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  • Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd[2003] 3 SLR 629; [2003] SGCA 23
    creditors voted together at the same meeting 12 Singapore Cables took objection to the claims of three related parties namely Mr Stanley Lee Kiang Leng Mr Lee Mr Wong Beng Huat Mr Wong and R N Electrical Engineering Pte Ltd R N The related party debts accounted for 61 72 of Wah Yuen s total unsecured debt The extent of the three parties relationship with Wah Yuen as well as the quantum of each of their three claims was as follows Related party Quantum of claim a Mr Stanley Lee Kiang Leng the managing director and 70 10 shareholder of Wah Yuen 4 296 254 10 b Mr Wong Beng Huat a director and 14 95 shareholder of Wah Yuen 20 000 00 c R N Electrical Engineering Pte Ltd a company in which Mr Lee held 90 of the shares and of which he was managing director 964 833 61 Total 5 281 087 71 13 Counsel for Wah Yuen correctly submitted that related party creditors did not constitute a separate class of creditors for voting purposes simply because they were related parties This is because the test is based on similarity or dissimilarity of legal rights against the company not on similarity or dissimilarity of interests not derived from such legal rights The fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings UDL Argos Engineering Heavy Industries Co Ltd v Li Oi Lin 14 The position of Singapore Cables however was not that the two directors and R N should have voted separately by virtue of the fact that they were related parties rather counsel for Singapore Cables argued that the three parties should not have been allowed to vote at all because there were legitimate concerns over the existence and extent of the related party debts In so far as Mr Lee and Mr Wong were concerned the debts owing to the two directors witnessed a dramatic increase a In 1999 the amount Wah Yuen allegedly owed to their directors was only 161 188 00 b In Wah Yuen s audited balance sheet as at 31 December 2000 this amount had increased to 2 109 390 00 an increase of 1 948 202 00 c In Wah Yuen s unaudited balance sheet as of 30 November 2001 this amount had further increased to 3 936 847 00 an increase of 1 827 457 00 Out of this total amount the sum 3 916 847 00 was allegedly owing to Mr Lee alone d At the second creditors meeting the debt allegedly owing as admitted for the purposes of voting by Wah Yuen to both their directors as stated in the summary of results was 4 316 254 10 out of which the amount allegedly owing to Mr Lee alone was 4 296 254 10 This was more than the total amount allegedly owing to all the directors as at 30 November 2001 In so far as R N was concerned the debt owing to the company witnessed a dramatic decrease a The amount owing by Wah Yuen to R N in 1999 was only 356 028 00 b In Wah Yuen s audited balance sheet as at 31 December 2000 this had increased to 2 497 632 00 an increase of 2 141 604 00 c In Wah Yuen s unaudited balance sheet as at 30 November 2001 this amount decreased to 1 006 391 00 a decrease of 1 491 241 00 d At the second creditors meeting the debt allegedly owing as admitted for the purposes of voting as stated in the summary of results was 964 833 61 reflecting a further decrease of 41 557 39 15 Singapore Cables argued that it was not possible to verify the extent of the related parties claims or indeed if they were creditors at all on the information that was currently available In the premises the three related parties should not have been allowed to vote on the revised scheme If one were to discount the values attributable to these related parties the creditors in value supporting the scheme 8 556 893 43 less 5 281 087 71 would be 3 275 805 72 which worked out to 63 96 a figure that fell short of the 75 requirement of s 210 3 If one were to exclude the claims of the related parties from the equation Singapore Cables would have the single largest unsecured claim against Wah Yuen with a claim in excess of 1 1m and would have sufficient votes to effectively veto the scheme In the result Singapore Cables submitted Wah Yuen s application failed at the outset because the percentage requirements in s 210 3 had not been met 16 At the appeal hearing counsel for Wah Yuen sought to overcome this objection by arguing that the 75 threshold would have been crossed even if the related parties had voted on less favourable terms He tendered one set of calculations to show that the proposed scheme would have received the support of 81 03 in value of the creditors even if the quantum of related party debts had remained unchanged since the accounts were last audited for the financial year 2000 He tendered yet another set of calculations to show that the proposed scheme would have received the support of 77 48 in value of the creditors even if the amount owing to R N had dropped to 964 833 61 but the amount owing to the two directors had not increased since the financial year 2000 17 We were left unimpressed by this submission In our opinion it was always possible to cobble together some hypothetical scenario to show that the percentage requirements in s 210 could have been met Those scenarios however were just that hypotheticals and they did nothing to allay the real concerns that the changes in the related party debts had provoked 18 Nevertheless as much as we shared Singapore Cables concern over Wah Yuen s lack of transparency over its related party debts we were of the opinion that it was better dealt with when the bona fides of the related parties votes or the merits of the proposed scheme were assessed If it were a condition precedent that a company had to satisfy each creditor of the genesis and extent of all of its debts before the scheme could be put to the vote the entire process would be cumbersome and administratively inconvenient especially when the scheme might itself already provide for a procedure for the adjudication of claims for voting purposes as it did in this case Any remaining concerns therefore were better dealt with on a discretionary basis Whether the 36 creditors who stood to recover more than 15 of their claims should have been sub divided into separate classes for voting purposes 19 In the alternative Singapore Cables submitted that the votes of the remaining creditors were not representative of the views of the majority of the creditors as a whole because of the 75 creditors who voted for the scheme of arrangement 36 of them almost half of the creditors voting for the scheme of arrangement may be said to have rights which were so dissimilar from the other creditors that they would not be in a position to consult together with a view to their common interest Fourteen of the creditors stood to recover 100 of their claims Of the remaining 22 creditors Singapore Cables submitted that they too were not in position to consult together with a view to their common interest because they stood to recover various percentages of their claims ranging from 15 33 to 89 07 20 Although counsel for Wah Yuen took no objection we noted that Singapore Cables had not advanced this argument before the judge below According to the Court of Appeal in Management Corporation Strata Title No 473 v De Beers Jewellery Pte Ltd 2002 2 SLR 1 at 15 a party cannot raise a new argument on appeal unless the court is satisfied beyond doubt that a it has before it all the facts bearing upon the new contention as completely as would have been the case if the controversy had arisen at the trial and b that no satisfactory explanation could have been offered by those whose conduct is impugned if an opportunity for explanation had been afforded them when in the witness box The underlying principle behind the test is that the Court of Appeal should not allow any party to advance a new argument on appeal unless it is convinced that