolution, such as litigation, and this might waste
more time.
Another form of mediation is mediation at the Centre for Dispute
Resolution24 at the State Courts.25 This form of mediation is initiated
by the courts. In some types of disputes, it is automatically offered
and in respect of others, the parties may have to apply for it and in
practice, the vast majority of cases filed to go to trial at the State
Courts are successfully settled through mediation at this centre.
Again, as with mediation at the Singapore Mediation Centre, the
mediator tries to get the parties to find a mutually acceptable solution
rather than to pass down a binding judgment which they are forced to
accept. The Centre for Dispute Resolution offers another chance for
the parties who have not decided on their own accord to mediate
elsewhere, to mediate and resolve their disputes in a cheaper,
quicker and more amicable way.
Arbitration
Just as with mediation, arbitration may be pursued for local as well
as international disputes. Arbitration may apply not only to large
disputes, but small ones as well, though this is less common. Further,
just like mediation, there are several venues for arbitration in
Singapore26 However, the type of arbitration that will be considered in
this context is arbitration conducted at the Singapore International
Arbitration Centre, a non-profit organisation.27
Arbitration at the Singapore International Arbitration Centre, has
its advantages and disadvantages. To begin with, arbitration is
relatively fast, though mediation might take an even shorter time. As
for costs, while it is usually more expensive than mediation, it could
be cheaper than litigation, though not necessarily so. Further, as with
mediation, there is privacy. However, unlike mediation, there is finality
in that the arbitrator passes a judgment that is binding on the parties.
There is also less formalities involved in arbitration (for instance, in
terms of what type of evidence can be admitted), as compared to
litigation. Also, unlike litigation, the parties may be able to choose the
arbitrator. They can thus choose an arbitrator who has technical
knowledge in a particular field, with the hope that the decision he
gives would be more in accord with commercial reality. The arbitrator
can also come from any country. In addition, an arbitration award
may be enforced domestically and internationally in over 140
countries pursuant to the New York Convention on the Recognition
and Enforcement of Foreign Arbitral Awards. This is unlike litigation
that has far less international enforceability. For instance, in countries
like the United States of America, China, Japan and Indonesia, a
Singapore arbitral award can be enforced, unlike a judgment obtained
in a Singapore court through litigation. Finally in relation to the issue
of lawyers, they may or may not be involved in arbitration, though it is
very common for them to be.
1
However, there may be very limited grounds on which an appeal
can be made to the courts against an arbitral award.28 This may be a
Couldbe more
expensivethan
There is Privacy
mediation
butstillcheaperthan litigation
ay
disadvantage. Further, unlike litigation, both parties to the dispute
must agree to arbitration. Theoretically, this agreement can arise
before or after the dispute has arisen. However, in practice, if the
parties have not pre-agreed in their contract that they would go for
arbitration, it is highly unlikely that they will subsequently agree to go
for arbitration as it might be viewed as more costly or less favourable
than litigation. Thus if the parties wish to arbitrate their disputes, they
should provide for this expressly in their contract before any dispute
arises.29
Potential reason
to proven alotofdamages
Small Claims Tribunal
dealswith
Only
ofsaleof
goods
contraits
Claimsrelatingto damage property
of
tretr leaseofpapery
excludingaccidents Co
When a dispute is resolved through litigation, assuming the plaintiff
wins the case, the defendant, in addition to paying his own lawyers’
fees, would generally have to pay some part of the plaintiff’s lawyer 2years
fees. However, usually he would not have to pay the entire amount.
Thus, it is possible for a plaintiff to win a case, and yet suffer a net
loss because he has to pay the balance of his lawyers’ fees. This is
especially true of small claims. Thus aside from the time involved, it
may not be prudent to embark on litigation for such small claims.
The more suitable venue would be the Small Claims Tribunal.
However, the Small Claims Tribunal does not hear all types of small
claims. It only hears certain types of small claims30 such as those
relating to contracts of sale of goods and the provision of services,
claims relating to damage to property (other than damage to property
by accident arising in connection with the use of a motor vehicle) and
claims relating to contracts for lease of residential premises that do
not exceed two years.31 If the claim does not fall under one of the
recognised categories, then the tribunal would have no jurisdiction to
hear it. Thus, for instance, the Small Claims Tribunal does not hear
disputes relating to the tort of passing off32 or the tort of
defamation.33 A claim would also have to be brought within two years
from the date on which the cause of action accrues.34
In addition, there is a monetary limit. The claim must be for
$20,000 or less, though it is provided that if both parties agree in
writing, claims for up to $30,000 may also be heard.35 The hearing
takes about a week or two and it is very inexpensive. For instance,
for cases involving claims of up to $5,000, consumers have to pay a
fee of $10 whereas non-consumers have to pay a fee of $50.
Further, no lawyers are allowed and hence no lawyer fees are
involved either.36
The Small Claims Tribunal provides a fast and inexpensive way to
resolve disputes involving small claims and it may be used by both the
consumer and business.
Employment Claims Tribunal
The Employment Claims Tribunal was set up in 2016 to hear
employment related disputes. However, it does not hear all types of
employment related disputes. It only hears some types of contractual
and statutory disputes.37 Further, there is a monetary limit which is
generally $20,000 or $30,000 depending on whether the claim is
brought directly by an employee or in some way by involving a
union.38 Just like in the case of the Small Claims Tribunal, lawyers are
not involved in the Employment Claims Tribunal.39
The Employment Claims Tribunal provides a fast and inexpensive
way to resolve employment disputes between employees and
employers. It should also be highlighted that it is compulsory to go
through a mediation process (such as at the Tripartite Alliance for
Dispute Management) before lodging a claim with the tribunal.40
METHODS OF ENFORCING CIVIL JUDGMENTS
If an award or judgment is made against the defendant, but the
defendant does not pay, the award or judgment would be of little
value to the plaintiff. Thus the plaintiff would have to try to extract
payment from him by using one of the means provided by law.
Though the law provides for various means, each of these means
may be limited in some way or the other. In addition, the person
owing the debt may simply be unable to pay. Thus, the extent of such
a risk should always be weighed before deciding to institute a legal
action. In fact, even before that, where business is done on credit
terms, the ways of mitigating the risk of non-payment (such as
perhaps through insurance, credit checks or taking some security or
collateral41 in return) should be explored.
The question might arise as to whether such an inability to pay in
itself would result in the commission of an offence. The general
answer to this question is in the negative. Thus, if a sole proprietor’s
business fails due to misfortune and he is unable to fully repay all the
debts, that would not in itself result in the commission of an offence.
Some of the common avenues of enforcing a claim will now be
considered. Which will be most suitable will depend on a multitude of
factors such as the amount owed, the expense involved and the time
the creditor is willing to wait.
Bankruptcy
The inability to pay debts on the part of individuals or partnerships
may result in bankruptcy. As for companies, the equivalent process is
known as winding up or liquidation. However, only the bankruptcy
process will be considered at this point as winding up or liquidation is
covered in Chapter 15.
In Singapore, bankruptcy will be/is governed by the Insolvency,
Restructuring and Dissolution Act. Unless otherwise stated, all the
sections referred to in this part are with reference to that Act.42
A bankruptcy petition may be presented by a creditor, as stated,
against an individual (section 307) or against a partnership firm
(section 307) where there is an inability to pay debts. There is a
presumption of inability to pay debts in some situations such as
where a statutory demand43 has been made for the repayment of the
debt and at least 21 days have elapsed since the statutory demand
was served and the debtor has neither complied with it nor applied to
the Court to set it aside, or where the creditor has obtained judgment
against a person and is not otherwise able to enforce that judgment
against that person (section 312). In addition to creditors, the debtor
himself may also present a bankruptcy petition against himself
(section 308) possibly to get some respite from hounding creditors.
Mustbe at
r
However, before any such bankruptcy petition is presented, theleast
debt or the aggregate of the debts must be not less than $15,000 15K
(section 311). In addition, the debtor must have some connection to
Singapore, such as being domiciled in Singapore or having property in
Singapore (section 310).
Home
The court hearing the petition may issue a bankruptcy order
(section 309). If such an order is granted, the debtor is declared a
bankrupt and his property vests in the Official Assignee (section 327).
The Official Assignee is a public servant (section 21) and an officer of
the court (section 16).44 Basically, the trustee’s duty is to gather the
assets of the debtor, register the claims of the creditors and
distribute the assets among those creditors. Towards this end, the
bankrupt is duty bound to disclose fully all his assets (sections 332
and 406) and give an account of all monies or property coming in
subsequently (section 333). Failure to do so can result in the
commission of an offence.
However, it should be highlighted that certain assets are
exempted (section 329). For instance, clothing, bedding, furniture,
household items and other provisions which are necessary for
satisfying the basic domestic needs of the bankrupt and his family
and tools required by the bankrupt to carry out his employment,
vocation or business are exempted. In addition, Housing and
Development Board (HDB) flats (section 51 of the Housing and creditors
Development Act) and Central Provident Fund (CPF) contributions getfirst
(section 24 of the Central Provident Fund Act) are generally also
exempted. If there are insufficient assets, the law also provides for a
system of priority amongst creditors (section 352).45 As a result of all
this, there is no assurance that all or even part of the debt would be
recovered.
The bankrupt for the duration of the bankruptcy is subject to
various restrictions. For instance, the bankrupt will also not be able to
obtain credit of $1000 or more from anyone without disclosing that he
is an undischarged bankrupt (section 412). In addition, if the bankrupt
is gainfully employed, a portion of his income may be taken to repay
the creditors (section 372). Further, under the Companies Act and the
Business Names Registration Act, the bankrupt will not be able to
take part in the management of a company or business.46 Moreover,
pursuant to various statutory provisions, the bankrupt would not be
able to practice certain professions such as that of a solicitor or
accountant, and would also not be permitted to be a Member of
Parliament.47
In Singapore, there is no automatic termination of bankruptcy,
unlike in some countries. However, a bankruptcy order may come to
an end in several ways. Firstly, it may be annulled, for instance when
it is proved that the debts are repaid (sections 392 and 393).
Secondly, the court may make an order of discharge either absolutely
or conditionally (section 394). Matters such as the cause of the
bankruptcy (for instance, was it due to his recklessness) and whether
the person adjudged a bankrupt continued to trade knowing or having
reason to believe himself to be insolvent, would be relevant in
determining whether or not to grant the order of discharge (section
394). Thirdly, the Official Assignee may grant a certificate of
discharge, provided certain conditions are met (section 395). Both in
the case of an order of discharge issued by the court and a
certificate of discharge issued by the Official Assignee, the creditors
have the right to raise an objection to any such discharge (sections
394(2) and 396), but there is no guarantee that their objections will
be upheld and hence creditors should be aware of this risk as well.
µ
Assuming the bankruptcy is discharged, the person concerned
would be relieved from the restrictions applicable to a bankrupt
discussed above and from any debts proven in bankruptcy that are
yet to be repaid (section 397). However, there are exceptions. For
instance, debts due to the government such as unpaid taxes or fines
payable in respect of offences committed before the discharge,
continue to bind the person who is discharged from bankruptcy
(section 397), though this will be of little consolation to trade
creditors.
Instead of going through bankruptcy, it is also possible for the
debtor to enter into a voluntary arrangement with the creditors with
their approval (Part I4 of the Insolvency, Restructuring and Dissolution
Act). Under such an arrangement, the creditors may agree to matters
such as extending the time for payment or payment by instalments. In
certain circumstances this might be more advantageous to the
creditors than bankruptcy, as it might result in the creditors getting
back a larger portion of what they are owed. Of course, this would
also be beneficial to the debtor as he would be able to avoid
bankruptcy and its consequences. Another option is the Debt
Repayment Scheme which applies to debts less than $100,000 (Part
15 of the Insolvency, Restructuring and Dissolution Act), and the
initiative for which emanates from the courts as opposed to the
parties themselves.
Making a person bankrupt could involve time and cost, and a
voluntary arrangement or the Debt Repayment Scheme may not
Debts
100,000
always be suitable or applicable. In such situations pursuant to the
Rules of Court (Orders 46 to 51), the unpaid creditor may still have
other options such as:
Writ of seizure and sale
As the name suggests, a writ of seizure and sale involves the seizure
and sale of the judgment debtor’s property pursuant to a court order.
Property extends to moveable property such as cars and jewellery;
and immovable property such as houses and securities (such as
company shares). Like with bankruptcy generally tools of trade and
basic necessities cannot be seized. However, unlike bankruptcy, a
writ of seizure and sale does not apply to monies in bank accounts or
future income.
Garnishee order
Court asless to
getinto debtor's
bankaccount
If a sum of money is “owing and accruing” to the debtor, the creditor
may get a court order to “garnish” that to satisfy the judgment debt.
Thus for instance, monies in bank accounts which are essentially
monies owed by banks to customers or rent accruing to a landlord
that is yet to be paid, may be garnished by the creditor to satisfy the
judgment debt.
Appointment of receiver
It may be possible in certain circumstances to get a court order to
appoint a “receiver”. For instance, if the property of the debtor is
earning a good income, it may be possible for the creditor to apply to
court asking for the appointment of a receiver, who would then collect
that income on behalf of the creditor.
OBTAINING LEGAL ADVICE
Even if the business has some understanding of the legal
environment, in many situations, it may still be necessary for the
business to seek the advice of a lawyer.
The term “lawyer” collectively refers to advocates and solicitors.
Advocates are essentially lawyers who argue cases in courts, and
solicitors are lawyers who do paper work out of court. In some
countries a person can be an advocate or a solicitor but not both.
However, in Singapore, the profession is fused so that a person can
be both an advocate and solicitor.
One situation when a business may seek the services of a lawyer
is after a problem has arisen. Thus for instance, if a business is being
sued for breaching a contract or for negligence or for copyright
infringement or if a business is charged with committing an offence,
the business may seek the services of a lawyer to represent it.
Though it is most common (and advisable) to do so, it is pertinent to
note that generally it is not compulsory and hence for instance, a
business can represent itself in court (or for that matter a person can
represent himself in court).
A business may also seek the services of a lawyer before a
problem arises. For instance, when drafting a contract, the services
of the lawyer may be sought. However, again it is not compulsory to
seek the services of the lawyer in such circumstances. It is possible
for a business to come up with a contract on its own accord.
Nonetheless if the services of a lawyer are obtained, the interests of
that business are likely to be far better protected. In fact, large
businesses may have in-house lawyers for this purpose.
The fees charged by external lawyers vary with the
circumstances. Some lawyers may charge on an hourly basis; others
may charge according to the work done. In some cases the fees may
be agreed beforehand, and in others it may be determined only at the
end of the matter. It is also possible that the lawyer asks for a
retainer (or deposit) before commencing work. However, for
contentious matters it is not possible for the lawyer to charge on a
contingency basis, that is, you need pay only if the action succeeds.
The amount of fees that may be charged is no longer fixed by law,
even in relation to matters such as conveyance of property. Hence, it
is possible that different firms may charge differently for essentially
the same matter and hence it may be worthwhile making inquiries
with different law firms before settling for one if the business does not
have a regular law firm it always deals with.
In addition to their professional fees, lawyers typically also charge
for disbursements such as photocopying charges, overseas
telephone charges (if any) and costs of obtaining expert opinions such
as medical reports (if any).
Persons of limited means may apply for legal aid, both in relation
to civil matters (the Ministry of Law’s Legal Aid Bureau) and criminal
matters (the Law Society of Singapore’s Criminal Legal Aid Scheme)
if certain conditions are met, though these do not apply to business
matters or organisations as such.
If a business feels that it has been overcharged either in terms of
what it has to pay its own lawyers or the lawyers of the opposing
party in the event that it loses a case, it may have its bill “taxed” in
court, that is, have the bill examined by the court to see if that is
indeed the case or it may bring the matter to the Law Society of
Singapore, which runs a mediation/arbitration service in relation to
this.
If a business feels that there has been some other form of
professional misconduct on the part of the lawyer, it may also make a
complaint to the Law Society of Singapore,48 which may then take
disciplinary action against the errant lawyer. Of course it is also
possible, in certain circumstances such as where there is negligence
on the part of the lawyer, to institute an action directly against the
lawyer or law firm.
_____________
1
As for some illustrations, see pages 162, 172, 174 and 249.
2 A statute begins life as a Bill. In a typical situation, a Bill is drafted by the Attorney
General’s Chambers and it is presented to Parliament, wherein it is debated. If the
Bill gets passed in Parliament, it is then presented to the President for his or her
assent. Upon his or her assent the Bill becomes statute. Free online access to
Singapore statutes can be obtained at: http://sso.agc.gov.sg/.
3
Due to time and practical constraints, at the time a statute is passed in Parliament,
it may not be possible to provide for all the details. Thus often, under the statute, the
Minister or the administrative body in charge may be given the power to make
additional rules or regulations. These additional rules or regulations are known as
subsidiary legislation.
4 Unlike statutes, generally there is no free online access to all cases, though they
can be obtained on payment of a fee at: http://www.lawnet.com.sg.
5
Whether a court is bound by a previous judgment given by a court at the same
level depends on the type of court in question. However, even where the court in
question is bound, there are some exceptions allowing it to depart from the previous
decision.
6 If the decision were made by a higher court not in the same hierarchy, for
instance, if a decision were made by a higher court in Australia, that decision would
not be binding on a court in Singapore.
7
Not all employees are covered by the Employment Act; see page 310.
8 If something were to be a crime, there has to be a statute stating it to be so. It is
not possible for judge-made case law to introduce or invent a crime. However, it
does not mean that statutes only deal with criminal matters. Statutes can also deal
with civil matters. For example the grounds on which two people can apply for
divorce is in a statute.
9
The public prosecutor is part of the government’s legal services office which is
headed by the Attorney General.
10 However, exceptionally in some circumstances, under section 359 of the Criminal
Procedure Code the court has a discretion before convicting someone to order him
to pay compensation, for instance, to the victim.
11
However, if the police does not want to act, under section 151 of the Criminal
Procedure Code, an aggrieved party may file a “magistrate’s complaint” himself and
the matter may proceed from there.
12 Criminal proceedings require a higher standard of proof as compared to civil
proceedings, as the life and liberty of a person may be at stake.
13
See pages 252 and 364.
14 See page 250.
15
For more information
www.statecourts.gov.sg.
on
the
State
Courts,
visit their
website
at:
16 The High Court and Court of Appeal together make up the Supreme Court of
Singapore. For more information, visit their website at: http://supremecourt.gov.sg/.
17
For instance, in a criminal trial involving a murder, the jury will have to decide
whether the accused was the person who murdered the deceased after looking at all
the facts presented. If it decides for instance, that the accused murdered the
deceased but he acted in self-defence, the judge will then have to apply the law on
that. In this scenario, that would mean that the judge will have to decide whether
self-defence is a recognized defence to murder under the law.
18 Sections 6 and 24A(2) of the Limitation Act.
19
Formerly, an appeal against the decision of the Court of Appeal could be brought
to the Privy Council sitting in England. However, this right to appeal to the Privy
Council was abolished in 1994.
20 When a business engages a law firm for litigation, the business will have to pay
that law firm legal fees. This is known as “solicitor and client” costs. In addition, if
the business loses the case, the business may have to pay some part of the other
party’s legal fees. This is known as “party and party” costs.
21
As to what is meant by enforcement, see further page 16.
22 Other organisations providing mediation services include the Consumer
Association of Singapore (CASE), Financial Industry Dispute Resolution Centre
(FIDREC), Singapore Institute of Surveyors and Valuers Dispute Resolution Centre
(SISV), Singapore International Mediation Centre, Tripartite Alliance for Dispute
Management (see page 16) and the Small Claims Tribunal (see page 14).
23
For more information on the Singapore Mediation Centre, visit their website at:
www.mediation.com.sg/.
24 Besides offering pure mediation, the Centre for Dispute Resolution also offers
other alternate dispute resolution mechanisms such as neutral evaluation. For more
information on the centre, visit the State Courts website at: www.statecourts.gov.sg.
25
If the matter arises at the High Court, there could be a process during the “pretrial conference” whereby the parties may also be encouraged to consider
mediation.
26 See for instance, Singapore Institute of Surveyors and Valuers Dispute
Resolution Centre (SISV) and the Law Society’s Arbitration Scheme.
27
For more information on the Singapore International Arbitration Centre, visit their
website at: www.siac.org.sg/.
28 For domestic arbitrations, generally the decision of the arbitrator cannot be
appealed to normal courts, unless it involves a question of law (as opposed to a
question of fact): section 49 of the Arbitration Act. For international arbitrations,
there are even more limited grounds of appeal: section 24A of the International
Arbitration Act. This is unlike a decision of the Singapore International Commercial
Court (see page 11), which can be appealed to the Singapore Court of Appeal and
hence that route might suit the needs of some parties better.
29
For instance, see Appendix A, clause 21.
30 The Schedule to the Small Claims Tribunals Act. At the Small Claims Tribunal,
first an attempt is made to mediate the dispute, failing which a date would be set for
the dispute to be heard by a Referee.
31
For more information on the Small Claims Tribunal, visit the State Courts website
at: www.statecourts.gov.sg/cws/SmallClaims/Pages/GeneralInformation.aspx.
32 See page 361.
33
See page 347, footnote 1.
34 Section 5 of the Small Claims Tribunals Act, with the coming into force of the
2018 amendments.
35
Section 5 of the Small Claims Tribunals Act, with the coming into force of the
2018 amendments.
36 Section 23 of the Small Claims Tribunals Act.
37
Section 3(2) of the Employment Claims Act.
38 Section 12(7) of the Employment Claims Act.
39
Section 19 of the Employment Claims Act.
40 Section 3(1) of the Employment Claims Act.
41
See further, Chapter 4 generally.
42 For more information on bankruptcy, visit the Insolvency and Public Trustee’s
Office website at: https://www.mlaw.gov.sg/content/io/en.html.
43
See further page 118, footnote 6.
44 However, it is possible for the court to appoint a private trustee (such as an
accountant who is a licensed insolvency practitioner) in lieu of the Official Assignee
if the creditors so request (sections 36 and 37).
45
The priority is similar to the situation where a company is being liquidated and
there are insufficient assets (as to which see page 379).
46 Though previously
there were no exceptions to this, now in certain
circumstances, it is possible to apply to the Official Assignee to lift these
prohibitions so as to enable the bankrupt to continue managing a company or
business. See further page 71.
47 This is pursuant to Article 45 of the Constitution. The Constitution is the most
fundamental legal document of the country and it provides for the division of powers
between the executive, legislature and the judiciary, as well as for other essential
matters such as fundamental liberties and citizenship rights. However in Singapore,
typically a business would not be concerned with the Constitution as such.
48
For more information on dealings with lawyers as well as for general legal
information, visit the Law Society of Singapore website at: www.lawsociety.org.sg/.
2
Setting up the Business
Table 2.1
Comparing to
find table on all typesstmituns of a
business
In setting up a business, first some form of structure or organisation
has to be chosen. Basically at the broad level, there are two types of
organisations: incorporated or unincorporated. Incorporation involves
creating a separate legal entity. The separate legal entity created can
incur its own liabilities and have its own rights that are distinct from
those of the owners or creators of the entity.
The most common forms of incorporated organizations are the
company and the limited liability partnership, though there are others
such as statutory boards1 and management corporations.2
The most common forms of unincorporated organisations are the
sole proprietorship, the partnership and the limited partnership,
though there are others such as business trusts.3
Setting up a wrong type of organisation to run a business may
affect the business and may affect the owner of the business. Thus,
the type of structure to be used has to be carefully considered. Of
course, it is possible to dissolve one form of structure and set up
another at a later stage, but by then some negative repercussions
may already have been incurred.
In practice,4 the most common business organization in Singapore
is the company (about 60%), followed by sole proprietorship (about
30%). Partnerships account for about 4% and limited liability
partnerships account for about 3%. There are very few limited
partnerships as a matter of practice.
SOLE PROPRIETORSHIP
As the name suggests, sole proprietorship refers to business being
carried out by one person. Many small business organisations, such
as neighbourhood shops, are typically sole proprietorships. Unless
otherwise stated, all sections referred to in this part are with
reference to the Business Names Registration Act.
Registration
Before a person carries on a business in Singapore, that person’s
and that person’s business name must be registered under the
Business Names Registration Act (section 5). However, there are
some exceptions to registration. For instance, if you want to set up a
company, a limited liability partnership or a limited partnership, you
are exempted from the provisions of the Business Names
Registration Act (section 4) though you will have to register under
other statutes.5 Further, if sole proprietor carries on a business in his
or her own individual name (as it appears in his or her identification
card or passport) or if partners in a partnership carry on a business in
all their individual names (as it appears in their identification cards or
passports), there is no need for registration (section 4).
Exleptions
I
Effect of non-registration
If the person intending to carry on the business does not register it
when required to, that would amount to an offence (section 35). In
addition, rights under or arising out of any contract cannot be
enforced by him, unless the court otherwise orders (section 31).
Thus, if a sole proprietor, who has not registered his business when
he should have, has not been paid for goods which he has sold, he
will not be able to institute an action against the person who has
bought the goods and recover payment, unless the court otherwise
orders. However, the other party to the contract can enforce it
(section 31).
Registration process
The administrative body in charge of registration is the Accounting
and Corporate Regulatory Authority of Singapore. The registration
process is simple, inexpensive and can be done online.6
The person intending to register the business must, among other
things, provide a name for the business, describe the nature of the
business and must name the principle place of business (section 6).
In relation to the name of the business, the name for the intended
business must not be identical to that of another corporation or
business and must not be in any way undesirable (section 17).
However, the mere registration of the name does not give the person
proprietary rights to the name (section 10).7
The question may also arise whether it is possible to run a
business from one’s home. In this regard, as from 2003, homeowners
are allowed to conduct small scale businesses from their homes
under the Home Office Scheme. This scheme applies to both private
homes as well as Housing and Development Board (HDB) homes.
However, written approval from the relevant authorities, namely the
Urban Redevelopment Authority and the Housing and Development
Board, respectively, must first be sought.
The business registration is valid for a certain period of time, after
which, it may be renewed (section 8(3)).
In addition to applying to the Accounting and Corporate
Regulatory Authority of Singapore, if the business needs to be
licensed under some other statute, then that licence must also be
obtained. Thus, for instance, if the person intends to run a travel
agency, he has also to get approval from the Singapore Tourist
Promotion Board.
Licensing is also required for many other kinds of business
activities,8 such as for running an employment agency, hotel,
restaurant, pet shop, spa or childcare centre. This is separate from
registration and could take more time and expense.
Not a separate entity
Once set up, the sole proprietorship is not separate from the creator.
Thus, for instance, whatever debts incurred by the business belong to
the sole proprietor such that if there are insufficient assets in the
business, the sole proprietor’s personal assets, such as his private
car, may be seized to satisfy the business debts. Similarly, rights of
the business belong to the sole proprietor. Thus, if the sole proprietor
takes the money made by the business, that would not create any
problems as the money is his to keep.
Dissolution
NOT TESTED BUT GOODTO Know
Once created, the sole proprietorship may be dissolved voluntarily or
involuntarily. It can be dissolved voluntarily by the sole proprietor
giving notice to the Accounting and Corporate Regulatory Authority of
Singapore that he is ceasing operations (section 22). The sole
proprietorship may also be dissolved involuntarily, such as would be
the case where the sole proprietor dies or where the sole proprietor
is made a bankrupt (section 34).9 If he was made a bankrupt, his
assets including business ones such as the stock in trade, would be
sold and the proceeds will be distributed to the creditors. If he dies,
his assets, including the business ones, will pass in accordance to his
will. If he does not have a will, then under the Intestate Succession
Act, there are provisions as to who (such as spouse and children)
should get what.
Evaluation
Though easy to set up, run and dissolve, the sole proprietorship has
one major disadvantage and that is that, as stated, the sole
proprietor is not protected or shielded from business debts and thus,
there could be some risk involved in that regard.
PARTNERSHIP
As stated, the other common form of unincorporated business
organisation is the partnership. Though, just as with a sole
proprietorship, it may not cost much to set up a partnership, this form
of business organisation is more complicated compared to a sole
proprietorship because it involves more than one person. Not
surprisingly, there is a statute, namely the Partnership Act, to govern
issues that may arise in a partnership. Unless otherwise stated, all
sections referred to in this part are with reference to the Partnership
Act.
When is there a partnership?
The Partnership Act defines a partnership as a relation that subsists
between persons carrying on business in common with a view of
profit (section 1). The term “business” is defined widely to include
every trade, occupation and profession (section 45) and the term
“person” includes companies (section 2 of the Interpretation Act).
Thus, two companies can form a partnership together.
An important question to be determined is when two persons can
be said to be carrying on a business in common with a view of profit.
It is important to determine this issue for the rights and obligations
between the parties themselves and vis-à-vis third parties may vary,
depending on whether or not there is a partnership between them and
the parties themselves may not have registered a partnership or
realized that they are in a partnership.10 Though much would depend
on the actual facts of the case, the Partnership Act (section 2)
provides some guidelines in this regard. For instance:
•
•
The fact that two people jointly own a property does not itself
automatically mean that there is a partnership between them.
Thus, if X dies and leaves a house which is rented out to his two
sons Y and Z, that by itself will not mean that Y and Z are in
partnership. On the other hand, if two persons buy and sell
properties on a regular basis and share profits, there might be a
partnership (Rabiah Bee Bte Mohamed Ibrahim v Salem Ibrahim
(2007)).
The sharing of gross returns itself, too, does not automatically
mean there is a partnership between the parties. In Cox v
Coulson (1916), C entered into an agreement with M. C was to
let out a theatre to M and M was to provide a play. C was also to
bear lighting and advertising costs, while M was to bear the costs
of making the scenery. In return, C was to get 60 per cent of the
gross takings of the play, while M was to get 40 per cent of the
gross takings. There was an accident in the course of the play
and the question arose as to whether C could be sued in respect
•
of it. That depended on whether he was a partner. The court held
that considering all the circumstances of the case, particularly the
fact that the parties only shared gross returns, there was no
partnership between them.
On the other hand, the fact that (net) profits are shared is
indicative that there may be a partnership. However, this too is not
conclusive. Thus for instance, if a business owes a creditor money
and the creditor makes an agreement with the business that
profits from the business would go to repay the debt, or if an
employee gets a share of the profits of the business in the form of
a bonus, or if a relative of a deceased partner gets an annuity or a
periodical payment from the profits of the business, that does not
necessarily mean there is a partnership in those circumstances.
Formalities and other matters
The common perception is that for there to be a partnership, there
has to be a written agreement. This is not true. A partnership
agreement can be entered into orally. However, needless to state, it
would be preferable to have a written agreement, as there will be
fewer disputes as to what the parties have actually agreed to.
Just as with sole proprietorships, generally, the business of the
partnership has to be registered under the Business Names
Registration Act unless exempted. Similarly licensing may be
required. Since the application process has already been considered
in the context of sole proprietorships, it will not be repeated here.
However, as stated earlier, two companies or other business
entities may enter into a partnership for a particular project or
venture. If each of those entities are already registered under other
provisions (for instance, under the Companies Act where the entities
are companies), there may not be an additional need to register the
partnership as such, since they already have the permission to
operate a business.
The minimum number of partners in a partnership is two. The
maximum number is 20 as section 17(3) of the Companies Act
provides that partnerships with 20 or more partners have to be
incorporated. However, there are certain exceptions to this rule.
Thus, for instance, accountants and lawyers are allowed to carry on
partnerships even if there are more than 20 partners in the firm
(section 17(4) of the Companies Act).
It may also be noted that section 4 of the Partnership Act
provides that persons who are running a partnership together can be
collectively referred to as the firm.
Relationship between partners and outsiders
(a) Partner’s liability for the actions of other partners
A partner of a firm may have actual, implied or apparent authority
to enter into contracts on behalf of the partnership.
Actual authority refers to authority that the partner has been
expressly conferred with by the other partners. In such a
situation, if the partner does something he is expressly authorized
to do, the partnership and all the partners would be bound
(section 6). Thus, if the partners authorize partner Y to buy
certain computers on behalf of the firm and Y places the orders
for those computers, the partnership and all the partners would
be bound.
In addition to actual authority, there is implied authority.
Implied authority refers to authority that a partner would usually
have. In this regard, section 5 provides that every partner is an
agent of the firm and the other partners, and any act done by him
in the usual way of business will bind the partnership and the
other partners, unless he had no authority to do the act in
question and the person with whom he was dealing knows of that
or does not believe him to be a partner. As stated in section 5,
one partner’s act in the usual way of business not only binds the
firm but also the other partners. The effect of this is that the
partnership, and all the partners too, whether or not they play an
active role in the management of the firm (for instance sleeping
partners or dormant partners), can be made accountable for a
debt incurred by a partner acting in the usual way of business.
As stated, implied authority extends to situations when the
partner is acting in the “usual way of business”. What is in the
usual way of business would of course depend on the facts, but
case law, though not exhaustive, has established some
guidelines.
Thus for instance, it has been established by cases that all
partners in firms have the implied authority to sell goods of the
firm and buy goods usually needed by the firm. In Mercantile
Credit Co Ltd v Garrot (1962), P and G were partners in respect
of carrying out motor repairs, but their agreement expressly
excluded the buying and selling of cars. P then, without G’s
knowledge, purported to sell a customer’s car to M. M paid P.
However, the transaction did not take place and M sued the firm
to get back the money paid. The court held that P had the usual
authority to do what he did and so the firm was bound. Even
though he did not have the actual authority, it did not matter, as M
was unaware of this lack of authority. Similarly, all partners have
the usual authority to employ employees or agents, such as
solicitors, in respect of the firm’s activities. Likewise, all partners
have the usual authority to receive money in respect of debts due
to the firm. Thus, if X owes the firm some money and he repays it
to Y, a partner of the firm, but Y disappears after
misappropriating it, the firm cannot sue X and make him to repay
the money.
In addition, where the nature of business is trading (such as a
business which is involved in buying and selling), cases have also
held that the partners have the implied authority to borrow money
on behalf of the firm and to give security (such as a pledge)11 in
respect of the loan. On the other hand, in Lim Hsi-Wei Marc v
Orix Capital Ltd (2010) which involved a law firm entering into a
loan cum lease agreement, it was held that it was not usual for
law firms to enter into such transactions and hence the
transaction in question did not fall within the ambit of section 5.
Generally too, a partner may have no implied authority to
enter into a deed12 or guarantee13 on behalf of the firm without
the consent of the other partners.
Aside from actual authority and implied authority, the partner
may also have apparent authority, and in such a situation, the firm
could also be bound. Apparent authority arises if the firm
represents to another person that the partner in question has the
authority to do certain acts and that other person relies on that
representation.14 For instance: X is a partner of firm Y. He has
the actual authority to order goods from Z and has done so on
many occasions. Then one day, X resigns. Thus, he is no longer
authorized to order goods from Z. However, X nonetheless
orders goods from Z (who does not know that X has resigned) on
behalf of firm Y, just so that the firm incurs some unwanted
liability, and then disappears. In such a situation, though X may
not have actual authority at the time when he placed the order, he
may have apparent authority as far as Z is concerned (section
36(1)).15
What has been discussed thus far is “contractual liability”. In
addition to contractual liability, the firm or the other partners could
be exposed to “tortious16 liability” when a partner commits other
types of wrongs such being negligent or misappropriating
property.
This is covered under section 10, which provides that any
wrongful act or omission done by the partner in the “ordinary
course of the business” of the firm binds the firm. Thus, if one
partner in the ordinary course of the business of the law firm is
negligent in preparing a certain document, the partnership and all
the partners can be made accountable for it. What is in the
“ordinary course of the business” would depend on the facts.
In United States Trading Co Pte Ltd v Ting Boon Aun (2008)
for instance, where one partner fraudulently got a loan in the
partnership’s name from the plaintiff and disappeared with it, the
other partner was held liable as he could not establish that it was
not in the course of the partnership business to obtain loans. On
the other hand, in Lim Kok Koon v Tan Cheng Yew (2004), Lim
handed over some monies to Tan (a lawyer) to be held by him as
a personal trustee. Subsequently, Tan disappeared with the
money. Lim then tried suing the partnership firm in which Tan was
a partner to get back the money. However, the court held that it
was not within the ordinary scope of business of a lawyer to act
as a personal trustee and hence the firm was not liable.
It should also be highlighted that some partnership firms may
have “sleeping partners” who just invest and do not take part in
management. However, as long as the law is concerned, they are
not treated differently from normal partners, when it comes to
being liable for the actions of fellow partners.
The obvious business takeaway in all this is that a person
intending to run a business together with others, especially
through a partnership, should choose the partners very carefully
as that person could end up being liable for the wrongful actions
of the others.
(b) Suing and being sued
NOTTESTED BUTGOODTO Know
The liability of partners in relation to torts,17 is “joint and several”
(section 12). The effect of this rule is that once a partner is sued,
the claimant may still sue the other partners if the claim remains
unsatisfied or not fully satisfied. It may also be noted that in the
event that one partner is sued and that partner personally pays
the creditor of the firm, that partner can claim a contribution from
the other partners.
Section 9 of the Partnership Act provides that liability of
partners in contract or debt18 is “joint”. The effect of this rule is
that there can only be one action regarding a particular claim in
contract or debt. Thus, after one partner is sued, if it turns out
that he is unable to pay, the claimant cannot then seek to sue the
other partners. However, this rule has now been modified by
section 17 of the Civil Law Act.
Thus, now whether the action relates to tort, contract or debt,
the claimant who has not been paid or fully paid, may bring a
subsequent action against other partners who were not initially
sued.
However, usually rather than suing individual partners,
pursuant to the Rules of the Supreme Court (Order 77), an action
may be brought in the name of the firm. This would generally be
an easier alternative. Similarly, pursuant to the same set of rules,
the firm may sue in its own name. Thus, even though the
partnership is not a separate legal entity, the firm may
procedurally sue and be sued in its own name.
Once the partnership is held liable, the judgment can be
enforced against the firm. If the firm’s assets are insufficient, the
personal property of the individual partners may also be seized to
satisfy the partnership debts. As such, there is a possibility of
unlimited liability in the case of partnerships, just as with sole
proprietorships.
(c) Incoming and outgoing partners NOTTESTED BUTGOODTOKNOW
The partnership agreement may have a provision allowing a
partner to retire or leave by giving notice. If this happens, section
17(2) provides that the partner who is retiring or leaving will still
be liable for partnership debts incurred by the partnership before
his departure. In order to get out of this, the partner who is
retiring or leaving may get the consent of the other partners and
the creditors involved to release him from his liabilities (section
17(3)). If they agree, this arrangement is known as a novation
and the partner who is retiring or leaving will be released from the
past debts of the firm.
Section 24(7) effectively states that, unless the contract
provides otherwise, a new partner may only be appointed if there
is unanimous consent of all the partners. If this were considered
undesirable, it would be prudent for the partnership agreement to
provide otherwise. Once a new partner is appointed, section
17(1) provides that the new partner would not be liable for debts
incurred by the partnership prior to that time. However, again, if
the new partner, other partners and the creditors involved agree,
the new partner may be made liable for the past debts of the
partnership.
As far as third parties who deal with the firm are concerned,
section 36(1) provides that where there has been a change in the
constitution of the firm, such as would be the case where a
partner has left the partnership, the person dealing with the
partnership is generally entitled to assume that all the apparent
members of the old firm are still members of the new firm until he
has notice of this change.
Thus for instance, if X, Y and Z are partners, and X leaves the
partnership, a third party who supplies goods to the firm thinking
that X is still a partner may be able to sue X for the price of the
goods. To avoid such liability, notice must be given. The type of
notice depends on the circumstances. In cases where there have
been no previous dealings between the third party and the firm,
an advertisement placed in the Government Gazette19 would
suffice (section 36(2)). In cases where there has been a previous
dealing between the third party and the firm, the third party must
receive actual notice of the change, such as in the form of a
letter. However, it must be pointed out that such liability only
arises if the third party knows that the person was a partner. If
the third party is unaware that the person was a partner of a firm
at the time it dealt with the firm, then such liability would not arise.
IFapartnercommits a tortconngful94
inthecourseofthepartnershipbusinesswhichate
P
Relationship between partners athirdpartythefirmortheotherpartnerswillbeliab
The Partnership Act also has several provisions governing the
relationship between the partners. However, it must be noted many of
these provisions can be overridden by agreement to the contrary
between the parties.
(a) Property
It is important to determine to whom the property used in the
partnership business belongs for various reasons. For instance, if
it belongs to the partnership, during the partnership, the partners
may not use it for their individual needs unconnected to the
partnership business. Similarly, if it is partnership property as
opposed to a partner’s personal property, and it appreciates in
value, that benefit goes to all the partners. In addition, if it is
partnership property, upon dissolution of the partnership, if there
is any surplus, the partners may be able to get a share of it.
In this regard, section 20(1) provides that all property
originally brought into the partnership and all property acquired on
account of the firm or for the purposes of the partnership
business, shall be deemed partnership property and be applied
by the partners exclusively for the purposes of the partnership. If
one partner misappropriates partnership property, the other
partners may be able to sue him under the tort of conversion20 or
if he uses it for his own purposes and makes some profits out of
it, he may have to account for those profits.
While section 20(1) refers to property which is brought into
the partnership and all property acquired by the partnership, it
may not always be clear what items of property are indeed
partnership property. To avoid such doubts, such issues should
expressly be addressed in the partnership agreement if possible.
The issue arose for consideration in Miles v Clarke (1953). C
took a lease of a place and set up a photography business.
However, he was not very successful. Later he engaged Miles, a
freelance photographer, who brought in a lot of customers. The
agreement between them was that the profits were to be shared.
Eventually the relationship between both the parties soured and
the partnership business had to be wound up. The question arose
as to which items were partnership property. The court held that
the stock in trade, like films bought with profits, belonged to the
partnership. However, the lease and equipment that was supplied
by Clarke, was Clarke’s, and not partnership property.
Besides obvious things such as equipment and stock in trade
which may amount to partnership property, others things such as
goodwill (this can include the name of the firm: Ng Teck Sim
Colin v Teh Guek Ngor Engelin (1995)) and related rights such
as trade marks (Ng Chu Chong v Ng Swee Choon (2002)/ Guy
Neale v Nine Squares Pty Ltd (2015)) may amount to partnership
property. Nonetheless it is best to clarify such matters in the
underlying contract between the parties to avoid disputes at
some later point.
(b) Profits and losses
Section 24(1) states that, unless there is agreement to the
contrary, profits and losses are to be shared equally. Thus,
though A has contributed more capital than B, B may have an
equal right to the profits. If the parties do not wish this to happen,
they should have their own provisions as to how profits will be
shared in the partnership agreement.
or financial burden
loss
a
against
protection
or
Security
(c) Indemnity
Section 24(2) provides that the firm must indemnify every partner
in respect of payments made or liabilities incurred by him in the
ordinary and proper course of the business of the firm. Thus, if X
orders books at the request of the firm, but pays first, the firm
has to indemnify or reimburse him for the expenses incurred.
(d) Management
Section 24(5) provides that every partner has the right to take
part in the management of the firm. Thus, though A has
contributed more capital than B, both B and A have the equal
right to manage the company. If such an outcome is not desired
by the parties, the question of who should have the right of
management should be expressly addressed in the partnership
agreement.
Section 24(8) also provides that ordinary matters may be
decided by the majority of partners, but that in order to change
the nature of the partnership business, the consent of all the
partners must be obtained. Again, if such an outcome is not
desired, the parties should expressly provide otherwise in the
partnership agreement.
(e) Remuneration
Section 24(6) provides that every partner is not entitled to any
remuneration for his services. Since there will be a distribution of
profits, there is no presumption that partners will also be paid a
regular salary. If such an outcome is not desirable, then again,
this should be expressly addressed in the partnership agreement.
(f) Expulsion
Section 25 provides that no majority of members can expel a
partner, unless the contract provides otherwise. Nonetheless,
even if the contract does not allow for expulsion, it might be
possible to apply to court to dissolve the partnership in some
circumstances21 and through this, the unwanted partner may be
removed.
owes a fiduciaryduty
(g) Utmost good faith
Cases have established that, as between partners, there is a
relationship of utmost good faith. Section 29 of the Partnership
Act also provides that a partner has to account for any benefit
derived by him without the consent of the other partners from any
transaction concerning the partnership. Similarly, section 30
provides that a partner who, without the consent of the other
partners, competes with the partnership by carrying on any
business of the same nature, is accountable for the profits made
by him. If these sections are breached, as stated, the partner
who has breached them will have to return any profits made or
benefits derived.
In Bentley v Craven (1853), B carried on a partnership with C,
as sugar refiners. C bought sugar at a very low price and re-sold
it to the partnership at the market price without disclosing this to
the partnership. He thus made a secret profit. When B found out,
he sued C for the profits made and the court held that C had to
account for it. In Ang Tin Gee v Pang Teck Guan (2011), the
defendant and the plaintiff were in partnership but the defendant
did not disclose the profits of a related business that belonged to
the partnership. In the circumstances the court held there was a
breach and the defendant was ordered to pay back the money.
Not a separate legal entity
Just like a sole proprietorship, a partnership is not a separate legal
entity. As already stated, this would mean, for instance, that the
partners can be made personally liable for the debts of the firm. It is
also for this reason that a partnership cannot buy land in its own
name. If the partnership wishes to buy a piece of land, it would have
to buy it in the name of one or more partners, who would then hold it
on trust or hold it on behalf of the partnership.
Dissolution
Once formed, the partnership may be dissolved by subsequent
agreement between the partners or as provided for in the original
agreement. Aside from this, there are some provisions in the
Partnership Act which also allow dissolution.
(a) Non-judicial dissolution
Dissolution under the Partnership Act may be carried out by
judicial or non-judicial means. Some instances of non-judicial
dissolution are as follows:
•
Section 32 provides that, unless there is agreement to the
contrary, the partnership agreement, if entered into for a fixed
term, will terminate at the end of the fixed term, or if it is
entered into for a particular purpose, such as to conduct a
sale, the partnership will dissolve upon the achievement of that
purpose; or if it is entered into for an indefinite time, by any
partner giving notice to the others of his intention to dissolve
the partnership. If the partners do not wish to give any
individual partner the power to dissolve the partnership at his
•
will by giving notice, they should have a provision against this
in the partnership agreement.
Section 33 provides that, unless there is agreement to the
contrary, the partnership is dissolved when a partner dies or
becomes bankrupt. This can cause a lot of inconvenience in
large firms, and so, often there is a provision to the contrary in
the partnership agreement.
If the partner dies and the partnership is dissolved, what the
deceased partner is entitled to get upon dissolution would go to
his estate, as named in his will or as may be determined under
the Intestate Succession Act.22 If the contract provides that the
partnership will not be dissolved, the agreement might also
provide that the estate of the deceased partner (such as spouse
or child) may be entitled to some periodic payment in view of the
capital contributed by the deceased partner.
In relation to bankruptcy of an individual partner, as stated, if
the agreement is silent, then the partnership is dissolved. In such
an event, the creditors may be entitled to what the bankrupt
partner would have been entitled to had the bankruptcy not set it.
However, even if the partnership agreement provides that it will
not be dissolved, the creditor may get a charge over the bankrupt
partner’s interest in the partnership so that profits that accrue to
the debtor partner could go towards repaying the creditor
(section 23(2)).
(b) Judicial dissolution
Assuming the partnership cannot be dissolved in accordance to
what has been discussed in the preceding part, and there is a
difference of opinion amongst the partners as to this matter, an
application may be made to dissolve the partnership by judicial
means, that is, with the aid of the court, though this is a more
cumbersome process. The grounds based on which the court can
order a dissolution are set out in section 35:
•
•
•
•
•
Section 35(a) provides that when a partner is permanently
incapable of performing his part of the partnership contract,
the partnership may be dissolved. In Whitewell v Arthur
(1865), one partner was paralysed for some time. However,
when the action to dissolve the partnership came up, he
recovered. In the circumstances, the court did not grant the
dissolution.
Section 35(b) provides that where one partner is guilty of
conduct which is prejudicial to the carrying on of the
partnership business, the partnership may be dissolved. In
Essell
v
Hayward
(1860),
the
solicitor
partner
misappropriated money belonging to clients in the course of
the partnership business. The court held that the partnership
could be dissolved.
Section 35(c) provides that where one partner wilfully or
persistently commits a breach of the partnership agreement,
the partnership may be dissolved. In Cheesman v Price
(1865), the partner in question failed to record money that he
had taken from the partnership business on 17 occasions. In
the circumstances, the court allowed dissolution.
Section 35(d) provides that where it is established that the
business can only be carried on at a loss, the partnership may
also be dissolved. Since the whole purpose of the partnership
is to make profits, if that goal was not achievable, the court
may dissolve the partnership.
Section 35(e) provides that partnership may also be dissolved
if it is just and reasonable to do so in the circumstances. For
instance, if there is a serious deadlock between the parties,
the court may dissolve the partnership on this ground.
(c) Distribution of assets on dissolution
Once the partnership is dissolved, the surplus, after creditors are
paid off, would be distributed to the partners (section 39). The
manner in which the surplus would be distributed among the
partners is set out in section 44, though again this can be varied
by agreement to the contrary. Section 44 provides that out of the
assets, the debts and liabilities of the firm would first have to be
settled. The surplus would then be distributed to the partner who
has made a loan to the partnership. Following that, the partner
who made a capital contribution to the partnership would get
paid. Finally, if there were still a surplus after this, then that
surplus would be distributed in the same way as profits. On the
other hand, if there were insufficient assets to pay the creditors,
the partners would be answerable for the debts of the firm, in the
same way as they would be entitled to if there were to be profits
(section 44).
Evaluation
p
thefull legal responsibilitythat
debts
partnersaccumeforall business
businessowner
Defined as
A partnership has unlimited liability, just like a sole proprietorship, and
hence there may be some risk involved in that respect. Further,
partners may be made liable for the acts of other partners in some
circumstances, and so as already said, parties should choose their
partners wisely. While it is not compulsory to have a written
agreement, since many of the provisions of the Partnership Act may
not sufficiently meet the intentions of the parties, it would be desirable
to have a written agreement, where many of the issues raised should
be specifically addressed to prevent problems arising down the road.
COMPANIES A
Onepersoncan set
up his own company
A company is an organisation set up pursuant to the Companies Act.
Unless otherwise stated, all sections referred to in this part of the
chapter are with reference to the Companies Act.
Separate legal entity
A company, unlike a sole proprietorship or a partnership, is a
separate legal entity. This means that the company is separate from
its owners. The company is a separate person in its own right.
and
Various important consequences flow from this separate legal
personality.
(a) Property
Since the company is a separate legal entity, it can own property
such as land, in its own name, unlike partnerships. While
partnership property belongs to the partnership, it cannot be
owned in the name of the partnership, it has to be owned in the
name of partners, who would hold it on trust or on behalf of the
partnership.
Further, property of the company belongs to the company and
not the members.23 If a member or director, takes property
belonging to the company, otherwise than as allowed by law; that
could amount to the offence of theft. If X, a sole proprietor, takes
some property used in his business for personal usage; that will
not raise any liabilities. However, if X were to set up a company
and do the same thing, that could raise liabilities as stated above.
In addition, if X is a member of a company and he has
incurred some debts in his personal capacity and is unable to pay
those debts, the company’s assets cannot be seized to pay off
his debts, as the company’s assets belong to the company and
not to X.
(b) Liability for company debts
Since the company is a separate legal entity, the debts of the
company belong to the company and not to the member. Thus,
members’ personal assets cannot be seized to settle the debts of
the company. This is one of the biggest advantages of setting up
a company. In this respect, there is far less risk involved in a
company as compared to a sole proprietorship or partnership.
The issue arose for consideration in the seminal case of
Saloman v A Saloman & Co Ltd (1897). In this case, Saloman
set up a sole proprietorship which was involved in the
manufacture of shoes and boots. Subsequently, he set up a
company carrying on with the same business in the same manner.
Nothing had changed except for the fact that a ‘company’ ran the
business now. The company later incurred debts and the
business failed. The question arose as to whether Saloman could
be made personally liable for the debts of the company. The oneperso
court held that Saloman could not be personally made liable for cansetup
remove
the debts of the company, as the company was a separate entity to
personal
from Saloman and its debts were not Saloman’s debts.
liability
Though as stated as a general rule, the members of a
company are not personally liable for the debts of the company,
there are certain exceptions to this general rule whereby the
corporate veil is lifted to prevent abuse. Some of the exceptions
are as follows:
•
Section 238 of the Insolvency, Restructuring and Dissolution
Act24 among other things, basically provides that when a
company is being wound up or is being sued, and it appears
that business of the company is carried on with the intention to
defraud creditors or for any fraudulent purpose, the persons
who were knowingly parties to the business being carried on
in that manner, will be personally liable for the debts or other
liabilities of the company. Take for instance X and Y who set
up a company with a capital of $2, with the intention to
defraud creditors. They enter into certain transactions with
creditors who are yet to be paid. Applying the general rule,
the unpaid creditors would only be able to sue the company.
But if the company has assets worth only $2 it would be
pointless for the creditors to do that. X and Y may have also
committed an offence, but even if they are prosecuted, the
creditors may not get back their money. However, pursuant to
section 238, X and Y can be made personally liable for the
debts of the company, as they carried on the business of the
company with an intention to defraud creditors.
•
Section 239 of the Insolvency, Restructuring and Dissolution
Act25 among other things, basically provides that when a
company is being wound up or is being sued, and debts or
liabilities have been incurred without reasonable prospect of
meeting them in full, the persons who were knowing parties to
the company trading in that manner, will be personally liable
for the debts or other liabilities of the company.
(c) Suing and being sued
Related to the rule that generally a company’s liabilities cannot be
enforced against the personal assets of the member, an action
may not be commenced against the members in such
circumstances. The proper person to institute an action against
would be the company. This is unlike partnerships, where
partners can be individually sued. Further, if there were rights to
be enforced, the proper person to institute the action to enforce
those rights would be the company. The members cannot institute
an action to enforce the rights of the company. However, again
this rule may be abused in some circumstances.
Take for instance, the case of X and Y who are directors of
the company and majority shareholders. They then
misappropriate funds belonging to the company. In such
circumstances, the proper person to institute an action against X
and Y would be the company. Though a company is a separate
person, it cannot act by itself since it does not have a mind of its
own. It has to act through someone and that someone would
usually be the director. So if there were to be a right to be
enforced, the directors would have to initiate the action on behalf
of the company. But in the above situation, X and Y are not going
to institute an action against themselves. Thus, they may simply
get away with the fraud if there were no exceptions to the
general rule. Not surprisingly, there are exceptions to the general
rule. Some of the exceptions are as follows:
•
•
If the majority committed some fraud on the company and use
their power to prevent the company from bringing an action
against them, the minority may be able to bring an action on
behalf of the company. In Cook v Deeks (1916), the company
had four shareholders, who were also directors. The three
defendant directors diverted contracts that were meant for the
company elsewhere. The other director brought an action on
behalf of the company seeking to make the defendants
account for the profits made. The court allowed it. Similarly, in
Ting Sing Ning v Ting Chek Swee (2008), the court allowed a
director with minority shares to bring an action on behalf of the
company against other directors with majority shares who had
allegedly breached their fiduciary duties.
Section 216A of the Companies Act allows a member,
amongst others, to commence a court action or arbitration
proceedings on behalf of the company and the court may
allow it if it considers it in the company’s interest that such
action should be brought. For instance, in Fong Wai Lyn
Carolyn v Airtrust (Singapore) Pte Ltd (2011), the court
allowed a member to bring an action on behalf of the company
against a director who allegedly diverted business
opportunities belonging to the company.
(d) Perpetual succession
A company has perpetual succession until it is liquidated. Thus,
even if the members or directors die or become bankrupt, the
company continues, which is not the case with sole
proprietorships and which may not be the case with partnerships.
Legally, in the case of the company, there is no disruption of the
business when an event such as the death or bankruptcy of a
member or director takes place.
Types of companies
There are several types of companies. Section 17(2) of the
Companies Act provides that a company may be,
•
•
•
a company limited by shares,
a company limited by guarantee, or
an unlimited company.
A company limited by shares refers to a company where the
liability of the members to the company is limited to the value of their
shares. Usually, the shares would be paid up for, and thus, in the
event of the company’s liquidation, at most the members stand to
lose the amount they invested in the company in the form of shares.
They cannot be called up to pay more, unlike in partnerships. If the
shares are not fully paid up for, and the company has gone into
liquidation, the member who has not fully paid up for his shares may
be called upon to do so (section 121(1) of the Insolvency,
Restructuring and Dissolution Act). Thus, if a member owes the
company $1 per share, then he may be called to pay this up.
However, again, he is not liable for anything more than that. Thus, the
liability of the member to the company is limited to the value of the
shares. Limited companies are the most common form of companies
and are abbreviated as “Ltd” (“Bhd” for Berhad in Malaysia).
A company may also be limited by guarantee. What this means is
that the liability of the members to the company is limited to the
amount guaranteed (section 121(1) of the Insolvency, Restructuring
and Dissolution Act). The amount guaranteed is usually very nominal
or small. Companies limited by guarantees tend to be charitable or
non-profit organizations, and not organizations that have a primary
goal of making money. For instance, the Singapore Management
University, the National University of Singapore and the Singapore
Zoological Gardens are companies limited by guarantees.
A company may also be “unlimited”, which means that the liability
of the members to the company may be unlimited (section 121(2) of
the Insolvency, Restructuring and Dissolution Act). In the case of such
companies, one of the primary advantages of setting up a company,
namely that members are not liable for the debts of the company, is
lost. Naturally, such companies are not set up out of choice. In certain
professions such as engineering and architecture, if the paid up
capital is below a certain amount, such companies have to be
“unlimited”. However, such companies are not common in practice.
Companies may also be classified in terms of whether they are
private or public. Pursuant to section 18(1) of the Companies Act a
company is a private company if the constitution of that company,
•
•
restricts the right to transfer its shares (such as that when shares
are sought to be transferred, they must be offered to existing
members before they are offered to outsiders), and
limits the number of members to not more than 50.
Both the above conditions must be present before a company can
be considered a private company. The majority of companies are
private and they are abbreviated as “Pte” (or “Sdn” for Sendirian in
Malaysia). If either of the conditions is not satisfied, then the
company will be a public company. If it is a public company, it does
not mean that it must be listed in the Stock Exchange. For instance,
all companies limited by guarantee are public companies, but they are
not listed in the stock exchange as they do not have shares. Further,
listing is not as of right. There are stringent conditions imposed by the
Stock Exchange of Singapore before a listing can take place.26
Further, public companies are generally subject to more regulation.
Thus, if the business were just being set up, it would not help to set
up a public company. The normal thing to do would be to set up a
private company. Subsequently, when the time is right and the
company has the potential to be listed, it may be converted into a
public company (section 31(2) of the Companies Act) as a prelude to
listing.
A private company may also be classified as “exempt” or “nonexempt”. Among other things, pursuant to section 4(1) of the
Companies Act a private company can be an exempt private
company if it has less than 20 members, and all the issued share
capital are held by natural persons (that is, not by other companies).
Such exempt private companies have several privileges under the
Companies Act. For instance, section 163 of the Companies Act
which relates to making loans to companies in which directors have
an interest in, does not apply to exempt private companies.
A private company may also qualify as a “small company” in
respect of any particular financial year, in which case it would be
exempt from audit requirements (section 205C of the Companies
Act). The term “small company” is defined in the Thirteenth Schedule
to the Companies Act and basically refers to a private company
which meets two out of three criteria, the three criteria being, revenue
not more than $10 million, value of total assets not more than $10
million and number of employees not more than 50. A significant
number of companies registered in Singapore are likely qualify as
exempt and/or small companies.
Thus far what was discussed was a local business setting up a
company in Singapore. Sometimes a foreign business may want to
set up a company in Singapore or Singapore company may want to
set up a company overseas. Two common ways in which this is done
is to set up a “branch” or “subsidiary”. A branch is not a separate
legal entity from its overseas parent whereas a subsidiary is. Thus,
for instance, if a branch incurs a loss, this would be imputed to the
overseas parent whereas if a subsidiary incurs a loss, this would not
be imputed to the overseas parent. This difference in legal personality
can have all sorts of implications including tax and hence a careful
choice has to be made when expanding overseas.
Registering company
The registration process for a company as compared to that of a
partnership is more complex and costly. To be registered, pursuant to
section 19 of the Companies Act, among other things, a “constitution”
has to be submitted.
Section 22 of the Companies Act sets out the matters that have to
be stated in the constitution. These include matters such as the name
of the company,27 whether the company is limited (by shares or
guarantee) or unlimited, and the particulars of the first subscribers,
who will essentially be the first members28 of the company. In
addition, pursuant to section 35(1) of the Companies Act, the
constitution has to contain matters relating to the internal
management of the company (such as how meetings are to be held
or how shares are to be transferred). However, instead of designing
their own internal rules, private companies and companies limited by
guarantees may adopt model constitutions that may be prescribed,29
either in whole or in part (sections 36 and 37 of the Companies Act).
Once the necessary documents are lodged, the Registrar of
Companies may allow the registration. However, under section 20,
the Registrar may refuse registration on certain grounds, such as
when it appears that the company will be used for unlawful purposes
or for purposes prejudicial to public peace. If the registration is
successful, the Registrar will issue a certificate of registration
(section 19(4)).
Dissolution
Once registered, the process by which the company may be
dissolved is known as liquidation or winding up. This and certain other
matters relating to companies are dealt with in chapter 15.
Evaluation
A company is more expensive and complicated to set up. There are
also many more formalities to be met when running a company as
compared to all the other types of business organisations,30 and not
following formalities may in some situations result in criminal
liabilities.31 Dissolution too may be more costly and complex.
However on the positive side, there is usually far less risk involved as
a result of the limited liability concept (other than in respect of
unlimited companies which as stated are not common). Further, a
company is in a much better position to raise finance.32 When a
business is about to be commenced, the various factors must be
weighed and balanced to determine which is the appropriate type of
organisation to be set up. However, at the later stages, a typical
business would usually take the form of a company, as by that time
the need to reduce risk and raise finance would be more pressing.
Not surprisingly, as previously highlighted, the majority of businesses
in Singapore are companies.33
LIMITED LIABILITY PARTNERSHIP
Limited liability partnerships were introduced in Singapore in 2005. A
limited liability partnership combines features of both a partnership
and a company. All sections referred to in this part of the chapter are
with reference to the Limited Liability Partnership Act, unless
otherwise stated.
Registration and other essentials
The registration process with the Accounting and Corporate
Regulatory Authority of Singapore is relatively simpler compared to
registering a company. Various matters have to be provided for in the
application, such as the name of the limited liability partnership, the
general nature of the business of the limited liability partnership, the
registered office of the limited liability partnership and the name,
identification, nationality and usual place of residence of every person
who is to be a partner of the limited liability partnership (section 15).
However, unlike a company, a constitution need not be provided.
It is also provided that every limited liability partnership shall either
have the words “limited liability partnership” or the acronym “LLP” as
part of its name (section 18). Every limited liability partnership has to
have at least two partners (section 22). It must also have at least one
manager who is a natural person, at least 18 years of age, has full
legal capacity and is ordinarily resident in Singapore (section 23). The
manager can be a partner, though it is not necessary for this to be
the case (section 2). The manager is responsible for various filing
requirements that are imposed under the Limited Liability Partnership
Act.
Similarities with a partnership
Like in the case of the partnership, every partner is considered to be
the agent of the limited liability partnership (section 9). Further, in so
far as the internal relations between the partners in a limited liability
partnership are concerned, it is very much like a partnership. Thus, as
in the case of a partnership, relations between the partners are
governed by agreement between the parties, failing which there are
default statutory provisions governing the matter (section 10). In the
case of the limited liability partnership, these default provisions are
set out in the First Schedule to the Limited Liability Partnership Act,
which among other things provides:
•
•
•
•
•
•
•
•
Partners of a limited liability partnership are entitled to equal share
of the profits of the limited liability partnership,
The limited liability partnership must indemnify each partner in
respect of payments made in the ordinary and proper conduct of
the business of the limited liability partnership,
Every partner in a limited liability partnership has the right to take
part in the management of the limited liability partnership;
Every partner in a limited liability partnership is not entitled to
remuneration for being a partner as such,
Decisions are to be made by a majority,
Every partner in a limited liability partnership cannot carry on
business of the same nature as and competing with the limited
liability partnership unless he has the consent of the limited liability
partnership,
Every partner in a limited liability partnership must account to the
limited liability partnership for any benefit derived by him without
the consent of the limited liability partnership from any transaction
concerning the limited liability partnership, or from any use by him
of the property, name or any business connection of the limited
liability partnership, and
No majority of partners can expel any partner unless the contract
expressly allows it.
Similarities with a company
In relation to external relations, a limited liability partnership is very
much like a company. For instance:
•
•
•
A limited liability partnership is a body corporate and has separate
legal entity from that of its partners (section 4),
A limited liability partnership has perpetual succession (section 4),
A limited liability partnership can sue and be sued in its own name
(section 5),
•
•
A limited liability partnership can acquire, own and hold both
movable and immovable property (section 5), and
A partner of a limited liability partnership is not personally liable,
by way of indemnification, contribution or otherwise, for an
obligation incurred by a limited liability partnership solely by
reason of being a partner of the limited liability partnership
(section 8). Thus, in The Singapore Professional Golfers’
Association v Chen Eng Waye (2013) one partner of a LLP was
not personally liable for the tort of passing off, committed by
another partner in the course of the partnership business.
However, it should also be highlighted that just as with companies
there are also exceptions to this general immunity.34
Though not as extensive or onerous as in the case of a company,
a limited liability partnership is also subject to some reporting
requirements, such as the lodgment of the annual declaration of
solvency (section 24).
The dissolution process of a limited liability partnership is similar
to that of a company which is considered in Chapter 15.
Evaluation
A limited liability partnership gives the owners the flexibility of
operating it as a partnership, while giving it limited liability. However,
since it has limited liability, to safeguard the interests of the creditors,
some of the safeguards which are in place in relation to a company
are also applicable in relation to a limited liability partnership. In terms
of costs, formality and complexity, it falls somewhere between a
partnership and a company. However, unlike a company, it may not
be in as good a position to raise finance36 and thus it may not be
suitable for a typical large-scale business. In terms of long-term
usage, it may be ideal for some types of businesses, such as
professional practices.
LIMITED PARTNERSHIP
Limited partnerships were introduced in Singapore in 2009, though as
highlighted earlier there are very few such set ups in Singapore as a
matter of practice. Unless otherwise stated, all sections referred to in
this part are with reference to the Limited Partnership Act.
Registration and other basics
The registration process with the Accounting and Corporate
Regulatory Authority of Singapore for a limited partnership is very
much similar to registering a partnership. Various matters have to be
provided for in the application, such as the name of the limited
partnership, the general nature of the business of the limited
partnership, the registered office of the limited partnership, the name,
identification, nationality and usual place of residence of every person
who is to be a partner of the limited partnership and, in relation to
each person who is to be a partner, whether he is to be a “general”
partner or “limited” partner (section 11).
A limited partnership must have at least one or more “general”
partners and one or more “limited” partners (section 3(2)). A
“general” partner would be liable for all the debts and obligations of
the limited partnership (section 3(3)). Subject to some exceptions, a
“limited” partner would not be liable beyond the amount of his “agreed
contribution”, solely by reason of his being a limited partner of the
limited partnership (section 3(4)). However, in exchange for this
limited liability, the “limited” partner cannot take part in the
management of the limited partnership and does not have the power
to bind the limited partnership (section 6(1)). If he does take part in
the management of the limited partnership, he would lose his
immunity and would become liable for all the debts and obligations of
the limited partnership incurred while he so takes part in the
management (section 6(2)). However, the First Schedule to the
Limited Partnership Act lists certain matters (for instance, voting for
the dissolution of the limited partnership or voting for the admission of
new partners or advising the limited partnership in relation to business
matters), which are not considered as taking part in the management
of the limited partnership.
It is also provided that every limited partnership shall either have
the words “limited partnership” or the acronym “LP” as part of its
name (section 16).
Similarities and differences as compared with a
partnership
Generally other than for the matters highlighted above, a limited
partnership is similar to a partnership. Thus, like a partnership, a
limited partnership is not a separate legal entity. Further, among other
things, section 4 provides that, subject to the provisions of the Act,
the Partnership Act would apply to limited partnerships. Thus for
instance, the dissolution process too is the same as for
partnerships,37 subject to some minor differences (section 8).
Evaluation
A limited partnership may be ideal for an angel investor or venture
capitalist who wants to invest in a start-up but does not want to incur
any additional liability over and above what he has invested to third
parties. However, as said, in return for this immunity, he cannot take
part in the management of the limited partnership. The general
partners benefit from the presence of his funds, but they remain liable
for all the debts and obligations of the limited partnerships as per
partnerships. As a matter of practice, often venture capital firms
themselves are limited partnerships with the people selecting startups to invest in, being the general partners and the institutional
investors and high net worth individuals who contribute the funds,
being the limited partners.
Table 2.1:
Comparing partnerships, companies, limited liability
partnerships and limited partnerships
JOINT VENTURES
Having looked at the common types of business organisations that
can be set up, we shall now examine the position of joint ventures.
Joint ventures are common in certain industries, such as construction
and property development, and as the name suggests, a joint venture
involves two parties coming together for a particular venture or
purpose.
In such a situation, the parties concerned may set up a company,
a limited liability partnership or a limited partnership to carry out the
activities of the venture, in which case, the rights and liabilities of the
parties would be governed by the Companies Act, the Limited Liability
Partnership Act or the Limited Partnership Act, respectively.
Alternatively, the parties may set up a partnership to carry out the
activities of the venture, in which case their rights and liabilities would
be governed by the Partnership Act. In such a situation, this would
mean for instance that generally one party would be deemed to be an
agent of the other.38
It is also possible for the parties concerned to enter into a purely
contractual relationship with each other, without intending to set up a
separate company, limited liability partnership, limited partnership or
partnership and this perhaps is the most common way in which
businesses come together for joint projects. In such an event, the
rights and liabilities of the parties would be governed by the contract
and not by the Companies Act, Limited Liability Partnership Act,
Limited Partnership Act or the Partnership Act. Thus for instance, in
such a situation, one party would generally not be considered to be
an agent of the other.
While it will be clear if the parties have set up a company, a
limited liability partnership or a limited partnership, it may not always
be clear whether the parties have set up a partnership or a purely
contractual undertaking. Even if they intended to set up a partnership,
since the parties would already have been registered and carrying on
a business, they may not have registered a separate partnership as
such.
Whether it is a really a partnership or a purely contractual
agreement depends whether the definition of partnership as provided
in the Partnership Act is satisfied. If the definition is met, then the
venture would be deemed to be a partnership with all the ensuing
consequences. Otherwise, the venture would be a purely contractual
undertaking. In this regard, how the parties have labelled their
relationship is not conclusive.
As already noted, section 1 of the Partnership Act provides that
two persons would be deemed to be carrying on a partnership if they
carry on a business in common with a view of profit.39 Thus, if X and
Y pool in their resources and set up a restaurant and split the net
profits among themselves, that would suggest that they are carrying
on a business in common with a view of profit, and hence they would
be deemed to be partners. On the other hand, if a publisher and an
author come together to publish a book and they agree that gross
profits would be split 9:1, it is most unlikely that the parties would
have intended to set up a partnership. This is because, as the parties
are performing very different business activities, they cannot be said
to be carrying on a business in common and further they are only
sharing gross profits.40 Hence, in such a situation, their rights would
be governed by the contract41 and not by the Partnership Act.
_____________
1
Statutory boards, as the name suggests, are incorporated pursuant to various
statutory instruments. Examples of such statutory boards include the Monetary
Authority of Singapore and the Singapore Tourism Board.
2 Management corporations are incorporated pursuant to the Land Titles (Strata)
Act. Management corporations are set up in places such as condominiums to carry
out general management activities.
3
Basically, a trust is an arrangement whereby a person (called the “trustee”) holds
property for the benefit of others (called the “beneficiaries”). A registered business
trust which is registered pursuant to the Business Trusts Act can offer units in the
business trust for sale to the general public. Although the registered business trust
is not a separate legal entity, the trustee-manager of such a trust has to be
incorporated as a company and hence the trustee-manager would have separate
legal entity.
4 See: http://www.acra.gov.sg/.
5
See the later part of this chapter.
6 The details as well as other information relating to registering a business can be
obtained at the Accounting and Corporate Regulatory Authority of Singapore at:
www.acra.gov.sg/.
7
On the other hand, if a person registers the name as a trademark under the Trade
Marks Act (see page 88), that person would acquire proprietary rights.
8 For the complete set of licenses required, see https://licence1.business.gov.sg/.
9
However, the sole proprietor who is made a bankrupt may apply to the High Court
or the official assignee to allow him to continue his business: section 34.
10 See further, page 59.
11
As to what is meant by pledge, see page 126.
12 As to what is meant by deed, see page 145.
13
As to what is meant by guarantee, see page 122.
14 See further page 341.
15
As to what Y can do to protect itself, see page 34.
16 As what is meant by a tort, see Chapter 14.
17
As what is meant by a tort, see Chapter 14.
18 Debt refers to matters such as unpaid government taxes or judgment debts.
19
For an electronic version, see www.egazette.com.sg/. The Government Gazette
also contains many other types of notices and information.
20 As to what is meant by tort of conversion, see page 347, footnote 6.
21
See page 39.
22 See page 27.
23
As to member, see page 61.
24 There are similar provisions in relation to a limited liability partnership; see
paragraph 94 of the Fifth Schedule to the Limited Liability Partnership Act.
25
There are similar provisions in relation to a limited liability partnership; see
paragraphs 93 and 94 of the Fifth Schedule to the Limited Liability Partnership Act.
26 See further page 124.
27
Again just like in other forms of business organisations, registering a name does
not give the company proprietary rights to that name. If the company wishes to have
such right, the normal thing to do would be to register a trade mark.
28 As to members, see page 61.
29 See www.acra.gov.sg.
30
See for instance, the table on page 54 for some of these formalities. See further
for instance, page 65.
31 See for instance, pages 64 and 72.
32
See pages 58 and 118.
33 See www.acra.gov.sg.
34
See page 42.
35 As to floating charges, see page 119.
36
See page 58.
37 As to which see page 38 onwards.
38
See page 30.
39 See page 27.
40
See page 28.
41 Though a publishing agreement is not in practice referred to as a joint venture
agreement, in essence it is like one.
3
Managing the Business
Managing a sole proprietorship internally is relatively straightforward.
In this regard, managing a partnership or limited partnership is more
complex as there is more than one person. Hence, there are special
rules such as under the Partnership Act and these have already been
considered.1 As for a limited liability partnership, since internally, it is
like managing an ordinary partnership,2 the same considerations
apply as well. What has not really been covered is the company
which has some complex rules regarding internal management and
that is the main focus of this chapter.
The two important sets of persons in a company are its members
and its directors. In addition, the company secretary and auditor have
an important role to play. This chapter concerns these various
persons. All sections referred to in this chapter are with reference to
the Companies Act, unless otherwise stated.
MEMBERS
There has to be a register of members, in respect of every company
(sections 190(1)/196A). The first members, known as subscribers,
must be named in the company’s constitution (section 22).
Subsequent persons whose names appear in the register of
members become members of the company.
The term “member” does not necessarily refer to a shareholder.
For instance, in the case of a company limited by guarantee, there
are no shareholders, yet there can be members. In the case of a
company limited by shares, “member” refers to shareholders whose
names appear on the register of members. Thus, if X buys over
shares in Z private company from Y, but his name is not registered in
Z company’s register of members, X will not be considered a
member of the Z company. He will just be a shareholder. As the law
confers rights and imposes liabilities only on the member and not on
the shareholder, in such circumstances, X’s interests may be
adversely affected.
Number of members
Each company must have at least one member (section 20A), and
there is no maximum number of members, unlike in the case of
partnerships, which generally must not have more than 20 partners.
However, if there are more than 50 members, the company cannot be
registered as a private company (section 18).
Members and management
By virtue of section 157A of the Companies Act directors have the
power to manage the company. Thus, generally, members cannot tell
the directors what to do. In Automatic Self-Cleansing Filter
Syndicate Co Ltd v Cunningham (1906), the directors had the
express power to sell the company’s assets. The members passed a
resolution asking the directors to sell the company’s assets to
another party. The directors refused to obey the resolution of the
members, and so the members went to court asking for a declaration
that the directors should observe their resolution. The court did not
allow it and stated that since the directors were conferred the power
to determine such issues, the members could not interfere.
While generally they cannot take on management decisions,
members may embark on certain courses of action if they are
unhappy over management decisions. Firstly, the members of the
company would generally have the ability to remove the directors by
ordinary resolution3 (section 152). Thus, if the members are unhappy
with management decisions, they may exercise this right and remove
the directors (assuming they manage to garner the requisite number
of votes) with the hope that the new directors appointed would make
more agreeable decisions. In addition, the members theoretically may
have the option of altering the constitution of the company, if they
manage to garner the requisite number of votes,4 to confer particular
powers on themselves, though in practice this is rarely done. On a
more practical side, the member who is not happy with the
management may just sell his stake in the company and place his
money elsewhere.
Though generally, members do not have the right to manage the
company, the Companies Act does and the constitution of the
company may, provide that members must approve certain decisions.
Such exceptions typically relate to situations where members’
interests could be adversely affected and hence they are given a say.
For instance, it is provided in the Companies Act that when the
company wants to issue shares (section 161), or dispose of the
whole or a substantial part of its undertakings or property (section
160), the approval of members is necessary. Similarly, if the
constitution of the company is to be amended, the approval of
members is required (section 26).
Members’ rights
Though generally, a member does not have the right of management,
the Companies Act confers various rights on a member:
(a) Right to enforce the constitution of the company
One such right relates to enforcing the constitution of the
company. Section 39 of the Companies Act effectively provides
that the company’s constitution represents a contract between
the members and the company, and as between the members
themselves.
Thus, the members can enforce the terms of the company’s
constitution against the company and vice versa, and also against
other members. Thus, if the company’s constitution states that if
there is some dispute between the members and the company,
the matter must be settled by arbitration, then this provision can
be enforced. Similarly, if it provides that if a member wishes to
transfer his shares, the other members must take them up in
equal proportions, the member wishing to transfer his shares may
enforce that provision against the other members.
In this regard, it may also be noted that a company’s
constitution would usually provide that when the company is
dissolved, any assets remaining after all the liabilities have been
met would be distributed to the members. On the other hand, a
company’s constitution usually would not provide that dividends
must be declared, even if there are available profits. Thus, the
member would usually not have the right to demand dividends. If
the management wants to plough back the profits into
investments instead of declaring dividends, they would usually be
entitled to do so. In fact, many small private companies do not
declare dividends even if there are profits, as their shareholders,
also being directors or employees, would receive a regular
income from that capacity.
(b) Right to amend the constitution of the company
Unless otherwise provided in the Companies Act, section 26
provides that the constitution of a company may be amended by
a special resolution. A special resolution would mean that the
resolution has to be passed with at least a 75 per cent majority.
However, this is subject to section 26A, which allows companies
to declare certain provisions in the company’s constitution to be
“entrenched”. Such entrenched provisions cannot be altered at all
or may be altered only if some further conditions are satisfied.
(c) Right to attend meetings and vote
Another fundamental right of the member is to attend meetings.
The members’ stand on various matters is usually established
through resolutions passed at members’ meetings. There are
essentially two types of members’ meetings: the annual general
meeting (AGM) and the extraordinary general meeting (EGM).
As for the annual general meeting, section 175(1) of the
Companies Act provides that such a meeting must be held once
every calendar year. Failing to hold an annual general meeting is
an offence under section 175(4). However, section 175A allows
private companies to dispense with the need to have annual
general meetings in certain circumstances such as where all the
members so agree to dispense with it or the requisite financial
statements have been sent to the members.
At the annual general meeting, the members have the
opportunity to query the directors on the performance of the
company and other issues. The Companies Act provides that the
financial statements and the balance sheet must be laid before
the members at the annual general meeting (section 201).
Further, the Companies Act provides that the appointment of the
auditors must be done at the annual general meeting (section
205(2)). The same generally applies in relation to the
appointment of directors (section 149B). In addition, the
constitution of the company would typically provide that at the
annual general meeting, the appointment and remuneration of
directors must be determined and that the members must
approve the dividends (if any) declared by the directors.
