Introduction To Business Law In Singapore [6th ed.]

Table of contents :
Title Page......Page 2
Copyright Page......Page 3
Contents......Page 4
Preface......Page 8
Law Report / Case Citation Abbreviations......Page 10
Table of Cases......Page 13
Table of Legislation......Page 32
Law and Ethics......Page 53
Law and Business......Page 54
Sources of Law......Page 55
Criminal and Civil Law......Page 59
Methods of Resolving Civil Disputes......Page 61
Methods of Enforcing Civil Judgments......Page 68
Obtaining Legal Advice......Page 73
Chapter 2 Setting up the Business......Page 80
Sole Proprietorship......Page 81
Partnership......Page 84
Companies......Page 100
Limited Liability Partnership......Page 109
Limited Partnership......Page 113
Joint Ventures......Page 119
Members......Page 124
Company Secretary and Auditor......Page 132
Directors......Page 133
Chapter 4 Protecting Intellectual Property......Page 156
Trade Marks......Page 157
Patents......Page 167
Registered Designs......Page 171
Copyright......Page 173
Loan and Overdrafts......Page 190
Mortgages or Charges Over Land......Page 192
Mortgages or Charges Over Chattels......Page 193
Company Charges......Page 194
Security in Respect of Choses in Action......Page 197
Guarantees......Page 199
Public Issue of Securities......Page 201
Pledges......Page 203
Liens......Page 204
Hire Purchase......Page 206
Definition......Page 210
Offer......Page 211
Acceptance......Page 221
Consideration......Page 226
Intention to Create Legal Relations......Page 233
Writing......Page 235
Variation of Contract......Page 236
Parties to the Contract......Page 242
Chapter 7 Understanding Terms of a Contract......Page 248
Express Terms......Page 249
Implied Terms......Page 254
Classification of Terms......Page 258
Exclusion or Limitation Clauses......Page 261
Incapacity......Page 273
Illegality......Page 278
Contract Against Public Policy......Page 283
Misrepresentation......Page 290
Duress......Page 300
Undue Influence......Page 303
Mistake......Page 305
Unconscionability......Page 307
Performance......Page 310
Agreement......Page 314
Repudiatory or Fundamental Breach......Page 317
Frustration......Page 323
Chapter 10 Suing for Breach of Contract......Page 333
Damages......Page 334
Specific Performance......Page 348
Restitution......Page 351
Limitation of Actions......Page 352
Summary of Contractual Disputes......Page 353
Chapter 11 Dealing with Product Liability......Page 356
Implied Terms......Page 357
Excluding Liability Imposed by the Sale of Goods Act......Page 369
Liability of the Manufacturer and Others......Page 370
Passing of Property......Page 372
Risk......Page 379
Delivery......Page 381
Sale by Person Who is Not the Owner......Page 383
Seller’s and Buyer’s Remedies......Page 387
Consumer Protection (Fair Trading) Act......Page 391
International Sales......Page 401
Meaning of the Term “Employee”......Page 412
Duties of the Employee......Page 415
Duties of the Employer......Page 419
Termination of Contract of Employment......Page 435
Trade Unions and Industrial Relations......Page 437
Foreign Workers......Page 440
The Essence of Agency......Page 444
Agent-Principal Relationship......Page 447
Principal-Third Party Relationship......Page 457
Agent-Third Party Relationship......Page 464
Chapter 14 Preventing Other Liabilities......Page 467
Tort of Negligence......Page 468
Tort of Passing Off......Page 483
Tort of Vicarious Liability......Page 487
Tort of Breach of Confidence......Page 490
Chapter 15 Ending the Business......Page 495
Winding up......Page 496
Receivership......Page 507
Judicial Management......Page 508
Scheme of Arrangement......Page 511
Appendix A Sample Contract......Page 515
Appendix B Finding out More......Page 524
Index......Page 531
About the Author......Page 543

Citation preview

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 that right. The person who institutes the action in a court of law is known

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 sentenced 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.

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 would determine questions of law.17 In Singapore, the jury system has long since been abolished and the judge or judges determine both questions of fact and law. There are time limits within which a civil 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 on which the cause of action accrues. Whereas, in cases involving personal injury, the time limit is generally 3 years.18 Further where it is possible to make an appeal, there are short time limits within which 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

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 trial could involve a lot of money. The amount of court fees involved would depend on the type of action, the level of the court and the 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.

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.

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. 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

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

Small Claims Tribunal 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 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. However, before any such bankruptcy petition is presented, the debt or the aggregate of the debts must be not less than $15,000 (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). 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 Development Act) and Central Provident Fund (CPF) contributions (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. 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

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 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

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).

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 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 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 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.

Relationship between partners 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. (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. (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

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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:

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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 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 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.

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 court held that Saloman could not be personally made liable for the debts of the company, as the company was a separate entity from Saloman and its debts were not Saloman’s debts. 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.

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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:

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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, •

• •

• •

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, • •

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. _____________ 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: • • • •

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: •

•

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,

• •

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:

• • •

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 original offer, that counter-offer too has the effect of rejecting the original offer. In Hyde v Wrench (1840), Wrench offered to sell his farm to Hyde for £1,000. Hyde replied asking whether he would take £950 instead. Wrench refused to accept this, 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:

(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 return for that promise. 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 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 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 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. 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,

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

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” 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.

(d) Promissory estoppel 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.

Fairness of terms In relation to contents of express terms, generally parties are free to agree to whatever they want to unless the terms are invalid due to some statutory provision5 or are against public policy.6 If not invalid due to some statutory provision or contrary to public policy, it generally does not matter whether particular terms are fair or reasonable. Even if they are unfair, they are perfectly binding as the parties have agreed to them. In addition, if all terms can be challenged on the grounds of fairness, there will be a lot of litigation and that will create uncertainty in business. 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. Thus, subject to the exceptions above, the party which is in the 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 to agree and be bound.

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

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.

Parol evidence rule 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

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.

EXCLUSION OR LIMITATION CLAUSES 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.

Is the clause valid under the Unfair Contract Terms Act? Contrary to what the name of this statute suggests, it does not regulate all types of unfair terms. The statute primarily deals only with exclusion or limitation clauses. The two key sections are sections 2 and 3. Section 2(1) provides that a person cannot exclude or restrict liability for negligence in 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

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

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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

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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.

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 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

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) 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 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.

(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 certain amount of notice4 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 on the facts of each case.6 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. (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.

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

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

FRUSTRATION 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

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.

Force majeure 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 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 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 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 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.

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 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.

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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.

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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, • • •

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: •

•

•

•

•

•

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

•

•

•

•

•

•

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

•

•

•

•

•

•

•

(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, • • • • •

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 on or the exact day of shipment]) the more likely that the forwarding agents would be acting as agents), 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).

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

Preventing other Liabilities

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

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 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 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.

(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. (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 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. 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 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 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. 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. 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

from liability and they include the following: • • •

contributory negligence, voluntary assumption of risk, and exclusion of liability.

(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

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.

TORT OF VICARIOUS LIABILITY 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.

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. 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 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 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.