it is in as good a position as the judge below would have been to determine the merits of the new contention In the present case the court was indeed in such a position because it could resolve the question as to whether the creditors should have been divided into separate classes based on the material before it without having to call for further evidence 21 What Singapore Cables was essentially advocating was that the creditors should have been put into separate classes based on minor differences in the percentages that they stood to recover We found this to be both unrealistic and impractical If Singapore Cables was correct at least 12 classes of creditors would have to be given separate meetings each of which would be attended by anything from one to 14 creditors Just as the court must be careful not to empower the majority to oppress the minority by allowing the company to put everyone in the same class it must be careful not to enable a small minority to thwart the wishes of the majority by fragmenting the creditors into small classes see UDL Argos Engineering Heavy Industries Co Ltd v Li Oi Lin at 646 647 22 On the facts of the present case one could only adopt a fairly robust approach Re Crusader Limited 1995 QSC 95 and classify the creditors in a broad and objective manner Re Jax Marine Pty Ltd and Companies Act 1961 1967 1 NSWR 145 at 149 Complete identity of interest among the creditors was impossible Any attempt to subdivide the creditors into classes based on the precise percentage they stood to recover would lend itself to the charge of arbitrariness 23 What did cause us more concern however was whether Wah Yuen should at least have put the 14 who stood to recover 100 of their claims as well as the three whose claims were subordinated to the rest of the creditors into separate classes for voting purposes Prima facie it seemed to us that the rights of these two groups of creditors were so dissimilar from the remaining creditors that they could not sensibly consult together with a view to their common interest We did not find it necessary however to come to a definitive view on this because Wah Yuen s lack of transparency over its related party debts was sufficient reason not to sanction the proposed scheme of arrangement The adequacy of information The duty to give full information 24 Where a meeting is summoned under s 210 of the Act s 211 1 requires the company to provide its creditors with a statement explaining the effect of the compromise or arrangement and in particular stating any material interests of the directors whether as directors or as members or as creditors of the company or otherwise and the effect thereon of the compromise or arrangement in so far as it is different from the effect on the like interests of other persons Quite apart from statutory authority it is an independent principle of law that the creditors should be put in possession of such information as is necessary to make a meaningful choice As Selvam J held in Re Halley s Departmental Store Since s 210 does not lay down any matters on which the application must be based it is of extreme importance that the company furnishes full information to the creditors and the court before they can give their approval This point was stated by Maugham J in Re Dorman Long Co Ltd 1934 Ch 635 at 657 as follows it is essential to see that the explanatory circulars sent out by the board of the company are perfectly fair and as far as possible give all the information reasonably necessary to enable the recipients to determine how to vote I am assuming of course that following the usual procedure explanatory circulars are sent out because I may observe there is nothing in the Act to render them essential Plowman J in Re National Bank Ltd 1966 1 WLR 819 at 829 reiterated the point Section 206 say s nothing about disclosure either of valuations or of profits or of assets or of liabilities By s 206 the court is given the widest possible discretion to approve any sort of arrangement between a company and its shareholders The contentions of the parties 25 Counsel for Singapore Cables contended that this court should not sanction the proposed scheme because Wah Yuen did not provide the creditors with such information as was necessary for the creditors to assess the bona fides of the related parties votes or the fairness and reasonableness of the proposed scheme In essence Singapore Cables feared that the related parties under the guise of subordination were attempting to use this scheme to continue operating the business for their own benefit and prevent an investigation into possible misfeasance 26 In the present case besides the statutorily required explanatory statement Wah Yuen also furnished all voting creditors with its audited accounts for the year ending 31 December 2000 and its unaudited balance sheet as at 30 November 2001 27 Singapore Cables was dissatisfied with the extent of disclosure and attempted to seek further information on Wah Yuen s financial status at the two creditors meetings Counsel for Singapore Cables alleged that Wah Yuen did not tackle Singapore Cables queries at the first creditors meeting of 20 March 2002 and evaded the issue by saying that any creditor aggrieved by any lack of transparency by the company could make further enquiries from the company or vote against the proposed scheme of arrangement Singapore Cables subsequently wrote to Wah Yuen on 26 March 2002 with a list of questions regarding the proposed scheme Wah Yuen s audited accounts for the year ending 31 December 2000 and the unaudited balance sheet as at 30 November 2001 Singapore Cables was of the opinion that Wah Yuen s response of 3 April did not answer its queries adequately or at all At the second creditors meeting held on 3 April 2002 Singapore Cables again queried Wah Yuen on its alleged lack of transparency However it was merely told that it was at liberty to make representations to the court if the company eventually applied to the court for its approval of the revised scheme 28 For the purposes of the hearing below Singapore Cables obtained the services of an outside expert who in a report prepared after a perusal of all the accounting documents relating to Wah Yuen that had been made available to Singapore Cables pointed out various discrepancies and raised various queries on the amounts owed to the directors and R N Singapore Cables position was that Wah Yuen had yet to address any of its concerns to its satisfaction 29 Wah Yuen s position was that it had cooperated with Singapore Cables to the extent possible under the circumstances and that Singapore Cables was simply being fastidious in continuing to oppose what was a fair and reasonable scheme 30 Counsel for Wah Yuen submitted that it was not practical or realistic for the company to furnish an audited set of accounts for the year ending 31 December 2001 when the application to convene the first creditors meeting was scheduled for 16 January 2002 just two weeks after the close of the financial year An urgent special audit counsel argued was not feasible and could well have delayed the implementation of the scheme Quite apart from the fact that Wah Yuen allegedly could not even afford a special audit the company faced significant difficulties in updating its financial records and managing its projects because of the high turnover in its accounting and project management staff Far from being evasive Wah Yuen responded to each and every one of Singapore Cables queries of 26 March 2002 within a week While its response may not have appeared adequate to Singapore Cables it was the best that it could achieve within the short time frame and its financial constraints While Wah Yuen did not respond to the expert s report tendered on behalf of Singapore Cables counsel submitted that this should not be taken as a sign of bad faith because the fact of the matter was that the company could not afford to hire an accountant to respond to the queries 31 In so far as the related party debts were concerned Wah Yuen accused Singapore Cables of being unduly suspicious Wah Yuen contended that it was only natural for the directors to sustain the company in a time of grave financial difficulty by lending it substantial sums of money In so far as R N was concerned Wah Yuen submitted that it was not unusual for its running accounts with R N to fluctuate over time since it undertook projects of substantial size and R N was its primary subcontractor 32 If the related parties really did have oblique motives they would not have allowed their claims to be subordinated to the rest of the creditors nor permitted an outsider in the form of the new investor to be involved in the company s affairs In the circumstances Singapore Cables had no legitimate cause for complaint particularly when no other creditor had raised objections regarding