Other meetings of members are known as extraordinary
general meetings, where resolutions may also be passed. The
constitution of the company would usually provide that the
directors could convene such meetings. In addition, there are
provisions in the Companies Act (sections 176 and 177) and
could be provisions in the company’s constitution, which allow
members in certain circumstances to call for such meetings.
However, it must be noted that in the case of a private company
or unlisted public company, instead of convening an actual
meeting, which may be very cumbersome, it is possible in certain
circumstances to get a resolution passed by written means
(section 184A).
Where an actual meeting is called, notice of it has to be given
to the members. The amount of notice that has to be given would
generally vary with the type of resolution that is sought to be
passed. In the case of special resolution (such as a resolution
seeking to amend the company’s constitution), at least a 21-day
notice has to be given in the case of a public company and at
least a 14-day notice has to be given in the case of a private
company (section 184). In the case of an ordinary resolution, at
least a 14-day notice has to be given (section 177(2)). However,
there are provisions allowing for a shorter notice to be given in
certain circumstances (sections 184(2) and 177(3)). Notice can
also be sent electronically (section 387C). The notice has to, at
the very least, set out the text of the resolution, so the members
can decide whether or not to attend the meeting. If this is not
done, the resolution passed at the meeting may be invalidated, as
happened in the case of Hup Seng Co Ltd v Chin Yin (1962)/Lim
Kok Wah v Lim Boh Yong (2015).
As alluded to above, members have the choice of attending or
not attending a meeting. Further, instead of personally attending a
meeting, they may send a proxy to vote on their behalf by filling
up the proxy form that would usually accompany a notice of a
meeting (section 181). Before a meeting can proceed, it requires
a quorum or minimum number of members to be present. This
number could be provided in the constitution, failing which the
minimum number is two (section 179(1)).
To successfully pass a resolution, there must be a requisite
amount of votes. For a special resolution, this cannot be less than
75 per cent majority of the votes, and for an ordinary resolution,
this has to be more than 50 per cent of the votes. Voting may be
done in several ways as set out in section 179. For instance, it
may be done by a show of hands (in such a case the number of
shares held would not be important), or it can be by poll, in the
case of a company with share capital. In such a case, the number
of shares would clearly be important. The Companies Act, the
company’s constitution and the listing rules provide for various
situations where a poll must be conducted. It may also be noted
that in determining whether there is a sufficient majority, only the
number of votes received is relevant. The position of those not
voting is not taken into account.
However, it must be pointed out that while voting is usually a
fundamental right of the member, in some situations, such as in
case of non-voting preference shares,5 this right may not be
available.
As can be seen, compared to all other forms of business
organisations, in the case of a company, there are far more
formalities when it comes to holding meetings and making
decisions.
(d) Right to information
Having invested capital in the company, another fundamental right
of the member is the right to receive information from the
company. For instance, the member may inspect various
registers held by the company, such as the register of director’s
shareholdings (section 164(8)). In addition, the company’s
financial statements have to be sent to the members prior to the
annual general meeting (section 203). Further, the members have
a right to inspect the minutes of general meetings (section 189).
Theoretically, by receiving such information, the members would
be able to assess whether the company is being run in a proper
fashion.
(e) Right to be treated fairly
Another important right of the member is enshrined in section 216
of the Companies Act. Section 216(1) gives the member a right
to apply to court if, among other things, the affairs of the
company are being run oppressively or in disregard of the
members’ interest. This section may be particularly useful to
minority shareholders. However, for this section to be
successfully invoked there must be something more than a mere
disagreement with the decisions made by the majority. There
must be some element of unfairness or a visible departure from
standards of fair dealing (Ng Sing King v PSA International Pte
Ltd (2005)/Tan Eck Hong v Maxz Universal Development Group
Pte Ltd (2019)).
In Re HR Harmer Ltd (1958) for instance, H was a majority
shareholder and director. He ran the business himself without
consulting the other directors or members. He set up branches
abroad and dismissed a director on his own accord without the
approval of the others. Further, he drew money from the
company for his own expenses. In the circumstances, the court
held that the minority shareholders could petition for relief on the
ground that there had been oppression. In Scottish Co-operative
Wholesale Society Ltd v Meyer (1959), M and S were in the
business of manufacturing rayon. S was the majority shareholder
and controlled the board. After some time, S started to
manufacture rayon on its own account and so diverted all the
business from the company. M petitioned for relief on the ground
that there was oppression and the court granted it. Similarly, in
Leong Chee Kin v Ideal Design Studio Pte Ltd (2018), diversion
of business resulted in a section 216 claim being successful.
On hearing such an application, the court has wide discretion
as to what it can do. For instance, it may order a buyout, prohibit
the act in question, force the company to be wound up or allow
an action to be brought on behalf of the company (section
216(2)).
Liabilities of members
Aside from rights, the shareholder may also incur liabilities. In
particular, if the company is being wound up and a member is yet to
pay up on his shares, he may be called to do so by the company
(section 121(1)) of the Insolvency, Restructuring and Dissolution Act).
COMPANY SECRETARY AND AUDITOR
Before proceeding to consider directors, the position of the company
secretary and company auditor will briefly be mentioned.
Section 171(1) of the Companies Act provides that every
company shall have one or more secretaries who must be resident in
Singapore. This person is known as the “company secretary” and
should not be confused with an ordinary secretary in any company or
business handling more mundane matters. The company secretary
has to be appointed by the directors (section 171(3)) and has the
duty to ensure that various administrative matters required under the
Companies Act are adhered to. For instance, the company secretary
is the person who would be in charge of maintaining various registers,
such as the register of members, would be the person who has to file
various documents or send various notices, and would be the person
responsible for organising and holding meetings. In the case of a
public company, the company secretary would need to have certain
qualifications which are set out in section 171(1AA). Typically this
would mean that the secretary must be a professionally qualified
person, such as an accountant or lawyer. However, in the case of a
private company, subject to section 171(1AB), it is now not
necessary to appoint such professionally qualified persons. Thus, a
director (other than a sole director – section 171(1E) or any person
whom the directors deem fit may act as a company secretary. In this
way, costs may be minimized.
In addition, section 205 of the Companies Act requires every
company to have an auditor or auditors. Directors appoint the first
auditors, but members in the general meeting appoint subsequent
auditors (section 205(1)). Auditors act as watchdogs to ensure that
the accounts give a true and fair view of the company’s financial
position. Auditors are invariably accountants. Notwithstanding section
205, generally under section 205C a small company as defined in the
Thirteenth Schedule to the Companies Act6 may be exempted from
appointing auditors or having audited accounts. Thus, in this way
costs may be saved.
DIRECTORS
The other very important group of persons in a company is its
directors. In this regard, section 145(1) of the Companies Act
provides that every company shall have at least one director who
shall be ordinarily resident in Singapore. There is no limit as to the
number of directors; though the constitution of the company may have
a provision pertaining to that. Where there is more than one director,
all the directors together form the “board” of directors headed by a
chairman.
It may also be noted that the term “director” is not restricted to
persons appointed as such. Section 4(1) of the Companies Act
provides that a person, in accordance with whose directions or
instructions the officers of the company are accustomed to act, or
any person acting as an alternate or substitute director, would also
be considered a director. Thus, if X indirectly manages the whole
company but is never formally appointed as a director, or if Y, a
director, goes overseas and gets X to act on his behalf, in both
circumstances, X could be considered to be a director of the
company and would be subjected to all duties imposed on directors.
It may also be mentioned that typically large or public companies
have “executive” and “non-executive” directors. Executive directors,
such as the managing director, tend to the day-to-day operations of
the company and work on a full-time basis with the company. Nonexecutive directors do not work on a full-time basis with the company
and do not take part in the day-to-day management of the company.
Instead, they provide general advice, guidance and supervision.
“Independent directors” are a type of non-executive directors who
have no other relationship with the company so that they can exercise
independent judgement.
However, in terms of owing duties, the law does not make a
distinction between the different categories of directors (Vita Health
Laboratories Pte Ltd v Pang Seng Meng (2004)/ W & P Piling Pte
Ltd (in liquidation) v Chew Yin What (2007)).
Qualifications
Section 145(2) of the Companies Act provides that the director must
be a natural person who is at least 18 years of age and who has full
legal capacity.7 Thus, since a company is an artificial person as
opposed to a natural person, a company cannot be a director of
another company. Aside from this, the Companies Act does not
prescribe any other necessary qualifications to be a director. Thus,
there is no requirement that the director must have certain
educational qualifications or years of experience. However, the
constitution of the company may provide for other necessary preconditions before a person can become a director. For instance, the
constitution of the company may provide that before a person can
become a director of that company, he must acquire a certain number
of shares in that company. As for the maximum age of directors, the
Companies Act does not prescribe any maximum age.
Disqualification
Though there are not many positive qualifications, once appointed,
the director may be disqualified on various grounds. This is unlike the
case of partnerships or limited partnerships8 where there are not so
many grounds.9 The reason for this is that since the company’s
liability is usually limited, there is a need to offer some form of
protection to creditors. Some of the grounds on which a director may
be disqualified are as follows:
(a) Section 148
Section 148(1) of the Companies Act10 provides that an
undischarged bankrupt cannot be a director or indirectly take part
in the management of a company; the rationale being that if a
person cannot manage his own affairs, he should not be
managing the affairs of a company. The disqualification is
automatic and the person who disobeys the disqualification will be
guilty of an offence as happened in Yap Guat Beng v Public
Prosecutor (2011).
However, the disqualification may be lifted if the leave of court
or the written permission of the official assignee is obtained
(section 148(2)). Formerly, it was difficult to obtain such leave or
permission. However, now there has been a change in policy, the
aim of which is to encourage people to start over again, and so,
in deserving cases, the disqualification may be lifted.
(b) Section 149
Section 149(1) of the Companies Act11 allows the minister or
official receiver12 to make an application to court asking for a
disqualification order in certain circumstances. Thus, the
disqualification under section 149 is not automatic. For section
149 to be triggered, the circumstances must be that the director
was a director of a company which became insolvent while he
was a director, or within three years of him ceasing to be one,
and the director’s conduct was such as to make him unfit to be a
director. Matters that have to be considered in determining
whether the director’s conduct makes him unfit to be a director
are set out in section 149(6). These include matters like, whether
the director breached his fiduciary or other duties, whether the
director misapplied any money and whether the director’s
conduct contributed to the company’s insolvency.
If the court is satisfied that the conditions are satisfied, a
disqualification order for up to five years may be imposed. If the
director disobeys the disqualification order, that would amount to
an offence, unless he has obtained the leave of court to lift the
disqualification.
(c) Section 154
Pursuant to section 154(1) of the Companies Act13, if a person
has been convicted of an offence (in Singapore or elsewhere)
involving fraud or dishonesty punishable on conviction with
imprisonment of three months or more, or if he has been
convicted of any offence under Part XII of the Securities and
Futures Act14, he is automatically disqualified. The disqualification
is for five years. For instance, in Lee Huay Kok v AttorneyGeneral (2001), Lee was convicted of corruption charges and
was automatically disqualified.
Section 154(2) provides that if a person has committed any
offence in Singapore in connection with the formation or
management15 of the company, or certain specified offences such
as an offence under section 15716 he may be disqualified. The
disqualification may be up to five years. For instance, in Ong
Chow Hong v Public Prosecutor (2011) when the director in
question was found to have breached section 157(1) as he had
not exercised reasonable diligence in carrying out his duties, he
was disqualified for two years. On the other hand, if the offence
is a technical one and not serious, the court may decide not to
disqualify him.
If a section 154 disqualification has been imposed, the person
concerned who continues to be a director would be guilty of an
offence, unless he has the leave of court.
(d) Section 155
The Companies Act requires various documents and notices to be
filed with the Registry of Companies. The reason for this is for
the Registrar of Companies to keep track of the companies, and
for persons who do business with a company to get reliable and
updated information about that company so that they can assess
the risk involved, given a company has limited liability. If these
documents and notices are not filed, that may amount to a
commission of an offence.
Among other things, pursuant to section 155, a person who is
persistently in default in meeting the relevant requirement under
the Companies Act (relating to returns, accounts, notices or
documents) will be automatically subjected to a five-year
disqualification from managing the company, unless he has the
leave of court. The phrase “persistently in default” has been
defined to mean that the person must be guilty of three or more
offences relating to the relevant requirements, or must have had
three or more orders made against him in respect of certain
related matters, within the last five years. Aside from automatic
disqualification, it is also possible for the Registrar of Companies
to issue a more limited debarment order for failure to comply with
the relevant filing requirements under the Companies Act in
certain circumstances, as provided in section 155B.
(e) The company’s constitution
In addition to the Companies Act, the company’s constitution may
provide for circumstances in which the director could be
disqualified. For instance, it could provide that the director would
be disqualified if he became insane or if he has been absent from
director’s meetings for more than six months without permission.
Appointment and removal
Section 149B of the Companies Act provides that unless the
company’s constitution provides otherwise, a company may appoint a
director by ordinary resolution. Section 152 of the Companies Act
also allows directors to be removed by an ordinary legislation (though
in the case of private company, its constitution can provide
otherwise). In addition, as already stated, the constitution of the
company may provide for the automatic removal of directors when
certain events happen.
The directors may also resign on their own account. Whether any
formalities are to be met in such circumstances would depend on
what the constitution of the company provides. However, generally, if
the resignation has the effect of leaving the company with no director
who is ordinarily resident in Singapore, then the director cannot resign
(section 145(5)). Further, if the director is also an employee, his
resignation must be in accordance with the terms of his employment
contract.17
Directors and management
As already stated, the Companies Act (section 157A) confers on the
directors the power to manage the company. In small companies, the
directors might manage the company by themselves, but in larger
companies, they would usually delegate the day-to-day task of
running the company to others, such as employees.
The board of directors is treated as an agent of the company and
is authorised to act on behalf of the company. However, the board
may delegate its duties to others, such as individual directors or
employees, who then become agents of the company. What they
then do binds the company, provided it is done within their actual,
implied or apparent authority.18
Actual authority refers to authority that an agent has expressly
been conferred with.
Implied authority refers to authority an agent in a similar position
would usually be conferred with. What sort of implied authority a
particular director or employee may have would, of course, depend
on the circumstances. If he is a managing director or an executive
director or chief executive officer, he can be expected to have the
implied authority to carry out certain kinds of things. For instance,
among other things, cases have held that a managing director has the
authority to execute negotiable instruments, such as cheques, receive
debts due to the company, borrow money on behalf of the company,
appoint persons to do work in respect of the company’s business and
give guarantees on behalf of the company. On the other hand, if he is
a non-executive director or an ordinary employee, he is less likely to
have such implied authority as stated above.
However, he may also have apparent authority to bind the
company. Apparent authority arises if the company or someone in
authority represents to another person that the agent in question has
the authority to do certain acts, and that other person relies on that
representation.
Directors’ duties
Much more than in the case of partners, directors are subject to
various duties. Some of these duties emanate from statutes and
others from case law. The reason why directors are subject to so
many duties, as stated earlier, is due to the fact that, the company’s
liability usually being limited, there is a need to offer some form of
protection to the creditors. In addition, these duties offer protection to
members who have invested capital in the company.
Before examining some of these duties, it should also be stressed
that it is not possible for the company or the constitution to state that
the director in question will be absolved from any negligence or
breach of duty (section 172). Thus, in order to protect themselves,
directors should be fully aware of their obligations before taking on
the role. They could also go for training provided by various
organisations such as the Singapore Institute of Directors19 to keep
abreast with various developments. It is also common to purchase
“directors’ and officers’ liability” insurance to cover potential liability.
Such forms of insurance are permitted under section 172A, though
they would not cover criminal liability as such.
For the sake of simplicity and clarity, the duties imposed by case
law will be considered and thereafter the duties imposed by the
statutes would be considered. However, it must be stressed that
these duties are not mutually exclusive and often overlap.
(a) Duties imposed by case law
(i)
Duty to avoid conflict of interests
A director owes fiduciary duties (or duties of trust) to the
company and, as such, should not place himself in a position
whereby his duties to the company and his personal interest
conflict.
In Furs Ltd v Tomkies (1935) for instance, Tomkies, a
director, was in charge of selling a part of the company’s
business to a third party. The third party offered Tomkies a
payment and, as a result, offered to pay the company a
smaller sum for the sale. Not knowing this fact, the company
agreed to the sale. When the issue came up, the court held
that Tomkies was to return this money to the company as he
had obtained it in breach of his fiduciary duties. In Yong
Kheng Leong v Panweld Trading Pte Ltd (2013), where the
director of a company paid his wife a salary even though she
was not an employee, the court held that the director was in
breach of his fiduciary duties and ordered him to pay back
the salary. In Canadian Aero Service Ltd v O’Malley (1973),
the defendants were acting on behalf of a company in
negotiations relating to a certain project. Subsequently, while
the negotiations were still in progress, the defendants
resigned, set up their own company and got the project. The
court held that there was a conflict of interest. The
defendant’s duty was to get the project for the company;
their interest was to get it for themselves. Since there was a
conflict and the company lost the opportunity, the defendants
were liable to pay damages. Similarly, in Personal
Automation Mart Pte Ltd v Tan Swe Sang (2000), the
defendant was a director of the plaintiff. She then set up
another company in direct competition and diverted a key
business project to that company. She also paid herself more
salary than due. In the circumstances, the court held that
there was a breach and she was ordered to pay damages.
In fact, even if the company does not suffer a loss, but there
is a conflict and the director makes a profit, he may be made
accountable for that profit. In Hytech Builders Pte Ltd v Tan
Eng Leong (1995), the plaintiff company was approached to
bid for a certain project in Taipei. However, when it
discovered that it could not meet the tender requirements,
the director of the plaintiff then bid for the project using
another company in which he had an interest in. The court
held that there was a breach and the director in question had
to account for the profits made even though the plaintiff could
not have gotten the contract itself.
However, where there is a potential conflict and the
director gets the approval of the members of the company
allowing him to go ahead with a particular course of action,
liability would generally not arise. Thus, for instance, if the
director wants to be a director of two competing companies
and this is disclosed to the members, who approve of it, no
liability would generally arise.
(ii) Duty to act for proper purpose
The articles of association usually confer on the directors
various powers. However, these powers have to be used for
proper purposes.
In Howard Smith Ltd v Ampol Petroleum Ltd (1974), for
instance, the directors had the power to issue new shares.
New shares are usually issued to raise money. However, on
the facts of the case, the directors issued new shares to
stop a takeover bid that they considered not to be in the best
interests of the company. The court nonetheless held that the
powers of the directors had not been exercised for a proper
purpose. Similarly, in Punt v Symons & Co Ltd (1903), the
court held that this duty was breached when the directors
issued new shares for the purpose of having sufficient voting
power to amend the internal rules of the company in
question.
(iii) Duty to act in the best interests of the company
Another aspect of fiduciary duties is that directors must act in
the best interests of the company. Interest of the company
includes the interests of members and employees (section
159). It can also include the interests of creditors when the
company is in financial distress (Dynasty Line Limited (in
Liquidation) v Sukamato Sia (2014)). If this duty is
breached, liability may arise.
In Re W & M Roith Ltd (1967), R was the main
shareholder and director. Using his powers, he made a
provision enabling his wife to draw a pension on his death.
When the matter came up, the court held that though this
was in the interest of his wife, it was not in the best interests
of the company and hence it was held that the company did
not have to pay it. Likewise in Chew Kong Huat v Ricwil
(Singapore) Pte Ltd (2000), when two directors of Ricwil
transferred some contracts entered into by Ricwil to another
company in which they had an interest in (in that they were
the only shareholders of that company), the court held that
this duty was breached. Though in these cases there was
conflict of interests as well, there could be cases where this
duty is breached, without there being such conflict. For
instance, in Walker v Wimborne (1975), where directors of
one company made an interest-free loan to another company
in the group without taking any security in return, the court
held that the directors were not acting in the best interests of
their company in the circumstances of the case.
If any of the abovementioned fiduciary duties are
breached, various consequences may follow. The director
may have to account for the profits he made, return any
property he obtained in breach of those duties, or pay
damages to the company for its losses. Further, any act
done, such as a resolution passed, in breach of those duties
may be declared invalid. In addition, if the company enters
into a contract with a third party in breach of a fiduciary duty,
the contract may be set aside, if the third party knows or
ought to have known of that breach.
(iv) Duty to act with due care, skill and diligence
In addition, as stated in Re City Equitable Fire Insurance Co
Ltd (1925), a director also has the duty to act with due care,
skill and diligence. If this duty is breached and the company
suffers losses, the director could be liable for those losses.
Thus for instance, if a director signs a cheque without
checking why the money is being paid out, there could be
liability, as happened in Re Railway & General Light
Improvement Co (1880). Similarly, in Jurong Readymix
Concrete Pte Ltd v Kaki Bukit Industrial Park Pte Ltd (2000),
when the director in question got his company to give a
guarantee which was not really necessary, without fully
understanding the background, without consulting the other
directors and without getting legal advice, it was held he had
to indemnify the company for the losses suffered as a result.
Further, while generally directors may be able to delegate
their duties, if they delegate their duties to someone to whom
a reasonable person would not have delegated, there could
be liability. In addition, even if there is proper delegation but
the director fails to supervise, there could also be liability (Re
Barrings plc (1999) followed in Vita Health Laboratories Pte
Ltd v Pang Seng Meng (2004)).
As for the duty to exercise due diligence, the question has
also sometimes arisen whether this duty would be breached,
if the director does not attend board meetings. In this regard,
generally a director is not responsible for the acts or
omissions of his co-directors (such as for the frauds
committed by them) solely on the ground that he did not
attend board meetings. However, if the circumstances are
such that he ought to have exercised better supervision,
there could be liability.
(b) Duties imposed by the Companies Act
In addition to duties imposed by case law, there are various
duties imposed on directors by virtue of the Companies Act, the
basic aim of which is to prevent abuse on the part of the directors
who manage the company. Breach of these duties may involve
civil or criminal or both civil and criminal liabilities, depending on
the section in question. While partners in partnerships, limited
partnerships and limited liability partnerships may owe some
similar duties,20 should there be a breach; that would generally
not trigger criminal liability. Hence, running a company is far more
onerous.
Some of the duties imposed by the Companies Act are as
follows:
(i)
Section 156
Under section 156(1) when a company enters into a
transaction or is proposing to enter into a transaction and a
director has a direct or indirect interest in that transaction, as
soon as the relevant facts have come to his knowledge, he
must declare the nature of his interest at the meeting of
directors or send a written notice to the company containing
the details of the interest.
Section 156(3) states that such interest shall be taken to
mean material interest. Thus, if company A is entering into a
contract with company B, and X, a director of company A, is
the majority shareholder in company B, he has to disclose
this to the board of directors of A. On the other hand, if
company B was a public-listed company and X is an ordinary
investor with a few shares in company B, he need not make
a disclosure as he would not be considered to have a
material interest. Section 156(13) also provides that interest
of the director includes the interest of his family.
Thus, in the earlier example, if X’s wife is a majority
shareholder in company B, X would have also to make a
disclosure to the board of directors of A.
Section 156(15) provides that the breach of section 156
results in the commission of an offence. In Yeo Geok Seng v
Public Prosecutor (2000), Yeo was the director of a
company (MFED) and the company was awarded a contract
to build a community centre. Yeo then got another company
in which he was a director to do the actual construction
without disclosing this to the board of MFED. The court held
that there was a breach of section 156, and hence he was
convicted and fined.
(ii) Section 157
Section 157(1) of the Companies Act states that a director
must act honestly and use reasonable diligence in the
discharge of his duties.
The term “act honestly” covers a multitude of matters,
such as that the director must act in the best interests of the
company, must not place himself in a position of conflict of
interests, and must not use his powers for improper
purposes. In Ho Kang Peng v Scintronix Corp Pte Ltd
(2014), the director of a listed company made unauthorized
payments in the form of bribes to third parties. The court
held that since there was dishonesty, there was a breach of
section 157(1) even though the purpose was to obtain
business for the company. Further, since the discovery could
have exposed the company to criminal liability, the
unauthorized payments were not in the best interests of the
company.
The term “reasonable diligence” is apt to cover due care,
skill and diligence. In Ong Chow Hong v Public Prosecutor
(2011), Ong was an independent and non executive director
of a public listed company. He was charged with not acting
with reasonable diligence in relation to a public
announcement surrounding a corruption investigation. He was
attending an official golf event at that time and effectively left
the decision to another director. The court held that there
was a breach of section 157(1). He was fined and
disqualified for two years.
Under section 157(2) of the Companies Act an officer of
a company (such as a director) should also not make
improper use of any information acquired by virtue of his
office to gain an advantage for himself or any other person,
or to cause detriment to the company. Thus, if a director
leaks out confidential information relating to the company to
another competitor for some reason, this section could be
breached.
Section 157(3) states that if section 157 is breached, the
director would have to return profits made by him, or be
liable for losses suffered by the company, and that he would
be guilty of an offence. Thus, in Lim Weng Kee v PP (2002),
where the director of a pawnshop released pawn items
before the cheque presented for repayment of the loans was
cleared, it was held that he was in breach of section 157(1),
in that he did not act with reasonable diligence, and hence he
was convicted and fined. In an earlier civil suit, the director in
question was also held liable for the losses suffered by the
company.
(iii) Section 162
Section 162(1) states that a company cannot enter into
certain transactions concerning the director such as making a
loan to him, or providing a guarantee or any security in
respect of a loan undertaken by a director. This is to reduce
the possibility of the financial resources of the company
being dissipated.
Section 162(8) extends the term “director” to include his
family. Section 162(5) provides that the directors who
authorize any transaction in breach of section 162 would be
liable for any losses suffered by the company, and further,
section 162(6) provides that they will be guilty of an offence.
However, there are certain exceptions to section 162(1),
the details of which are contained in sections 162(3) and (4).
For instance, if the members approve and the purpose of the
transaction is to place with the director funds to meet
expenditures incurred by him for the purposes of the
company, or for properly performing his duties as the officer
of the company, that will not raise any liabilities. Similarly, if
the members approve and the purpose of the transaction is
to place with the director, who is a full-time employee, funds
to purchase a home or, if it is a loan given to a director who
is a full-time employee and the loan is in accordance with a
loan scheme which is open to all employees of the company
and which has been approved by the members, again that
will not raise any liabilities. Further, if a loan is made to a
director of a company in the ordinary course of business,
where the business of the company includes granting such
loans, as would be the case with a bank, then that would not
raise any liability either.
Section 163 extends section 162 to situations where the
loan, guarantee or security is given to another company in
which the director has a material interest. If a director has
20% or more of the total voting power of that other company,
generally, that would be considered to be a material interest
(section 163(1)). In Public Prosecutor v Tan Hak Siang
(2003), the director in question authorized his company to
give a loan to another company in which he had a 40%
interest. In the circumstances, the court held there was a
breach of section 163(1) and he was convicted. However,
again like in the case of section 162, there are exceptions to
section 163.
(iv) Section 168
Among other things, section 168(1) provides that any
compensation for loss of office of the director has to be
approved by the members. Thus, if a managing director
decides to retire and, before that, declares himself an
enormous gratuity, that may have to be approved by the
members. If this section is breached, the money received will
have to be held on trust for the company, and thus the
director will have to return it to the company.
However, there are certain exceptions to section 168(1),
and these are contained in section 168(5). For instance, it is
provided that if a payment is made pursuant to an agreement
which was made with the director before he became a
director, and the payment was the consideration or part of
the consideration for agreeing to be a director, such a
payment need not have to be approved by members. The
probable reason for this is that the likelihood of abuse in such
a situation would be slim. For similar reasons, the severance
benefits payable in Grinsted Edward John v Britannia
Holdings Pte Ltd (1996) was held not to be in breach of
section 168.
(v) Section 169
Section 169 effectively provides that any emoluments given
to directors, such as directors’ fees and allowances, have to
be approved by the members. If the section is not observed,
the money received would be held on trust for the company
and the directors would have to return it to the company.
A director may sometimes also be an employee and in
that capacity, he might receive certain payments, such as a
salary. Members need not approve such payments. It is only
when the payment is received in his capacity as director that
section 169 would be triggered. However, the constitution of
the company may provide that even such payments have to
be approved by the members. In addition, as stated, there is
also the duty to act in the best interests of the company.
(c) Duties imposed by the Securities and Futures Act
Another statute that could impose liabilities on the director is the
Securities and Futures Act, though it must be stressed that the
application of the Securities and Futures Act is not restricted to
directors and this may not directly relate to the issue of
management.
One important aspect of the Securities and Futures Act is the
prohibition of insider trading. The laws on insider trading ensure
that there is level playing, and that some players do not profit,
from inside information that is not publicly available at the
expense of others. Unless otherwise stated, all sections referred
to in this part, are with reference to the Securities and Futures
Act.
(i)
Liabilities to the State
Section 218(1) of the Act provides that if,
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a person connected to a corporation possesses
information21 concerning that corporation that is not
generally available, and
the information is such that a reasonable person would
expect it to have a material effect on the price or value of
securities of that corporation, and
the connected person knows or ought reasonably to know
that the information is not generally available and might
have a material effect on the price or value of those
securities, then, he should not, among other things:
subscribe for, purchase, sell or enter into an agreement
to subscribe for, purchase or sell any such securities
(section 218(2)),
procure another person to subscribe for, purchase, sell or
enter into an agreement to subscribe for, purchase or sell
•
any such securities (section 218(2)), or
directly or indirectly communicate the information or
cause the information to be communicated to another
person, if the connected person knows, or ought
reasonably to know, that the other person would or would
be likely to subscribe for, purchase, sell or enter into an
agreement to subscribe for, purchase or sell or procure
another person to do the same (section 218(3)).
The phrase “a person connected to a corporation” is
defined in section 218(5) and this includes officers of the
corporation. The term “officer” in turn has been defined in
section 218(6) to include directors, secretaries and
employees of the corporation.
The Securities and Futures Act supersedes the Securities
Industry Act. Under the former Securities Industry Act, only
persons connected to a corporation or persons who received
price-sensitive information from persons so connected were
prohibited. However, under the Securities and Futures Act,
even persons not connected to a corporation or persons who
receive price-sensitive information from persons not
connected to the corporation, come under a similar
prohibition. This is provided by section 219. Thus for
instance, if X a director of a company has some pricesensitive information relating to that company, which is not
generally available and he passes the information to Y who
passes it to Z, Y and Z may fall under prohibition stated in
section 219, for instance if they purchase the shares of the
company, even if Y and Z are not persons connected to that
company.
If section 218 or 219 is breached, that could result in
criminal liability. Section 221 provides that a person who
contravenes section 218 or 219 shall be guilty of an offence
and shall be liable on conviction to a fine not exceeding
$250,000 or to imprisonment for a term not exceeding seven
years, or both.
In Public Prosecutor v Koh Soe Khoon (2006), the
defendant was the managing director of a listed company.
He had confidential price-sensitive information relating to the
higher net profit and dividend rates of the company. Before
the information was made public on the 2nd of December, he
bought more of the company’s shares. When the information
was made public, the share price of the company went up
and the defendant made a paper profit of about $47,000.
The defendant was later charged with insider trading. On
conviction, he was fined $160,000 and in default, 16 months’
imprisonment for the section 218 contravention.
Alternatively, under section 232, the Monetary Authority
of Singapore may bring a civil claim for a “civil penalty” to be
imposed against any person who has contravened section
218 or 219. However, since section 232 involves a civil claim,
it would suffice to establish on the balance of probabilities
that a contravention had taken place. This is unlike criminal
proceedings pursuant to section 221, where it must be
established beyond reasonable doubt22 that a contravention
had taken place. Given insider trading may be difficult to
prove, such an alternative may come in handy for the
authorities. The amount of civil penalty is provided for in
section 232(2), and it states that it,
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shall not exceed three times the amount of profits gained
or losses avoided by the contravener, or
shall be an amount equal to $50,000 (in the case of
individuals) or $100,000 (in the case of corporations),
whichever is the greater.
In Lew Chee Fai Kevin v Monetary Authority of
Singapore (2012), the appellant was the general manager of
a company. During an internal meeting, it was forecasted
that certain subsidiaries of the company would make a loss
and this in turn would affect the parent company. The
appellant then sold off some of his shares in the parent
company. Though it was just a forecast, the court held that
that was material information and since it was not publicly
available, the appellant was ordered to pay a civil penalty.
(ii) Civil liability
Thus far, the liabilities of the contravener to the State have
been considered. In addition, the person who contravened
section 218 or 219 could face civil liability to a person who
has, contemporaneously with the contravention, subscribed
for, purchased or sold securities and who has suffered a
loss. This is provided for in section 234. Thus if X, in
contravention of section 218 or 219, sold securities to Y at
an inflated price because X had inside information which
would greatly lower the price of the securities had the
information been made public, Y may bring an action against
X and claim the difference between the price he paid and the
price the securities would have been likely to be traded at,
had the information been made public. Section 234(6)
provides for a maximum amount that is recoverable under
this section. The amount recoverable is restricted to the
amount of profits gained or losses avoided by the
contravener.
(iii) Other prohibitions
It may also be noted that aside from insider trading, the
Securities and Futures Act also prohibits other unfair
practices that may arise in a stock market, such as false
trading or market rigging (section 197) or market
manipulation (section 198). Thus for instance, if A and B by
prior arrangement buy and sell the same shares to and from
each other repeatedly so as to create an impression of
active trading in that counter, these sections could be
breached. The making of false or misleading statements
pertaining to securities is also prohibited (section 199). Thus,
in Public Prosecutor v Wang Ziyi Able (2008), the online
posting of false information that a particular listed company
was raided by the Commercial Affairs Departments without
caring whether the information was true or false and which
information could have likely induced persons to sell their
shares in that company, resulted in the commission of an
offence.
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1 See page 29 onwards.
2
See page 50.
3 As to what is meant by an ordinary resolution, see page 66.
4
As for the formalities involved in altering the constitution of the company, see page
64.
5 Very generally, shares of a company may be classified as equity shares or
preference shares. The preference share may have certain advantages over an
equity share in that it may confer on the holder a preferential right to receive
dividends and may give the holder a priority in relation to return of capital in the
event of liquidation. However, it may also have disadvantages as in that it may not
allow the holder to vote.
6
As to “small company” see page 47.
7 For instance, if a person is mentally insane, he would not have full legal capacity.
8
However, in relation to a limited liability partnership there are similar grounds on
which a manager of a limited liability partnership may be disqualified.
9 However, an undischarged bankrupt generally cannot take part in the management
of a business, whether as a sole proprietor, partner or limited partner (section 34 of
the Business Names Registration Act and section 29 of the Limited Partnership Act
respectively).
10
There is a similar provision in respect of a manager of a limited liability
partnership (section 33 of the Limited Liability Partnership Act).
11 There is a similar provision in respect of a manager of a limited liability
partnership (section 34 of the Limited Liability Partnership Act).
12 An official receiver is a public servant appointed in relation to insolvency
(sections 17 and 21 of the Insolvency, Restructuring and Dissolution Act).
13
There is a similar provision in respect of a manager of a limited liability
partnership (section 36 of the Limited Liability Partnership Act).
14 See page 83. Section 154(1) also encompasses the situation where a civil
penalty (see page 85) has been imposed pursuant to the Securities and Futures
Act.
15
For instance, breach of section 162 (see page 81) may constitute an offence in
the management of the company.
16 See page 80.
17
On termination of an employment contract, see further page 322.
18 On authority of agents, see further, page 340 onwards.
19
See https://www.sid.org.sg/.
20 See for instance, page 37.
21
The term information is defined in section 214 widely and even includes matters
relating to suppositions, intentions and negotiations.
22 See page 8.
4
Protecting Intellectual
Property
An important aspect of business is intellectual property and it can be
key to business success. Intellectual property1 refers to matters such
as:
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Trade marks,
Patents,
Registered designs, and
Copyright.
The law in this area seeks to protect creations arising out of the
human mind by treating them as items of property. While protecting
the rights of creators, the law at the same time tries to balance this
with the interests of others who may wish to make use of the
creations, for one reason or another.
Most intellectual property requires registration in order for
protection to be conferred, which would naturally imply that cost will
be incurred. Nonetheless registering the intellectual property can
bring about many advantages to a business. First, quite obviously,
once a business registers its intellectual property, it is less likely for
others to copy it. Second, if a business does not register and another
business registers first, it is possible that the second business may
get priority or prevent the first from making use of it. Third,
registration can increase the brand value of the product or service
(for instance consumers may be more impressed if there is a
trademark symbol or patent pending symbol attached to a product).
Fourth, it is possible that registering an intellectual property could
eventually give the business a steady revenue stream (for instance
through licensing or franchising)2. Fifth by registering an intellectual
property a business can increase its valuation (for many of the
reasons mentioned above) which in turn can help it in other ways (for
instance, making it easier to raise finance).
TRADE MARKS
Businesses have long used trade marks to distinguish their goods or
services from those provided by others. In Singapore, trade marks
are governed by the Trade Marks Act. Unless otherwise stated, all
sections referred to in this part are with reference to the Trade Marks
Act.
The meaning of a trade mark
A trade mark is basically a “sign” capable of being graphically
represented and which is capable of distinguishing goods or services
provided in the course of trade by one person from goods or services
provided by any other person (section 2). Among other things, the
term “sign” includes any letter, word, name, signature, numeral, label,
shape, colour, aspect of packaging or any combination thereof
(section 2). Advertising slogans too can be covered. Further, trade
marks can even extend to sounds and scents which are capable of
being graphically represented. Cadbury, CocaCola, McDonald’s and
the Singapore Airlines logo are some examples of trade marks.
Registration
Trade marks are closely related to tort of passing off.3 Though a
business may choose to rely on the law of passing off alone and
decide not to register its marks, as stated earlier, and for various
other reasons,4 it is preferable to register the mark where possible.
Further, as stated in Chapter 2,5 registering a business name when
registering a business, does not itself confer proprietary rights to the
name.
To register a mark, the applicant must use or have a bona fide
intention of using the mark in the course of trade in relation to the
class of goods or services for which the registration is sought
(section 5(2)). The Trade Marks Act classifies goods and services
into various categories (section 6). There are a total of 45 categories
under the Trade Mark Rules. Thus, if the applicant is in the clothing
business, the applicant can only seek registration in that line of
business. The applicant cannot seek to register the trade mark in
respect of another category of goods, such as kitchen utensils,
unless the applicant has a bona fide intention of going into that line of
business as well.
(a) Grounds on which registration may be refused
Even if the applicant is using or intending to use a mark in respect
of a certain category goods or services, registration is not
automatic and it may be refused on various grounds.
Firstly, section 7(1)(b) provides that if the mark is devoid of
distinctive character, then registration will not be permitted. As
stated above, a trade mark must be capable of distinguishing
one’s products or services from those of another. If it is not
distinctive, then it cannot be registered. Thus if someone sets up
a Tan Coffee Shop and seeks to register the mark “Tan” in its
ordinary form, since the mark Tan is a common surname in
Singapore, registration will most likely not be granted. On the
other hand, if the name appears in a stylized and distinctive form,
then, registration cannot be ruled out.
Section 7(1)(c) provides that if the mark is indicative of the
kind, quality, quantity, intended purpose, value, geographical
origin or time of production or other characteristics of the goods
or services, then it cannot be registered. Thus, if someone sets
up a Delicious Restaurant and wants to register the word
“Delicious” in its ordinary form, that it unlikely to be permitted as it
is descriptive of the goods or services offered. If it was allowed,
others in the restaurant business could be prevented from
describing their restaurants as serving “delicious” food, and this
would not be a fair outcome.
However, as an exception to section 7(1), section 7(2)
provides that if the trade mark has acquired a distinctive
character as a result of use made of it, registration may
nonetheless be allowed. Thus for instance, if a company
producing new tablets for headaches decides to call its product
“HeadaCure” and seeks to register the word in its ordinary form,
since it is indicative of the intended purpose of the goods,
generally registration would not be permitted under section 7(1)
(c). However, if the name has been used for a long time and the
public clearly recognizes it, then registration may still be possible
pursuant to section 7(2).
Another bar is to be found in section 7(4). It provides that if
the trade mark is contrary to public policy or is intended to
deceive the public, then registration may be refused. Thus, for
instance if the mark sought to be registered is obscene or
scandalous, or if the mark is a label which states that goods have
been approved by a particular public authority, when that is not
the case, then registration is unlikely to be granted.
In addition, section 8(1) provides that a mark shall not be
registered if it is identical to an existing trade mark and the goods
or services in respect of which registration is sought are identical.
Thus, a person cannot expect to register the name Levi’s for
jeans or clothes if such a trade mark already exists in respect of
the same category of goods.
Further, section 8(2) provides that a mark shall not be
registered if it is identical to an existing trade mark, and the
goods or services in respect of which registration is sought are
similar; or if the mark is similar to an existing trade mark and
registration is sought in respect of goods or services which are
identical or similar, unless there is no likelihood of confusion on
the part of the public. Thus for instance, if ZAY is a registered
trade mark in relation to household furniture, and someone seeks
to register the name ZAY for home decorative accessories, or
the name ZAEY for household furniture or home decorative
accessories, the question is likely to turn on whether there is a
likelihood of confusion on the part of the public. If there were no
such likelihood, the registration would be allowed. In Mcdonald’s
Corp v Future Enterprises Pte Ltd (2005), Future Enterprises Pte
Ltd sought to register the marks, “MacTea”, “MacChocolate” and
“MacNoodles” along with an eagle sign. McDonalds opposed the
application. The court held the proposed marks were different in
terms of the colour, font and typeface and that on the whole the
signs were different and that “one should be slow to think that the
average individual is easily deceived or hoodwinked” and hence
McDonald’s objections were not upheld. On the other hand in
Johnson & Johnson v Uni-charm Kabushiki Kaisa (2007), the
appellants were the registered trade mark holders of the mark
“Carefree” in respect of certain products. The respondent sought
to register the name “Careree” in respect of a similar category of
goods. The court held that the name was visually and aurally
similar and the public might be confused and hence the
registration was not allowed.
Yet another bar is found in section 8(4). It provides a mark
cannot be registered if either the whole or essential part of it is
identical or similar to an earlier trade mark, provided,
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the earlier trade mark is “well known in Singapore”, and the
use of the latter trade mark would indicate a connection with
the proprietor of the earlier trade mark and is likely to damage
the interests of the proprietor of the earlier trade mark6 or
the earlier trade mark is not only “well known in Singapore”,
but also “well known to the public at large in Singapore” and,
the use would cause a dilution in an unfair manner of the
distinctive character of the earlier trade mark7 or would take
unfair advantage of the distinctive character of the earlier
trade mark.
Unlike sections 8(1) and 8(2), section 8(4) can extend to
goods or services which are not similar or identical. Thus, if
someone wants to register the name “Rolex” for pet food,
whether registration would be barred would depend on whether
the factors listed above are satisfied.
It may also be mentioned that the phrase “well known in
Singapore” is not the same as “well known to the public at large
in Singapore”. The latter is wider than the former. For instance, if
“Zai” is the registered name for a spanner and it is very well
known only among contractors in Singapore, the name may be
“well known in Singapore”, but not necessarily “well known to the
public at large in Singapore”. On the other hand, the mark
McDonalds would be well known on both counts.
(b) Duration of registration
Once registered, the trade mark is valid for ten years, and
thereafter it may be renewed for further periods of ten years
(section 18).
Item of property
A trade mark is an item of property (section 36) and may be
assigned (section 38) or licensed (section 42). Stated simply,
assignment is akin to selling a property, whereas licensing is akin to
renting it out. For instance, a franchisor who has a trade mark in a
logo would want to license out the right to use the logo to the
franchisee, rather than assign the right completely to the franchisee.
Infringement of trade marks
Section 27 sets out how a trade mark may be infringed. Firstly,
section 27(1) provides that a person infringes a trade mark if he,
without the consent of the proprietor of the trade mark, uses in the
course of trade, an identical mark in respect of identical goods or
services. Thus if someone sets up a restaurant called “McDonalds”
without the consent of the proprietor of that trade mark, that would
amount to an infringement.
Section 27(2) provides that a person infringes a trade mark if he,
without the consent of the proprietor of the trade mark, uses in the
course of trade an identical mark in respect of similar goods or
services; or a similar mark in respect of identical or similar goods or
services and there exists a likelihood of confusion on the part of the
public. For instance, in Sarika Connoisseur Café Pte Ltd v Ferrero
SPA (2013), the court held that the “Nutello” drink in question
infringed the “Nutella” trade mark which related to a hazel nut spread
as the above conditions were satisfied.
Section 27(3) provides that a person infringes a trade mark which
is “well known in Singapore” if:
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without the consent of the proprietor of the trade mark, he uses in
the course of trade a sign which is identical with or similar to the
trade mark, in relation to goods or services which are not similar
to those for which the trade mark in registered,
the use of the trade mark in relation to those goods or services
would indicate a connection between those goods or service and
the proprietor,
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the use of the trade mark in relation to those goods or services
would indicate there exists likelihood of confusion on the part of
the public because of such use, and
the interests of the proprietor are likely to be damaged by such
use.
Unlike sections 27(1) and 27(2), section 27(3) can extend to
goods or services which are not similar or identical. Thus, if someone
uses the name “Rolex” or “Rolax”, without the consent of the
proprietor of the mark “Rolex”, for furniture (as opposed to watches),
whether there would be an infringement under this section would
depend on whether the factors stated above are satisfied.
Another section that deals with infringement is section 55. This
section is referred to later in this chapter.8 Though it may be easier to
prove breach of section 55(3) as compared to breach of section
27(3), the remedy provided under section 55(3) (basically injunction)
is narrower than remedies available for breach of section 27(3)9.
(a) Defences to infringement
However, section 28 sets out certain matters which do not
amount to an infringement.
Basically, among other things, under section 28(1) if a sign is
used to indicate, the kind, quality or characteristic of a good or
service in accordance with honest commercial practices, there
would be a defence. For instance, if a supermarket lodges an
advertisement in a newspaper or online mentioning that it is
selling a particular product with the accompanying logo and the
logo happens to be trademarked, the supermarket is unlikely to
be liable for an infringement.
In addition, section 28(4) states that it is not an infringement
to use a registered trade mark:
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if such use constitutes fair use in comparative commercial
advertising or promotion or
if it is for non-commercial purposes (for instance, a student
uses a well-known trade mark in his or her power point
presentation slide) or
if it is for the purpose of news reporting or news commentary
(for instance, a news media company films the main door to a
business together with the business’s name which is
trademarked and shows it on its media channel).
In relation to comparative commercial advertising, whether or
not it is fair, would turn on the facts, but since it is likely that the
other business would mount a challenge especially if it comes
across as misleading in some way (Bee Cheng Hiang Hup
Chong Foodstuff Pte Ltd v Fragrance Foodstuff Pte Ltd
(2003)/Allergran Inc v Ferlandz Nutra Pte Ltd (2016)), a business
should tread this area very carefully.
(b) Do parallel imports result in infringement?
Parallel import refers to the process whereby a person seeks to
sell goods or services which are the subject of a trade mark (or
copyright or patent) without the consent of the proprietor of that
trade mark (or copyright or patent) in Singapore, but with the
consent of the proprietor of that trade mark (or copyright or
patent) in another country. For instance, the Mercedes-Benz taxis
that ply the streets of Singapore are likely to be parallel imports
and not purchases from Cycle & Carriage, which is likely to hold
the trade mark for that name in Singapore.
Generally, such parallel imports are permitted, pursuant to
section 29 of the Trade Marks Act (Hup Huat Food Industries (S)
Pte Ltd v Liang Chiang Heng (2003), or the Copyright Act
(section 25(3)), or the Patents Act (section 66(2)(g)), subject to
the conditions stated therein.10
(c) Consequences of infringement
If the proprietor of the trade mark proves an infringement, he may
seek an injunction.11 He may also obtain damages, account for
profits made or statutory damages12 (section 31). He may also
ask for a court order to remove any infringing sign (section 32) or
for the delivery up of infringing copies (section 33).
As for criminal liability, among other things, the Trade Marks
Act provides that the counterfeiting of trade marks (section 46),
or the importing or selling or keeping in possession for the
purpose of trade or manufacture, goods which infringe the trade
mark of a registered proprietor could amount to an offence
(section 49). The mere possession of a good with an infringing
trade mark, such as a fake Gucci bag for private purposes, is not
an offence.
(d) Business takeaway
It would be evident from the above, as compared to suing for
passing off,13 if a sign is registered and a business sues for trade
mark infringement, the business may have the additional remedy
of statutory damages without having to prove loss and further the
matter could also give rise to a criminal prosecution and hence
the likelihood of infringement may be less to begin with. Thus, for
such reasons too, generally it would be better to register signs
rather than rely on passing off. If there is a registration, the
business may choose to sue for both passing off and trade mark
infringement as happened for instance in Sarika Connoisseur
Café Pte Ltd v Ferrero SPA (2013), though ultimately the
business will not be doubly compensated.
In addition, as obvious as it may sound, a business should
come up with own marks instead of copying that of another
business or, at least seek permission from the other business to
use that business’s marks (as perhaps the problem in Sarika
Connoisseur Café Pte Ltd v Ferrero SPA (2013), referred to
above, could have been prevented).
International protection
Pursuant to the Paris Convention and the TRIPS Agreement, section
55(2) provides that the proprietor of a well-known trade mark in a
convention country may restrain, by injunction, the use in Singapore in
the course of trade a similar or identical trade mark in relation to
identical or similar goods or services, if such use is likely to cause
confusion. Section 27 discussed earlier relates to infringement of
locally registered marks whereas section 55 is not restricted to
locally registered marks as such.
Further, section 55(3) provides that a proprietor of a well-known
trade mark shall be entitled to an injunction if, without the proprietor’s
consent, an identical or similar mark is used in relation to any goods
or services, if:
•
•
•
that would indicate a connection between the goods or
services and the proprietor, and is likely to damage the
interests of the proprietor, or
if the proprietor’s trade mark is well known to the public at
large in Singapore, and usage would cause dilution in an unfair
manner of the distinctive character of the proprietor’s trade
mark, or would take unfair advantage of the distinctive
character of the proprietor’s trade mark.
Unlike section 55(2), section 55(3) can extend to goods or
services which are not similar or identical.
Thus, if someone sets up a Walmart Department Store in
Singapore following the success of the chain by the same name in
USA, whether an injunction can be obtained by the proprietor of that
name would depend on whether section 55(2) or 55(3) is breached.
In Sarika Connoisseur Café Pte Ltd v Ferrero SPA (2013), Ferrero
used the mark “Nutella” for its hazelnut spread. Subsequently, Sarika
which ran a chain of cafes started serving a drink called “Nutello”
which was made using the “Nutella” spread and used the term
“Nutello” in various promotional materials. Ferrero sued. Among other
things, the court held that section 55(3) was breached as the usage
indicated a connection between the two businesses and the interests
of Ferrero were likely to be affected, in that, its ability to go into the
drinks market could be effected. In addition, the court held there was
a dilution of the “Nutella” trade mark as overtime the distinctiveness of
Nutella could be eroded by such usage.
In a similar manner, a Singapore trade mark holder may be able
to protect his trade mark in other convention countries.
It is also possible for a Singapore based business to register its
trade mark in another country by following the requirements for
registration in that country. Alternatively, the business may make use
of the Madrid Protocol, which Singapore acceded to in July 2000. By
using this Protocol, the Singapore trade mark holder would be able to
register the trade mark in other countries which have also acceded to
the Protocol, in a cheaper and far less cumbersome manner.
PATENTS
The idea behind patents is to protect inventions. Inventions typically
relate to products (for instance, machines) or processes (for
instance, the process of making a micro-chip).
If there were no means by which inventions could be protected,
there would be little incentive for inventions to be made. It would be
pointless to spend vast amounts of money on research and come up
with a new invention, if the very next day after the invention is
introduced, others are free to copy it and profit from it. Hence, the
law seeks to protect inventions through the medium of patents.
It may also be mentioned that Singapore follows the first-to-file
system (as opposed to the first-to-invent system (section 17(1)).
Thus, subject to what is stated below, it is best for patents to be filed
without delay.
Patents are governed by the Patents Act. All sections referred to
in this part are with reference to the Patents Act, unless otherwise
stated.
Need for registration
To have a valid patent, it is necessary to register the patent and the
process may not be simple. Thus, the services of patent agents or
patent attorneys may be required.
As provided in section 19, the right to apply for the patent
generally lies with the inventor or, joint-inventors (as happened in
Cicada Cube Pte Ltd v National University of (Singapore) Pte Ltd
(2018)). Further, unless the contract provides otherwise (section
50(4)), an invention made in the course of employment by an
employee belongs to the employer, and in such a case, it would be
the employer who is entitled to apply for the patent (section 49).
As stated earlier, there are many reasons why an intellectual
property, including a patent, should be registered. However, it should
also be highlighted that compared to other registrations, registering a
patent can be much more time consuming and expensive. In addition,
if a patent is registered, technical information regarding the patent
has to be disclosed and this information would become public. Thus,
while the patent holder might get protection for 20 years, thereafter, it
may be easily copied. On the other hand, if the product by its very
nature is not easy to reverse engineer, it may be possible to get
protection for a much longer period without registering a patent,
provided the business manages to keep the information strictly
confidential. Thus, a business has to carefully consider the issue of
whether or not to apply for a patent.
Criteria for registration
To register a patent, as stated in section 13, it must be established
that:
•
•
•
the invention is new,
it involves an inventive step, and
it is capable of industrial application.
The term “new” means that the invention must not form part of the
state of the art (section 14(1)). The term “state of the art” refers to
any prior information relating to the invention that is available to the
public in Singapore or elsewhere (section 14(2)). Thus, it has first to
be established that, considering any known information in Singapore
or elsewhere, the invention is indeed new. If it can be established, for
instance, that a similar invention has been documented previously
elsewhere, then the invention may not be considered new. Subject to
some exceptional situations set out in section 14(4), this requirement
also means that the business which intends to apply for a patent
should itself take great care to keep the information secret14 while
the product or process is being developed,
Secondly, the invention must involve an inventive step. This means
that the invention must not be obvious to someone skilled in the art
(section 15). Whether it is obvious to someone skilled in the art or to
someone skilled in that particular field would turn on the facts of each
case. One factor that may be relevant, though not conclusive, is
whether the invention has taken a long time to come about. If it has
taken a long time to come up with the invention; that may suggest
that the invention is not obvious. Commercial success of the invention
could also be a further sign of inventiveness (Dextra Asia Co Ltd v
Mariwu Industrial Co (S) Pte Ltd (2006) and FE Global Electronics
Pte Ltd v Trek Technology (Singapore) Pte Ltd (2006)).
Thirdly, it must be proved that the invention is capable of industrial
application. An invention is capable of industrial application if it is
capable of being used in any industry, including agriculture (section
16). Essentially this requirement would mean that the invention must
be capable of some physical or practical application (such as a drug
or machine). If the invention consists purely theoretical information
(such as a mathematical formula) which cannot be applied to the
industry, then, this requirement is unlikely to have been met.
Duration and property rights
Generally, once registered, the patent is valid for 20 years (section
36). A patent, just like a trade mark, is an item of property (section
41) and may be assigned or licensed.
Infringement of patents
Section 66 provides the situations in which the patent may be
infringed. Generally, among other things, if a person without the
consent of the proprietor of the patent makes, uses or imports the
invention, that would amount to an infringement. If instead of making a
direct copy, the defendant makes a variant, whether that would
amount to an infringement would depend on whether the defendant
has nonetheless followed the “pith and marrow” (or the essential
features) of the earlier invention. Such an approach was adopted in
First Currency Choice Pte Ltd v Main-Line Corporate Holdings Ltd
(2008) and Main-Line Corporate Holdings Ltd v DBS Bank Ltd
(2012).
However, there are certain defences for infringement, such as if
the acts are done for private and non-commercial purposes (section
66(2)), or if they are done for experimental purposes (section 66(2)),
or if they are used for the services of the government (section 56).
If an infringement can be proved, the proprietor of the patent may
be entitled to an injunction, damages, account for profits and delivery
up of infringing materials (section 67). For instance, in ASM
Technology Singapore Pte Ltd v Towa Corp (2018), the company
infringing the patent in a moulding machine by selling similar
machines, was held liable and was ordered to pay damages or give
an account for profits at the option of the patent owner. However,
infringing a patent in this manner does not result in criminal liability.
International protection
By registering a patent in Singapore, the proprietor gets protection
only in Singapore. If the business wishes to get protection in other
countries, the business would have to register again individually in
those countries, or seek to register in other countries through the
provisions of the Patent Cooperation Treaty, which is an international
agreement that Singapore has assented to. Using the Patent
Cooperation Treaty might be a cheaper, faster and less cumbersome
process to get a patent registered overseas.
REGISTERED DESIGNS
Having a unique design for your product gives you an edge over your
competitors. Designs are governed by the Registered Designs Act.
As the name of the statute suggests, for such designs to be
protected, they have to be registered.15 Unless otherwise stated, all
sections referred to in this part are with reference to the Registered
Designs Act.
Criteria for registration
A “design” includes features of shape, configuration, pattern or
ornament applied to an article (section 2). Thus, the shape of a
perfume bottle for instance, could be considered a design.
However, not all such designs can be registered under the Act.
For instance, it is provided that if the features of the shape or
configuration were solely determined by the function of the article,
then that design cannot be registered (section 2). Thus for instance,
the round shape of a ball cannot be registered as a design since the
shape is dictated solely by the function. For similar reasons, the
design of a particular electrical isolator in question was held not
capable of being registered in Nagasima Electronic Engineering Pte
Ltd v APH Trading Pte Ltd (2005).
In addition, to register the design, it must be new (section 5).
Generally stated, the design must not have been previously published
in Singapore or elsewhere and further it cannot just differ in terms of
immaterial details from existing designs (section 5). Thus for instance,
if a manufacturer seeks to register the shape of a shampoo bottle,
that design cannot have been previously published in Singapore or
elsewhere and cannot differ only in terms of immaterial details from
existing designs. For similar reasons, the design of a particular
electrical isolator in question was held not capable of being registered
in Nagasima Electronic Engineering Pte Ltd v APH Trading Pte Ltd
(2005).
Duration and rights
Once registered, the design is valid for five years, and may be
extended for a second and third period of five years by paying
extension fees (section 21).
The proprietor of the registered design has the right to make in
Singapore, or import into Singapore, or sell or hire out any article in
respect of which the design is registered (section 30). In addition, the
registered design, just like the trade mark and patent, is an item of
property and may be assigned or licensed (section 32).
Infringement of registered designs
If there is an infringement, for instance, if someone tries to make,
import, sell or hire out any article in respect of which the design has
been registered without the consent of the proprietor of that design,
an action may be brought to recover damages or account for profits
and an injunction may be granted (section 36). Further, an order of
delivery up (section 40) or disposal of infringing articles (section 41)
may be made.
However, there are some defences for infringement, such as
where the act is done for private, non-commercial purposes (section
30(5)). In addition, no criminal liabilities are imposed for infringements
under the Registered Designs Act.
International protection
If a design is registered under the Registered Designs Act, that
design is protected only in Singapore. Generally, if a business wishes
to get protection in other countries, the business has to register that
design in those other countries in accordance with the local laws of
those countries or use the Hague System administered by the
International Bureau of the World Intellectual Property Organisation,
which allows international registration in countries which are parties to
the Hague Agreement by filing one application, thereby saving money
and time.
COPYRIGHT
In Singapore, the Copyright Act governs the law of copyrights. Unless
otherwise stated, all sections referred to in this part are with
reference to the Copyright Act.
The first point to note about copyrights is that the law of copyright
does not seek to protect “ideas”, facts or information (unlike patents).
Instead, it seeks to protect the “form of expression” of those ideas,
facts or information. Thus, if Z tells his idea to X and, based on that
idea, X writes a play in his own words; the copyright in that play
would be with X and not Z. Similarly, if Y, a student, reads a book
and, based on the ideas he has got from the book, writes an essay
about it in an examination without copying the form of expression
used, that would not amount to copyright infringement.
No need for registration
Unlike trade marks, patents or registered designs, for copyright
protection to apply, it is not necessary to seek registration. Thus,
copyright protection is automatic.
Sometimes the product in question might state that it is subject to
copyright laws or it might come with a © symbol. However, it is not
compulsory to have these notifications, and even without them the
owner of the copyright may enjoy copyright protection: Virtual Map
(Singapore) Pte Ltd v Suncool International Pte Ltd (2005).16
Nonetheless, from a business viewpoint, it may make sense to have
such notations as it may deter copying to some extent.
Nonetheless, there are two pre-conditions before this copyright
can arise:
•
•
copyright exists only in respect of certain types of matters, and
there must be some connection between the author or the
maker and Singapore.
(a) Copyright only in certain matters
As stated, copyright exists in respect of certain types of matters.
There are two broad categories. The first category is the “works”
category, and the second is “subject matter other than works”
category.
(i)
Works
The term “works” refers to original literary, dramatic, musical
and artistic works (section 7). “Originality” does not refer to
novelty or something inventive. All that is necessary is that
the work must not be copied from another work (Golden
Season Pte Ltd v Kairos Singapore Holdings Pte Ltd (2015))
and must be a result of one’s own skill, labour or judgement.
Thus, even a letter written to a friend could be considered
original. Further, Section 7A of the Copyright Act states that
literary works includes compilations in any form and
computer programmes. Thus for instance, the software
behind an app may be subject to copyright.
It should be pointed out that there is no exhaustive
definition of what amounts to a literary work. However, cases
have held that, to qualify as a literary work, literary merit is
totally irrelevant.17 Thus, copyright can exist in a really bad
novel. Further, cases have also held that to qualify as a
literary work, the contents must be able to offer information
or pleasure or instruction to the reader. Thus, if the work
were very short, such as usually would be the case with a
name or title or slogan,18 it may be difficult to consider it as a
literary work. Thus, if one person comes up with a book,
“Introduction to Economics” and then, another person comes
up with a different book, but with the same name, it is
unlikely that there would be an infringement. Similarly, in
Sinanide v La Maison Cosmeo (1928), the court held that
the advertising slogan “a social necessity, not a luxury” was
too short to attract copyright protection. Though the category
of literary works is not closed, works such as books, poems,
lyrics, advertisements, brochures, catalogues, newspapers,
forms, documents, letters, directories, power-point slides
and even emails and information on web pages can amount
to literary works.
As for dramatic works, there is no exhaustive definition
under the Copyright Act. However, some examples of
dramatic works would include notes for a choreographic
show or a mime show, if they are in writing (section 7(1)) and
scripts for films (section 7(1)). It is possible that dramatic
works may also qualify as literary works. Nonetheless, it
would appear that it does not really matter whether a work is
classified as a dramatic work or literary work, as the rights
conferred under the Copyright Act are basically the same.
As for musical works, there is no statutory definition of
what constitutes a musical work. But matters such as tunes
and musical scores for songs or jingles can amount to
musical works.
As for artistic works, section 7(1) of the Copyright Act
defines artistic work as referring to paintings, sculptures,
drawings, engravings, photographs, buildings or models for
buildings and other works of artistic craftsmanship. It may
also be noted that the term drawings can extend to matters
such as architectural drawings, design drawings, maps,
charts, graphs and even logos.19 A typical advertisement or
brochure could include artistic works in addition to literary
works.
(ii) Subject matter other than works
As stated, copyright also extends to a second category,
namely, “subject matter other than works”. Copyright in these
matters is also commonly known as entrepreneurial rights.
They comprise sound recordings, cinematograph films,
broadcasts, cable programmes and published editions of
works. Sound recordings could extend to matters like
compact discs. Cinematograph films could extend to matters
like video compact discs, digital versatile discs and blu-ray
discs. As for broadcasts, these refer to both television and
sound broadcast transmitted by “wireless” means, whereas
cable programmes refer to transmission “otherwise than by
wireless means” (section 7(1)). Thus, if a hotel provides
inhouse movies to guests through cable, that is likely to be a
cable programme rather than a broadcast and the hotel is
likely to have the copyright over its transmission. Published
editions of works refer to matters such as published books,
magazines and newspapers.
It should be obvious from the above discussion that one
particular product could encompass the copyrights of various
persons. Thus, in the case of a record, while the author of
the lyrics could have copyright in the lyrics, the person who
created the musical composition could have copyright in the
musical work, the recording company which recorded it could
have copyright in the record, and the broadcast station which
broadcasts it could have copyright in the broadcast.
It must also be noted that for matters not listed in the
Copyright Act, there is no copyright. Thus for instance, there
is no copyright over one’s face or voice. Thus, if a person
takes a photograph of a celebrity and uses it in an
advertisement, the celebrity cannot complain of breach of
copyright, though he may possibly have a course of action in
passing off or, if it is defamatory, he may have rights under
the tort of defamation20.
(b) Connection to Singapore
As stated, the second precondition is that there must be some
connection to Singapore. In relation to literary, dramatic, musical
or artistic works which have been published, this generally means
that the author must be a “qualified person” (see below) at the
time the work was first published, or the work must be first
published in Singapore (section 27). In relation to sound
recordings or cinematograph films, this means that the recording
or the films must have been made or first published in Singapore
or created by a qualified person (sections 87 and 88). For
broadcasts, this means that the broadcast must be from
Singapore by a holder of broadcasting licence (section 89). For
cable programmes, this means that a qualified person must have
provided the cable services (section 90). For published edition of
works, this means that the work must be first published in
Singapore, or the publisher must be a qualified person (section
91).
Generally stated, the term “qualified person” refers to
Singapore citizens or residents (sections 27(4) and 81). It can
also include corporations that are incorporated under the written
laws of Singapore (section 81).
Duration of copyright
For authors’ works, namely, literary, dramatic, musical and artistic
works, generally copyright extends for the duration of the life of the
author plus 70 years (section 28(2)). However, if the work is yet to be
published, performed in public, broadcasted, included in a cable
programme or if the records of the work have not been offered or
exposed for sale to the public, before the author’s death, copyright
extends to 70 years after the work was first published, performed in
public, broadcasted, included in a cable programme or records of the
work were first offered or exposed for sale to the public (section
28(3)).
For sound recordings, cinematograph films, the duration is
generally 70 years from the time it was first published (sections 92
and 93). For broadcasts and cable programmes, it is 50 years from
the time it was broadcast or included in a cable programme (sections
94 and 95). For the published edition of an author’s work, copyright
extends to 25 years from first publication (section 96).
The ownership of copyright
Generally, the authors or makers of the work have copyright.
However, there are some exceptions.
For instance, if the case of employees, unless the contract
provides otherwise, the copyright in works created in the course of
employment belong to the employer (section 30(6)). Thus, in
Nanofilm Technologies International Pte Ltd v Semivac International
Pte Ltd (2018), where an employee took copies of graphs which he
created in the course of employment to the new company he set up,
and the question arose to who had the copyright in the graphs, the
court held it was the employer. Nonetheless, unless the contract
provides otherwise, when a newspaper or magazine employs
someone, the employer only has the right to publish the work in the
newspaper or magazine, or to make a reproduction of it for the
purpose of publication in that newspaper or magazine (section 30(4)).
In such a case, the other rights associated with copyright remain with
the employee.
In relation to the commissioning of a photograph, drawing or
engraving, unless the contract states otherwise, copyright belongs to
the commissioner and not to the person who took or made such
photograph, drawing or engraving (section 30(5)). Thus, if a person
goes to a photo studio and has a photograph taken, unless the
contract provides otherwise (section 30(3)), that person would have
the copyright. However, this exception only applies to matters stated
therein. Thus, if a company commissions another to produce an
advertisement, unless the contract provides otherwise, the advertising
company would have the copyright. As such whenever a business
commissions non-employees to do work which may involve the
creation of a copyright (for instance, if business engages another to
develop a particular software or advertisement), it is best for the
business to clarify ownership issues in the underlying contract.
Rights conferred by copyright
The rights conferred by copyright vary with the subject matter of the
copyright. In this regard, section 26(1)(a) provides that in relation to
literary, dramatic and musical works, copyright gives the proprietor,
among other things, the right to:
•
reproduce the work in a material form,21
•
•
•
•
publish the work,22
perform the work in public,23
communicate the work to the public,24 and
make an adaptation of the work25 or do any of the
abovementioned acts in respect of the adapted work.
In the case of artistic works, it is quite similar though there is no
right to perform the work in public (section 26(1)(b)). Further, in the
case of artistic works, the right to reproduce the work includes the
right to convert works in two-dimensional form into works of threedimensional form and vice versa (section 15(3)). Thus, if there is a
design drawing of a piece of furniture, the proprietor of the artistic
work has the right to make a three-dimensional object out of it.
In the case of sound recordings, among other things, the
proprietor is given the right to make copies, publish it or make it
available to the public by means of a digital audio transmission
(section 82). In the case of cinematograph films, the proprietor is
given the right to make copies of the film, cause the film to be seen in
public or communicate it to the public (section 83). In the case of a
broadcasts, generally, the proprietor has the right to make certain
copies, cause it to be seen or heard in public before a paying
audience, rebroadcast it or otherwise communicate it to the public
(section 84). For a cable programmes, generally, the proprietor has
the right to make certain copies, cause it to be seen or heard in
public before a paying audience or communicate it to the public
(section 85). For a published edition of authors’ works, generally the
proprietor has the right to make reproductions of the edition (section
86).
Item of property
Copyright is an item of property and may be assigned or licensed
(section 194). Licences may be exclusive or non-exclusive. Exclusive
licences would usually mean that the proprietor would not grant
similar rights in the subject matter of the copyright to others,
whereas, in the case of non-exclusive licences, the owner of the
copyright would usually still retain the right to grant similar rights to
others. For instance, when you buy a piece of software from a shop,
you are likely to acquire a non-exclusive licence rather than an
exclusive licence.
Instead of being express, in some circumstances licences may
also be implied. Thus for instance, if a person writes a letter to the
newspaper intending it to be published, it is likely that the newspaper
has the implied licence to publish it.
Infringement of copyright
Essentially, when a person, without the consent of the proprietor,
does any of the acts that only the proprietor of the copyright is
entitled to do, there will be an infringement (sections 31 and 103).
Generally, this is the case even if the person infringing is innocent and
unaware of the infringement. Thus, if a person downloads materials
from a website not knowing that that may amount to an infringement,
this will not alter the position. Generally, it is also an infringement
even if the person infringing acknowledges that the work is not his
and belongs instead to the holder of the copyright in that work.
It may also be pointed out that in relation to reproduction, since
copyright only protects the form of expression and not the idea, the
expression and not the idea has to be reproduced. Thus, if a painter
draws a picture of the Singapore River and another painter
independently does the same, there will be no infringement as only
the idea is being copied and not the form of expression.
Another question that can arise in relation to reproduction is; how
much must be copied for it to amount to a reproduction? The answer
to this question is that if there were substantial copying, that would
amount to a reproduction (section 10; Virtual Map (Singapore) Pte
Ltd v Singapore Land Authority (2009)/ Nanofilm Technologies
International Pte Ltd v Semivac International Pte Ltd, (2018)). What
amounts to substantial copying would depend on the facts of each
case. However, generally, the quality of what is copied must be
looked at and not just the quantity that is copied (Virtual Map
(Singapore) Pte Ltd v Suncool International Pte Ltd (2005)). Thus,
even the copying of a small but characteristic part of a song from a
compact disc for the purposes of an advertisement may amount to an
infringement.
In relation to public performances as discussed a little earlier, it
may be recalled that not only proprietors of literary, dramatic and
musical works, but also others, such as proprietors of cinematograph
films, broadcasts and cable programmes, generally have the right to
transmit the work in public. Thus for instance, a play cannot be
performed in public without the consent of the copyright owner.
However, aside from such obvious situations, this right may be
infringed in other, more subtle ways. For instance, in Performing
Right Society Ltd v Harlequin Record Shops Ltd (1979), the playing
of records through loud speakers to attract sales was held to have
infringed copyright, as it amounted to a public performance. Similarly,
in Rank Film Production Ltd v Dodds (1983), the playing of the
plaintiff’s film in the defendant’s motel through an internal network
amounted to playing the film in public. Thus for instance, if a business
such as a restaurant or spa plays music in the background, the
requisite licensing fees may have to be paid.26
Instead of personally infringing, if someone authorises another to
infringe, there could be liability as well (sections 31 and 103). Thus, if
a lecturer who has written a book (the copyright in the published
edition of which lies with the publisher), tells students that they can
photocopy that book if they want to, as it is too expensive to
purchase, that could amount to authorisation and the lecturer may be
liable to the publisher. One related situation is the liability of
intermediaries such as network service providers for actual
infringement done by others. Part IXA of the Copyright Act has
detailed provisions relating to that, but the general position is that
they are insulated, subject to some obligations such as having to
disenable access to infringing material (Disney Enterprises Inc v M1
Ltd (2018)).
(a) Defences
There are various defences relating to copyright infringement.
Only some of them will be discussed here:
•
•
•
•
If there is an infringement, but nonetheless it amounts to a fair
dealing, then that would be a defence (sections 35 and 109).
Thus, for instance, in Global Yellow Pages Ltd v Promedia
Directories Pte Ltd (2017), among other reasons, the fact that
the material which was copyrighted was freely distributed by
the copyright holder, resulted in this defence being made out.
It should also be highlighted fair dealing can include research
and study (section 35(1A)). In this connection, in relation to a
published edition of a literary, dramatic, musical or artistic
work, if the amount copied is less than ten per cent, or in the
case of a publication divided into chapters, one chapter of the
work, that is deemed to be fair dealing if done for purposes of
research or study (section 7(2) read with section 35(3)).
If there is an infringement, but it amounts to a fair dealing for
the purposes of criticism or review (sections 36 and 110) or
for the purpose of reporting current events (sections 37 and
111), then that could be a defence. Thus, if a reviewer of a
book in a newspaper takes some quotes from the book and
puts it in his review, this defence might be applicable.
In the case of a literary work in a computer program,
generally if a copy of it is made by the owner of the program
for the purpose of replacing the original should it get
destroyed or rendered unusable, that would be a defence
(section 39).
Section 114 allows the making of a copy of a broadcast or
cable programme for private or domestic use. Thus, if a
•
•
person records his favourite television show to view it again,
there will be a defence to the infringement.
There are particular defences relating to educational
institutions (sections 50A to 53), libraries (sections 44 to 49)
and government services (section 198) which allow copying in
certain circumstances.
In some circumstances, there might be an implied licence to
carry out one or more of the rights associated with copyright,
and in such circumstances, there would not be an
infringement. For instance, if a lecturer flashes some
transparencies during the lecture, the students are likely to
have an implied licence to copy them.
As can be seen, other than for the “fair dealing” defence,
there is no other broad or general defence open to all
businesses. Thus, needless to say businesses should be very
careful in making sure that in carrying out their activities, no
copyright (or any other intellectual property right for that matter)
is infringed or that they acquire the required permission or
licence.
(b) Consequences of infringement
If copyright is breached, among other things, an action for
damages or an account for profits (section 119) may be brought
by the copyright owner. Alternatively, an action for statutory
damages27 may be brought (section 119). Subject to an
exception, there is a limit as to the amount of statutory damages
that can be claimed. The copyright owner may also seek an
injunction,28 an order of delivery up (section 120) or an order for
the disposal of the infringing copies (section 120A). In PH
Hydraulics & Engineering Pte Ltd v Intrepid Offshore
Construction Pte Ltd (2012), where an ex-employee and his new
employer infringed the copyright in certain design drawings
belonging to the ex-employee’s ex-employer, the court held that
they were liable. An injunction was issued and so was an order of
delivery up. In addition, statutory damages were awarded.
Of particular importance in this context is the Anton Pillar
Order (or search order) that is issued by the court. Generally,
such orders enable the plaintiff to search the premises of the
person who is alleged to have made an infringement and seize
documents (such as those which go to show that the defendant
had sold infringing copies to others) or property (such as
infringing copies or equipment used to make such copies) that
would go to prove the infringement. Such orders are usually made
ex parte, that is, they are made without the person who has
made the infringement knowing about it. Though important, such
orders are not granted easily and are only issued in exceptional
cases.
It must also be pointed out that it is a criminal offence for a
person to make or have in possession or import into Singapore
infringing copies, if he knows or ought reasonably to know them
to be such, with the intention to sell, let for hire, distribute or
exhibit for purposes of trade (section 136). In addition, under
section 136(3A), if a person infringes copyright wilfully, and either
or both of the following apply:
•
•
the extent of the infringement is significant;
the person does the act to obtain a commercial
advantage;
he is guilty of an offence. Thus for instance, if a company
downloads a significant amount of pirated software from the
Internet for the purpose of its business, thinking that this would
save costs, this section may come into play.
Performance rights
Having looked at copyright, it must also be mentioned that the
Copyright Act recognises other rights besides copyright. For
instance, it recognises performance rights. Performance rights relate
to live performances. Live performances can extend to matters such
as a play, a dance, a puppet show or a circus (section 246(1)), but it
does not extend to matters such as the performance of a sporting
activity or the reading or delivery of news or information (section
246(2)). For a live performance to enjoy performance rights,
generally, the performance must take place in Singapore or the
performer must be a qualified person29 (section 246(1)). Thus, if a
person records a singer singing on a Singapore stage without his
consent, he could be infringing the performance rights of the
performer. However, there are exceptions or defences, such as
where the recording is done for domestic or private purposes
(sections 246(1) and 249). Thus, from a business viewpoint, if better
protection is sought, it would be best for the business to state at the
time of contracting that any form of recording would not be permitted.
International protection
A matter copyrighted in Singapore can enjoy copyright in another
country if Singapore has a bilateral agreement with that country for
the mutual recognition of such rights, or if Singapore and that country
are party to an international convention which recognises such rights.
Of particular importance in this context is the Berne Convention.
Singapore acceded to the Berne Convention in 1998. This Convention
has been acceded to by over 100 countries, including the United
States of America, Britain, Australia, Canada, Hong Kong and
Malaysia and therefore, generally stated, a Singapore copyright
holder will enjoy copyright in those countries and vice versa (section
184).
_____________
1 Additional information about the various aspects of intellectual property can be
obtained from the website of the Intellectual Property Office of Singapore at:
www.ipos.gov.sg/.
2 See further page 92.
3
See page 361.
4 See page 87.
5
See page 25.
6 As for an illustration, see page 96.
7
As for an illustration, see page 96.
8 See page 95.
9
See page 94.
10 For instance, section 66(3) of the Patents Act provides that this does not apply to
patented pharmaceutical products in certain circumstances.
11
See page 364, footnote 17.
12 Statutory damages can only be claimed if the infringement relates to the use of
counterfeit trade marks (section 31(5)). When claiming for damages, the plaintiff
would have to prove his actual loss. However, if he is claiming statutory damages,
he is not compelled to prove his actual loss. Thus, the plaintiff may prefer to claim
statutory damages in cases where he has difficulty proving his actual loss. The
factors the court would have to consider in determining the amount of statutory
damages are set out in section 31(6). Subject to an exception, there is also a
maximum amount of statutory damages that can be paid out and this is set out in
section 31(5)(c).
13
See page 361.
14 In this regard, where employees are involved, it may also be noted that they
could be bound by express confidentiality clauses in their contract or even if not,
there could be an implied term to that effect. Where third parties are concerned, the
tort of breach of confidence may apply; see page 367.
15
The drawing of a design may also amount to an artistic work for which copyright
may exist (see page 105). However, generally stated, if a design could be registered
under the Registered Designs Act and it is not, it will not be protected by copyright
(section 74 of the Copyright Act).
16 Similarly an item subject to a trade mark may come with a ™ symbol. However,
again it is not compulsory to have such a notification, though having such a
notification may be relevant when it comes to the question of remedies. Having such
a notation may also help in increasing the brand image.
17
This principle also extends to all other “works”.
18 Though as stated earlier (see page 88), it may be possible to register the slogan
as a trade mark.
19
Logos may be protected by registering a trade mark as well.
20 See page 347, footnote 1.
21
For instance, making a play into a movie.
22 For instance, publishing a manuscript as a book and making it available to the
public.
23
For instance, reading a book in public or performing it as a play in public.
24 The term “communicate” is defined in section 7(1) to mean transmission by
electronic means. Thus for instance, if a book is posted on the internet for anyone
to access, that could amount to communicating the work to the public.
25
For instance, translating a book or making it into a play.