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/commercial-law/chapter-16?id=1456 (2016-01-30)
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  • The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd and another appeal
    there are no equivalent provisions in the Companies Winding Up Rules Cap 50 R 1 2006 Rev Ed the Companies Winding Up Rules or the Companies Regulations Cap 50 Rg 1 1990 Rev Ed the Companies Regulations these rules and regulations do also contemplate creditors challenges of liquidators and judicial managers decisions in respect of proofs of debt see rr 93 and 95 of the Companies Winding Up Rules and regs 80 and 82 of the Companies Regulations The Bankruptcy Rules also have similar provisions at rr 198 and 201 which provide for creditors challenges of decisions of the Official Assignee or trustees as the case might be OCBC submitted that these provisions imply that creditors generally have the right to inspect the proofs of debt filed by other creditors 89 As an example we set out r 93 of the Companies Winding Up Rules here Appeal by creditor 93 If a creditor or contributory is dissatisfied with the decision of the liquidator in respect of a proof the Court may on the application of the creditor or contributory reverse or vary the decision but subject to the power of the Court to extend the time no application to reverse or vary the decision of the liquidator in a winding up by the Court rejecting a proof sent to him by a creditor or person claiming to be a creditor shall be entertained unless notice of the application is given before the expiration of 21 days from the date of the service of the notice of rejection emphasis added 90 We noted that r 93 might be read as merely allowing a creditor to apply to court to reverse or vary the liquidator s decision as to its own proof and not the proofs of other creditors However on reflection it seems to us that if that were the case r 93 would refer to the creditor s own proof of debt as its proof rather than a proof 91 We noted further that in England and Wales liquidators are statutorily required to allow the inspection of proofs of debt lodged with him by any creditor who has submitted his own proof of debt See the Insolvency Rules 1986 SI 1986 No 1925 UK 4 79 Liquidator to allow inspection of proofs The liquidator shall so long as proofs lodged with him are in his hands allow them to be inspected at all reasonable times on any business day by any of the following persons a any creditor who has submitted his proof of debt unless his proof has been wholly rejected for purposes of dividend or otherwise b any contributory of the company c any person acting on behalf of either of the above emphasis added 92 We did not disagree with OCBC s submission that all the local insolvency and bankruptcy regimes allow creditors to inspect the proofs of debt submitted by other creditors and challenge the admission of the other creditors claims but the competing interests in a proposed scheme of arrangement are not the same 93 In a proposed scheme of arrangement the interest of a creditor is different from that of a creditor in a liquidation or a judicial management In a proposed scheme of arrangement he has an autonomous voting right which may be critical to the jurisdiction of the court to sanction the scheme Hence claims to be given access to proofs of debt filed by other creditors can only be justified if the information is relevant to his voting rights The creditor has a positive right to be given his voting rights according to the value of his lawful claims against the company and he also has a negative right to protect his voting rights from being whittled down by excessive voting rights given to another creditor Of course he has an interest in the eventual payout if the scheme is proved but may prefer not to have that payout and instead may vote against the proposed scheme so that he could recover his claim in a liquidation In principle therefore a creditor has no legal right to have access to the proofs of debt of other creditors except where his voting rights have been or are likely to be affected In other words he is entitled to access only if he produces prima facie evidence of impropriety in the admission or rejection of such proofs of debt At the hearing we queried why OCBC did not apply earlier to the court for an order that the Respondent disclose the proofs of debt and supporting documentation which it requested Counsel for OCBC responded that such an application was then unprecedented In our view if the proposed chairman of a scheme creditors meeting rejects a scheme creditor s request for the disclosure of other scheme creditors proofs of debt together with supporting documentation there is no bar against the requesting scheme creditor applying to court for an order that the proofs and supporting documentation be disclosed to it The court will determine this issue after weighing the rights of the applicant creditors against the collective interests of the other creditors and the company taking into account any allegations about the prima facie dubiousness of the challenged debts To this we also add that should the proofs in question contain confidential information pertaining to the other creditors or the company the court should ensure that there are proper safeguards to address any issues of confidentiality that have arisen When a scheme creditor should be notified of the chairman s decisions to admit or reject its own and other creditors proofs of debt 94 As mentioned above at 68 it is common practice for the chairman to post a list of the scheme creditors and the corresponding amounts of their admitted claims for the purpose of voting at the meeting venue before the creditors meeting In describing the conduct of the analogous meeting for a CVA see above at 71 Bailey Groves states at para 9 47 that t he first task of the chairman will usually be to determine who is entitled to vote and in what amounts This ought to be done before the votes are cast at the creditors meeting 95 This practice is sound as it safeguards the integrity of the voting outcome The creditors commence voting knowing how much their votes will count with or against those of their fellow creditors In addition the information allows some measure of informed consultation between the creditors regarding the exercise of their votes This is likely to lead to a more considered and informed vote by the body of creditors as a whole 96 In the present case the proposed Scheme Manager in conducting the Scheme Meeting did not adopt the practice referred to above at 94 95 Prior to the meeting the Scheme Creditors were not provided by the proposed Scheme Manager with a list of Scheme Creditors and the corresponding quanta of their claims that had been admitted for the purpose of voting This was notwithstanding that counsel for OCBC had earlier written to the proposed Scheme Manager to request for a full list of the claims lodged by the Scheme Creditors for the purpose of voting and the amount of those claims note 91 97 Further as explained above at 19 although the Scheme Creditors were first informed that the voting results would be released after the trading day at 5 00pm they were then unexpectedly informed after 5 00pm that the proposed Scheme Manager had in fact not completed his adjudication of the proofs of debt submitted to him The proposed Scheme Manager eventually reported the results of the Scheme Meeting slightly over two months later in the Chairman s Report on 17 December 2009 see above at 21 As a consequence of the proposed Scheme Manager s unexplained conduct of the Scheme Meeting doubts were understandably sown in the minds of some opposing creditors about the integrity of the voting process 98 During the subsequent two month period between the Scheme Meeting and the Chairman s Report the proposed Scheme Manager knew precisely which way each creditor had voted but had not determined how much of each creditor s claim was to be admitted In the apt words of Mr Thio lead counsel for Ho Lee this gave the proposed Scheme Manager perfect foresight when it came to adjudicating the claims submitted for the purpose of voting Mr Thio did not go so far as to allege dishonesty on the part of the proposed Scheme Manager however he did suggest that the proposed Scheme Manager might have suffered from a confirmation bias which created a predisposition towards the hypercritical examination of evidence contrary to his own desired position ie documents supporting Ho Lee s proof of debt While we need not determine this issue we are constrained to observe that we find it unsatisfactory that the proposed Scheme Manager had placed himself in a situation that invited such criticism 99 As we have explained earlier see above at 73 the transparency of proofs of debt adjudication process and the objectivity of the chairman in evaluating the proofs are key aspects of every s 210 scheme As the scheme created binds and often severely prejudices dissenting creditors it is only fair that the integrity of the s 210 procedure be scrupulously observed Therefore in our view before the Scheme Meeting took place the proposed Scheme Manager should have a completed adjudicating all proofs of debt and b provided all the Scheme Creditors present with the full list of Scheme Creditors entitled to vote and the corresponding quanta of their claims that were admitted for the purpose of voting A proposed scheme manager who cannot comply with the above prior to the scheme creditors meeting should act prudently and seek from the court leave to defer the meeting until after the adjudication is completed Whether a scheme creditor may appeal the chairman s decisions to admit or reject its own and other creditors proofs of debt 100 As stated above at 56 there is no subsidiary legislation governing the admission and rejection of proofs of debt in relation to creditors meetings summoned to consider a proposed scheme of arrangement under s 210 However comparably in the context of judicial management see above at 87 the Companies Regulations provide for admission and rejection of proofs in inter alia regs 72 75 79 and 80 MEETINGS OF CREDITORS IN RELATION TO A JUDICIAL MANAGEMENT 72 In the case of a first meeting of creditors or of an adjournment thereof a person shall not be entitled to vote as a creditor unless he has duly lodged with the judicial manager not later than the time mentioned for that purpose in the notice convening the meeting or adjourned meeting a proof of the debt which he claims to be due to him from the company 75 The chairman shall have power to admit or reject a proof for the purpose of voting but his decision shall be subject to appeal to the Court If he is in doubt whether a proof shall be admitted or rejected he shall mark it as objected to and allow the creditor to vote subject to the vote being declared invalid in the event of the objection being sustained ADMISSION AND REJECTION OF PROOFS AND APPEAL TO THE COURT 79 The judicial manager shall examine every proof of debt lodged with him and the grounds of the debt and shall in writing admit or reject it in whole or in part or require further evidence in support of it If he rejects a proof he shall state in writing in accordance with Form 63V in the Second Schedule to the creditor the grounds of the rejection 80 If a creditor is dissatisfied with the decision of the judicial manager in respect of a proof the Court may on the application of the creditor reverse or vary the decision but subject to the power of the Court to extend the time no application to reverse or vary the decision of the judicial manager in a judicial management by the Court rejecting a proof sent to him by a creditor or person claiming to be a creditor shall be entertained unless notice of the application is given before the expiration of 21 days from the date of the service of the notice of rejection emphasis added For liquidations the equivalent provisions are to be found at rr 124 128 92 and 93 of the Companies Winding Up Rules respectively 101 The provisions relating to the admission and rejection of proofs of debt in the Companies Regulations and the Companies Winding Up Rules are not however free from difficulties For example if a creditor is entitled to vote under reg 72 of the Companies Regulations having duly lodged his proof of debt with the judicial manager it is not clear how the chairman may reject his proof for the purpose of voting under reg 75 see further the discussion of the Australian statutory cousins of the said provisions regs 5 6 23 and 5 6 26 of the Corporations Regulations 2001 Cth in Selim v McGrath 2003 NSWSC 927 Selim v McGrath at 88 106 endorsed by the Full Court of the Federal Court of Australia in Bacnet Pty Ltd and Others v Lift Capital Partners Pty Ltd in liq and Others 2010 FCAFC 36 Bacnet at 76 Nevertheless in considering the admission and rejection of proofs of debt by the chairman of a s 210 creditors meeting it is worth bearing in mind the commonsensical procedure in these provisions For convenience all references made below to provisions in the Companies Regulations should be concurrently taken as references to their corresponding provisions in the Companies Winding Up Rules 102 Thus the chairman of a s 210 creditors meeting has three options when assessing a contentious claim for the purpose of voting First he might admit the claim wholly Second he might reject a claim wholly or partially in which case he should provide to the creditor written grounds of his rejection We elaborate on this by stating our view that the chairman s decisions should not be peremptory His duty to give reasons puts the onus on him to look at each proof more carefully in the proper exercise of his quasi judicial function This requirement also improves the transparency of the voting process see above at 73 Third if the chairman has doubts whether a proof should be admitted or rejected he should mark it as objected to and allow the creditor to vote subject to the vote being declared invalid in the event of the objection being sustained We should add that in coming to his decision the chairman may often require further evidence in support of a proof 103 A judicial manager s or his nominee chairman s or a liquidator s or his nominee chairman s decisions in respect of the admission or rejection of proofs of debt are subject to appeal to the court We see no reason why the position should be different for the chairman of a s 210 creditors meeting when he admits or rejects proofs for the purpose of voting In particular as we have suggested above at 93 in so far as the scheme creditor is aggrieved by the potential diminution of its voting rights it plainly has