26 There are various collecting societies in Singapore which collect royalties on
behalf of copyright owners such as the Composers and Authors Society of
Singapore (www.compass.org.sg).
27
See page 94, footnote 12.
28 See page 364, footnote 17.
29
See page 106.
5
Raising Finance and Giving
Security
Obtaining credit or financing and giving some security or collateral in
return is a fundamental aspect of any business. The aim of this
chapter is to sketch an outline of some of the forms of financing that
are available, and some forms of security that can be created (or
taken, in the case of a creditor), and the basic legal consequences
behind them. Which would be the most ideal security to give or take
would obviously depend on the specific circumstances.
LOAN AND OVERDRAFTS
Perhaps the most common form of financing is the loan or the
overdraft that is extended by banks and finance companies1 to their
customers. Loans and overdrafts are, however, not identical.
Loans are typically meant for long term financing needs such as
when a business intends to acquire capital assets. They are granted
for a fixed periods of time such as 5, 10 or 25 years. When a loan is
granted, the amount lent is debited to a loan account opened in the
name of the customer. Interest is charged on the amount available in
that account regardless of the amount actually utilized. Interest
normally calculated on a monthly or yearly basis and paid periodically
(usually monthly) and is usually lower than that charged for
overdrafts. Interest rates cannot be increased unless the contract has
an express or implied provision to this effect. However, usually the
contract of loan would have an express clause allowing the bank to
vary the interest rate.2 Compound interest, too, cannot be charged,
unless there is an express or implied provision to this effect.
However, again most loans expressly allow the bank to claim
liquidated damages in the form of compound interest. However, if
such compound or default interest is exorbitant or unconscionable,
compared to the greatest loss that can result, it will not be
enforceable as stated in Hong Leong Finance Ltd v Tan Gin Huay
(1999).3 In this case, a default interest of 18 per cent per annum was
held to be exorbitant. While this case involved compound interest, for
transactions falling under the Moneylenders Act, normal interest can
also be challenged if it is excessive pursuant to section 23 of that Act.
Such issues aside, it should also be noted that the bank cannot call
up the loan before the period is up, unless there is an express term to
this effect or unless the customer commits a material breach.
However, usually there would be an express term allowing the bank
to recall the loan any time. If there is such a clause, then the bank is
entitled to call back the loan anytime, as in Moscow Narodny Bank
Limited v Fetim (1997), even if it is unfair4 to the customer.
The overdraft represents current account financing and is meant
for short term financing such as meeting day to day operational
expenses. Under an overdraft, the customer is issued with a cheque
book and is given a ceiling, which defines the maximum amount the
customer is allowed to overdraw on the account. Interest is payable
only when the account is overdrawn and to the extent overdrawn. The
interest is normally calculated on a daily basis and paid periodically
(usually monthly). The interest, too, cannot be increased, unless there
is an express or implied term to this effect. The same rule goes for
compound interest. However, usually there are express provisions
governing the matter. Generally, an overdraft is repayable on
demand, even without an express term to this effect, unlike a loan.
Further, an overdraft can be created informally, unlike a loan that is
usually created formally. For instance, if a cheque is presented and
there are insufficient funds in the account of a customer, the bank
may decide, at its discretion, to grant a temporary overdraft for that
amount so that the cheque can be honored.
When a loan or overdraft is advanced and the debtor is able to
repay, it may not really matter whether the creditor has taken any
security in return. However, in situations where the debtor is not in a
position to repay and bankruptcy or liquidation is imminent, the issue
of whether the creditor or the person to whom monies are owed has
taken some security that will give him priority over unsecured
creditors, becomes very crucial. Thus, often, when loans or
overdrafts are granted, banks will demand some security or collateral
in return.
MORTGAGES OR CHARGES OVER LAND
One common form of security given is a mortgage or charge over
land. In Singapore, there used to be a dual system of conveyancing
that distinguished between “registered land” and “unregistered land”.
Since then, Singapore Land Registry has been overseeing the
process of converting all “unregistered land” to “registered land” as
the latter adopts a more simplified and reliable method. The process
of conversion has generally been completed. Thus, only the position
under “registered land” will be considered.
Registered land is governed by the Land Titles Act. With
registered land, it is possible to create legal mortgages or charges by
using the prescribed forms under the Land Titles Act. Unlike under the
“unregistered land” system, registration is compulsory in order for the
mortgage or charge to be recognised as legal interests (section
45(1)) of the Land Titles Act. Under the Act, all mortgages act only as
security and do not involve the transfer of title from the debtor to the
creditor (section 68(3) of the Land Titles Act). However, if there is
default, there is a similar right to sell the property or appoint a
receiver to receive income arising out of it (section 69 of the Land
Titles Act read with section 24 of the Conveyancing and Law of
Property Act). Once the monies due have been paid, the mortgagor
has the right to request the discharge of the mortgage (section 77 of
the Land Titles Act). This right to redeem the property is well
entrenched under the “registered land” system, as it was under the
“unregistered land” system.
It is also possible to create an “equitable mortgage”. An equitable
mortgage would be created, for instance, if the mortgagor has
already created a legal mortgage over the property and then
subsequently tries to create a further mortgage out of the same
property. An equitable mortgage can be protected by means of a
caveat (section 115 of the Land Titles Act). The contract between the
mortgagor and mortgagee is likely to confer a right of sale or right to
appoint a receiver in the event of default. Similar rights would also be
conferred if the equitable mortgage were by deed5 (section 24 of the
Conveyancing and Law of Property Act).
MORTGAGES OR CHARGES OVER CHATTELS
Just as with mortgages or charges over land, mortgages or charges
may be created over any form of chattel or moveable property.
However, if there is a written agreement to grant a mortgage or
charge over chattels or moveable property, that will be governed by
the Bills of Sale Act.
Under the Act, such mortgages or charges have to be registered
within three days (section 4) and have to meet certain other
formalities (section 5). In addition, there is the formality that the
agreement must be attested before certain persons, such as
Commissioners of Oaths6 (section 10). Despite all these formalities
and many other restrictions, the registration is valid only for 12
months and will lapse unless renewed for another 12 months (section
13). The upshot of these limitations is that mortgages or charges over
chattels or moveable property are rarely created in practice.
However, as the Bills of Sale Act does not apply to companies
(section 2), it is still common for companies to create such security
interests. Thus, this is one of the advantages of incorporating a
company as compared to operating other types of business
organizations as there is a greater ability to provide a security or
collateral and hence a greater ability to raise finance.
COMPANY CHARGES
Just as with other business organizations, the company, when
borrowing money, may be required to give a security interest. Such
security interests may amount to charges under the Companies Act.
If so, they have to be registered under section 131 of the Companies
Act, failing which, they will be void against the creditor and of no
effect. This is another example of additional formalities when it comes
to companies as opposed to other types of business organizations.
Once registered, the registration is placed on public record and can
be inspected, for instance, by future creditors.
This registration is in addition to any other normal registration that
may be required under other statutory provisions. Thus for instance, a
company creating a mortgage over land may have to register it under
the Land Titles Act, just as other business organizations may have to.
However, as stated earlier, the Bills of Sale Act does not apply to
companies (section 2 of the Bills of Sale Act). Thus, a mortgage of
chattels by the company need not be registered under the Bills of
Sale Act, and only has to be registered as a charge under the
Companies Act.
There are two types of charges a company can create: the fixed
charge and the floating charge. The fixed charge attaches to specific
assets. For instance, if the company wants to create a mortgage
over a particular land or a patent; that would usually be a fixed
charge.
In contrast, a floating charge does not attach to specific assets.
Rather, it attaches to a class of assets, the exact components of
which would change from time to time. A charge over the stock in
trade of a company would be a floating charge. In Re Yorkshire
Woolcombers Association (1903), the court held that a floating
charge has the following characteristics:
•
•
•
it is a charge on a class of assets of the company, present and
future;
that class is one which, in the ordinary course of business of
the company, changes from time to time, and
it is contemplated that until some future step is taken by those
interested in the charge, the company may carry on its
business in the usual way as far as it concerns the particular
class of assets in question.
It would not be practical to create a fixed charge over individual
items of the stock in trade of the company, such as over each box of
chocolate or each bottle of jam in the case of a general grocer. The
process would be very cumbersome, as it may not be possible to
sufficiently identify each item of property, and the restrictions on
dealing with the goods may make it difficult to sell the goods.
However, a floating charge would allow the company to continue
trading with the goods in the normal course of business. When certain
events occur, such as when the company ceases to carry on
business, the charge would crystallize. It then attaches to the items
that are present on the date of crystallization. Prior to that, persons
who buy the items are not affected. Thus, the company can carry on
with its business in the usual way until the charge crystallizes and the
charge attaches or fixes to what is available at that date. Events such
as the liquidation of the company, the appointment of a receiver7 and
the cessation of the company’s business would bring about the
crystallization of a floating charge. Once the charge crystallizes, it is
converted into a fixed charge and, as stated, attaches to the items
available as at that date. Also as stated earlier, the Bills of Sale Act
does not apply to companies, unlike other business organizations
(section 2 of the Bills of Sale Act). Thus, for practical purposes, only
companies can create floating charges, and not other business
organizations.
In some situations, such as in the case of stock in trade, it may
not be practical to create a fixed charge as stated earlier. However,
where the creditor has the choice of taking either a fixed charge or a
floating charge, a fixed charge would be preferable. This is so for
several reasons.
Firstly, when the company is wound up (section 203(6) of the
Insolvency, Restructuring and Dissolution Act), or when a receiver8 is
appointed to take property (section 86(1) of the Insolvency,
Restructuring and Dissolution Act) subject to a floating charge and the
company is not in the process of being wound up, certain preferred
creditors are entitled to be paid before the floating charge holder.
Thus for instance, an employee’s wages or salary that has not been
paid takes priority to the claims of a floating charge holder up to a
certain limit.
Secondly, under section 229 of the Insolvency, Restructuring and
Dissolution Act, a floating charge created within certain time frames
before the commencement of winding up or judicial management9
could be void, unless certain conditions are satisfied. The reason for
this rule is to prevent the company from giving preference to some
creditors at the expense of others when the company is in financial
trouble.
Thirdly, since the company can deal with the goods in the ordinary
course of business, it may be possible for the company to create
further securities out of the same goods. Thus for instance, if a fixed
charge is created over the same goods subject to a floating charge,
the holder of the fixed charge may get priority. To prevent this,
floating charges would usually have a “negative pledge clause” which
prohibits the company from creating further security interests out of
the same goods. However, such clauses would be effective against
third parties only if they have notice of it.
Thus for such reasons, it may be important to determine if a
charge is a fixed or floating charge. In Re Armagh Shoes (1984), the
parties purported to create a “fixed charge” over book debts.
However, there was no restriction on the company on dealing with
those book debts. As such the court held that it was a floating
charge. As illustrated by this case, the way the parties have
described the charge in their agreement is not conclusive. Such an
issue also arose for consideration in Jurong Data Centre
Development Pte Ltd v M + W Singapore Pte Ltd (2011), where the
court reached the conclusion that the charge in question was a fixed
charge as there were restrictions on dealing with or disposing the
security in question.
SECURITY IN RESPECT OF CHOSES IN ACTION
A “chose in action” is a right that can be enforced in a court, but
which cannot be enforced by physical possession. Insurance policies,
shares and book debts are some such choses in action. Such choses
in action may also be given as security. Instead of merely acting as
security, choses in action may also be sold to raise finance.
Insurance policies are attractive to banks because, if the
customer (for instance, a sole proprietor) dies during the period of
the loan, the bank will be able to recoup itself from the monies
payable under the policy. Further, in the case of certain policies, such
as endowment policies, a certain amount may be made payable at
the end of a stated period and this amount, too, may be used by the
bank to recoup the loan.
Insurance policies may be taken as security by way of legal
assignment. This would require more formalities. Alternatively, it may
be done informally, such as by leaving the policies with the bank or
agreeing to grant the bank the policies as securities. This may
amount to an equitable assignment. But where there are competing
claims, in terms of priority, a legal assignment is preferable to an
equitable assignment, from the viewpoint of the creditor.
Just as with insurance policies, shares, too, may be given as
security. The security interest can take the form of an assignment or
charge (see for instance, section 81SS of the Securities and Futures
Act).
As stated, book debts, too, may be given as security. Book debts
refer to the debts that are due to the trader. The book debts may be
assigned or charged to the creditor. A charge of the book debts of a
company by way of security would have to be registered under
section 131 of the Companies Act. Assignment is akin to selling the
book debts. Often book debts are sold to persons, known as factors,
who buy the book debts at a discount. The seller of the book debt
benefits because the seller collects the money immediately (albeit at
a discount) from the factor and does not have to pursue an action
against the debtor to recover the debt. The factor also benefits for as
stated, book debts are bought at a discount. If the factor recovers
the money from the debtor, the factor stands to make a profit.
Security interests may also be created out of intellectual property
rights such as patents, copyrights and trade marks. There are certain
formalities relating to the creation of such interests under the relevant
statutes. For instance, under the Copyright Act (section 194 of the
Copyright Act) and the Trade Marks Act (section 38 of the Trade
Marks Act), it is provided that an assignment must be in writing and
signed by the assignor.
The Bills of Sale Act does not apply to choses in action as such
(section 2 read with section 3 of the Bills of Sale Act) and hence in
addition to companies, other business organizations too may be able
to create them,
GUARANTEES
Another form of security that is relatively common is the guarantee. It
need not be registered and it is comparatively a simple arrangement.
However, the value of the guarantee depends on the creditworthiness of the guarantor. If the guarantor were of weak financial
standing, it would not be of much value to the creditor.
A guarantee can be defined as a promise to answer the debt,
default or miscarriage of another. Under section 6 of the Civil Law
Act, for such a guarantee to be enforceable, the guarantee (or a
memorandum or note of it) must be in writing and signed by the
guarantor. Thus, if it is purely oral, it will not be enforceable.
A guarantor is liable only if the principal debtor is liable. If the
principal debtor is not liable for some reason, the guarantor will not
be liable. Thus, if, at the time the guarantee was entered into, the
principal debtor was suffering from mental incapacity and the creditor
ought to have known of this, the guarantee cannot be enforced
against the guarantor. However, in relation to infancy, by virtue of
section 2 of the Minors’ Contract Act, the guarantee is valid, even
though the contract of debt with the principal debtor, who is an infant,
may be invalidated on the grounds of infancy.10
Unlike a guarantee, an “indemnity” need not be in writing and is
not dependent on the principal debtor being liable. The difference
between a guarantee and indemnity was considered in Birkmyr v
Darnell (1704). The court in this case stated,
If two come to a shop and one buys and the other to gain him credit
promises the seller, if he does not pay you, I will; that is a collateral
undertaking and void without writing…, but if he says, “Let him have the
goods, I will be your paymaster, or I will see you paid; this is an undertaking
as for himself, and he shall be intended to be the very buyer”.
Put simply, this means that under a guarantee there is only
secondary liability, that is, the person guaranteeing is agreeing to be
answerable for the debt of another, whereas under an indemnity
there is primary liability, that is, the person agreeing to indemnify is
agreeing to incur the debt himself. To avoid the problem of the
guarantor not being liable because the principal debtor is not liable, in
practice, guarantees usually expressly state that in the event that the
principal debtor is not liable, the guarantee will be treated as a
contract of indemnity, thereby making the guarantor nonetheless
liable.
Generally, there is no duty on the part of the creditor to disclose
any information pertaining to the principal debtor to the guarantor,
unless the facts are highly unusual. However, once the guarantee is
signed, the creditor should not prejudice the position of the guarantor,
for instance, by increasing interest rates or by releasing security
taken from the principal debtor. If this is done, the guarantor will
generally be released from his obligations. However, in practice,
there is usually an express clause in the contract of guarantee that
allows the creditor to make any changes he wants to whether or not
they prejudice the guarantor, and such clauses have been upheld.
If there is nothing to the contrary in the guarantee, it may
terminated by giving notice. However, the guarantor would still
liable for the amounts incurred up to that time. There would usually
an express clause in the contract of guarantee pertaining
termination.
be
be
be
to
Generally, the creditor is under no legal obligation to resort to the
security given by the principal debtor before he calls upon a guarantor
to make payment under a guarantee. The creditor may enforce the
guarantee without taking any action against the debtor. However,
generally, subject to express provisions to the contrary, a guarantor
who pays the creditor is entitled to all the securities that the creditor
has obtained from the principal debtor so that he can recoup what he
has paid the creditor. In addition, the guarantor is entitled to be
indemnified by or seek reimbursement from the principal debtor
should the guarantor be called to pay the creditor.
A special type of guarantee used in commercial dealings between
two businesses is the “performance bond”. Thus, if A enters into a
contract with B to do some construction work for B and B is not sure
whether A will carry out the contractual obligations properly, B may
demand a performance bond to be issued by a bank or insurance
company so that if A were to default on contractual obligations, B can
make a quick claim against the bank or insurance company knowing
that they would have the ability to pay. However, in this context the
guarantee is not used as a security for repayment. Rather it is used
as a security for performance.
PUBLIC ISSUE OF SECURITIES
Besides loans or overdrafts, in the case of a company, another
important source of financing is to become publically listed11 and
issue securities. Companies may prefer to raise funds in this way
compared to going to banks as loans and overdrafts typically come
with many restrictions and conditions. However, the process of
issuing securities to the public is highly complex and by the time a
company decides to become listed and issue securities, clearly
lawyers will be involved and thus, only a very brief summary of the
process will be highlighted here.
Before a company can be listed, there are minimum requirements
to be met, such as in terms of revenue and profits.12 As for the term
“securities”, this refers to matters such as shares and debentures. A
share is easily understandable. As for a debenture, it is essentially a
debt owed by the company to the holder of the debenture, such as a
bond. A debenture is typically issued at a discount from its face value
and upon maturity, the debenture holder can expect to get back the
full face value. The debenture holder is also promised interest. In the
case of debentures that are listed in the stock exchange, they can
also be bought and sold like shares, making them more liquid and
hence also attractive.
However, before a company can issue any such securities, a
prospectus must be issued (section 240 of the Securities and Futures
Act) with all the prescribed information (section 243 of the Securities
and Futures Act) so that the public is suitably protected. In addition,
there are criminal liabilities if false or misleading statements are
provided in a prospectus, including on the part of directors (section
253 of the Securities and Futures Act).
Shares are considered as “equity” financing whereas debentures
are considered as “debt” financing. Generally stated, some
differences between the two forms of financing are as follows:
Table 5.1:
Equity
Debt
Dividend is not guaranteed.
Interest is guaranteed.
If there are profits, members stand a chance of
getting the profits through dividends.
Creditors are only entitled to
interest and have no chance
of sharing profits.
Members have some control over the company 13
(for instance, they can take part in the annual
general meeting of the company).
Creditors have no control
over the company.
The company is not obliged to repay the capital
advanced by the members.
The company is obliged to
repay the capital advanced
by the creditors.
If the company is liquidated and there are assets
after all liabilities have been met, the members get
a share of it.
Creditors only get back what
they are owed and nothing
more.
Dividends cannot be deducted against revenue for
income tax purposes.
Interest can be deducted
against revenue for income
tax purposes.
Though a public issue of securities is being considered, the table
above can equally apply to a private issue of shares or debentures,
such as in the case of a start-up private company which is
considering between issuing shares to an angel investor in return for
the capital or borrowing from a bank.
PLEDGES
The pledge is another form of security. It is usually granted in relation
to chattels or moveable property and arises in some specific types of
contexts. There is no transfer of title from the debtor to the creditor.
Instead, the essence of a pledge is possession. The debtor transfers
possession of the chattel to the creditor as security for the repayment
of the debt.
However, possession does not have to be actual possession; it
would suffice if there was constructive possession. Thus, in Dublin
City Distillery Ltd v Doherty (1914), the court held in passing that if
the pledgor (debtor) gave the keys to a warehouse in which the
goods were stored to the pledgee (creditor), that would constitute
constructive possession. Similarly, in Alicia Hosiery Ltd v Brown
(1970), the court held that if the pledgor contractually agrees with the
pledgee that he holds the goods for him or on his behalf, that could
be constructive possession as well. Further, there could be
constructive possession by the bank holding the document of title
relating to the goods. Perhaps the most common document of title is
the bill of lading.14 The bill of lading is essentially a document issued
by the shipper, and the person in whose name the bill of lading is
made out to is entitled to claim the goods from the shipper, when the
ship arrives at the port of discharge.
The pledgee has the right to retain the chattel as security until the
debt is repaid, and he also has the power of sale should the debtor
default on repayment. However, upon repayment the debtor is
entitled to get back the goods pledged. Generally, a pledge does not
have to be registered under the Bills of Sales Act and is thus
relatively simple to create.
Pledges are commonly used in certain types of transactions. For
instance, in the case of pawn shops, when a debtor pawns a valuable
at the pawn shop to raise money, that is essentially a pledge.
Pledges are also very commonly used in connection with the
importation of goods. The buyer of the goods will have to pay the
seller, and for this reason, he might have obtained credit from the
bank. The bank will want to have security and the security often
would be the goods themselves. However, since the goods might be
on board a ship at the time the credit was extended, actual
possession would not be possible. Instead, the buyer would transfer
the document of title to the bank. By getting hold of the document of
title, the bank would have constructive possession of the goods.
When the goods arrive, the bank will release the document of title to
the buyer, enabling him to collect the goods and sell them, but on the
condition that the goods or proceeds of sale must be held on trust or
on behalf of the bank. The reason for this is to retain constructive
possession so that the pledge continues until repayment.
LIENS
A lien is another form of security. Like a pledge, there is no transfer
of title of the property concerned from the debtor to the creditor.
Similarly, the Bills of Sale Act is generally not applicable, and so there
are no formalities involved.
However, liens and pledges are not identical. Pledges usually
arise by prior agreement between the parties, whereas liens can
even arise without such prior agreement. Further, while all pledges
carry with them the power of sale, not all liens do.
There are various types of liens as follows:
•
•
•
•
common law or possessory lien,
equitable lien,
maritime lien, and
statutory lien.
When a person has done work for another but is yet to be paid,
he would, in certain circumstances, have the right to retain goods
belonging to the other which are in his possession until that person
has paid for the work done. This is in essence a common law or
possessory lien, and as the name suggests, its validity depends on
possession. Such a lien may be “general” or “particular”.
It is general when the right attaches to any property in the lienee’s
possession, whether or not any work was done with respect to that
property. Thus for instance, solicitors and bankers have a right of
general lien. So, if they have done some work and have not been paid
and they have in their possession some property, such as shares
belonging to their clients, they may retain these until they are repaid.
In contrast, particular lien arises when a person is entrusted with
maintaining, storing, carrying or repairing goods, and he has not been
paid in respect of those services. Thus, for instance, if a transporter
has not been paid for transporting the goods, or a car repair
company has not been paid for the repair of a car, and the
transporter or the car repair company continues to have possession
of the transported goods or the car, respectively, they have a right to
retain those goods as security for payment. However, they do not
have a right of sale, unless the contract expressly states so.
Nonetheless, it may be possible to obtain a court order to sell the
goods in certain circumstances, such as when the goods are
perishable.
As for equitable lien, unlike common law or possessory lien, it
does not depend on possession. It arises in certain types of
relationships, such as that between partners in business, and vendors
and purchasers of real property. Thus for instance, an unpaid vendor
of a house has an equitable lien over the property to the extent
purchase price remains unpaid. It is possible to apply to court for an
order of sale in the case of an equitable lien.
Maritime lien, too, does not depend on possession. The maritime
lien attaches to the ship and its cargo to satisfy certain liabilities that
may arise in the course of the voyage. Thus for instance, seamen’s
wages that have not been paid or damage caused by a ship to
another may be secured by means of a maritime lien. As alluded to,
the maritime lien can be enforced by an action against the ship or its
cargo.
Statutes may also create a right of lien in various circumstances.
For instance, under the Sale of Goods Act, the unpaid seller who has
in his possession the goods, has a right of lien.15 How such a lien
may be enforced would depend on the provisions of the statute in
question.
As can be seen, liens can arise informally and give the person
who has expended some money or has not been paid in certain
circumstances the right to retain the goods until payment is made.
The contract can also expressly provide for it. For instance, when a
loan or overdraft is obtained, the contract may, among other things,
state that in the event of default, the bank would have a lien in
respect of property (such as a cheque) belonging to the customer
which comes into its possession.
HIRE PURCHASE
Another transaction that involves credit and security considerations is
the hire purchase. It is common in relation to both consumer (such a
purchase of a television) as well as non-consumer sales (such as
purchase of business machinery).
A hire purchase usually takes place when a person or business
wishes to buy goods but is unable to make an outright purchase
because of the lack of funds. In such circumstances, that person or
business will contract to make periodic payments by way of hire, and
the goods will be delivered to the hirer. The hirer will have an option
to buy after those periodic payments have been made. However, until
that option is exercised, the hirer is not bound to buy the goods.
Typically, the dealer of the goods will not provide the financing.
Instead, a finance company or bank would be involved. What usually
happens is that the dealer first sells the goods to the finance
company or bank. The hirer will not be a party to this contract.
Following this, the finance company will enter into a hire-purchase
agreement with the hirer, who would under the agreement, have an
option to purchase the goods once the periodic payments have been
made.
Hire purchases are governed by the Hire-Purchase Act, and all
sections referred to in this part are with reference to that Act.
However, the Hire-Purchase Act is not all encompassing. Notably, it
only applies to consumer goods and motor vehicles within certain
monetary limits (First Schedule to the Hire-Purchase Act). Hirepurchase transactions involving goods that are not covered (for
instance, business machinery) or exceed the monetary limits set out
in the Act are governed by normal contractual principles.
The Hire-Purchase Act is a piece of consumer protection
legislation. Thus for instance, it states that for the agreement to be
valid, it must be in writing and must be signed by both parties (section
3). It must also contain various particulars, such as the cash purchase
price as differentiated from the hire-purchase price (section 3). The
purpose of this is to enable the hirer to make an informed decision.
Further, even though there is no contract of sale to begin with, terms
relating to the quality of goods, as is the case under the Sale of
Goods Act,16 are automatically implied into the contract (section 6B).
In addition, the Hire-Purchase Act gives the hirer the right to complete
the transaction earlier by making all payments before the agreed date
(section 13). Further, on the part of the financier who wants to
repossess the goods if there is default in the payment of installments,
there are stringent conditions to be met before this right can be
exercised (section 15).
However, on the hirer’s part, he must take reasonable care of the
goods and may be required to take out insurance on behalf of the
financier (section 25).
If the hirer sells the goods in his possession before he has bought
them, since he does not have title to the goods, the new purchaser
would not have better title than the hirer would.17 Further, if the hirer
creates a security interest, the financier would still get priority as he
has the legal right to the goods. Thus, the security is in the form of
retaining the title to the goods until all the periodic payments have
been made. In this way, the financier will get sufficient protection.
_____________
1
Banks and finance companies may not be the only ones providing such facilities.
Others such as moneylenders may do the same. However, like banks and finance
companies, any person who carries on the business of moneylending would have to
be registered, pursuant to the Moneylenders Act, failing which that person would be
guilty of an offence and the loan would become irrecoverable.
2 As to the validity of variation clauses, see page 153.
3
As to liquidated damages, see page 247.
4 Generally terms would be binding even if they are unfair, see page 165. However,
the Consumer Protection (Fair Trading) Act may also apply in some circumstances
(see page 290 onwards), though this statute seeks to protect only consumers and
not businesses.
5
As to deed, see page 145.
6 As the name suggests, generally a Commissioner of Oaths is a person who
administers oaths or statutory declarations. An oath or statutory declaration may
need to be taken in a multitude of situations (see for instance page 17). Certain
persons such as advocates or solicitors or public or court officials may be
appointed as a Commissioner of Oaths. A Commissioner of Oaths must be
distinguished from a notary public. Only an advocate or solicitor can be appointed
as a notary public (Notaries Public Act). A notary public can attest the execution of
deeds and documents or make certified copies of them in order to render them
authentic. Again, such attestation or certification may be needed in a multitude of
situations.
7
See page 382.
8 See page 382.
9
As to liquidation and judicial management, see Chapter 15.
10 See page 189.
11
It may even be possible to raise finance from the public through crowdfunding
without being listed. However, subject to some exceptions (such as the amount
raised is less than $5million), a prospectus must be issued pursuant to the
Securities and Futures Act and hence the process may not be simple or straight
forward.
12 See paragraph 210 in the case of a Mainboard listing and paragraph 406 in the
case of a Catalist Listing: http://rulebook.sgx.com/.
13
See page 64.
14 See page 301.
15
See page 285.
16 See page 260 onwards.
17
See page 280. Further, section 25 of the Sale of Goods Act (see page 283)
would not apply as a contract which grants an option to purchase would not be
considered as a contract under which the buyer would have “bought or agreed to
buy goods”.
6
Entering into a Contract
Innumerable aspects of the business, such as renting or buying a
place to run the business, renovating that place, buying equipment
needed for the business, hiring employees, getting finance, getting
insurance, selling goods or services, and entering into transactions
with third parties for the performance of all kinds of services such as
banking, accounting, advertising, warehousing, transportation,
catering or cleaning, involve a contract.
In fact, most legal disputes involving businesses are contractual in
nature. Hence, this and the next four chapters are dedicated to this
topic.
This chapter starts by discussing when and how a contract is
entered into and some other related issues like parties to the
contract.
DEFINITION
A contract can be defined as an agreement enforceable in law. This
suggests that there are some agreements that are not enforceable in
law. Whether or not a contract is enforceable in law firstly depends
on whether or not the following four elements are satisfied:
•
there must be an offer,
•
•
•
there must be acceptance of that offer,
there must be consideration or it must be a document under
seal or deed, and
there must be an intention to create legal relations.
If any one of the above-mentioned elements is missing, there will
not be a valid contract.
OFFER
The first element in a contract is the offer. In Preston Corpn Sdn Bhd
v Edward Leong (1982), an offer was defined as follows:
An offer is an intimation of willingness by an offeror to enter into a legally
binding contract. Its terms either expressly or impliedly must indicate that it
is to be binding on the offeror as soon as it has been accepted by the
offeree.
Thus for instance, if A says to B, “Would you like to buy this bike
from me for $20?” that would be an offer; similarly, if B said to A,
“Will you sell me your bike for $20?” that would also be an offer.
It is important to note that an offer need not be expressed as
“offer” as in the above illustrations. Similarly, just because there is
reference to the word “offer”, it does not necessarily mean that there
is an offer. Thus, when there is a sale and the business uses the
phrase “special offer”, that does not necessarily mean the business is
making an offer in the legal sense.
To whom it must be addressed
An offer may be made to a single person, a group of persons or even
to the whole world.
In Carlill v Carbolic Smoke Ball Co (1892), for instance, the
company in question placed advertisements stating that they would
pay £100 to anyone who caught the flu after using the company’s
smoke balls as directed. The company further stated that it had
deposited a certain sum of money with a bank to meet possible
claims. Mrs Carlill bought the smoke ball from a retailer and used it.
She still caught the flu. She claimed the £100, but when the company
refused to pay, she sued the company for breach of contract. The
court held that the company had made an offer to the whole world
and that the offer had been accepted by Mrs Carlill. Thus, there was
a contract and the company had to pay her the £100 as per the
contract.
Invitation to treat
However, an offer must be distinguished from an “invitation to treat”.
An invitation to treat is an offer to negotiate or an offer to receive
offers (Gay Choon Ing v Loh Sze Ti Terence Peter (2009)). Unlike an
offer, it is not an indication by the person making it that he is willing to
be bound should the other party be interested in proceeding further.
Thus, if X rings up a company and makes some general inquiries
about the company’s products or services, that will not be an offer. It
will at most be an invitation to treat. Whether something amounts to
an offer or invitation to treat has to be objectively (as opposed to
subjectively) determined, that is, how would a reasonable person
have construed or understood it.
Though by no means exhaustive, the following are some common
instances of invitations to treat.
(a) Display of goods
In Pharmaceutical Society of Great Britain v Boots Cash
Chemicals (1952), the issue arose as to whether the display of
goods on an open shelf in a shop constituted an offer. The court
held that it was a mere invitation to treat. The court also held that
it was the customer who made the offer when he went to the
cash desk. The sale or contract was made when the cashier
accepted the customer’s offer.
There appear to be several reasons for this rule. If display of
goods were considered an offer, a seller may not be able to state
that the goods have been reserved for someone else or have
already sold them to someone else. Further, if display of goods
were an offer, when the customer tries it on, puts it in the basket
or brings it to the cashier, that might amount to acceptance and
the customer may not be able to change his or her mind after
that.
One particular consequence of this rule to a business is that, if
there is a mistake in the price of the goods and the customer
brings the goods to the counter, it would be possible for the
cashier to refuse the offer at that price and instead quote a new
price (that is, make a new offer). If the customer accepts the
new price, there is a contract at the new price. If the customer
does not accept it, there is no contract.
(b) Advertisements
In Partridge v Crittenden (1968), the court held that the
advertisement in question was an invitation to treat and not an
offer. Similarly in Workspace Consultants Pte Ltd v Teo Seng
Siew (1998), an advertisement for the sale of a property was
held to be an invitation to treat. Likewise, catalogues and even
menus would usually only amount to invitations to treat. The
reason for this rule is probably that it would be unreasonable to
expect the advertiser to always have sufficient stocks of the
items that are advertised unless the advertisement states so or it
appears otherwise. This principle can extend to online
advertisements as well as provided in section 14 of the Electronic
Transactions Act.
The practical effect of the rule is that if the goods stated in the
advertisement, catalogue or menu are not available, the
advertiser will not be liable for breach of contract. Since the
advertisement is only an invitation to treat, the customer will have
to make the offer. If the customer makes the offer, the business
does not have to accept it if it does not have the stocks of goods
in question. Hence, there will be no contract. Similarly, if a free
event promised in the advertisement is not held, the advertiser
would not be liable for breach of contract.1 Thus for instance, in
Harris v Nickerson (1873), where the advertiser withdrew an
auction contrary to what was stated in the auction, the court held
that the advertiser was not liable to the plaintiff who had incurred
travelling expenses in coming to attend the auction as there was
no contract to begin with, with the plaintiff.
However, exceptionally, advertisements may amount to offers.
This is especially true of unilateral contracts. Most contracts are
bilateral, that is, there are two promises involved. For instance, if
X promises to sell his car and Y promises to pay X $80,000 for it;
that is a bilateral contract. In addition to bilateral contracts, there
are unilateral contracts. In a unilateral contract only one party
makes a promise. The other party does not promise anything.
Thus, if X states that he will reward anyone who has found his
lost dog with $100, no one is promising to find his lost dog, but if
they do (that is they perform the act required), they can enforce
X’s promise. In unilateral contracts as in Carlillv Carbolic Smoke
Ball Co,2 since the other party would have embarked on a course
of action, it would be very unfair for the advertiser to turn around
and state that the advertisement was only an invitation to treat
and that he or she does not have to accept the other party’s
offer. Hence, in such situations, advertisements would usually be
considered as offers and once the act has been completed, there
would be a contract. Thus, if a business states in an
advertisement that if customers collect three empty cans they can
get some free gift, that advertisement is likely to be an offer. To
protect itself in such situations, it might be prudent for the
business to state that the offer lasts for only as long as the stock
of free gifts last.
(c) Company prospectus
When a company wishes to raise capital by selling shares to the
public, it must issue a prospectus.3 This, as well as the
advertisement relating to the “public offer”, is only an invitation to
treat, as the company is not promising that all applications will
definitely be approved or granted. When potential investors apply
for shares, they would be making an offer. When the company
allots the shares to the investors, that would amount to
acceptance and a contract would come into being at that stage.
(d) Auctions
Generally stated, an auction that calls for bids is an invitation to
treat. When the bidder places a bid, that will be an offer. When
the auctioneer selects the highest bid and knocks with his
hammer, that will be acceptance and a contract will come into
being at that stage. This is also the effect of section 57(2) of the
Sale of Goods Act. Similar principles are likely to apply to online
auctions, though acceptance would take place by electronic
means rather than through the knock of the hammer.
(e) Tenders
Large corporations often invite interested parties to submit
tenders for various projects. The call for the tender itself is
usually an invitation to treat. When the tender is placed, that is
usually an offer. Since that is an offer, the corporation is not
obliged to accept that tender even if that is the lowest, unless the
corporation expressly binds itself to accept the highest (or
lowest) tender as was the case in Harvela Investments Ltd v
Royal Trust Co of Canada Ltd (1985). In this case, the first
defendant wanted to sell his shares and so called two other
shareholders of the company to place a tender stating that he
would accept the higher of the two offers. In the circumstances,
the court held that the first defendant was bound to accept the
higher of the two tenders.
(f) Quotations
Businesses often issue quotations on request. Would such a
quotation amount to an offer or invitation to treat? It appears this
would depend on factors like what the quotation actually states
and whether essential matters have been addressed. In
Scancarriers v Aoeteroa International Ltd (1985), the shippers
sent to the exporters a telex which stated, “we agree to a
promotional rate of US$120… and this rate will be held until
29/7/82”. The court held that, as many matters such as the
quantity of cargo, the number of shipments or dates of shipments
had not been fixed, the quotation was not an offer. On the other
hand, if the quotation had provided for essential matters (which
could be case with typical renovation quotations for example), it
might have constituted a valid offer.
Termination of offer
Once an offer is made it will not last forever and may be terminated
in various ways. Once terminated, the offer would be incapable of
acceptance.
(a) Revocation
One way in which the offer may be terminated is by revocation of
the offer by the offeror before acceptance. However, to be
effective, the revocation of offer has to be communicated to the
offeree. In Byrne v Van Tienhoven (1880), the defendants made
an offer to the plaintiffs by post. Following this on the 8th of
October, they posted a letter revoking the offer. This letter
reached the plaintiffs on the 20th of October. Meanwhile, the
plaintiffs accepted the defendants’ offer on the 11th of October in
ignorance of the revocation. The court held that the revocation
was effective only on the 20th of October and, since by then the
plaintiffs had accepted the defendants’ offer, there was a binding
contract.
However, the offeree need not receive the notice of revocation
directly from the offeror himself. In Dickinson v Dodds (1876),
the defendant gave the plaintiff an offer to sell his house and the
offer was to be left open until 9 am on Friday, the 12th of June.
On Thursday, the defendant sold the house to someone else and
another person informed the plaintiff of this sale. Despite this, the
plaintiff tried to hand over a formal letter of acceptance before 9
am on the 12th of June. The court held that since the plaintiff
knew that the defendant had sold the property to someone else,
the offer was withdrawn and could not be accepted.
However, what if the information appeared to be a rumor or
gossip? Should the offeree take that as true and be prevented
from accepting the offer? Though the matter is not settled, the
answer is likely to depend on whether, based on the facts, a
reasonable person would have considered the statement to be
accurate. If that is the case, the offer would have been effectively
withdrawn and incapable of acceptance.
It will also follow from the case of Dickinson v Dodds cited
above that even if the offeror stated that the offer would be open
till a certain time, he would not be bound to keep the offer open
until that time and can revoke it prior to that. Similarly, in
Routledge v Grant (1828), where the defendant offered to sell his
house to the plaintiff and offered to keep that offer open for six
weeks, it was held that he could revoke that offer prior to that.
The reason for this is that there are in essence two offers.
One offer is to sell the house and another offer is to keep that
earlier offer open for a stated period of time. In relation to the
second offer, while the offeree has agreed with the offerer that
the offer be kept open for a certain period of time, he has not
given consideration4 for it and hence that contract would not be
enforceable.5 The way to make an offer to keep some other offer
open for a certain period of time is to provide consideration (such
as money) for it. Thus for instance, in practice, when a buyer
intends to buy a house, the seller would normally give the buyer
an “option” under which the seller would agree to keep the offer
open for a period of time, such as two weeks (for the buyer to
sort out financing issues), and in return for that, the buyer would
pay him a sum of money.
Another interesting point is whether in unilateral contracts, the
offeror can revoke the offer once the offeree has started
performing the act. For instance, if a business promises that
anyone who collects three empty cans is entitled to a free gift,
can the business then revoke the offer after some people have
started collecting the cans? Though again in this area, the law is
not entirely settled, it is possible that once performance has
begun in unilateral contracts, the offeror may not be able to
revoke the offer. Though in the above example, the offeror may
not be able to revoke his offer once performance has started, the
business as stated earlier may protect itself, by stating that the
offer is valid only for as long as the stock of free gifts last.
(b) Lapse of time
Another way in which the offer may come to an end is by the
lapse of time. For instance, the offer might state that it is open
until a certain date. If the offeree purports to accept after that
date, there will be no contract.
Even if there is no express time stated in the contract, the
offer is likely to lapse after a reasonable amount of time. What a
reasonable amount of time is depends on the facts of each case.
In Ramsgate Victoria Hotel Co v Montefiore (1866), where the
defendant had applied for certain shares in June and the plaintiff
company allotted the shares to him in November, the court held
that the defendant’s offer was terminated by the lapse of time
and hence there was no binding contract.
Needless to state, to bring about more certainty, it would be
good to have the date mentioned in the offer itself (for instance,
in a quotation or offer of employment letter) where possible.
(c) Offer subject to condition
If the offer is subject to a condition and the condition is not
satisfied, the offer cannot be accepted. This is another way in
which an offer may be terminated.
The term “condition” can mean many things6 but in this context
a condition can be defined as some happening or factor which
cannot be determined or verified at the time the offer is made.
Thus for instance, if an employer offers employment to X
provided X passes a medical examination and X fails to pass the
medical examination, X cannot then accept the offer. Whether or
not X will pass the medical examination cannot be determined or
verified at the point the offer was made.
(d) Death
Another way in which the offer may be terminated is by death. If
the offerer dies and the offeree has notice of this, the offer
cannot be accepted. However, what about the situation where the
offeree has no notice of the offeror’s death? Though the matter is
not entirely settled, it is likely that the answer would turn on the
type of contract in question. If it were a contract of personal
service, such as a contract to act or a contract to sing, the offer
would be incapable of acceptance. Thus, if a female painter who
offered to paint a portrait dies, one cannot expect her husband or
estate to complete the job. On the other hand, if the contract
relates to something else that is not personal, such as a contract
to sell a car, the offer would probably still be capable of
acceptance. As for death of the offeree, since the offer (unless it
is made to other persons as well) is only made to the offeree, it
is unlikely that someone else can accept it.
(e) Rejection
Another way in which the offer may be terminated is by rejection
on the part of the offeree. Once the offeree rejects the offer, he
cannot subsequently insist on accepting it.
In this regard, it must be noted that if the offeree makes a
counter-offer, that is an offer which is inconsistent with the I
original offer, that counter-offer too has the effect of rejecting the Counteroffer
original offer. In Hyde v Wrench (1840), Wrench offered to sell
supersedes
his farm to Hyde for £1,000. Hyde replied asking whether he
would take £950 instead. Wrench refused to accept this, original
offer
whereupon Hyde stated that he will take the original offer of
£1,000. The court held that in the circumstances, Wrench was not
bound to sell the farm to Hyde as Hyde’s counter-offer destroyed
Wrench’s original offer to sell the farm at £1,000.
However, if the offeree is not making a counter-offer but just
asking for more information regarding the original offer and it is
clear from the facts that he is not rejecting the original offer, the
original offer is still capable of acceptance. Whether this is indeed
the case or it is a counter-offer would very much turn on the facts
of the case.
ACCEPTANCE
The next requirement for there to be a valid contract is that the offer
must be accepted. Essentially for there to be an offer and
acceptance, there must be a “meeting of the minds” and whether this
has indeed been achieved has to be determined objectively (as
opposed to subjectively), that is, how would a reasonable person
have construed or understood it (Gay Choon Ing v Loh Sze Ti
Terence Peter (2009)).Such issues can especially arise when there
are protracted negotiations and one party alleges a contract has
already been entered into at some stage of the negotiations and the
other party disputes that, as happened in ATS Specialized Inc v LAP
Projects (Asia) Pte Ltd (2012).
On same terms as offer
In order to be effective, acceptance must be on the same terms as
the offer. If new terms or conditions are introduced, there would be
no valid acceptance. That would instead amount to a counter-offer,
as in Hyde v Wrench discussed earlier.
Communication of acceptance
In addition, subject to what is said below, to be valid, acceptance
must be communicated. There are several issues to be considered in
this context:
y
1 Orally
3
By
Conduct
2 Writing
(a) The first issue relates to method of communication of
acceptance. Acceptance may be made orally or in writing. It may
even arise by conduct as when the cashier in a shop accepts a
customer’s offer to buy goods, and keys in the price. The
appropriate means of acceptance would depend on the
circumstances.
In this regard, if the contract provides that acceptance may
only be by a particular mode, such as e-mail, then acceptance
can only be by that mode. However, if there were no mandatory
mode, whether the mode chosen in the circumstances is valid
would depend on whether it is reasonable. If it were reasonable,
it would be valid. For instance, acceptance could be by sms as
happened in Ong Hong Kiat v RIQ Pte Ltd (2013) which involved
the sale of shares in a private company. On the other hand, if it
were not reasonable (as perhaps would be the case when the
offeror based overseas wants an immediate reply but the offeree
sends his acceptance by post) it would not be effective.
(b) The second issue is whether the offeror can state that silence of
the offeree may be treated as acceptance. In Felthouse v
Bindley (1862), the plaintiff offered to buy his nephew’s horse
and stated, “If I hear no more about him, I consider the horse
mine” at a certain price. The nephew made no reply and the
horse was sold to someone else. The plaintiff sued. The court
held the offeror cannot impose silence on the offeree and so
there was no contract.
If the rule were otherwise, that could lead to abuse. For
instance, a business could send goods to a person’s home and
state in an accompanying document that if it did not hear from
that person in an hour’s time, it would take it that he has
accepted the goods. If such a thing were allowed,7 that would
indeed be an easy way to do business.
However, it is not the case that silence can never amount to
acceptance (Midlink Development Pte Ltd v The Stansfield
Group Pte Ltd (2004)). For instance, since the rule is to benefit
the offeree, if both the offeree and offeror for whatever reason
agree that silence can amount to acceptance, then silence can
indeed amount to acceptance.
(c) The third issue is whether the offeror, instead of imposing on the
offeree that silence would amount to acceptance, can waive the
requirement of communication of acceptance, that is, can state
that he (as opposed to the offeree) would be bound even if the
offeree does not communicate his acceptance. If the offeror
impliedly or expressly states this, it would appear that this would
not raise problems. This is especially so in unilateral contracts
such as in Carlill v Carbolic Smoke Ball Co (1892) which was
referred to earlier. Thus in that case, the court held that the
offeror had impliedly dispensed with the requirement for the
offeree to communicate her acceptance to the offeror and so
there was still a valid contract.
(d) The fourth issue relates to when acceptance is effectively
communicated. Is acceptance effectively communicated when it is
sent or when it is received? It is important to determine this
because there could be instances when acceptance is sent but
not received. Further, in international transactions the place
where the contract is formed (which would be where acceptance
is effectively deemed to have taken place) could have a bearing
on which country should have the jurisdiction to hear disputes and
which country’s laws should govern the contract.
In this regard, assuming the contract does not have a specific
provision governing the matter, the general rule is that
acceptance is effective only when received. If this is not the case,
odd results may occur as observed in Entores Ltd v Miles Far
East Corpn (1955);
An acceptor could say: “I spoke the words of acceptance in your
presence, albeit softly, and it matters not that you did not hear me”; or
“I telephoned to you and accepted, and it matters not that the telephone
went dead and you did not get my message”…
This general rule also extends to other means of
communications such as telexes. Entores Ltd v Miles Far East
Corpn was a case concerning telex messages, and the court held
that acceptance was effectively communicated when received.
Further, it would appear from Reese Bros Plastics v Hamon Sobelco Australia Pty Ltd (1988) that for facsimile transmissions,
acceptance is also effective only when received.
To the general rule that acceptance is effective when
received, there is one well-established exception and that is the
postal rule. The authority for this proposition is Adams v Lindsell
(1818). In this case, the defendant wrote to the plaintiff offering
to sell him wool and asked him to reply by post. The plaintiff
replied on the 5th but the letter reached the defendant only on the
9th. Meanwhile on the 8th, not hearing anything from the plaintiff,
the defendant sold the wool to a third party. The plaintiff sued the
defendant and the court held that the acceptance was effective
when the letter was posted and so there was a contract.
The reason for the rule appears historical but nonetheless the
rule applies in Singapore. However, there are exceptions to the
postal rule (1L30G Pte Ltd v EQ Insurance Co Ltd (2017)). For
instance, if the offeror states in the contract that acceptance
would only be effective if he receives the letter, then acceptance
would only be effective upon receipt. It must also be noted that
the postal rule does not apply to offers or revocation of offers,
which generally are effective only when received.
One important form of acceptance that is yet to be
considered is acceptance by e-mails or online acceptances. In
relation to e-mails or online acceptances, the question is whether
the general rule should apply (receipt) or the postal rule should
apply, assuming such issues have not been addressed in the
contract. The matter is yet to be authoritatively settled. The issue
was discussed in passing in the High Court decision of Chwee Kin
Keong v Digilandmall.com Pte Ltd (2004). Though the court in
this case seemed to be in favour of the receipt rule, the matter
was not conclusively determined.8
In the event that it is held acceptance is effective upon
receipt, the question might also arise as to when exactly “receipt”
occurs. In this regard, reference may be made to the Electronic
Transactions Act. Effectively under section 13, if the message is
sent to an electronic address that has been designated by the
addressee (for instance, acceptance is sent to the email address
quoted in the offer), receipt occurs when the message is capable
of being retrieved by the addressee. Where the message is sent
to a non-designated electronic address (for instance, acceptance
is sent not to the email address quoted in the offer but to some
other address of the offeror sourced from social media), receipt
occurs when the message becomes capable of being retrieved
by the addressee and the addressee becomes aware that the
message has been sent to that address. These provisions also
seem to suggest actual reading of the message may not be
necessary.
Similar kinds of issues can arise in relation to acceptances by
short messaging service (sms) or whatsapp.
Agreement as to essential terms
Before leaving the topic of acceptance, it must also be mentioned
that for there to be a valid offer and acceptance or a valid
agreement, essential terms must be agreed upon. For instance, if X
agrees to sell his house to Y and Y agrees, but the parties do not
discuss the price at all, it will be odd if that agreement can be
enforced. If the parties have not agreed upon essential terms, then in
reality they have not reached any agreement at all.
In Scammell v Ouston (1941) for instance, Ouston placed an
order for a van with Scammell on hire-purchase terms and stated,
“The balance of purchase price can be on hire-purchase terms over a
period of two years”. This was accepted by Scammell. However,
later, Scammell did not deliver the van and Ouston sued. The court
held that the terms were too vague, as there were no standard
hirepurchase terms that were applicable. As the parties had not
agreed to the essential terms, the court held there was no binding
contract. Similarly in ATS Specialized Inc v LAP Projects (Asia) Pte
Ltd (2012), the court held that even if the protracted negotiations
resulted in an offer and acceptance, the alleged tripartite set-off
agreement was too uncertain to be enforced as the quantum to be
set-off was not clear cut.
However, though essential terms have not been spelt out in the
contract, if the terms can be ascertained by reference to previous
dealings between the parties or by reference to the normal course in
the trade or if the contract provides some mechanism for the
determination of the essential terms, there will be no uncertainty and
there will be a valid contract. For some such reasons, in Hillas & Co
Ltd v Arcos Ltd (1932) for instance, an option to buy timber was
upheld even though there was no clear description of the type of
timber to be sold.
CONSIDERATION
In addition to offer and acceptance, for a contract to be valid, there
must be consideration. However, if the contract is by seal or deed,
there is generally no need for consideration (Gay Choon Ing v Loh
Sze Ti Terence Peter (2009)). A contract by seal or deed is usually a
very formal document drawn up by solicitors and hence it is generally
presumed that the parties intended the document to be binding
despite the absence of consideration. Otherwise, all contracts require
consideration.
A contract essentially involves one (unilateral contracts) or two
promises (bilateral contracts).9 The person making the promise is
known as the “promisor” and the person to whom the promise is
made is known as the “promisee”. In Gay Choon Ing v Loh Sze Ti
Terence Peter (2009), consideration was defined as “a return
recognized in law which is given in exchange for the promise sought
to be enforced”. Put simply, a promisee can enforce a promisor’s
promise, if the promisee has done or agreed to do something in
image
return for that promise.
is a promiseperformancebargainedbya promiser in ex
fortheirpromise
An example would illustrate the point more clearly. Take the case
of A, who promises to sell his car to B for $X. In this example, there
are two promisees and two promisors. In relation to the car, A is the
promisor and B is the promisee and in relation to the money, B is
promisor and A is the promisee.
Let us further assume that after B has agreed, A refuses to go
ahead with the contract. In such a situation, assuming B has paid the
money to A, B can sue A on his promise to sell the car as B has given
something in return (money). As B has already performed his side of
the obligations, this is known as “executed consideration”.
Even if B had not given the money to A, B can still sue A,
assuming B had agreed to give A the money. Here consideration is
“executory”, that is, it is yet to be performed, but that would suffice
and B can still sue A. This is a very important principle. Very often
businesses enter into contracts which need not be immediately
performed (for instance, a building contract to start construction in
two months’ time). In such situations, even if the contract is yet to
start, this principle would mean that both parties are not free to walk
away without liability.
If we tweak the above example and assume that A had promised
to give the car to B as a gift (that is for free) but eventually did not do
so, B would not be able to sue A, as B did not give or agree to give A
anything in return for A’s promise. This then, in essence, is
consideration.
It should also be highlighted that the phrase “has done or agreed
to do” is intended to cover not doing something or agreeing not to do
something as well. For instance, if A starts legal proceedings against
B, but B is willing to compromise and pay something to A on the
condition that A stops the legal proceedings, and A agrees, that can
be consideration for B’s promise. This is the basis for settlement and
compromise agreements. Similarly, if the employer specifically
promises an employee a bonus so that he would not exercise his right
under the contract to resign, there might be consideration for the
employer’s promise (Brader Daniel John v Commerzbank AG
(2014)).
Having introduced the basic idea behind consideration, some finer
points will now be addressed.
Consideration need not be adequate
The first point to note is that consideration need not be adequate.
This means that so long as something is done or a promise has been
made to do something, it does not matter what its value is or whether
it is commensurate with what that party is getting in return.
Thus, in Chappell & Co v Nestle Co Ltd (1960), the court held that
three used wrappers of chocolate bars could constitute consideration.
Similarly, if X sells his copyright of a book for $1 or his car for $10,
the contract cannot be challenged on the ground that the amount the
other party is giving is ridiculously low compared to what he is getting
in return. Thus, essentially this would also mean that the courts will
not help you get out of a bad bargain. Further, if the rule were
otherwise, there will always be disputes whether the exchange given
is adequate enough and this will result in a lot of litigation and
uncertainty in business.
Consideration cannot be past Nottested
Another rule in relation to consideration is that it cannot be “past”. It
must be part of the deal, agreement or exchange. If, after the
transaction is completed, one party subsequently promises another
something in return when previously nothing in return was expected,
consideration would be past10 and cannot be enforced.
In Re McArdle (1951) for instance, the plaintiff in question made
certain improvements to the house in which she was living.
Subsequently, others who also had an interest in the house, promised
to pay her some money for the renovations. When they did not keep
up their promise, the plaintiff sued. The court held that since at the
time the renovations were done, they were not done with the
expectation of getting something in return, the subsequent promise to
pay was past consideration and not enforceable.
However, when one party does something at another party’s
request and both parties envisage payment all along, consideration is
not past, as observed in Pao On v Lau Yiu Long (1980) and followed
in Rainforest Trading Ltd v State Bank of India Singapore (2012).
Thus for instance, if X goes to the hospital for a treatment, and later,
X promises to pay the hospital for the treatment, consideration will
not be past as the treatment was done at the request of X and both
parties must have anticipated all along that payment would have to be
made.11
Consideration must move from the promisee Nottested
Another rule in relation to consideration is that it must move from the
promisee. The effect of this rule is that a party (X) can sue on
another’s (Z’s) promise only if he (X) does or has agreed to do
something in return for that promise. It does not matter that the other
party (Z) got something in return from someone else (M).
Take for instance, the case of M who goes into a shop to buy a
gift for his friend, X. The shopkeeper (Z) is unaware that the gift is
being bought for someone else and thinks it is for M’s personal use. If
the gift or product turns out to be of unsatisfactory quality, X cannot
sue Z for breach of contract. This is because X did not do or give
anything in return for the gift. X took no part in the bargain and so he
has no rights to enforce the contract. The proper person to sue Z in
contract would be M as he was the one who furnished the
consideration. M is the promisee in relation to Z’s promise to provide
the gift, not X. The effect of this rule is that if a person is not a party
to the contract in that he is not the offeror or offeree, then he cannot
sue on the contract even if the contract is essentially for his benefit.
However, it must be noted that there are major exceptions to this
rule, some of which are discussed below under the heading “Parties
to the Contract”.
Consideration need not move to the promisor Nottested
While one party must do or agree to do something in return for
another’s promise, what he does or agrees to do need not go to
benefit the other but can instead benefit someone else.
Thus, if X enters into a contract with a tuition agency to conduct
tuition for her child, and pays them a cheque but it later bounces, the
agency can sue X on her promise to pay even though the tuition was
not for the personal benefit of X.12 This is the basis why when a bank
gets a guarantee from one person to guarantee a loan advanced to
another, that guarantee can be enforced.
Consideration cannot be insufficient
In some situations, where one party is merely performing what he is
already obliged to do, the question might arise as to whether there is
sufficient consideration. Since the party is performing something, the
issue is not one of adequacy of consideration. Rather since the party
is already obliged to do what he is doing, the issue is whether legally
that should be considered to be sufficient. In this regard, the following
points may be noted.
(a) Performing existing public duty
Where one party is already under a public duty to perform what
that party subsequently agrees to do by contract, consideration
will be insufficient.
Thus, in Collins v Godefroy (1831), the plaintiff was subjected
to a court order to give evidence in court. The defendant, who
was a litigant in that case, promised the plaintiff some amount of
money if he would obey the court order and come to court to give
evidence. The plaintiff accordingly came to court and gave
evidence. But the defendant refused to pay and the plaintiff sued
him subsequently for the money promised. The court held that
since he was under legal duty to give evidence in court, he was in
effect promising nothing extra, and so there was insufficient
consideration for the defendant’s promise.
However, if one party does more than is expected of him
under his public duty, there would be consideration. In Glasbrook
Brothers v Glamorgan County Council (1925), there was a strike
in a coal mine and the manager wanted a stationary force.
However, the police thought that a mobile force would be
sufficient. It was later agreed between the parties that the police
would provide a stationary force for a fee. When the company did
not pay the fee promised, the police authorities sued and the
court held that since the police were promising to do more than
what they were obliged to do, consideration for the company’s
promise was not insufficient.
(b) Performing existing contractual duty to same party
Where one party is under an existing contractual obligation to
another to perform something, but thereafter that party demands
more to perform the very same obligation, there will be no fresh
or further consideration for the new demand, as that party is in
effect not doing anything extra.
The case that illustrates this point is Stilk v Myrick (1809). In
this case, after the journey had begun, the captain promised the
crew extra wages as the ship was slightly shorthanded. However,
these extra wages were not paid and the crew sued. The court
held that there was no consideration for the promise, as the crew
was already contractually bound to meet such normal
emergencies of the job.
However, if a party to a contract does more than what he is
contractually obliged to do, there would be fresh consideration.
Thus, in Hartley v Ponsonby (1857), the shortage of labour in the
ship was so great as to make the journey very dangerous. In the
circumstances, the court held that the crew was relieved from the
original contract. As such the captain’s subsequent promise
resulted in a new contract being formed and it was held
enforceable. In this case, the crew members in effect did more
than they were obliged to do under their original contracts.
Besides fresh consideration, there could be other situations
where such promises may be upheld, such as where the
principles laid down in the case of Williams v Roffey Bros &
Nicholls (Contractors) Ltd (1991) are applicable or where the
changes are made by way of seal or deed or where there is
promissory estoppel. These issues are discussed below under
the heading of “Variation of Contract”.
(c) Performing existing contractual duty to third party
The situation could also arise whereby a contracting party
promises to do the same thing as he is contractually obliged to
do, but this time the promise to do the same thing is made not to
the original contracting party but to a new third party. Is there
sufficient consideration in such a situation?
In Pao On v Lau Yiu Long (1980) the court answered the
question in the affirmative. Thus, for instance, if A, B and C are
shareholders of a company, and A offers B some money so that
B will not sell his shares in the company for a period of time and
subsequently C also offers B some money for the same purpose
(as for some reason that is also beneficial to C), there is good
consideration for C’s promise to B. In the above example, by
undertaking to C that he will not to sell the shares, B would be
subjecting himself to additional liability in the sense that not only
A, but also C can sue him if there is a breach of contract. In this
way it can be said that B has agreed to do something extra and
hence there is consideration.
INTENTION TO CREATE LEGAL RELATIONS
The final element that must be present for there to be a valid contract
is that the parties to the contract must intend to create legal relations.
Put simply, this means whether the parties would have envisaged that
should something go wrong, they would have wanted to start legal
proceedings or invoke the assistance of the court (Gay Choon Ing v
Loh Sze Ti Peter (2009)).
In domestic situations, generally it is presumed that the parties do
not intend to create legal relations. Thus, if a parent promises his
child a trip to France if the child were to score all As in an
examination, it is unlikely that the parties intended to create legal
relations. Such an issue also arose for consideration in De Cruz
Andrea Heidi v Guangzhou Yuzhitang Health Products Co Ltd
(2003). In this case, the actress in question consumed some Slim 10
pills and suffered liver damage. She brought an action against various
parties including the fifth defendant. She had asked the fifth
defendant, a fellow actor, to buy the pills for her as a favour and the
question arose whether there was a contract between the fellow
actor and the actress, in particular whether there was an intention to
create legal relations. The court held that as the fellow actor was just
doing her a favour and as they were very close friends, there was no
intention to create legal relations.
However, it must be pointed out that there can be exceptional
situations where the parties intend to create legal relations even in
domestic situations, such as perhaps the case where the parties are
not in a good relationship and decide to put down what they have
agreed formally in writing.
In contrast, in commercial situations, there is usually a
presumption that the parties intend to create legal relations. Thus, if a
person goes on a bus or to a restaurant, that person would normally
intend to create legal relations in that should something go wrong,
that person would intend to take action against the bus company or
the restaurant.
NUSBUSSHUTTLESERVICE
However, it is possible that even in commercial situations,
sometimes the parties may not intend to create legal relations. Thus,
if the parties state in the agreement that it is “binding in honour only”
and not binding legally, the inference might be that the parties do not
intend to create legal relations. A somewhat similar problem arose in
Kleinwort Benson Ltd v Malaysia Mining Corpn Bhd (1989). In this
case, the plaintiff bank agreed to grant a loan to the defendants’
subsidiary company. But as the plaintiff had doubts about the
subsidiary’s financial position, they required a guarantee from the
defendants. The defendants did not want to give a guarantee, but
instead gave a “letter of comfort” stating that it was the policy of the
defendants that the subsidiary was at all times in the position to meet
its liabilities to the plaintiff. As a result of this, the plaintiff charged the
subsidiary higher interest. Subsequently, the subsidiary could not
meet the liabilities and the plaintiff bank sued the defendants. The
court held that in the circumstances, the parties did not intend to
create legal relations and so the agreement was not binding.
Similarly, sometimes parties enter into an agreement which is
stated to be “subject to contract” or which is described as a
“memorandum of understanding”. In such a situation it is possible that
the intention to create legal relations may also be absent, though
ultimately much depends on the facts and the mere wording is not
conclusive (Norwest Holdings Pte Ltd (in liquidation) v Newport
Mining Ltd (2011). It should also be highlighted that such
arrangements are quite common in practice in all sorts of scenarios
as the parties may want some level of commitment but which is short
of a legal obligation.
WRITING
It is a common misconception that for a contract to be valid, it must
be in writing and signed. That is not true. Provided all the essential
elements of the contract are present, there would be a valid contract
and it is not necessary for the contract to be put in writing or signed.
For instance, when one goes on a bus or eats at a restaurant there
could be a valid contract, even though nothing is put in writing or
signed.
However, there are some contracts that must be in writing. For
instance a conveyance of an estate or interest in land other than a
lease for a period not exceeding 7 years has to be by deed in the
English language under section 53 of the Conveyancing and Law of
Property Act. Further, under the Hire-Purchase Act, hire purchases
governed by that Act have to be in writing (section 3 of the HirePurchase Act). In addition, pursuant to section 6 of the Civil Law Act,
some contracts, such as guarantees, must either be in writing or
evidenced in writing.
In this connection, it may also be noted that pursuant to section 7
of the Electronic Transactions Act, where the law requires a
document to be in writing, if it is in the form of an electronic record,
that may satisfy the requirement of writing.
Nonetheless, by and large, the vast majority of contracts are not
required to be in writing. Even then, it would be preferable for such
contracts to be in writing where possible. This is so as, if it is put in
writing there will be less ground for arguing whether a contract has
been entered into and what its terms are.
VARIATION OF CONTRACT
Once a contract is formed, sometimes changes may have to be
introduced. In a simple contract, such as going on a bus, it may not
be necessary to introduce changes. But in more complicated and
longer term contracts, it may be necessary to introduce changes.
Can one party unilaterally introduce changes? If the law allowed
this freely, it may be very unfair to the party in the weaker bargaining
position. For instance, A can agree to sell the goods to B for $50 and
when the date of delivery comes, A can state that he will not deliver
unless B gives him $70, knowing that B would probably pay up. Thus,
the law has developed certain rules in this connection.
Firstly, it must be noted that if the contract itself clearly allows for
the variation, the variation will generally be binding. This is because
the parties have agreed to it in the original contract itself. For
instance, it is very common to find in contracts of loans with banks, a
clause granting the bank the right to change or alter any term, such
as a clause relating to interest rates, if it so wishes. In view of this,
Variations ofcontrastclause
while drafting a contract, if changes were anticipated, it would be
prudent for the contract to provide for such changes. Thus, for
instance, if it is anticipated that the price might change, the possibility
of having a price variation clause in the contract should be
considered.13 Nonetheless, if the clause is very wide or general, the
court might conclude that it was not intended to cover all sorts of
unreasonable changes (Brader Daniel John v Commerzbank AG
(2014)). For instance, if there is such a clause in the employment
contract, it is unlikely the employer can invoke it to change a salary
clause from $5000 to $5 in the following month.
However, if the original contract itself does not clearly provide for
variations, then for the variation to be valid, it is like making a new
contract. Both both parties must agree (offer and acceptance) to the
changes, there must be consideration for the changes and there must
be intention to create legal relations in relation to the change (Brader
Daniel John v Commerzbank AG (2014)). Perhaps, the most
problematic of these is consideration. Assuming the other factors are
satisfied, in relation to consideration, if any one or more of the
following are present, that would suffice:
(a) Fresh consideration
If there is fresh consideration for the change or variation, the
change or variation will be valid. Fresh consideration means both
parties get something in return for agreeing to the change.
Thus using the earlier example, if the contract price is $50 and
the seller demands $70 subsequently, there will be no fresh
consideration for the change. However, if the seller states that he
will as a result, deliver earlier and the other party agrees, as both
parties get some fresh benefit because of the change, the
change would be legally enforceable.
(b) Seal or deed
formal Documenttypically draftedby lawyers andthere
very
is a seal attained at theendof it
If the variation is made by way of seal or deed, generally there is
no further requirement that there be fresh consideration and so
the variation would be legally enforceable.
Thus for instance, if X owes Y money and enters into a deed
of arrangement14 under which Y agrees that X will pay less and
be given a longer time to repay, that agreement will be
enforceable.
(c) Williams v Roffey “exception” NOTTESTED
In Williams v Roffey Bros and Nicholls (Contractors) Ltd (1991),
the defendants were a firm of building contractors. They entered
into a contract to refurbish some flats. The defendants subcontracted the carpentry works to the plaintiff. The plaintiff did
some work, but after some time, he honestly could not go ahead
as he was in financial difficulties. The defendants then promised
the plaintiff extra amounts if the work was completed on time, as
if there was a delay, the defendants would be liable to the
owners of the flats under their contract with the owners.
However, not all the extra payments were made and so the
plaintiff sued the defendants and the court upheld the claim.
Glidewell LJ stated,
•
•
•
•
If A entered into a contract with B to do work for, or supply
goods or services to B, in return for payment by B and
At some stage before A has completely performed his
obligations under the contract B has reason to doubt whether
A will or will not be able to complete his side of the bargain
and
B thereupon promises A an additional payment in return for
A’s promise to perform his contractual obligations on time and
as a result of giving his promise B obtains in practice a benefit
or obviates a disbenefit and
B’s promise is not given as a result of economic duress or
fraud on the part of A, then
•
The benefit to B is capable of being consideration for B’s
promise, so that the promise will be legally binding.
On the facts, the plaintiff honestly could not do the job on time
as he was in financial difficulties and he did not induce the
changes because he fraudulently wanted to claim more. Further,
the defendants avoided a disbenefit since if there was a delay,
they would have become liable to the owners under the main
contract.
In Singapore, William’s case was followed in a few cases
including Sharon Global Solutions Pte Ltd v LG International
(Singapore) Pte Ltd (2001). In this case, the plaintiff entered into
a contract to sell steel products to the defendant. The defendant
then entered into a back-to-back agreement to sell the same
steel products to an important customer. Subsequently, the
plaintiff had problems shipping the steel products to the
defendant because of increased freight charges. The plaintiff
informed the defendant that they would only be able to ship the
steel products if the defendant was prepared to share in paying
the additional freight charges. Even though they were
contractually not bound to do so, the defendant agreed as they
did not want to breach the contract with their important customer.
However, after the shipment, the defendant refused to pay the
freight charges as promised and the plaintiff sued. The court,
following William’s case, held that as the plaintiff was not
fraudulent or seeking to improve his financial position and as the
defendant avoided the negative commercial consequences of
breaking a contract with an important customer, they were bound
to make payment as promised.
Thus, if changes are made to the contract, without dishonesty
or fraud and the party being sued has got a practical benefit or
avoided a disbenefit (though technically speaking that party did
not get anything more than what it contractually bargained for),
the changes may be upheld.
Refers to a situation whereby a change is imitatedbyX and Yagrees
However Ythe goes backon his promise if th following conditions aresatisfied
(d) Promissory estoppel
Y
If a contracting party has made an unambiguous or unequivocal
promise or representation (for instance to change a term in the
contract or not to insist on his legal rights); the other party has
relied on that promise or representation and; if the court is of the
view that it is very unfair or inequitable in the circumstances for
the party making the promise to go back on his promise, that
party may be stopped (estopped) from going back on his promise
(Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd
(2018)). In such a situation the court may uphold the changes
even if there is no fresh consideration.15
The principle can be traced to Central London Property Trust
Ltd v High Trees House Ltd (1947), In this case, the plaintiffs
granted a lease of flats to the defendants at a particular rent in
1937. Owing to the outbreak of war in 1939, the defendants
found it very difficult to find sub-tenants for the flats and so it was
agreed in 1940 that the rent would be reduced. By 1945, the flats
were fully occupied again and the plaintiffs brought an action to
recover the original rent for the last two quarters of 1945. The
court allowed it. However, it stated that if the plaintiffs had tried
to get the rent back for the period from 1940 to the first two
quarters of 1945, they would have been unsuccessful as it would
have been inequitable for them to go back on the agreement in
the circumstances.
Though the exact ambits of the doctrine have yet to be settled
(Gay Choon Ing v Loh Sze Ti Terence Peter (2009)), it would
appear that in Singapore, the doctrine could only be used as a
defence and not as a cause of action (Mansource Interior Pte Ltd
v CSG Group Pte Ltd (2017)). This would mean for instance that
if a landlord promises to take less, but subsequently sues the
tenant for the original rent, it may be possible for the tenant to
raise promissory estoppel as a defence; however, if the tenant
promised to pay more than what was stated in the contract and
the landlord sues him to enforce that, that would not be allowed
as then he would be using the doctrine as a cause of action.
In Hewlett-Packard Singapore (Sales) Pte Ltd v Chin Shu
Hwa Corinna (2016), the employee in question was remunerated
by the employer using various incentive schemes. One of the
schemes was for bringing in “new business”. When the employee
brought in a particular new contract, she was remunerated under
other incentive schemes, but not under the “new business’’
scheme. As this was more lucrative, she sued. One of the issues
raised by the employee was that Hewlett-Packard was estopped
from stating that the new contract was not a “new business”.
However, the court found that the company did not make any
clear and unequivocal representation that this particular contract
would be treated as a “new business” and that in any case, it
was not inequitable as the employee would still have tried to get
the deal because she would be remunerated under the other
incentive schemes. Thus, she would not have acted differently.
Further, in this case, the employee was using estoppel as a
sword rather than a shield. Hence, as a result of all this, her claim
failed.
PARTIES TO THE CONTRACT
It is a general rule of law that only parties to the contract may sue
and be sued on the contract. If a person took no part in the bargain
or deal, he has no right to sue on the contract. This is known as the
doctrine of privity of contract.
An illustration of this principle was considered under the heading
“Consideration must move from the promisee”. The case of Beswick
v Beswick (1967) also neatly illustrates the point. In this case, a coal
merchant agreed to transfer his business to his nephew on certain
conditions. One condition was that the nephew had to pay a certain
amount of money weekly to the coal merchant’s wife upon the coal
merchant’s death. The coal merchant died and the nephew did not
make regular payments to the coal merchant’s wife as promised. The
coal merchant’s wife sued the nephew. She did so in two capacities.
Firstly, she sued as the administratrix of her husband’s estate.
Secondly, she sued in her personal capacity. The court allowed the
claim made as an administratrix as the nephew had breached the
terms of the agreement. However, the court disallowed the claim
made in her personal capacity. This was because as she was not
party to the contract, she could not sue on the contract in her
personal capacity. Similarly, in Management Corporation Strata Title
Plan No 2297 v Seasons Park Ltd (2005) it was held that a
subsidiary proprietor of a unit, who did not buy it directly from the
developer, could not sue the developer for defects in contract.
However, it must be noted that to this general rule, there are
major exceptions such as:
(a) The Contracts (Rights of Third Parties) Act
Under section 2(1) of the Contracts (Rights of Third Parties) Act,
a third party to the contract can enforce a term of the contract if
the contract expressly provides for it or if the term purports to
confer a benefit on him. For instance, on the facts of Beswick v
Beswick discussed above, since the term of the contract
purported to confer a benefit on the coal merchant’s wife, she
would have been able to sue the nephew even in her personal
capacity. Thus, the case would be decided differently today.
Section 2(3) also effectively provides that for the third party to
be able to sue, the third party must be expressly identified by
name, as a member of a class or as answering a particular
description. Thus, even if the third party is not named, but falls
within a member of a class or a particular description which is
provided in the contract, he can sue. For instance, if X enters into
a contract with Y and the contract expressly states that the
contract is for the benefit of X’s children without naming them, the
children would still be entitled to enforce the contract against Y.
However, there are some exceptions to the application of this
Act. Section 2(2) provides that section 2(1) would not apply if on
the proper construction of the contract, it appears that the parties
did not intend the term to be enforceable by the third party. For
instance, if the contract between X and Y expressly states that
even if the contract is for the benefit of M, M cannot sue, then M
would acquire no rights under the contract.16 In practice, it is
quite common for the Act to be excluded.
Further exceptions are listed in section 7. For instance, bills of
exchange or negotiable instruments (such as cheques) and
contracts for the carriage of goods by sea are excluded from the
application of the Act. The reason for this is that there is already
law in these areas that allow third parties to sue under certain
circumstances and this Act does not intend to change those
existing laws.
(b) Assignment and novation
Another exception to the rule that only parties to the contract can
sue and be sued relates to assignments. An assignment is a
transfer of the rights under the contract.
For instance, in a contract where A owes B some money, B
may wish to transfer the right to receive that money to his son,
C.17 For the assignment to be valid, the consent of A does not
have to be obtained.18 A common situation where this could occur
is in relation to tenancies. A landlord who sells a tenanted
property would typically assign the right to receive the rent from
the existing tenant, to the buyer.
Nonetheless, it must be noted that in practice, contracts often
expressly state that there can be no assignment by one party
unless the other party agrees to it.19 For instance, if a business
gives a customer a membership card and that card allows the
customer to purchase things at a discount, the contract relating to
the card might provide that the rights under the card are not to be
assigned as that may not be in the interest of the business
In relation to liabilities, if one party wishes to transfer his
liabilities as opposed to rights, consent is required. For instance,
if A in the above illustration wishes to transfer his liabilities to D,
he would require the consent of B, for else it could be unfair to B.
If B consents, the transaction is known as novation and in
consideration of the old parties (A and B) releasing their
obligations against each other, new parties (B and D) undertake
obligations towards each other (Fairview Developments Pte Ltd v
Ong & Ong Pte Ltd (2014)).
However, assignment or novation must be distinguished from
sub-contracting, which is quite common in practice. By subcontracting, the party who sub-contracts his obligations is not
transferring away his liabilities (or rights). He is still party to the
contract and is still accountable. It is just that instead of
performing the contract himself, he gets another party to do it.
Since the party who is sub-contracting is still a party to the
contract, the consent of the other party to the contract is not
required, unless the contract provides otherwise.20 Thus for
instance, a tenant may sub-let the premises to another tenant
without the consent of the landlord, unless the contract expressly
or impliedly prohibits this.21 If it is not prohibited and the subtenant does something wrong, such as to damage the property,
the tenant would still be answerable to the landlord.
(c) Agency
Another exception to the rule that only parties to the contract can
sue and be sued relates to agency. Agency refers to a situation
where one person, known as an agent, acts on behalf of another,
known as the principal, and creates legal consequences between
the principal, and a third party.22 In such a situation, where the
agent enters into a contract on behalf of the principal with the
third party, the contract is between the principal and the third
party and not the agent and the third party. Hence, the principal
can enforce the contract against the third party.
However, if the person acting on behalf of another were not
an agent but merely an “independent contractor”, then there
would be no contract between the third party and the principal. In
such circumstances, there may only be a contract between the
person who instructed the independent contractor and the
independent contractor, and another contract between the
independent contractor and the third party. Whether a person
acts as an agent or independent contractor would depend on the
circumstances and the intention of the parties.
For instance, if X wants to ship his goods to another country
and engages the services of Y, a forwarding agent, whether Y is
truly an “agent” of X would depend on the circumstances.23 For
instance, if Y has already booked the shipping space and merely
allocates that to X for a lump sum, does not inform X of the
shipping details and the shipping documents are made out to Y,
that may suggest that he is an independent contractor. In such a
situation there will be no contract between X and the shipping
company. In contrast, if X were to go to a travel agent to book a
flight on a particular day and time, and the travel agent charges a
fee for the services (in addition to the ticket price), the customer
is informed of the details of the flight and the air ticket is made
out in the name of X, there is likely to be contract between X and
the airline company.
_____________
1
But if there is already a contract (for instance, a customer booked online for a
concert with his credit card), the organisers of the event would clearly be liable.
2 See page 132.
3
See page 125.
4 See page 145.
5
However, it must be noted that the agreement would be enforceable if it was made
under seal or deed; see page 145.
6 For another meaning, see page 173.
7
Such acts may also be ineffective under the Consumer Protection (Fair Trading)
(Opt-Out Practices) Regulations 2009.
8 There was an appeal to the Court of Appeal, but the Court of Appeal did not
address this particular issue.
9
As to unilateral and bilateral contacts, see page 134.
10 Past consideration must be distinguished from executed consideration (see page
145). Executed consideration is part of the deal, agreement or exchange and hence
valid, whereas past consideration is not and hence not valid.
11 In such a situation, the question might also arise as to whether the contact would
be invalid for uncertainty (see page 144) as an essential term, namely price, has
not been agreed upon. However, since it is normal in the business for the hospital to
impose the price without negotiation, there is unlikely to be uncertainty.
12
In this case, in relation to the money, X is the promisor and the agency is the
promisee and in relation to the provision of the tuition, the agency is the promisor
and X is the promisee.
13 For instance, see Appendix A, clause 7.
14
See page 386.
15 Such a form of reasoning may apply to other situations as well. For instance, if
one party breaches the contract and the innocent party does not object to the
breach, can the innocent party subsequently object to the very same breach? The
innocent party may not be able to do so if he is considered to have “waived” his
rights. Whether there is a waiver, in essence depends on similar principles as
discussed above. See also page 392.
16
For instance, see Appendix A, clause 20.
17 For some other instances of assignment, see page 121.
18
Even though consent is not needed, for various reasons, it would be preferable if
the assignment is in writing and written notice of it is given to the debtor (“A” in the
above example).
19 For instance, see Appendix A, clause 19a.
20
For instance, see Appendix A, clause 19b.
21 In practice, to avoid problems, contracts often expressly provide that there can
be no sub-contracting unless the consent of the other party is obtained.
22
See further, Chapter 13, page 329.
23 See further, Chapter 13, page 330.
7
Understanding the Terms of
a Contract
It is clearly important for any business to understand the terms of a
contract it is entering into. In this regard, all contracts contain terms.
But what exactly are terms? Various statements may be made in the
course of negotiations. Do all such statements end up being terms of
the contract?
Statements made may firstly be in the form of mere “puffs” or
“sales talk”. Such “puffs” or “sales talk” cannot be taken seriously.
They are not intended to be binding. For instance, if the
advertisement states that the company is selling the best or most
coveted housing development in town, such a statement does not
create any legal obligations and cannot be relied upon.
Next, statements made could amount to representations.
Representations may not be terms of the contract, but could just be
statements made prior to the contract, which induce the formation of
the contract. For instance, an advertisement promoting an overseas
property states that the property is conveniently located in the central
business district. That may not be a term of the contract, but that
statement certainly would be more than just sales talk. If it turns out
that the statement is true, there will be no problem. But what if it
turns out to be false and the property is located is some very remote
area, far away from the central business district? In such a case, the
person who relied on the misrepresentation may be able to institute
an action based on misrepresentation1 and rescind the contract.
Finally, statements made could be intended to be terms of the
contract. For instance, when a person is buying a house, matters like
the price and area or size of the property could be some terms of the
contract.
The difference between a puff and a representation is a matter of
degree, and so too the difference between a representation and a
term. Ultimately, much depends on the intention of the parties and the
actual facts of the case.
It must also be noted that in addition to terms that are expressly
agreed to by the parties, the law may imply certain terms into the
contract and these are considered a little later in the chapter. The
chapter ends by considering a particular type of term commonly
found in many contracts, namely the exclusion or limitation clause.
EXPRESS TERMS
These may generally be orally agreed to between the parties or may
be written. In relation to express terms that are written, the services
of a lawyer may be sought. Thus for instance, a landlord who intends
to create a tenancy may seek the services of a lawyer to draft a
tenancy agreement. However, when the services of a lawyer are
sought to draft a contract, it cannot be assumed that the interests of
the party concerned will be well protected in all circumstances. Thus,
it is most important for the party concerned to go through the contract
to see if all his specific interests and concerns, which the lawyer may
not be aware of, have been addressed. The party concerned should
not adopt the agreement drafted by the lawyer without reading and
evaluating it.2
Further, during the negotiation process, lawyers may propose that
certain terms should not be accepted or certain terms should be
incorporated, but the other party may object. This happens very often
in practice. Ultimately it is up to the business to decide whether the
concerns raised by the lawyers are really significant or unlikely to
have any practical impact and even if really significant, whether the
risk is worth taking considering other factors.
One common express term found in contracts is the exclusion or
limitation clause. This is discussed later in this chapter. In addition,
Appendix A refers to a sample contract where many other commonly
used express terms are highlighted and explained.
Place to be found
For express terms to be valid generally, they must be introduced or
referred to before or at the time the contract is made. Essentially, the
contract is made at the point of agreement, that is, at the point of
acceptance. If the terms are introduced or referred to after this point,
they may not be binding on the parties unless such terms amount to a
lawful variation3 of the original contract or unless such terms can
nonetheless be implied4 into the contract.
Thus, if an online contract has been made and no reference has
been made to the terms other than the basics like price, but the seller
sends the goods together with a set of terms, those terms may
amount to a variation of the contract and not necessarily binding. On
the other hand, if the website made it clear that the contracts made
were made subject to the terms and conditions stated therein and
there is a place to “click” for the terms and conditions, then those
terms and conditions are more likely to be regarded as part of the
contract. The same can be said for a contract made through a mobile
app.
Clauseagainstpublic
Generallyneednot
policy
Butthere are
subjectedto
Fairness of termsy befair
exreptions
Clause
judicialcontrol
Clauseisagainst a
In relation to contents of express terms, generally parties are free tostatutoryprov
agree to whatever they want to unless the terms are invalid due to
some statutory provision5 or are against public policy.6
trade
Restraintof
contract
Unfair
ternsAct
If not invalid due to some pstatutory provision or contrary to public clause
policy, it generally does not matter whether particular terms are fair
or reasonable. Even if they are unfair, they are perfectly binding as Restraintof
the parties have agreed to them. In addition, if all terms can beCommerceofsa
Restrainton
challenged on the grounds of fairness, there will be a lot of litigation contract
of
and that will create uncertainty in business.
services
However, in some exceptional situations, such as in relation to
liquidated damages clauses,7 there may be some judicial control; but
otherwise the courts will not intervene to strike down a clause as
being unfair or unreasonable.
iii
Thus, subject to the exceptions above, the party which is in the Allows
stronger bargaining position, has the upper hand and can incorporate
whatever terms it wants and it is up to the other party whether or not Stronger
to agree and be bound.
bargiainig
Interpretation of express terms
As will be discussed later, generally it would be preferable for the
parties to expressly provide for terms rather than rely on implied
ones. Nonetheless, having express terms may not be problem free.
Often the issue of what exactly is meant by the express term in
power
question could arise. That is to say, there could be problems of
interpretation.
In this regards, courts have developed various rules pertaining to
interpretation. For instance, it has been said that if a term is
ambiguous, it will be construed against the party who incorporated it,
that is; the term would be interpreted narrowly.8 Similarly for
instance, it has been said that a term has to be interpreted according
to the context it appears in. To illustrate, let’s assume that X runs a
private school and Y joins it as a lecturer. Let’s also assume that Y’s
employment contract with X specifies the various duties of Y and
includes a clause restricting Y from “working for a competitor in
Singapore for six months after the termination of the employment”.
Given this, the question that may arise is: what is meant by the term
“working”? Does “working” mean working in any capacity such as an
administrator or does it mean working as a lecturer? The court using
the test stated above, may state that the term “working” read in the
context it appears in, must mean working as a lecturer.
In Tiger Airways Pte Ltd v Swissport Singapore Pte Ltd (2009),
Tiger Airways sued Swissport for wrongful termination of contract. A
clause in the contract provided that if Tiger Airways’ or Swissport’s
licence to operate was cancelled or revoked, they could terminate the
contract. As Swissport found it unprofitable to continue with the
contract, it applied to the authorities to cancel its licence and then
cancelled the contract with Tiger Airways. Tiger Airways argued that
the clause in question covered the situation where the relevant
authorities took the initiative to revoke or cancel the licences and not
the situation where the parties took the initiative to cancel the licenses
on their own accord. Thus, the dispute turned on the interpretation of
the contract. In the end, the court agreed with Tiger Airways and
hence Swissport was held liable. In this case, it was likely that
Swissport had lawyers to draft the contract and yet the contract did
not protect it and further, the lawyers may not have been negligent,
as they may not have known that Swissport wanted to retain this
flexibility. Thus, as said earlier, even if lawyers are involved, the onus
is on the business to go through the contractual terms to see if they
really protect them as lawyers may not be privy to all matters.
contract
Parol evidence rule
Onemaynotuse evidencemadepriortothewritten
to
contradictthewriting
As stated, express terms may be orally agreed to or reduced to
writing. If they are reduced to writing, the question might arise as to
whether the parties can nonetheless raise evidence to show that they
had orally agreed to something else. The general answer to this
question is in the negative.
This is known as the “parol evidence rule” and is codified in
sections 93 and 94 of the Evidence Act. Once an agreement has
been reduced to writing, generally, evidence cannot be raised to
contradict, vary, add to or subtract from the written agreement.9 The
reason for this is that, if parties can freely raise evidence to add to or
vary a written agreement, it would defeat the very purpose of having
a written contract, as those terms contained therein will no longer be
conclusive.
The case of Hawrish v Bank of Montreal (1969) illustrates the
point. In this case, the solicitor in question gave a guarantee that was
expressly stated to cover all present and future debts of a company.
Subsequently, when he was sued, he tried to show that at the time of
the contract, the parties had orally agreed to limit the amount of
liability to $6,000. The court held that oral evidence could not be
admitted to vary or contradict the express terms of the contract.
Similarly, in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior
Design & Construction Pte Ltd (2008), it was held that extrinsic
evidence was not admissible to add to, vary or contradict a term in
the insurance policy in question.
However, there are exceptions to the parol evidence rule. For
instance, if one party had misrepresented what the terms in the
written contract actually stated, oral evidence of what that party said
may be admitted. In Exklusiv Auto Services Pte Ltd v Chan Yong
Chua Eric (1996), the customer placed an order to buy a new car
and signed an agreement. The sales representative told the customer
that if he cancelled the order he would only lose his deposit.
However, the written agreement stated otherwise. The customer then
cancelled the order and the customer contended that all he would be
liable for was the deposit. As a result of the misrepresentation, the
court upheld his argument, allowing the oral statement made by the
sales representative to override the express term in the contract.
Aside from misrepresentation, there are several other exceptions
such as fraud and mistake.10
However, rather than to rely on exceptions, parties should read
through written agreements to see if they reflect accurately what they
have agreed to orally. In addition, where possible, if the parties want
to have a written agreement, they should put down all the terms in
writing, rather than have some terms in writing and others agreed to
orally. This is a very common problem in practice and the importance
of this cannot be emphasised enough.
IMPLIED TERMS
As stated, in addition to express terms, the contract may have
implied terms. Terms may be implied by custom, statute or by the
courts:
Custom
If the contract takes place in a context of a particular trade or
industry and there is long-standing, well-established and reasonable
custom in that trade or industry, a court may imply that custom into
the contract when the matter comes to court. Take for instance a
contract with the bank in relation to the operation of an account. It is
a custom among banks in Singapore that if a cheque is more than six
months old, it will not be honoured. This custom is likely to be implied
into the customer’s contract with the bank in relation to the operation
of the account. Thus, if the customer issues a cheque and the payee
presents the cheque to the bank more than six months after the date
stated in the cheque, the bank is unlikely to be in breach of the
customer’s mandate in not honouring the cheque.
However, in practice, the instances whereby terms are implied by
custom are not that common as it is difficult to prove long-standing
and well-established customs. For instance, in Bernard Desker Gary
v Thwaits Racing Pte Ltd (2003), it was alleged that certain
termination provisions were customary amongst horse trainers in
Singapore and as such that custom ought to be implied into the
contract between the horse owner and horse trainer. However, the
court rejected the argument as the horse trainer was unable to prove
that there was any such general custom in Singapore.
Statute
Terms may also be implied by statute. For instance, under the Sale of
Goods Act,11 each time a person buys goods, certain terms are
automatically implied into the contract of sale, such as that the goods
must be of satisfactory quality. Terms may also be implied by virtue
of other statutes, such as the Supply of Goods Act and the HirePurchase Act.12 However, on the whole, there are not that many
statutes implying terms into contracts.
Courts
Tests used to imply terms
1 So obvious it goes
withoutsaying
2 necessary to implytheterm
contract business
effiinly
togivethe
When a dispute comes before the court, the court may also imply
terms into the contract in question. Essentially there are two
categories of implied terms: terms implied by fact and terms implied
by law. Terms implied by fact would be considered first.
Terms implied by fact are implied to fill in gaps13 and based on the
presumed intention of the parties. One test that has been used by
courts to imply terms on this basis is the “officious bystander” test.
As was observed in Shirlaw v Southern Foundaries Ltd (1939),
Prima facie, that which in any contract is left to be implied and need not be
expressed is something so obvious that it goes without saying. Thus, if, while
the parties were making their bargain, an officious bystander were to
suggest some express provision for it in their agreement, they would testily
suppress him with a common: “Oh, of course”.
In relation to terms implied by fact, another test that has been
used by courts is to ask whether it is necessary to imply the terms on
the basis of “business efficacy”. As observed in The Moorcock
(1889),
… the law is raising an implication from the presumed intention of the
parties, with the object of giving to the transaction such efficacy as both
parties must have intended that at all events it should have. In business
transactions such as this, what the law desires to effect by the implication is
to give such business efficacy to the transaction as must have been
intended at all events by both parties.
It was not clear for a long time whether it would suffice if one of
the two tests enumerated above were satisfied or whether both the
tests have to be satisfied. However, in Forefront Medical Technology
(Pte) Ltd v Modern-Pak Pte Ltd (2006), it was held that both tests
have to be satisfied, but that they are complimentary or related. This
was followed by the Court of Appeal in Ng Giap Hon v Westcomb
Securites Pte Ltd (2009).
An illustration may illuminate how the tests work. For instance, if a
person enters into a contract with a country club as a member, it is
likely to be so obvious to both parties that that person should not
steal things belonging to the country club and that it is necessary to
imply such a term on business efficacy grounds or else the club may
not be able to operate and may incur huge losses. In Ngee Ann
Development Pte Ltd v Takashimaya Singapore Ltd (2017), in a
contract between a landlord and tenant there was a provision for
rental review for subsequent renewals. There was some dispute as
to the actual mechanism employed to determine the new rent. The
tenant alleged that there was an implied term that the new rent
should be calculated using a particular method. However, this was
rejected by the court which stated “The fact that past valuations – in
the Second and Third Rent Reviews – have been carried out … is a
compelling indication that a further term need not be implied in order
to give the contract efficacy. Put simply, the contract is workable and
has worked”. Thus, it was basically not necessary to imply the
alleged method suggested by the tenant, as the previous method
adopted by the landlord had worked.
As stated, there is another category of implied terms, namely,
terms implied by law. In relation to terms implied by law, once a term
has been implied, that sets a precedent for all future cases of that
particular type.14 Since the implication of a term on this basis sets a
precedent for all future cases, it has been suggested in Forefront
Medical Technology (Pte) Ltd v Modern-Pak Pte Ltd (2006) that the
courts would be more careful (or hesitant) to imply terms on this
basis. Whether terms would be implied on this basis is really a
question of public policy (and hence even more vague). For instance,
when a person contracts with a business such as a doctor, lawyer,
architect or banker, it is likely to be implied by law that the business
should carry out its services with reasonable care, even though this
may not be expressly stated. Further, it might be implied by law that
a tenant should not do anything to prejudice the landlord’s title to the
property, for instance, by using the property in a way which violates
Housing Development Board rules (Fico Sports Inc Pte Ltd v Thong
Hup Gardens Pte Ltd (2011)).
However, it must be pointed out that courts will not imply terms
(by fact or law) which are contrary to the express terms of the
contract. Thus for instance, if in an employment contract, the parties
have agreed that the employee would be paid $1,000 per month
(which let’s assume, is below market value), the courts will not imply
a term that the employee must nonetheless be paid at market rate.
While the two categories of implied terms have been highlighted, it
may not always be easy for a business to know whether a term will
be implied on one (or both) of these grounds. For instance, in a
contract of employment, is it an implied term that the employee
should not make use of office e-mail to send a personal message, or
in a tenancy agreement, is it an implied term that the tenant should
pay for repairs? The answers may not be so clear or obvious.
In addition as stated in Wong Lai Keen v Allgreen Properties Ltd
(2009), the courts will not lightly imply terms especially where the
parties have negotiated at arms’ length.
Thus, from a business viewpoint, to avoid problems, rather than to
rely on the courts to step in and imply terms when there is a dispute,
parties to the contract should strive to provide for everything
expressly as far as possible. Again as suggested earlier, as lawyers
may not be very familiar with the industry in which the business is
operating, the onus would be on the business to ensure this.
CLASSIFICATION OF TERMS
Terms of a contract may be classified as “conditions” or “warranties”.
If a term is breached, the innocent party can sue for losses, if any. As
to whether the innocent party can also terminate an on-going contract
on account of that breach, depends on several factors and this is
discussed in Chapter 9. However, one factor that could be relevant in
this connection, is how the term breached is classified.
If the term breached is a “condition”,15 as opposed to a
“warranty”, the innocent party can terminate the contract regardless
of the consequences of the breach. Thus, even if the consequences
of the breach turn out to be trivial, the breach of a condition would
enable the innocent party to terminate the contract. Such a rule
promotes certainty in business.
A condition is a term that is viewed as very important or
fundamental. For instance, if there was a clause in a contract of
employment that prohibited the employee from running a business in
competition with the employer while working for the employer, and
the employee breaches that term, that is likely to amount to a breach
of condition. It does not matter that the competing business is an
absolute failure and the employer suffers no loss as a result. The
employer can still terminate the contract for breach of the condition if
the employer so wishes.
In contrast, a warranty16 is not a vital or important term. For
instance, in an ordinary residential tenancy agreement, if the contract
prohibits the tenant from hanging pictures on the walls, but the tenant
nonetheless does so, that is likely to be just a breach of warranty.
Thus, the landlord is unlikely to be able to terminate the lease on this
particular basis.
Whether a term can be classified as a condition depends on
various factors such as, the intention of the parties at the time of
making the contract and whether past cases have held the term to be
a condition (Sports Connection Private Limited v Deuter Sports
(2009)). In this regard, cases in the past have held that obligations as
to the time of performance in commercial contracts may be
conditions. Thus, in Behn v Burness (1863), the court held that the
term “now in the port of Amsterdam” was a condition. Similarly, in
The Mihalis Angelos (1971), the court held that the term “expected
ready to load” on a particular date was a condition. Likewise, in Lee
Seng Cheong v Seah Bak Seng (2008), time for the sale of shares in
a company was held to be a condition as there could be huge
fluctuations in price.
It should also be highlighted that conditions and warranties refer
to express terms of the contract and not generally to implied terms.17
It should also be mentioned that not all express terms can be
clearly classified or pigeon-holed as being conditions or warranties as
illustrated by the case of Hong Kong Fir Shipping Co v Kawasaki
Kaisen Kaisha (1962). In this case, Hong Kong Fir Shipping Co
chartered a ship to the plaintiffs. It was a term in the contract that the
ship was to be seaworthy and “in every way fitted for ordinary cargo
service”. Unfortunately, the crew was insufficient in number and
incompetent, and so this term was breached. The question arose
whether the breach entitled the plaintiff to terminate the charter. The
court held that the term in question would cover both trivial matters
such as a missing nail and serious matters such as the whole ship
being unseaworthy. Thus, it could not be classified as a condition or
warranty (such a term was subsequently coined as an “innominate”
term).
In fact many terms in a contract cannot be easily classified as
being conditions or warranties and hence there are other methods of
determining whether the innocent party can terminate the contract for
a breach and these are covered in Chapter 9. In Hong Kong Fir
Shipping Co’s case referred to above, in the end, the plaintiff was not
allowed to terminate the contract on other grounds as well.18
Nonetheless, the key business takeaway is that if certain terms
are really important to the business, those terms should be
categorized as conditions in the contract (for instance in an agency
contract: “It is a condition of this contract that if the agent is declared
a bankrupt, the contract will be terminated”). Again in this regard,
even if the contract is drafted by a law firm, the law firm may not
really appreciate all that is truly important to the particular business in
question and hence the onus is on the business to highlight these.
Highlight certain Specificterms for their
business
EXCLUSION OR LIMITATION CLAUSES not tested
Having considered express and implied terms, the focus of the rest of
the chapter will be on a particular type of express term, namely, the
exclusion or limitation clause. Other types of common terms found in
contracts are discussed elsewhere in the book.19
Where there is a breach of an express or implied term of the
contract, often there could be another clause in the contract which
tries to exclude (that is, the clause states that the party in breach is
not liable at all, in respect of certain events) or limit liability (that is,
the clause states that the party in breach is liable only to a limited
extent, or only in some situations).20 Such clauses are in effect
intended to be used as a defence for breach of contract.
Are such clauses valid without exception? If they were valid
without exception, they could be abused. For instance, if A contracts
to sell B some goods and he has been paid by B, but there is an
exclusion clause in the contract which exempts A from all liability, A
can simply choose not to supply the goods. B then cannot sue A
because of the exclusion clause. Thus, not surprisingly, various
judicial and statutory “controls” have emerged with regard to
exclusion or limitation clauses.
While from a business viewpoint, it is certainly useful to have an
exclusion or limitation clause, the business should be mindful of the
following matters so that there is a greater likelihood of the clause
being upheld.
Is the clause part of the contract?
Generally, for exclusion or limitation clauses to be valid, just like other
terms or documents, they have to be introduced or referred to at the
time the contract is formed and not subsequently. As stated earlier,
the contract is essentially made at the point of offer and acceptance.
Thus, if an exclusion or limitation clause is introduced after this point,
it generally will not be valid.
The issue arose for consideration in Olley v Marlborough Court
Ltd (1949). In this case, a couple arrived at a hotel and paid in
advance (the contract was made at this point) before they went up to
their room. In the room there was an exclusion clause excluding
liability for lost or stolen goods. Subsequently, the wife’s furs were
stolen and she sued the hotel. The court held, among other things,
that the exclusion clause was not valid, as it was introduced after the
contract had been formed. A similar issue arose in Thornton v Shoe
Lane Parking Ltd (1971). In this case, the plaintiff drove into an
automatic car park whereupon, after slotting money into the machine,
a ticket was issued to him by the machine. The court held that the
acceptance had taken place when the customer put the money into
the slot machine. The contract was formed at that point. Since the
ticket was introduced subsequent to that, it was not binding.
However, it would appear that even if the exclusion or limitation
clause is not part of the contract, but there has been a consistent
course of previous dealings between the parties in which the clause
has been used, the clause might not be invalidated on this ground.
In Spurling v Bradshaw (1956), for instance, the defendant had
commercial dealings with the plaintiff for many years. On one
occasion, the defendant sent to the plaintiff some barrels of orange
juice for storage. A few days later, the defendant received from the
plaintiff a document excluding liability. When the defendant went to
collect the barrels, they were found to be empty. He refused to pay
the storage charges and the plaintiff sued him. The court held that
even though the exclusion clause in this case was ineffective as it was
introduced after the contract, because similar documents containing
exclusion clauses were used in previous occasions, the defendant
was bound by it.
Is there reasonable notice of the clause?
For an exclusion or limitation clause to be valid, generally there has to
be reasonable notice of it. Reasonable notice can refer to various
matters such as:
(a) Visibility
For the exclusion or limitation clause to be upheld, it must be
reasonably visible. For instance, it must not be in extremely small
print. Further, if the clause is unusual, more steps must be taken
to bring it to the attention of the other party, for instance, by
having it in bold print. Thus, in Interfoto Picture Library Ltd v
Stilletto Visual Programmes Ltd (1989), the court held that the
plaintiffs could not rely on the particular clause in question
because it was highly unusual and adequate notice of it had not
been given.
However, it must be pointed out that if the contracting party
signs the contractual document, then generally in the absence of
fraud or misrepresentation, even if there is no adequate notice of
the exclusion or limitation clause, the party who signed it is bound
by it. Thus, in L’Estrange v Graucob (1934), the court held that
though the clauses in question were in regrettably small print,21
the plaintiff was bound by them as she had signed the sales
agreement containing them. A similar approach was adopted in
Press Automation Technology Pte Ltd v Trans-Link Exhibition
Forwarding Pte Ltd (2003).
(b) Place where it is found
Even if the exclusion or limitation clause were part of the contract,
for it to be valid, it would appear that the clause must be
contained in a document in which the parties can reasonably
expect to find contractual terms. In Chapelton v Barry UDC
(1940), for instance, the court held that the exclusion clause
contained in the ticket in question was not binding as no
reasonable person in the circumstances would expect to find
contractual terms on a ticket. However, the case was decided a
long time ago and in today’s context, it may not be that unusual to
find terms on tickets.
(c) Indirect reference
The question might also arise as to whether it is possible to
incorporate an exclusion or limitation clause by reference. For
instance, if X buys a product from Y in a face-to-face transaction,
can Y in the contract state that he excludes liability the details of
which are to be found on a website?
In Thompson v London Midland & Scottish Railway (1930),
the contract referred to an exclusion clause that was available
from another place. The court held on the facts there was
reasonable notice. Similarly, in Press Automation Technology Pte
Ltd v Trans-Link Exhibition Forwarding Pte Ltd (2003), where the
freight forwarders in question referred to the Singapore Freight
Forwarder’s Association Standard Trading Conditions (which
contained some limitation clauses) in the contract, the court held
that those conditions were effectively incorporated into the
contract, even though the conditions were contained in a separate
document and the Press Automation had not been given a copy
of it.
However, this is not to state that in all cases the exclusion or
limitation clause can be incorporated by reference. Much will
depend on the particular circumstances of each case.
(d) Language
The question might also arise as to whether the exclusion or
limitation clause would be binding if the other party to the contract
is unable to understand it as he is illiterate or does not
understand the language. In Thompson v London Midland &
Scottish Railway (1930), the court held that the fact that the
plaintiff was illiterate did not affect the validity of the exclusion
clause. In the Singapore context, generally since English is widely
spoken, it would probably be reasonably sufficient if the exclusion
or limitation clause is worded in English and it would generally22
not matter that the other party to the contract could not read it or
is illiterate.
Does the clause cover the breach?
For the exclusion or limitation clause to effectively excuse the breach,
it must clearly cover what has happened.
In this regard, where the exclusion or limitation clause is
ambiguous, it will be strictly construed against the party who is trying
to rely on it. For instance, in Baldry v Marshall (1925), the clause in
question excluded liability for any “guarantee or warranty”. The court
held that as the breach in question was a condition as opposed to a
warranty, the exclusion clause was ineffective to exclude liability for
the breach that occurred. Similarly, in Houghton v Trafalgar
Insurance (1954), the contract of insurance excluded liability when
the car was carrying excess “load”. An accident occurred while the
car was carrying six people. Thus, the question arose as to whether
people could be considered as “load” as opposed to goods. The
court held that “load” did not extend to people and so the clause was
ineffective to excuse liability. In this connection, it may also be
mentioned that in Emjay Enterprises Pte Ltd v Skylift Consolidator
(Pte) Ltd (2003), the court held that exclusion clauses would be
construed more stringently as compared to limitation clauses.
If it is clearly worded, the question might also arise as to whether
it can exclude or limit liability for a fundamental breach. For instance,
can a party to a contract who has agreed to perform some services
(for which he has already been paid) render no services at all and
use the exclusion clause as an excuse?
In Photo Production Ltd v Securicor Transport Ltd (1980), the
court held that this depended on the construction of the contract, that
is, whether the parties to the contract intended the exclusion clause
to cover such fundamental breaches. If they did, it would be valid, if
they did not, it would not be valid. On the facts of the case, the
security firm engaged by the plaintiffs was in fundamental breach of
the contract, as a result of which the building they were supposed to
protect burnt down. Nonetheless, the court held that the exclusion
clause covered it. Perhaps the decision was influenced by the fact
that in any case, the plaintiffs were covered by insurance.
Cannotexclude or restrictliabilityin
p
to
Is the clause valid under the Unfair Contract relation
or
personalinjury
Terms Act?
death
Contrary to what the name of this statute suggests, it does not
regulate all types of unfair terms. The statute primarily deals only with
other t
exclusion or limitation clauses.
Canexcluderestartliabilityfornegligence resultingi
or damages
The two key sections are sections 2 and 3. Section 2(1) provides thclunais
that a person cannot exclude or restrict liability for negligence in reasonable
relation to personal injury or death,23 and section 2(2) provides that
he cannot also exclude or restrict liability for negligence in relation to
other losses (such as property damage) unless the clause satisfies
the requirement of reasonableness.
Section 3 essentially provides that when one party deals as a
consumer24 or on the other’s written standard terms,25 liability for
breach of contract cannot be excluded or restricted unless the term
satisfies the requirement of reasonableness. Sections 2 and 3 may at
times overlap though there could be many situations where they do
not. For instance, if there is an exclusion clause and the seller
delivers two items short not owing to his negligence, the relevant
section that may be triggered is section 3 and not section 2.
It should also be highlighted that as section 11(1) provides,
reasonableness must be judged at the time the contract was made
and not at the time the breach occurred. For instance, in a contract
with the bank, it may be provided that the customer has to check the
monthly statements sent to him and report any discrepancies within
seven days and that if he fails to do so, he would not be able to sue
the bank for wrongful debits. This is in effect a type of limitation
clause and whether it is valid would depend on, among other things,
whether the seven-day limitation period is considered reasonable.
However, in determining this, the conditions at the time of the contract
must be looked at and not the conditions that arise subsequently. For
instance, if it established that seven days is generally reasonable, the
fact that the particular customer in question was hospitalized so that
he could not reply within those seven days should not make the
clause unreasonable.
It may also be noted that section 11(5) provides that the person
who is alleging that the clause is reasonable has the burden of
proving it to be such. Some of the factors, which might be relevant in
determining the issue, are discussed below. Different factors may
point in different directions and ultimately a court would have to weigh
and balance them before arriving at a decision.
(a) The bargaining strength of the parties
If the parties have equal bargaining strengths, it is likely that they
could have negotiated the terms and so the exclusion or limitation
clause is likely to be considered to be reasonable. Thus, in
Consmat Singapore (Pte) Ltd v America National Trust and
Savings Association (1992), the court held that the clause was
reasonable for, among other reasons, both the parties in question
were commercial organisations with equality of bargaining power.
Similarly in Metro (Pte) Ltd v Wormald Security (S.E.A.) Pte Ltd
(1981), where the security system did not work and goods were
stolen as a result, the court held that the security company was
not liable. This was because of the presence of an exclusion
clause that was considered to be reasonable, as both parties
were commercial organisations with equality of bargaining power.
(b) Whether the customer received an inducement to agree to
the term
This factor is perhaps best illustrated by an example. For
instance, in a contract of transport, it could be expressly stated
that liability of the transporter is to be limited to a certain amount,
but that that amount could be raised if the other party agrees to
pay more. If the other party does not pay more and a loss
occurs, it would be less reasonable for the other party to
complain about the lower limit, as he was given an opportunity of
agreeing to the higher limit. But of course, like the other factors,
this is not conclusive and much would also depend on the
reasonableness of the original limit and the reasonableness of the
difference between the two limits.
(c) Whether the customer knows or ought to know about the
exemption clause
If the exclusion or limitation clause is common or is used often in
the trade, or if the parties had a previous course of dealings in
which such clauses were used, the court might be inclined to hold
that the customer would or should have known about the
existence and extent of the clause. If this were the case, this
factor would point towards the clause being reasonable.
(d) Compliance with some condition
If the exclusion clause states that the business will only be liable if
there is compliance with some condition, then the question would
turn on whether compliance with that condition was reasonably
practicable. Thus, if a business buys goods from another
business to resell and there is a term in the contract that states
that defective goods must be rejected within three days, after
which the buyer will not be able to do so, the question would turn
on whether it would be reasonably practical to comply with that
condition. If it were, that would point towards the clause being
reasonable.
(e) Insurance
As provided in section 11(4) of the Unfair Contract Terms Act,
insurance could also be a relevant factor. If it was more
reasonable in the circumstances for the party relying on the
exclusion or limitation clause to take out insurance to cover the
liability or loss as compared to the other party, that would point
towards the clause being unreasonable. For instance, if X stays
in a hotel and her rare diamond ring which is left on the table
goes missing, but there is an exclusion clause in the contract, one
issue that may arise is whether it is more reasonable for X or the
hotel to have insurance to cover such losses. If it would be more
reasonable for X to have the insurance in such circumstances
given the high value of the item, that would point towards the
exclusion clause being reasonable.
In Press Automation Technology Pte Ltd v Trans-Link
Exhibition Forwarding Pte Ltd (2003), the defendants contracted
with the plaintiffs for the transport of exhibition machinery. The
machinery was damaged whilst in the custody of the defendants
and the plaintiffs sued. There was a limitation clause in the
contract that provided that any action was to be brought within 9
months (as compared to the normal time bar of 6 years26). The
plaintiffs’ action commenced more than 9 months later and the
defendants raised the limitation clause as a defence. The court
held that the condition in the limitation clause that the action must
be brought within 9 months was unreasonable as the defendants
were covered by insurance and they could not establish that the
insurance premiums would have been raised had the time bar
been made longer.
Applicability of the Unfair Contract Terms Act
However, it must be pointed out that the Unfair Contract Terms Act
does not apply to all contracts. For instance, pursuant to the First
Schedule to the Unfair Contract Terms Act, sections 2 and 3
discussed above do not apply to certain contracts such as:
•
•
•
•
contracts of insurance,
contracts relating to the creation or transfer on interest in land,
contracts relating to the creation or transfer of right or interest
in patents, trade marks, copyrights, registered designs or
other intellectual property, and
contracts relating to creation or transfer of securities.
Further, section 26 effectively provides that, among other things,
section 3 as discussed above does not apply to international supply
contracts. Thus for instance, in an online transaction where one of the
parties is based overseas and the other in Singapore, section 3 may
not be applicable.
Exclusion/limitation clauses and third parties
Lastly, the issue of exclusion/limitation clauses and third parties will
be addressed. If a contract between A and B excludes/limits the
liability of A and that of another third party, C, can C make use of the
exclusion/limitation clause if B decides to sue C?
For instance in a contract between a shipping company and the
consignor of goods, there might be a clause which states that the
shipping company or any of its agents, independent contractors or
servants will only be liable for damage done to the goods up to a
stated amount. If the shipping company gets an independent firm of
stevedores to load the ship and the goods are damaged in the
process of loading due to the negligence27 of the stevedores and the
consignor decides to sue the firm of stevedores in negligence instead
of the shipping company, can the firm of stevedores make use of the
limitation clause to limit their liability?
In New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd
(1975), the court answered the question in the affirmative, though the
legal basis for this was somewhat questionable. However, now it
must be noted that by virtue of section 2 of the Contracts (Rights of
Third Parties) Act, the third party would be able to make use of an
exclusion/limitation clause even though that person was not party to
the contract if certain conditions are satisfied.28
_____________
1 See page 199.
2
Even greater care needs to be exercised if one decides to purchase or download
ready-made contacts or agreements from the Internet, as they may be too general.
3 See page 153.
4
As to the grounds on which terms can be implied, see page 169.
5 See for instance, the Consumer Protection (Fair Trading) Act; page 291 and the
Unfair Contract Terms Act; page 179.
6
This is discussed in Chapter 8. See page 193.
7 See page 247.
8
See for instance, page 178.
9 Sometimes, the contract itself could have an express clause to a similar effect.
See for instance, Appendix A, clause 23.
10
As to mistake, see page 212.
11 See Chapter 11.
12
As to the terms implied under the Hire-Purchase Act, see page 129.
13 However, the court in Sembcorp Marine Ltd v PPL Holdings Pte Ltd (2013) also
stated that some gaps cannot be filled by implied terms such as a gap which the
parties knowingly left open because they could not agree on a solution to the
problem.
14
In contrast, since terms implied by fact are based on the presumed intention of
the parties, terms implied by fact in a particular case would not necessarily set a
precedent for future cases as the intention of the parties to the contract in those
future cases may be different.
15 Sometimes all contractual terms may be loosely referred to as “terms and
conditions”. It is common to find this phrase being used even on websites. However,
when used in this manner, it is unlikely that the term “condition” is being used in a
technical sense.
16
The term “warranty” in this context, is not used in the sense of the warranty or
guarantee one gets when purchasing electronic equipment. As for warranties or
guarantees one gets when purchasing electronic equipment, see page 270.
17 One exception is where there is a statute which implies such a term and states
that the term to be implied is a condition. For instance, in a contract of sale of
goods, there is an implied condition that the goods must be of satisfactory quality
under the Sale of Goods Act. See further, page 261.
18
See page 226.
19 See for instance, Appendix A.
20
See for instance, Appendix A, clause 14.
21 However, when it comes to consumer contracts, there could be some protection;
see Consumer Protection (Fair Trading) Act, discussed in page 292.
22
However there may be some limited exceptions under the Consumer Protection
(Fair Trading) Act; see page 290.
23 As to why it is nonetheless still common to find such clauses in practice, see
page 361.
24
As to whether if a business buys a product that can be considered a consumer
transaction, see page 269.
25 “Standard terms contracts” are contracts which are not negotiated. There are
many instances in practice where standard term contracts are used. For instance,
when one applies for a credit card, the terms of the contract are standard. The bank
is not specially going to negotiate terms with the customer.
26
See page 253.
27 On the tort of negligence, see Chapter 14.
28
See page 159.
8
Avoiding Matters Affecting
Contracts
Thus far the essential elements of a contract and types of terms in a
contract have been considered. However, even if a contract has all
the essential elements and terms, it may still be declared
unenforceable if some vitiating factor is present. There are various
vitiating factors:
•
•
•
•
•
•
•
•
Incapacity,
Illegality,
Public policy,
Misrepresentation,
Duress,
Undue Influence,
Mistake, and
Unconscionability.
From a business viewpoint, the important thing is to consider
whether these factors or situations can be avoided or mitigated
against and in this regard, some suggestions are made in the course
of this chapter.
INCAPACITY NOTTESTED
Incapacity can be in the form of minority, intoxication or mental illness.
In such a situation as discussed below, enforcing the contract against
the party suffering from the incapacity may be fraught with difficulties
as the law tries to confer protection on the party who is
incapacitated.
Minority
Generally, the age of majority in Singapore in so far as contracts are
concerned is 18, by virtue of section 35 of the Civil Law Act. Persons
less than 18 are referred to as minors or infants, in law. Contracts
entered into by such persons are not binding against them.
However, it must be noted that the rule relating to minority is to
protect the minor and not to make it more difficult for him. Thus, if the
other party has breached the contract, the minor can always institute
an action against him. So if minor buys a computer and it does not
work properly, the minor will be able to bring a claim against the
retailer from whom the computer was bought, though procedurally or
practically speaking, the minor may have to enlist the help of the
parent or guardian to bring an action on his or her behalf.
Though generally contracts entered by minors are not enforceable
against the minor, there are several major exceptions to this rule:
(a) Necessary goods or services
If the contract results in the provision of necessary goods or
services, the contract would be enforceable against the minor. If
the rule were otherwise, the minor may find himself in a position
of not being able to acquire these necessary goods and services.
Necessary goods are not restricted to basic necessities as
reflected in section 3(3) of the Sale of Goods Act. They extend to
goods that are reasonably necessary given the minor’s station in
life and considering his requirements at the time of sale and
delivery. In Nash v Inman (1908), for instance, a tailor brought an
action against a Cambridge undergraduate for the cost of
clothes. The court held that it was not a necessity as he already
had an ample supply of clothes. On the other hand in Peters v
Fleming (1840), the undergraduate who was a minor purchased
a gold watch chain from Peters. As the minor was from an
aristocratic family and his father was a Member of Parliament,
the court held that it was possible for the goods sold to be
necessaries, though they did not finally decide on the issue.
If the goods are considered necessaries, the minor would
have to pay a “reasonable price” (section 3 of the Sale of Goods
Act) for them, which may not necessarily be the contract price.
Necessaries can also extend to services, such as for instance,
possibly the provision of education or training. In Roberts v Gray
(1913), the minor in question entered into a contract with
Roberts, who was a leading billiard player, to accompany him on
a world tour and learn from him. Roberts incurred expenditures in
making the necessary arrangements. Later, the minor repudiated
the contract. The court treated the contract as a contract for the
provision of necessaries and held it was enforceable against the
minor.
If the services supplied are considered necessaries, the minor
would have to pay a “reasonable amount” for them (Chapple v
Cooper (1844)).
If the goods or services supplied are not necessaries, then
the minor would not be bound by the contract unless he ratifies1 it
upon reaching majority. However, two matters must be pointed
out.
Firstly, even if the goods or services supplied are not
necessaries, if the minor has already performed his side of the
obligations (as in for instance, he has already paid for the goods
or services), generally the infant cannot get out of it. As stated in
Valentini v Canali (1889), “when an infant has paid for something
and has consumed or used it, it is contrary to natural justice that
he should recover back the money which he has paid”. Thus, an
infant cannot buy a shirt, use it for a party and then try to return it
to the shop on the following day on the ground of infancy. Since
most contracts involving sale of goods and minors will not be on
credit terms, in practice, problems involving businesses suing
minors for unpaid goods are rare.
Secondly, under section 3 of the Minors’ Contracts Act, if the
contract is unenforceable against the minor, but the minor has
received some property pursuant to the contract, the court has
the discretion to ask the minor to return the property, or any other
property representing it, to the other party to the contract. Thus,
even if the minor has bought some goods for which he has not
paid and the goods are not necessaries, the minor may have to
return the goods to the party from whom he bought those goods.
(b) Beneficial contracts of employment
Aside from necessaries, beneficial contracts of employment are
also enforceable against the minor as they enable him to earn a
living. In the context of Singapore today, if a minor enters into a
contract of employment it would usually be considered beneficial.
However, in the unlikely event that it is not beneficial, it would
not be binding, unless the minor ratifies it upon reaching majority.
In De Francesco v Barnum (1890), a minor entered into a
contract of apprenticeship with de Francesco, under which she
was to learn stage dancing. The contract was for seven years
and it provided that she could not marry or accept outside
engagements without the consent of de Francesco during this
period. On the other hand, de Francesco was not obliged to
provide her with engagements and further the pay was
unsatisfactory. In the circumstances, the court held that on the
whole the contract was not beneficial to the minor and as such
she was not bound by it.
(c) Voidable contracts
Certain contracts under which the minor acquires an interest in a
subject matter that exposes him to continuing or recurring
obligations, such as contracts of lease, or partnership, are
voidable. That is, they are valid on the minor unless he repudiates
or terminates them during his infancy or at a reasonable time
after he attains his majority. In Davies v Beynon-Harris (1931),
for instance, the minor entered into a lease of a flat shortly before
he attained majority. Three years later, rent was owing and the
landord sued. As the minor had not repudiated the contract and
as it was too late to do so now, the court upheld the landlord’s
claim.
What a reasonable time is would depend on the facts of each
case. However, once terminated, future obligations would cease.
As for obligations which accrued before the repudiation (such as
unpaid rent), the authorities are still unsettled. Nonetheless, it is
clear that whatever has already been paid (such as rent) cannot
be recovered by the minor after he repudiates it, unless there is a
total failure of consideration such that he gets nothing in return
(for instance in the case of a lease, he is yet to live on the
premises).
(d) Ratifiable contracts
All other contracts which do not fall under any of the three
categories discussed above would not be binding on the minor
unless the minor ratifies them; that is, the minor agrees to be
bound by them after attaining the age of majority. Such ratification
can be express or can be implied from conduct. For instance, if a
minor enters into a contract with a mobile phone service provider
at the age of 17 and continues using the service after the age of
18; that may amount to implied ratification.
Thus, a contract of sale involving goods that are not
necessaries would fall under this category. Such contracts carry
a great risk, as they are not binding on the minor unless he
ratifies them. To guard against this, the other party to the
contract may require that some adult provide a guarantee.2 Even
if the minor may not be bound, by virtue of section 2 of the
Minors’ Contracts Act, the guarantee would be enforceable
against the adult. Thus for instance, if a minor subscribes to a
mobile phone service and does not pay for usage, the question
could turn on whether the service is a necessity. The issue has
never been answered. As such, to be on the safer side, mobile
phone service providers may want to demand an adult guarantee
when dealing with minors or directly contract with the parent or
guardian.
Mentally unsound and intoxicated persons
Much in the same way as infants, the law offers special protection to
the mentally unsound or intoxicated. In these cases, if the person who
is suffering from the disability is incapable of understanding the nature
of the contract and the other party to the contract knows or ought to
know of this disability, the contract is voidable at the option of the
person suffering from the disability. Thus, in Che Som bte Yip v Maha
Pte Ltd (1989), where the third plaintiff who was mentally unsound
executed a mortgage in favour of the bank, the court held that in the
circumstances, the bank ought to have known of his disability, and so
the mortgage was set aside.
ILLEGALITY
Another factor that could affect the validity of the contract is illegality.
If a contract is considered to be illegal either by virtue of a statute or
case law, generally it will not be enforceable.
In a society which is generally seen as law abiding, it would come
as a surprise that amongst the various vitiating factors, it is not that
uncommon for the issue of illegality to be raised. Sometimes a
business may enter into a transaction knowing about the illegality but
hoping that it would not be raised or discovered subsequently. At
other times, the business may be unaware of the underlying illegality.
In the latter type of scenario, if the parties had sought proper legal
advice, it will certainly be less likely that the problem would have
arisen in the first place.
(a) Statutory illegality
Statutory illegality may be express or implied. For instance, if the
statute specifically states that any contract entered into in breach
of the provisions of that statute would be unenforceable, then the
illegality would be express.
To illustrate, under section 14 of the Moneylenders Act, it is
provided that a loan granted by an unlicensed moneylender “shall
be unenforceable”. Thus, in Ochroid Trading Ltd v Chua Siok Lui
(2018), joint venture agreements which were actually disguised
loan agreements were held to run afoul of section 14 of the
Moneylenders Act as the lender was not licensed and as such the
lender was not allowed to recover the loan.
Similarly, under section 5 of the Civil Law Act, it is provided
that contracts by way of gaming or wagering are “null and void”.
A wagering or gaming contract is essentially one under which the
parties are betting something of value over the outcome of an
uncertain event. Thus for instance, if A bets $1,000 that team X
will win a basketball match while B bets on team Y, that is a
wagering or gaming contract and it will be unenforceable. Thus, if
A wins, he cannot sue B for the $1,000 and if he loses, B cannot
sue A for the $1,000. However, there are certain exceptional
situations when gaming or wagering contracts are permitted.
Thus for instance, gaming activities run by Singapore Pools in the
form of TOTO, Singapore Sweep, SCORE and 4-D and horseracing bets run by the Singapore Turf Club are authorised by law.
Likewise, there are exceptions under the Casino Control Act in
respect of activities carried out in licensed casinos operating in
the Integrated Resorts.
A statute may also imply illegality. Whether it would be implied
would depend on various factors and may be more problematic to
determine. In this regard, if a statute requires the taking out of a
licence and a licence is not obtained, whether that would make
the contract illegal would depend on factors such as whether the
purpose of the licence was merely to raise revenue for the
government or whether the object of the statute in requiring the
licence was to protect the public. In Smith v Mawhood (1845) for
instance, under the statute in question, the tobacconist was to
take out a licence and have his name painted on his place of
business. However, the tobacconist failed to do this and
nonetheless sued his customer to recover the price of tobacco he
delivered. The court held that the purpose of the licensing in that
case was merely to raise revenue and so the contract was not
illegal. Hence, the tobacconist was allowed to recover the money
from the customer. On the other hand, in Cope v Rowlands
(1836), under the statute in question, the broker, in order to carry
out a business, had to be licensed. However, he was not. When a
customer failed to pay and he sued the customer, the issue arose
as to whether the contract was implicitly illegal under the statute.
The court held that the purpose of requiring brokers to be
licensed was to protect the public and hence the court held that
the contract was implicitly illegal under the statute. Therefore, the
broker was not able to claim compensation from the customer.
(b) Case law illegality
As stated, illegality may also be imposed by case law, and cases
have held that certain types of contracts such as the following
are illegal:
(i)
A contract to commit a crime, tort or fraud or a contract
entered into with the object of committing an illegal act
Thus for instance, if X agrees with Y to murder or cause hurt
to Z, that contract would be illegal and unenforceable. In
Ting Siew May v Boon Lay Choo (2014), where the buyer
got the seller to backdate the option to purchase a property
in order to circumvent rules which restricted the amount of
bank loan the buyer could apply for, the court held that the
contract was illegal and hence the buyer could not enforce
the contract. In ANC Holdings Pte Ltd v Bina Puri Holding
Bhd (2013), the plaintiff and the defendant entered into a
contract whereby the plaintiff was to assist the defendant in
securing some construction projects in Saudi Arabia in return
for commission. However, both parties knew that in order to
do this the plaintiff had to pay bribes overseas. When the
deals were secured, among other things, the defendant
alleged that the transaction was illegal and refused to pay
the commission. The court upheld the argument.
(ii) A contract that is sexually immoral
In Pearce v Brooks (1866), the plaintiffs let out on hire a
coach to a prostitute knowing that it would be used by her to
ply her trade. When the coach was returned in a damaged
state, the plaintiffs tried to sue the prostitute. The court held
that the plaintiffs could not as the contract was illegal in that
it promoted sexual immorality.
(iii) A contract prejudicial to the administration of justice
Thus for instance, if X contracts with Y to give false evidence
in court, that contract would be illegal and unenforceable.
(iv) A contract to corrupt public life
Thus for instance, if X enters into a contract with Y under
which X is to give Y a stated sum of money if Y would
appoint X to a public office, that contract would be illegal and
unenforceable.
Effect of illegality
Once the contract is illegal in its inception either by virtue of case law
or statute, it is totally not valid. No action would lie for damages, as in
Cope v Rowlands discussed above. In addition, if one party has
made profits, the other party cannot ask for an account of those
profits.
Further, any money paid or property transferred cannot be
recovered. Thus for instance, if X asks Y to murder Z and pays him a
huge deposit, but Y does not murder Z, X cannot get back the
deposit. However, to the rule that money paid or property transferred
cannot be recovered, there are certain exceptions:
•
Where the parties are not both equally at fault, the innocent party
may be able to recover money paid or property transferred. Thus,
in Tokyo Investment Pte Ltd v Tan Chor Thing (1993), Tan
provided certain shares as security for certain futures trading
transactions. It turned out that the futures trader was not licensed
under the relevant statute. When Tan sued to get back the shares,
the court allowed it as Tan was innocent and did not know that the
futures trader was unlicensed. The very purpose of requiring the
licence was to protect persons such as Tan, and thus, it would
•
•
have been contrary to justice if Tan were not allowed to get back
his shares.
Where one party to an executory contract, that is a contract which
is yet to be substantially performed, fully repents (genuinely and
voluntarily) before performance, he may be able to recover money
or property transferred.
Where it is possible to make a claim entirely independent of the
illegal contract, it may be possible to recover money or property
transferred. Thus in Amar Singh v Kulubya (1964), the plaintiff
rented out his land to the defendant in circumstances which made
the contract illegal. After several years, he gave the defendant
notice to quit, but when the defendant did not, he sued him to
recover the land. The court held that the plaintiff could do so as he
did not frame his action in contract. Instead, he framed his action
under property law. As he was the registered owner of the land,
the plaintiff had an independent right to recover the land.
CONTRACT AGAINST PUBLIC POLICY
Just like illegality, if a contract is against public policy, problems of
enforceability may arise. Cases have declared certain types of
contracts to be against public policy. Of these, perhaps what is more
important in the commercial context are contracts that contain
restraint of trade clauses.
A restraint of trade clause may take many forms but essentially
under such a clause, one party seeks to restrict the other party to the
contract in terms of what the other party can do later on with his
business or profession. Here are some examples.3
•
•
A restraint in the contract of employment which seeks to prevent
the employee from working for a competitor or setting up his own
business in competition after he leaves his current employment.
A restraint in the contract of sale of a business whereupon the
purchaser seeks to prevent the vendor from setting up a similar
business in competition to the one sold.
• A restraint in the contract of sale which seeks to force the
purchaser to sell only the vendor’s products and not those of his
competitors.
• A restraint in a contract of services which seeks to force the
service provider to service the contracting party only and not his
competitors.
Traditionally this is
an express term
The starting point is that all such restraints are unenforceable
unless they are reasonable in the circumstances as they may have an
impact on a person’s livelihood and as they prevent competition. To
be upheld, the restraints must be reasonable as between the parties
themselves and with regard to public interest (Man Financial (S) Ptd
Ltd v Wong Bark Chuan David (2008)).
(a) Reasonable between the parties
In relation to the clause being reasonable between the parties,
the following points may be noted:
Restraints on employees
For such a restraint to be reasonable between the parties, the
employer must firstly have a legitimate interest to be protected. If the
employee had access to trade secrets or was in a position to pull
over customers or other employees, the employer may have a
legitimate interest. In relation to the phrase, “trade secrets”, this is
not restricted to the secret formulae relating to the manufacture of
products. It can extend to other highly confidential information. Thus,
in Lansing Linde Ltd v Kerr (1991), the court held that plans for the
development of new products could amount to trade secrets.
Secondly, for the restraint to be reasonable between the parties,
it must be reasonable in terms of time, area and scope of restraint.
The wider it is, the more likely for it to be unreasonable. In
Commercial Plastics Ltd v Vincent (1964) for instance, the plaintiffs
employed the defendant to work in the production of calendered
sheeting for adhesive tapes. The restraint in his contract provided
that he was not to work for another company in the calendering field
for one year. The court held that the restraint was too wide, in that it
did not have a geographical limitation and it extended to all
businesses in the calendering field even though his knowledge was
only in relation to calendering for adhesive tapes. In Buckman
Laboratories (Asia) Pte Ltd v Lee Wei Hoong (1999), in terms of
scope, the restraint of trade clause covered all the industries the
employer was operating in, though the employee only worked in the
pulp and paper industry. Further, in terms of geographical limitation,
the restraint of trade clause covered many more countries than
necessary. In the circumstances, the court held that the clause was
unreasonable. In Smile Inc Dental Surgeons Pte Ltd v Lui Andrew
Stewart (2012), a restraint not to compete without a time limit was
held to be unreasonable.
Thus, the takeaway for a business is that if it wishes to have such
restraints, it should not be overly “greedy” and instead should have
something more reasonable. In addition, the business can try
protecting itself in other ways such as by marking out information as
being confidential, restricting access to confidential information or not
disclosing confidential information in its entirety to employees, where
possible.
Restraints on sale of business
For such a restraint to be reasonable between the parties, again, the
buyer of the business must have a legitimate interest to be protected.
However, this would usually be present. Since the buyer would have
paid a price into which the goodwill of the business would have been
factored, it would be legitimate for him to expect that the seller would
not set up a business in competition to the one he had sold.
Nonetheless for such restraints to be valid, they must still be
reasonable in terms of time, area and scope of restraint. In British
Reinforced Concrete Engineering Co Ltd v Schelff (1921) for
instance, the seller sold a business relating to loop road
reinforcements to the buyer, and in the contract of sale, there was a
clause which restricted the seller from setting up a business relating
to “road reinforcements”. The court held that this was wider than
necessary as the business sold only related to loop road
reinforcements and not other types of road reinforcements. Hence,
the restraint was not upheld. In CLAAS Medical Centre Pte Ltd v Ng
Boon Ching (2010) which involved a sale of a medical practice, the
court held that a three-year restraint was not unreasonable on the
facts.
Restraint to sell only a particular product
Whether such restraints are reasonable would turn on the facts. In
Esso Petroleum Co Ltd v Harper’s Garage (Sourport) Ltd (1968), the
defendant owned two petrol stations. He then entered into a contract
with Esso to sell only their petrol at one of the stations for a period of
4 years and 5 months, but got certain rebates on the petrol bought. In
respect of the other station, he took a loan from Esso, granted them
a 21-year-old mortgage over that station as security and agreed to
sell petrol only from Esso in that station for 21 years. The court held
that while the restraint in respect of the first station was reasonable,
the second was not.
However, typical restraints found in franchising agreements, such
as that the franchisee should only sell the franchisor’s products,
should only get supplies from the franchisor’s suppliers or should not
use any other colour scheme or get up, are likely to be reasonable.
Restraints on services
Again, whether such restraints are reasonable between the parties
would very much turn on the facts of each case. The issue arose for
consideration in Schroeder Music Publishing Co Ltd v Macaulay
(1974). In this case, the plaintiff who was a songwriter, entered into a
contract with the defendants under which he was to assign4 songs
produced by him to the defendants, and the defendants only. Under
the contract, the defendants had no obligation to publish the songs,
but stated that if they did, they would pay him royalties. The
agreement was to last for five years, after which on the happening of
certain conditions, it would automatically be renewed for another five
years. The contract also allowed the defendants to terminate the
contract at any time, but there was no similar right granted to the
plaintiff. The court held that the restraint was unreasonable and
unenforceable.
(b) Not against public interest
As stated, in addition to being reasonable as between the
parties, for all such restraints to be upheld, they must not be
against public interest, though in practice, restraints are rarely
struck down on this ground.
One case in which this issue became important was Thomas
Cowan v Orme (1961). In this case, the plaintiffs were carrying
on the business of pest extermination and the defendant entered
into a contract of employment with the plaintiffs. The contract,
among other things, provided that he was not to compete by
setting up a similar business after he left the plaintiffs’
employment. The court held that the clause could not be upheld
as it was against public interest. This was because at that time in
Singapore, the plaintiffs were the only fumigators in Singapore,
and it was not in public interest that the plaintiffs should have a
monopoly on the business.
(c) Effect of invalid restraints
If the restraint is invalid, it generally cannot be enforced.
However, two points must be noted.
Firstly, if the restraint is unreasonably wide, the court may be
able to run a “blue pencil” through it, deleting the unreasonable
parts. If so, the rest of the restraint would be enforceable
(Goldsoll v Goldman (1914)). However, the court will do this only
if it is possible to do so without adding or altering words (Attwood
v Lamont (1920)). Thus for instance, if a restraint of trade clause
in an employment contract extends to not working in Singapore,
Malaysia and Thailand, and the restraint is unreasonable in that it
extends to the latter two countries, the court may delete the
offending parts and just enforce the restraint in so far as it
extends to Singapore. However on the other hand, if the restraint
restricted the employee from working in South East Asia without
specifying the countries, and that is unreasonable, the court
would not be able to delete that and specify that the employee
would only be restricted from working in Singapore as that would
amount to adding or altering words. As can be seen, the power
of the courts is limited and the courts want to have just a limited
power, for else, the party wanting to enforce the restraint would
have little incentive to draft something which is reasonable, and
short of litigation, the other party would not know whether it is
valid or not.
Secondly, the question might also arise whether, if the clause
is invalid, can the rest of the contract be enforced? If the restraint
can be severed from the rest of the contract, the rest of the
contract can still be enforced. In employment contracts for
instance, restraints would usually be severable as they would not
form the major part of the bargain between the parties. Thus, if a
contract of employment contains an invalid restraint of trade
clause, but the employee has breached some other term, the
employer should still be able to sue for breach of that other term,
as the restraint of trade clause would usually be separate and
severable from the rest of the contract. It may also be noted that
it is common for written contracts to expressly state that if one
part is unenforceable that will not affect the validity of the rest of
the contract.5
(d) Anti-competitive behaviour
As discussed above, restraint of trade clauses may be against
public policy and may not be enforceable unless they are
reasonable. Such a rule essentially emanated from case law and
relates to the civil side of the matter.
However, aside from this, there is also a statute governing
anti-competitive behaviour, namely the Competition Act. Under the
Competition Act, among other things, anti-competitive
agreements or concerted practices which prevent, restrict or
distort competition in Singapore or, the abuse of dominant
position in the market by undertakings, are prohibited. Thus for
instance, if two businesses sign an agreement that they would
charge the same price for their products, that may be in breach
of the Competition Act and may result in the imposition of financial
penalties.6
It should also be pointed out that not all the restraints
discussed in the previous section will not run afoul of the
Competition Act as the threshold or requirements are different.
For instance, the Competition Act governs agreements between
“undertakings” (section 34 of that Act) and hence a restraint
between an employer and employee (who would not be
considered as being an “undertaking”) will not be covered.
MISREPRESENTATION
If a statement that is a term of the contract turns out to be false, the
innocent party would be able to bring a claim for breach of contract.
For instance, if in a software development contract there is warranty
that the software will work at a certain speed and this turns out not to
be true, the commissioner of the software may be able to sue for
breach of contract.
On the other hand, if the statement is not a term of the contract
and it is made prior to the contract, but it induces the formation of the
contract, the innocent party may sue for misrepresentation. For
instance, if before entering into a software development contract, the
developer claims that certain big businesses are his clients, and after
entering into the contract, the commissioner of the software discovers
that that is not true, the commissioner may be able to sue for
misrepresentation.
Thus, the innocent party may sue for breach of contract and/or
misrepresentation depending on whether the particular statement was
part of the contract or not.
However, it is not always very easy to determine whether the
statement made is part of the contract or not. Courts have suggested
that, among other things, if there was a long gap between the making
of the statement and the final contract or if there was little emphasis
on the statement by the parties, then it was more likely to be a
representation. However, such factors are only guidelines and much
depends on the actual facts.
The more specific rules relating to misrepresentation will now be
considered.
(a) Statement of Fact
To be actionable, the representation must be a statement of
existing fact or past event and must obviously also be false.
If it were a statement of opinion, it would not be a statement
of existing fact or past event. Thus, statements of opinion will not
give rise to misrepresentation as a reasonable person would
understand that it is just an opinion and that different people can
have different opinions. In Bisset v Wilkinson (1927) for instance,
the vendor of a land which had not been used for sheep farming
before, told the purchaser that in his opinion, the farm could
contain 2,000 sheep. The statement that was innocently made
turned out to be false. The court held that since the maker was
just giving his opinion and not stating a positive fact, there was no
actionable misrepresentation.
However, there are exceptions to the rule. For instance,
where it can be proved that the maker did not actually believe in
the truth of the opinion or if it can be established that a
reasonable man having the maker’s knowledge could not have
honestly held such an opinion, an action for misrepresentation
may lie. In Smith v Land and House Property Corpn (1884) for
instance, the vendor of a land told the purchaser that it was
occupied by a “most desirable tenant” and that, coupled with the
attractive rent, made it a “first-class investment”. In fact, the rent
had been paid in installments under pressure and no part of the
midsummer rent had been paid. Even though the vendor was just
giving his opinion, since the vendor honestly could not have
believed in the truth of the statement, the court held there was a
misrepresentation.
Generally too, statements of future intention, since they do not
relate to existing or past facts, cannot give rise to
misrepresentation. However, exceptionally where it can be
established for instance that the maker did not actually believe in
the statement of future intention, an action for misrepresentation
may lie. In Edgington v Fitzmaurice (1885) for instance, the
company issued a prospectus which invited a loan from the public
and stated that the loan was to be used for improving new
buildings and extending the business. This was not true, as the
company had intended to use the loan to meet certain existing
liabilities. As the company knew the statement of future intention
was false, the court stated that there was an actionable
misrepresentation.
Further, if the statement were not a statement of fact, but
merely a “puff” or “sales talk”, an action for misrepresentation
would not lie, as a reasonable person would not have taken such
statements seriously. Thus, if a business describes its restaurant
as serving the tastiest food in town, it is unlikely that an action for
misrepresentation would lie. Similarly, if a seller generally states
that his products are of the highest quality or he observes the
highest standards, that may not amount to a statement of fact
(Sun Qi v Syscon Pte Ltd (2013)).
Silence
As a positive statement about an existing or past fact has to be
made, keeping quiet does not amount to a misrepresentation. If the
rule were otherwise, it could become very onerous and it would be
almost impossible to enter into any sort of contract without running
afoul of the rule as every negative aspect may have to be disclosed.
In Keates v Lord Cadogan (1851) for instance, the seller of the
house did not disclose to the buyer that his house was in poor
condition. When the buyer found out the truth and sued the seller for
not disclosing the fact to him, the court held that the seller was under
no obligation to make the disclosure.
Thus, the key takeaway for a business is to make inquiries and
find out, instead of expecting the other party to voluntarily disclose
relevant information.
However, to the general rule that silence does not amount to
misrepresentation, there are a few exceptions. For instance, silence
may amount to misrepresentation in the following situations:
(i)
If a half-truth is offered
If what the maker stated is true, but on considering the
undisclosed facts on the whole, the statement gives a very
misleading picture, then silence may amount to
misrepresentation. For instance, in Dimmock v Hallett
(1866), the vendor of a land, in order to make the purchase
sound like a good investment stated that the land was
tenanted. However, he did not disclose that the tenant had
given notice to quit. In the circumstances, since what he
stated was only half the truth, he was obliged to reveal the
rest and since he did not, he was held liable for the
misrepresentation.
(ii) If the maker realises the statement is not true before the
contract is made
If a maker makes a statement in the course of negotiations
that he believes is true, but before the contract is made,
comes to realise that the statement is not true, then he is
duty bound to make this known to the other party. In With v
O’Flanagan (1936), the defendant wanted to sell his medical
practice and told the buyer that it was worth so much a year.
This was in January and the statement was true at that time.
By the time the agreement for sale was actually made in
May, the situation had changed and the practice had become
nearly worthless. Though the defendant knew this, he did not
disclose it to the buyer. The court held that in the
circumstances, silence amounted to misrepresentation.
(iii) In contracts of uberrimae fidei
In certain contracts, there is a general duty of good faith on
the parties and in such circumstances, silence may amount to
a misrepresentation. This applies to a very narrow category
of contracts, the most common example of which is the
contract of insurance. If material facts have not been
disclosed which are known or ought to have been known,
then silence can amount to misrepresentation in such
contracts. Further, in such instances, the issue will turn upon
whether the non-disclosure relates to a material fact and not
whether the loss was connected to the non-disclosure. Thus,
in a life insurance policy, if X does not disclose that he
smokes, the insurance company will be able to avoid the
policy on the ground of misrepresentation if they eventually
find out the truth. This would be the case even if X’s death
was a result of a road accident and not an illness brought
about by smoking.
(iv) In contracts where there is a fiduciary duty
In certain contracts, one party may owe the other fiduciary
duties or might be placed in a position of trust. In such
contracts, silence may also amount to a misrepresentation.
Again, this does not refer to large category of contracts. An
example could be a contract between two partners or a
contract between a director and the company in which he or
she is a director.
(b) Inducement
To be actionable, the misrepresentation must have induced the
formation of the contract.
However, the misrepresentation need not be the sole factor
that induces the formation of the contract. In Edgington v
Fitzmaurice (1885) for instance, the plaintiff was induced to enter
into a contract with the company because of a false statement in
the prospectus, as well as his own erroneous belief that he would
have some security over the company’s property for the loan he
was advancing. The court held that though the false statement
given by the company was not the sole reason to induce the
formation of the contract, it was still possible to sue for
misrepresentation.
If it can be proved that there was no reliance on the false
statement given by the maker, there would be no inducement. In
Smith v Chadwick (1884), the prospectus contained a false
statement, but the plaintiff admitted in cross-examination that he
was in no way influenced by it and so the court held that he could
not sue for misrepresentation. Similarly, in Attwood v Small
(1838), a vendor of a mine made certain statements about its
earning capacity. The purchaser, in order to verify the truth of the
statements, appointed professionals to investigate the matter and
they reported the statements to be true. The purchase went
ahead but when the purchaser realised the statements were not
true, he sued for misrepresentation. The court held that the
purchaser did not rely on the vendor’s statements and that
instead he relied on the report of the professionals and so he
could not sue the vendor for misrepresentation. This line of
reasoning was also followed in Tan Kim San v Lim Cher Kia
(2001).
However, it must be pointed out that if the person relying on
the information is given an opportunity to verify the truth of the
statement, but he does not make use of that opportunity,
generally that does not deprive him of his right to sue for
misrepresentation. Thus, in Redgrave v Hurd (1881), where the
solicitor sold his house together with his business and gave the
purchaser an opportunity to verify the truth of the statements he
made about the value of the practice, the court held that the fact
that the purchaser did not take up that opportunity to verify did
not prevent him from suing for misrepresentation. This principle
was reiterated in Panatron v Lee Cheow Lee (2001), where the
court held that it was no defence that a prudent man would have
taken steps to verify the truth. Nonetheless, from the business
viewpoint, it is always preferable to carry out verifications where
possible rather than incurring losses and then suing.
(c) Types of misrepresentation
An action for misrepresentation can lie regardless of whether the
misrepresentation made is fraudulent, negligent or innocent,
though there may be some subtle differences when it comes to
remedies.
The misrepresentation is fraudulent7 if, as stated in Derry v
Peek (1889), the maker knew it was false or did not believe in
the truth of the statement or was recklessly careless whether the
statement was true or false. For instance, in Panatron v Lee
Cheow Lee (2001), where the second appellant induced the
respondents to invest in Panatron by stating that the company
was profitable, when in fact he knew that not to be the case, the
court held that the misrepresentation was fraudulent.
The misrepresentation is negligent8 if it is made without having
reasonable grounds for its belief. The degree of blameworthiness
under a negligent misrepresentation is far less compared to that
under a fraudulent misrepresentation. In Howard Marine &
Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd (1978),
Ogden chartered two barges from Howard Marine. The manager
of Howard Marine had given certain representations as to the
capacity of the barges. He gave these after checking with the
Lloyd’s register and not the shipping documents. The court held
that in the circumstances a reasonable manager would have
checked the shipping documents and not the Lloyd’s register,
and, though honestly made, there were no reasonable grounds
for the belief.
The misrepresentation is innocent9 if there are reasonable
grounds for its belief. The degree of blameworthiness under an
innocent misrepresentation is far less compared to that under a
negligent misrepresentation.
(d) Remedies for misrepresentation
If there is a misrepresentation, the innocent party may rescind the
contract. Rescission generally means terminating the contract
and returning the parties to the position they were before the
contract. Thus if X had bought goods pursuant to a
misrepresentation made by the seller and he rescinds the
contract, X would be able to return the goods and get back his
purchase price.
However, to rescind the contract, the representee must make
it clear to the representor that he no longer wishes to be bound
by the contract. Further there are certain bars to rescission such
as:
(i)
Affirmation of the contract
Affirmation occurs when the representee, with full knowledge
of the facts, decides nonetheless, by words or action, to
keep the contract alive. In Straits Colonies Pte Ltd v SMRT
Alpha Pte Ltd (2018), the landlord of a mall misrepresented
to a tenant that the premises could be used for live
entertainment. After entering into the lease, the tenant found
that this could not be done, but started discussions with the
relevant authorities and eventually got the license to provide
live entertainment. Subsequently, the tenant fell in arrears in
paying the rental and the landlord sued. The tenant raised
misrepresentation as a defence. However, the court held that
the tenant had affirmed the contract and hence could not be
excused from paying the rental.
(ii) Lapse of reasonable time
If a reasonable time has lapsed since the misrepresentation,
the representee might lose the right to rescind the contract.
What is reasonable time would depend on the facts of each
case, but in Leaf v International Galleries (1950), the court
held that the five-year time lapse on the facts was
unreasonable and so rescission was not available. Hence
generally a business has to take quick action if it wants to
rescind the contract.
(iii) Restitutio in integrum impossible
If it were not possible to return the parties to the original
position before the contract, then rescission would not be
available. Thus for instance, if X buys a bottle of whisky
pursuant to a misrepresentation made by the seller and
consumes it, he will not be able to rescind the contract after
he finds out the truth.
(iv) Third party rights involved
If a third party has acquired for value an interest in the
subject matter of the contract, the right of rescission may be
unavailable. Thus for instance, if X buys goods from Y by
making a misrepresentation (for instance that the cheque he
gives will be honoured) but before Y rescinds, X sells the
goods to Z for value, Z may acquire the legal right to own the
goods.10 In such a case, the law does not require X to return
the goods, and so the remedy of rescission would not be
applicable to Y.
Damages
For fraudulent misrepresentation, in addition to rescission or where
rescission is not possible, the innocent party may be able to sue for
damages if he has suffered some losses.
For negligent misrepresentation, the position is similar, though by
virtue of section 2(2) of the Misrepresentation Act, the court has
power to disallow rescission and in its place, grant damages. In Defu
Furniture Pte Ltd v RBC Properties Ltd (2014), the plaintiff company
leased a property from the defendant relying on the representation
made by the defendant that it can be used as a showroom without
further approval from the relevant authorities. This turned out not to
be true and the court held the misrepresentation was negligent. The
court also held that the plaintiff company was entitled to rescind the
lease agreement. As part of this recission, the plaintiff company was
entitled to get back the pre-paid rental and security deposit. In
addition to recission, the plaintiff company was awarded damages for
the cost of fitting works it had already done prior to the recission and
the stamp duty11 it had paid on the lease transaction. Similarly in
Creative Technology Ltd v Huawei International Pte Ltd (2017),
where Huawei was negligent in misstating the number of base
stations required in order to install a certain network, the court held
that Creative Technology was entitled to damages which included
wasted expenditure.
For innocent misrepresentation, the innocent party may be able to
an indemnity.12 In relation to innocent misrepresentation, the innocent
party may also be able to rescind the contract. However, in relation to
rescission, again, by virtue of section 2(2) of the Misrepresentation
Act, the court has the power to disallow rescission and in its place
grant damages.
(e) Excluding liability for misrepresentation
Often the party with the stronger bargaining power would try to
exclude liability for any misrepresentation by having a clause to this
effect in the contract.13 Can this be done?
Under section 3 of the Misrepresentation Act, for such a clause to
be valid, it has to be reasonable. In determining what is reasonable,
the factors discussed in relation to exclusion or limitation clauses
would also be relevant.14 In Defu Furniture Pte Ltd v RBC Properties
Ltd (2014), which was discussed earlier, the court held that the
exclusion clause in question was not reasonable as it related to the
very fundamental reason why the plaintiff company had leased the
premises (namely to use it as a showroom).
Instead of directly excluding liability misrepresentation, a party
may also try to indirectly exclude liability for misrepresentation. For
instance, the contract may have an “entire agreement” clause15 which
states that the written agreement represents the entire agreement
between the parties and there are no representations that have not
been reflected in the written agreement. In Defu Furniture Pte Ltd v
RBC Properties Ltd (2014), the court held that the clause in question
did not cover what had happened in that case and that in any event it
was unreasonable.
DURESS
It is common for one party to exert some pressure on another party
so as to induce him to enter into the contract or make changes to it.
However, beyond a certain point the pressure might become
illegitimate so as to vitiate consent. This is the essence of duress.
Thus, if a person is forced to enter into a contract as a result of
actual violence or threats of actual violence, there might be duress
and the contract might be unenforceable. In Barton v Armstrong
(1976) for instance, Armstrong threatened to kill Barton if he did not
sign an agreement to buy out Armstrong’s interest in a certain
company on terms which were only favourable to Armstrong. The
court held that Barton could set the contract aside on the grounds of
duress.
However, such situations of actual violence or threats of violence
are not very common in practice. What is more common is economic
duress or unlawful or illegitimate commercial pressure.
In the business world, at times it may be difficult to get things
done without exercising some form of subtle pressure. However, only
in so far as the pressure becomes unlawful or illegitimate, would be
objectionable. However, it may not always be easy to tell whether
commercial pressure is legitimate or illegitimate.
In Pao On v Lau Yiu Long (1980), the court held that some
factors which were relevant in determining whether the pressure
exerted was illegitimate included whether the innocent party had an
alternative course open to him or was left with no choice but to agree
to the terms, whether the innocent party agreed to the terms under
protest and whether the innocent party received independent legal
advice. Further, it would follow from Sharon Global Solutions Pte Ltd
v LG International (Singapore) Pte Ltd (2001) that whether the party
who is alleged to have exercised duress was exploiting the situation
(or acting in bad faith) could also be a relevant factor.
In Atlas Express Ltd v Kafco Ltd (1989) for instance, the plaintiffs
were transporters engaged by the defendants to transport their
basketware to various branches of a well-known chain. At the time of
contracting, a particular rate was quoted. However, when it came to
loading, a new increased rate was quoted. As the defendants wanted
to maintain a good relationship with the well-known chain and as they
had no other alternative sources of transport since it was nearing
Christmas, they agreed to the increased rate after objecting to it.
However, later they refused to pay the increased rate. Considering
the factors such as that the defendants protested and were left with
no choice, the court held that there was economic duress. Hence, the
defendants did not have to pay the increased rate.16 In contrast in
Tjong Very Sumito v Chan Sing En (2012), the plaintiff’s claim that he
sold shares at an undervalue owing to duress was not made out as
the plaintiff did not protest till some 30 months later, and in any case,
the plaintiff had alternative options.
If duress is established, the innocent party may be able to rescind
the contract. However, if the innocent party affirms the contract, he
may lose his right to rescind the contract. In North Ocean Shipping
Co Ltd v Hyundai Construction Co Ltd (1979) for instance, the
defendant shipbuilders agreed to build a tanker for the plaintiffs. The
price was payable in US dollars. The plaintiffs entered into a lucrative
contract to charter the tanker to a third party. However, after that
there was a sharp fall in the value of the dollar and the defendants
refused to proceed with the building unless an extra ten per cent was
paid. Since the plaintiffs wanted to go ahead with the charter, they
had little choice but to agree and accordingly paid the increased rate.
They made the final payment without protest and further it was only
some eight months later that the plaintiffs instituted action against the
defendants to recover the excess. The court held that even though in
principle there was economic duress, because the plaintiffs had not
taken steps soon enough to avoid the changes to the contract, they
had lost their right to sue for economic duress.17
In terms of business takeaway, the most important thing to
remember is that should a business be placed in such a situation, the
business should raise objections and, take steps to avoid the contract
or changes as soon as possible.
UNDUE INFLUENCE
A contract may be entered into under the undue influence of another
such that in actual fact the party subject to the undue influence has
not truly consented or his consent has been obtained by unacceptable
means. If so, the contract can be set aside.
For instance, in Inche Noriah v Shaik Allie bin Omar (1929) the
plaintiff was an old and illiterate woman. She was living alone and
totally dependent on the defendant, her nephew. The defendant
somehow managed to get her to transfer her properties to him. But
subsequently, when the plaintiff realised what had happened, she
sued to set the transaction aside. The court held that there was
undue influence and the transaction was set aside.
Generally, the party alleging undue influence has to prove it.
However, in certain situations such as, as between solicitor and client
or doctor and patient, undue influence is presumed. Where undue
influence is presumed, the onus is on the party against whom the
presumption applies to rebut the presumption.
If it has to be proved, whether it can be proved and, if the
presumption applies, whether the presumption can be rebutted
depends on various factors. Some evidentiary factors that could be
relevant are:
•
•
•
•
•
whether there is a relationship of trust and confidence between
the parties such as that one party was relying on the other,
whether the party relying on the other understood the nature of
the transaction, given his background,
whether the party relying on the other suffered a manifest
disadvantage,
whether the party who is alleged to have exercised undue
influence obtained an unfair advantage, and
whether the party relying on the other received independent
legal advice which made it clear to him the effect of what he
was doing.
Some of these factors were considered in the case of Susilawati
v American Express Bank Ltd (2008). In this case, the plaintiff had
created a charge over her accounts to cover the liabilities of her sonin-law and when the bank tried to enforce the charge, she alleged
undue influence on the part of the son-in-law. However, the court
found that she was not dependent on the son-in-law and did not
blindly follow what he said. Further, the court found that she was the
more dominant person in their relationship and she made independent
financial decisions. Thus, the court held that there was no undue
influence.
As deduced from the facts of the case above, undue influence
need not be direct. It may be indirect. There have been many cases
in this context, especially in relation to finance companies and banks.
To give another illustration, in Che Som bte Yip v Maha Pte Ltd
(1989), the third plaintiff was suffering from mental incapacity. His
brothers were in charge of his affairs and got him to sign a mortgage
over a property which he co-owned to secure a loan to a company
that the brothers were running. The court held that the bank was
imputed with the undue influence exercised by the brothers over the
third plaintiff. Hence, the mortgage was set aside. Similarly, in
Barclays Bank v O’Brian (1993), where the wife in question signed a
mortgage over her home for the business debts of her husband, the
court held that the husband’s undue influence could be imputed to the
bank.
Essentially the institutions concerned would be put on inquiry in so
far as the relationship between the parties to the transaction is noncommercial in nature, such as would be a transaction involving a
husband and a wife (Royal Bank of Scotland plc v Etridge (No 2)
(2002). To protect themselves against such problems, the institutions
concerned must satisfy themselves that the party who could be
subject to the undue influence entered into the transaction with eyes
open. In this regard, usually, if the institution gets a solicitor, acting for
the party who could be subject to the undue influence, to confirm that
he has advised that party appropriately, that would suffice (Royal
Bank of Scotland plc v Etridge (No 2) (2002).
MISTAKE
NOT TESTED
Mistake in law is not understood in the same manner as it is
understood in layman’s terms. Thus, if X were to buy some shares
thinking that they will rise in value, but they fall drastically; or if X buys
a dress for his child thinking it will fit her, but it does not; or if X buys
a secondhand car thinking it is worth $100,000, when in fact it is
worth $80,000, X cannot in law plead that he had made a mistake. If
he were allowed to do so, all sorts of contracts could be undone and
this would create a lot of uncertainty in business.