good reason at least as good as that of creditors voting on a judicial manager s proposals to be allowed to appeal the chairman s decisions in respect of the admission or rejection of proofs of debt 104 Further for the same reason we took the view that a creditor who has submitted a proof to the chairman of a s 210 creditors meeting has the standing to challenge the chairman s decisions on the proofs of debt submitted by other creditors This is commonsensical as the chairman would otherwise have complete carte blanche to treat sympathetically proofs by supporting creditors without any possibility of any further audit of his decision However such appeals to court should only be taken after the votes have been counted and it can be seen whether the vote in question would affect the result see Selim v McGrath at 140 preferably concurrently during the sanction stage see above at 70 105 We turned next to the court s approach in hearing an appeal against a chairman s admission or rejection of a claim for the purpose of voting in a s 210 creditors meeting We ought to make clear from the outset that the court should be slow in overriding the professional judgment of the chairman in admitting or rejecting proofs of debt for the purpose of voting Indeed we accepted as correct the following principles as stated in Bacnet viz that the court will not ordinarily interfere with the chairman s decisions based on his professional judgment unless it was affected by bad faith a mistake as to the facts an erroneous approach to the law or an error of principle Bacnet at 72 and that the court s role is not to engage in its own valuation of a claim Bacnet at 73 106 Nonetheless we were of the view that the court has to be satisfied that the proposed scheme manager has acted on the correct principles in his quasi judicial role as chairman of a s 210 creditors meeting If a proof of debt is not capable of substantiation without the need for serious investigation or exertion then the chairman should at least make the necessary enquiries regarding the proof This is especially so if the proof of debt in question seeks to prove a substantial claim as Ho Lee s proof does in the instant case see 112 113 below 107 Further when deciding which proportion of a creditor s claim to admit or to allow a creditor to vote when his proof is marked as objected to the chairman need only make a reasonable estimate see Ian Fletcher John Higham QC and William Trower QC Corporate Administrations and Rescue Procedures LexisNexis 2nd Ed 2004 at para 13 20 or put another way a just estimate of the claim in question by doing his best with the factual material the claimant furnishes without undertaking any detailed inquiry see reg 5 6 23 2 of the Corporations Regulations 2001 Cth and Selim v McGrath at 103 endorsed in Bacnet at 77 note also that in the local context of a liquidation a just estimate must be made so far as possible of unascertained claims see s 327 1 of the Act If it is impossible to ascribe any sensible value to a claim the chairman should attribute a nil value to it and the claim should be rejected see Re UDL Holdings Ltd 2001 1 HKLRD 156 Re UDL Holdings Ltd at p 165J 166C cited with approval in Bacnet at 88 108 We should emphasise that up to now we have only been discussing the position regarding the chairman s admission or rejection of claims for the purpose of voting in a s 210 creditors meeting It must be made clear that even though the court may order on appeal by a creditor that his claim be admitted or rejected for the purpose of voting this is in the nature of a rough and ready determination keeping in mind that a vote on the proposed scheme should not be delayed unnecessarily Such an order does not bar the creditor from going back to the court subsequently to seek determinative final adjudication of the same claim on its merits 109 If the court determines that a creditor s claim was wrongly admitted or rejected for the purpose of voting and the scheme would not have been approved but for that wrongful admission or rejection then the scheme must fail as the statutory supermajority of three fourths in value of the creditors has not been satisfied Unpalatable as this outcome may be to what could be the preponderance of creditors the court has no alternative but to give effect to the statutory conditions 110 Before such a final determination however contrary to OCBC s submission see above at 43 a disputed debt should be treated as being subject to the scheme If OCBC s submission were correct it might often require supplemental schemes for the approval of main schemes and could significantly increase the time taken costs and complexities of securing approval for schemes of arrangement We did not accept OCBC s submission Whether the chairman s decisions to admit or reject certain proofs of debt for the purpose of voting in this case were correct 111 Having determined that the decisions of the proposed Scheme Manager as chairman of the s 210 creditors meeting to admit or reject proofs are subject to appeal to this court we then considered certain of his decisions that were impugned by Ho Lee and OCBC Ho Lee s contest over the partial rejection of its claim 112 In CA 47 Ho Lee contested the proposed Scheme Manager s rejection of 61 79m of its 84 56m claim The proposed Scheme Manager had rejected these amounts on the basis that they were supported by insufficient documentary evidence and the PwC report confirmed that such rejection was reasonable Ho Lee submitted that had the proposed Scheme Manager consulted it or the SO Jurong Consultants he would have been provided with explanations and evidence that would have justified the admissibility of Ho Lee s claims Further Ho Lee submitted that like the liquidator in Fustar the proposed Scheme Manager had apparently gone out of his way to reject its claim note 92 113 The bulk of the 61 79m in claims that were rejected by the proposed Scheme Manager came under two heads note 93 a the damages claim of 26 860 439 and b the loss of profits claim of 33 556 433 In respect of the damages claim we noted that no claims of damages by suppliers or subcontractors had been made against Ho Lee even until the date of the hearing of this appeal note 94 Therefore like the courts in Re UDL Holdings Ltd and Bacnet see above at 107 we found that it was impossible to sensibly ascribe to the proof the value claimed by Ho Lee However we agreed with Ho Lee that its claim for loss of profits should have been admitted for a reasonable amount and that the proposed Scheme Manager should have made basic enquiries before rejecting its claim outright For want of a more precise method of valuing that claim we ordered that Ho Lee s claim for loss of profits be valued by reference to the following objective criteria a Take the average of Ho Lee s profits on a percentage basis in three of its largest contracts over the last two years preceding the date of its Proof and then b Apply that average percentage profit to the value of Ho Lee s contract with the Respondent This claim should then be certified by Ho Lee s auditors and submitted to the Scheme Manager within 14 days from 27 August 2010 St George Bank 114 St George Bank s claim for 27 796 900 converted from the total guaranteed amount of AUD 23 3m based on the interbank cross rate as at the Ascertainment Date as published in the Business Times on 3 August 2009 in accordance with clause 4 1 i of the Scheme note 95 was based on a guarantee granted by the Respondent for banking facilities extended to its Australian subsidiary TEAC Australia note 96 Its claim was admitted in full note 97 115 TEAC Australia is the sole operating subsidiary of TTA Holdings Limited TTA another of the Respondent s subsidiaries listed on the Australian Securities Exchange note 98 TTA s Half Year Report for the period ended 30 September 2009 after