The law seeks to uphold agreements rather than destroy them.
Hence, mistake in law is much more difficult to establish. Thus, the
key business takeaway for a business is to verify and check
everything as far as possible (though this might be easier said than
done).
To make out “mistake” in law, first, there must be a mistake.
Second, the mistake must be shared by both parties. For instance, if
X makes a mistake in his calculations and quotes a lower price to Y
and Y is unaware of that mistake, the mistake would be unilateral.
Hence, X will not be able to set the contract aside on grounds of that
mistake. However, exceptionally, a unilateral mistake, that is a
mistaken belief held by just one party, may suffice, provided the other
party is aware of this. For instance in Hartog v Colin & Shields
(1939), the preliminary negotiations between the parties proceeded
on the assumption that price of the hare skins being sold would be
quoted “per piece”. But the seller subsequently made a mistake and
quoted the price as “per pound”. The buyer accepted the offer
knowing that the seller had made an error. Once the seller realised
the mistake, he refused to deliver the hare skins and the buyer sued.
The court dismissed the buyer’s action, as the buyer was aware of
the seller’s mistake. Similarly, in Chwee Kin Keong v
Digilandmall.com Pte Ltd (2005), the respondent was a Singapore
company selling IT products. Their printers were priced at $3,854 but
owing to a mistake, the printers were advertised in the respondent’s
websites as going for $66. The appellants, who were all
technologically very savvy, ordered a large amount of printers. When
the respondents discovered the mistake, they refused to deliver the
printers and the appellants sued. Given their background, the court
held that the appellants knew or ought to have known of the mistake,
and hence the respondents were held not liable.
Third, in order to establish mistake, the mistake must relate to
something fundamental. However, the law in this area is very
unsettled and the exact ambits of what can be considered
fundamental, are far from clear. In Bell v Lever Bros Ltd (1932), the
company in question made some compensation payments to its
managing director. However, the managing director had committed
certain breaches which, unknown to him, did not entitle him to receive
the compensation. When the company discovered the truth, the
company sued to recover the compensation paid on the grounds of
mistake. The court held that there was no operative mistake. Similarly
in Leaf v International Galleries (1950), the buyer bought a painting
from the seller and both parties thought it was a painting by
Constable. It turned out this was not the case, but the court held that
the mistake was not sufficient enough to set the contract aside.
However, it would appear from Chwee Kin Keong v
Digilandmall.com Pte Ltd (2005) that where there is some
“unconscionable conduct”, “sharp practice” or “impropriety” on the
part of the one of the parties, it might be easier to establish that the
mistake is fundamental in nature.
An area of law that is more settled is mistake as to signed
documents or “non est factum”. Unlike the earlier category of misake,
which is very general, this category relates to a very specific situation
of being mistaken about the nature of a signed document. In this
regard, as a general rule, when a person signs a document he is
bound by what he signs. However, exceptionally, if he can establish
that:
•
•
the document which is signed is fundamentally different from
what he thought he was signing, and
he was not negligent in not reading what he signed, mistake
may be made out.
The case of Saunders v Anglia Building Society (1971) illustrates
the point. In this case, one Lee asked Mrs Gallie, an old widow, to
sign a document. He told her that it was a deed of gift of her house to
her nephew. Actually the document purported to assign her interest in
the house to Lee. When Mrs Gallie sought to set aside the
transaction, the court held that it could not be done as the document
she thought she was signing and the document she actually signed
was not fundamentally different. This case may be contrasted with
Goh Jong Cheng v MB Melwani (1991). In this case, an elderly
mother who was illiterate was tricked into mortgaging her house by
her son. The son told her that they were going to the solicitors to
merely verify her title deeds. As the document she thought she was
signing was totally different from what she actually signed and as she
could not have read the document, the court held that the transaction
could be set aside on the grounds of mistake.
UNCONSCIONABILITY
NOT TESTED
Another, more recently developed vitiating factor is unconscionability.
The idea behind the doctrine is not to save people from their own
folly; but rather, it is to prevent victimization and abuse.
In Singapore, a narrow doctrine of unconscionability has been
accepted by the Court of Appeal in BOM v BOK (2019) where the
court stated. “To invoke the doctrine, the plaintiff has to show that he
was suffering from an infirmity that the other party exploited in
procuring the transaction. Upon the satisfaction of this requirement,
the burden is on the defendant to demonstrate that the transaction
was fair, just and reasonable. In this regard, while the successful
invocation of the doctrine does not require a transaction at an
undervalue or the lack of independent advice to the plaintiff, these are
factors that the court will invariably consider in assessing whether the
transaction was improvident.”
The doctrine can overlap with some of the other concepts
discussed earlier such as duress or undue influence, though it could
apply in situations where those concepts are inapplicable as well (for
instance, highly unfair terms, but no duress or undue influence). It
should also be highlighted that aside from this case law based
doctrine, there are a few statutory provisions which seek to address
unconscionable conduct that may take place in some specific
situations.18
However, regardless of the legal position, a business may also
want to think if indeed this is the best way to do business if it aims to
develop long term goodwill.
_____________
1
See page 188.
2 See page 122.
3
See also Appendix A, clauses 4b and 6.
4 As to assignment of copyright see page, 109.
5
See for instance, Appendix A, clause 22.
6 For more examples of what amounts to anti-competitive behavior, see the
Competition
and
Consumer
https://www.cccs.gov.sg/.
Commission
of
Singapore’s
website:
7
If the misrepresentation made is fraudulent, the action would have to be framed
under the tort of deceit.
8 If the misrepresentation made is negligent, the action can be framed either under
the tort of negligence or under the Misrepresentation Act.
9
If the misrepresentation made is innocent, the action would have to be framed
under the Misrepresentation Act.
10 See further, page 282.
11
Stamp duty is a kind of a tax and it is collected by the Inland Revenue Authority
of Singapore. It is imposed on certain transactions such as those relating to the
sale, purchase or lease of land.
12 An indemnity may be more limited than damages, in that, for instance while it
may cover wasted expenditure incurred such as renovation costs in the case of a
building or business acquired pursuant to an innocent misrepresentation, it would
not cover lost profits: Whittington v Seale-Hayne (1900).
13
See for instance, Appendix A, clause 14.
14 See page 180 onwards..
15
See, for instance, Appendix A, clause 23.
16 The courts also held that there was no fresh consideration for the changes; see
page 154.
17
Due to certain reasons, the court also held that there was fresh consideration for
the changes; see page 154.
18 See for instance, Consumer Protection (Fair Trading) Act (page 291). Similarly
under the Moneylenders Act, there are provisions which allow certain reliefs to be
granted in respect of unconscionable loans (section 23)
9
Terminating a Contract
A contract once formed, can come to an end in one or more of four
ways:
•
•
•
•
Performance,
Agreement,
Repudiatory or Fundamental Breach, and
Frustration.
Again from a business viewpoint, a business can take certain
measures to better protect itself in relation to issues pertaining to
termination, some of which are referred to in this chapter.
PERFORMANCE
The first way in which a contract can come to an end is by
performance. Thus, if X goes to a theatre, pays to watch a movie,
sees it and leaves the theatre, the contract comes to an end.
Similarly, if X goes to a clinic, sees the doctor, pays for the medicine
and leaves, the contract comes to an end.
However, it must be noted that even if the contract is completed, if
it turns out that there is some breach, the innocent party has the right
to bring an action for breach of contract. Thus for instance, in the
example above, if it turns out that the doctor has given the wrong
medicine, X can bring a claim against the doctor for losses suffered
(if any) arising out of the breach of contract.1
It must also be noted that if a party to the contract has not
completely performed his obligations under the contract (other than
for microscopic deviations) he cannot seek any payment from the
other party. If the rule were otherwise, it may be misused. For
instance, a renovation contractor may take on many obligations or
projects at the same time even though he knows he may not be able
to complete all of them, knowing that he will still get paid for the work
he actually manages to do. Though this may be good from the
viewpoint of the renovation contractor, it will create a lot of
uncertainty and disruption for the other party concerned and that
would not be a desirable outcome.
The case of Cutter v Powell (1795) illustrates the principle. In this
case, Cutter was engaged by Powell to work on a sea journey from
Jamaica to Liverpool. It was agreed that payment would be made at
the end of the voyage. Cutter died during the voyage, 19 days before
the ship reached Liverpool. Cutter’s widow sued Powell for the
wages. The court held that as payment was conditional on the
voyage being completed and since the voyage was not completed,
the payment was not due.2 Similarly in Ocean Projects Inc v Ultatech
Pte Ltd (1994), the defendants were engaged to transport the goods
from Houston to Dumai by ship. They loaded the goods from Houston
but, due to some reason, unloaded them in Singapore without going
to Dumai. Thus, they did not complete the voyage. The court held that
the defendants were not entitled to any payment for shipping the
goods from Houston to Singapore.
However, to this rule that payment is conditional upon complete
performance, there are several exceptions such as:
(a) Substantial performance
If there is no complete performance, but there is substantial
performance, the party performing may nonetheless be able to
claim the contract price, less the cost of making good any
omissions or defects in execution. Whether there is substantial
performance would depend on the facts of each case. In Hoenig
v Isaacs (1952), for instance, Hoenig was engaged to decorate
Isaacs’s flat for £750. He decorated the flat, but a wardrobe door
and bookshelf were defective. The court held that there was
substantial performance and Hoenig was entitled to claim
payment, less the cost of remedying the defects, which amounted
to £56.
However, it must be mentioned that, if the obligation under the
contract is an entire one, even if there is substantial performance,
it may not be possible to make a claim. For instance, if X agrees
to paint Y’s portrait and has painted everything except Y’s eyes,
it is unlikely that X would be able to make a claim.
(b) Divisible contracts
Certain contracts may be divisible into stages and so, after each
stage is completed, the party performing would be entitled to
payment.
Common examples of such contracts are modern-day
employment and building contracts. In the case of employment
contracts for instance, it is usually divided into months, and the
employee would be entitled to payment after the completion of
each month and would not have to wait for the end of the contract
of employment. For instance, if you employ a domestic helper on
a two-year contract, you cannot tell the helper that you will pay
her at the end of two years when the contract is completely
performed. Similarly, in building contracts, usually it would be
provided that payment would be made at each stage of
completion of the project upon the presentation of the architect’s
certificate that that stage has been completed.
Thus, from a business viewpoint, for better protection, the
question of whether somehow the contract can be divided into
different stages with different payments should be explored.
C
(c) Prevented performance
If one party has begun performing his obligations, but has been
prevented by the other from continuing, the party who has
performed part of the contract may nonetheless be entitled to
payment on a quantum meruit basis, that is, payment based on
the value of services rendered. In Planche v Colburn (1831),
Planche agreed to author a publication for Colburn. However,
after Planche had started work, Colburn abandoned the project.
Planche sued Colburn and the court held that Planche was
entitled to be paid on a quantum meruit basis as he was
prevented from performing the contract by Colburn’s actions.
(d) Acceptance of partial performance
If one party has not completely performed his obligations, and the
other party, by words or action intimates that he accepts the
incomplete performance, the party who has not completely
performed the contract may nonetheless be able to claim on a
quantum meruit basis. Thus, if a seller delivers less goods than
as required under the contract, the buyer can generally reject the
whole lot.3 However, if he decides to accept the lesser quantity
delivered, he has to pay for the quantity he accepts.
However, there would be no acceptance if the other party to
the contract has no choice but to accept the incomplete
performance. In Sumpter v Hedges (1898), Sumpter was
engaged by Hedges to construct a structure on Hedges’s land.
Sumpter failed to complete the job, so Hedges had to complete
the rest of the job. Sumpter sued for the value of work done. The
court held that he need not be paid, as Hedges had no choice but
to accept the partially completed structure. Hedges could not
reasonably be expected to knock it down or leave it standing on
his land in its partially completed state.
(e) Apportionment Act
nottested
Where periodic payments in the nature of income are concerned,
there is also now a statutory exception. Section 3 of the
Apportionment Act provides that, “rents, annuities, dividends and
other periodical payments in the nature of income … shall … be
considered as accruing from day to day, and shall be
apportionable in respect of time accordingly”.
Thus for instance, in an employment contract in which salary
is to be paid monthly, if the employee dies in the middle of the
month having worked for 20 days, his estate may be able to
claim for the 20 days of work even though he has not completely
performed the whole month’s work. As a result of this statutory
provision, the case of Cutter v Powell (1795) (referred to earlier)
if were to arise today, is likely to be decided differently.
AGREEMENT
Another way in which the contract may come to an end is by
agreement between the parties. The contract starts with an
agreement (that is, offer and acceptance) and in the same way, the
contract can come to an end by agreement.This “agreement” may be
found in the original contract itself or might come about subsequently.
4 A sample cotreat
containing
all the
1194115
Chapter
12
Dealingwith
employees
(a) Earlier termination agreed in original contract
Sometimes, the original contract may expressly provide that the
contract would automatically come to an end after the happening
of a particular event. The contract may expressly also provide
that either or just one party can terminate it any time by giving a
4
certain amount of noticeO
without having to give any reason.
Instead of being express, it is also possible that in some
contracts, it may be implied5 that either, or just one party, has the
right to terminate the contract without having to give any reason.
One situation where there is such an implied right is in the
contract of employment. In contracts of employment, generally
stated either party to the contract may terminate it by giving the
other reasonable notice. What is reasonable notice would depend
6
on the facts of each case.g
Similarly, both the bank and the
customer generally have an implied right to terminate an ordinary
bank account, though subject to express terms, the bank may
have to give reasonable notice before it does so.
Act
Variations to a
Contract
(b) Subsequent agreement to terminate earlier
Sometimes, the parties may subsequently agree to terminate the
contract even if there is nothing in the original contract about early
termination. If this is the case, it is like making a new agreement
and so all the elements of contract must be present. In particular,
it must be noted that if the new agreement to terminate is not
under seal or deed, there is a need for consideration. In this
regard, if both parties have outstanding obligations under the
contract, there would be such consideration. Thus, if X agreed to
deliver to Y some goods and thereafter the parties agreed to not
go ahead with the contract, there would be consideration for the
new agreement. This is because X is released from his legal
obligation to deliver and similarly Y is released from his legal
obligation to pay. Thus, both parties get a new benefit.
I
However, if one party has completely performed his
obligations and the other has not, and then the parties agree to
terminate the contract, there would be a problem with
consideration. Thus, if X has delivered the goods to Y, but
thereafter X and Y agree that Y does not have to pay, there
would be no consideration for X’s promise for agreeing to forego
payment as he has got nothing in return. In such circumstances,
the new agreement may be invalid and the old contract will
continue to be binding, unless the new agreement is under seal or
deed or it is possible to invoke the doctrine of promissory
estoppel or apply the principles laid down in the case of Williams
v Roffey, all of which were discussed earlier in the context of
variation in Chapter 6.7
The other problem about agreeing subsequently is that both
parties must agree. If it is profitable for one party to continue with
the contract and it is not profitable for the other to continue with
the contract, it is unlikely that the parties can reach an agreement
to end the contract.
Thus, from the business viewpoint, to avoid such problems, when
drafting contracts, parties should consider whether it would be
desirable or necessary in the circumstances to have an express
clause allowing one or both parties to terminate the contract earlier
by giving notice.
It should also be highlighted that when an on-going contract
comes to an end by agreement or, repudiatory or fundamental breach
(discussed below), generally all that was done before the date of
termination is valid. This is unlike the concept of recission which was
discussed in relation to misrepresentation8 and which results in
undoing all that was done before the date of recission. For instance,
if a two-year contract of employment is terminated after 6 months by
agreement, while the contract stops from that point, all that was done
prior to that is not affected. For instance, the employee does not
have to return the salary earned during those 6 months back to the
employer.
REPUDIATORY OR FUNDAMENTAL BREACH
The next way in which a contract may come to an end is by a
repudiatory or fundamental breach, committed by one of the parties
to the contract.
The leading case on this is RDC Concrete Pte Ltd v Sato Kogyo
(S) Pte Ltd (2007). In this case, the Court of Appeal held that
whether the innocent party can terminate the contract depends on
four factors:
(a) Firstly, the contract may clearly and expressly state that in
the event of a certain breach, the innocent party can terminate
the contract. For instance,9 in a tenancy contract, the contract
may state that if the tenant sub-lets the property, the landlord
can terminate the tenancy. In such a situation, it would not
matter whether the sub-letting results in any loss or
consequence to the landlord. The landlord can simply exercise
the contractual right. In Fu Yuan Foodstuff Manufacturer Pte
Ltd v Methodist Welfare Services (2009), where the contract
with the caterer stated that it could be terminated without
notice where the caterer did not comply with Singapore laws
and regulations, especially with regard to employment of
staff, and the caterer had hired illegal foreign manpower, the
court held that the contract could be immediately terminated.
(b) Secondly, if the party in breach renounces the contract by
clearly conveying to the innocent party that he will not perform
his contractual obligations at all, the innocent party can treat
the contract as having ended. For instance, if an employee
enters into an employment contract with the employer but fails
to turn up on the first day of the job and informs the employer
that he has already found another job, the employer can treat
the contract as having ended.
It should also be highlighted that such a form of repudiatory
breach can be actual or anticipatory. It is actual when the
date for performance is due. It is anticipatory when the date
for performance is yet to be due.
For instance, if X enters into a contract of lease with Z to
commence on the 1st of January, but X informs Z that he will
not be leasing out his house after all on the 1st of December;
that would be an anticipatory breach. On the other hand, if he
informs Z of that on the 1st of January, that would be an
actual breach.
In the case of the anticipatory breach, the innocent party may
institute an action immediately if he so wishes and does not
have to wait for the commencement date of the contract.
Thus, in Hochester v De La Tour (1853), the defendant
agreed to engage the plaintiff as a courier on a tour which
was to commence on the 1st of June. However, on the 11th of
May the defendant informed the plaintiff that his services were
no longer required. Following this the plaintiff instituted an
action against the defendant before 1st June. The court
allowed his claim.
(c) Thirdly, if a party breaches a term of a contract which is a
“condition”,10 as opposed to a “warranty”, the innocent party
can terminate the contract regardless of the consequences of
the breach. Thus, even if the consequences of the breach turn
out to be trivial, the breach of a condition would enable the
innocent party to terminate the contract. Such a rule promotes
certainty in business.
A condition is a term that is viewed as very important or
fundamental. For instance, if there was a clause in a contract
of employment that prohibited the employee from running a
business in competition with the employer while working for
the employer, and the employee breaches that term, that is
likely to amount to a breach of condition. It does not matter
that the competing business is an absolute failure and the
employer suffers no loss as a result. The employer can still
terminate the contract for breach of the condition if the
employer so wishes.
In contrast, a warranty11 is not a vital or important term.
For instance, in an ordinary residential tenancy agreement, if
the contract prohibits the tenant from hanging pictures on the
walls, but the tenant nonetheless does so, that is likely to be
just a breach of warranty. Thus (unless one of the other three
factors is satisfied) the landlord cannot terminate the lease if
this term is breached.
Whether a term can be classified as a condition depends
on various factors such as, the intention of the parties at the
time of making the contract and whether past cases have
held the term to be a condition (Sports Connection Private
Limited v Deuter Sports (2009)). In this regard, cases in the
past have held that obligations as to the time of performance
in commercial contracts may be conditions. Thus, in Behn v
Burness (1863), the court held that the term “now in the port
of Amsterdam” was a condition. Similarly in The Mihalis
Angelos (1971), the court held that the term “expected ready
to load” on a particular date was a condition. Likewise, in Lee
Seng Cheong v Seah Bak Seng (2008), time for the sale of
shares in a company was held to be a condition as there
could be huge fluctuations in price.
It should also be highlighted that conditions and warranties
refer to express terms of the contract and not generally to
implied terms.12
It should also be mentioned that not all express terms can
be clearly classified or pigeon-holed as being conditions or
warranties as illustrated by the case of Hong Kong Fir
Shipping Co v Kawasaki Kaisen Kaisha (1962) discussed
below. In fact many terms cannot be and hence this category
may not always be relevant or applicable.
(d) Regardless of the type of term breached (for instance, even if
it is a warranty13), if the consequences of the breach are such
as to deprive the innocent party of substantially the whole
benefit which it was intended that the innocent party should
obtain from the contract, the innocent party can terminate the
contract. Such a rule promotes fairness.
For instance, in Hong Kong Fir Shipping Co v Kawasaki
Kaisen Kaisha (1962), Hong Kong Fir Shipping Co chartered
a ship to the plaintiffs. It was a term in the contract that the
ship was to be seaworthy and “in every way fitted for ordinary
cargo service”. Unfortunately, the crew was insufficient in
number and incompetent, and so this term was breached. The
question was whether the breach entitled the plaintiff to
terminate the charter. The court held that the term in question
would cover both trivial matters such as a missing nail and
serious matters such as the whole ship being unseaworthy.
Thus, it could not be classified as a condition or warranty
(such a term was subsequently coined as an “innominate”
term). However, the court held that the plaintiff could
nonetheless terminate the contract if the consequences of the
breach were such that they substantially deprived the innocent
party of the whole benefit of the contract. On the facts, as the
consequences of the breach were not that serious, the
plaintiffs could not terminate the charter. They could only sue
for damages.
In Aero-Gate Pte Ltd v Engen Marine Engineering Pte Ltd
(2013), the defendants failed to supply generators within the
time specified. However, the court held that the time of
performance in that context was not a condition as the parties
had an understanding that it could be changed. However,
given that there was a delay of more than 2 months and the
plaintiffs were unable to supply the generators to their own
customers as a result, the court held that the plaintiffs were
deprived of substantially the whole benefit of the contract.
Hence, they were entitled to terminate the contract and sue
for damages.
Business takeaway
In practice, it may not always be easy to tell whether the term
breached is a condition or warranty (namely, the third factor) or
whether the consequences are serious enough to terminate the
contract (namely, the fourth factor). Thus, the innocent party, aside
from knowing that he has a right to sue for damages, may not always
be sure whether he can terminate the contract or not. In fact, if the
innocent party wrongfully terminates the contract when he does not
have a right to do so, he could end up being liable. For instance, in a
tenancy agreement, if the landlord thinks that the tenant has
committed a fundamental breach and so evicts the tenant, but later a
court holds that the tenant’s breach is not fundamental in nature or
the term breached is not a condition, while the landlord can sue the
tenant for the losses he has suffered as a result of the tenant’s
breach, the tenant can in turn sue the landlord for his losses due to
the wrongful eviction (for instance, the tenant may now be paying a
higher rental elsewhere for the same type of property).
Thus, from a business viewpoint, to avoid such problems, where
one party considers some terms to be particularly important, that
party should expressly refer to the importance of such terms in the
contract, for instance by referring to them as conditions (namely, the
third factor). Alternatively, instead of using words like “condition”, the
contract may expressly and clearly provide that if certain specified
breaches occur, the innocent party would have the right to terminate
the contract (namely, the first factor). Again as stated earlier, the
lawyers involved in the drafting process may not really understand or
fully appreciate all that is truly important to the business in question
and hence the onus is on the business to ensure that its interests are
rightly protected in the contract.
Other matters relating to repudiation
It may also be noted that if there is a repudiatory or fundamental
breach, it is not compulsory for the innocent party to terminate14 the
contract. He has a choice. He can either terminate the contract or
decide to keep it alive and affirm it. For instance, in a tenancy
agreement, if the tenant commits a fundamental breach, the landlord
may still decide to go on with the contract as the rental he is receiving
may be very good. While the landlord may have affirmed the contract
in the situation above, he may still be able to sue the tenant later for
damages unless he has “waived”15 his right to do so.
If the innocent party decides to keep the contract alive, then it is
kept alive with all the ensuing consequences. In Avery v Bowden
(1855), for instance, the defendants chartered the plaintiff’s ship at a
Russian port and agreed to load her within 45 days. However, later
the defendants told the plaintiff that they would not be able to load
and asked the plaintiff to leave. This was possibly a repudiatory
breach by the defendants. Nonetheless the plaintiff remained there
Business
Advice
with the hope that goods will still be loaded. Before the 45-day period
was over, the Crimean War broke out, frustrating16 the contract. The
court held that though there was a repudiatory breach by the
defendants, the plaintiff by his conduct had kept the contract alive,
and subsequently that contract was frustrated and so the defendants
were not liable.
It must also be pointed out that even if the innocent party decides
to terminate the contract, certain terms in the contract may survive
the termination and still remain applicable. Such terms include those
relating to the choice of law,17 dispute resolution18 and the payment
of liquidated damages.19 yradicallydifferentfromwhatwas originallyenvisaged
Illegality
FRUSTRATION
Impossibility
The final way in which the contract may come to an end is by
frustration. Frustration is the happening of an unexpected event
beyond the control of the parties, after the making of the contract, but
before the completion of the contract, which makes further
performance of the contract either illegal, impossible or radically
different from what was originally envisaged by the parties. If
frustration is established, the law deems it fair that the parties should
be excused from performing their obligations and the contract would
automatically come to an end.
Illegality
As stated, frustration may arise due to a supervening illegality. In
Fibrosa Spolka Ackcyjna v Fairbairn, Lawson Combe Barbour Ltd
(1943), for instance, there was a contract of sale of machinery to be
shipped to Gdynia. However, the port was subsequently occupied by
enemies during the Second World War. Although it was physically
possible to go to the port, since it was against public interest to have
commercial links with an enemy in times of war, the court held that
the contract was frustrated. Similarly, in Denny, Mott & Dickinson v
James B. Fraser & Co Ltd (1944), a contract for the sale of timber
was frustrated by a wartime prohibition against dealing in those types
of goods.
Impossibility
Also as stated, impossibility may result in frustration. Impossibility can
relate to the subject matter of the contract being destroyed before
the completion of the contract. For instance, in Taylor v Caldwell
(1863), the plaintiff hired from the defendant a music hall for a series
of concerts. However, after making the contract and before the date
of the first performance, the hall was destroyed by fire. It was held
that the contract was discharged by frustration and hence the
defendant was not liable for the losses incurred by the plaintiff.
Impossibility can also arise in contracts of personal service where
the person who is to provide the services is unable to do so as a
result of death or personal incapacity. Thus, in Condor v The Barron
Knights Ltd (1966), where a drummer who was required to perform
on seven nights in a week fell ill so that he was only able to perform
for a maximum of four nights from then on, the court held that
contract was frustrated, as it was the basis of the contract that
performance was to take place on seven nights and it was impractical
to get some other replacement for the rest of the three days.
Impossibility may also arise if the contract states that it must be
fulfiled in a particular manner and that becomes impossible. In Nicholl
& Knight v Ashton Edridge & Co (1901), the contract provided that
the goods were to be shipped in a particular ship in January. That
ship went aground and so it was impossible to ship the goods in that
ship in January. However, if the method stated in the contract is not
exclusive or mandatory, or if the contract does not state any method
and there are alternative methods, the contract may not be
frustrated. In Tsakiroglou & Co Ltd v Noblee and Thorl GmbH
(1962), there was a contract for the sale of groundnuts (which are
not easily perishable goods) and these groundnuts were to be
I
shipped to Hamburg. After the contract was made, the Suez Canal
was closed. The alternative was to ship through the Cape of Good
Hope, which was a much longer and more expensive route. The court
held that the contract to ship was not frustrated, as there was still an
alternative route available.
Similarly in relation to the supply of goods, where the goods are
to be obtained from a particular source, which is referred to in the
contract or where both parties contemplated or had in mind a
particular source, the contract may be frustrated should the source
fail without the fault of either party (Alliance Concrete Singapore Pte
Ltd v Sato Kogyo (S) Pte Ltd (2014)). On the other hand, if only one
party intended to get goods from a particular source and that source
fails, the contract would not be frustrated. Thus, in Blackburn Bobbin
Co Ltd v TW Allen Ltd (1918), the court held that the seller who had
agreed to sell “Finland birch timber” could not plead frustration when
it turned out to be impossible to get such timber from Finland. This is
because the buyer did not know that goods had to be obtained from
overseas.
Perhaps one takeaway for businesses from the cases discussed
in the preceding two paragraphs is that from the viewpoint of the
business which is providing the goods or services; that business has
to be very clear and specific about defining its obligations with a view
of protecting itself. For instance, in Tsakiroglou & Co Ltd v Noblee
and Thorl GmbH (1962) discussed above, if the contract had
provided that shipment was to be made via the Suez Canal only, the
result is likely to have been different.
Radically different from what was originally
envisaged
Further, as stated, if the contract can only be performed in a way that
is radically different from what was originally envisaged by the
parties, that may result in frustration.
One issue that has arisen in this connection is, if a contract is
entered into for a particular purpose and that purpose is no longer
attainable, does that frustrate the contract? It would appear that
unless both parties understand that purpose to be the very basis of
the contract, the fact that one party entered into the contract for a
particular purpose and that purpose is no longer attainable will not
frustrate the contract. Thus, if X enters into a contract with Y to
supply some goods to the latter, Y cannot get out from the contract
by raising frustration if the person to whom he wanted to re-sell the
goods does not want them anymore. However, as stated, if both
parties construed the purpose to be the very basis of the contract,
then there might be frustration. In Krell v Henry (1903) for instance,
the defendant hired a flat belonging to the plaintiff to view the
coronation of Edward VII. The court found the purpose to be the very
basis of the contract on the circumstances of the case, and so
contract was held frustrated when the coronation was cancelled
because of the illness of the King.
Another issue that has arisen in this context is, if there are labour
shortages or price increases, would these make the contract radically
different from what was originally envisaged? The general answer is
in the negative. As in Tsakiroglou & Co Ltd v Noblee and Thorl
GmbH (1962) discussed above, though it cost nearly double the
amount of money to make shipment through the Cape of Good Hope
as compared to making shipment through the Suez Canal, the court
held that that did not frustrate the contract. Similarly, in Davis
Contractors Ltd v Fareham UDC (1956), the contractors argued that
the contract was frustrated by labour shortages and increase in
costs. However, the court held that the contract was not frustrated.
These decisions were followed in the local case of Glahe
International Expo AG v ACS Computer Pte Ltd (1999), where the
court held that new import duties and an unfavourable exchange rate
which made the contract less profitable did not frustrate the contract.
Nonetheless, it must be pointed out that if the cost increases are so
extreme as to be astronomical, then there could be frustration.
Yet another interesting issue relates to time. What if some event
is happening right now and whether the contract would be frustrated
depends on how long the event would last? In such a situation, how
long must the parties wait before one of them can assert that the
contract has been frustrated? For instance, if an employee falls sick
and it is not clear how long the sickness will last, when can the
employer assert that the contract is frustrated? It would appear that
so long as the person alleging frustration has taken a reasonable
view of the probability of the event continuing, he cannot be faulted.
Foreseeability
Frustration is the happening of an unexpected event that is radically
different from what the parties originally envisaged. However, if the
parties foresaw a particular event or could have reasonably foreseen
that a particular event would occur and nonetheless decided to go
ahead with the contract, and that event occurs, can the parties then
plead frustration? In such a scenario, it is unlikely that the doctrine of
frustration would apply (Glahe International Expo v ACS Computer
Pte Ltd (1999)).
For instance, if the parties to an international sale contract
envisage some civil unrest in a particular area and as a result agree
to a more flexible delivery schedule and higher price, but the unrest
turns out to be worse and hence, the delivery schedule cannot be
met, frustration may not apply. In this case, it may be maintained that
the seller knew of the risk and yet decided to undertake it and hence,
he should be held to his obligations and should be answerable for the
other party’s losses.
Self-induced frustration
Frustration relates to the happening of some event beyond the control
of the parties. Thus, if the frustrating event has been brought about
because of the conduct of one of the parties, frustration would be
“self-induced” and hence, frustration cannot be successfully raised as
a defence.
In Maritime National Fish Ltd v Ocean Trawlers Ltd (1935), the
appellants chartered a vessel from the respondents and to carry out
fishing activities, they needed a licence, as both parties knew. The
appellants, who had four other vessels, applied for five licences.
However, they were only granted three. The appellants assigned the
licences to their other vessels and not to the one which they
chartered from the respondents. The appellants then argued that the
contract was frustrated. However, the court held that it was the
appellants’ own action of assigning the licences to their other vessels
instead of to the vessel chartered from the respondents that caused
the impossibility and so frustration was self-induced. Similarly, in J
Lauritzen AS v Wijsmuller BV, The Super Servant Two (1990), the
defendants had two vessels, Super Servant One and Super Servant
Two. After the making of the contract, Super Servant Two, which the
defendants had intended to use in respect of the plaintiff’s contract,
sank. The defendants had already entered into other contracts in
respect of Super Servant One and so they pleaded that the contract
was frustrated and they were not liable for not fulfiling it. The court
held that since they could have assigned Super Servant One to this
contract but decided not to do so, frustration was self-induced.
Perhaps one takeaway for businesses from the above cases is that if
they plan their logistics so tightly that they do not have spares, they
will be not be excused.
Ca
Force majeure
provide morecertainty to business affairs
Often parties to the contract might have a clause in the contract
which relieves them of liability should some unexpected event occur.
This is known as a force majeure clause and it is relatively common.20
Parties may wish to have such a clause, as through such a clause,
they can widen (or narrow down) what amounts to frustration in law.
Thus for instance, though price increases, labour shortages or
inability of the supplier to supply would generally not amount to
frustration, parties can, through the force majeure clause, agree that
such matters may discharge the contract.
Further, once frustration applies, the contract is discharged and
the parties are relieved of their obligations. However, under a force
majeure clause, it is possible for the parties to provide that the
contract is suspended for a stated period of time, such as two
weeks, instead of being immediately discharged. So if the event
clears up before the end of the stated period, the contract is not
discharged. Having such a provision can bring more certainty to
business affairs. For instance, if there is a riot, whether that will
amount to a frustrating event may turn on the length of the riot.
However, what is to be considered long enough? For instance, if one
party feels that one week is long enough and terminates the contract
on the basis of frustration, but the other party challenges that and the
court eventually decides that frustration has not as yet set in, the
party who terminated the contract would be liable. On the other hand,
if there was a force majeure clause which provided a period of
suspension (such as five days) – then that party would have just to
wait five days. If the riot clears up before that, the contract will
conitnue. If not, that party can just cancel the contract without fear of
being sued for wrongful termination.
When it comes to interpreting force majeure clauses, there is also
a presumption that the clause is to be restricted to supervening
events which arise without the fault of either party (RDC Concrete Pte
Ltd v Sato Kogyo(S) Pte Ltd (2007)). This is similar to the principle
that frustration cannot be self-induced. This also distinguishes the
force majeure clause from an exclusion clause, the latter typically
excluding liability for breaches that are self-induced or self-caused or
negligent.
The other issue in relation to the force majeure clause is whether,
if there is such a clause, can the parties nonetheless still rely on
frustration? It would appear this turns on the intention of the parties
as gathered from the contract. For instance, if the contract expressly
stipulates that the contract is not discharged despite the fact that the
situation would otherwise be one that would have frustrated the
contract, then frustration clearly cannot apply (RDC Concrete Pte Ltd
v Sato Kogyo (S) Pte Ltd (2007)).
Payments NOTTESTED
Frustration has the effect of discharging the contract. The question
might arise as to what happens to any money paid before the
frustrating event or any money that is payable under the contract but
is yet to be paid. In this regard, the general rule is that the loss lies
where it falls. So, any money paid before the frustrating event cannot
be recovered and money payable remains payable, unless there is a
total failure of consideration (that is the person who paid the money
got absolutely nothing in return). This rule is clearly unsatisfactory.
However, this position is ameliorated by the Frustrated Contracts
Act. Nonetheless, as will be noted later, the Frustrated Contracts Act
does not apply to certain types of contracts and in these contracts
the general rule stated above would still apply.
Under section 2(2) of the Frustrated Contracts Act, any sum paid
before the frustrating event can be recovered and any sum payable
after the frustrating event need not be paid. However, if one party
incurred an expense for the purpose of performing the contract
(section 2(2)) before the discharge, or the other party obtained a
value or benefit from the performance of the contract before the
discharge of the contract (section 2(3)), the court has the discretion
to make an adjustment. Thus, if X hires a theatre from Y for three
days, but on the third day, the theatre is unexpectedly destroyed in a
fire without the fault of the parties, the starting point would be that
any money paid by X prior to the frustrating event can be recovered
and any money still to be paid under the contract need not be paid.
However, since X has got the benefit of two days of use and Y would
have incurred expenses for the two days, the court has discretion to
make an adjustment. Thus, the court might state that X has to pay in
respect of the two days of use.
However, as noted, the Frustrated Contracts Act does not apply
to a limited category of contracts such as contracts of insurance or
contracts for the carriage of goods by sea, probably due to
customary practices to the contrary in these areas. Thus, in respect
of such contracts, the general rule discussed above would apply. For
instance, in an insurance contract, if X insures his business liability,
but later the business is liquidated due to events beyond his control,
though X can cancel the insurance, X cannot recover the premiums
paid prior to that.
_____________
1 In this example, X may also be able to sue under the tort of negligence; as to
which see page 348.
2
However, the case may be decided differently today, see page 221.
3 See page 279.
4
See for instance, Appendix A, clause 15.
5 As to when terms would be implied, see page 170.
6
This could also be governed by the Employment Act; see page 323.
7 See page 153.
8
See page 205.
9 See also for instance, Appendix A, clause 15b.
10
Sometimes all contractual terms may be loosely referred to as “terms and
conditions”. It is common to find this phrase being used even on websites. However,
when used in this manner, it is unlikely that the term “condition” is being used in a
technical sense.
11 The term “warranty” in this context, is not used in the sense of the warranty or
guarantee one gets when purchasing electronic equipment. As for warranties or
guarantees one gets when purchasing electronic equipment, see page 270.
12
One exception is where there is a statute which implies such a term and states
that the term to be implied is a condition. For instance in a contract of sale of
goods, there is an implied “condition” that the goods must be of satisfactory quality
under the Sale of Goods Act. See further, page 261.
13 However, there is a very rare and narrow exception to this rule. If the contract
expressly states that a clause is a warranty and clearly and unambiguously also
states that a breach of it would never entitle the innocent party to terminate the
contract, then the court would give effect to such a clause and the contract cannot
be terminated: Sports Connection Private Limited v Deuter Sports (2009).
14
However, the innocent party may lose his right to terminate if he has “waived” the
repudiatory or fundamental breach. As to what is meant by “waiver”, see page 156
on promissory estoppel which is somewhat similar. See also Appendix A, clause 18.
15 As to what is meant by “waiver”, see also page 156 on promissory estoppel
which is somewhat similar. See also Appendix A, clause 18.
16
As to frustration, see below.
17 See pages 296 and Appendix A, clause 26.
18
See pages 296 and Appendix A, clause 21.
19 See pages 247 and Appendix A, clause 10.
20
See for instance, Appendix A, clause 17.
10
Suing for Breach of
Contract
In relation to contractual disputes, the most common sort of action is
for one party to sue another for breach of contract. When it comes to
suing for breach of contract, some possible remedies that may
awarded by the court1 include:
•
•
•
Damages,
Specific performance, and
Injunctions.
and such remedies will be the main focus of this chapter.
Even when it comes to remedies, a business can embark on
certain measures, which may place the business in a better position,
and some such measures are highlighted in the course of this
chapter.
Aside from suing for breach of contract, there may be other sorts
of actions. For instance, a party may simply try to get out of a
contract on some basis (such as on the ground of mistake,
misrepresentation or duress). As these rights or remedies have
already been considered elsewhere,2 they will not be re-examined in
this chapter.
DAMAGES
Damages may be unliquidated or liquidated. Unliquidated damages
refer to damages that have not been pre-agreed to by the parties in
the contract and are thus damages that are awarded or determined
by the court. Liquidated damages refer to damages that have been
pre-agreed to by the parties in the contract.
Unliquidated damages f
Losses
mustbeproved
In relation to unliquidated damages, it is pertinent to note the
following points.
(a) Loss must be proved
To claim unliquidated damages, it generally must be proved that
some loss has been suffered. If it cannot be proved that a loss
has been suffered, then the plaintiff would only be entitled to
nominal damages (such as a dollar or two). Thus, if X fails to
supply goods to Y under a contract, but Y manages to get the
very same goods elsewhere at a cheaper price, Y is unlikely to
have suffered any loss and so he is likely to be entitled only to
nominal damages.
However, there are some limited exceptions to this general
rule. For instance, if A enters into a contract with B relating to
property and it is envisaged by the parties that the ownership of
the property may be transferred to another party, C, so that the
consequences of the breach, if any, will be suffered by C, then, A
would have a cause of action against B for the losses suffered by
C, provided C is not able to directly sue B in contract; for else, B
would simply be able to get away with a breach that has in fact
caused a loss, though in such a situation A is accountable to C for
the damages he receives from B. In Chia Kok Leong v
Prosperland Pte Ltd (2005), the developer of a condominium had
already sold units in the condominium to various purchasers.
Subsequently, several defects were discovered in the
condominium. The developer then brought an action against the
architects. The architects argued that as the developer had
already sold the units, he had suffered no loss and hence could
not sue. However, the court allowed the developer’s action. The
court reasoned that if the developer was not allowed to succeed
in their action, the architects would have been able to get away
with their wrong without compensating anyone, since the
purchasers could not have sued the architects in contract, as they
had no contract with them. This principle was also approved in
subsequent cases such as Family Food Court v Seah Boon Lock
(2008).
(b) Aim of unliquidated damages
The aim or measure of such damages in contract law is to put the
plaintiff in the position he would be if the contract had been
properly performed.
So generally only the losses suffered by the plaintiff as a
result of the contract not being properly performed can be
claimed, and not the profits made by the defendant. In Teacher v
Calder (1889) for instance, the court held that when a financier
broke a contract to invest in a timber business and instead,
invested in a distillery, the plaintiff could only recover the losses
he suffered as a result of the contract having not been
performed, and not the profits the financier made from investing
in the distillery.
However, again there are limited exceptions to this general
rule, such as where the parties are in a fiduciary relationship.
Where one party is under a duty to act in the best interests of
another, that party may be considered a fiduciary. An example of
a situation where parties to the contract owe fiduciary duties to
each other are partners in a partnership agreement. Similarly,
directors of companies owe fiduciary duties to their companies. In
such situations if there is a breach of that duty, loss of profits
may be claimed. Thus, in Mona Computer Systems (S) Ptd Ltd v
Singaravelu Murugan (2014) where the fiduciary in question
diverted business opportunities for himself instead of securing
them for the company he was working for, the court held that the
company was entitled to sue him for loss of profits.
(c) Expectation or reliance loss
A claim for unliquidated damages may be based on expectation
loss or on reliance loss.
Expectation loss refers to what the plaintiff would have
expected to get if the contract had been properly performed, the
most obvious of such losses being loss of profits. In relation to
expectation loss, the question might also arise as to whether such
losses can be claimed if they are purely speculative. In Chaplin v
Hicks (1911), Chaplin, an actress, entered into a contract with
Hicks under which the latter would interview the former. In
addition to Chaplin, Hicks was to interview other actresses and
finally give employment to 12 candidates. Hicks breached the
agreement and did not interview Chaplin. Chaplin sued. The court
held that though there was no certainty that Chaplin would be
among the 12 chosen, she could claim £100 in damages. Thus,
though losses may be speculative, if the plaintiff can prove that he
had a real and substantial chance of obtaining it, he can sue for
the loss of that chance. The more the plaintiff manages to prove
that he was likely to have attained the thing in question, the more
he is likely to be able to claim. This principle has been followed in
many local decisions including MK Distripark Pte Ltd v Pedder
Warehousing & Logistics (S) Pte Ltd (2013).
As stated, a claim for unliquidated damages may also be
based on reliance loss. This refers to wasted expenditure
incurred by the plaintiff prior to the breach. If the facts are such
that if the contract had been properly performed, the plaintiff
would not have been left with expenditure that is wasted, then the
plaintiff may be able to claim for this loss. In Anglia Television Ltd
v Reed (1972), the defendant broke his contract to take a leading
part in the plaintiffs’ television play. The plaintiffs, who had then to
abandon the play, sued him for the wasted expenditure such as
the cost of hiring a scriptwriter and the cost of looking for suitable
locations. The court held that the plaintiffs could claim for these
as reliance loss or wasted expenditure. Similarly in Out of the
Box Ltd v Wanin Industries Pte Ltd (2012) where the plaintiff got
the defendants to manufacture a new sports drink and the
defendants supplied defective drinks, the plaintiff was forced to
discontinue the whole brand. The plaintiff then sued for, among
other things, the cost incurred in running an advertising campaign.
The High Court allowed it.3
The question could also arise as to whether it is possible to
claim both expectation loss and reliance loss. If this results in
over-compensation or double compensation, then it is not
possible (Alvin Nicholas Nathan v Raffles Assets (Singapore)
Pte Ltd (2016)). On the other hand, if this does not result in such
overcompensation or double compensation, as would be the case
when the expectation loss is calculated on a net basis (as
opposed to the gross basis), it is then possible to claim both.
Thus, if A breaches his contract with B and as a result B has to
forego gross profits worth $60,000, and B has incurred expenses
worth $10,000, B can claim for $50,000 (net profits) plus
$10,000. That would put him in the position he would have been if
the contract had been properly performed. However, B cannot
claim for $60,000 plus $10,000 as that will result in overcompensation.
(d) Incidental loss or consequential loss
Expectation or reliance loss is not the only type of loss that can
be claimed. For instance, if X in breach of contract fails to supply
Y with certain machinery and Y incurs some expenses in sourcing
for another supplier, Y can claim for those expenses. Similarly, if
Y suffers some damage to person or property because the
goods sold to him by X are defective, the loss arising from such a
damage may also be claimed. Such other losses are called
incidental or consequential losses and can be claimed since, if the
contract had been properly performed, they would not have been
incurred.
(e) Punitive damages
In Singapore, though the matter has not been completely settled,
punitive damages generally will not be awarded, for among other
things, it will be difficult to quantify such damages (PH Hydraulics
& Engineering Pte Ltd v Airtrust (Hong Kong) Ltd (2017)). This is
unlike the case in some countries.
Punitive damages are damages that are intended to punish
the defendant for his conduct. Thus, the plaintiff can usually only
claim damages which would compensate him for his loss and not
damages which would go to punish the defendant. For instance, if
a supplier fails to supply a machinery in breach of contract, while
the buyer may be able to sue for losses suffered (such as the
cost difference between the old machine and a new machine), the
court is unlikely to impose punitive damages to punish the supplier
for his conduct.
(f) Damages for injured feelings
In addition to monetary loss, the plaintiff might have suffered
distress, disappointment, loss of reputation or injury to feelings.
Can compensation be claimed in respect of such matters? The
general answer to this question is in the negative, for among
other things it will be difficult to quantify such damages.
In Haron bin Mundir v Singapore Amateur Athletic
Association (1992), for instance, the plaintiff, a Singaporean
athlete, sued the Singapore Amateur Athletic Association for
breach of contract. While awarding damages for certain other
matters such as the loss of the chance to win medals at the
Southeast Asian Games, the court held that damages for injured
feelings, loss of reputation, distress or disappointment could not
be awarded in a breach of contract action.
However, there are exceptions to this general rule. Thus for
instance, if the very purpose of the contract were to provide
pleasure, relaxation or peace of mind, it may be possible to claim
for such losses. In Jarvis v Swan Tours Ltd (1973) for instance,
Jarvis booked a holiday with Swan Tours Ltd. The tour turned out
to be a disaster and Jarvis sued Swan Tours. Among other
things, the court awarded him damages for disappointment. In
Farley v Skinner (2001), the exception was further extended. In
this case, the claimant was interested in buying a property which
was near an airport. He wanted to know whether the property
was affected by the aircraft noise and so he engaged a surveyor
for that purpose. The surveyor reported that the property was not
be affected by the noise. Thus, the claimant purchased the
property. Subsequently, the claimant found that the property was
indeed affected by noise. Thus the claimant brought an action
against the surveyor for, among other things, damages for loss of
peace of mind. The court awarded £10,000 in respect of this and
held that for such damages to be recoverable, it was not
necessary that the sole purpose of the contract was to provide
pleasure, relaxation or peace of mind. It would suffice if that were
a major or important aspect of the contract. Likewise in Kay
Swee Pin v Singapore Island Country Club (2008), where the
plaintiff’s club membership was unlawfully suspended, the court
held that the plaintiff could sue for distress and disappointment as
one of the aims of the contract was to provide “mental benefits”.
Such cases aside, where a product or property is purchased
and there is some defect, but the cost of rectifying the defect is
disproportionate and there is also no diminution in value of the
product or property or no proof of it, but the purchaser suffers
some inconvenience as a result, he may be able to sue for “loss
of amenities”. Thus, in Yap Boon Keng Sonny v Pacific Prince
International Pte Ltd (2009), the homeowner cum developer of a
house was able to claim for loss of amenities when it turned out
that the builder had built rooms that were smaller than what was
required under the contract. On the facts, the cost of
reconstructing the rooms was disproportionate to the original cost
of construction, and further, no diminution in the value of the
property had been proved.
(g) Limitations on right to claim unliquidated damages
Thus, far some of the types of losses that can be claimed were
considered. However, even if the plaintiff is able to establish that
he has suffered such losses, it does not necessarily follow that he
can claim all or even any of those losses as there are certain
limitations on the plaintiff’s right to claim unliquidated damages:
i.
Remoteness
The first such limitation on the plaintiff’s right to claim
unliquidated damages is remoteness. If the damages are
considered too remote, they cannot be claimed. The reason
for this is that there must be some limit on the defendant’s
liability. He cannot be answerable for every conceivable loss
that has ensued. For instance, X enters into a contract to sell
his car to Z so that he can raise money in time to invest in a
particular share which he thinks will rise in value. Z breaches
the contract and does not buy the car. X, who is not able to
make the investment in time, is devastated and, as a result,
he suffers a stroke. This causes him to lose his job. Can X
sue Z for the loss of profits he would have made from the
investment, the medical expenses incurred as a result of the
stroke and the loss of income arising out of the
unemployment? Clearly, some or all of these damages must
be too remote.
The test for remoteness was laid down in Hadley v
Baxendale (1854). Firstly, the court in this case stated that
damages would not be too remote if they arose naturally.
Damages would be considered to have arisen naturally if, in
the usual course of things, such damages would have been
incurred. Thus, if a person consumes some food from a shop
and suffers from food poisoning, the loss that would naturally
or usually arise is medical expenses. As such this loss would
not be too remote and can usually be claimed. Secondly, if
the loss were such that it would not normally have arisen, it
would be exceptional loss. Such an exceptional loss can be
claimed provided as the court in Hadley v Baxendale stated,
it was within the contemplation of the parties at the time of
the contract. Otherwise, it would be too remote. Thus, if a
person consumes some food from a shop and suffers food
poisoning and as a result of that he is unable to meet a client
and loses a multi-million dollar deal, that loss would be
exceptional, in that it would not normally arise. Thus, unless it
is within the contemplation of the parties at the time of the
contract, as for instance if the person had told the
shopkeeper of this possibility (which is highly unlikely), the
loss would be too remote and cannot be claimed.
In Hadley v Baxendale (1854), a shaft in the plaintiffs’ mill
broke and had to be sent elsewhere to serve as a pattern for
a new one to be made. The plaintiffs engaged the
defendants for this purpose. The defendants, in breach of
contract, delayed in delivering the shaft and, as such,
operations at the plaintiffs’ mill had to be stopped for several
days. The plaintiffs sued the defendants for the loss of
profits for those days. The court held that the loss was not a
natural or usual loss, as in that particular industry it was not
common for mills to remain idle, as mills would usually have
spare shafts. Since the loss was not natural or usual, it was
exceptional loss and since such loss was not within the
contemplation of the parties, it was held to be too remote.
Another case in which the issue arose was Victoria
Laundry (Windsor) Ltd v Newman Industries Ltd (1949). In
this case, the defendants sold a boiler to the plaintiffs,
knowing that they needed it for immediate use in their laundry
business. The boiler was delivered some five months late,
and the plaintiffs suffered a loss of profits. The plaintiffs then
sued the defendants for (a) normal loss of profits and (b)
loss of profits from certain highly lucrative contracts. The
court held that normal loss of profits arose naturally and
could be claimed. However, the loss of profits from the highly
lucrative contracts was exceptional loss and as it was not
within the contemplation of the parties at the time of the
contract, it could not be claimed.
These two leading cases were followed in many local
decisions such as Robertson Quay Investment Pte Ltd v
Steen Consultants Pte Ltd (2008) and Out of the Box Ltd v
Wanin Industries Pte Ltd (2013).
The important takeaway for a business is that if there are
potential losses the other party may not be aware of, it
would be good to highlight these right at beginning (so long
as there are no confidentiality concerns) so that they are not
held to be too remote.
ii.
Mitigation
Another limitation on the right to claim unliquidated damages
is mitigation. By mitigation it is meant that the party claiming
damages must have taken reasonable steps to minimise his
loss (even though the other party breached the contract).
What is reasonable would depend on the facts of each case,
but if he did not take reasonable steps, he might receive less
or even no damages. The burden of proof is on the party in
breach to establish that the party claiming damages failed to
mitigate.
The case of Brace v Calder (1895) is illustrative. In this
case, the plaintiff was dismissed by his employers but was
offered immediate re-engagement on the same terms and
conditions as before. He refused the offer and instead sued
to recover the salary he would have received. The court held
that as the plaintiff should have mitigated his loss by
accepting the employer’s reasonable offer of re-employment,
he was entitled to nominal damages only. In The Asia Star
(2010), the shipowner delayed in supplying a ship for a
charter and further, the ship was not suitable for loading.
Thus, the charterer cancelled the charter and did not ship the
goods. Among other things, he tried to claim the damages he
had to pay to the buyer of goods who did not receive the
goods. However, the shipowner argued that the charterer
should have mitigated by finding an alternative ship to ship
the goods and thus, the shipowner was only liable for the
difference in freight charges (which was much less than
damages the charterer was claiming). The court upheld the
shipowner’s argument.
While mitigation is a legal concept, from the viewpoint of
a business, it makes absolute sense as well. There is no
point escalating losses as the business cannot be sure that
the other party will be liable or even if liable, will be able to
pay and hence, it is a good practice to attempt to minimize
the losses as soon and as far as possible.
iii. Causation Nottested
Another limitation on the right of the plaintiff to claim
unliquidated damages is causation. If the plaintiff’s loss has
not been caused by the defendant’s breach, then it clearly
cannot be claimed. Thus, if X agrees to ship Y’s goods and
supplies a ship which is understaffed, but ultimately the ship
sinks due to events beyond the control of X and not because
of the shortage of staff, Y cannot sue X for the loss of the
goods, as the loss was not caused by X’s breach.
Liquidated damages
As stated, the other type of damages is liquidated damages. Parties
to the contract may sometimes pre-agree that if a certain breach
were to occur, a certain amount of damages will be payable.4 By preagreeing to damages, once a breach has occurred, a quick claim can
be made without having to go to court.
Such clauses are very common especially in relation to delay in
performance. For instance, a contract to develop a software or a
contract to renovate a building could provide that for every day of
delay in completion of the project, a stated sum of money would be
payable as liquidated damages. They could also be present in other
contexts. For instance, a loan agreement may provide that if you are
late in paying interest, you will have to pay compound interest, or a
contract to park your car at a private car park, may provide that if
you park your car at an unauthorized lot, you will have to pay a
certain amount to unclamp your wheels, or your mobile phone
subscription plan may provide that if you terminate your plan earlier
than the due date, you will have to pay a certain amount or, a
scholarship bond may provide that if you break the bond, you will
have to have to pay a certain amount as compensation.
While such clauses may appear attractive, there is also a
possibility of abuse, in that the party with the stronger bargaining
power may impose a very extravagant sum totally out of proportion to
any possible loss that can occur. Thus, not surprisingly courts have
developed certain rules pertaining to liquidated damages.
The basic rule is that if the sum stated in the contract can be
considered to be a genuine pre-estimate of the loss,5 it will be binding
on the parties. On the other hand, if the sum is not a genuine preestimate and has been introduced to threaten the other party into
performance, it would be considered a penalty and would be
generally unenforceable.
In determining whether a sum is a genuine pre-estimate, how the
parties have described the payment to be in the contract is not
conclusive. Rather, whether the sum stated is a genuine preestimate6 or not depends on many factors such as:
•
•
whether the sum stated is extravagant or unconscionable
compared to the greatest loss that can possibly follow from the
breach. (If that is the case, that would point towards the clause
being not a genuine pre-estimate.)
whether a single sum is payable regardless of the extent of the
breach. (If that is the case, that would point towards the clause
being not a genuine pre-estimate.)
In Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd
(1915), Dunlop supplied tyres to New Garage under an agreement by
which, in return for a trade discount, New Garage agreed to pay £5
by way of liquidated damages for every item sold below the list price.
Though £5 per tyre seemed out of proportion, considering the fact
that if the news of selling below the list price became known, there
would be a lot of undercutting and Dunlop would suffer huge losses,
the court held that it was a genuine pre-estimate. On the other hand,
in Ford Motor Co v Armstrong (1915), the defendant received
supplies from the Ford Company and agreed not to sell any car or
parts below the listed price, not to sell Ford cars to other dealers and
not to exhibit their cars without their permission. For any of the above
breaches, they agreed to pay £250. The court held that considering
the amount of money and the fact that a single sum was payable
regardless of the extent of the breach, the clause was not a genuine
pre-estimate. Similarly, in T2 Networks Pte Ltd v Nasioncom Sdn Bhd
(2008), T2 entered into a contract of supply with NC. T2 then entered
into a contract with ANC to get the supplies from it. NC breached the
contract and there was a liquidated damages clause in the contract.
The real loss that T2 would suffer if NC breached the contract was
the damages that it had to pay ANC if it terminated ANC’s contract as
a result. However, due to certain facts, the losses it would have to
pay to ANC would always have been lower than what was stated in
the liquidated damages clause in the contract between T2 and NC.
Thus, the court held that the liquidated damages clause was not a
genuine pre-estimate.
Once a clause is declared to be a genuine pre-estimate by the
court, only what is stated in the clause can be recovered and not the
actual loss. In Cellulose Acetate Silk Co Ltd v Widnes Foundry Ltd
(1933), Widnes agreed to pay £20 for every week of delay in
completing a project for Cellulose Acetate Silk Co. The work was
completed 30 weeks late. Silk Co claimed their actual losses, which
amounted to about £6,000. The court held that as the clause was a
genuine pre-estimate, Silk Co was only entitled to £20 per week or
£600 in total as agreed.
Thus, while liquidated damages may seem very attractive, they
also carry the risk that if the actual loss is greater, and the clause is
held valid, only what is stated in the clause can be claimed. Thus, a
business has to decide judiciously whether or not to have a liquidated
damages clause and if so, the exact amount to be stated. Again in
this context, the business is likely to have a better appreciation of the
extent of loss that may be caused and hence it should not
unquestioningly follow on what the lawyers may propose.
If the clause is not a genuine pre-estimate and it is greater than
the actual loss, then the actual loss can still be claimed. Though not a
very likely event, if the clause is not a genuine pre-estimate, but it is
lesser than the actual loss, the plaintiff has a choice of claiming either
the sum stated in the contract or the actual loss.
Deposits and part payments
NOTTESTED
An advance payment may often be required at the commencement of
a contract. What happens to this advance payment should the person
who made the payment breach the contract? This depends on
whether the advance payment can be considered a deposit or part
payment.
If it is a deposit, in the sense that it is required as a guarantee for
performance or “earnest money”, it will be refundable. Though a
refund has to be made, the innocent party can still sue the party in
breach for damages actually suffered. However, if the contract states
that the deposit will be forfeited, then the deposit will indeed be
forfeited unless the amount stated in unreasonable. (Triangle Auto
Pte Ltd v Zheng Zi Construction Pte Ltd (2001)). This is so even if the
innocent party has suffered no loss or unlikely to suffer any loss. For
instance, if a buyer enters into a contract to buy a property when the
market is “hot” and then decides not to go ahead with the sale, and
the contract provides that the deposit will be forfeited, the seller can
keep the deposit though at the time of making the contract the seller
would have known that he is unlikely to suffer any loss in such an
event because of strong market conditions. Further, if the payment is
a deposit, the innocent party who suffers damage over and above the
amount of the deposit, may make a claim for those damages as well
(Triangle Auto Pte Ltd v Zheng Zi Construction Pte Ltd (2001)). Thus,
deposits are unlike liquidated damages in this regard. Hence, from a
business viewpoint, it would certainly be a good idea to demand
deposits and state that they will be forfeited should the other party
cancel the contract, so long as the amount is not unreasonable.
If it is a part payment generally it will also be refundable, unless
the contract states otherwise. Though a refund has to be made, the
innocent party can still sue the party in breach for damages actually
suffered. However, if the contract states the part-payment will be
forfeited, then unlike the case with deposits, that will amount to a
liquidated damages clause and hence may or may not be valid (Hon
Chin Kong v Yi Fook Mun (2018). Thus, the law distinguishes
between deposits and part-payments.
Whether a particular payment was intended to be a deposit or
part payment depends on the intention of the parties, the terms of the
contract and the amount involved (Hon Chin Kong v Yi Fook Mun
(2018). In Lee Chee Wei v Tan Hor Peow Victor (2007), there was a
dispute as to whether the payment in question was a deposit or part
payment. However, since the payment was called an “instalment” and
there were other instalments to be made, it was held that it was a
part payment.
It must also be pointed out that if the person who has collected
the deposit or part payment, breaches the contract, the innocent
party who has made the payment may be able to sue that person for
the breach and claim for the damages, and the damages he or she
has suffered would include the deposit or part payment paid.
SPECIFIC PERFORMANCE
Another remedy granted in contractual actions is specific
performance. Specific performance is an order of the court requiring
the party in breach to perform the contractual obligations. If the order
is disregarded, the defendant could face penalties for contempt of a
court order.
However, specific performance is not as of right and it is a
discretionary remedy. In deciding whether or not to grant it, courts
consider various matters such as the following:
(a) Damages are adequate
If damages are adequate, the courts may not grant an order for
specific performance (Lee Chee Wei v Tan Hor Peow Victor
(2007)). For many breaches of contract, damages may be an
adequate remedy. However, for some breaches, damages may
not be an adequate remedy.
For instance, if X agrees to sell Y an ordinary car but later
refuses, since Y may go out into the market and buy a similar
car, it is unlikely that Y will get specific performance. He would
only be awarded damages, which could be the difference
between the contract price and market price. On the other hand,
if instead of an ordinary car, the subject matter of the contract
was a unique antique, since it would not be possible for Y to go
out into the market and buy a similar antique, damages may not
be adequate. Further, in such a situation, it would also be difficult
to quantify Y’s losses. Thus, specific performance may be
granted. Similarly, land or houses are generally considered
unique, as no two pieces of land or no two houses are the same,
and so in such cases too, it may be possible to get an order of
specific performance, as happened in Wong Chee Siong v Tan
Boon Hwa (2010). Likewise, in Simgood Pte Ltd v MLC
Shipbuilding Sdn Bbd (2016) specific performance was granted
in relation a unique vessel.
(b) Mutuality
The remedy of specific performance must in principle be available
to both parties. This is known as mutuality. So if one party cannot
get such a remedy, the courts might state that the other party
too, should not get such a remedy. Thus for instance, since an
adult generally cannot get an order of specific performance
against an infant or minor,7 correspondingly generally an infant
cannot get an order of specific performance against the adult.
(c) Supervision
An order of specific performance would not be granted if the
continuous or proper performance of the contract would require
constant supervision by the courts. Thus for instance, in a building
contract, if the builder fails to carry on with the building works, it
is unlikely that specific performance would be granted, as the
court cannot be expected to supervise the performance of the
contract.
(d) Contracts of personal service
An order of specific performance generally would not be granted
in contracts of personal service. Thus for instance, an employee
who has wrongfully resigned cannot be forced to work for the
employer by an order of specific performance.
Before leaving the topic of specific performance, it should be
highlighted that compared to damages, specific performance is not a
common remedy. Nonetheless, where specific performance is indeed
granted, it may be possible to get damages as well, depending on
the circumstances. For instance, if a seller in breach of contract fails
to sell a house to the buyer and the buyer has to rent a similar
property elsewhere before the buyer gets an order of specific
performance, the buyer may be able to claim damages for the rental
expenses incurred as well.
it
to do or cease doing a
is a court orderthatrequires a person
pSpecificaction
INJUNCTIONS
A more common remedy as compared to specific performance, is the
injunction. An injunction is a court order forcing a party to the contract
to observe a negative covenant. A negative covenant is a clause in
the contract which requires a party not to do something.
For instance, if there is a valid restraint of trade8 in the contract
and it is breached, the other party to the contract may seek an
injunction to enforce it. In Warner Brothers Pictures Inc v Nelson
(1937), Bette Davis, the film actress, entered into a contract with
Warner Brothers under which she was not to act for anyone else for
the duration of her contract with Warner Brothers. In breach of that
agreement, she entered into a contract with the third party. Warner
Brothers sought an injunction and the court granted it. Similarly, in
Vandashima (S’pore) Pte Ltd v Tiong Sing Lean (2006), the court
granted an injunction to restrain an ex-employee from disclosing
confidential information in breach of his obligations in the contract of
employment.
It should also be highlighted that it may be possible to get an
injunction as well as damages. For instance, if an employee breaches
a valid non-compete clause but before the ex-employer gets an
injunction, the employee already manages to pull over key customers
and hence the ex-employer suffers a certain loss, that loss can be
claimed as well.
RESTITUTION
Nottested
Aside from contractual remedies discussed above, the innocent party
may have remedies under the law of restitution. Restitution is
essentially concerned with unjust enrichment. Thus, if D is enriched at
the expense of P in circumstances such that the enrichment is
“unjust”, P may be able to sue D and seek restitution. An example of
such a claim would be a claim based on quantum meruit (Eng Chiet
Shoong v Cheong Soh Chin 2016).
For instance, if P does some work for D, but an underlying
contract has not been reached as yet and D benefits from the work,
but refuses to pay, since it would be unjust for D to benefit from P’s
work without paying P, the court may order that D has to pay P on a
quantum meruit basis, that is, he has to pay P a reasonable amount
for the value of services performed.
LIMITATION OF ACTIONS
Thus far, various remedies were considered. However, if the plaintiff
delays in bringing an action to obtain these remedies, his rights or
interests may be adversely affected.
If there is a great delay in bringing an action, evidence necessary
to determine the issues litigated may become unavailable and parties’
and witnesses’ recollection of events may become inaccurate. For
reasons such as these, the law provides that after a certain period of
time an action may not be brought. The governing statute is the
Limitation Act. Under this Act, the general rule is that for contractual
actions, the claim has to be made within six years from the date the
course of action accrued, that is within six years from the date of the
breach (section 6). However, there are certain exceptions. Thus, in
the case of fraud or mistake, the six years begins to run from the
date the plaintiff discovers the fraud or mistake or could have
discovered the fraud or mistake with reasonable diligence (section
29).
Further, it may also be noted that in relation to “equitable”
remedies such as specific performance and injunctions, if there is an
unreasonable delay in seeking these remedies, there is a possibility
that they may not be granted. This is pursuant to the “doctrine of
laches” (section 32). For instance, in Tay Joo Sing v Ku Yu Sang
(1994), the court held that, among other things, an order for specific
performance could not be granted as there was a 25-month delay in
bringing the action. Thus, even if the action is not time barred, if there
is an unreasonable delay, the remedies of specific performance or
injunction may not be available.
Whether to institute a legal action or not, can be big decision, but
the key takeaway is that a business should be mindful of time
limitations and should act fast if it decides on formally pursuing legal
action.
SUMMARY OF CONTRACTUAL DISPUTES
To conclude, as stated contractual disputes are the most common
sort of legal problem a business could find itself in. Hence, five
chapters including this one have been devoted to it.
In addition as stated at the beginning of this chapter, the most
common sort of action that can arise from a contractual dispute, is for
one party to sue the other, for breach of a term or terms in a contract
or for breaching the whole contract by wrongfully repudiating it.
When so suing for breach of contract (to summarize what was
covered over five chapters), some common areas of dispute could
be:
(a) Is there is a valid contract to begin with?
For instance, is there a valid offer, acceptance, consideration
or intention to create legal relations9 or do the parties have a
contract between each other to begin with or someone else?10
(b) Assuming there is a valid contract, has there indeed been a
breach?
For instance, is there some express term11 or implied term12
that has been breached or is the term allegedly breached a varied
term, in which case was the term effectively varied to begin with?
13
(c) Assuming there is a breach, is there some excuse or defence for
the breach?
For instance, is there an exclusion clause14 or could the
contract or clause be illegal or against public policy or could
duress or mistake be raised15 or could frustration or a force
majeure clause be applicable16 or was there no complete
performance as required?17
(d) Assuming there are no defence, what sort of remedies can the
innocent party get?
For instance, can the innocent party terminate the contract18
or can the innocent party sue for damages, ask for an injunction or
get an order of specific performance?19
The above summary is just a generalization and there can any be
other problems which may not neatly fall into the categories
mentioned above. Nonetheless, the above summary may provide a
useful framework to start with.
Further as stated at the beginning of this chapter, while suing for
breach of a term or terms in a contract or for breach of the whole
contract by wrongful repudiation, is the most common sort of action
that can arise from a contractual dispute, there can be other sort of
actions, such as where one party sues to merely get out of a contract
on some basis (such as on the ground of mistake, misrepresentation,
duress, undue influence or incapacity)20 without alleging any breach
of terms or wrongful repudiation on the part of the other party.
_____________
1
If the matter goes for mediation instead, there is more flexibility and the remedies
basically depend on what the parties agree to.
2 See Chapter 8 generally. See also page 234 for possible remedies should there
be frustration.
3
The plaintiff also sued for certain other advertising related expenses which the
High Court did not grant. An appeal to the Court of Appeal (2013) was also
unsuccessful as those expenses were found to be too remote.
4 See for instance, Appendix A, clause 10.
5
It should be highlighted that in UK, the test is slightly different as a result of a
recent case (Cavendish Square Holdings BV v Makdessi (2016)). While recent
Singapore courts have referred to that new case, they have still followed the
traditional test. As such only the traditional test will be referred to.
6 However, a sum does not cease to be a genuine pre-estimate merely because the
consequences of the breach are such that it makes precise pre-estimation
impossible.
7
As to infants or minors, see page 186.
8 As to restraint of trade clauses, see page 193.
9
See pages 132 to 152.
10 See pages 158 to 162.
11
See page 166.
12 See pages 168 to 172.
13
See pages 153 to 158.
14 See pages 174 to 182.
15
See generally Chapter 8.
16 See pages 228 to 234.
17
See page 218.
18 See pages 223 to 226.
19
See pages 237 to 252.
20 See generally Chapter 8.
11
Dealing with Product
Liability
When a person or business purchases goods from another, there
would be a contract of sale between the seller and the purchaser.
Thus, contractual principles discussed in the preceding chapters
would still generally be of relevance. However, there are some
specialised rules in relation to the sale of goods, and this chapter is
concerned with these rules. The most important source of these rules
is the Sale of Goods Act. All sections referred to in the first part of
this chapter are with reference to the Sale of Goods Act unless
otherwise stated.
It should also be highlighted that besides the Sale of Goods Act,
in terms of product liability, a business could have obligations under
other statutes such as the Sale of Drugs Act, Sale of Food Act,
Health Products Act and the Consumer Protection (Fair Trading) Act.
However, since only the Consumer Protection (Fair Trading) Act is
general whereas the rest apply to very specific situations, the other
statutes will not be discussed.
After considering the Sale of Goods Act and Consumer Protection
(Fair Trading) Act, the chapter will conclude by giving an overview of
the law relating to the international sale of goods.
Again from a business viewpoint, a business which buys or a
business which sells, can adopt certain measures which could better
protect its interests and some such measures will be highlighted in
this chapter.
SCOPE OF THE SALE OF GOODS ACT
While the Sale of Goods Act can apply to business to business sales,
it only applies to “sale of goods” as the name suggests. If the
transaction does not involve a “sale”, as for instance, if it is a contract
of hire or leasing or if it is a gift, then the Sale of Goods Act does not
apply.1 Likewise, if the transaction does not involve the sale of
“goods”, for instance, if it involves the sale of land or houses or the
sale of shares or the provision of services, then the Sale of Goods
Act does not apply. Thus, if a business were to rent premises and
there are defects in the premises or if it engages a contractor to do
the fittings for the premises and the contractor does a poor job, the
Sale of Goods Act would have no application. It may also be noted
that in relation to purchase of properties or items other than goods,
the general rule is caveat emptor, or buyer beware and the law does
not accord any special protection to buyers. Thus, the business would
have to protect itself in other ways, for instance by demanding
express warranties in the contract or making proper inquiries about
the other party before engaging that party.
It should also be highlighted that the Sale of Goods Act can apply
to web-based transactions as well, provided both the buyer and seller
of the goods are from Singapore. If the parties are from different
countries, the Sale of Goods Act may still be applicable,2 provided
Singapore Law governs the transaction.
IMPLIED TERMS
In so far as it applies, the Sale of Goods Act imposes various
obligations on the seller. The obligations imposed by the Sale of
Goods Act are automatically implied into every contract of sale. Thus,
each time a person or business buys goods, even though the parties
may not have expressly addressed these issues, these terms would
be part of the contract. These implied terms will now be considered.
Section 12
Section 12(1) provides that it is an implied condition that the seller
has the right to sell the goods or in the case of an agreement to sell,
will have the right to sell when property or ownership is to pass to the
buyer. Since this term is a condition,3 if it is breached, the buyer can
repudiate the contract, reject the goods and in addition, sue for
damages if any.
In Rowland v Divall (1923), Rowland bought a car from Divall.
The car was then used for four months. Later, it transpired that Divall
had bought the car from someone else, who had stolen it from the
true owner. Thus, the car had to be returned to the true owner,
following which, Rowland sued Divall. The court held that section
12(1) was breached and Rowland was entitled to get his purchase
price back. Similarly in the local case of Adani Wilmar Ltd v
Cooperative Centrale Raiffeisen-Boerenleenbank BA (2002), where
a bank tried to sell rapeseed oil to a buyer when in fact, unknown to
it, the title to the rapeseed oil had already passed to someone else,
the court held that the bank had breached section 12(1) and hence,
was liable to the buyer.
In addition, section 12(2) among other things, provides that it is an
implied warranty4 that the goods will be free from any charges or
encumbrances not made known to the buyer before the contract.
Thus for instance, if some third party has some proprietary interest in
the goods (such as a charge5) but the seller nonetheless tries to sell
the goods to the buyer without disclosing this, this might amount to a
breach of section 12(2).
Section 12(2), subject to some exceptions, further provides that
the buyer must enjoy quiet possession of the goods. Quiet
possession suggests that the buyer must be able to deal with the
goods in a way the buyer wants to, without any lawful interference
from a third party brought about by an act or default of the seller or,
without any unlawful interference from the seller himself. Thus for
instance, if the buyer orders original goods, but the seller supplies
pirated goods, and the trademark owner of the goods seizes the
pirated goods from the buyer so that the buyer is unable to sell them,
the buyer may sue the seller for breach of section 12(2). In
Microbeads v Vinhurst Road Markings Ltd (1975) for instance, the
buyers purchased roadmarking machines from the sellers. The patent
rights in the machines belonged to a third party, who then tried to
enforce the patent rights against the buyers. The buyers sued the
sellers and the court held that there was breach of section 12(2) in
that there was no quiet possession. The buyers could not deal with
the goods in the way they wanted to as the goods, unknown to the
buyers, infringed the patent rights of some third party.
As stated, if section 12(2) is breached, since it is an implied
warranty, breach of it will give rise only to damages.
Section 13
Section 13 provides that where there is a contract for the sale of
goods by description, it is an implied condition6 that the goods will
correspond with the description.
The first question that arises is what is meant by a “contract for
the sale of goods by description”. If goods were ordered by merely
looking at a catalogue or an advertisement, that might be a contract
for the sale of goods by description. However, what if the goods
were selected or inspected by the buyer, could that nonetheless
amount to a contract for the sale of goods by description? The
answer is in the affirmative. In Beale v Taylor (1967), the defendant
advertised a car for sale as a 1961 Triumph Herald. The plaintiff
inspected the car before he bought it. He later discovered that the
vehicle consisted of a rear half of a 1961 Herald which had been
welded to the front half of an earlier model. The court held that even
though the plaintiff had inspected the car, it could nonetheless be a
contract of sale by description and so the defendant was held liable
for breach of section 13. This is now also made clear by section
13(3), which states that a sale of goods does not cease to be a sale
by description just because the goods are exposed for sale, and
selected by the buyer.
However, for section 13 to be successfully invoked, it would
appear the buyer must have relied on the description. If he does not
rely on the description, then section 13 cannot be successfully
invoked. In Harlington & Leinster Enterprises Ltd v Christopher Hull
Fine Art Ltd (1991), the seller sold to the buyer a painting that he
described as a painting by Munter. However, he made it clear to the
buyer that he had no expertise in the matter and thus, his judgment
could not be relied upon. The buyer inspected the painting and found
it to be original and so bought it. When he discovered that it was a
fake, he sued the seller. The court held that section 13 was not
breached, as the buyer did not rely on the seller’s description, rather.
Instead, he relied on his own judgment.
The question might also arise as to whether section 13 is capable
of applying to all sorts of descriptions or only descriptions that are
vital or important. In Re Moore & Co Ltd and Landauer & Co Ltd
(1921), the contract described the goods as being packed in cases of
30 tins each. When the cases were delivered, they each contained
only 24 tins, though the total quantity was delivered. The court found
that there was no difference in value between tins packed 30 to a
case and those packed 24 to a case. Nonetheless the court held
there was a breach of section 13. Similarly, in Chai Cher Watt v SDL
Technologies Pte Ltd (2012), where the contract specified that the
drill had to be 11 meters in length, but the seller supplied one that
was 13.5 meters, the Court of Appeal held there was a breach of
section 13, regardless of the consequences of the breach. Thus,
generally there has to be strict compliance. However, mere sales talk
or “puffs” would not amount to descriptions as such and hence, the
strict compliance rule will not be applicable in such a situation (Chan
Chee Kien v Performance Motors Ltd (2015)).
Subject to certain conditions, which will be discussed later,7 if
section 13 were breached, the buyer would have the right to
repudiate the contract, reject the goods and sue for damages, if any.
It should also be highlighted the description could be a term of the
contract or could amount to a misrepresentation that induced the
formation of the contract and hence, the buyer may be able mount
such an alternative form of action as well, though of course, ultimately
only one set of remedies will be granted, if successful.
Section 14
Section 14, unlike section 13, only applies when the seller is selling in
the course of business. If the seller is not in the business of selling
but nonetheless sells some goods, section 14 will not be applicable.
Thus, if X holds a garage sale as he is emigrating and sells a laptop
to Y, X is unlikely to be selling in the course of business. As such, Y is
unlikely to be protected by section 14 and the general rule would be
“buyer beware”. Basically, the law imposes more obligations on
business sellers as opposed to non-business sellers, which is
understandable.
The two key subsections in section 14 are sections 14(2) and
14(3).
(a) Section 14(2)
Section 14(2) states that when the seller is selling in the course
of business, it is an implied condition8 that goods supplied under
the contract will be of satisfactory quality. Section 14(2A) states
that goods would be deemed to be satisfactory if a reasonable
person would regard the goods as satisfactory considering the
description, price and all other relevant circumstances. Thus, in
National Foods Ltd v Pars Ram Brothers (Pte) Ltd (2007), where
the seller sold ginger slices (to be used as food products) which
were heavily contaminated with mould, had high moisture levels,
high ash content and were very dirty and full of dust, the court
held that, among other things, section 14(2) had been breached.
In this regard, it must be noted that it is not the mere
functionality of the goods that determines whether they are
satisfactory. All relevant factors must be taken into account. So
even if the item is functional, as in it can work, it might still be
unsatisfactory. In Rogers v Parish (Scarborough) Ltd (1987), the
buyer bought a brand new car which turned out to be faulty, and
in addition there were some defects in the body work. However,
the car could still be driven. Nonetheless, the court held that there
was a breach of section 14(2). The court held that not only must
the buyer be able to drive the car, but he must also be able to
take pride in the car and be able to drive it with the appropriate
degree of comfort, ease of handling and reliability.
A similar point emerges from section 14(2B), which lists
certain factors that may make a good unsatisfactory, though
these factors are not exhaustive (National Foods Ltd v Pars Ram
Brothers (Pte) Ltd (2007)):
•
Fitness for all the purposes for which goods of the kind in
question are commonly supplied
Thus for instance, if a good is commonly used for two
purposes and it is fit for one but not the other, that might make
the good unsatisfactory.
•
Appearance and finish
Thus for instance, if X orders a brand new designer watch but
it comes with a very visible scratch, that might make it
unsatisfactory.
•
Freedom from minor defects
Minor defects may also make a product unsatisfactory.
However, ultimately the question is whether a reasonable
person would have found the product satisfactory despite the
minor defects. In Chan Chee Kien v Performance Motor Ltd
(2015) where the plaintiff bought a 5-series BMW and
complained of various minor defects, the court held that a
reasonable person would still find the car satisfactory and
hence, the plaintiff lost his case. A similar result was reached
in Koh Wee Meng v Trans Eurokars Pte Ltd (2014), which
involved a new Rolls-Royce car.
•
Safety
Thus for instance, if X sells some medication that does not
come with appropriate labelling or warning, such as that
pregnant women should not take it; that may make the
medication unsatisfactory. Similarly, if X buys a toy for his
infant son, and it does not come with the warning that it is not
suitable for children under three years; that may make the toy
unsatisfactory. In Honey Secret Pte Ltd v Atlas Finefood Pte
Ltd (2016) where the seller sold imported honey without
appropriate labelling in breach of the Sale of Food Act, as a
result of which the buyer could not sell the honey in Singapore,
the court held there was a breach of section 14(2) of the Sale
of Goods Act.
•
Durability
If the goods were not durable, that would suggest that the
goods were unsatisfactory at the time they were sold. How
long the goods should remain durable would, of course,
depend on the type of goods in question. In Mash & Murrell v
Joseph Emmanuel (1961), which involved the export of
potatoes by ship, the court held that the potatoes at the very
least had to be able to endure the sea journey and be of
merchantable9 quality upon arrival.
i.
Other aspects of section 14(2)
It must also be noted that section 14(2) not only covers
the goods themselves but also extends to the packaging.
In Geddling v Marsh (1920), the buyer bought a bottle of
mineral water. The bottle exploded though nothing was
wrong with the water. The court held that there was still a
breach.
Further, it must also be noted that where many goods
are purchased, all the goods must be of satisfactory
quality. In Jackson v Rotax Motor and Cycle Co (1910),
the buyer bought a large quantity of horns. Some of the
horns were scratched, though this could have been made
good by polishing. The court held that all the goods
supplied must pass the test under section 14(2), and
hence, the buyer was entitled to reject the whole lot. Such
a principle is especially useful when a large bulk is
ordered as it allows for rejection on the basis of sampling
instead of having to go through the whole lot which might
be time consuming.
ii.
Exceptions to section 14(2)
Section 14(2C) provides that section 14(2) does not apply
if the defects were drawn to the buyer’s attention before
the contract was made, or if the buyer examined the
goods before the contract and that examination ought to
have revealed the defects.
The first exception is self-explanatory. As for the
second, it must be noted that the buyer is under no duty to
examine the goods (though it is certainly good practice to
do so). If the buyer does examine the goods, the question
is whether someone else carrying out a similar
examination (such as examination for the same amount of
time) would have discovered the defect. If the answer
were in the affirmative, then that would provide a valid
defence for the breach of section 14(2).
(b) Section 14(3)
Section 14(3) provides that when the seller is selling in the course
of business and the buyer expressly or by implication makes
known to the seller any particular purpose for which the goods
are being bought, there is an implied condition10 that the goods
must be reasonably fit for that purpose.
If the buyer expressly makes known a purpose (such as, for
instance, the computer part being bought must be PC
compatible), then the goods must be reasonably fit for that
purpose. Thus, in En Frozen Pte Ltd v Singmah Steel
Refrigeration Pte Ltd (2014) where the seller proposed certain
commercial refrigerators after visiting the buyer’s site and taking
measurements, but the refrigerators eventually supplied were not
suitable to be installed in the buyer’s premises, the court held
there was a breach of section 14(3).
Implied purpose refers to obvious or common purpose. For
instance, if X is buying food from a shop, he does not have to
expressly state that it has to be fit to be eaten; that would be
implied. In Grant v Australian Knitting Mills Ltd (1936), the buyer
bought a pair of underpants from the seller. Due to the presence
of a chemical in the underpants, the buyer developed a rash that
turned into dermatitis. The court held that there was a breach of
sections 14(2) and 14(3). Even though the buyer had not
expressly made known the purpose for buying the goods,
nonetheless, the purpose was implied. Similarly, in National
Foods Ltd v Pars Ram Brothers (Pte) Ltd (2007), where the
seller sold ginger slices (to be used as food products) which
were heavily contaminated with mould, had high moisture levels,
high ash content and were very dirty and full of dust, the court
held that in addition to section 14(2), section 14(3) had been
breached as well.
Thus, the key takeaway from the business viewpoint is that if
the buyer wants the goods for a particular purpose that is not
obvious, the buyer should make it known to the seller so that the
buyer can have the benefit of this section. If the buyer does not
do that, section 14(3) may not be applicable. In Griffiths v Peter
Conway Ltd (1939), the buyer bought a coat from the seller and,
upon wearing it, developed dermatitis. However, it was proved
that the buyer had abnormally sensitive skin and that a normal
person would not have been affected. Since the buyer did not
expressly inform the seller that the coat must be fit for someone
with abnormally sensitive skin, and since the coat was otherwise
reasonably fit for normal persons, section 14(3) was held not to
have been breached.
•
Exceptions to section 14(3)
However, section 14(3) does not apply if the buyer does not
rely or if it is unreasonable for the buyer to rely on the seller’s
skill and judgment.
Whether it would be reasonable to rely would depend on
various factors, such as the expertise of the seller or buyer,
whether the buyer gave the specifications for the manufacture
of the good and whether the buyer asked for a particular
brand. If the buyer had much more expertise on the subject in
question as compared to the seller, or if the buyer asked for a
particular brand or if the buyer gave the specifications for the
manufacture of a good, then it may be less reasonable for him
to rely on the seller’s judgment.
(c) Effect of breach of section 14(2) or 14(3)
Subject to what will be discussed later,11 if section 14(2) or 14(3)
is breached, the buyer would have the right to repudiate the
contract, reject the goods and sue for damages, if any.
Section 15
Section 15 provides, among other things, that in a contract of sale by
sample, it is an implied condition12 that the bulk will correspond with
the sample in quality. The reason for this rule is self-explanatory.
Thus, in Ceramic Brickworks (S) Pte Ltd v Asia-Tech Construction
& Engineering Pte Ltd (1996), where the contract described the
goods as “common bricks, SISIR standards … as per sample”, and
the bricks supplied did not correspond to the sample, the court held
that the buyers were right in rejecting the bricks on account of section
15, though there was no breach of section 14(2).
Subject to what will be discussed below, if section 15 were
breached, the buyer would have the right to repudiate the contract,
reject the goods and claim damages, if any.
Not mutually exclusive
Before moving further, it must also be pointed out that sections 13, 14
and 15 are not mutually exclusive and may overlap in some
circumstances. For instance, in Culindo Livestock (1994) Pte Ltd v
Ananda UK (China) Limited (2014), where the seller sold a different
and cheaper version of a particular antibiotic, the court held there
was a breach of section 13 as well as section 14(2).
Loss of right to reject
As stated, if section 13, 14 or 15 is breached, the buyer may have
the right to repudiate the contract and reject the goods. However, in
certain circumstances, the right to reject may be lost.
Firstly, among other things, section 35 of the Sale of Goods Act
provides that the buyer would be deemed to have “accepted” the
goods if he does any act in relation to the goods which is inconsistent
with the ownership of the seller, or if he intimated to the seller that he
has so accepted the goods, or if he keeps the goods for more than a
reasonable period of time without informing the seller that he has
rejected them. Once the buyer is deemed to have accepted the
goods, he would lose his right to reject the goods. However, it should
also be highlighted that section 35(6) provides the mere fact that the
buyer has sold the goods to a sub-buyer does not amount to
acceptance.
As stated above, if the buyer keeps the goods for more than a
reasonable period of time without informing the seller that he has
rejected them, the buyer would lose the right to reject. Hence, buyers
should always be mindful of this, though what is reasonable would
very much depend on the actual circumstances.
In Clegg v Olle Andersson (2003), the buyers in question ordered
a yacht from the seller. The yacht was supposed to be in accordance
with “manufacturer’s standard specifications”. The yacht was
delivered in August 2000, but it was not in accordance with the
manufacturer’s standard specifications. Following this, in August and
September 2000, the buyers sought information from the sellers
whether this would give rise to any safety consequences. The sellers
did not reply till February 2001. In March 2001, the buyers rejected
the yacht some six months after the purchase. Considering the
circumstances, especially the fact that the seller had delayed in
providing the information sought, the court held that the rejection had
taken place within a reasonable period of time. Similarly, in Fujifilm
(Singapore) Pte Ltd v Ultimate Packaging Pte Ltd (2012), where the
seller sold to the buyer a printer for over $150,000 and it turned out
to be defective because, among other things, it could not “achieve
Pantone colours”, the court held that the buyer could reject the
printer. The fact there was a delay of between 8 to 12 months did not
prevent the buyer from doing so as the buyer was merely trying to
resolve the issue with the seller by getting the seller to do repairs.
Another situation in which the buyer may lose his right to reject is
section 15A. Under section 15A, it is provided that in non-consumer
sales,13 as when the goods are bought for re-sale, if the breach of
section 13, 14 or 15 is so slight that it would be unreasonable for the
buyer to reject the goods, then the buyer cannot do so and can only
sue for damages, if any. However, this section can be overridden by
agreement between the parties, such as an express provision to the
contrary in the contract.
EXCLUDING LIABILITY IMPOSED BY THE SALE
OF GOODS ACT
When buying a product, it is quite common for a business to post a
notice or issue a receipt14 stating that “goods sold cannot be
returned”. By such a clause, the seller is in effect trying to exclude his
liability for any breach of contract. Can this be done? The relevant
statute is the Unfair Contract Terms Act.
Under section 6(1) of the Unfair Contract Terms Act, it is provided
that any clause trying to exclude liability for breach of section 12 of
the Sale of Goods Act is totally invalid.
Further, section 6(2) of the Unfair Contract Terms Act provides
that, in consumer sales, any attempt to exclude liability for breach of
section 13, 14 or 15 would be invalid. In contrast, section 6(3) of the
Unfair Contract Terms Act provides that in non-consumer sales,
liability for breach of section 13, 14 or 15 may be excluded15 if it is
reasonable. What is reasonable would depend on many factors as
discussed earlier.16
Since the result may be different depending on whether the
transaction can be classified as a consumer sale or a non-consumer
sale, it would be important to determine what is meant by the terms
“consumer” or “non-consumer”.
If a business buys goods for re-sale, that would be a nonconsumer sale. However, what if the business buys goods for its own
use? Would that be a consumer or non-consumer sale? It would
appear that the answer depends on whether the goods are required
for an integral part of the business. In this connection, regularity of
purchase could be relevant in determining whether the purchase is an
integral part of the business (Koh Lin Yee v Terrestrial Pte Ltd
(2015)). Thus, if a stockbroking company buys a painting to decorate
its office, since the painting is not an integral part of the business and
since a contract to buy a painting is not a regular kind of contract
entered into by that company, it is likely to be a consumer sale.
To summarize, while it is common to have exclusion clauses, they
may not always be valid. From a business viewpoint, other ways to
mitigate the risk (for instance by having product liability insurance)
should also be explored.
LIABILITY OF THE MANUFACTURER AND
OTHERS
Thus far the liabilities of the seller have been considered, but what
about the liabilities of the manufacturer? Just as there is a contract of
sale between the retailer and consumer, there would be a contract of
sale between the retailer and the manufacturer. Thus, if there is a
breach of any of the sections discussed above, the retailer would be
able to sue the manufacturer in turn for the breach. Thus for instance,
in Britestone Pte Ltd v Smith & Associates Far East, Ltd (2007),
where the distributor purchased capacitors from a sourcing company
and resold them to a third party and it turned out that the sourcing
company had given counterfeit capacitors, in breach of section 13 of
the Sale of Goods Act and, as a result, the distributor had to pay
damages to the third party, it was held that the distributor could in
turn claim those damages from the sourcing company.
Further, in some circumstances, the consumer may be able to
directly deal with the manufacturer. One such situation is where there
is a guarantee or warranty, such as often is the case with electronic
goods. In such circumstances, manufacturers would commonly
honour the guarantee or warranty, subject to the terms of the
guarantee or warranty.
Another situation is where the consumer suffers certain types of
losses such as physical injury as a result of the negligence of the
manufacturer. In such a situation, it may be possible for the consumer
to sue the manufacturer in negligence even if there is no contract
between them. The right to sue in negligence is discussed later.17
Yet another situation in which the consumer may be able to sue
the manufacturer directly is where there is a collateral or indirect
contract between them, though this is less common scenario. For
instance in Shanklin Pier Ltd v Detel Products Ltd (1951), the
plaintiffs entered into a contract with a third party under which the
third party was to do some paint works for the plaintiffs. Under the
contract, the plaintiffs had the right to nominate the type of paint. The
defendants induced the plaintiffs to recommend their paint. The paint
was bought by the third party and it turned out to be unsatisfactory.
The plaintiffs brought an action against the defendants and argued
there was a collateral contract between them. The court upheld it.
Thus, if the manufacturer gives some assurances to the consumer
about the product and as a result of that the consumer buys it from
the retailer, there might be a collateral contract between the
manufacturer and the consumer.
It should also be highlighted that others in the chain such as
distributors and importers may be liable in the ways described above.
In TV Media Pte Ltd v De Cruz Andrea Heidi (2004) for instance, the
actress in question consumed some slimming pills and suffered liver
damage as a result. Among other things, she brought an action
against the manufacturers, distributor and importer in negligence. Her
action against the manufacturers did not proceed as they were based
in China and could not be traced. However, the court held that the
distributor and importer were liable in negligence. Again in this
context, choosing only to deal with reputable manufacturers or
demanding some form of express warranties or guarantees from
them, or having some form of product liability insurance, may all help
in reducing the risks involved.
PASSING OF PROPERTY
The essence of a sale of goods transaction is the transfer of
ownership in the goods from the seller to the buyer. In law, the
transfer of ownership in the goods is also known as the transfer of
property or title in the goods.
However, ownership, property or title must be distinguished from
mere possession. Possession refers to physical possession. It is
important to note at the very outset that property and possession
need not always lie with the same person. Thus, if X borrows a book
from the library, the property or ownership of the book may lie with
the library, but the possession of it would be with X.
It is important to determine when ownership, property or title in
the goods passes from the seller to the buyer for various reasons
such as the following:
•
The passing of property has an impact on the unpaid seller’s
rights. If property has passed, the goods would belong to the
buyer, and so the unpaid seller would be able to sue the buyer for
the price of the goods (section 49 of the Sale of Goods Act). On
the one hand, if property has not passed, the goods would belong
to the seller, and so even if the buyer has possession of the
goods, the unpaid seller may re-possess the goods and sell them
to someone else. In such a situation, the seller would usually not
be able to claim for the price of the goods. He would only be able
to claim for damages for non-acceptance (section 50 of the Sale
of Goods Act).18 Thus for instance, if the contract price was $X
but the seller manages to re-sell the goods to someone else for
$100 less, the damages that flow from the non-acceptance would
be $100.
•
Risk generally passes with property or ownership (section 20 of
the Sale of Goods Act). Thus, whoever has the risk generally has
to bear the loss should something happen to the goods, before
the contract is completely performed. For instance, if the goods
are destroyed by fire before they are delivered to the buyer, the
party who has property, and hence the risk, would generally have
to bear the loss.
•
In the event of liquidation or bankruptcy, it may be important to
determine who has property in the goods. If the seller has
property, the goods are his and he can keep them or take them
back from the buyer. On the other hand, if property has passed to
the buyer and the buyer has possession of the goods, the seller
can only sue him for the price. But making a claim against the
buyer for the price after the commencement of bankruptcy or
liquidation would be fraught with difficulties, and the seller may or
may not get anything.
When does property pass?
Generally,19 as provided in section 17 of the Sale of Goods Act,
property passes according to the intention of the parties. The
intention of the parties can be gathered from what is expressly stated
in the contract itself,20 or from what can be implied from the conduct
of the parties or the circumstances. However, given the importance of
the issue, it is of course best for a business to expressly address in
the contract.
If the intention of the parties cannot be gathered, then section 18
rules 1 to 5 provide for when property is to pass. The rules make a
distinction between specific goods or unascertained or future goods.
Thus, it would be important to understand the difference between
such goods at the outset.
Specific goods are defined in section 61 to mean goods that are
identified and agreed upon at the time of the contract of sale. Thus, if
X orders a particular painting from an art shop to be delivered to his
home, that would be a specific good. On the other hand, if X orders a
gas cylinder over the telephone, while he might know the brand, since
he would not know which gas cylinder exactly would be sent to him,
that would not be a specific good, but an unascertained good. Thus,
unascertained goods are goods that are not identified and agreed
upon at the time of the contract of sale. As for future goods, section
61 defines them as goods that are to be manufactured or acquired by
the seller after the making of the contract of sale. Thus, if X orders a
piece of furniture to be custom made, that would be a future good.
The time for determining whether the goods are specific,
unascertained or future is the time when the contract of sale is made,
that is, the time when the offer and acceptance for the sale are
concluded.
Bearing these concepts in mind, we can now move on to consider
the specific rules in section 18.
Section 18 Rule 1
Where there is an unconditional contract for the sale of specific goods in a
deliverable state, the property in the goods passes to the buyer when the
contract is made, and it is immaterial whether the time of payment or the
time of delivery, or both, are postponed.
The word “unconditional” suggests that there must be no condition
precedent attached to the performance of the contract. Thus for
instance, if X agrees with Y to purchase from the latter some goods
on a particular date if the exchange rate between the US dollar and
the Singapore dollar falls to a certain rate, that would be a conditional
contract and rule 1 would be inapplicable.
The phrase “deliverable state” has been defined in section 61(4)
to mean that they must be in “such a state that the buyer would under
the contract be bound to take delivery of them”. Thus, if under the
contract something has to be done in respect of the goods to make
them deliverable, section 18 rule 1 would not be applicable. In Philip
Head & Son Ltd v Showfronts Ltd (1970), the issue of whether the
goods were in a deliverable state arose, though this was in respect of
another rule and not rule 1. In this case, the plaintiffs sold to the
defendants carpets which under the contract the plaintiffs had to lay.
The plaintiffs delivered the carpets to the defendants’ premises, but
the carpets were stolen before they could be laid. The plaintiffs
nonetheless sued the defendants for the price. In the circumstances,
the court held that the carpets were not in a deliverable state and as
such property and risk lay with the seller.
If these factors are met, property can pass even if the goods
have not been delivered or have not been paid for.
Section 18 Rule 2
Where there is a contract for the sale of specific goods and the seller is
bound to do something to the goods for the purpose of putting them into a
deliverable state, the property does not pass until the thing is done and the
buyer has notice that it has been done.
Thus, if X agrees to buy and take delivery of a specific machine
belonging to Y’s company, but the machine is yet to be detached
from the floor in Y’s factory, under section 18 rule 2, the property
would pass to X only when the machine is detached from the floor
and X is informed of this.
Section 18 Rule 3
Where there is a contract for the sale of specific goods in a deliverable
state but the seller is bound to weigh, measure, test or do some other act or
thing with reference to the goods for the purpose of ascertaining the price,
the property does not pass until the act or thing is done and the buyer has
notice that it has been done.
Thus, if a retailer goes to a wholesaler and picks out a large
quantity of goods, but the goods have to be weighed before the price
can be determined and before that, something happens which
destroys the goods, property would not have passed to the retailer.
Section 18 Rule 4
When goods are delivered to the buyer on approval or on sale or return or
other similar terms, the property in the goods passes to the buyer:
(a) when he signifies his approval or acceptance to the seller or does any
other act adopting the transaction;
(b) if he does not signify his approval or acceptance to the seller but
retains the goods without giving notice of rejection, then, if a time has
been fixed for the return of the goods, on the expiration of that time,
and if no time has been fixed on the expiration of a reasonable time.
The case of Elphick v Barnes (1880) illustrates rule 4. In this
case, the seller handed a horse over to a prospective buyer on
approval for eight days. However, the horse died on the third day.
The court held that the ownership of the horse had not passed to the
buyer. However, if, on the facts of the case, the horse had died after
the expiration of the given time, such as on the tenth day, the answer
would have been different.
Under rule 4, if a time period had not been stated, then property
would pass upon the expiration of a reasonable time and, what is a
reasonable period of time would depend on the circumstances.
Section 18 Rule 5
Where there is a contract for the sale of unascertained or future goods by
description, and goods of that description in a deliverable state are
unconditionally appropriated to the contract, either by the seller with the
assent of the buyer or by the buyer with the assent of the seller, the
property in the goods passes to the buyer.
The phrase “unconditionally appropriated” refers to whether the
goods have been irrevocably set aside from the bulk or earmarked
for the buyer. In Healy v Howlett & Sons (1917), the plaintiff agreed
to sell 20 boxes of mackerel to the defendant. He then sent off a total
of 190 boxes of mackerel meant for various buyers by train, though
there was no labelling on any of the boxes as to which boxes were
meant for whom. The employees of the train company had the task of
allocating the correct number of boxes to each destination. The train
was delayed and the fish deteriorated. The court held that there was
no unconditional appropriation and so the risk lay with the plaintiff.
As stated in the rule, unconditional appropriation must be
assented to. Such assent may be express or implied and may be
given before or after the appropriation is made. Thus for instance, if
X goes to a petrol station and petrol is pumped into his car, the petrol
would have been appropriated. In such circumstances, X would not
have expressly given his assent or agreement to the appropriation,
but nonetheless it would be implied.
Reservation of title
As stated earlier, if after the contract is made, the buyer becomes
bankrupt or liquidated before payment is made, whether the seller
can keep or take back the goods would depend on whether he has
property in the goods. If he has property in the goods, he may do so.
Thus, from the seller’s point of view, it would be desirable to retain
title to the goods until payment is made. Section 19 of Sale of Goods
Act allows the seller to retain title to the goods until the conditions he
imposes are satisfied.
Such clauses21 under which the seller attempts to retain title to
the goods are very common in practice, and they are also known as
“Romalpa” clauses after the case of Aluminum Industrie Vassen BV
v Romalpa Aluminium Ltd (1976). In this case, the sellers sold
aluminium to the buyers, Romalpa. A clause in the contract provided
that ownership in the aluminium would not pass to Romalpa until
payment was made. The clause also stated that if the goods were
mixed with other goods, the sellers would become owners of the new
goods until payment was made and that if the goods were sold, the
proceeds of sale would be held on behalf of the seller. Romalpa got
into financial difficulties, and the validity of this clause came into
question. The court held that the sellers could recover the unmixed
aluminium foil and proceeds of sale from the unmixed aluminium foil,
as provided for in the clause.
However, such clauses may not always be valid. This is because
even though such clauses are recognised by section 19 of the Sale of
Goods Act, they may be ineffective under the Companies Act (where
the buyer is a company). This is especially true when the seller tries
to make a claim over mixed goods, as it usually would not have been
the intention of the parties to give the seller a windfall. In Re
Peachdart Ltd (1983) for instance, the seller sold leather to the
buyer, who was a manufacturer of handbags. The contract of sale
had a retention of title clause. The buyer later went into receivership
and the seller tried to invoke the retention of title clause. However,
the leather sold had already been made into handbags by the buyer.
In the circumstance, the court held that the intention of the parties
could not have been to grant the seller a windfall, and all the clauses
intended to do was give the seller a charge22 or security interest over
the buyer’s goods. Such a charge had to be registered under the
Companies Act in order to be valid. Since it was not registered, the
court held that the charge was invalid and could not be enforced by
the seller.
RISK
Risk addresses the question of who should bear the loss should
something happen to the goods after the making of the contract. In
this regard, section 20(1) provides that unless otherwise agreed,23
risk passes with property. Tarling v Baxter (1827) illustrates the
point. In this case, a haystack was sold to the buyer, but before it
was taken away, it was burned down. It was held that since the
property in the goods had passed to the buyer, he had the risk of the
haystack being destroyed or damaged.
Given the importance of the issue, it is best that a business
expressly addresses this in the contract (though from the perspective
of an unpaid seller, it is best for property to pass only upon payment,
but risk to pass as soon as possible). In addition the party bearing
the risk should consider obtaining insurance where possible or
appropriate.
Risk is clearly connected to the concept of frustration discussed
earlier.24 While they are connected, risk and frustration are not
identical. This is because, if frustration is established, the contract
comes to an end. However, in relation to risk, depending on who has
the risk, as discussed below, some obligations, (such as the buyer’s
obligation to pay the price), may come to an end, but not all
obligations do. Further, risk relates to the destruction or loss of the
goods, whereas frustration is much wider and can relate to other
matters such as illegality.
If the seller has the risk and something happens to the goods, the
buyer does not have to pay for the goods. However, since the
contract is not yet discharged, the buyer may be able to sue the
seller for loss of profits unless the seller can establish frustration.
Thus for instance, if the goods are destroyed and the buyer is aware
that the goods can only come from one source and there are no more
supplies from that source, there may be frustration and the seller may
not be liable; otherwise he may be.
If the buyer has the risk and something happens to the goods, he
still has to pay for it, though the seller does not have to deliver the
same type of goods again. However, not all obligations cease unless
the contract is also discharged by frustration for some other reason.
Thus, if the buyer delayed in collecting the goods and the seller
incurred storage charges as a result, he may be able to sue the
buyer for those charges, unless the contract is also frustrated for
some other reason.
The reason as to why the contract is not frustrated when the
buyer has the property for the mere destruction of the subject matter
of the contract is that, once property has passed to the buyer, it is as
if the essence of the sale contract has been completed, and
frustration cannot apply to a completed contract. As already noted,
frustration relates to the happening of an unexpected event after the
making of the contract, but before the completion of the contract
which makes further performance illegal, impossible or radically
different.
Exceptions to section 20(1)
As an exception to section 20(1), section 20(2) provides that if
delivery were delayed either because of the fault of the buyer or
seller, the party at fault would have to bear the loss. In Demby,
Hamilton & Co v Barden (1949), the buyer neglected to take delivery
of apple juice from the seller. The juice deteriorated and had to be
thrown away. The seller sued the buyer for the price of the goods.
The court upheld that by virtue of section 20(2), the buyer was
responsible for the delay.
Further, as can be gathered from section 20(3), the rules of risk
discussed above may be displaced by negligence on the part of the
parties. Thus, if X is supposed to deliver goods to Y, and property
and risk are with Y, but an accident occurs due to the negligence of X
which destroys the goods, X would have to bear the loss.
DELIVERY
In addition to the matters discussed above, the Sale of Goods Act
has certain provisions pertaining to the delivery of the goods. Many of
these provisions are subject to contrary agreement between the
parties and hence, it is best that such issues are expressly
addressed in the contract.
Place of delivery
In this regard, section 29(2) provides that, unless the parties agree
otherwise either expressly or impliedly, the place of delivery is
generally the seller’s place of business. Thus, if X buys some plants
from a nursery, unless there is agreement to the contrary, X has to
take delivery of the goods from the seller.
If the buyer is to take delivery of the goods, he has to take
delivery of the goods within a reasonable time. If he does not do so,
he could be liable for any expenses suffered by the seller, such as the
charges incurred by the seller for the care and custody of the goods
(section 37).
If, under the contract, the seller is required to send the goods to
the buyer, generally delivery of the goods to the carrier is deemed to
be delivery to the buyer as provided by section 32(1). The carrier
here refers not to the seller’s driver-employees or his agents but
rather to independent third party carriers. In such circumstances, the
contract would also usually provide that risk passes when the goods
are handed over to the carrier and so, if the goods are damaged in
the process of transportation, generally the buyer would have to
make a claim against the carrier or the insurance company if any, and
not the seller.
Time of delivery
In this regard, if the contract has fixed a time for delivery, then
delivery has to be made at that time. If the term has been breached,
the innocent party may sue for damages, if any.
In addition he may wish to terminate the contract. Whether that is
possible would turn on whether time of performance can be
considered to be a condition of the contract.25 However “in ordinary
commercial contracts for the sale of goods the rule clearly is that
time is prima facie of the essence with respect to delivery”: Hartley v
Hymans (1920). Nonetheless, to be clearer and to make sure the
other party understands this, it is best to emphasise this in the
contract itself (for instance, by stating that time of delivery is a
condition of the contract or is of essence).
If no time has been fixed, delivery has to be made within a
reasonable time (section 29(3)). What a reasonable time is would
depend on the facts of the case.
Amount to be delivered
The seller has to deliver the contract amount. If he delivers less,
subject to what is stated below, the buyer can either accept the
amount delivered or reject the whole lot (section 30(1)). If he delivers
more, subject to what is stated below, the buyer can either reject the
whole lot, accept the contract amount or accept the whole lot at the
contract rate (sections 30(2)/30(3)).
This is subject to section 30(2A), which provides that in nonconsumer sales,26 if the shortfall or excess were so slight that it
would be unreasonable for the buyer to reject the whole lot, then he
cannot do so.
However, it must be highlighted that section 30(5) provides among
other things that, section 30 is subject to any other agreement
between the parties.
SALE BY PERSON WHO IS NOT THE OWNER
When a person buys a product, he would expect to acquire good title
to that product; that is, he would expect to become the rightful owner
of that product. However, whether he would indeed acquire such
good title would depend on whether the person from whom he bought
the product had good title to that product. If the person from whom
he bought the product had good title, the buyer would also acquire
good title. This would usually be the case. However, in the less likely
event that the person from whom he bought the product does not
have good title, the buyer would not acquire good title. This rule is
known as nemo dat quod non habet, that is, no one can give what he
has not got, and it is embodied in section 21(1) of the Sale of Goods
Act.
Thus, if X steals jewels belonging to Y and sells it to Z, Z will not
get good title to the jewels. If Y finds out that Z has the jewels, he
may sue him under the tort of conversion27 and recover the jewels
from him. Z can in turn sue X for breach of section 12 of the Sale of
Goods Act, discussed earlier.
However, there are several exceptions28 to the nemo dat quod
non habet rule:
Estoppel: section 21(1)
If the true owner of the goods by his words or conduct allows or
leads an innocent buyer to believe that the seller has the right to sell,
the innocent buyer would get good title even though the seller had no
title to the goods because the true owner would be stopped
(estopped) from denying that the seller had the right to sell.
In Eastern Distributors Ltd v Goldring (1957), M was the owner of
a van who wanted to buy a car from C. However, M did not have the
necessary finances. So M and C entered into a scheme whereby C
would pretend to be the owner of the van and sell both the car and
van to a finance company, which will then let out the vehicles to M on
hire-purchase terms. However, the finance company only accepted
the proposal to sell the van and not the car. Nonetheless, C went
ahead and sold the van to the finance company. Thus, the question
arose as to whether the finance company had title to the van. If the
general rule were applied, since C did not have good title, the finance
company would not have got good title. However, the court held that
M was estopped from denying that C had the authority to sell
because, by his conduct, he had allowed the finance company to
believe that C was authorised to sell.
Factor: section 21(2)(a)
Section 21(2)(a) states that nothing in section 21(1) would affect the
provisions under the Factors Act. A factor is an agent who buys and
sells goods on behalf of other people, but who does so in his own
name. Under section 2(1) of the Factors Act, even though the factor
does not have title, the buyer will be able to acquire good title
provided the following conditions are satisfied:
•
•
•
the goods or the documents of title29 pertaining to the goods being
sold must be in possession of the factor with the consent of the
true owner;
the factor, in selling or disposing the goods, must be acting in the
ordinary course of business; and
the buyer must not be aware of any lack of authority on the part of
the factor.
Thus, if X gives his car together with the necessary documentation
to Y, a factor or an agent, so that Y can obtain a valuation of it or
receive offers relating to it, but in breach of the authority given, Y
goes ahead, sells the car and disappears with the money, the buyer
may nonetheless be able to get good title by virtue of this section.
Sale under common law/statutory/court’s
powers: section 21(2)(b)
Even prior to the Sale of Goods Act, the law recognised some
situations in which a buyer could acquire good title though the owner
did not consent to the goods being sold. These instances are
protected by section 21(2)(b).
Thus for instance, if X pledges30 some jewellery to a pawn shop in
order to raise some money, the pawn shop would have an implied
right to sell the goods if X defaults on repayment. In such a situation,
even if X objects, the buyer of the jewellery from the pawn shop
would acquire good title to it. Similarly, if the goods of the debtor
were sold pursuant to a writ of seizure and sale,31 the buyers would
get good title.
Sale under a voidable title: section 23
Section 23 provides that when the seller of the goods has a voidable
title to it, but the title is yet to be made void at the time of sale, the
buyer would acquire good title to the goods, provided the buyer buys
in good faith and without notice of the seller’s defect in title.
If some vitiating factor32 is present, that may make the contract
void or voidable. For instance, mistake may make the contract void or
voidable, but misrepresentation would only make it voidable. The
difference between void and voidable contracts is that, in relation to a
void contract, it is as if there was never a valid contract. However, in
relation to a voidable contract, there will be a valid contract until steps
are taken to avoid it. Thus, if X buys goods from Z and then sells it to
Y, but the contract between X and Z is void, Y will not get good title
under section 23. However, if the contract between X and Z is
voidable, and before it is made void by Z, X sells it to Y, Y will get
good title by virtue of section 23, provided Y buys it in good faith
without notice of the defect in title.
In Car & Universal Finance Co v Caldwell (1965), Caldwell sold
his car to a rogue accepting payment by a cheque that bounced.
When Caldwell found out the truth about the misrepresentation, he
immediately took steps to avoid the contract. Since he could not find
the rogue, he informed the police. The car was eventually sold to a
company that bought it in good faith without notice of the defect in
title. The court held that since the owner of the car, Caldwell, had
taken steps to make the contract void and the rogue only resold it
after that, the company did not get good title under section 23.
Sale by seller in possession: section 24
Section 24 provides that when a seller, having sold the goods, still
has possession of the goods or documents of title33 relating to the
goods and subsequently re-sells or disposes the goods or documents
of title to another person, that other person would acquire good title
provided that person receives the same in good faith and without
notice of the previous sale.
In Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance)
Ltd (1965), M Ltd sold a number of vehicles to the plaintiffs. However,
they had a special arrangement with the plaintiffs under which they
were to retain possession of the vehicles in the showroom for a
certain period of time. Subsequently, M Ltd got into financial
difficulties and sold a number of the vehicles to the defendants who
bought the vehicles in good faith and without notice of the previous
sale. The court held that section 24 was applicable and hence, the
defendants got good title.
Sale by buyer in possession: section 25
Section 25 provides that when a buyer has bought goods or has
agreed to buy goods and, with the consent of the seller, obtains
possession of the goods or the documents of title relating to the
goods, any sale or disposition by the buyer to a person who receives
the same in good faith and without notice of the defect in title, would
be effective to pass good title to that person.
Thus for instance, X may sell goods to Y but the contract might
provide that while Y is to obtain possession, title to the goods would
remain with X until Y pays. If then Y, while in possession of the
goods, sells them to Z before he pays X, Z will acquire good title
provided Z buys the goods in good faith without notice of the defect in
title.
SELLER’S AND BUYER’S REMEDIES
In addition to the issues discussed thus far, the Sale of Goods Act
has certain provisions relating to the remedies available to the seller
and buyer.
(a) Seller’s remedies
As for the seller, section 49 provides that if the buyer has not
paid for the goods and property has passed to the buyer, the
seller may sue him for the price of the goods. On the other hand,
if property has not passed to the buyer, the seller can only sue
him for the damages for non-acceptance (section 50(1)). The
measure of damages is the loss directly or naturally resulting in
the ordinary course of events from the breach (section 50(2)).
Where there is an available market, the loss that will directly or
naturally result would be the difference between the contract
price and the market price at the time when the goods ought to
have been accepted or at the time when the refusal to accept
occurs (section 50(3)). If there is an available market but no
difference in price, the seller may only get nominal damages.34
In addition the seller may also have certain remedies against
the goods themselves. If the buyer has not paid, the seller may
sue him for damages as stated above. However, if the buyer is in
the process of being made a bankrupt or liquidated, making a
claim against the buyer in such circumstances may not be very
fruitful. It would be far better if the seller had some preferential
rights over the goods that would allow him to retain or sell the
goods to recover his losses. There are indeed such rights, known
as rights in rem.
These rights of the seller against the goods are as follows:
firstly, if the unpaid seller is still the owner of the goods, he may
re-possess them when the buyer defaults on payment; secondly,
if the buyer becomes the owner of the goods, but the unpaid
seller still has possession of the goods, the seller may have a
right of lien. For a right of lien to arise (section 41), in addition to
possession,
•
•
•
the goods must have been sold without a credit period, or
the goods must have been sold subject to a credit and the
period of credit must have expired, or
the buyer must have become insolvent.
If the seller has possession and any of these three conditions
is satisfied, a right of lien arises. The lien enables the seller to
hold on to the goods. However, he cannot sell them unless certain
conditions are satisfied.
Thirdly, if the seller no longer has title to the goods or
possession and the goods are on transit to the buyer, the seller
has a right of stoppage in transit (section 44) provided the buyer
becomes insolvent. If such a right is exercised, the seller may
recover the goods from the carrier. However, again he cannot sell
them unless certain conditions are satisfied.
If the seller exercises his right of lien or stoppage in transit, as
stated, he generally cannot re-sell the goods unless as provided
in section 48,
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•
the goods are of a perishable nature, or
the seller gives notice to the buyer of his intention to re-sell
and the buyer does not pay within a reasonable time, or
the contract expressly allows the seller to sell the goods in
such circumstances.
In situations one and two, if the seller re-sells the goods, this
may nonetheless amount to a breach of contract and the buyer
may sue him. However, the damages he would have to pay the
buyer would be offset against the damages the buyer would have
to pay the seller for non-payment of price.
If the property and possession were to pass to the buyer,
then the seller would have no rights against the goods as such.
Thus, sellers should be aware of this and should try to delay the
passing of property until payment is received.
(b) Buyer’s remedies
As for the buyer, if the seller does not supply the goods as
provided in the contract, the buyer may sue him for damages
(section 51(1)). The measure of damages is the loss directly or
naturally resulting in the ordinary course of events from the
breach (section 51(2)). Where there is an available market, the
loss that will directly or naturally result would be the difference
between the contract price and the market price at the time when
the goods ought to have been delivered or at the time when the
refusal to deliver occurs (section 51(3)). If there is an available
market but no difference in price, the buyer may only get nominal
damages.35
Further, if there is a breach of other warranties or conditions
(such as a breach of section 12, 13, 14 or 15), the buyer may
also sue for damages (section 53(1)). The measure of damages
in such a situation is the direct and natural loss resulting in the
ordinary course of events from the breach (section 53(2)). Thus
for instance, if X buys some food which is adulterated and as a
result he suffers from food poisoning, he may be able to sue the
seller for the medical expenses he incurs. In Cathay Decoration &
Construction Pte Ltd v Universal Marmi Graniti Pte Ltd (2010),
the sellers delivered marble which was in breach of sections 14
and 15. In the circumstances, the court held that the buyers could
reject the goods, claim back the purchase price paid and sue for
the additional cost incurred in getting replacement marble.
Aside from these remedies, where the buyer is a consumer,36
under Part III of the Consumer Protection (Fair Trading) Act, the
buyer has additional remedies.
Under section 12B of the Consumer Protection (Fair Trading)
Act, the consumer can request for a repair to be done or for a
replacement, provided these remedies are not impossible or
disproportionate.
Under section 12D of the Consumer Protection (Fair Trading)
Act, the consumer can also ask for a reduction of price, if a
repair or replacement is impossible or disproportionate or if the
seller does not carry out the repair or give a replacement within
reasonable time.
It should also be highlighted that under section 12B(3) of the
Consumer Protection (Fair Trading) Act, if the goods do not
conform to the contract within 6 months, it is presumed that the
goods did not correspond at the time of delivery. The onus then
shifts to the seller to prove otherwise. Thus, this makes it much
easier for consumers to bring an action.
These additional rules were introduced in 2012. This area of
the law is known as “Lemon Law” and it is intended to offer
greater protection to consumers.
In Speedo Motoring Pte Ltd v Ong Gek Sing (2014), the
consumer bought a second hand hybrid Lexus car in excess of
$130,000. The sellers who were car dealers had represented
that the car was regularly serviced by the authorized agent. It
turned out that this was not the case. In addition, the hybrid
battery broke down within a few months which resulted in the
presumption in section 12B(3) (highlighted above) being
triggered, which presumption the sellers could not rebut. In the
circumstances, the court held there was a breach of section 14 of
the Sale of Goods Act and under the Consumer Protection (Fair
Trading) Act, the consumer had a right to ask for repairs.
However, since the sellers did not do so even though they had a
reasonable opportunity to do so, the buyer could claim for the
cost of repairs.
CONSUMER PROTECTION (FAIR TRADING) ACT
Besides the Sale of Goods Act, another statute which imposes
obligations on the seller is the Consumer Protection (Fair Trading)
Act, which came into effect on March 2004. Under the Consumer
Protection (Fair Trading) Act, a “supplier” supplying “goods” or
“services” to a “consumer” may face certain liabilities if he engages in
“unfair practices”. The meaning of the terms highlighted will now be
considered, though it would be immediately evident that unlike the
Sale of Goods Act, the Consumer Protection (Fair Trading) Act
applies to not only goods but also services.
Meaning of “goods” and “services”
Section 2(1) of the Consumer Protection (Fair Trading) Act defines
the term “goods”, and this includes personal property both tangible
(such as, a television or computer) and intangible (such as, financial
products or credit) and residential property (such as a rented house).
Section 2(1) also defines the term “services”, and this includes:
•
•
•
•
a service offered or provided that involves the addition to or
maintenance, repair or alteration of goods or any residential
property,
a membership in any club or organisation which is a business
formed to make a profit for its owners,
the right to use time share accommodation under a time share
contract,37 and
financial services.
Thus, if an individual books a tour, books a hotel for a wedding,
gets a contractor to renovate his house, gets a plumber to do some
plumbing in his house or becomes a member of a country club, the
services provided are likely to fall within the ambit of the Consumer
Protection (Fair Trading) Act.
However, under the First Schedule to the Consumer Protection
(Fair Trading) Act, several transactions are stated to be outside the
scope of the legislation. For instance, the acquisition of immovable
property is excluded. Thus, the purchase of a residential property
such as a house will not be covered. Hence, when the definition of
goods in section 2(1) refers to residential property, it is actually
referring to residential property which is leased or rented and not
residential property which is bought.
In addition to the First Schedule, section 6(2) of the Consumer
Protection (Fair Trading) Act provides that the said Act does not
apply to claims exceeding the prescribed limit, which is currently set
at $30,000. Thus, if X, a consumer buys a car from a supplier for
$100,000 pursuant to an unfair practice, the Consumer Protection
(Fair Trading) Act will not be applicable if X seeks to claim an amount
exceeding $30,000. In Speedo Motoring Pte Ltd v Ong Gek Sing
(2014), though the buyer bought a defective car from the seller at a
cost in excess of $130,000, since he was just suing for the cost of
repairs which was less than $30,000, his claim under the Consumer
Protection (Fair Trading) Act was allowed to proceed.
Meaning of “supplier”
The term “supplier” is defined in section 2(1). This includes a person
who, in the course of his business, provides goods or services to
consumers (such as retailers), manufactures goods or promotes
goods or services (such as distributors). If the goods or services are
not provided in the course of a person’s business, then the Consumer
Protection (Fair Trading) Act will not be applicable. Thus, if a person
sells his personal car in a private sale and he is not involved in selling
cars, the Consumer Protection (Fair Trading) Act will have no
application. Again, just as with the Sale of Goods Act, the law
imposes more obligations on business sellers as opposed to nonbusiness sellers.
It may also be noted that the term “supplier” includes any
employee or agent of the persons enumerated above. Thus, the
employer could be vicariously liable.38 This is also provided for in
section 5(3)(b).
Meaning of “consumer”
Section 2(1) of the Consumer Protection (Fair Trading) Act defines
“consumer” to mean an individual who, otherwise than exclusively in
the course of business, receives or has the right to receive goods or
services from a supplier or has a legal obligation to pay a supplier for
goods or services that have been or are to be supplied to another
individual.
As such, only individuals are included. The term “individual” is not
defined in the Consumer Protection (Fair Trading) Act, but it is likely
to exclude companies and other incorporated bodies such as
statutory boards. However, this does not mean that a business can
never be a consumer. An individual who is involved in business, such
as a sole proprietor or a partner, may also be considered as a
consumer in so far the goods or services are not received “exclusively
in the course of business”.
It may also be noted that the definition of the term consumer
includes the person who has the legal obligation to pay a supplier for
goods or services that have been or are to be supplied to another
individual. Thus, an individual can still be considered a consumer even
if he does not use the goods or services personally.
Further, it would also appear the term “consumer” is not restricted
to purchasers.39 Thus for instance, if a person hires a good such as a
car or gets a gift, he is still treated as a consumer in so far as he
“receives or has the right to receive” the goods or services.
Meaning of “unfair practices”
The key section is section 4 which lists the unfair practices that a
supplier must not adopt when supplying goods or services to the
consumer. Under section 4, the supplier is not to:
•
•
•
do or say anything or fail to do or say anything, if as a result a
consumer might be reasonably be deceived or misled40;
make a false claim; and
take advantage of a consumer if the person knows or should
reasonably be expected to know that the consumer
(i) is not in a position to protect his or her own interests, or
(ii) is not reasonably able to understand the character, nature,
language or effect of the transaction or proposed transaction
or any matter related to the transaction.
Thus for instance, in Freely Pte Ltd v Ong Kaili (2010) where the
company had organized costly trading courses and had
misrepresented the qualifications of the presenter, the court held that
a reasonable consumer would indeed have been misled and was as
such entitled to damages.
In addition to the general provisions contained in sections 4(1)(a) to
(c), the Second Schedule to the Consumer Protection (Fair Trading)
Act lists 24 specific instances of unfair practices. These include the
following:
•
•
•
•
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•
representing that goods or services have sponsorship, approval or
performance
characteristics,
accessories,
ingredients,
components, qualities, uses or benefits that they do not have (for
example: falsely representing that a product is recommended by a
certain body of persons or authority such as by “leading
physicians or surgeons”),
representing that goods or services are of a particular standard,
quality, grade, style, model, origin or method of manufacture if
they are not (for example: falsely representing that the goods are
made of genuine leather or that they are from France when they
are not),
representing that the goods are new or unused if they are not or if
they have deteriorated or have been altered, reconditioned or
reclaimed (for example: falsely representing a secondhand phone
to be new),
representing that goods or services are available or are available
for a particular reason, for a particular price, in particular
quantities or at a particular time if the supplier knows or can
reasonably be expected to know it is not so, unless the
representation clearly states any limitation (this provision for
example could relate to bait advertising under which the supplier
offers a product at a very special price, but when the consumer
turns up, he is informed that the product has already been sold but
that there are other products available at a higher price),
representing that a service, part, repair or replacement is needed
or desirable if that is not so, or that a service has been provided,
a part installed, a repair has been made or a replacement has
been provided, if that is not so (for example: a car repair shop
stating the car needs certain repairs when it does not need such
repairs, or stating that a repair has been done when, in fact, it has
not been done),
representing that a price benefit or advantage exists respecting
goods or services, where a price benefit or advantage does not
•
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•
•
•
•
exist (for example: falsely stating all items are being sold at a “50
per cent” discount or increasing the before-sale price so that there
is no real reduction in price),
charging a price for goods or services that is substantially higher
than an estimate provided to the consumer, except where the
consumer has expressly agreed to the higher price in advance (for
example: a plumber stating that he charges a flat fee of $40 to
clear each blocked pipe, but when the job is done, demanding
$200 for having cleared one pipe),
representing that a transaction involving goods or services involves
or does not involve rights, remedies or obligations where that
representation is deceptive or misleading (for example: informing
the consumer that if he does not like the product, the supplier
would give him his money back when, in fact, the supplier does
not intend to do so),
taking advantage of a consumer by including in a consumer
agreement, terms or conditions that are harsh, oppressive or
excessively one-sided so as to be unconscionable,41
taking advantage of a consumer by exerting undue pressure or
undue influence on the consumer to enter into a transaction
involving goods or services (for example: a person is forced to
attend a sales talk or presentation, and during the talk or
presentation he is not allowed to leave and eventually the
consumer is cornered into entering into the contract),
representing in relation to a voucher that another supplier will
provide goods or services at a discounted or reduced price, if the
supplier making the representation knows or ought to know that
the other supplier will not do so (for example: falsely stating that if
the consumer buys the supplier’s products, the consumer would
get a ten per cent discount on purchases he makes from another
supplier),
making a representation that appears in an objective form, such
as an editorial, documentary or scientific report, when the
representation is primarily made to sell goods or services, unless
the representation states that it is an advertisement or promotion
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•
(for example: a newspaper advertisement which does not appear
like an advertisement and instead appears like a report showing
how good the product is),
representing that a particular person has offered or agreed to
acquire goods or services if they have not (for example: falsely
stating that a celebrity has agreed to buy a particular service,
such as having booked a particular tour),
representing the availability of facilities for repair of goods or of
spare parts for goods if that is not the case (for example: falsely
stating to a consumer who is a tourist that there are authorised
agents in the country from which the tourist comes from where
repairs can be done),
offering gifts, prizes or other free items in connection with the
supply of goods or services, if the supplier knows or ought to
know that the items will not be provided or provided as offered
(for example: offering an “absolutely free” gift but when the
consumer comes to claim the gift, forcing the consumer to attend
a sales talk or attaching all sorts of conditions to obtaining the
“absolutely free” gift),
representing that goods or services are available at a discounted
price for a stated period of time, if the supplier knows or ought to
know that the goods or services will continue to be available for a
substantially longer period (for example: falsely stating that the
sale is only for three days when the supplier knows it is for a
much longer period),
representing that goods or services are available at a discounted
price for a particular reason that is different from the fact (for
example: falsely offering a product at a discount as part of a
festive sale, when the true reason for the discount is the fact that
the expiry date for the product is nearing),
omitting to provide a material fact, using small print to conceal a
material fact from the consumer or to mislead a consumer as to a
material fact, in connection with the supply of goods or services
and
accepting payment or other consideration for the supply of goods
or services when the supplier knows or ought to know that the
supplier will not be able to supply the goods or services (for
example: a fitness provider keeps accepting new customers when
it knows it is at the verge of insolvency and would have to close
soon).
Defences
Section 5(3) of the Consumer Protection (Fair Trading) Act provides
that in determining whether a supplier has engaged in any unfair
practice, the reasonableness of his actions in the circumstances
should be considered. This could serve as a defence. Thus, if a
retailer sells some goods which are stated to be of a particular
grade, that grade has been assigned to the goods by the
manufacturer and it is reasonable for the retailer to rely on the
manufacturer’s description, the retailer may not be liable.
Remedies
Under Section 6(1) of the Consumer Protection (Fair Trading) Act, a
consumer who has entered into a consumer transaction involving an
unfair practice may commence an action against the supplier in a
court of competent jurisdiction. When an action is commenced and
the court finds that the supplier has engaged in an unfair practice, the
court42 may pursuant to section 7(4) of the Consumer Protection (Fair
Trading) Act,
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•
•
•
order restitution of any money, property or other consideration,
award damages,
make an order of specific performance,43
direct the supplier to repair goods or provide parts for goods, or
vary the contract between the consumer and the supplier.
As stated earlier,44 where the Sale of Goods Act has been breached,
the consumer would also have additional remedies under the
Consumer Protection (Fair Trading) Act such as the right to demand a
replacement.
But before making any such order, section 7(9) provides that the
court shall take into consideration whether the consumer has taken
reasonable steps to minimise his loss45 and has tried to resolve the
dispute with the supplier before commencing the action. If this is not
done, this may have an adverse effect on the remedies available to
the consumer. For instance, the damages the consumer may be able
to obtain may be reduced.
Aside from the remedies mentioned above, pursuant to section
11, a consumer also has an automatic right to cancel certain types of
contracts, such as time share contracts or contracts which arise from
door-to-door sales under the Consumer Protection (Fair Trading)
(Cancellation of Contracts) Regulations. The reason for this is that
these contracts are usually the result of high pressure sales tactics
and thus are presumed to be unfair. Thus, if a consumer buys a time
share contract and later he does not want it, the consumer may
cancel the contract without incurring any liability for the cancellation.
He does not have to prove any unfair practice when he seeks to
cancel the contract pursuant to section 11. However, it is provided
that if he wishes to do so, he has to do so within five days (not
including Saturday, Sunday or public holidays) of certain events such
as:
•
•
after the day on which the contract is entered into, or
if the consumer information notice46 has not been brought to the
attention of the consumer before or at the time when the contract
is entered into, the day on which the consumer information notice
is subsequently brought to that attention of the consumer.
There are also detailed provisions as to how the consumer should
go about effecting the cancellation. The details are provided in the
Consumer Protection (Fair Trading) (Cancellation of Contracts)
Regulations.
It should also be mentioned that unlike in some other jurisdictions,
the breach of the provisions of the legislation only results in civil
liability. It does not directly result in criminal liability.
Limitation
Section 12(1) of the Consumer Protection (Fair Trading) Act provides
that the consumer has to bring an action against the supplier within
two years from the later of the following two dates:
•
•
the date of occurrence of the last material event on which the
action is based, or
the earliest date on which the consumer had knowledge that the
supplier had engaged in the unfair practice to which the action
relates.
Thus, if X, a consumer, buys a good from a supplier who is having
a “closing down” sale, but nine months later, the supplier is still having
a “closing down” sale, the time limit it would appear begins to run
from the nine months, as that is the last material event on which the
action is based, or two years from the time X reasonably should have
realised that an unfair practice has occurred, whichever is later.
Finally, it must also be mentioned that section 13(1) provides that
it is not possible for the supplier to exclude any liability arising under
the Consumer Protection (Fair Trading) Act. Thus, if there is a clause
in the contract between the supplier and the consumer which states
that the Consumer Protection (Fair Trading) Act would not be
applicable, such a clause would be void and be of no effect (Speedo
Motoring Pte Ltd v Ong Gek Sing (2014)).
Business takeaway
While it will certainly be easier to make a sale by making some form
of misleading statement or engaging in some form of unfair practices
(such as pressure selling), a business should be aware of the rights
of consumers under the Consumer Protection (Fair Trading) Act and
may want to question whether such practices will help the business
survive in the long run. Businesses should also educate their
employees about the importance of not engaging in such practices,
for as stated earlier, there can be vicarious liability on the part of the
employer, under this Act.
INTERNATIONAL SALES
Thus far this chapter has been concerned with purely domestic sales
transactions. Now the focus will shift to international sales
transactions.
In this regard, just as with domestic sales transactions, underlying
any international sale transaction would be a contract. In this
contract, the parties concerned would usually address various issues.
One issue that would usually be addressed is which country’s
laws should apply to the contract. Each country’s law is different and
the outcome to a legal problem could be vastly different depending on
which country’s law applies to the contract. If the parties do not
address this issue, the court may determine the proper law of the
contract. However, this could create a lot of uncertainty in the
meantime. Thus, it would be preferable for the parties to provide for
this expressly in their contract.47
Another issue that would usually be addressed is where the
dispute would be resolved. Whichever country’s law is chosen, the
parties can provide in their contract as to where they want the
dispute to be resolved.48
Further, the parties would also usually provide for how the dispute
is to be resolved. As stated earlier,49 the outcomes of some forms of
dispute resolution methods may be more enforceable internationally
as compared to others, and hence it is important to determine this
issue as well.
In addition to these terms that are, in effect, very common in all
sorts of international contracts, the parties to international sales
transactions would also be concerned with the following.
Sale terms
One important issue the parties would be concerned with is the terms
relating to the sale. With regard to such terms, reference must be
made to the United Nations Convention on Contracts for the
International Sale of Goods. This aims to provide uniform rules for the
conduct of international trade. It was ratified by Singapore in
February 1995.
The United Nations Convention on Contracts for the International
Sale of Goods (hereinafter referred to in this part as the Convention)
applies to a sale transaction where parties have their places of
business in two different countries (Article 1) and the countries are
both parties to the Convention. Thus, the Convention does not apply
to a domestic sale transaction and can only possibly apply to an
international sale transaction.
However, the Convention does not apply to all types of
international sale transactions. For instance, transactions involving
goods bought for personal usage (unless the seller does not know or
ought not to have known this) or the sale of ships or aircraft are not
governed by the Convention (Article 2).
Further, the Convention does not cover all aspects of a sale
transaction. For instance, matters such as the validity of the contract
(such as whether the contract can be avoided for duress50) or the
issue of passing of property are not governed by the Convention
(Article 4). Hence, in such instances, reference, must be made to the
law of the contract to determine such issues. Thus, if the law of the
contract is Singapore Law, then such issues must be determined in
accordance with Singapore Law.
Moreover, even to the extent it applies, the parties if they wish
may exclude the Convention altogether or may vary the terms of it
(Article 6). Thus, it is not mandatory for the Convention to apply to an
international sale transaction, even if it falls within its purview.
Part II of the Convention relates to contract formation issues. It
considers issues relating to offer and acceptance. There is no
specific mention of consideration or intention to create legal relations.
Thus, in so far as the Convention applies, it would appear that these
other elements, which are necessary under Singapore Law to create
a valid contract, need not be present. Even the rules relating to offer
and acceptance are not identical to those applicable under Singapore
Law. Article 16(2) (a) for instance, provides that the offer cannot be
revoked if it states a fixed time for acceptance or if it otherwise
states that it is irrecoverable. Under Singapore Law, even if the offer
states that it is irrevocable, it can still be revoked unless generally
there is consideration for that promise.51 Further, Article 18(2)
provides that the acceptance is effective when it reaches the offerer.
Under Singapore Law, this is not always the case. For instance, in
the case of letters, the general rule is that acceptance is effective
when it is posted, not when it reaches the offerer.52 However, other
issues such as those relating to counter offers (Article 19) or the rule
that generally silence cannot amount to acceptance (Article 18(1))
are quite similar.
Section I of Chapter II is concerned with the rules relating to
delivery. Article 30 provides that the seller must deliver the goods,
hand over the documents relating to them and transfer property in the
goods, as required by the contract and the Convention. Articles 31 to
34 of the Convention list down more specific rules relating to delivery.
Article 35 in section II of Chapter II deals with quality and
description and it is quite similar, though not identical, to the
provisions under the Singapore Sale of Goods Act relating to quality
and description. Article 35 also states that the right quantity must be
delivered. Article 42 states that the goods must be free from claims
by third parties in respect of industrial property or intellectual
property, and this is quite similar, though again not identical, to
section 12 of the Singapore Sale of Goods Act.
Section III of Chapter II deals with remedies, and perhaps it is
here that the Convention is most different from the Singapore Sale of
Goods Act The Convention offers other remedies besides specific
performance, damages and rescission. For instance, under Article
46(2), if the goods do not conform to the contract, and that amounts
to a fundamental breach, the buyer may request for substitute goods
by giving timely notice. Further, under Article 46(3), if the goods are
not in conformity, the buyer may also request the seller to repair the
goods provided such a request is not unreasonable in the
circumstances. In addition, under Article 47, the buyer may fix
additional time for performance. Moreover, under Article 50, if the
goods do not conform to the contract, the buyer may reduce the
price. Under Singapore Law, such remedies are only available to
consumers and not businesses under the Consumer Protection (Fair
Trading) Act.
Chapter III concerns the buyer’s obligations to pay the price and
take delivery of the goods and the seller’s remedies if the buyer is in
default. Chapter IV concerns the passing of risk. Article 66 provides
that loss of or damage to the goods after the risk has passed to the
buyer does not discharge him from his obligation to pay the price,
unless the loss or damage is due to an act or omission of the seller.
This is quite similar to the position under the Singapore Sale of
Goods Act. However, there are differences. For instance Article 67
states that risk cannot pass unless the goods have been clearly
identified, and this is not the position under Singapore Law, where
risk can pass even if the goods have not been clearly identified. Also,
as stated earlier, while the Convention provides rules relating to the
passing of risk, it does not provide rules relating to the passing of
property in the goods.
Section II of Chapter V deals with damages. The rules relating to
damages and mitigation, though similar, are not identical to the rules
under Singapore Law. Section IV of Chapter V deals with defences.
Article 79 provides that a party is not liable for a failure to perform
any of his obligations if it proved that the failure was due to an
impediment beyond his control. This is akin to frustration under
Singapore Law. However, a perusal of the following sections
indicates that it would probably be easier to make out this defence
under the Convention than it would be under Singapore Law.
To summarise, in so far as sale terms in an international contract
of sale are concerned, the United Nations Convention on Contracts
for the International Sale of Goods may apply, with the effect that the
rights and obligations of the parties concerned could be different from
what would have been the position under Singapore Law or other
purely domestic law.
Transportation terms
Another issue that the parties to an international sales transaction
would be concerned with is transportation. In this regard, the very
important question of whether the seller or the buyer is to undertake
the transport arrangement would depend on the agreement between
them. The two most common forms of arrangement are “FOB” and
“CIF”.
“FOB” means “free on board”. Under a classic FOB contract, the
seller has to deliver the goods on board a ship53 named by the buyer.
Thus, the buyer has to arrange the shipping arrangements. The seller
would have to bear all costs, such as export charges, up to the point
the goods cross the rail of the ship. Once the goods cross the rail
into the ship, the buyer would be responsible for all charges that
might be incurred after that, such as importation or unloading
charges. Risk passes from the seller to the buyer after the goods
cross the rail of the ship. Thus, if something should happen to the
goods after that, the buyer would have to make a claim against the
shipper, if it is due to the shipper’s fault, or make a claim under
insurance.
“CIF” means “cost, insurance, freight”. Under a CIF contract, the
seller would have to undertake the transportation arrangements. The
seller would have to engage a carrier, arrange insurance and prepare
an invoice. apply. The seller would then have to tender these and
other documents required under the contract to the buyer. If the
documents are in conformity with what is required in the contract, the
buyer would have to pay the seller. As with the FOB contract, the
buyer would have to bear all charges incurred subsequent to that,
such as importation charges. Also, as with the FOB contract, risk
passes when the goods cross the ship’s rail.
Though FOB and CIF are common trade terms used
internationally, the exact interpretation of these terms may vary from
country to country. This can create a lot of uncertainty. To avoid such
problems, the parties to an international sale contract often
incorporate the INCOTERMS. The INCOTERMS is a set of
international rules published by the International Chamber of
Commerce. These rules help to ease the uncertainty and create more
uniformity in the interpretation of such trade terms.
Payment terms
Another important issue the parties to an international sales
transaction would be concerned with is payment. In this regard, the
seller would usually prefer to receive payment before he ships or
sends the goods. On the other hand, the buyer would like to get the
goods before he pays. Thus, if the seller and buyer do not trust each
other, it would be very difficult for them to proceed further.
What would be needed to bridge this gap is the services of an
agent whom both parties can trust. In this connection, banks usually
have sound financial standing and have branches or correspondents
in other countries and hence they are in an ideal position to bridge
this gap.
Basically, the parties would agree with their bank or banks that if
the seller produces the documents as required by the contract, such
as a bill of lading issued by the shipper showing that the goods have
been shipped, then he would get payment from the bank. The seller
would be content with such an arrangement, as he knows that so long
as he ships or sends the goods in accordance with the contract and
produces the required documents, he will get paid. The buyer too
would be content, as he knows that the bank would only pay if the
documents show that the goods have been shipped or sent in
accordance with the contract. The bank that pays on behalf of the
buyer would of course then get reimbursement from him and would
charge a fee for its services.
The transaction involving banks as elaborated above in relation to
an international sale contract is known as a “letter of credit”
transaction. Due to the international nature of letters of credit, there
are international rules governing them, namely the Uniform Customs
and Practice for Documentary Credits, or the UCP for short. These
rules deal with the obligations of the bank in relation to the letter of
credit transaction, and they apply if the contract between the bank
and the parties concerned states that they do.
Transporter’s obligations
Though the issue of the transporter’s obligations may not be
addressed in the contract between the buyer and seller, it is
nonetheless something the parties to an international sales
transaction would clearly be concerned with.
Whether the buyer or seller engages the transporter, if the
transport is in the form of shipment, the shipper will issue a very
important commercial document known as the bill of lading. The bill of
lading serves various functions. Firstly, it acknowledges that the
shipper has received the goods. Secondly, it represents the contract
relating to the shipment. Thirdly, it represents a document of title to
the goods enabling the consignee to deal with the goods even while
they are being shipped. Thus for instance, if the buyer needs
financing to pay the seller, he could pledge54 the goods by endorsing
the bill of lading to the bank as a form of security. In the case of air
transportation, a similar document known as the airway bill is issued.
In the case of sea transportation, the obligations of the shipper
are often governed by an international convention, namely the Hague
Visby rules, which have been given statutory force in Singapore by
virtue of the Carriage of Goods by Sea Act. These rules provide for
various matters, such as the duties and obligations of the shipper and
the defences open to the shipper. Among other things for instance,
these rules provide that the shipper must provide a seaworthy ship
and properly man, equip and supply the ship. In the case of air
transportation, the international conventions that would usually apply
is the Warsaw Convention (together with its amended versions) and
the Montreal Convention. These have been given statutory force in
Singapore by virtue of the Carriage by Air Act and the Carriage by Air
(Montreal Convention, 1999) Act. Thus, if the goods are damaged or
lost in the process of transportation, the consignee may have a claim
against the transporter pursuant to these international conventions.55
If the goods are damaged or lost in the process of transportation,
without the fault of the transporter, the consignee may then have to
claim under insurance.
_____________
1 If there is a transfer of property or title to the goods or an agreement to do so, but
there is no sale, the Supply of Goods Act might apply. Thus, if a petrol station gives
a gift for buying petrol or a surgeon implants a pacemaker, the Supply of Goods Act
may apply. The obligations on the supplier under the Supply of Goods Act are
broadly similar to the obligations of the seller under the Sale of Goods Act.
2
However, in respect of goods not used for personal purposes, see also page 296.
3 As to what is meant by condition, see page 173.
4
As to what is meant by a warranty, see page 173.
5 As to what is meant by a charge, see page 119.
6
As to what is meant by condition, see page 173.
7 See page 267.
8
As to what is meant by condition, see page 173.
9 This was the old term for satisfactory quality.
10
As to what is meant by condition, see page 173.
11 See below.
12
As to what is meant by condition, see page 173.
13 On what is meant by non-consumer sales, see further page 269.
14
If it is contained in a receipt, it may not be part of the contract and hence it may
not be binding to begin with; see page 175. Thus, instead or in addition, there
should be a notice at the point of sale (for instance at the cashier’s counter) or even
before that (for instance, in the case of online sales).
15 For an example of a contractual clause seeking to exclude liability, see Appendix
A, clause 14.
16
See page 180 onwards.
17 See Chapter 14.
18
See further page 284.
19 However, section 16 of the Sale of Goods Act provides that property in
unascertained goods cannot pass until the goods are ascertained, though section
16 itself is subject to section 20A, which relates to bulk goods.
20
For instance, see Appendix A, clause 12b.
21 For an example of such a clause, see page Appendix A, clause 12b.
22
As to charge, see page 119.
23 See for instance, Appendix A, clause 12a.
24
As to frustration, see page 228.
25 Further, see page 173.
26
As to what is meant by non-consumer sales, see page 269.
27 See page 347 footnote 6.
28
These exceptions are not mutually exclusive and so there can be an overlap.
29 As for an example of a document of title, see page 301.
30
As to pledges, see page 126.
31 For what is meant by writ of seizure and sale, see page 20.
32
As to vitiating factors, see Chapter 8.
33 As for an example of a document of title, see page 301.
34
As to nominal damages, see page 238.
35 As to nominal damages, see page 238.
36
As to consumer, see page 289.
37 A “time share contract” is defined in section 2 of the Consumer Protection (Fair
Trading) Act. Essentially, under a time share contract, an individual (together with
others who are participating in the scheme) acquires a right to use an
accommodation (whether it is in Singapore or elsewhere) such as a hotel, for a
stated period of time, such as a couple of weeks in a year, in return for the payment
of money.
38
As to vicarious liability, see page 264.
39 This is unlike the position under the Sale of Goods Act, see page 258.
40
If there is some misleading statement or false claim, it is possible the Sale of
Goods Act (for instance, section 13 of that Act) could be breached or the consumer
may be able to sue in misrepresentation, though ultimately, the consumer will not be
awarded double or triple compensation.
41 This is an exception to the general rule that courts are not concerned with the
fairness or unfairness of contractual terms; see page 165.
42
If the matter is heard in the Small Claims Tribunal, the reliefs that the tribunal may
grant may be slightly more limited. The reliefs that can be granted by the tribunal
are set out in the Small Claims Tribunals Act.
43 As to specific performance, see page 250.
44
See page 286.
45 As to mitigation of losses, see page 245.
46
This is a notice that should be attached to the consumer transaction. It is a notice
that informs the consumer of his right to cancel the contract within five days. The
format of the notice is set out in Schedule to the Consumer Protection (Fair
Trading) (Cancellations of Contracts) Regulations. If the five-day period has
expired, the consumer may still make a claim under the other sections of the
Consumer Protection (Fair Trading) Act by proving an unfair practice.
47 See for instance, Appendix A, clause 26.
48
See for instance, Appendix A, clause 1. However, it must be pointed out that this
may not always be conclusive, and the court may be of the view that the matter
should be tried elsewhere.
49 See Chapter 1.
50
As for duress and other factors affecting validity of a contract, see Chapter 8.
51 See page 137.
52 See page 143.
53
If transportation is by air, similar terms referred to as FOA or FOB Airport may
apply.
54 See page 126.
55
Subject to exceptions, both the conventions provide for limitation of liabilities.
These limitations are binding and are not subject to the issues discussed in relation
to exclusion clauses under purely domestic law (see page 179 to 180).
12
Dealing with Employees
Employees are an indispensable part of any business and, underlying
a typical employer-employee relationship would be a contract. Hence,
the matters discussed in the chapters pertaining to contract law
would generally still be of relevance. In addition, there are many other
legal obligations concerning employment which arise from various
statutes. This chapter is concerned with these as well as the
contractual issues pertaining to employment.
As stated, there are many statutory obligations and, breaching
them could result in criminal liabilities. Hence, the employing business
should be extra informed and vigilant. Various other measures can
also be adopted to improve the position of the employing business as
also will be highlighted in this chapter.
MEANING OF THE TERM “EMPLOYEE”
The first issue that has to be sorted out is the meaning of the term
“employee”. Though it may seem obvious who an employee is, this
may not always be so. A person providing a service, instead of being
an employee, may for instance be an “independent contractor”.
It is important to make a distinction between an employee and
others who are not employees at the very outset for various reasons.
For instance, generally, an employer is vicariously liable1 for the acts
of his employee, but not for the acts of others. Further various
statutes such as the Central Provident Fund Act, Employment Act and
the Work Injury Compensation Act impose obligations on employers,
in respect of employees and not in respect of others.
As stated in Market Investigations, Ltd v Minister of Social
Security (1968), in determining whether a person is an employee or
not, there is no overriding test and all relevant factors have to be
taken into account. Further, the way in which the contract describes
the relationship is inconclusive. Thus, even if the contract states that a
person is not an employee, in legal terms he or she may still be
considered an employee. Thus, basically courts look at substance
and not mere form. Some of the relevant factors include:
•
•
•
•
•
•
•
control (the more control one exercises over the services of
another, the more likely that there is an employment relationship
between the parties),
integral part of the work (if a person engages the services of
another and those services form an integral part of the business of
the person engaging the services, that points towards there being
an employment relationship between the parties),
method of payment (if payment is made according to work done,
that points towards there being no employment relationship
between the parties; on the other hand, if payment is made in the
form of wages or salary, that points towards there being an
employment relationship between the parties),
obligation to work only for the employer (if there is such an
obligation, that points towards there being an employment
relationship between the parties),
stipulations as to working hours (if there are such stipulations, that
points towards there being an employment relationship between
the parties),
overtime pay (if there is such pay, that points towards there being
an employment relationship between the parties),
annual leave (if the contract provides for annual leave, that points
towards there being an employment relationship between the
•
•
•
•
•
parties),
medical leave (if the contract provides for medical leave, that
points towards there being an employment relationship between
the parties),
right to dismiss (if the contract refers to a right to “dismiss”, as
opposed to a mere right to “terminate” that points towards there
being an employment relationship between the parties),
right to delegate work (if the individual is free to delegate the work
to others, that points towards there being no employment
relationship between the parties),
provision of tools and equipment (if the individual provides his or
her own tools or equipment for doing the work, that points
towards there being no employment relationship between the
parties), and
chance of profit or loss (if the person providing the services
stands to make a profit or a loss, that points towards there being
no employment relationship between the parties; for instance, for
this reason, partners in the true sense of the word in a partnership
or limited partnership will not be considered employees).
These factors are not exhaustive. Neither is any one factor
conclusive. Further, different factors may point in different directions
and hence, all the factors have to be weighed and balanced before
finally coming to a determination.
One case in which the issue arose for consideration was Kuroeka
Enterprises Pte Ltd v CPF Board (1991). In this case, the question
arose as to whether Central Provident Fund (CPF) contributions had
to be made in respect of certain freelance hostesses. That depended
on whether the hostesses were employees of the lounge. On the
facts, the hostesses did not have annual lave or medical coverage.
However, the lounge had complete control over the services provided
by the hostesses. Moreover, the services formed an integral part of
the business of the lounge. In addition, the hostesses did not stand to
make a profit or a loss by providing their services. Further, the lounge
had the right to dismiss the hostesses. Balancing all factors, the court
came to the conclusion that the hostesses were indeed employees of
the lounge and hence were entitled to CPF.
It should also be highlighted that just because, the worker is
engaged on a contract basis (be it for a short period), that does not
mean there is no employment relationship in such a situation. All the
relevant factors as discussed above must still be considered. As for
interns, in determining whether they are employees, besides
considering the factors above, the purpose for engaging them has
also to be examined. If the predominant purpose was to do work,
then that would point towards there being an employment
relationship. On the other hand, if the predominant purpose was for
the intern to learn or fulfill some academic requirement, then that
would point away from there being an employment relation. This may
not be an easy distinction, but nonetheless since many statutory
rights kick in after three months of employment and many internships
are for shorter durations, it may not really be against the interests of
the employer if the employer simply treated them as employees.
CONTRACT OF EMPLOYMENT
Like most contracts, a contract of employment too generally does not
have to be in writing. This is also reflected in section 2 of the
Employment Act. However, for employees falling under the
Employment Act,2 the employer has to provide “key employment
terms” such as those relating to job scope, salary and allowances,
duration, and termination, within 14 days of the commencement of
employment (section 95A of the Employment Act). If the employer
does not do so, while the employer may face certain penalties under
the Employment Act (sections 126A and 126B of the Employment
Act), it should be pointed out that there can still be a valid oral
contract of employment.
DUTIES OF THE EMPLOYEE
An employment relationship imposes various duties on the part of the
employee. These duties are implied into the contract of employment,3
and some of these may not be present in non-employment
relationships (such as where independent contractors or freelancers
operating in the gig economy like possibly Deliveroo riders or Grab
drivers are concerned). Hence, businesses should take note that
hiring non-employees to do the work may come with its own set of
disadvantages. Some of the implied duties in an employment
relationship are as follows:
Duty to obey instructions
Firstly, it is the duty of the employee to obey the instructions of the
employer. If the employee does not obey the instructions of the
employer and that amounts to a repudiatory or fundamental breach4
on the part of the employee, the employer may be able to summarily
dismiss the employee without having to give him notice or salary in
lieu of notice. In Pepper v Webb (1969) for instance, when the
gardener, who was told by his employer to do some work, refused
and replied that he could not care less about the employer’s “bloody
greenhouse and … sodding garden”, the court held that the employer
was justified in summarily dismissing the employee.
However, the employee does not have a duty to obey his
employer’s instruction if it is unreasonable. What is unreasonable
would depend on the circumstances. For instance, in Sim v
Rotherham Council (1987), the court held that it was not
unreasonable for the teachers in question to be asked to cover for
teachers who were absent. Similarly, in Cresswell v Board of Inland
Revenue (1984), the court held that it was not unreasonable for the
employer to ask his employees, who were used to working manually,
to switch over to computers.
In addition, the employee does not have to obey an instruction of
the employer if it is unlawful or if it exposes the employee to
exceptional risk that is not normal in that line of work. For instance, in
Donovan v Invicta Airways Ltd (1970), the court held that the pilot
employee did not have to obey his employer’s instructions to fly an
unsafe plane. Similarly, in Morris v Henlys Ltd (1973), the court held
that the employee in question was not in breach of contract in not
following his employer’s instructions to falsify certain records
belonging to the employer.
Duty of care
Secondly, an employee owes his employer a duty of care or a duty
not to be negligent.5 If this duty is breached and it causes a loss to
the employer, the employer may be able to sue the employee for the
loss.
For instance, in Janata Bank v Ahmed (1981), the bank employee
was careless in not making certain checks, as a result of which a
client managed to defraud the bank. As such, the court held that the
employee was liable to the bank for the loss.
Where the duty is breached, aside from suing for damages, if the
employee’s breach is repudiatory or fundamental,6 that may justify
summary dismissal without notice or salary in lieu of notice.
Duty of good faith and fidelity
Thirdly, an employee (unlike an independent contractor or freelancer)
owes his employer an implied duty of good faith and fidelity. This can
cover a wide spectrum of matters.
For instance, the employee should not, make use of the
employer’s property for the employee’s own purposes. In this regard,
property can include documents (Crowson Fabrics Ltd v Rider
(2008)). In Goh Chan Peng v Beyonics Technology (2017) claiming
reimbursement for items unrelated to the business such as the cost of
a massager and camera lens, was held to have resulted in a breach
of the duty of good faith and fidelity.
Similarly, the employee should not take a secret profit or bribe.7 If
the duty is breached, the employee may be made liable for the losses
suffered by the employer or, in certain circumstances, may have to
account for the profits made. Additionally, if the breach is repudiatory
or fundamental,8 the employee may be summarily dismissed without
the employer having to give him notice or salary in lieu of notice. In
Boston Deep Sea Fishing v Ansell (1888) for instance, where the
employee director took a secret commission on a shipbuilding
contract, he was ordered to turn over the commission to the company
and in addition it was held that he was rightfully dismissed summarily.
The duty of good faith and fidelity also requires the employee not
to do outside work if by doing such outside work, his employer’s
interests are likely to be greatly affected. For instance in Hivac Ltd v
Park Royal Scientific Instruments Ltd (1946), where the highly skilled
employees in question, who had access to their company’s
manufacturing data, worked for competitors during their spare time,
the court held that this duty was breached. On the other hand, in
Nova Plastics Ltd v Froggatt (1982), where an odd job labourer
started working for a competitor in his free time, the court held that
the duty was not breached as great harm was unlikely to be inflicted
on the employer.
In relation to doing outside work, the contract may also expressly
provide for such restraints and such restraints would be enforceable if
they are not unreasonable considering the circumstances:9 Rowe v
Radio Rentals Ltd (1982). If the implied duty or a valid express
restraint is breached, the employer may be able to sue for damages
if he suffers some loss or in certain circumstances, seek an account
for profits made by the employee. Further, if the breach is
repudiatory or fundamental,10 the employee may also be summarily
dismissed.
It is also an implied term that the employee cannot make use of or
disclose confidential information while being an employee. In fact,
even after the employee leaves the job, the obligation may continue in
so far as the information amounts to a trade secret or is highly
confidential in nature. What amounts to trade secret or is highly
confidential in nature would depend on the facts of each case. In
Medivac International Management Pte Ltd v John Walter Moore
(1988), the information in question were related to certain charge
rates. As these charge rates were easily available in the market, the
court held that the information was not highly confidential in nature
and hence the employee was not restrained from making use of it.