the 31 July 2009 Ascertainment Date recorded total borrowings of only AUD 17 4m note 99 This cast doubt on the 27 796 900 or AUD 23 3m claim admitted by the Respondent If say TEAC Australia had only drawn down AUD 17 4m of the loan facility by the Ascertainment Date then it seemed that the Respondent could only have guaranteed up to that amount by the Ascertainment Date However St George Bank s claim plainly exceeded what was drawn down by TEAC Australia by the Ascertainment Date 116 The portion of St George Bank s claim which exceeded the amount drawn down was dressed up as a contingent claim and recognised as such by the Judge together with the portion of the claim which matched the amount drawn down by TEAC Australia by the Ascertainment Date The Judge admitted the whole of St George Bank s claim on the basis that clause 6 3 of the Scheme allowed creditors to lodge proofs of debt which included the amounts of any contingent claims and it was for the proposed Scheme Manager to decide whether to admit such claims wholly or partially see the Judgment at 79 117 The Judge however did not address the submission made to her by the Opposing Bank Creditors regarding how St George Bank s claim appeared to have far exceeded what had been drawn down by TEAC Australia by the Ascertainment Date In our view the Judge erred in not doing so as in our view the definition of a contingent claim under clause 6 3 of the Scheme did not include the sums of money that had not been drawn down in respect of the loan facilities extended to TEAC Australia 118 Although we did not have sight of the loan and guarantee documents in respect of the loan facility which St George Bank provided to TEAC Australia it could not have been the case especially given the Group s financial difficulties that St George Bank was bound to allow TEAC Australia to draw down on the remaining undrawn portions of the loan facility after the Ascertainment Date As at the Ascertainment Date St George Bank surely still had control over whether to maintain its credit line to TEAC Australia Counsel for the Respondent did not make a contrary submission 119 In our view it would not have been right to allow St George Bank to vote based on contingent claims founded on the undrawn credit facilities which St George Bank could later unilaterally ensure would never crystallise by withdrawing those credit facilities Therefore we ordered that only the amounts of the St George Bank credit facilities which TEAC Australia had drawn down as of the Ascertainment Date be admitted by the proposed Scheme Manager as claims Ascendas 120 Our analysis pertaining to the claim by St George Bank applied equally to the claim by Ascendas Ascendas filed a claim based on the Respondent s corporate guarantee over a lease of 10 Toh Guan Road to the Respondent s subsidiary Tradepark note 100 The bulk of the claim of 53 8m arose from future rents and was admitted in full The breakdown of Ascendas claim against the Company is set out as follows note 101 Item Amount admitted S Future rent for the remaining term of the lease from 1 August 2009 to 4 March 2014 35 887 594 Future land rent and sublet fees payable 3 727 777 Future property tax payable 3 270 680 Other amounts payable for property maintenance insurance utilities etc 10 916 935 Total 53 802 986 121 Again it was within Ascendas control to terminate the lease once Tradepark defaulted on any payments We doubted that Ascendas was bound to lease 10 Toh Guan Road to Tradepark up till 4 March 2014 regardless of its receipt of dues under the lease It seemed to us that if Ascendas intended for the future rents to be admitted as claims under the Scheme Ascendas had to be bound to lease 10 Toh Guan Road to Tradepark up to 4 March 2014 accepting as sufficient payment whatever monies were accorded to it under the Scheme It would have been commercially unthinkable for Ascendas to have been content with that and in fairness to counsel for the Respondent we ought to state that there was no suggestion that this was the case 122 In our view it would also not have been fair to allow Ascendas to vote based on contingent claims founded on the future lease payments which it could later unilaterally ensure would never crystallise by terminating the lease Therefore we ordered that only the amounts of the lease payments which Tradepark owed Ascendas as of the Ascertainment Date should be admitted by the proposed Scheme Manager as claims However we also ordered that that amount be reduced by the amount of the security deposit provided by First Capital which had been utilised as of the Ascertainment Date We explain why below First Capital 123 First Capital provided Ascendas a security deposit of 6 86m in respect of the lease of 10 Toh Guan Road to Tradepark In return the Respondent entered into an indemnity agreement with First Capital note 102 First Capital s claim of 6 86m was fully admitted by the Respondent note 103 OCBC and Ho Lee submitted that that would have been double counting if Ascendas 53 8m claim had not already factored in the 6 86m deposit note 104 124 In other words OCBC and Ho Lee submitted that if the security deposit of 6 86m had been applied to Ascendas 53 8m claim so that First Capital s claim could have been rightly admitted as a contingent claim then Ascendas claim should have been reduced by 6 86m to give 46 94m On the other hand if First Capital s 6 86m deposit had not been utilised then it did not have a valid contingent claim of 6 86m against the Respondent 125 On this issue we ought to refer to the English Divisional Court decision of In re Sass 1896 2 QB 12 In re Sass where Vaughan Williams J Williams J held at 14 15 that a surety for part of a debt must ordinarily pay that entire part before he can stand in the shoes of the principal creditor and prove against the principal debtor for that part of the debt On that view if only 3m of First Capital s 6 86m deposit had been utilised First Capital would not have been able to prove a 3m contingent claim against the Respondent and Ascendas would not have had to reduce its proof by the same amount First Capital would only have been able to prove any claim at all against the Respondent if the entire 6 86m deposit had been utilised The rule propounded by Williams J above might seem odd but its rationale is explained in Goode on Legal Problems of Credit and Security Louise Gullifer ed Sweet Maxwell 4th Ed 2008 Goode as follows at para 8 18 At first sight it seems surprising that if the surety pays part of the debt the creditor should not have to give credit at least for sums received from the surety prior to the bankruptcy But the rule has a sound policy base It is a well settled principle of equity that until the creditor has received payment of the guaranteed debt in full the surety cannot prove in the insolvent debtor s estate for a sum paid by him to the creditor the reason being that he has expressly or by implication undertaken to be responsible for the full sum guaranteed including whatever remains due to the creditor after receipt of dividends by him out of the bankrupt s estate and thus has no equity to prove for his right of reimbursement in competition with the creditor If the creditor were required to give credit for a pre bankruptcy part payment by the surety neither of them could prove for the amount of such payment and the general body of creditors would thus be unjustly enriched emphasis added 126 What is crucial to note is that Goode recognises that an exception exists in the context of a landlord and tenant situation see Milverton Group Ltd v Warner World Ltd 1995 2 EGLR 28 Milverton Group In that case the English Court of Appeal decided that the payment of rent by a surety discharged the lessee s obligation to pay the same rent The reason for this was that both the tenant and the guarantor owed a single set of obligations