If the information relates to a trade secret or is highly confidential
in nature, the employee may be liable in damages and/or may also be
restrained by means of an injunction from disclosing or making use of
the information.
Aside from relying on implied terms, the employing business can
seek the protect itself by having reasonably worded restraint of trade
clauses11 or doing other things such as marking out information as
being confidential, restricting access to confidential information or not
disclosing the confidential information in its entirety to employees,
where possible.
Finally, yet another aspect of the duty of good faith and fidelity is
that intellectual property created by the employee in the course of
employment belongs to the employer unless the contract provides
otherwise. This case law based principle is also reflected in various
statutes pertaining to intellectual property such as the Copyright Act
and the Patents Act. Nonetheless, as not all employees would be
aware of this, it is best to expressly highlight this in the employment
contract.
DUTIES OF THE EMPLOYER
Just like the employee, the employer, too, owes various duties in an
employment relationship. These duties are imposed through statutes
or implied by case law.
Duties under the Employment Act
One statute that imposes various duties on the employer is the
Employment Act. Unless otherwise stated all sections referred to in
this part are with reference to the Employment Act. However, the
Employment Act does not apply to all employees. It only applies to
employees as defined in section 2 of the Employment Act.
Section 2 states that an employee is a person engaged under a
contract of services and that includes a workman. Under the
Employment Act, the term “workman” includes the following persons:
•
•
•
•
•
•
•
•
•
any person, skilled or unskilled who is engaged in manual labour
including any artisan or apprentice,
any person employed in the operation or maintenance of
mechanically propelled vehicles used for the transport of
passengers for hire or for commercial purposes,
any person employed partly for manual labour and partly for the
purpose of supervising any workman provided, at least half his
time is spent on doing manual work,
cleaners,
construction workers,
labourers,
train, bus, lorry and van drivers,
train and bus inspectors, and
all workmen employed on piece rates in the premises of the
employer.
However, section 2 of the Employment Act does not extend the
term “employee” to include:
•
seamen,
•
•
domestic workers,
any person employed by the government or a statutory board.
Thus, these persons are not covered by the Employment Act. It
must also be pointed out that provided a person falls within the ambit
of the Employment Act, it does not matter that the person is a
foreigner or part-time worker.12
Some duties (namely, rest days, hours of work and overtime pay)
arise under Part IV of the Employment Act. However, Part IV of the
Employment Act only applies to employees earning $2,600 or less a
month, unless they are workmen (the definition of which was
discussed above), in which case the salary limit is $4,500 (section
35). Thus, in the case of an ordinary secretary in a private company,
since the employee is not working for the government or a statutory
board, he or she will be covered by the Employment Act. However, if
he or she earns more than $2,600 a month, Part IV of the
Employment Act would not apply, but the other parts will. We shall
now proceed to look at some of the duties imposed by the
Employment Act, starting with the obligations under Part IV.
It should also be mentioned that not granting the rights conferred
by the Employment Act generally results in a commission of an
offence (for instance sections 53, 87 and 90) and hence, the
employing business should be meticulous in ensuring that statutory
rights are followed through.
(a) Part IV rights
(i)
Rest days
Section 36 of Part IV provides that every employee is
entitled to one rest day in a week, which shall be a Sunday
or such other day as may be determined by the employer. It
is also provided that in the case of shift work, a continuous
period of 30 hours of rest may be substituted as a rest day
(section 36(2)). Subject to certain limited exceptions (such as
section 38(2)),13 an employee cannot be forced to work on a
rest day. However, if the employee does work on the rest
day, he is entitled to additional pay, the details of which are
contained in section 37.
(ii) Hours of work
Section 38(1) of Part IV provides that an employee shall not
be required to work more than 8 hours in a day or 44 hours
in a week. In the case of an employee who works only 5
days a week, the employee may be required to work up to 9
hours in a day, though the 44 hours limit in a week remains.
In the case of a shift worker, the number of hours of work
per day can be more than 8 or 9 hours, but the average over
a period of 3 weeks cannot exceed 44 hours per week
(section 40(1)).
Nonetheless, there are certain exceptions, such as where
there has been an accident or where the work is essential for
defence or security (such as section 38(2)), whereby the
limits stated above can be exceeded even without the
consent of the employee.
(iii) Overtime pay
Where the limits stated above are exceeded, an employee
who works overtime is entitled to overtime pay based on one
and the half times the basic rate of pay (section 38(4)). This
is the minimum. If the employer wants the employer can pay
at a higher rate. However, an employee generally cannot be
required to work for more than 12 hours in a day or work
overtime for more than 72 hours in a month (section 38).
(b) Non-Part IV rights
(i)
Annual leave
Section 88A(1) relates to annual leave and it provides that an
employee who has served an employer for not less than 3
months is entitled to 7 days of leave for the first 12 months
of continuous service with the same employer and an
additional day of leave for every year of completed service
subject to a maximum of 14 days. However, the contract or
collective agreement14 may provide for more days of leave
(section 90(2)). Generally, annual leave can be carried
forward for one year (section 88A(6)), though again as
stated above the contract can provide for better terms.
Generally too, there is also no payment for leave not taken,
unless the contract provides otherwise.
Matters such as compassionate leave, study leave or
unpaid leave are not governed by the Employment Act. Thus,
whether the employee is entitled to such leave would turn on
the provisions of the contract or collective agreement.
(ii) Public holiday leave
Section 88 which relates to public holidays provides that the
employee is entitled to paid leave in respect of public
holidays, though by agreement the employer may substitute
some other day. If an employee is required to work on a
public holiday without a substituted day off, the employee is
generally entitled to double pay, the details of which are
contained in section 88(4), though in the case of non-Part IV
employees, the employer can give time off in lieu. The
amount of time off in lieu in such a case would depend on the
length of time worked.
(iii) Sick leave
Section 89 relates to sick leave. It provides that an employee
who has been certified to be sick by a medical practitioner or
medical officer and who has served an employer for a period
of not less than six months is entitled to 14 days of paid sick
leave in a year, if he is not hospitalised, and to 60 days of
paid sick leave in a year, if he is hospitalised. If the employee
has served less than 6 months, but more than 3 months, he
is entitled to pro-rated sick leave (section 89(2)). Needless
to say, the employee must produce a medical certificate
before being entitled to paid medical leave (section 89(4)).
It should also be highlighted that the employer only needs
to pay the cost of consultation (section 89(7A)) and not the
medical fees incurred unless the contract or collective
agreement provides otherwise.
(iv) Salary and related matters
The Employment Act also has provisions pertaining to the
payment of salary and what deductions can be made. For
instance, generally salary has to be paid within 7 days after
the end of the salary period (section 21) and only certain
deductions are allowed from the salary (for instance,
deductions for absence from work) (section 27). The
employer also has to issue a pay slip (section 96). However,
unlike in some countries, Singapore does not have in force a
national minimum wage15 that has to be paid.
(v) Retrenchment benefits
It may also be noted that in relation to redundancy or
retrenchment payments, though there is a reference to such
payments under the Employment Act, such payments are not
compulsory under the Employment Act. However, they may
be paid if the contract or collective agreement calls for it.
Even if not a legal requirement it is common to pay
retrenchment benefits where the employer has the means to
do so, for among other things, not paying such benefits could
also affect the morale of the remaining employees.
(vi) Maternity leave
In relation to maternity leave, besides the Employment Act
(section 76), another statute that is relevant is the Children
Development Co-Savings Act which provides for more
generous benefits.
Under the Children Development Co-Savings Act (section
9), every female employee16 who qualifies (for instance, the
employee has worked at least 3 months for that employer
and the child is a Singapore citizen at birth), is entitled to
maternity leave for:
a.
a period of 4 weeks immediately before and for a period
of 12 weeks immediately after her confinement,17 or
b.
a period of 16 weeks, as agreed to by her and her
employer, commencing not earlier than 28 days
immediately preceding the day of her confinement or
later than that day, or
c.
a period of eight weeks, as agreed to by her and her
employer, commencing not earlier than 28 days
immediately preceding the day of her confinement or
later than that day and to one or more further periods,
not exceeding 48 days in aggregate, as agreed to by her
and her employer, which shall be taken within twelve
months commencing on the day of her confinement.
In addition, under the Employment Act and the Children
Development Co-Savings Act, in respect of the first and
second confinements, the employer is required to pay the
employee for a period of eight weeks. This is not subject to
any maximum. For the remaining period of the maternity
leave, the employer is also obliged to pay the employee by
virtue of the Children Development Co-Savings Act. However,
this is subject to a stated maximum (that is up to $10,000 per
every 4 weeks). Further, the employer who makes the latter
payment can seek reimbursement from the Government
(section 10 of the Children Development Co-Savings Act). In
respect of the third or subsequent confinements, there is no
obligation to pay under the Employment Act. However, there
is an obligation to pay under the Children Development Co-
Savings Act, though this is again subject to a stated
maximum referred to above (section 9A of the Children
Development Co-Savings Act). The employer who makes the
payment can likewise seek reimbursement from the
Government (section 10 of the Children Development CoSavings Act).
The female employee can transfer up to 4 weeks of the
maternity leave to father of the child provided certain
conditions are satisfied (sections 12E and 12F of the
Children Development Co-Savings Act). This is known as
“shared parental leave” and is in addition to paternity leave
discussed below.
(vii) Paternity leave
Under section 12H of the Child Development Co-Savings Act,
the father of the child is also entitled to be paid paternity
leave of two weeks. However generally, the parents must be
married and the child must be a Singapore citizen. In
addition, the father must have worked for the employer for at
least 3 months (section 12I of the Children Development CoSavings Act). The employer who pays can get
reimbursement from the government as well (section 12J of
the Children Development Co-Savings Act).
(viii) Childcare leave
Under section 87A of the Employment Act, the employee is
also entitled paid childcare leave of 2 days (regardless of
number of children), provided the child is below the age of 7
years and the employee has served the employer for at least
3 months.
Under section 12B of the Child Development Co-Savings
Act, the minimum period of employment is also 3 months, but
the maximum the employee can get is up to 6 days.
However, in order to claim that, the child must be a
Singapore citizen.
Under section 12B of the Child Development Co-Savings
Act, the employee can also get “extended” childcare leave of
2 days for children between 7 and 13, if the other conditions
stated above, such as the child being a Singapore citizen are
satisfied. However, the maximum of childcare leave and
extended childcare leave is 6 days (section 12B of the
Children Development Co-Savings Act).
Duties under the Central Provident Fund Act
Section 7 of the Central Provident Fund Act18 provides that every
employer, unless exempted, has to pay Central Provident Fund
contributions in respect of the employee at the prescribed rates. This
duty extends to part-time employees as well. However, there are
certain exemptions such as in respect of:
•
•
•
•
domestic employees working less than certain number of hours in
a week,
school students working during gazetted school holidays,
students from certain institutions doing industrial attachments or
trainings (such as interns even assuming they are employees) and
foreign employees on employment passes, S passes or work
permits.
The amount of contribution varies depending on factors such as
the age and income of the employee. The most common rate is 37
per cent, though the employer can recover 20 per cent of this from
the employee’s salary (section 7 of the Central Provident Fund Act
read with the First Schedule to that Act). The minimum income which
would attract contributions is $50 a month (the First Schedule to the
Central Provident Fund Act). Where the contributions have to be
made and they have not been made, that would amount to an offence
under 58 of the Central Provident Fund Act.19
Duties under the Retirement and Re-employment
Act
The Retirement and Re-employment Act provides that the minimum
age of retirement in Singapore is 62 years. However, there are
certain exceptions, such as in the case of cabin crew, and police
officers. If a person were unlawfully forced to resign or retire before
his retirement age on the grounds of age, the employer would be
guilty of an offence under section 4(3) of the Retirement and Reemployment Act. However, if an employee were to be genuinely
dismissed on some other ground, for instance, if he has
misappropriated the employer’s property, section 4(3) would not be
triggered.
Subject to a few exceptions, the employer is also duty bound to
offer re-employment (currently up to the age of 67) to his employee
who reaches the retirement age provided the employee has
satisfactory work performance and is medically fit (sections 7 and 7A
of the Retirement and Re-employment Act), though the terms and
conditions (such as medical benefits or salary) do not have to be the
same (section 7A of the Retirement and Re-employment Act), so that
the employer is accorded some flexibility.
If the conditions are met, but the employer has no suitable
vacancies the employer has to offer compensation,20 unless the
employee has managed to find another job before leaving the current
employer (section 7C of the Retirement and Re-employment Act).
It should also be highlighted that it has been announced that the
retirement age would go up to 63 in 2022 and 65 in 2030 and the reemployment age would go up to 68 in 2022 and 70 in 2030.
Duties under the Workplace Safety and Health
Act
Another statute that imposes various obligations on the employer is
the Workplace Safety and Health Act. The Workplace Safety and
Health Act covers all places except domestic premises.
Various people such as occupiers, employers and employees owe
duties under the Workplace Safety and Health Act. The duties of the
occupier are set out in section 11 of the Workplace Safety and Health
Act and the basic duty of the occupier is to take reasonably
practicable measures. The duties of the employer are set out in
section 12 of the Workplace Safety and Health Act and again the
basic duty of the employer is to take reasonably practicable
measures. The duties of the employee are set out in section 15 of the
Workplace Safety and Health Act. For instance, if the employee does
not use protective equipment provided or willfully or recklessly
endangers the safety and health of himself or others, there could be
liability under the Workplace Safety and Health Act.
It should also be mentioned that the Workplace Safety and Health
Act only creates criminal liability and not civil liability. If a person is
injured at work and wants compensation, the employee would have to
claim work injury compensation under the Work Injury Compensation
Act (see below) or sue in negligence.
Given the possible serious consequences on the employee and
the possible huge penalties on the employer for a breach of the
Workplace Safety and Health Act, needless to say, an employer
needs to be extra vigilant when it comes to safety issues.
Duties under the Work Injury Compensation Act
The Work Injury Compensation Act as the name suggests is aimed at
providing compensation for work-related injuries. Under the Work
Injury Compensation, all employees are entitled to work injury
compensation if certain conditions are satisfied, except for some
(section 2 read with the Fourth Schedule to the Work Injury
Compensation Act) such as,
•
•
•
•
Singapore Armed Forces personnel,
Singapore Police Force personnel,
Singapore Civil Defence Force personnel, and
Domestic Workers.
In order for compensation to be payable, there must have been an
accident “arising out of” and “in the course of employment” (section
3(1) of the Work Injury Compensation Act) or the employee must
have contracted an occupational disease (section 4/4(1A) of the
Work Injury Compensation Act).
The phrase “arising out of” means that there must be some
connection between the job and the accident. For instance, if the
employee had a heart attack at work and died, whether
compensation would be payable would depend on whether there was
a connection between the heart attack and the work (NTUC Income
Insurance Co-operative Ltd v Next of Kin of Narayasamy (2006)).
In relation to the phrase “in the course of employment”, as stated
in Weaver v Tredegar Iron and Coal Co Ltd (1940),
a man’s work does not consist solely in the task which he is employed to
perform, it includes also matters incidental to that task. Times during which
meals are taken, moments during which the man is proceeding towards his
work from some portion of his employer’s premises to another, and periods
of rest may all be included. Nor is his work necessarily confined to his
employer’s premises. The man may be working elsewhere, e.g. in a building
a house or in work on a road or in work at a dock. The question is not
whether the man was on the employer’s premises, it is rather, was he within
the scope or area of his employment.
Thus, if a foreign worker working in a construction site is
accidentally injured while resting or taking a toilet break, the injury
would still be deemed to have occurred in the course of employment.
Further, so long as the injury occurs in the course of employment,
liability would attach and it does not matter that the employer was not
at fault. However, if the employee deliberately inflicts an injury,
compensation would not be payable (section 3(5) of the Work Injury
Compensation Act), though mere carelessness or even recklessness
of the employee would not bar recovery (Harris v Associated
Portland Cement Manufacturers (1939)).
In order to meet the claims under the Work Injury Compensation
Act, section 23(1) of the Act provides that every employer has to
take out compulsory insurance, unless exempted.
The Third Schedule to the Work Injury Compensation Act lists the
amount of compensation that is payable. Though a claim for work
injury compensation may be made quickly, and it does not have to be
established that the employer was at fault, there is a maximum limit
on the amount of compensation that is payable. This is unlike making
a claim under negligence. However, making a claim under negligence
might involve more cost and time. Thus, there are both advantages
and disadvantages. But it must be pointed out that the employee has
to make a choice. The employee can either claim work injury
compensation or sue for negligence (section 33 of the Work Injury
Compensation Act). The employee cannot claim both amounts, the
reason being the employee cannot be doubly compensated in respect
of the same injury.
Aside from compensation, subject to certain limits, the Work Injury
Compensation Act also requires the employer or his insurer to bear
medical expenses related to the treatment of the employee who is
injured due to an accident arising out of and in the course of
employment (sections 13 and 14 of the Work Injury Compensation
Act).
It should also be highlighted that as at the time of writing, a new
Work Injury Compensation Act has been passed in Parliament.
However, a large part of this new statute will only come into force in
September 2020. Hence, the current statute is referred to in this
book. In addition, while the new statute seeks to bring about certain
changes, the aspects covered in this book, remain unchanged (albeit
the fact that the section and schedule numbers will be different in the
new statute).
Duty of care
In addition to the matters discussed above, the employer owes the
employee a duty of care or a duty not to be negligent.21 Besides
extending to obvious matters such as providing a safe place of work
and safe equipment, this duty can extend to other matters as well.
For instance, duty of care can extend to providing competent staff, as
in Butler v Fife Coal Company Ltd (1912). In this case, the court held
that the employers in question were negligent in appointing
incompetent staff as officers to be in charge of a mine, which resulted
in the death of the plaintiff’s husband, who was an employee working
in the mine. Further, though the employer is generally not bound to
give job references, if he chooses to give a reference and the
reference turns out to be carelessly made, there could be liability to
the employee: Ramesh s/o Krishnan AXA Life Insurance Singapore
Pte Ltd (2016). Moreover, the duty of care not only extends to
preventing physical injury or economic loss, but can also in certain
circumstances extend to preventing psychiatric damage. In Walker v
Northumberland County Council (1995), the employee in question
complained to the employers of excessive workload that came about
because of severe shortage of staff. Nothing was done and the
employee suffered a first mental breakdown and went on medical
leave. When he returned the situation at work continued and the
employers did nothing to abate it. The employee suffered a second
mental breakdown and sued the employers for failing in their duty of
care. The court held that the employers were liable for the
employee’s second mental breakdown. Similarly, for instance if an
employee complains of sexual harassment, but the employer does
not properly investigate or take appropriate action; that may result in
a breach of duty of care as well.
If this duty is breached, the employee may be able to bring a
claim against the employer either under the tort of negligence or
contract and recover damages, though the employee can only
recover one set of damages.
The important thing for businesses is to consider how possibly
they can be sued in negligence by employees and take appropriate
measures to mitigate against the risk. What is appropriate would of
course depends on the circumstances. However, such measures
could include providing and maintaining proper equipment or facilities,
providing proper training and supervision, and having other proper
practices and policies in place (for instance, in relation to sexual
harassment or bullying), together with proper enforcement of those
practices and policies. Insurance too could play an important part.
Duty to indemnify
Another duty imposed on the employer is that if the employee incurs
expenses in the course of employment at the request of the
employer, the employer has the duty to indemnify the employee in
respect of those expenses. Thus, if the employee pays up front for
items ordered by the employer for the business, the employee is
entitled to be indemnified by the employer. However, the right to be
indemnified can be circumscribed by the contract. Thus, for instance,
the employer can state in the contract that claims for reimbursement
have to be made within a certain period.
Duty not to discriminate
Finally, it may also be noted that Article 12 of the Constitution, among
other things, provides that all persons are equal before the law and
that there shall be no discrimination on the appointment of persons to
“any office or employment under a public authority” on certain
grounds such as race or religion. Thus for instance, in relation to the
appointment of a civil servant, clearly such discrimination cannot be
practised. However, it is unlikely that Article 12 extends to private
employers. Further, it may be noted that Article 12 does not
specifically refer to sex or disability discrimination and it only relates
to hiring and not firing.
Though the legal position is as such, there are tripartite
guidelines22 (Tripartite Alliance for Fair Employment Practices) in
place to discourage such practices. If the tripartite guidelines are
breached, since they do not have legal force, there will not be any
direct legal consequences, but it is possible that there may be some
indirect consequences. For instance, if it is established that a
company has discriminated against Singaporeans and has hired
foreigners instead, the company’s future applications to get work
passes for new foreign employees may be turned down. Whatever
the legal position, the employer may also want to consider the long
term implications of such practices on the business.
TERMINATION OF CONTRACT OF
EMPLOYMENT
Once formed, the relationship of employer and employee as
embodied in the contract of employment may come to an end in
several ways.23 The two most common ways in which the contract of
employment may come to an end are by way of agreement and by
way of a repudiatory or fundamental breach.
In relation to the contract coming to an end by agreement, the
parties might have expressly agreed in the contract that it might be
terminated by one or either party giving a certain amount of notice.
For employees falling under the Employment Act,24 if the contract
does not specify the period of notice, section 10(3) of the
Employment Act prescribes the amount of notice to be given. For
instance it provides that in respect of employees who have worked
less than 26 weeks, one day’s notice has to be given, and in respect
of employees who have worked for more than five years, 4 weeks’
notice has to be given.
Instead of giving notice, the contract might state that one or either
party may also terminate the contract by giving salary in lieu of
notice. For employees falling under the Employment Act, section 11
of the Employment Act provides that either the employer or employee
may terminate the contract of employment by paying salary in lieu of
notice.
Generally, either party does not have to give a valid reason for
terminating by notice or salary in lieu of notice. However, there are
exceptions to this rule. For instance, for employees falling under the
Employment Act, if the employee feels that his dismissal is without
just cause or excuse, the employee may lodge a claim with the
Employment Claims Tribunal within 1 month of the dismissal (section
14(2) of the Employment Act). The term “dismissal” includes
termination by notice or salary in lieu of notice as well as
“constructive” dismissal (such as where the employee is forced to
resign because of the conduct of the employer). If it is established
the dismissal is without just cause or reason, the employee may be
able to get reinstatement or compensation.
As stated, the next most common way in which the contract of
employment may come to an end is by repudiation or a fundamental
breach committed either by the employer or employee. If there is a
repudiatory or fundamental breach on the part of the employee, the
employer may summarily dismiss the employee without giving notice
or salary in lieu of notice. As to what would amount to a repudiatory
or fundamental breach would depend on the facts of each case. In
Neefies v Crystal Products Co Ltd (1972) for instance, when one
employee assaulted another, it was held that the employee was
rightly dismissed summarily on the facts. Similarly, in Drysdale v New
Era Steamship Co Ltd (1936), the habitual drunkenness of an
employee was held to have justified his summary dismissal on the
facts. Likewise in Motilal v Gutherie Agency (M) Ltd (1968), when
the employee in question misappropriated rents belonging to his
employer, he was held to have been rightfully dismissed summarily. It
may also be noted that employees covered under the Employment
Act too, can be summarily dismissed on grounds of misconduct or
wilful breach (sections 14(1) and 11(2) of the Employment Act). If an
employee feels that there are insufficient grounds for the dismissal,
the employee may challenge the decision in court. For employees
falling under the Employment Act, as stated earlier, a claim may be
lodged with the Employment Claims Tribunal in the alternative.
Lodging a claim with the Employment Claims Tribunal is of course
cheaper and faster than lodging a claim in the normal courts, but
there is a monetary limit.25
The question may also arise whether before summarily dismissing
an employee, the employer must follow any procedure. In particular,
does the employer have to give the employee a chance to be heard
or a chance to explain himself? For employees covered under the
Employment Act, section 14(1) of the Employment Act provides that
they can be dismissed for misconduct only after a “due inquiry” has
been conducted. In Lim Tow Peng v Singapore Bus Services Ltd
(1976), the appellants were summarily dismissed on the grounds that
they assaulted a fellow employee. However, the court held that there
was no due inquiry and hence, the dismissal was wrongful. There
was no due inquiry on the facts, as the appellants had not been told
of their misconduct and were not given a chance to be heard. If there
is no due inquiry the employee may be able to get compensation in
respect of that. Regardless of the legal position, it would always be
good practice to carry out such inquiries before dismissing an
employee, for among other things, other employees could be
watching and forming an impression about how the employer
generally treats employees and in addition, it is less likely that the
employer would be making an error of judgment (thereby reducing the
chances of the employee subsequently suing for wrongful dismissal).
Just as with the employee, the employer, too, may commit a
repudiatory breach. For instance in Rigby v Ferodo Ltd (1987), the
court held that when the employer unilaterally reduced the wages of
the employee, he was in repudiatory breach of the contract in the
circumstances of the case. If the employer commits a repudiatory
breach, the employee may resign summarily without having to give
notice or salary in lieu of notice.
TRADE UNIONS AND INDUSTRIAL RELATIONS
In Singapore, industrial relations are governed by the Industrial
Relations Act. The Act aims to resolve industrial disputes amicably
through collective bargaining, conciliation and arbitration, instead of
encouraging industrial action that may prove to be detrimental to the
society.
The starting point of the process is the setting up of a trade union.
Trade unions are governed by the Trade Unions Act. Section 2 of the
Trade Unions Act provides that a trade union means any association
or combination of workmen or employers whose principal object is to
regulate the relationship between workmen and employers. Thus,
there can be both employers’ trade unions and workmen’s or
employees’ trade unions. Further, in practice, trade unions can be
general and open to all employers or employees in a particular field
or industry (for instance, Banking and Financial Services Union), or
can be exclusive and open only to employees of a particular company
(for instance, ExxonMobil Singapore Employees Union). However, in
either case, in order to be valid, the trade union has to be registered
(section 8(1) of the Trade Unions Act). If it is not registered, it has to
be dissolved and it would not enjoy any of the rights and immunities of
a registered trade union (section 19 of the Trade Unions Act).
In relation to a trade union of employees, the next step is to seek
the recognition of the employer. The employer may choose to grant
recognition. Alternatively, he may refuse to do so and notify the
Commissioner of Labour in writing, his grounds for not granting
recognition. The Commissioner of Labour may then, in his discretion,
call a secret ballot and if the secret ballot shows that the majority of
employees are members of the particular union, the employer would
have to grant recognition. This is pursuant to Industrial Relations
(Recognition of a Trade Union of Employees) Regulations.
Once recognised, the trade union of employees may serve a
notice on the employer requesting him to negotiate certain industrial
matters, or the employer may do the same on his own initiative
(section 18 of the Industrial Relations Act). However, it is provided
that in the notice, the trade union of employees cannot set out to
negotiate on matters such as the following, which remain the
prerogative of the employer:
•
•
•
the promotion of any employee,
the transfer of an employee within an organisation, or the
assignment or allocation of duties to an employee that is not
inconsistent with the terms of the employment, and
the termination or the criteria for termination of the services of an
employee by reason of redundancy or re-organisation.
Though the trade union of employees cannot force the employer to
negotiate such matters, it would appear that if the employer wishes,
he might make such matters negotiable. If the notice to negotiate is
not accepted or if no agreement can be reached after negotiations,
the Commissioner of Labour may appoint conciliation officers to help
the parties reach a consensus (sections 20 and 21 of the Industrial
Relations Act). In practice, usually consensus is reached at least by
this stage. In the event that it is not, reference may still be made to
the Industrial Arbitration Court (section 31 of the Industrial Relations
Act).
The outcome of successful negotiations is the collective
agreement. The collective agreement26 can cover a wide array of
matters from wages and other benefits to work safety. However,
before the collective agreement can be binding, it has to be certified
by the Industrial Arbitration Court (section 25 of the Industrial
Relations Act). The Industrial Arbitration Court may refuse to certify a
collective agreement on various grounds that are set out in section
25(2) of the Industrial Relations Act. For instance, in Singapore
Manual & Mercantile Workers Union v Raj Brothers (1969), the
Industrial Arbitration Court refused to certify the collective agreement
in question, as the court found that the clause in the agreement that
stated that, in the event of retrenchment, non-union members would
first be retrenched, was discriminatory in nature.
Once certified, the collective agreement is deemed an award of
the Industrial Arbitration Court and is binding on the employer and the
trade union (section 26 of the Industrial Relations Act). Further, once
a collective agreement has been certified, any ambiguity in the terms
may be resolved by arbitration at the Industrial Arbitration Court
(section 44 of the Industrial Relations Act). In addition, where there is
any trade dispute, the employer or the trade union may make a
reference to the Industrial Arbitration Court (section 31). The Minister
and the President also have similar powers in certain circumstances
to refer trade disputes to the Industrial Arbitration Court (section 31
of the Industrial Relations Act). Thus, even if the parties do not wish
to settle their dispute, there is a mechanism whereby they can be
mandated to do so.
It may also be noted that where a matter is pending at or has
been referred to the Industrial Arbitration Court, any form of industrial
action such as a strike is prohibited under section 3 of the Trade
Disputes Act. Besides this, there are also various other preconditions and restrictions when it comes to industrial action, the aim
of all of which is make industrial relations in Singapore peaceful and
constructive. On a practical level, the fact that, except for a minor
upheaval in 1986, and 2012, Singapore has been strike free since
1978, shows that this has indeed been achieved.
FOREIGN WORKERS
Finally, the issue of foreign workers will be addressed. In this regard,
subject to a few exceptions (such as foreign students of certain
educational organisations working during school holidays), any
employer wishing to employ someone who is not a citizen or
permanent resident of Singapore has to apply for a “work pass” that
permits the person to work in Singapore. Failure to obtain a work
pass is an offence, on the part of both the employer and the
employee under the Employment of Foreign Manpower Act.
There are several kinds of work pass, the most common being the
work permit, the “S pass” and the employment pass. All passes are
issued by the Controller of Work Passes at the discretion of the
Controller of Work Passes and are typically subject to conditions. For
instance, it will usually be provided that the employee must not work
for an employer other than the employer named in the pass or do
another job than that stated in the pass. Breach of work pass
conditions can result in an offence on the part of the employee and/or
employer, under the Employment of Foreign Manpower Act. Thus,
businesses should familiarize themselves with the various conditions
imposed, so that they do not commit a breach.
The work permit is the lowest category and applies to unskilled
workers, such as construction workers and cleaners. To discourage
over-reliance on foreign workers, the employer must pay a monthly
levy to the Government in respect of each foreign worker it hires on a
work permit, and must employ a certain number of local workers
before it can hire an additional foreign worker on a work permit. In
addition, the employer must furnish a security bond27 in respect of all
employees who are hired on work permits (with the exception of
Malaysian nationals), to ensure that it is the employer (and not, for
example, the Government) that is financially responsible for matters
such as the worker’s eventual repatriation.
The S pass is the middle category of work pass and covers
“semiskilled” workers, such as technicians and nurses. To qualify for
an S Pass, the workers must be paid at least a fixed monthly salary
of $2,300 (this includes fixed allowances) and hold a degree, diploma
or technical certificate. As with work permits, the employer must pay
a monthly levy to the Government in respect of each foreign worker it
hires on an S pass, and must employ a certain number of local
workers before it can hire an additional foreign worker on an S pass.
However, the employer does not have to provide a security bond in
relation to workers hired on an S pass, on the basis that S pass
holders are likely to have the financial means to meet eventualities
such as repatriation costs.
The employment pass is the highest category of work pass and
covers skilled workers such as professionals. To encourage the
employment of highly skilled foreigners in Singapore, the employer is
not subject to levies, quota restrictions or security bonds in relation to
the hiring of employees on employment passes. To be eligible for the
employment pass, the foreign employee must possess suitable
academic or professional qualifications and be paid a fixed monthly
salary of at least $3,600 (this includes fixed allowances). However,
there is no assurance that even if the minimum requirements are met,
an employment pass (or any of the other work passes for that
matter) will be issued.
Generally, foreign workers are entitled to the same statutory
rights as local workers, with the exception of some foreign workers in
some situations (such as domestic workers in relation to work-injury
compensation).28
_____________
1
As to vicarious liability, see page 364.
2 See page 310.
3
As to when courts would imply terms into contracts generally, see page 170.
4 As to what is meant by a repudiatory or fundamental breach, see page 223.
5
On the tort of negligence, see Chapter 14.
6 As to what is meant by a repudiatory or fundamental breach, see page 223.
7
Similar rules apply in relation to directors and agents; see page 75 and 335
respectively.
8 As to what is meant by a repudiatory or fundamental breach, see page 223.
9
As for the validity of restraints in contracts generally, see page 193 to 194.
10 As to what is meant by a repudiatory or fundamental breach, see page 223.
11
As to restraint of trade clauses, see 194 to 195.
12 Though in the case of a part-time employee, the rights conferred under the
Employment Act may be modified or pro-rated: section 66B.
13
For more details, see the Ministry of Manpower website at: www.mom.gov.sg/.
14 As to what is meant by collective agreement, see page 326.
15 However, certain businesses such as those providing cleaning or security
services have to pay their local workers based on a progressive wage model, failing
which their business licences could be revoked.
16
As stated previously, the Employment Act does not apply to all employees.
However, by virtue of section 2(1) of the Children Development Co-Savings Act,
maternity benefits apply to all employees. Thus for instance, a statutory board
employee would be entitled to these benefits, not under the Employment Act, but by
virtue of the Children Development Co-Savings Act, provided she meets the other
requirements such as that she has worked for the employer for at least 3 months
and the child is a Singapore citizen.
17 This refers to delivery of a child.
18
For more information on Central Provident Fund contributions,
www.cpf.gov.sg/.
see
19 For more details, see Central Provident Fund Board website at: www.cpf.gov.sg/.
20
As to the amount of compensation recommended, see the Tripartite Guidelines
on the Re-employment of Older Workers; available at: https://www.mom.gov.sg/.
21 As to the tort of negligence generally, see Chapter 14.
22
www.fairemployment.sg/.
23 As to the ways in which a contract can generally come to an end, see Chapter 9.
24
As to employees falling under the Employment Act, see page 310.
25 See page 16.
26
For a sample, see http://www.iac.gov.sg/.
27 A security bond is a type of performance bond, as to which see page 124.
28
See page 319.
13
Dealing with Agents
Just like relying on employees, a business may often have to rely on
agents to carry out its activities. This chapter is concerned with the
rules relating to agency and certain matters a business should be
mindful of.
THE ESSENCE OF AGENCY
Agency arises when one person, known as the agent, acts on behalf
of another, known as the principal, and creates legal consequences
between the principal and a third party.
Solicitors, bankers, estate agents, travel agents, marketing
agents, auctioneers, freight forwarders, insurance brokers,
stockbrokers, property managers, persons with powers of attorney,1
directors, partners and even employees often act on behalf of other
persons. They may act on behalf of another person to enter into a
contract with a third party. Alternatively, they may act on behalf of
another person to carry out certain acts, such as institute an action or
operate a bank account, and such acts would have a bearing on the
legal relationship between the principal and the third party.
In a classic situation, when the agent enters into a contract on
behalf of his principal, a contract would spring up between the
principal and the third party. The agent drops out of the picture and
there would be no contract between the agent and the third party as
such. Thus for instance, when X gives instructions to his agent to sell
his house, the contract of sale would be between X and the person
who buys the house.
However, if the intermediary is not acting as an agent of the
principal but is acting as an “independent contractor”, then there
would not be a direct contract between the principal and the third
party. If there is no direct contract, the parties may not be able to
directly sue each other, should there be a breach of contract.
The question of whether an intermediary is acting as an agent or
as an “independent contractor” can arise in all kinds of contexts. For
instance, if X approaches an employment agency to get a job and X
is offered a job with Y company, is there a direct contract of
employment between X and Y company or only a contract between X
and the employment agency and another between the employment
agency and Y? Similarly, if X books an apartment belonging to Y
through Airbnb, is X’s contract with Y or Airbnb? Likewise, if X
engages Y, a forwarding agent to ship goods, is there a contract
between X and the shipping company or only a contract between X
and Y and another between Y and the shipping company? The
answer to such questions depends on the detailed circumstances of
each situation.
For instance, in the case of forwarding agents, some relevant
factors could include:
•
•
•
•
what the contract actually states (if it states that the forwarding
agents are merely acting as agents, it is more likely that the
forwarding agents would be acting as agents in the true sense of
the word),
the extent to which the customer is informed of the arrangements
on his behalf (the less the customer is informed [for instance, the
customer does not know which ship the goods are being shipped determine
on or the exact day of shipment]) the more likely that the who
is
forwarding agents would be acting as agents),
theayes
the method of payment (if it is on a commission basis, it is more
likely that the forwarding agents would be acting as agents in the
true sense of the word, and, on the other hand, if it is on a lump
sum basis, it is less likely that they would be acting as agents in
the true sense of the word), and
to whom the shipper’s bill of lading2 is made out to (if it is made
out to the customer or his consignee, it is more likely that the
forwarding agents would be acting as agents in the true sense of
the word, and, on the other hand, if it is made out to agents
themselves it is less likely that they would be acting as agents in
the true sense of the word).
1
In Corten Furniture v Merzario Pte Ltd (1992) for instance, the
plaintiffs contracted with the defendants, who were forwarding
agents, to bring in furniture from Italy to Singapore. The defendants
contracted with a shipping company that transported the goods to
Singapore. When the goods arrived, they were found to be damaged.
The plaintiffs instituted an action against the defendants. The
defendants contented that they contracted on behalf of the plaintiffs
and thus, there was a contract between the plaintiffs and the shipping
company, and thus, the correct person to sue was the shipping
company. The court, applying some of the factors stated above, held
that the defendants were independent contractors and not agents of
the plaintiffs, and so there was no contract between the plaintiffs and
the shipping company. Thus, they could sue the defendants.
As can be seen from the above discussion, the fact that a person
calls himself an agent is not conclusive and that person may still be
an independent contractor. In fact the term agent is used very loosely
in practice. For instance, it is very common for distributors to call
themselves “sole agents” or “authorised agents”. However, despite
this, they would usually not be agents in the true sense of the word.
Usually the distributor would have purchased the goods from a
foreign party and would then re-sell the goods to the customer. In
such a situation, there would be a contract between the buyer and
the distributor. However, there would not be a contract between the
buyer and the foreign party. Thus, if there is some fault in the
product, the buyer would not be able to sue the foreign party for
breach of contract.
With these points in mind, we shall now examine the three sets of
relationships that can be created in an agency situation, namely, the
agent-principal relationship, the principal-third party relationship and
the agent-third party relationship.
AGENT-PRINCIPAL RELATIONSHIP
Formation of agency
A relationship of agency between the principal and agent can arise in
various ways, such as by the following means.
(a) Appointment
One person may be expressly3 appointed to act on behalf of
another. Such an express appointment may be made orally or in
writing. In addition, such an express appointment may involve a
contract between the parties. For instance, X might enter into a
contract with Y, an estate agent, under which Y is to find a buyer
for X’s house in return for commission.
However, in some circumstances, a specific or separate
contract of agency, or for that matter any contract at all, may not
accompany such an express appointment. For instance, if X, an
employee of Y company, is given the authority to order
computers on behalf of the company, it is unlikely that there will
be a separate contract appointing X as an agent of the company
for that purpose. Nonetheless, X could be considered an agent of
the company for that purpose. Similarly, if X asks his friend Y to
buy a textbook for him and does not pay him for his services,
there is unlikely to be a contract between X and Y, due to the lack
of consideration.4 Nonetheless, X’s friend may be regarded as an
agent of X for the purposes of buying the book.
(b) Ratification
A person may decide to act on behalf of another without that
other person’s consent. However, after the contract has been
entered into with the third party, that other person may decide to
“ratify” it, or, in other words, may decide to accept it. In such a
case, even though there was be no agency relationship between
the parties to begin with, an agency relationship would
subsequently arise upon ratification. Such ratification may be
express or may be implied from the circumstances. However,
there are certain pre-conditions before a valid ratification can
take place and these are considered a little later.5
(c) By operation of law
In certain circumstances, the law presumes that a person has the
authority to act on behalf of another. For instance, in the case of
partnerships, generally each partner is deemed to be an agent of
the partnership.6
Another situation in which the law operates to create an
agency is in the case of “agency by necessity”. In some
circumstances, such as in the case of shipment, it has been held
that the master of a ship has the authority to deal with the cargo
or the ship if it is necessary to do so in the circumstances, and
communication with the owner of the cargo or ship is impossible.
For instance, if the goods are perishing and it is not possible to
communicate with the owner, the master of the ship may be able
to sell the goods in order to avoid total loss and in doing so, he
would be acting as an agent of the owner. However, given the
modern state of communications, it would appear that this rule
may have limited application in today’s context.
Duties of the agent
Having seen how an agency relationship might arise, we next proceed
to examine the rights and obligations the law confers or imposes on
the agent. In relations to duties, the law imposes various obligations
on the agent.
(a) Duty to follow instructions
Firstly, the agent is obliged to act in accordance with the
instructions given by the principal. In Turpin v Bilton (1843) for
instance, the agent was instructed to insure the principal’s vessel.
However, he failed to do so. Subsequently, the vessel was lost
and the owner was left without insurance. The court held that the
agent was liable for not following the instructions of the principal
and was liable in damages. Similarly, in Betram, Armstrong & Co
v Godfray (1830), where a principal instructed his stockbroker to
sell some of his stock when the market price reached a certain
level and the stockbroker failed to do so, it was held that the
stockbroker was liable for the resulting losses.
However, there are exceptions to this rule. Thus, if it is
impossible to carry out or if it is illegal to carry out the instructions
of the principal, the agent would not be liable if he fails to do so.
(b) Duty to act with due care and skill
Secondly, in discharging his functions, the agent must act with
reasonable care and skill.7 The standard of care expected would
depend on the circumstances. For instance, a higher standard
may be expected from an agent who professes to have a special
competence or skill as compared to a person who does not
profess to have any such competence or skill (Zurich Insurance
(Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte
Ltd (2008)). Where the duty is breached, the principal may be
able to recover damages. In Keppel v Wheeler (1927), a vendor
of a property engaged agents to sell his property. The agents
received an offer. Subsequently, they received another, higher
offer. They failed to disclose the second offer to the vendor,
thinking that he was bound by the first offer. The court held that
the agents were negligent and they were ordered to pay the
difference in price to the vendor.
(c) Duty to account
Thirdly, an agent has a duty to account. Thus, if the agent
receives money or goods on behalf of his principal, the agent
should account to the principal for the money or goods so
received. In order for the agent to clearly know what items
belong to the principal, the agent is duty bound to keep what is
received on behalf of the principal separate from what is the
agent’s own. This may also mean that the agent should keep
proper accounts and should be ready to produce them on
demand, to the principal.
Thus, for instance, a solicitor who receives money on behalf
of his client, which is to be passed on to another party, should not
place that money in his personal bank account (though in the case
of solicitors there are also statutory rules pertaining to this).
(d) Delegation of duty
Fourthly, since the agency relationship is based on the confidence
the principal places on the agent, the agent cannot delegate his
duties to another without the express or implied consent of the
principal. If there is such an unauthorised delegation, the agent
may be liable to the principal for having breached his duty not to
delegate. Further, in such a situation, no contractual relationship
will be created between the principal and the sub-agent and the
principal would generally not be bound by what the sub-agent
does. In addition, in such a situation, the sub-agent or the agent
may not be able to sue the principal for any commission. In John
McCann & Co v Pow (1975) for instance, the vendor engaged
estate agents to effect a sale. The estate agents engaged subagents, who introduced buyers. As the delegation was not
authorised, the court held that the vendor did not have to pay
commission to the agent when the sale went through.
However, there are exceptions to the rule that an agent
cannot delegate his duties. For instance, if what is delegated is
not a confidential matter but is a purely administrative matter, or if
it is usual in that particular trade to delegate, or if the principal at
the very beginning of the agency relationship is aware that the
agent is going to delegate, the agent may not have breached his
duty. Thus, for instance, if X, who is based overseas and has a
property in Singapore, appoints a property management firm to
manage his property and, that firm delegates a particular repair
job to a plumber, it is most unlikely that there will be breach.
(e) Fiduciary duties
Finally, the agent, being a fiduciary8 or a person placed in a
position of trust, is expected to carry out his duties in good faith
and should avoid, among other things, the following:
i.
Conflict of duty and interest
An agent should not place himself in a position where his duty
and interests conflict, unless he makes full disclosure to the
principal and the principal consents. If this rule is breached
and the principal has suffered some loss, the principal would
be able to recover that loss. Further, even if the principal has
suffered no loss but the agent has made some profits, the
principal would be able to claim those profits.
A particular aspect of this no conflict rule is that the agent
must not buy from or sell to the principal without disclosing
this. In De Bussche v Alt (1878), the plaintiff engaged an
agent to sell a ship. The agent appointed a sub-agent, with
the consent of the plaintiff. The sub-agent bought the ship
himself and subsequently sold it to another for a higher price.
The court held that the sub-agent had to account to the
plaintiff for the profits made. Similarly, if a property agent
acting for the seller, bought the property for himself, his
relatives, his friends or his boss, there would also be a
breach unless disclosure is made (Yuen Chow Hin v ERA
Realty Network Pte Ltd (2009)). The same can get said
about recommending investments. Thus, in Sabyasachi
Mukherjee v Pradeepto Kumar Biswas (2018), a relationship
manager in a bank who recommended certain non-bank
supported investments, in circumstances where there was a
conflict of interest, was held accountable.
ii.
Accepting bribes
Quite obviously, an agent must also not accept bribes, as
this may affect the interests of the principal. If such bribes
were taken, the principal would be able to make a claim for
the value of the bribes or sue for damages for the loss
suffered. However, the principal cannot sue for both, as that
might result in over-compensation. In Mahesan v Malaysia
Government Officers’ Co-operative Housing Society Ltd
(1979), the defendant, who was a director of the cooperative housing society, purchased land from one M, at an
inflated price in return for a bribe. The court held that the
Society could recover the difference in price, or the bribe, but
not both.
iii. Taking advantage of his position to gain a benefit for
himself
An agent should not take advantage of his position to gain a
benefit without the consent of the principal. In Thompson v
Meade (1891) for instance, the stockbroker, who was
instructed to buy a stock at a particular price, bought it at a
lower price and tried to keep the difference. The court held
that he was accountable for the difference.
Another aspect of this rule is that if the agent has
received confidential information in the course of his duties,
he should not make use of it for his own benefit without the
consent of the principal. In Peter Pan Manufacturing Corp
Ltd v Corsets Silhouette Ltd (1963) for instance, the
defendants received confidential information relating to the
design of brassieres. The defendants then made use of the
information to manufacture their own brassieres. The court
granted an injunction and ordered the defendants to account
for the profits made.
Rights of the agent
Just as the law imposes various duties on the agent, it also confers
various rights on the agent, such as:
(a) Remuneration
In this regard, usually the contract between the agent and the
principal would provide for remuneration. Even if this is not
expressly stated, it may be possible to imply9 this in certain
circumstances.
However, if the agent has not performed what he has been
instructed to do, or where he has been instructed to act in a
particular manner and he has not done so, he would not be
entitled to any remuneration. In Mason v Clifton (1863), the agent
was engaged to obtain a loan for the principal on the “usual
terms”. The agent indirectly obtained a loan on terms that were
other than usual, which the principal did not accept. The court
held that the agent was not entitled to any commission.
Further, the agent must be able to show that his services
were the effective cause in bringing about a particular result
before he can claim his remuneration. In Millar, Son & Co v
Radford (1903), the principal instructed the agent to find a
purchaser or tenant for his property. The agent found a tenant
and the principal paid him commission for that purpose. Fifteen
months later, the tenant purchased the property. The agent then
instituted an action against the principal for commission on the
sale of the property. The court held that the agent was not the
effective cause and so he was not entitled to any commission in
respect of the sale. Similarly, in Colliers International (Singapore)
Pte Ltd v Senkee Logistics Pte Ltd (2007), the court held that the
estate agents in question were not the effective cause of the sale
of the properties concerned. On the other hand, in Goh Lay Khim
v Isabel Redrup Agency Pte Ltd (2017), a group of residential
owners wanted to sell their properties collectively and contacted
one Aurum. Aurum was initially interested in buying but later lost
interest. The owners then appointed Isabel Redrup Agency to
market the collective sale. That agency managed to rekindle the
interest of Aurum and intense negotiations took place, but
eventually negotiations broke down because of one particular
proposed term. After that, the owners directly dealt with Aurum
without that term and the sale went through. The agency sued the
owners for the commission. The court held that the agency was
indeed the effective cause of the sale as it laid the groundwork
for the sale and was instrumental in arranging most of the key
terms. Hence it was entitled to the commission.
Another question that has arisen in this context is whether the
agent can sue the principal for preventing him from earning his
commission. The general rule in this regard is that this cannot be
done unless there is an express or implied term to this effect in
the contract. However, it would appear courts are generally
reluctant to imply such terms. In Luxor v Cooper (1941), the
vendors employed an agent to find purchasers for their cinemas.
The agent found a purchaser. The vendor entered into
negotiations with the purchaser, but the negotiations fell through.
The agent sued the vendors for depriving him of his right to earn
commission. The court held that it was not necessary to imply
such a term and since there was no express term to this effect in
the contract, the vendors were not liable. Thus, in the absence of
an express term, if a vendor manages find a buyer on his own
accord to sell his house, after engaging an agent, it is unlikely
that the agent will be able to sue the vendor for having prevented
him from earning his commission. On the other hand, if the
contract provides that the agent is to be appointed as a sole
agent and the vendor sells through another agent, that would
amount to a breach and the agent may sue the principal for
damages for having prevented him from earning his commission.
(b) Indemnity
The agent is entitled to be indemnified by the principal for the
expenses and liabilities he has incurred in performing his duties.
Thus, if an agent incurs expenses in defending a legal suit on
behalf of his principal, who is stationed abroad, the agent would
be entitled to seek reimbursement from the principal for the
expenses so incurred.
However, if expenses are already accounted for under the
remuneration the agent is to receive, than it is unlikely that the
agent can seek reimbursement in respect of such expenses.
Thus, an estate agent who incurs advertising expenses in
advertising a vendor’s property cannot expect to recover this as
such matters would be reflected in the commission he would get
should the sale be successful. Further, this right does not apply if
the agent exceeds the authority given to him by the principal, or if
he breaches any of the duties he owes the principal.
(c) Right of lien
In certain circumstances, if the agent is yet to be paid and has in
his possession goods or chattels belonging to the principal, a
right of lien may arise. The lien enables the agent to retain the
goods or chattels until payment is made.10
For instance, if X appoints a bank as his agent to collect a
foreign cheque on his behalf and is yet to pay the bank for its
services, but the bank has in its possession another cheque
belonging to X, the bank may have a right of lien over that
cheque.
Termination of agency
Once created, among other ways,11 an agency may be terminated by
agreement between the parties or by operation of law.
As for agreement, that agreement can arise in the contract itself
or can arise subsequently.12 For instance, the contract can provide
that either party can terminate the contract by giving a certain amount
of notice. Alternatively, both the parties may subsequently agree to
terminate the contract. If both parties subsequently cannot agree and
only one party wants to terminate the contract, the party so
terminating the contract would be in breach of contract and would be
liable to the other.
An agency may also be terminated by operation of the law. For
instance, the law provides that the death or insanity of the agent or
the principal automatically terminates the agency.
Business takeaway
In the business world, it is common to engage agents in one form
another and as discussed, the agent may have many obligations as
well as rights. Nonetheless as can be gleaned from many of the court
cases discussed above, the exact ambit of some of these rights or
obligations may not be very clear and hence, it would be helpful to
both parties to clarify in detail all such matters in writing, where
possible.
PRINCIPAL-THIRD PARTY RELATIONSHIP
As determined by authority of agent
As stated earlier, in so far as the agent enters into a contract with a
third party, a contract can spring up between the principal and the
third party. However, this is only true in so far as:
•
•
•
the agent had actual authority to act on behalf of the principal,
the agent had apparent or ostensible authority to act on behalf of
the principal or
the agent had no actual authority, but the principal ratified the
agent’s actions.
(a) Actual authority
Actual authority refers to the authority the agent actually has.
Actual authority can be express or implied. Express authority
refers to the authority that the agent has been expressly
conferred with. Thus for instance, if an employee were expressly
given the authority to order computers on behalf of the firm, he
would have actual authority to bind the firm in relation to that
matter.
As stated, actual authority may also be implied. Implied
authority refers to the authority that is usually associated with a
job or that is customary in a given trade or field. Thus for
instance, it has been held that managing directors have the
implied authority to give guarantees on behalf of the company.13
Thus, if the managing director does so, the company would be
bound, even if the company did not expressly authorise him to
give a guarantee.
In addition, an agent has the implied authority to do whatever
is reasonably incidental or necessary to fulfil what he has been
expressly authorised to do. Thus, if a company wants to sell
certain equipment and it appoints X, who is an employee of the
company, to be in charge of it, X might have the implied authority
to place an advertisement in the newspapers regarding the sale.
However, the exact limits of such implied authority would very
much depend on the facts of each case. Thus, in Next of kin of
Ramu Vanniyar Ravichandran v Fongsoon Enterprises Pte Ltd
(2008), it was held that the foreman in question who was given
petty cash for purchasing food and supplies did not have the
implied authority to hire workers to do work. Thus, it is best for
the parties to clarify such matters before the start of the work to
avoid disputes later.
(b) Apparent or ostensible authority
Another situation in which the principal would be bound to the
third party is where the agent has apparent or ostensible
authority. Apparent or ostensible authority is also known as
agency by estoppel, and it arises when the principal represents in
some way to the third party that the agent is authorised to act in
a certain fashion, and the third party relies on that representation.
In such circumstances the principal would be stopped (estopped)
from denying that the agent had no authority to bind the principal.
Such representation may arise in an express manner or may
be implied. For instance, if X is dealing with Y, who is an
employee of Z Pte Ltd, and X is unsure if Y is indeed authorised
to act on behalf of Z Pte Ltd, X may write to the managing
director of Z Pte Ltd to confirm this. If the managing director
confirms this, this is likely to be considered an express
representation. If X relies on this representation, X is likely to be
able to enforce the contract against Z Pte Ltd, even if Y was not
actually authorised to enter into such a contract on behalf of Z
Pte Ltd. However, for such an express representation to raise
estoppel, the person who gives the representation must be
authorised to give such representations on behalf of the company.
In this regard, someone of higher rank, such as a managing
director, would have far more authority to make representations
on behalf of the company as compared to an ordinary employee,
such as an administrative clerk. Secondly, the representation
must come from someone other than the agent himself. If it
comes from the agent himself, it would not be of value.
As stated, apparent or ostensible authority may also arise in
an implied manner. In Freeman & Lockyer v Buckhurst Park
Properties (Mangal) Ltd (1964), the defendant company was set
up by two persons, one of whom was Kapoor. Kapoor acted as
the managing director of the company, though he was never
appointed as one. The board of directors was fully aware of this.
Subsequently, Kapoor entered into a contract with the plaintiffs on
behalf of the company. When the plaintiffs sued the defendant
company, the defendant company refused to pay on the ground
that Kapoor had no authority to enter into a contract with the
plaintiffs. The court held that there was apparent authority and
hence the defendant company was bound. By its conduct, the
board had represented that Kapoor was the managing director
who had usual authority to enter into contracts on behalf of the
company, and the plaintiffs relied on this representation. Similarly,
in Hongkong and Shanghai Banking Corp Ltd v Jurong
Engineering Ltd (2000) the court held that the defendant
company had acquiesced to past conduct of the general manager
of finance and administration, making representations to the
plaintiff bank, on behalf of the defendant, relating to certain credit
facilities and hence, there was apparent authority. On the other
hand, in Skandinaviska Enskilda Banken AB v Asia Pacific
Breweries (Singapore) Pte Ltd (2011), where the employee in
question obtained credit facilities from the bank and then
misappropriated it, it was held that he did not have ostensible
authority to obtain credit facilities on behalf of his employer as he
was not a part of senior management. He also did not have
actual authority. As such, the bank could not get back the monies
from his employer.
The problem of apparent or ostensible authority could
especially arise in situations where employees who acted on
behalf of their employers leave their employment, but the third
parties with whom the employees have dealt with in the past are
not informed of this. In such a situation, if the employee
subsequently enters into another transaction with a third party on
behalf of his former employers pretending to be still employed,
the former employers may be bound by virtue of his apparent
authority. To counter this, employers often post notices in
newspapers stating that the named person is no longer an
employee and is not authorised to act on behalf of the company.
However, as not everyone may have read such notices, the third
party may still be able to raise apparent authority. To avoid this, it
would be more prudent for the business to send an express
notice, such as a letter, personally to parties with whom the
employee had dealt with on behalf of the employer.14
It should also be highlighted that “apparent or ostensible
authority” and “actual implied authority” which was discussed
earlier, are not mutually exclusive. It is possible that both may
apply in some situations (Banque Nationale De Paris v Tan
Nancy (2002)).
(c) Ratification
As stated, even if the agent is not authorised to perform an act
on behalf of the principal, the principal may subsequently decide
to ratify it or assent to it. Thus, in Hong Leong International Hotel
(Singapore Pte Ltd v Chotek (Pte) Ltd (1995), where the agent
entered into some transactions on behalf of Hong Leong, the
court held that even if the agents did not have the authority to do
what they did, their actions were ratified by Hong Leong by its
actions. However, there are certain conditions that must be
satisfied before the ratification would be considered effective.
Firstly, the principal must be identified. This means that the
third party must be aware that the agent was acting on behalf of
a principal. In this regard, it is not necessary that the principal
must be named, but he must be capable of being ascertained at
the time of the contract. Thus, it may suffice if the agent just
gives the contact number of the principal but does not name him
for some reason. If the agent does not disclose that he is acting
on behalf of another, and if it appears that he is acting on his own
name, it would not be possible for the principal to ratify the
agent’s acts subsequently.
Secondly, the principal must exist at the time the agent made
the contract. This problem particularly arises in the context of
companies. If a person who intends to set up a company enters
into certain contracts on behalf of the company that is to be set
up, can the company subsequently ratify the acts of that person?
The old rule was that it could not be done. However, by virtue of
section 41 of the Companies Act now, a company may ratify preincorporation contracts. Thus, the second pre-condition is unlikely
to have much significance in practice.
Thirdly, the principal must have the capacity to enter into the
contract at the time the contract is entered into. Thus, if the
principal is suffering from mental incapacity at the time the
contract is entered into, it would not be possible for him to
subsequently ratify the agent’s acts.
Fourthly, ratification has to take place within a reasonable
time to be valid. What is reasonable would depend on the facts of
each case.
Undisclosed principal
The agent would normally inform the third party that he is acting on
behalf of a principal, and the principal could be named or unnamed.
However, in certain circumstances, the agent may not disclose to the
third party that he is acting on behalf of an undisclosed principal.
Nonetheless, in such a situation, it may still be possible for the
principal to establish a contract with the third party. However, before
the undisclosed principal can establish such a contract with the third
party, certain pre-conditions must be satisfied.
Firstly, the agent must be acting with actual authority. If he is
acting with ostensible or apparent authority, or if it is a case of his
unauthorised acts having been ratified, the undisclosed principal
would not be able to establish contractual relationship with the third
party.
Secondly, the agent must not enter into the contract with the third
party by giving the impression that he can be the only party to the
contract. This could happen, for example, if he describes himself to
be the very owner of the goods that he is selling. However, if he just
enters into a contract in his own name, since that does not preclude
the possibility that he may be acting for someone else, the doctrine of
undisclosed principal may still apply.
Thirdly, if the contracting party’s identity is crucial, then the
doctrine of undisclosed principal may not apply. For instance, if Z, a
well-known actor, enters into a contract to act in a movie produced by
X, he cannot subsequently introduce Y to be his principal.
The doctrine of undisclosed principals has been criticised in that it
forces one person to be contractually bound to another whose
existence he was totally unaware of. Nonetheless, the doctrine has
been held to be applicable in Singapore: Hongkong & Shanghai
Banking Corp v San’s Rent A Car Pte Ltd t/a San’s Tours & Car
Rentals (1994); The “Rainbow Spring” (2003), Family Food Court v
Seah Boon Lock (2008). Thus, if X were to ask his friend to buy
some food on his behalf, it is possible that there is a contract
between X and the food stall using the doctrine of undisclosed
principal.
In so far as the third party is concerned, if the doctrine of
undisclosed principal is applicable, the third party can either sue the
agent or the principal. However, once he has made an election, he
cannot change his mind and sue the other party (Trigen Industries Ltd
v Sinko Technologies Pte Ltd (2003)).
Vicarious liability
As stated, the agent can make the principal contractually liable to a
third party in some circumstances. In addition, the principal can be
made vicariously liable15 for the torts16 or legal wrongs committed by
the agent, provided they are done within the scope of his authority.
Whether an act has been done within the agent’s scope of authority is
a question of fact.
However, if it were done within the agent’s scope of authority, the
principal would be answerable, even if the agent has committed a
fraud for his own benefit. In Lloyd v Grace, Smith & Co (1912), a
solicitor’s managing clerk, who had general authority to conduct
conveyancing business on behalf of his principal, induced a client to
transfer her properties to him by trickery. The court held the principal
solicitor to be vicariously liable as what the managing clerk had done
was within the scope of his authority. This case was followed in Lee
Feng Steel Pte Ltd v First Commercial Bank (1997), where the court
held that company was liable for losses resulting from certain
forgeries committed by its employee. In Ong Han Ling v American
International Assurance Co Ltd (2018) AIA was held vicariously liable
for the actions of an insurance agent who sold fictitious insurance
policies to an elderly couple.
From a business viewpoint, the clear takeaway is that the
principle should be very careful in the selection of agents and should
seek to control what the agent does, for instance through contractual
provisions or other means.
AGENT-THIRD PARTY RELATIONSHIP
As stated, in a typical situation, the agent would drop out of the
picture and would, as a result, not incur any personal liability.
However, in some circumstances, the agent may be made personally
liable to the third party. One such situation is the case of the
undisclosed principal discussed above. In addition, there could be
other situations.
Breach of warranty of authority
If the agent represents that he has authority to act on behalf of the
principal, and it turns out that he is in fact not so authorised, the third
party who relies on that representation and suffers a loss may sue
the agent for “breach of warranty of authority”. The basis of this is
that the agent impliedly warranted that he had authority. For instance
in Richardson v Williamson (1871), the directors, purporting to be
authorised by the building society of which they were directors,
borrowed money from A. When it turned out that they were not in fact
authorised, it was held that there was breach of warranty of authority
on their part. As such they were held personally liable to A for the
amount of the loan.
It is also pertinent to note that the agent can be liable for breach
of warranty of authority even if the agent innocently thought that he
had authority.
Tortious liability
Further, if the agent makes a representation that he is authorised,
and that representation turns out to be negligently or fraudulently
made or there is some other negligence or fraud on the part of the
agent, the third party may also be able to sue the agent under the
tort of negligence17 or the tort of deceit,18 respectively.
Thus for instance, in Fong Maun Yee v Yoong Weng Ho Robert
(1997), where the solicitor negligently represented that a seller had
authorized the sale of a particular property, the court held that the
solicitor was liable to the buyer for breach of warranty and
negligence, though only one set of damages were awarded.
_____________
1 A power of attorney could be used in various situations. For instance, if a person
is travelling or going to live overseas for a period of time, he might appoint another
to manage his legal or financial affairs in Singapore by granting a “power of
attorney” to that person.
2
As to bill of lading, see page 301.
3 It may also arise in an implied manner, see page 342.
4
See page 145.
5 See page 343.
6
For the exact scope of this, see page 30 onwards.
7 On negligence generally, see Chapter 14.
8
Directors (see page 75) and partners (see page 37) also owe fiduciary duties as
they are in effect agents of the company or partnership, respectively.
9 As to when terms would be implied into contracts, see page 170.
10
On liens (especially common law or possessory liens), see further Chapter 5.
11 On termination generally, see Chapter 9.
12
See further page 221.
13 See further page 30 to 31.
14
Though the position of employees is being considered, the position is the same
with regard to other agents who cease to be agents of their principals. See further
page 34.
15 On vicarious liability, see further page 364.
16
As to torts, see Chapter 14.
17 On negligence misstatement, see page 352.
18
On tort of deceit, see page 347, footnote 5.
14
Tort
Preventing other Liabilities
Refers to a particular
category
remedies
ofcivil wrongs that gives rise to civil
When it comes to civil matters, besides contractual liabilities, a
business could face “tortious” liabilities. A ‘tort’ refers to a particular
category of civil wrongs that gives rise to civil remedies.
There are many kinds of torts such as the tort of defamation,1 the
tort of battery and assault,2 the tort of nuisance,3 the tort of
trespass,4 the tort of deceit5 and the tort of conversion.6
However, of particular importance in the business context, are the
following four torts:
•
•
•
•
tort
tort
tort
tort
of
of
of
of
Negligent misstatements
negligence,
passing off,
vicarious liability and
breach of confidence.
It should also be highlighted that the commission of a tort may
result in criminal liabilities as well in some circumstances. Thus, there
is a need for the business to be extra vigilant in such circumstances.
For instance, if an employer is careless and as a result an employee
is seriously hurt at work, the tort of negligence could kick in and the
employee could sue for compensation. However, at the same time
the employer could be criminally liable7 as well and end up paying a
fine.
TORT OF NEGLIGENCE
Perhaps the most important tort in the business context is the tort of
negligence. Negligence refers to carelessness. However, mere
carelessness does not give rise to liability. In order to be liable under
the tort of negligence, it must be proved that:
•
•
•
•
the defendant owed the plaintiff a duty of care,
the defendant breached that duty of care,
the defendant’s breach caused the plaintiff’s loss, and
that loss is not too remote.
All four elements must be satisfied. If any one element is missing,
there will be no liability in negligence.
Duty of care
Theremustbe a duty
ofCare
The first element to be established is that the defendant must owe
the plaintiff a duty of care. The first attempts by the courts to make a
general formulation as to when a duty of care arises can be traced
back to Donoghue v Stevenson (1932). In this case, A bought a
bottle of ginger beer from a retailer for her friend. Her friend drank it,
only to discover the remains of a decomposed snail at the bottom of
the bottle. The friend could not sue the retailer, as she had no
contract with him.8 Thus, she sought to sue the manufacturer of the
ginger beer. The court held that the manufacturer owed her a duty of
care. Lord Atkin in this case stated the now famous “neighbour
principle”:
You must take reasonable care to avoid acts or omissions which you can
reasonably foresee would be likely to injure your neighbour. Who, then, in
law is my neighbour? The answer seems to be – persons who are so closely
and directly affected by my act that I ought reasonably to have them in
contemplation as being so affected when I am directing my mind to the acts
or omissions which are called in question.
Since Donoghue v Stevenson, the law of negligence has
expanded vastly. Further, over the decades several “tests” have
emerged to address the issue of when a duty of care arises. One is
the so-called two-stage test and the other, the three-stage test.
There was some uncertainty as to which of the two tests should
apply, but the matter has finally been settled in Singapore: Spandeck
Engineering (S) Pte Ltd v Defence Science & Technology Agency
(2007). In this case, the Court of Appeal held that a single test should
apply in deciding whether there was a duty of care in all claims
arising out of negligence and that this was two-staged. However,
before embarking on the two-stage test, the court held that it had to
first satisfy itself whether factually speaking, it was foreseeable that
the defendant’s actions or omissions could cause damage to the
plaintiff. The court also said that this factual inquiry would almost
always be satisfied. Once that is met, the court would then have to
determine whether legally speaking,
(a) there is a close and proximate relationship between the
parties, and
(b) if so, whether nonetheless there are policy considerations
which negate the finding of a duty of care.
Before proceeding further, it must be pointed out that the matters
i mentioned in (a) and (b) above are indeed control mechanisms so
that the net is not cast too wide. Further, the matters mentioned in (a)
and (b) are not capable of “precise” definitions and, in addition, there
can be some overlap between the concepts themselves in certain
instances.
In order to
establish a duty of care
To establish a
duty
of
care
A
1 Closeand proximate relationship
2 Public policy considerations
(a) Close and proximate relationship
Proximity is not confined to physical or geographical proximity.
Rather the question is whether there is a close and direct
relationship between the parties so that one party ought to have
had the other in contemplation when carrying out any acts or
omissions. Thus, if a manufacturer of a product in China is
negligent and, as a result, a consumer of that product in
Singapore suffers personal injury, there is still likely to be a close
and proximate relationship between the parties, even though the
parties are in different countries. Similarly, if X drives carelessly
on the road and injures a pedestrian Y, there is likely to be a
close and proximate relationship between the parties, even if they
do not know each other. On the other hand, in the example
above, if Y dies in the accident and as a result, Z, an employee
of Y loses his job and Z wants to sue X for the loss of income,
there is unlikely to be a close and proximate relationship between
X and Z.
In NTUC Foodfare Co-operative Ltd v SIA Engineering Co Ltd
(2018), where the driver of an air-tug knocked into and damaged
a food kiosk run by NTUC at Changi Airport, the court held that
there was proximity between the driver and NTUC. On the other
hand, the court stated in passing that if as a result of the closure
of the kiosk, suppliers of food to NTUC had suffered losses, the
relationship between the driver and those suppliers would not
have been proximate.
criminal
Police failed to arrest a particular
Eg
f
(b) Public policy considerations
If there were some public policy considerations that negate the
finding of a duty of care, then it would not be just and reasonable
to impose a duty of care.
In Marc Rich & Co v Bishop Rock Marine Co Ltd (1996), the
vessel in question developed a crack. A surveyor employed by a
marine classification society was called in. The surveyor certified
the vessel to be fit to continue voyage after certain repairs were
made. Shortly thereafter, the vessel sank and the cargo was lost.
The owners of the cargo sued the marine classification society.
The court held that, even assuming there was proximity between
the parties, it was not just and reasonable to impose a duty of
care. This was because marine classification societies were nonprofit organisations that act in public interest to promote the
welfare of the people and property at sea. Faced with the
possibility of litigation, such societies could just refuse to carry
out urgent or problematic inspections, and that would not be in
the interest of the public. Further, to impose liability on them
would result in them diverting their resources away from their
fundamental duties to face highly complex legal actions.
Similarly, in Hill v Chief Constable of West Yorkshire (1989),
in an action brought by the estate of a deceased person, the
issue arose as to whether the police were liable in negligence for
not apprehending an offender, which resulted in the deceased
being murdered. The court held that there was no duty of care.
One of the reasons was that if such an action succeeded, the
police would embark on “defensive policing” and this was not in
the interest of the public.
Who has to establish a duty of care?
It is up to the plaintiff to establish that the defendant owes him a duty
of care.
However, it must be noted that there are some well-established
areas where the plaintiff would have less difficulty in establishing a
duty of care due to many similar cases in the past. For instance,
professionals, such as lawyers, accountants, architects and bankers,
owe a duty of care to their contractual clients in relation to their
professional work. Carriers or transporters owe a duty of care to the
people they carry and to the owners of the goods they transport.
Owners of premises owe a duty of care to visitors. Employers owe a
duty of care to employees9 and road users owe a duty of care to
other road users. This list is by no means exhaustive, and even in the
situations stated above, there might be cases where there may not
be a duty of care because of special circumstances.
At the other end of the spectrum, there are also well-established
areas where there is generally no duty of care. One such situation
relates to rescuing others. In this regard, if an ordinary bystander
sees another person or property being put in danger, he is generally
under no legal duty to step in and help, as that might entail placing
himself in danger.
In between these two areas, there lies an indefinite number of
other situations where the issue of whether there is a duty of care
may be more hotly contested. One such issue relates to negligent
misstatements.
Negligent misstatements
1
Torts
The issue of whether there can be liability for a negligent
misstatement (as opposed to a negligent act) arose for consideration
in the important decision of Hedley Byrne & Co Ltd v Heller &
Partners Ltd (1964). In this case, the plaintiffs wanted to know if they
could safely give credit to a company called Easipower with whom
they had business dealings. For this purpose, they got their bankers
to get a reference about Easipower’s credit worthiness from
Easipower’s bankers, who were the defendants. The defendants
gave favourable references. The plaintiffs relied on the references
and continued their dealings. Later, Easipower went into liquidation.
The plaintiffs, who as a result incurred huge pecuniary losses, sued
the defendants. The court acknowledged there was a special
relationship between the parties and it was possible for liability to
arise over a negligent misstatement. However, on the facts, the
defendants had a clause excluding their liability (this was prior to the
Unfair Contract Terms Act10), and hence they were held not liable.
Since the Hedley Byrne case, it is now clear that liability can arise
over a negligent misstatement provided there is a close and
proximate relationship between the parties and there are no policy
considerations to negate a duty of care, using the general test set out
in Spandeck Engineering (S) Pte Ltd v Defence Science &
Technology Agency (2007) and as applied in Go Dante Yap v Bank
of Austria Creditanstalt AG (2011).
One possible consideration in this context where the court may
hold that the relationship between the parties is not close and
proximate or that there are policy considerations why such a duty
should not be imposed, relates to the issue of unlimited liability. Take
for instance the case of a stock analyst who gets paid by an online
magazine to write about a particular stock. Thousands of people may
rely on it and buy the stock. If the advice turns out to be negligently
given, there could be countless numbers of people suing the stock
analyst over an indefinite sum of money. This is a classic example of
what is termed “unlimited liability”, and the courts loathe imposing
such liability. Faced with such potential liabilities, there would be little
choice but for the information provider not to provide the information
at all, or provide the information at an exorbitant cost, either of which,
will not be in the public interest.
example
Such an issue came to the forefront in Caparo Industries plc v
Dickman (1990). In this case, the defendants audited the accounts of
a company known as Fidelity. Based on the accounts, the plaintiff,
Caparo bought shares in Fidelity and successfully launched a
takeover bid. However, there was an error in the accounts in that it
showed a huge profit, when in fact there was a loss. The court held
that even though it was foreseeable, there was not a sufficient
degree of proximity between the parties and so there was no duty of
care. The accounts were prepared for the shareholders collectively
for them to assess how the company was doing, but it was not
prepared for investors or individual shareholders. The policy
considerations behind the decision were, of course, that if the
accountants were held to have owed a duty of care to all investors
and shareholders; that would have exposed them to unlimited liability.
This case may be contrasted with Smith v Eric S Bush (1989). In
this case, the surveyors, who were the defendants, were engaged by
the mortgagees to do a survey of the plaintiff’s house. However, the
plaintiff (the mortgagor) paid for the surveyors’ services. The
defendants knew that plaintiff was likely to rely on the report. The
plaintiff relied on the report and suffered a loss. The plaintiff then
sued the defendants. The defendants were professionals who were
paid for their services. They knew precisely the nature of the
transaction for which the information was required. They knew that
the plaintiff would rely on the information, and the plaintiff did rely on
the information. Moreover, this was not a case of unlimited liability. In
the circumstances, the court held that the defendants were liable.
Relationship with other concepts
breach
ofimpliedtermin Contrait
To sue in negligence, there does not have to be a contract between
the parties. However, where there is a contract between the parties,
it may be possible to bring an action both in contract and in tort. For
instance, if an employer is careless and as a result an employee is j
injured at work, the employee may sue the employer in negligence.
The employee may also sue the employer for breach of an implied
term11 in the contract that the employer should take reasonable care,
but of course. the employee will only get one set of damages.12
Similarly in Go Dante Yap v Bank of Austria Creditanstalt AG (2011),
a client who had a contract with a bank, sued the bank in respect of
negligent investment advice, both in contract and in tort (though the
court eventually held that bank was not negligent and hence, the client
lost the case).
The concept of negligent misrepresentation was discussed in
Chapter 8.13 That relates to negligent statements made before the
contract which induce the formation of the contract. Negligent
misstatements that are being discussed in the present context do not
need to involve a contract between the parties (for instance, Caparo
Industries plc v Dickman discussed above) and can arise after the
contract where there is indeed one (for instance, Smith v Eric S Bush
discussed above). However, it is possible that in certain situations
both may apply, but in such cases, again only one set of damages will
be awarded should both causes of action be successful.
Breach of duty
Once it is established that there is a duty of care, the plaintiff has to
establish that there is a breach of that duty. As to what would amount
to breaching the duty of care was elaborated in Blyth v Birmingham
Waterworks (1856). In this case, the court held that breaching the
duty of care meant the “omission to do something which a reasonable
man … would do; or doing something which a prudent and
reasonable man would not do”.
Thus, if X drives and knocks down C, it does not automatically
follow that X is liable to C. It has to be established that X failed to do
what a reasonable man would have done in the circumstances. So if
at the time of the accident, it was raining very heavily, and visibility
was very poor, and C just suddenly dashed across the road in
circumstances that no other reasonable man could have prevented
the accident, then X would not be liable.
reasonablepersonwithsimilar
skilllevel
g
However, in determining what a reasonable
person would or
would not have done, if the defendant professes to have a particular
skill or knowledge, then the question becomes what another person
with a similar level of skill or knowledge would have done in the
circumstances. So if X is suing his doctor for a negligent treatment,
the question does not turn on how an ordinary member of the public
would have conducted the treatment. Rather, the question would turn
on how another doctor with a similar level of skill or knowledge would
have conducted the treatment.
Likewise, generally, if the person is not professing to have a high
level of skill or knowledge, then the standard expected is that of a
person in a similar position. Thus, in Phillips v William Whiteley Ltd
(1938), the court held that in determining whether the defendantjeweller, who had pierced the ears of the plaintiff leading to
complications, had breached his duty, the standard to be applied was
that of another reasonable jeweller, and not that of a reasonable
surgeon.
Further, in determining what a reasonable person would or would
not have done, the court might have to embark on a balancing act,
weighing and balancing many factors, such as the likelihood of danger
and the severity of the danger if it results, on the one hand, and the
cost of averting the danger (for instance, the cost of taking preventive
measures), on the other (Tesa Tape Asia Pacific Pte Ltd v Wing
Seng Logistics Pte Ltd (2006)/BNJ v SMRT Trains Ltd (2014)).
In Bolton v Stone (1951), a cricket ball that came from the
defendants’ ground hit the plaintiff, who was standing on an adjoining
highway. The court held that, while the defendants owed the plaintiff a
duty of care, that duty of care was not breached. This was due to the
fact that there was a considerable distance between the highway and
the pitching ground. In addition, there was an existing high fence and
the ground was sloped in such a way which made it unlikely for balls
to be flung out. Since the likelihood of injury was so slight, the court
held that the defendants had not breached their duty.
On the other hand, if the likelihood of injury or the seriousness of
injury, if it results, is great, there might be a breach of the duty of
care if no appropriate action is taken. In Paris v Stepney Borough
Council (1951), the defendants employed the plaintiff, who had lost
one eye. As a result of this work with the defendants, he lost the use
of his other eye. The risk of injury to normal employees was not so
great as to warrant the introduction of goggles. However, since there
was a serious risk to the plaintiff, the defendants ought to have
provided him with goggles and since they did not, they were held to
have breached their duty of care.
However, as stated, such factors have to be balanced with the
cost of taking preventive measures. In Latimer v AEC Ltd (1953), the
defendants’ factory was flooded and the defendants spread sawdust
to prevent employees from slipping. Nonetheless, the plaintiffemployee fell and injured himself. Since there was nothing else the
defendants could have done, short of closing the factory, which would
have been too costly, and considering the fact that the risk of injury
was slight (no one else slipped), the court held that the defendants
had not breached their duty of care.
Proving breach - res ipsa loquitur
As stated, the plaintiff has the burden of proving that the defendant
was negligent. However, in this connection the plaintiff may be able to
raise a principle known as res ipsa loquitur (which means, “the facts
speaks for itself”), which if applicable, may lighten the plaintiff’s
burden.
If the defendant was in control of the situation or thing which
resulted in the accident; if the accident would not have happened, in
the ordinary course of things, if proper care had been taken; and the
cause of the accident is unknown, the concept of res ipsa loquitur
may be raised (Grace Electrical Engineering Pte Ltd v Te Deum
Engineering Pte Ltd (2018)). If the plaintiff manages to successfully
invoke res ipsa loquitur, the court would infer negligence, unless the
defendant manages to show that there could be some other
reasonable explanation for the accident besides his negligence, or
unless the defendant manages to show he had taken all reasonable
care.
In Scott v London and St Katherine Docks Co (1865), the plaintiff
was passing the doorway of the defendant’s warehouse when six
bags of sugar that were being moved by means of a crane fell on
him. As the warehouse was under the control of the defendant, and
as such accidents do not normally occur unless there was negligence,
the court found in favour of the plaintiff. Similarly, in Ward v Tesco
Stores Ltd (1976), the plaintiff was injured when she slipped on some
yogurt that was spilt on the floor in the defendant’s supermarket. As
the supermarket was under the control of the defendant, and as such
accidents do not normally occur unless there was negligence, the
plaintiff managed to raise res ipsa loquitur. The defendant then had
to show that it was not due to lack of care on their part that the
accident occurred. The defendant did not manage to do this and so
the court held that negligence had been established.
Causation
Once it is established that there is a duty of care and that it has been
breached, the next element that needs to be established is that the
defendant’s breach has caused the plaintiff’s loss. Typically, the court
would start with the “but for” test. If the “but for” test fails, there may
not be liability.
In Barnett v Chelsea and Kensington Hospital Management
Committee (1969), the plaintiff’s husband came to the defendants’
hospital complaining of vomiting. He was told to go home and consult
his own doctor later, which amounted to breach of duty on the part of
the defendants. Later that day the plaintiff’s husband died of arsenic
poisoning. It was established that even if the hospital had given him
treatment, the chances of being able to save his life were very slim
due to the late stage at which he arrived at the hospital. Thus, the
court held that causation was not established.
However, even if it passes the “but for” test, there still may not be
liability (JSI Shipping (S) Pte Ltd v Teo Foong Wong (2007)). For
instance, if there is a new intervening act or “novus actus
interveniens” which breaks the chain of causation, such as where the
damage caused by the defendant is exacerbated by some
unreasonable action on the part of the plaintiff, the “but for” test may
not be determinative. In Mckew v Holland and Hannens and Cubitts
(1969), the plaintiff, who was an employee of the defendants, injured
his leg at work due to the negligence of his employers. A few days
later, he went to a flat and tried to descend a flight of steep steps
unaided and suffered further injury. The court held that the employer’s
initial negligence did not cause the plaintiff’s subsequent injury.
Instead, the subsequent injury was caused by the plaintiff’s own
unreasonable behaviour.
On the other hand, if the behaviour of the plaintiff was not
unreasonable in the circumstances, the chain of causation may not be
broken. In TV Media Pte Ltd v De Cruz Andrea Heidi (2004), the
plaintiff consumed Slim 10 pills and suffered liver damage. In her
action in negligence, it was argued that as she did not immediately
see a doctor after experiencing some unusual symptoms that broke
the chain of causation. However, the court rejected the argument as
what she did was not unreasonable in the circumstances.
Damages–remoteness
Even if the defendant has breached a duty of care owed to the
plaintiff and that breach has caused loss to the plaintiff, it does not
follow that the plaintiff can claim for all ensuing losses. As is the case
with contracts, there is a limit and that limit is referred to as
remoteness. The test for determining whether the loss is too remote
is generally whether the loss is reasonably foreseeable.
In the Wagon Mound 1 (1961), the defendants carelessly
discharged oil from their ship. Wind and tide carried the oil to the
plaintiffs’ wharf, which was 200 yards away. The plaintiffs, after
consultation, thought it was safe to carry on with the welding works
and so they continued doing so. Nearly two days later, molten metal
from the welding works came into contact with some cotton rag
floating on the oil; as a result there was a big explosion, in which the
plaintiffs’ wharf was damaged. The court held that in order for
damages not to be too remote, they must be reasonably foreseeable
and that on the facts, the damages were not reasonably foreseeable.
This was because of the particular circumstances of the case, and
because it generally could not be foreseen that oil on water would
ignite. Similarly, in Man Mohan Singh v Zurich Insurance (2008),
where the plaintiffs had lost their only children (two sons) due to the
negligent driving of the defendant, the court held that the defendant
was not liable for the cost of fertility treatment undertaken by the
couple to have other children, as that among other things, was not
reasonably foreseeable and hence, too remote.
of
Thkindofherm notextent
p
In relation to the test of reasonably foreseeability, usually what
has to be foreseen is the kind of harm, and not the extent of harm.
Thus, in Bradford v Robinson Rentals Ltd (1967), the defendantemployers carelessly exposed the plaintiff-employee to extreme cold
during his duties. In consequence, he suffered frostbite. What was
foreseeable was something such as a chill. Nonetheless the
defendants were held liable for the frostbite, as it was just a more
severe manifestation of a type of harm that was foreseeable.
It is also a rule in relation to damages that the defendant has to
take the plaintiff as he finds him. This is also known as the “thin-skull”
rule. Thus, if X, in breach of his duty, knocks down C, who dies
because he has a “thin-skull”, X would be liable for the death even if a
normal person would not have died. In Smith v Leech Brain & Co
(1962), the plaintiff had a pre-disposition to cancer. The defendants’
negligence later actually triggered off cancer, from which the plaintiff
died. The court held that the defendants were liable, as they had to
take the plaintiff in the condition he was. It would also flow from this
rule that if the plaintiff suffers economic loss in the form of loss of
income, how much the defendant would have to pay would depend on
how much the plaintiff was earning or could have earned.
Defences
When a defendant is sued in negligence, there are several defences
the defendant may raise that would reduce or completely absolve him
harm
from liability and they include the following:
•
•
•
plaintiff intributed
contributory negligence,
voluntary assumption of risk, and
exclusion of liability.
to
th loss as
well
exclusion liabilitytank
(a) Contributory negligence
If the plaintiff also contributed to the loss, the damages he can
claim from the defendant may be reduced pursuant to section
3(1) of the Contributory Negligence and Personal Injuries Act.
However, all that has to be established is that the plaintiff
contributed to the loss as a result of fault on his part. It does not
have to be established that the plaintiff owes the defendant a
duty of care and that duty of care has been breached.
In Sayers v Harlow UDC (1958) for instance, the plaintiff
found herself locked in a public lavatory. In trying to climb over
the top of the door, she stepped on a toilet roll which “true to its
mechanical requirements, rotated”. She fell and injured herself.
The court held that the defendants were liable for the defective
lock, but that the plaintiff contributed to her injury and hence, her
damages were reduced by 25 per cent. Similarly, in Planassure
PAC v Gaelic Inns Pte Ltd (2007), though the auditors of a
company were held liable to the company for negligence in not
detecting a fraud committed by a manager, the company was
also held to be contributorily negligent in not detecting the fraud
and hence damages were reduced by 50 per cent. In Rohini v
HSR International Realtors Pte Ltd (2018), where the appellant
was defrauded by an estate agent who was an undischarged
bankrupt, the court held the estate agency was negligent for not
having proper processes in place. Nonetheless, since the
appellant was very careless in issuing blank cheques, damages
were reduced by 70%.
(b) Voluntary assumption of risk
If a plaintiff voluntarily assumes the risk that a tort may be
committed against him, the defendant may use this as a defence.
For instance in Morris v Murray (1991), the plaintiff agreed to the
defendant’s proposal to take him on a plane ride, even though the
defendant was very drunk. There was an accident and the
plaintiff was injured. The court held that the plaintiff had voluntarily
assumed risk, and so the defendant was not liable. However, if
there is no true voluntary assumption of the risk, it is unlikely for
this defence to apply. Thus for instance, in Smith v Baker & Sons
(1891), where the plaintiff-employee, who was involved in rock
cutting, was injured when a stone from a crate that was being
carried by a crane fell on him, the court held that there was no
voluntary assumption of risk in the true sense of the phrase.
If this defence is made out, it is a complete defence in that the
defendant is completely absolved of liability, unlike contributory
negligence which acts as a partial defence and results only in
damages being reduced. However, it should also be highlighted
that as a matter of practice, compared to contributory
negligence, voluntary assumption of risk is not a common
defence.
(c) Exclusion of liability
Even though there may not be a contract between the parties, the
defendants may try to exclude liability by means of a clause or
notice. Thus for instance, when one goes to public playgrounds, it
is common to find exclusion clauses excluding liability for injury,
though there is no contract between the parties in such
circumstances.14
Whether such clauses are valid must be judged against the
Unfair Contract Terms Act. Under Section 2(1) of the Unfair
Contract Terms Act, a clause which tries to exclude liability for
death or personal injury arising out of negligence is totally invalid.
In relation to liability for other losses, such as property damage
or economic loss, under section 2(2) of the Act, such a clause will
be upheld if it is reasonable.15
Though excluding liability for personal injury or death arising
out of negligence is not valid, this is commonly done. Having such
an invalid clause may nonetheless help the business as the other
party to the contract may take greater precaution, assuming the
sign is sufficiently visible. Hence, the chances of injury or death
occurring may be reduced to begin with. Instead of merely
excluding liability, such a clause may also seek to highlight the
inherent risks involved in a particular venture (for instance, the
risks involved in a school excursion or surgery). If those inherent
risks were not highlighted that by itself could amount to
negligence. Thus, that aspect of the clause could serve a useful
purpose for the service provider as well.
Business takeaway
Before leaving the topic of negligence, it is worth stressing that
practically any type of business can be liable in negligence. Thus, the
important thing for businesses is to consider how possibly they can
be sued in negligence and take appropriate measures to mitigate
against the risk. What is appropriate would of course depends on the
circumstances. However, such measures could include proper
maintaining of equipment or facilities, providing proper training and
supervision in relation to employees, having proper practices and
policies in place (and proper enforcement of those practices and
policies), incorporating appropriate contractual clauses (such as
exclusion clauses which, as stated may be valid or useful in some
circumstances) and even taking out general business liability
insurance.
TORT OF PASSING OFF
NOTTESTED
Another important tort in the business context is the tort of passing
off. The tort of passing off seeks to protect against certain types of
unfair competition. A similar kind of protection is available under the
Trade Marks Act.16 However, the tort of passing off is still significant,
since the Trade Marks Act may not always be applicable.
To establish the tort of passing off, as stated in Reckitt &
Coleman Products v Borden Inc (1990)/Novelty Pte Ltd v
Amanresorts Ltd (2009), the plaintiff must generally establish the
following three conditions:
•
•
•
there is goodwill or reputation attached to his business,
there is a misrepresentation by the defendant that the goods
or services offered by him are the same as those offered by
the plaintiff, and
he has suffered or is likely to suffer loss.
In relation to the first element, goodwill refers to the benefit
attached to the good name, reputation and connection of a business.
Though often goodwill is acquired by being in business for some time,
in some circumstances it is possible to acquire goodwill even before
actual trading commences. In CDL Hotels International Ltd v Pontiac
Marina Pte Ltd (1998), Pontiac adopted the name “Millenia” for a
range of top-quality developments in 1993, the construction for which
began in 1994. In 1995, CDL launched the name “Millennium” for their
range of hotels. Pontiac brought an action against the defendants for
passing off. The court held that even though at that stage the
developments had not started their actual operations, because of the
large-scale advertising carried out by the Pontiac, it had acquired
goodwill in the name “Millenia”. Advertising coupled with substantial
sales was also held to be indicative of the presence of goodwill in
Caterpillar Inc v Ong Eng Peng (2006).
In relation to the second element, it may be pointed out that the
misrepresentation can come in various forms. For instance, it may
arise where the defendant tries to use the plaintiff’s name, logo, trade
mark or get up. In White Hudson & Co Ltd v Asian Organisation Ltd
(1964), the plaintiffs manufactured cough sweets wrapped in red
paper and sold them in Singapore under the name “Hacks”. The
defendants also started manufacturing similar cough sweets wrapped
in red paper, but called their product “Pecto”. It was proved that the
majority of the purchasers in Singapore were unable to read English
then, and it was common for the people to simply ask for “red paper
cough sweets”. Thus, even though the names were different, because
of the circumstances, the court held passing off was established.
However, if the plaintiff’s business name is merely descriptive of
the products or services sold, and the defendant takes steps to
distinguish his or her products or services from that of the plaintiff’s,
there is unlikely to be a misrepresentation. In Lifestyle 1.99 Pte Ltd v
S$1.99 Ltd (2000), the owners of the S$1.99 chain in Singapore sued
Lifestyle 1.99 for passing off. The court held that the words 1.99 was
merely descriptive of the plaintiff’s products, and since the defendants
had tried to distinguish their products from the plaintiff’s by adding the
word “lifestyle” and by using a different logo and colour scheme for
their stores, there was no misrepresentation by the defendants that
their products were the same as those of the plaintiffs’. Similarly, in
Nippon Paint (Singapore) Co Pte Ltd v ICI Paint (Singapore) Pte Ltd
(2001), the court held that the plaintiff’s use of the term “3 in 1” was
merely descriptive, and so the defendants were not barred from using
the same terminology to describe their paints.
In relation to the third element, as stated, the plaintiff must suffer
losses or must be likely to suffer losses. In CDL Hotels International
Ltd v Pontiac Marina Pte Ltd discussed above, since Pontiac
operated a top range of developments and CDL operated a much
lower range of developments, there was a possibility of confusion
among the public, which could result in damaging Pontiac’s goodwill.
Hence, the court found that there was a real likelihood of loss and
upheld Pontiac’s claim. In Sarika Connoisseur Café Pte Ltd v Ferrero
SPA (2013), Ferrero used the mark “Nutella” for its hazelnut spread.
Subsequently, Sarika which ran a chain of cafes started serving a
drink called “Nutello” which was made using the “Nutella” spread and
used the term “Nutello” in various promotional materials. Ferrero
sued. Among other things, the court held that passing off was made
out. As for loss, as there was evidence that Ferrero was also going
into the drinks business overseas using Nutella, it was held that
Ferrero’s foray into that line of business in Singapore could be
affected by Sarika’s activities and hence, it was held that the third
element was met. The court also stated actual loss need not be
proved. In Allergan Inc v Ferlandz Nutra Pte Ltd (2016), the plaintiffs
sold an eyelash growth product under the name “Latisse”. The
defendant sold a similar product under the name “Lassez”. Since the
products were very similar, it was held clearly there could be a loss.
If passing off is established, an injunction17 may be obtained. It
may also be possible to get an order of delivery up of the infringing
copies. In addition, damages or account for profits made may also be
obtained. In Allergan Inc v Ferlandz Nutra Pte Ltd (2016) referred to
above, the court ordered an injunction as well as delivery up of
infringing copies. An order for losses or an account for profits made
(at the plaintiff’s option) was also granted.
The key business takeaway, as obvious as it sounds is to come
up with unique and distinguishing features for one’s business instead
of copying or making use of the goodwill built up by another or, at
least seek permission from the other business to use certain features
(as perhaps the problem in Sarika Connoisseur Café Pte Ltd v
Ferrero SPA (2013), referred to above, could have been prevented).
For various reasons as discussed previously,18 it would also be better
to register a trademark instead of relying on the tort of passing off
where possible.
dutyof
Primaryliability bested
TORT OF VICARIOUS LIABILITY
1 S nd
n
ayliability
Viranouslyliable
The next tort that will be considered is the tort of vicarious liability.
Pursuant to the tort of vicarious liability, one person may be made
answerable for the actions of another. The most common situation in
which this happens is in the employment context.19
However, before an employer can be made liable for the actions
of his employee, two conditions must be satisfied.
The
The
employmentagent has committed
wrong
a legalwrong
takes place during the course of
employment duty
Firstly, the employee must be legally at fault. This could be
established, for instance, if the employee has committed some tort.
Thus, if a delivery truck driver speeds while driving and loses control
of the truck and causes damage, the first condition is likely to be
satisfied. On the other hand, if while driving the delivery truck, the
driver suddenly has a heart attack without any previous symptoms
and loses control of the truck and causes damage, the first condition
is unlikely to be satisfied.
Secondly, the actions that give rise to legal liability on the part of
the employee must have taken place in the course of his employment.
In determining whether an act took place in the course of his
employment, as established in Lister v Hesley Hall Ltd (2001) and
followed in Skandinaviska Enskilda Banken AB v Asia Pacific
Breweries (Singapore) Pte Ltd (2011), the test is to see if there is a
close connection between the nature of the employment and the
employee’s wrongdoing and it is fair and just to hold the employer
liable. If these conditions are met, then even if the act is done
intentionally, negligently, recklessly, fraudulently or against the
express orders of the employer, the employer can be made
vicariously liable. However, it may not always be easy to establish
whether a particular action has taken place within the course of
employment, as the following cases illustrate.
In Koh Get Kee v Low Beng Hui (1987), an off-duty police officer,
who was in uniform and armed, went on a drinking spree with his
friend. He then accidentally shot the friend. The court held that the
employers were liable, as the act was done in the course of
employment. It is in the interest of the police force and the public that
the officers are armed even while they were off-duty so that they can
meet any emergencies. Thus, what had taken place was within the
course of employment.
By contrast, in Samin v Government of Malaysia (1976), the
employee driver took the company vehicle to stop over at his house
for lunch. While returning to work after lunch, an accident occurred.
The court held that the employers were not vicariously liable, as the
act was not done in the course of employment.
If an employer is held vicariously liable, the employer has a right in
turn to institute an action against the employee to get an indemnity or
reimbursement. The employer may also be able to terminate the
contract of employment, depending on the circumstances.
However, generally, unlike employers and employees, a person
who engages an independent contractor to do some work is not
vicariously liable for his actions done in the course of his work. Thus,
if X engages a contractor to renovate his house, and the contractor
drops some debris on the property of X’s neighbour thereby
damaging that property, X will not be vicariously liable for the
contractor’s action (Ng Huat Seng v Munib Mohammad Madni
(2017)). The obvious reason for this is that unlike employees, when it
comes to independent contractors, it may be much more difficult to
exercise control and supervision.
Vicarious liability is a very common tort. A business can seek to
mitigate the risk by taking various measures such as, selecting
employees carefully, providing proper instructions and training,
exercising sufficient control and supervision and, taking strict action
against transgressions so that they do not occur again.
liability
Before leaving the topic of vicarious liability, it should also be
highlighted that a business may be liable to a third party on more than
one ground. For instance, it could be vicariously liable for the actions ji
of its employees and at the same time, it could have breached its
duty of care towards the third party. The former can be classified as
“secondary” liability whereas the latter can be classified as “primary”
liability which involves the direct fault of the business. Nonetheless in
such circumstances only one set of damages can be recovered. For
instance, if a security guard assaults a visitor, the employer of the
security guard may be vicariously liable and at the same time, if the
employer was negligent in the selection of the security guard (for
instance, the employer had chosen someone with a past criminal
record for assault), the employer could possibly be sued on the
grounds of negligence as well.
TORT OF BREACH OF CONFIDENCE
NOTTESTED
Yet another relatively common tort in the business context is the tort
of breach of confidence. Under this tort, if a person receives
information which has a necessary quality of confidence about it and
the information is communicated in circumstances importing an
obligation of confidence on the part of the defendant and the
defendant makes unauthorised use of it or discloses it without the
consent of the plaintiff, the plaintiff may have a cause of action for
breach of confidence: Coco v A N Clark (1969)/Adinop Co Ltd v
Rovithai Ltd (2018).
In QB Net Co Ltd v Earnson Management (S) Pte Ltd (2007), the
plaintiff was a Japanese company which operated and which offered
licences to operate ten-minute haircut salons. It traded as “QB
House” in a few countries around the world including Singapore. The
defendant, who was initially involved with QB House, started
operating ten-minute haircut salons in Singapore under the name “EC
House” and the plaintiff brought an action against the defendant on
various grounds including breach of confidence. However, as the
elements stated above were not satisfied, the court held that the
breach of confidence action was not successful. In particular, the
information in question was not confidential and was known to the
public at large.
Aside from the tort of breach of confidence, where there is a
contract between the parties, there might also be an express clause
that one or both parties to the contract are to observe confidentiality.
Sometime parties may sign a separate non-disclosure agreement
(NDA) towards this effect. Further, though not expressly stated or
agreed, a term could be implied into the contract that confidentiality
should be maintained, such as in a contract between an employer and
employee.
Common remedies for a breach, include injunctions and/or
damages. However, since information is key to business success, the
business should consider ways of mitigating against the risk even
before the problem arises, such as by having express confidentiality
clauses, marking out information as being confidential, restricting
access to confidential information or not disclosing confidential
information in its entirety, where possible.
Personal data protection
Finally, it should be pointed out that while there may be many kinds of
confidential information, one particular sort of confidential information
relates to personal data. This is governed by the Personal Data
Protection Act. Since businesses can face huge penalties (up to $1
million) for breach of that Act (section 29 of that Act),20 a few salient
points will be highlighted.
Under the Personal Data Protection Act, personal data refers to
data that can be used to identify an individual (section 2 of that Act).
For instance, the name, address, identification card number or
photograph of a person can be considered personal data.
Under the Personal Data Protection Act, generally personal data
cannot be collected, used or disclosed without the consent or
deemed consent of the individual (section 13 of that Act). One
obvious way to obtain consent, where there is a contract between the
parties, would be to have a provision in the contract to that effect and
this is indeed commonly done.
There are however various situations where consent or deemed
consent is not required (the Second to Fourth Schedule to that Act).
For instance, if the data is publically available (for instance, a
business takes a picture of a celebrity who appears in public using its
product) or if the data is collected for evaluative purposes (for
instance, for the purposes of deciding whether or not to offer
employment, a prospective employer calls up a former employer)
then consent need not be obtained.
The Personal Data Protection Act also imposes obligations to
properly protect the data that is collected (section 24 of that Act) and
to cease to retain it when it is no longer necessary (section 25 of that
Act).
However, the Personal Data Protection Act only creates liability on
the part of the organization and not individuals acting in their personal
or domestic capacity or acting as employees (section 4 of that Act).
An employer on the other hand could be vicariously liable for the
actions of an employee (section 53 of that Act). Thus, if an employee
leaks out personal data in the course of the employment, while the
employee will not be liable under the Personal Data Protection Act,
the employer could be, for failing to properly protect personal data.
Of course, the employer may be able to take some action against the
employee for breach of an express or implied term of in the contract
of employment, but that is a separate matter.
In terms of business takeaway, among other things, a business
should have appropriate terms allowing it to collect, use or disclose
data, implement proper processes (for instance to prevent data
leakage) and provide adequate training and supervision over
employees to reduce the instances of problems arising in this
connection.
_____________
1 Defamation is the publication of a statement that lowers the reputation of a person
in the estimation of right-thinking members of society.
2
Battery is the intentional infliction of force on another person. Assault is an act of
the defendant which causes the plaintiff reasonable apprehension of infliction of
force on him by the defendant.
3 Nuisance can be public or private. It is public when the reasonable comfort and
convenience of a class of the public is affected, such as where a public highway is
unjustifiably blocked. It is private when there is an unlawful interference with a
person’s use or enjoyment of land or some right over it, such as where construction
works in the neighbour’s land undermine the support of one’s house.
4 Trespass can be in respect of land or goods. Trespass to land relates to the
unjustifiable interference with the possession of land, such as walking over it without
the consent of the owner. Trespass to goods refers to the wrongful interference with
goods, such as damaging or vandalising another person’s goods.
5
Deceit involves the making of a statement, knowing it to be false or not caring
whether it is true or false, which results in damage to the plaintiff who has relied on
it.
6 Conversion involves unjustifiable denial of the rights of another person to his
property, such as taking goods belonging to another person without that person’s
consent.
7
As for criminal liability relating to work safety, see 317.
8 Generally, only parties to the contract can sue and be sued; see page 158.
9
Where death or personal injury results in the course of employment, the employee
instead of attempting to sue the employer in negligence, may be able to claim under
the Work Injury Compensation Act; see page 318.
10 See page 179.
11
As to how terms are implied into contracts, see page 170.
12 Alternatively, the employee may claim work injury compensation under the Work
Injury Compensation Act, see page 318.
13
See page 204.
14 This is due to the lack of consideration; see page 145.
15
As to the factors that might be relevant in determining this, see page 180
onwards.
16 See Chapter 4.
17
An injunction is a court order forcing the defendant to embark on a particular
course of action, such as ordering the defendant not to use the name or get up of
the plaintiff’s business.
18 See page 95.
19
However, there are other situations in which this can happen, such as when
there is an agency relationship between the parties, see page 345.
20 For the latest cases see: https://www.pdpc.gov.sg/Commissions-Decisions/Data-
Protection-Enforcement-Cases.
15
Ending the Business
The dissolution of a sole proprietorship, partnership and limited
partnership is comparatively straight forward and has already been
considered.1 What has not been covered is the dissolution of a
company or limited liability partnership, which is generally more
complex and costly. However, since in practice companies are much
more common than limited liability partnerships, this chapter will focus
on companies, with references being made to limited liability
partnerships in the footnotes where appropriate.
Once set up, a company may be dissolved through winding up.2
The most common reason for winding up is financial distress. In this
connection a company may also undergo receivership or judicial
management or enter into a scheme of arrangement. This chapter is
concerned with winding up, as well as these other processes which
may not result in the demise of the company. All sections referred to
in this chapter are with reference to the Insolvency, Restructuring and
Dissolution Act (on the assumption that it has come into force), unless
otherwise stated.
WINDING UP
Winding up or liquidation will result in the demise of a company.
Section 119 provides that the winding up of a company may be either
by the court or voluntary.3 A winding up of a company by the court is
more costly and complex, compared to a voluntary winding up by the
company.
Voluntary winding up
Section 160 provides that a company may be wound up voluntarily on
certain grounds such as where the company resolves to do so by
special resolution.4 There are two types of voluntary winding up.5 The
first is members’ voluntary winding up, and the second is creditors’
voluntary winding up.
It is a members’ voluntary winding up if the directors of the
company or, in the case of a company having more than two
directors, the majority of the directors make a declaration that they
are of the opinion that the company will be able to pay its debts in full
within a period not exceeding 12 months after the commencement of
winding up (section 163(1)). A director, who makes a declaration
under this section without having reasonable grounds for opinion,
would be guilty of an offence (section 163(4)).
If a declaration of solvency has not been made, it would be a
creditors’ voluntary winding up, which would involve more formalities,
such as calling a meeting of creditors (section 166).
Winding up by the court
Unlike a voluntary winding up, which is initiated by a members’
resolution, a winding up by the court is triggered by the presentation
of a petition to the court. After hearing the petition, the court may
order for the winding up of the company.6 However, before this can
happen there are two prerequisites.
Firstly, the petition can only be presented by certain persons. The
list of persons who are entitled to present a petition is set out in
section 124(1), and this includes:
•
•
•
•
the company,
the creditor of the company,
the contributory to the company (such as a member) and
the Minister of Finance in certain circumstances.
Secondly, when a petition is presented by such persons, the court
is empowered to order the winding up of the company, provided
certain grounds exist. These grounds are set out in section 125(1),
and include situations where:
•
•
•
•
•
•
the company has by special resolution resolved that it is to be
wound by the court,7
the company has been in default in lodging a statutory report
or in holding a statutory meeting,8
the company has not commenced business within a year from
its incorporation or has suspended its business for a whole
year,
the company has no members,
the company is unable to pay its debts,
the directors have acted in the affairs of the company in their
own interests rather than in the interests of the members as a
whole, or in any other manner whatever which appears to be
unfair or unjust to other members,
•
•
•
•
the period, if any, fixed for the duration of the company by the
constitution of the company expires or, where the constitution
of the company provides that the company is to be dissolved
on the occurrence of an event, and that event happens,
the court is of the opinion that it is just and equitable that the
company be wound up,
the company has carried on multi-level marketing or pyramid
selling in contravention of any written law that prohibits multilevel marketing or pyramid selling, or
the company is being used, for an unlawful purpose or for
purposes prejudicial to public peace, welfare or good order in
Singapore or, against national security or interest.
In addition to the grounds specified in section 125, it is also
possible for the court to order a company to be wound up pursuant to
section 216(2)(f) of the Companies Act, which relates to the unfair
treatment of the members by the majority.9
Of the grounds stated in section 125, the more common grounds
on which a company may be wound up in practice, are the inability to
pay its debts, and the situation where the court is of the opinion that it
is just and equitable for the company to be wound up.
In relation to the inability to pay its debts, it must be pointed out
that the question of whether the company is unable to pay its debts is
not determined by asking whether assets of the company exceed its
liabilities. Rather, the question is whether the company is able to pay
its debts as they fall due. Thus, if there are cash flow problems, even
if the company has a lot of assets, that may still result in the company
being wound up on this ground. The onus of proving that the company
is unable to pay its debts is on the petitioner, and in determining
whether the company is unable to pay its debts, both contingent or
prospective liabilities of the company can be taken into consideration
(section 125(2)(c)). However, there are some presumptions which
may be of help to the petitioner. Firstly, if an execution or other
process issued on a judgment or order of any court in favour of a
creditor of a company is returned unsatisfied in whole or part, there is
a presumption that the company is unable to pay its debts (section
125(2)(b)). Thus, if X, a creditor of Z company, gets a court judgment
in his favour that Z company owes him $2,000 and he is not able to
extract this amount from the company, there will be a presumption
that Z company is unable to pay its debts. Secondly, if a company is
indebted to a creditor for a sum exceeding $15,000, and the creditor
serves on the company a demand to pay the sum, and the company
has, for three weeks thereafter, neglected to pay the sum, there is
also a presumption that the company is unable to pay its debts
(section 125(2)(a)). However, this is likely to be a rebuttable
presumption. Thus, if the company can establish that there are
substantial grounds for disputing the existence of the debt, then the
court may refuse to grant an order to wind up the company.
In relation to the ground that the court is of the opinion that it is
just and equitable that the company be wound up, all sorts of events
may support the conclusion that it is just and reasonable to wind up
the company. For instance, if the company’s business is being run in a
fraudulent manner, it may be that it would be just and reasonable to
wind up the company. In Re Thomas Edward Brinsmead & Sons Ltd
(1897) for instance, the company in question was formed to sell
“Brinsmead” pianos. The shareholders were misled into believing that
the company had the right to use the name “Brinsmead” when in fact
the right was vested with another organisation. In the circumstances,
it was held it was just and reasonable to wind up the company. It may
also be just and reasonable to wind up the company if there is a
serious deadlock between the members, and it is not possible to find
a solution to the deadlock. In Re Yenidje Tobacco Co Ltd (1916) for
instance, the company in question had only two shareholders, who
were also its directors. After some time, the two of them were not on
speaking terms with each other and further, one sued the other,
alleging fraud. In the circumstances, the court held that it was just
and reasonable to wind up the company. Similarly in Chow Kwok
Chuen v Chow Kwok Chi (2008) where there was a deadlock
between the three brothers who managed three companies and a
lack of mutual trust and confidence, it was held it was just and
reasonable to wind up the companies.
Commencement of winding up
A winding up order generally commences, not on the date on which it
is made, but the date on which the petition is presented (section
126(2)). This is in relation to a winding up by the court. In relation to a
voluntary winding up, generally10 the winding up is deemed to have
commenced on the date of passing of a resolution to wind up the
company (section 126(1)).11
Effect of commencement of winding up
The date on which the winding up order commences can have a lot of
significance. For instance, in relation to a winding up order by the
court, it is provided that after the commencement of winding up, any
disposition of property, including things in action,12 made after the
commencement of winding up is void unless the court otherwise
orders (section 130). This is essentially to preserve the assets of the
company. The date of commencement of winding up can also be
important for various other reasons, some of these will be considered
a little later. Besides that, it must also be noted that:
•
•
Where the company is being wound up, every invoice, order
for goods or business letter issued by or on behalf of the
company or liquidator has to have the words “in liquidation”
after the name of the company (section 194). This is so as to
warn persons dealing with the company.
In relation to a winding up by the court, after the presentation
of the petition but before the order is granted, if an action is
commenced against the company, the company may apply to
the court to stay or restrain further proceedings (section 129).
Once the winding up order is made, no action shall be
commenced against the company except with the leave of the
•
court (section 133). The position in relation to voluntary winding
up is largely similar (section 170). The basic idea behind these
provisions is, again, to preserve the assets of the company for
an equitable distribution.
Where the company is being wound up, on the appointment of
the liquidator (see below), generally, the powers of the
directors to manage the company will cease (see for instance,
section 164(2)).
Appointment of liquidators
Liquidation will entail the appointment of liquidators, who must be
licensed as insolvency practitioners (section 47). A group of persons
who are commonly licensed to be insolvency practitioners are
accountants (section 50).
In the case of a members’ voluntary winding up, the liquidator will
be appointed by the company in a general meeting (section 164). In
the case of a creditors’ voluntary winding up, both the company and
the creditors will have the right to nominate the liquidator, but if their
nominations differ, the creditors’ nomination will prevail (section 167).
In the case of a winding up by the court, the liquidator is appointed by
the court, and this could be the official receiver13 if the official
receiver so consents to be the liquidator (section 134).
Powers of liquidators
The job of the liquidator is basically to gather the assets of the
company; pay the creditors and distribute the surplus (if any) to the
members. In order to do this, the liquidator is conferred with various
powers. For instance, in relation to a winding up by the court, section
144(2) states that a liquidator has the power to, among other things:
•
sell the immovable and movable property and things in action14
of the company,
•
•
appoint an agent to do any business which the liquidator is
unable to do himself, and
do all such things as are necessary for winding up the affairs
of the company and distributing the assets.
Further, section 144(1) states that the liquidator, with the authority
of the court or the committee of inspection15 may, among other
things:
•
•
•
•
carry on the business of the company so far as necessary for
the beneficial winding up of the company for more than four
weeks after the date of the winding up order,
make any compromise or arrangement16 with creditors,
bring or defend any action or other legal proceeding in the
name of the company (for instance, an action against the
directors for breach of duties)
and appoint a solicitor to assist him in his duties.
In relation to a voluntary winding up, the powers of the liquidator
are broadly similar (section 177).
Antecedent transactions
In addition, in order to increase the pool of assets available for
distribution, the liquidator may be able to avoid certain antecedent
transactions. For instance,
•
•
Under section 206, if a creditor who has obtained judgment
against the company is yet to complete the execution of the
judgment (for instance, through a writ of seizure and sale17)
before the commencement of the winding up order,18 the
creditor will be unable to retain the benefit of the execution
against the liquidator, unless the court orders otherwise.
Under section 225, any unfair preference given to creditors or
sureties or guarantors of the company’s debts within certain
time frames (ranging from one to two years) before the
•
•
commencement of winding up19 may be avoided. It will be an
unfair preference if the company does anything or suffers
anything to be done which has the effect of putting that person
into a position which, in the event of the company’s winding up,
will be better than the position that person would have been in
if that thing had not been done.20 This is to ensure a level
playing field amongst creditors.
Under section 224, transactions of undervalue within three
years of the commencement of winding up, can also be
avoided. A transaction is considered to be of undervalue if the
company makes a gift to a person or otherwise enters into a
transaction with that person on terms that provide for the
company to receive no consideration; or the company enters
into a transaction with that person for a consideration the value
of which, in money or money’s worth, is significantly less than
the value, in money or money’s worth, of the consideration
provided by the company.
Under section 229, a floating charge21 created within certain
time frames (ranging from one to two years) before the
commencement of winding up, may also be avoided in certain
circumstances. Again the idea is to provide for greater level
playing field amongst the creditors.
Liability of officers for mismanagement
The liquidator is also empowered to bring an action against certain
persons, such as officers of the company, who have misapplied,
retained or become liable or accountable for any money or property
of the company, or have been guilty of any misfeasance or breach of
trust or duty in relation to the company (see for instance, section
240). Thus for instance, if the director had misappropriated monies
belonging to the company, the liquidator may bring an action against
him. Other sections of the Companies Act which could also be
relevant in this context are sections 238 and 239, which have already
been considered previously.22 The monies recovered by such means
would also go to increase the pool of assets available for distribution.
Proof and ranking of claims
Once the assets are gathered, the next step is distribution. Before
this, a person claiming to be a creditor of the company has to prove
his debt (section 218). However, even if a creditor manages to prove
his debt, there is no assurance that he will be paid, as there may be
insufficient assets.
Where there are insufficient assets, the law provides for a certain
order of priority among the creditors. Secured creditors get the first
bite. For instance, if the company has given a mortgage or charge to
the bank, the bank would have first priority.
However, if there are insufficient assets and the situation is such
that the secured creditors have security over the same assets, the
priorities amongst secured creditors themselves may first have to be
determined. There are various rules regarding this. For instance, if
there is a fixed charge followed by a floating charge over the same
asset, the interests of the fixed charge holder would prevail.
After secured creditors come unsecured creditors who have been
given preferential treatment by virtue of section 203(1) of the Act.23
Under this section, some of the unsecured debts that are given
priority over all other unsecured debts are as follows:
(a) costs and expenses of winding up, including the remuneration
of the liquidator,24
(b) subject to section 203(2), all wages and salary,
(c) subject to section 203(2), all retrenchment benefits or ex
gratia payments which are due to an employee,
(d) all amounts due in respect of work injury compensation under
the Work Injury Compensation Act,
(e) all Central Provident Fund contributions payable during 12
months next, before, on or after the commencement of
winding up,
(f) all remuneration payable to any employee in respect of
vacation leave, and
(g) the amount of all tax assessed, and all goods and services
tax due, under any written law before the commencement of
the winding up, and all tax assessed under any written law at
any time before the time fixed for the proving of debts has
expired.
Section 203(2) provides that the amount payable under (b) or (c)
above shall not exceed any amount as may be prescribed by the
Minister by an order published in a Gazette.
Section 203(4) provides that the debts in each class, as specified
above, rank in the order as shown in terms of priority. Thus, if there
are insufficient assets and all that is left is sufficient to meet the costs
and expenses of winding up, the claimants who fall under the other
limbs of section 203(1) will get nothing. Section 203(4) also provides
that claimants in the same class have a right to claim in equal
proportions. Thus, if there are sufficient assets only to meet all the
claims under (a) above, and some of the claims in (b) above,
claimants under (b) above will have a right to share in equal
proportions.
Section 203(6) also provides that where the assets of the
company available for payment to unsecured creditors are insufficient
to meet the certain claims such as those relating to the costs of
winding up and wages and salary, such debts shall have priority over
the claims of the floating charge holders. Thus, the holder of a
floating charge (unlike the holder of a fixed charge) stands in a very
precarious position and may end up losing his security.
If anything is left after these preferential unsecured creditors have
been paid, the balance goes to the remaining unsecured creditors.
Thus for instance, a contractor who has done work for the company
is owed money and has not taken any security, would fall under this
category. As among such unsecured creditors, they, too, take in
equal proportions. Thus, if the assets of the company are worth
$400,000 and $300,000 has been taken by secured creditors (by
virtue of their security) and preferential unsecured creditors (by virtue
of section 203(1)) and there are two remaining unsecured creditors,
one of whom is owed $180,000 and the other $20,000, the two
remaining unsecured creditors would receive $90,000 and $10,000,
respectively.
Once the debts of the company are paid, if there is anything left,
the capital contributed by the members is returned to them.
Preference shareholders25 may have certain priorities in this regard, if
the constitution of the company states so. As amongst members too,
assets remaining are distributed in equal proportions.
Dissolution
After the distributions have been made, in the case of a winding up by
the court, the liquidator may apply to court to get the company
dissolved (section 147).26 The process for dissolution of a company
which has undergone voluntary liquidation is set out in section 180.
Basically, after all the distributions have been made, the liquidator has
to call for a meeting of the company, or in the case of a creditors’
voluntary winding up, a meeting of the company and the creditors,
and has to lodge, within seven days of the meeting, a return relating
to the same with the Registrar. On the expiration of three months
after the lodging of the return with the Registrar, the company will be
dissolved.
However, it must be pointed out that in some circumstances, it
may be possible to dissolve a company without going through
liquidation. For instance, if one company is merging into another and
the latter is taking over the assets and liabilities of the former, it may
be possible to get a court order to dissolve the former after the
assets and liabilities have been transferred over to the latter (section
212(1) of the Companies Act). Similarly a company may be “struck
off” (section 334A of the Companies Act) in certain circumstances
(such as when it has not commenced operations) without going
through the winding up process.
RECEIVERSHIP
As stated above, a company can be liquidated for very many
reasons, one of which is its inability to pay debts as they fall due.
However, if the company is facing financial problems, liquidation is not
the only alternative. There are other processes which may be
applicable, one of which is receivership. Receivership is governed by
Part 6 of the Insolvency, Restructuring and Dissolution Act.
Where a creditor has a charge27 over assets and if certain events
occur, such as there has been a default in repayment, the creditor
may seek to appoint a receiver to seize assets which are subject of
the charge and recover what is owed to him.28 The loan document
pursuant to which monies were lent to the company would usually
expressly confer on the creditor the right to appoint such a receiver.
Receivership, as described above, must be distinguished from
liquidation. Theoretically, after having recouped what is owing to the
company, the receiver leaves and the company is able to continue as
before. Thus, receivership does not automatically result in the demise
of the company. However, in practice, the effect of one creditor
reclaiming what is owed to him may put the company is a very
precarious position vis-à-vis other creditors in terms of its ability to
pay, and hence often liquidation may follow a receivership.
Receivership must also be distinguished from judicial management
(see below), the basic aim of the latter being to rehabilitate the
company. A receiver has no such intention and merely seeks to
recover what is owed to the creditor.
It may also be noted that a person who is appointed as merely a
“receiver” has no powers to manage the company. However, if the
creditor has a charge over the whole business, as opposed to
specific assets, it may be possible to appoint a “receiver and
manager”. A “receiver and manager” would have the power to
manage the company for a limited period of time, with a view of
eventual disposal of the company as a going concern to some third
party. Upon the appointment of a receiver, or receiver and manager,
theoretically, the directors’ powers do not cease. However, for
practical purposes, their powers may be curtailed. The extent to
which their powers are curtailed would depend on the circumstances.
If it is a case of a mere receiver being appointed, there is likely to be
less curtailment, as compared to a case where a receiver and
manager is appointed.
JUDICIAL MANAGEMENT
Where the company is facing financial problems, another alternative
is judicial management. Liquidation will result in the demise of the
company. As stated, though receivership on its own would not result
in the demise of the company, it may lead to liquidation, which will
result in the demise of the company, and all this could happen even if
in principle the company’s assets exceed its liabilities.
However, unlike liquidation or receivership, at the end of judicial
management, the company may actually continue and in fact be in a
better position to do so. One of the basic aims of judicial
management is to rehabilitate the company. During such
rehabilitation, the company is shielded from legal actions against it
and its assets are protected from creditors. Such judicial
management stands to benefit the members (as the company can still
eventually carry on) and the creditors (especially unsecured creditors,
who may now have a better chance of getting paid).
Section 90 provides that where a company or where a creditor or
creditors of the company consider that:
•
•
the company is or will be unable to pay its debts, and
there is a reasonable probability of rehabilitating the company,
or of preserving all or part of its business as a going concern,
or that otherwise the interests or creditors would be better
served than by resorting to winding up,
an application may be made to the court for an order that the
company should be placed under judicial management. The company
or its directors (pursuant to a resolution of its members or the board
of directors) or a creditor or creditors may make such an application
(section 91). Pursuant to sections 89 and 91, the court may make a
judicial management order only if:
•
•
it is satisfied that the company is or will be unable to pay its
debts, and
it considers that the making of the order would be likely to
achieve one or more of the following purposes, namely:
(i) the survival of the company, or the whole or part of its
under taking as a going concern;
(ii) the approval under section 210 of the Companies Act or
section 71 of the Insolvency, Restructuring and Dissolution
Act, a compromise or arrangement29 between the
company and any such persons as mentioned in those
sections;
(iii) a more advantageous realisation of the company’s assets
would be effected than on winding up.
However, there are some situations (section 91(8)) in which a
judicial management order cannot be made even if one, or more, of
the above conditions is satisfied. For instance, if the company has
already gone into liquidation, a judicial management order cannot be
made. Instead of going through court, it is also possible for the
company to enter into judicial management through a resolution of its
creditors (section 94).
Judicial management would generally be for a period of 180 days,
though it is possible to get an extension (section 111).
The effects of a company being placed under judicial management
are set out in section 96 which provides that during the period of
judicial management,30
•
•
•
no resolution can be passed or order made for the winding up
of the company,
no proceedings or execution or other legal process shall be
commenced or continued against the company or its property
except with the leave of court, and
no steps shall be taken to enforce security over the company’s
property or to repossess any goods under any hire purchase
agreement,31 chattels leasing agreement or retention of title32
agreement, except with the consent of the judicial manager or
with the leave of court.
The basic aim of these provisions is to give the company some
breathing space during which creditors would not be able to go after
the company or its assets. It may also be noted that during the
operation of the judicial management, the powers of the directors
cease and they become vested in the judicial manager (section
99(2)).
Within 90 days (or such longer period as may be approved), the
judicial manager has to come up with a proposal (section 107) and
among other things, a meeting of the creditors has to be summoned
to decide whether or not they will approve the judicial manager’s
proposals (section 108). If the creditors decline to accept the
proposal, the company may be discharged from judicial management
(section 108(5)). The creditors may then resort to winding up the
company.
If the creditors accept the proposal, subject to some
qualifications, the judicial manager is duty bound to manage the
affairs, business and property of the company in accordance with the
proposals (section 110). Finally, the judicial manager has to apply to
the court for the judicial management to be discharged, if it appears
to him that the purpose or each of the purposes specified in the order
of judicial management has been achieved, or is incapable of being
achieved (section 112).
Upon discharge, if the purpose or purposes have been achieved,
for instance, the company has been nursed back to health, it may
continue to operate. However, if the purpose or purposes have not
been achieved, liquidation may follow shortly.
SCHEME OF ARRANGEMENT
Schemes of Arrangements or compromise agreements are covered
by the Companies Act as well as the Insolvency, Restructuring and
Dissolution Act.
A scheme of arrangement is essentially an agreement between a
company in distress and its creditors as to how its debts are going to
be repaid. For instance, creditors may agree that only a portion, of
their debts has to be repaid or that their debts can be repaid at a
later point in time. Since the company would still be in operation, this
might be preferable to winding up the company, as the creditors may
stand a chance of recovering more. In addition, from the company’s
viewpoint, this may also be preferable to judicial management, as
there may be less public coverage about the company’s financial
woes and the directors can continue managing the company.
An application can be made to the Court by various persons such
as the company itself, creditor or member (section 210 (2) of the
Companies Act) to get the court’s approval to hold a creditors’
meeting. It should also be highlighted that not all the creditors have to
agree. Generally, it would suffice if the majority (that is more than
50% of creditors holding at least 75% of the value of debt claims)
agrees (section 210 (3AB) of the Companies Act). Once requisite
creditor approval has been garnered, the court’s approval for the
scheme of arrangement has to be obtained (section 210(4) of the
Companies Act). It is also possible to get a moratorium or an order
restraining the bringing of claims against the company during the
relevant periods (sections 211B and 211C of the Companies Act), so
that the company has some breathing space and the scheme stands
a chance of succeeding. The scheme of arrangement would also
provide on how it will be terminated (such as after a certain specified
period of time).
Instead of going for a court sanctioned scheme, if all the creditors
agree, the parties involved may also enter into a private deed of
arrangement to restructure their debts, but since this requires the
agreement of all creditors, the chances of such an arrangement
taking place are not high.
If the court sanctioned scheme or private arrangement works
according to plan, the company may be able to continue to operate at
the end of it and this does commonly happen in practice. However, in
the event that the plan cannot be carried through after it has been
entered into, it is possible that liquidation may eventually follow.
_____________
1 See pages 26, 38 to 40 and 53.
2
However, it is possible to dissolve a company without going through winding up in
certain circumstances (see page 381).
3 There are similar provisions in relation to the winding up of a limited liability
partnership; see the Fifth Schedule to the Limited Liability Partnership Act.
4
See page 66.
5 There are similar provisions in relation to the winding up of a limited liability
partnership; see the Fifth Schedule to the Limited Liability Partnership Act.
6
There are similar provisions in relation to the winding up of a limited liability
partnership; see the Fifth Schedule to the Limited Liability Partnership Act.
7 This is not a common ground, for it would be easier to carry out a voluntary
winding up in such a situation.
8
However in such a situation it is possible for the court to order the statutory report
to be lodged or the statutory meeting to be held, instead of winding up the company;
see section 128(3).
9 As to section 216 of the Companies Act, see page 67.
10
There are exceptions, see for instance, section 161(6)(a).
11 There are similar provisions in relation to the winding up of a limited liability
partnership; see the Fifth Schedule to the Limited Liability Partnership Act.
12
As to ‘‘things in action”, see page 377, footnote 14.
13 The Official Receiver is a public servant (section 21).
14
A thing in action refers to a right which can be claimed or enforced only by
action and not by taking physical possession of the property, such as a debt
receivable.
15 A committee of inspection may be appointed in relation to a winding up by the
court (section 150) or a creditors’ voluntary winding up (section 169), and its
function is essentially to supervise the liquidator.
16
See page 385. In the case of limited liability partnerships, see also the Fifth
Schedule to the Limited Liability Partnership Act.
17 See page 20.
18
As to when winding up commences, see page 375.
19 As to when winding up commences, see page 375.
20
There are similar provisions in relation to the winding up of a limited liability
partnership; see the Fifth Schedule to the Limited Liability Partnership Act.
21 See page 119.
22
See page 42 to 43.
23 There are similar provisions in relation to the winding up of a limited liability
partnership; see the Fifth Schedule to the Limited Liability Partnership Act.
24
However, where there are insufficient assets, in the case of the winding up by
the court, it is possible for the court to order the costs and expenses of winding up
to be paid in priority to all other debts, possibly including secured debts (section
155(3)).
25 See page 66, footnote 5.
26
There are similar provisions in relation to the winding up of a limited liability
partnership; see the Fifth Schedule to the Limited Liability Partnership Act.
27 See page 118 onwards.
28 It is also possible for a limited liability partnership to go under receivership; see
the Fourth Schedule to the Limited Liability Partnership Act.
29
See page 385.
30 There are also similar provisions in relation to the period between the
presentation of the petition and the grant of the order of judicial management
(section 95).
31
See page 128.
32 See page 275.
AppendixA
Sample Contract
Distributorship Agreement
1
This Agreement is made by the Parties hereto on the 2nd of January
2020.
1.
The Parties
a. Kap PT of 123, Rafi Street, Jakarta 45678, Indonesia
(hereinafter referred to as the Principal) and
b. Sino Pte Ltd of 910, Wan Street, Singapore 112233
(hereinafter referred to as the Distributor).
2.
Recital
a. The Principal manufactures goods including the Products.
b. The Distributor wishes to place orders of the Products and
sell them within the Territory.
3.
Definitions
a. Products
Products refer to the products listed in Schedule 1 to this
Agreement.
b. Price
Price refers to the price of the Products as listed in Schedule
1 to this Agreement.
c. Notice
Notice refers to giving notice in accordance to Clause 16 and
d.
Schedule 2 to this Agreement.
Territory
Territory refers to the country of Singapore.
4.
Grant
a. The Principal appoints the Distributor as the sole and
exclusive distributor for the Products in the Territory for the
duration of this Agreement.
b. The Principal shall not sell the Products to any other party,
when it has reasonable grounds for believing that the
Products would be directly or indirectly imported or brought
into the Territory, during the duration of this Agreement.2
c. The Principal shall provide updated information about the
product and provide instructions as to use where applicable,
at its own expense.3
5.
Duration
a. This agreement shall be for a period of two years
commencing 2nd January 2020.
6.
Restrictive Covenants4
a. The Distributor for the duration of this Agreement shall not
without the consent of the Principal sell products which are
similar or competitive to the Products offered by the Principal
to the Distributor under this Agreement.
b. The Distributor for the duration of this Agreement agrees not
to sell directly or indirectly any of the Products to any person
without the consent of the Principal if he has reasonable
grounds for believing that the products would be exported or
brought out of the Territory for purposes of resale.
7.
Variations
a. The Principal reserves the right to make modifications to any
of the Products in any way he deems fit.
b. The Principal reserves the right to make variations to the
Price of the Products in any way he deems fit for orders
received after the 1st of December 2020.5
8.
Orders
a. The Distributor shall place an order as and when a need
arises by giving Notice.
b. Upon receipt of the Notice of the order, the Principal shall
give a Notice of the availability of the Products and variations
as to Price in accordance to clause 7b if applicable.
c. If the Distributor wishes to accept the offer made by the
Principal, the Distributor shall give a Notice of the acceptance
to the Principal.
d. Within three (3) days of receipt of the Notice of acceptance,
the Principal shall send to the Distributor a Notice containing
the invoice.
e. Within three (3) days of receipt of the Notice of acceptance,
the Products shall be ready, packed and available for
shipment.
f. If Notice of termination has been given in accordance to
Clause 15, the Principal shall have the discretion whether to
or not to fulfill any orders received from the Distributor for
which payment has not been received.
9.
Payment
a. All payments shall be in Indonesian rupiah and shall be
credited into the Principal’s Citibank account number 123456-789 (or such other account as the Principal may
nominate from time to time) by way of telegraphic transfer.
b. Payment in respect of the Price must be made within 30
days of the date of the invoice.
10. Liquidated Damages6
a. If payment in respect of the Price for Products ordered is not
received within a period of 30 days from the date of the
invoice, the Distributor shall pay interest on the amount owing
at a rate of 0.01% per day.
11. Shipment
a. The Distributor is responsible for shipping the Products.
b. The Distributor is responsible for obtaining Insurance for the
Products during shipment.
c. The Distributor may appoint the Principal as his agent for the
purpose of arranging shipment and/or insurance.
d. If so appointed, the Principal would arrange the shipment
and/or insurance upon receiving payment for the freight
charges and/or insurance premiums from the Distributor.
e. Payment for freight charges and/or insurance premiums shall
be made in accordance to Clause 9a.
f. The Principal will pack the Products in a reasonable manner
at no extra cost so that they are suitable for shipment.7
12. Risk and Property
a. Risk in the Products ordered passes to the Distributor when
the Products are handed over to the shipping company or its
agents to be shipped to the Distributor.8
b. Property in the Products bought passes to the Distributor
only when the Principal receives payment. Till payment is
received, the legal and equitable title in the Products shall
remain with the Principal. During the time the Products
remain the property of the Principal the Distributor shall store
or otherwise keep the Products in such a way as to clearly
indicate at all times that they are owned by the Principal. If
during such time the Distributor is to sell the Products, the
proceeds of sale shall be held on trust for the Principal and
shall be placed in a separate bank account to the order of
the Principal.9
13. Indemnity10
a. The Principal agrees to indemnify the Distributor for any
losses, damage, liabilities, costs, charges or expenses
resulting from a breach of any intellectual property rights
concerning the Products.
14. Exclusion of Liability11
a. Without prejudice to Clause 13a, the Principal hereby does
not offer any warranties or representations expressed or
implied concerning the Products. Further without prejudice to
Clause 13a, in no event shall the Principal be liable for any
damage (whether direct or indirect) caused to the Distributor
by reason of any act, omission, negligence or
misrepresentation on the part of the Principal.
15. Termination
a. Notwithstanding Clause 5a or anything else in this
Agreement, the Principal may terminate the Agreement at
any time by giving three (3) months’ Notice.12
b. Notwithstanding Clause 10a, the Principal may terminate this
Agreement if:
(i) The Distributor delays in paying the Price by more than
30 days.13
(ii) The Distributor becomes insolvent or upon the Distributor
going into receivership or the Distributor ceasing to do
business.
16. Notices14
a. All notices that are to be sent under this Agreement are to
be sent by registered mail, fax or electronic mail. The mailing
address, facsimile number and electronic mail address are
as provided in Schedule 2 to this Agreement.
17. Force Majeure15
a. Neither party shall be liable for any failure to perform its
obligations under this Agreement if the failure results from
events beyond the reasonable control of either party. For the
purpose of this Agreement, such events shall include, but not
limited to, strikes, lock-outs or other labour disputes, riots,
civil disturbances, actions or inactions of government
authorities or suppliers, epidemics, wars, embargoes, acts of
God or other catastrophes. In case of such events, the time
for performance required by either party under this
Agreement shall be extended for a period of 14 days. If the
event continues after a period of 14 days, the other party
may terminate the contract by giving Notice.
18. Waiver16
a. No waiver of any rights arising under this Agreement shall be
effective unless in writing and signed by the party against
whom the waiver is to be enforced. No waiver of any breach
of this Agreement shall be deemed to be a waiver of any
other or any subsequent breach.
19. Assignment and Sub-contracting17
a. The Distributor shall not without the consent of the Principal
assign this Agreement.
b. The Distributor shall not without the consent of the Principal
enter into a sub-distributorship in respect of this Agreement.
20. No Third Party Rights
a. Subject to clause 19a, it is expressly provided that, a person
or entity who is not a party to this Agreement shall have no
right under the Contracts (Rights of Third Parties) Act to
enforce any of the terms of this Agreement.18
21. Dispute Resolution19
a. Any dispute arising out of or in connection with this contract,
including any question regarding its existence, validity or
termination, shall be referred to and finally resolved by
arbitration in Singapore in accordance with the Arbitration
Rules of the Singapore International Arbitration Centre for the
time being in force which rules are deemed to be
incorporated by reference to this clause.
22. Severability20
a.
If any term or provision of this Agreement shall be held to be
invalid, illegal or unenforceable, the remaining terms and
provisions of this Agreement shall remain in force and effect
and such invalid, illegal or unenforceable term or provision
shall be deemed not to be part of this Agreement.
23. Entire Agreement21
a. This Agreement, together with the Schedule hereto,
constitute the entire agreement between the parties with
respect to the subject matter hereof and there are no
representations, understandings or agreements relative
hereto which are not fully expressed herein. The parties
acknowledge and agree that neither of the parties is entering
into this Agreement on the basis of any representations or
promises not expressly contained herein.
24. Independent Contractor22
a. The relationship between the Principal and the Distributor is
that of an independent contractor. It is not that of an agency,
partnership or employment.
b. This is not a joint venture agreement.
25. Survival23
a. Any provision in this Agreement which is intended to impose
an obligation after the termination or expiration of this
Agreement shall survive the termination or expiration of this
Agreement.
26. Governing Law24
a. This Agreement shall be deemed to be a contract made in
Singapore and shall be subject to, governed by and
interpreted in accordance with the laws of the Republic of
Singapore for every purpose.
This Agreement together with the Schedules hereto has been
executed by:
____________________
Name: Susarno Solo
Director, Kap PT
Date: 2/01/2020
____________________
Name: Tan Wan Wan
Director, Sino Pte Ltd
Date: 2/01/2020
_____________
1 This is a highly simplified distributorship agreement and turns on its own facts. It
is included merely to illustrate some clauses referred to elsewhere in the book and
to highlight some other clauses which are commonly found in all sorts of written
contracts. Hence, in no circumstances should this agreement or the clauses
contained therein be used as a precedent.
2
This could also be a restraint of trade; see page 193.
3 As it may not be clear whether there is an implied term to this effect, it is always
better to provide for such things expressly; see page 172.
4
See page 193.
5 See page 153.
6
See page 247.
7 As it may not be clear whether there is an implied term to this effect, it is always
better to provide for such things expressly; see page 172.
8
See page 276.
9 See page 275.
10
If one party breaches the contract, the innocent party who suffers loss may take
action against the other party to claim compensation. However, sometimes there
may be doubts as to whether something amounts to a breach of the contract or
whether the party in breach is liable for certain losses arising from the breach. To
clarify this, contracts often contain indemnity clauses which specify that if a
contract is breached in a certain way or if a certain loss occurs, the party in breach
would have to indemnify or make good the loss. Such clauses are fairly common
though what exactly has to be indemnified would vary from contract to contract. It
also differs from a liquidated damages clause in that the amount of damages to be
paid is not stated. Sometimes, the clauses might even state that if one party is in
breach and he is required to compensate the innocent party, the innocent party
would have to indemnify the party in breach in respect of this! Used in this manner,
the indemnity clause would be akin to an exclusion clause and its validity may be
subject to section 4 of the Unfair Contract Terms Act.
11 See page 174.
12
See page 221.
13 See page 227.
14
Such clauses are also common in written contract and basically clarify by what
means notice must be given.
15 See page 233.
16
If one party breaches the contract, and the innocent party does not object, the
question might arise whether the innocent party can subsequently decide to object
to that particular breach or further breaches of the same type that may occur in
future. To prevent such problems from arising, contracts often contain a clause to
the effect that one party cannot be said to have waived his rights in respect of a
breach committed by another, unless it is in writing. With such a clause, even if the
innocent party does not initially object to a breach, he may possibly subsequently
decide to do so and exercise his right.
17 See page 160 to 161.
18
See page 159.
19 See page 296.
20
See page 198.
21 See page 167 and 208.
22
If there is an agency, partnership or employment relationship between the
parties, various duties may arise, such as vicarious liability (see pages 345 and
364). Hence this clause aims to avoid this. While this clause will clearly be relevant,
it may not be upheld by the court, if the totality of facts points in the other direction.
23 This may be the case even without such a clause (see page 228), but this clause
affirms the position.
24
See page 295.
AppendixB
Finding Out More
The aim of this book was to provide a broad overview of law in so far
as it affects a business. Nonetheless, some matters may not have
been covered at all or only covered very briefly. In addition, matters
stated in this book may change over time. Thus, it is important to
know how to find out more about the law.
If a business wants to know about the law, ideally the business
should refer to the primary sources of the law. As stated in Chapter
1, the two primary sources of law are cases and statutes.
In relation to cases, reported Singapore cases are contained in a
series known as the Singapore Law Reports. Cases from other
countries are contained in other law reports. Generally, such law
reports are available from law libraries. This makes them rather
inaccessible. Though it is possible to subscribe to such reports and
some reports are available electronically (such as those available
through LAWNET1), this may not be free of charge. Thus, getting
access to cases may be an uphill task. Even if the cases are
obtained, deducing the law from the cases may not be an easy
matter for someone not trained in law.
Compared to cases, the other primary source of law, namely
statutes, are more easily accessible. Copies of Singapore statutes
can be purchased from the Singapore National Printers. In addition,
electronic versions are available free at https://sso.agc.gov.sg/. In
certain industries, it may be necessary to have frequent access to the
relevant statutes. Thus, for instance, in the case of an accounting firm
it is likely to make frequent reference to the Companies Act and
Income Tax Act. However, for most general business purposes, this
may not really be necessary or common. In any case, even if there is
access to the relevant statutes, understanding them would be another
matter altogether.
In short, gathering the law from the primary sources without
proper legal training may be time-consuming and difficult. The next
best alternative would be to gather the law from secondary sources.
The first such secondary source is of course the Internet.
However, care must be taken when using information available on the
Internet. This is so because firstly, as stated in Chapter 1, the law in
each country is different. Thus, generally only websites which deal
with Singapore Law would be of relevance should a problem
concerning Singapore Law arise. Secondly, what may be given on the
Internet may not be reliable. In this regard, generally official sites
such as sites of governmental agencies would be more reliable.
Indeed, there are many websites pertaining to Singapore Law.
Some good sources include the Law Society of Singapore
(www.lawsoc.org.sg),
the
Singapore
Law
Portal
(www.lawonline.com.sg)
and
Singapore
Law
Watch
(https://www.singaporelawwatch.sg/), which offer information of a
general nature. In addition, websites of the various governmental
agencies such as the Intellectual Property Office of Singapore, the
Inland Revenue Authority of Singapore, the Ministry of Manpower,
Ministry of Law and the Accounting and Corporate Regulatory
Authority are also good sources of information. Further, many local
law firms have general legal information on their websites that may
be of relevance.
The other secondary source is the textbook. Such textbooks are
available from law libraries, some public libraries and as well as from
some bookshops. Electronic versions of some textbooks are also
available. Provided below is a non-exhaustive list of textbooks relating
to various aspects of business law. The editions are not cited, but
needless to say, the latest edition should be accessed.
General works
1.
2.
3.
4.
5.
6.
Principles of Singapore Business Law – George Shenoy/Loo Wei
Ling (Editors)
Singapore Business Law – Benny S Tabalujan/Valerie Du Toit
Low/Julie Huan/Chen Meng Lam/Alvin See
Law of Rights and Obligations of Business in Singapore –
George Shenoy (Editor)
Legal Aspects of Doing Business in Singapore – George
Shenoy/Toh See Kiat (Editors)
Marketing and Consumer Law in Singapore – Assafa
Endeshaw/Erin Goh
You and the Law – Singapore Association of Women Lawyers
Specialised works
1.
Dispute Resolution Related Law
(a) Mediation: Principles Process Practice – Laurence Boule/Teh
Hwee Hwee
2.
Law Relating to Business Organisations
(a) Company Law – Walter Woon/Tan Cheng Han
(b) Company Law – Pearlie Koh
(c) Woon’s Corporations Law – LexisNexis
(d) Director’s Manual (Singapore) – CCH
(e) Corporate Governance: Practice and Issues
Anandarajah
(f) Partnership Law in Singapore – Yeo Hwee Ying
3.
Contract Law
–
Kala
(a) Cheshire, Fifoot and Furmston’s Law of Contract (Singapore
and Malaysia Edition) – Andrew Phang Boon Leong
(b) The Law of Contract in Singapore – Academy Publishing
(c) Contract Law – Lum Kit Wye/Victor Yeo
(d) Law Relating to Specific Contracts in Singapore – Michael
Hwang SC/Yeo Tiong Min (Editors)
4.
Sale of Goods Law
(a) Sale of Goods – Atiyah
(b) Law of Sales in Singapore – Howard Hunter
5.
E-commerce Law
(a) Your Guide to E-commerce Law in Singapore – Drew &
Napier
(b) Managing Your E-business in Singapore – CCH
6.
Banking Law and Finance
(a) Law of Negotiable Instruments – Poh Chu Chai
(b) Law of Banker and Customer – Poh Chu Chai
(c) Law of Pledges, Guarantees and Letters of Credit – Poh Chu
Chai
(d) The Law of Guarantees in Singapore and Malaysia – Low
Kee Yang
(e) Finance Law – Pauline Gan/Loo Wee Ling
(f) Law of Credit & Security – Loo Wee Ling
(g) Law and Practice of Corporate Finance - Tan Chong Huat
(h) Financial Services Law and Regulation – Dora Neo/Hans
Tjio/Lan Luh Luh
(i) Banking Law – Poh Chu Chai
7.
Insurance Law
(a) Insurance Law in Singapore – Tan Lee Meng
(b) General Insurance Law – Poh Chu Chai
8.
Shipping Law
(a) The Law in Singapore on Carriage of Goods by Sea – Tan
Lee Meng
(b) Admiralty Law and Practice – Toh Kian Sing
9.
Employment Law
(a) Employment Law in Singapore – Ravi Chandran
(b) Singapore Employer’s Handbook – CCH
(c) Termination of Employment in Singapore – Deborah Barker
SC
10. Tax Law
(a) Singapore Master Tax Guide – CCH
(b) Singapore Goods and Services Tax Guide – CCH
(c) Singapore Tax Workbook – CCH
(d) Singapore Taxation – Pok Soy Yong and Damien Hong
(e) The Essential Guide to Income Tax in Singapore – Lim Cher
Hui
(f) Property Tax – Leung Yew Kwong
11. Agency Law
(a) Agency – Bowstead/Reyolds
(b) Law of Agency – Fridman
(c) The Law of Agency – Tan Cheng Han
12. Property (Real and Intellectual) Law
(a) Principles of Singapore Land Law – Tan Sook Yee/Tang HW
(b) Law of Real Property and Conveyancing – N Khublall
(c) Landlord and Tenant – Lye Lin Heng
(d) The Law of Copyright in Singapore – George Wei
(e) A Guide to Patent Law in Singapore – Alban Kang (Editor)
(f) Law of Intellectual Property of Singapore – Ng Loy Wee Loon
(g) Intellectual Property Law of Singapore – Susanna H S Leong
13. Insolvency Law
(a) Law and Practice of Bankruptcy in Singapore and Malaysia –
Anandarajah/Parwani/Chan/Subramanian
(b) Corporate Receivership – Suheran Suhendran/Lim Tian
Huat/Edwin Chew
(c) Law and Practice of Corporate Insolvency – Andrew Chan
14. Securities Law
(a) Principles and Practice of Securities Regulations – Hans Tjio
15. Tort Law
(a) The Law of Torts in Singapore – Gary Chan Kok Yew
16. Data Protection Law
(a) Data Protection Law in Singapore, Simon Chesterman
(Editor)
Encyclopaedia of Singapore law
In addition to textbooks, there is an encyclopaedia on Singapore Law
known as Halsbury’s Laws of Singapore. The following volumes that
may be of more relevance to business have been published, though
they may be less easily available as compared to textbooks:
(a) Agency Law (Volume 15)
(b) Arbitration (Volume 1(2))
(c) Building and Construction (Volume 2)
(d) Carriers (Volume 3)
(e) Commercial Law (Volume 5)
(f) Company Law (Volume 6)
(g) Contract Law (Volume 7)
(h) Employment Law (Volume 9)
(i) Finance and Banking Law (Volume 12)
(j) Insolvency (Volume 13)
(k) Insurance (Volume 13(2))
(l) Intellectual Property (Volume 13(3))
(m) Land Law (Volume 14)
(n) Partnership Law (Volume 15)
(o) Revenue and Taxation Law (Volume 16)
(p) Securities Law (Volume 17)
(q) Shipping (17(3))
(r) Tort Law (Volume 18)
_____________
1 www.lawnet.com.sg.
Index
Advocate and solicitor, 21, 118, 145
Angel investor, 53
Agency,
Agent-principal relationship
duties of agent, 333–337
formation, 332, 333
rights of agent, 337–339
termination of agency, 339
Agent-third party relationship, 346
breach of warranty, 346
meaning of, 346
negligence, 346
Principal-third party relationship
actual authority
apparent or ostensible authority, 340, 341–343
ratification, 343, 344
undisclosed principal, 344, 345
vicarious liability, 345
Anti-competitive behaviour, 198, 199
Anton pillar order, 112
Arbitration, 13, 14, 22
Singapore Industrial Arbitration Court, 326, 327
Singapore International Arbitration Centre, 13
Assault and battery, 347
Bankruptcy,
Consequences, 18
Process, 17
Termination, 19
Bill of lading, 126, 300, 301, 331
Breach of confidence, 367, 368
Bonds,
Debt bond, 125
Performance bond, 124
Study bond, 247
Business trusts, 23
Civil proceedings,
Burden of proof, 8
Meaning of, 7
Purpose, 8
Commissioner of oaths, 118
Companies,
Branch, 47
Company auditor, 56, 68
Company charges, 119–121
Company secretary, 54, 68
Directors,
appointment, 69, 73
disqualifications, 70–73
duties, 69, 75–83
management, 75–83
qualifications, 69, 70
removal, 73
Dissolution,
appointment of liquidators, 376
avoidance of antecedent transactions, 377, 378
commencement of winding up, 375, 376
powers of liquidators, 377
proof and ranking of claims, 379–381
voluntary winding up, 372
winding up by the court, 372–375
Dividends, 64, 66, 125
Floating charge, 58, 119, 378
Insider trading, 83–86
Judicial management, 383–385
Listing, 46, 124
Market manipulation, 86
Meetings, 64–66
Members,
meaning of, 61
rights of, 63–68
Receivership, 382, 383
Raising finance, 58, 124, 125
Registration, 48
Separate legal entity,
liability for company debts, 42, 43
perpetual succession, 44, 45
property, 41, 42
suing and being sued, 43, 44
Types of companies, 45,
Exempt, 46, 47
limited, 45, 46, 48
private, 46–48
public, 46–48
small, 47
unlimited, 45, 46, 48
Scheme of Arrangement, 385, 386
Subsidiary, 47, 152
Confidentiality, 80, 97, 195, 245, 252, 309, 335, 337, 367, 368
Constitution, 19, 322
Consumer Association of Singapore, 11
Contract,
Acceptance communication,
method, 141
silence, 141, 142
timing, 142
meaning of, 141
Agreement as to essential terms, 144
Conditions,
conditions in contracts, 173, 174, 223, 225
conditional offers, 138, 139
Consideration,
adequacy of, 146
meaning of, 145
past, 147
sufficiency of, 148–151
Discharge of contracts,
by agreement, 221–223
by frustration, 228–232
force majeure, 223, 234
meaning of, 228
payments, 234, 235
self-induced frustration, 232
by performance, 217, 218
by repudiation, 223–228
Doctrine of Laches, 253
Essentials, 131, 132
Exemption clauses,
effect on third parties, 183
meaning of, 175
validity of, 175–185
Express terms, 164–167
Implied terms, 168–172
Indemnity, 390
Innominate terms, 174, 226
Intention to create legal relations,
letter of comfort, 152
memorandum of understanding, 152
requirement for, 151
subject to contract, 152
Limitation of actions, 253
Offer,
meaning of, 132
invitation to treat,
advertisements, 134, 135
auctions, 135
company prospectus, 135
display of goods, 133
quotations, 136
tenders, 135, 136
termination, 136–140
Parol Evidence Rule, 167, 168
Parties to the Contract, 158–162
agency, 161, 162, 330–332
assignment, 160
novation, 160, 161
sub-contracting, 161
Remedies,
deposits, 249, 250
injunctions, 252
liquidated damages, 116, 166, 247–249
part payments, 249, 250
unliquidated damages, 238–246
aim of, 239
causation, 246
damages for injured feelings, 242, 243
expectation loss, 240
incidental loss, 241
mitigation, 245, 246
punitive damages, 241, 242
reliance loss, 240, 241
remoteness, 243, 244
specific performance, 250–252
restitution, 253
Variation of contract, 153–158
Vitiating factors,
contracts against public policy
restraints on employees, 195
restraints on products, 196
restraints on sale of business, 196
restraints on services, 196
duress, 208–210
illegality, 193
incapacity,
mentally unsound, 189
intoxicated persons, 189
minority,
beneficial contracts of employment, 187, 188
contract for necessaries, 186, 187
ratifiable contracts, 188, 189
voidable contracts, 188
misrepresentation,
excluding liability for, 207, 208
meaning of, 199
remedies, 205–207
silence, 201–203
types, 204
mistake, 212–214
unconscionability, 214, 215
undue influence, 210–212
Warranties, 172–174, 225, 270
Writing, 152, 153
Consumer protection,
Coverage, 287–289
Defence, 293
Remedies, 293, 294
Unconscionability, 291
Unfair practices, 289–292
Conversion, 280, 347
Copyright
Defences for infringement, 111, 112
Duration of, 106, 107
Infringement, 109–111
International protection, 114
Meaning of, 102
Ownership of, 107, 108
Performance rights, 113
Rights conferred by, 108, 109
Criminal proceeding
Burden of proof, 8
Meaning of, 6–8
Purpose, 8
Crowdfunding, 124
Data protection, 368, 369
Debentures, 125
Debt financing, 125
Debt Repayment Scheme, 20
Deceit, 346, 347
Deed, 145, 154, 386
Defamation, 15, 106, 347
Distributorship–agreement, 387
Employment,
Employee
duties of, 306, 309
meaning of, 303–306
Employers’ obligations,
annual leave, 304, 313
Central Provident Fund,
contributions, 316
childcare leave, 315, 316
discrimination, 322
duty of care, 320, 321
holidays, 313
maternity leave, 314, 315
minimum wage, 313
overtime pay, 312
paternity leave, 315
payslip, 313
re-employment, 317
retirement age, 317
retrenchment, 314
salary deduction, 313
salary payment, 313
shared parental leave, 315
sick leave, 313
working hours, 312
work injury compensation, 318, 319, 320
workplace safety and health, 317, 318
Foreign worker, 327, 328
Termination of contract of employment,
by notice, 323
summary dismissal, 323, 324
Trade unions and industrial relations collective agreement, 325–327
Industrial Arbitration Court, 326, 327
Employment Claims Tribunal, 16, 324
Equity financing, 125
Estate agent, 330, 334, 335, 337–339
Ethics, 1, 2
Factoring, 122
Fair trading,
Defences, 293
Limitation of actions, 294, 295
Remedies, 293, 294
Unfair practices, 289–292
Franchise, 92, 196
Garnishee order, 17, 20
Guarantees, 122–124, 148
Guarantee/Warranty card, 270
Hire purchase, 128–130
Income tax, 56
International sales,
Payment terms
letter of credit, 301
UCP, 301
Sale terms UNCISG, 296–299
Transportation terms,
CIF, 299, 300
FOB, 299, 300
INCOTERMS, 300
Transporter’s obligations,
Hague Visby Rules, 301
Warsaw Convention, 301
Joint ventures, 59, 60
Jury, 10
Lawyers,
Advocate, 21
Law Society of Singapore, 22
Payment, 10, 21, 22
Seeking legal advice, 21, 22
Solicitor, 21
Legal aid, 22
Lemon law, 286
Liens, 127, 128, 285
Limited liability partnership,
Disqualification of managers, 70–73
Features, 50, 51
Liquidation, 372, 375, 377–379, 381
Receivership, 382
Registration, 49, 50
Limited partnership, 52–58
Litigation,
Court of Appeal, 9, 10
District Court, 9
High Court, 9
Process, 10, 11
Singapore International,
Commercial Court, 11, 14
State Court, 9
Loans, 81, 82, 115-117, 124
Mediation,
Centre for Dispute Resolution, 13
Consumer Association of Singapore, 11
Financial Industry Dispute Resolution Centre, 11
Law Society of Singapore, 22
Singapore Institute of Surveyors and Valuers Dispute Resolution Centre, 11, 13
Singapore Mediation Centre, 11–13
Small Claims Tribunal, 15
Tripartite Alliance for Dispute Management, 11, 16
Money lending, 190
Mortgages, 117–119
Negligence,
Breach of duty, 354–357
Causation, 357, 358
Damages, 358, 359
Defences,
contributory negligence, 359, 360
exclusion of liability, 360, 361
voluntary assumption of risk, 360
Duty of care, 349–352
Negligent misstatements, 352, 353, 354
Res ipsa loquitur, 356, 357
Notary public, 118
Nuisance, 347
Official assignee, 18, 19
Overdrafts, 116, 117
Parallel imports, 94
Partnership,
Dissolution,
distribution of assets on dissolution, 40
judicial dissolution, 39, 40
non-judicial dissolution, 38, 39
Formalities, 29
Meaning of, 27
Relationship between partners,
good faith, 37
indemnity, 36
management, 37
profits and losses, 36
property, 35
remuneration, 37
Relationship between partners and outsiders, 29–33
Passing off, 15, 88, 95, 106, 361–364
Patents,
Aim of, 96, 97
Duration of, 99
Infringement, 99, 100
International protection, 100
Property rights, 99
Registration, 97, 99
Performance bond, 124
Pledges, 126, 127
Power of Attorney, 329
Public prosecutor, 7, 8
Receiver, 17, 20, 71, 120, 382, 383
Registered designs,
Duration of, 107
Infringement, 101
International protection, 102
Property rights, 101
Registration, 100, 101
Sale of goods,
Delivery
amount, 279, 280
place, 278, 279
time, 279
Excluding liability, 268, 269
Implied terms, 258
correspondence with sample, 266
description, 260, 261
right to sell, 259, 260
free from encumbrance, 259
quiet possession, 259, 260
satisfactory quality, 261–264
Liability of the manufacturer, 269, 271
Passing of property, 271–275
Passing of risk, 276–278
Reservation of title, 275, 276
Right to reject, 267, 268
Sale by person who is not the owner, 280
exceptions, 280–283
Sellers’ and buyers’ remedies, 284–287
Scheme of arrangement, 385, 386
Security,
Book-debts, 122
Insurance policy, 121, 122
Shares, 122
Small Claims Tribunal, 14, 15
Sole proprietorship,
Dissolution, 26, 27
Meaning of, 24
Registration, 24–26
Stamp duty, 207
Tenancy, 160, 171, 227
Trade marks,
Defence for Infringement, 93
Duration of, 99, 101
Meaning of, 88
Infringement, 92, 93
International protection, 95, 96
Property rights, 91, 92
Registration, 88–91
Trespass, 347
Vicarious liability, 295, 345, 364–367, 369
Voluntary arrangement, 19, 20, 386
Waiver, 227, 228, 392
Will, 27
Writ of seizure and sale, 17, 20, 378
About the Author
Ravi Chandran graduated from Faculty of Law, National University of
Singapore in 1991. He did his pupilage in Messrs Lee & Lee and was
called to the Bar in 1992. He was in private practice for some time
before he set off to do his Masters in Law at Queen’s College,
Cambridge University. He returned in 1995 and since then has been
teaching in the School of Business, National University of Singapore.
He has published numerous articles on business law in Singapore and
overseas and has won various teaching awards. He is also a
mediator with the Consumers Association of Singapore.