to pay the rent and perform the covenants per Hoffman LJ at 31 In the same vein Glidewell LJ stated at 30B If a lessor is entitled to be paid a sum by way of rent for a particular period and the original lessee an assignee and a surety have all covenanted to pay that rent the lessor may recover it from any one of them in the case of the surety if the assignee has defaulted If the lessor does however recover that sum from any one of the three the rent has then been paid The other two persons who were liable cease to be liable to pay that rent though of course they are still liable for any future rent under their respective covenants emphasis added 127 Therefore since the lessee s obligation to pay the rent is discharged the lessor may not prove against the lessee or its guarantor and this leaves the surety to prove against the lessee or its guarantor ie without contravening the rule against double proof since the surety does not prove in competition with the lessor To restate that in the context of the present case since Tradepark s obligation to pay the rent is discharged Ascendas may not prove against Tradepark s guarantor the Respondent and this leaves First Capital to prove against the Respondent presumably First Capital would have been able to prove against the Respondent as Tradepark s guarantor of the lease payments but as it happened First Capital proved against the Respondent on the indemnity which the Respondent also provided 128 Accordingly in respect of First Capital s claim we ordered that only the amount of the security deposit provided for Ascendas claim which had been utilised as at the Ascertainment Date should be admitted 129 Finally we should add that OCBC and Ho Lee both submitted that the claims of St George Bank Ascendas and First Capital were contingent and should have been classified differently for that reason We deal with these submissions below at 142 144 When should scheme creditors be classified differently for voting purposes in a s 210 scheme of arrangement The law on the classification of creditors 130 The classification of creditors has always been problematic in this area of the law In the oft cited Hong Kong Court of Final Appeal decision of UDL Argos above at 58 at 27 Lord Millett NPJ comprehensively distilled from a long line of authorities a set of principles regarding the law on the classification of creditors The principles most relevant to the present case are reproduced here 2 Persons whose rights are so dissimilar that they cannot sensibly consult together with a view to their common interest must be given separate meetings Persons whose rights are sufficiently similar that they can consult together with a view to their common interest should be summoned to a single meeting 3 The test is based on similarity or dissimilarity of legal rights against the company not on similarity or dissimilarity of interests not derived from such legal rights The fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings emphasis added 131 The starting principle is simple enough those

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/court-of-appeal-judgments/14787-the-royal-bank-of-scotland-nv-formerly-known-as-abn-amro-bank-nv-and-others-v-tt-international-ltd-and-another-appeal-2012-sgca-9 (2016-01-30)
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  • Re Genesis Technologies International (S) Pte Ltd[1994] 3 SLR 390; [1994] SGHC 132
    a new lease of life as a going concern It is therefore a device to save the company from creditors who may wish to destroy the company when it can be rehabilitated for the benefit not only of the shareholders but the unsecured creditors as well Hence the Act provides that an order for judicial management can be made only in the following specific circumstances They are a the court is satisfied that the company is or will be unable to pay its debts and b the court 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 undertaking as a going concern ii the approval under s 210 of a compromise or arrangement between the company and any such persons as are mentioned in that section iii a more advantageous realization of the company s assets would be effected than on a winding up 7 Further s 227B 2 of the Act makes it incumbent upon the court to specify the purpose or purposes for whose achievement the order is made 8 Although the primary purpose of judicial management is the protection of the company from its creditors the court should be vigilant to ensure that it is not directly or indirectly used by the directors and shareholders to the detriment of creditors and unsecured creditors in particular The motives of the application should therefore be clearly honourable Further a company whose debts far exceed its assets in effect belongs to its creditors The court must show great heed to the wishes and views of such creditors The grounds of application 9 The company relied on all the three statutory grounds to found the application But the petition failed to identify which of the purpose or purposes of a judicial management would be achieved by the order if the court decided to make it 10 T he petition merely alleged inter alia the company believed that being placed under judicial management would greatly enhance the possibility of its survival as a going concern Administration would also minimize disruption to the company s business and maximize asset realization The company was actively and aggressively seeking new business opportunities through its marketing strategy The company s products had attracted strong interest from various clients worldwide and subject to the finalization and formalities and approval from the respective telecommunication authorities the company had received firm indications from clients of their intentions to place orders for the company s products The approvals were likely to be positive and imminent By the end of 1994 the company hoped to gross at least 24 446 000 in sales This turnover would enable the company to meet its liabilities which it had targeted to clear within the next three years 11 It was stressed that its motive for the petition was not to stave off irate creditors nor was it a ruse to

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  • Ch.08 The Law of Contract
    in its own name sue and be sued in its own name acquire own hold and develop property hold a common seal and may do and suffer such other acts and things as any body corporate may lawfully do and suffer see s 5 1 Section 5 2 also extends s 41 of the Companies Act to apply to a limited liability partnership Return to the top SECTION 7 PRIVITY OF CONTRACT Third party Enforcement of Contractual Rights Generally not Permitted 8 7 1 As a general proposition only persons who are party ie privy to a contract may enforce rights or obligations arising from that contract This is sometimes referred to as the privity rule 8 7 2 A third party who is not privy to a contract is generally not allowed to bring any legal action in his or her own name for breach of contract against a contracting party who fails to perform his or her contractual obligations even if such failure of performance has caused the third party to suffer a loss When is Someone Party or Privy to a Contract 8 7 3There is no clear definition as to when a person is is not privy to a contract Generally a party who is an offeror or offeree will be privy to the contract However it seems that merely being mentioned in the contract is not enough 8 7 4 It is nevertheless possible to have a multilateral contract where there are multiple offerees one or more of whom accept the offer on behalf of the others or where there are multiple offerors one or more of whom make the offer on behalf of the others In either case each offeree or offeror is a joint party to the contract and the privity rule will not apply to them Non statutory Exceptions to the Privity Rule 8 7 5 The privity rule is not absolute It is subject to many exceptions Apart from the possibility of a multilateral or multi party contract mentioned above some other exceptions can be found in the law relating to a agency b trusts or c land in relation to covenants which run with the land or lease For an in depth discussion of these other legal techniques to circumvent the privity rule please see Chapters 15 and 18 Statutory Exceptions to the Privity Rule 8 7 6 There are also statutory exceptions Most of these are only applicable to specific and narrowly defined cases Two examples of such statutes include a the Bills of Exchange Act Cap 23 1985 Rev Ed see Chapter 22 on Banking Law and b the Bills of Lading Act Cap 384 1994 Rev Ed see Chapter 25 on Shipping Law Of more general application the Singapore Parliament enacted the Contracts Rights of Third Parties Act Cap 53B 2002 Rev Ed in 2001 Contracts Rights of Third Parties Act 8 7 7 Section 1 provides that the Contracts Rights of Third Parties Act has no retrospective effect it cannot apply to any contract formed before 1 January 2002 Section 1 also provides that the Act does not apply to any contracts which were formed on or after 1 January 2002 but before 1 July 2002 unless the contracting parties expressly provided in their contract for it to do so Contracts formed on or after 1 July 2002 are always subject to the Act 8 7 8 Where the Act applies it gives a third party a statutory right to enforce a term of a contract against a party who is in breach of his or her obligations under the contract the promisor even though even though the third party is a volunteer who has not provided any contractual consideration see s 2 5 8 7 9 This may occur if either a the contract expressly provides that the third party may enforce a term of the contract in his or her own right s 2 1 a or b the contract purports to confer a benefit on the third party s 2 1 b However s 2 1 b is qualified a third party will not be granted the direct statutory right of suit in the absence of an express provision permitting him or her to do so if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party s 2 2 8 7 10 This statutory right of enforcement is not just limited to cases where the promisor is under an obligation to act to confer a positive benefit on the third party Negative benefits such as the benefit of a term excluding or limiting the third party s legal liabilities to the promisor may also be enforced s 2 5 8 7 11 The third party s statutory right of enforcement against the promisor is qualified in a number of ways First the third party s statutory right of recovery may be qualified by a defence or set off which the promisor would have been able to assert vis à vis the other party to the contract the promisee s 4 Second any sum to be recovered by the third party pursuant to the Act may be reduced to take into account sums recovered by the promisee from the promisor in respect of the promisor s breach s 6 8 7 12 Once third party rights are created under the Act certain restrictions are imposed on the ability of the parties to the contract to vary or rescind their contract if this would extinguish or alter the third party s rights under the Act s 3 8 7 13 Though wider in its scope than many of the other legal techniques for circumventing privity the Act is not of universal application Section 7 of the Act sets out a number of situations where the Act does not apply Excluded cases include a contracts on a bill of exchange promissory note or other negotiable instrument b the statutory contract binding a company and its members under s 39 of the Companies Act Cap 50 2006 Rev Ed c limited liability partnership agreements as defined under the Limited Liability Partnerships Act Cap 163A 2006 Rev Ed d third party enforcement of any term of an employment contract against an employee and e third party enforcement of any term apart from any exclusion or limitation of liability for the benefit of the third party in a contract for carriage of goods by sea or a contract for the carriage of goods or cargo by rail road or air if such contract is subject to certain international transport conventions Return to the top SECTION 8 DISCHARGE OF CONTRACT Discharge by Performance 8 8 1 If all the contractual obligations as defined by the terms of the contract are fully performed the contract is brought to an end or discharged by performance In theory such performance must be precise However trivial defects in performance may be ignored as being negligible or de minimis In addition where full performance is only possible with the cooperation of the other party as is almost invariably the case with obligations of payment or delivery tender of performance in circumstances where the other party refuses to accept it is generally deemed to be equivalent to full performance so as to discharge the contract Non or Defective Performance 8 8 2 In the event that a contractual obligation is not performed or is performed defectively in a non trivial fashion Singapore law provides for a variety of legal responses and remedies depending on the nature of the failure of performance Lawful Excuses for Breach of Contract 8 8 3 If the failure of performance is not subject to any lawful excuse the contract is said to be breached In this context lawful excuses may take the following forms Discharge by Agreement 8 8 4 First just as parties are free to agree to bind themselves to a contract they are free to negotiate with each other to release themselves from the obligations of that contract Such agreement may well have been built into the original contract for example where parties agree that their original agreement be terminable by giving notice of termination or upon lapse of a specified period of time Alternatively contracting parties may release themselves from the obligations of the original contract by entering into a subsequent contract of release Where each contractual party is still subject to contractual obligations which have yet to be performed the mutual release of their outstanding obligations is generally effective under Singapore law without the need for any further formalities or any other consideration However where the party who is owed the obligation in question does not have any outstanding obligations under the original contract the party seeking to be released from that obligation will have to provide some form of valuable consideration in exchange for the release In the alternative the release must be executed under seal to be effective 8 8 5 Secondly it may be that the obligation which has not been performed is conditional upon the prior occurrence of certain specified events these may be external events or some contractually specified counter performance by the other party to the contract 8 8 6 Thirdly the parties may contractually provide for non performance following from certain events to be excused so as not to amount to a breach for example in the form of a force majeure clause At the very least such a clause will hold all parties innocent of liability for non performance following the specified force majeure event More detailed force majeure clauses may also make provision for issues such as the return and refund of advance payments reimbursements for expenses incurred in preparation of the performance of the contract and so forth Such provisions will generally be given effect by Singapore law Discharge by Frustration 8 8 7 Fourthly where the reason for the failure of performance lies in events beyond the control of the contracting parties and which neither party could have reasonably foreseen the contract is said to be frustrated In such cases there are statutory rules which set out the extent to which advance payments made before the frustrating event intervened may be refunded and work done in preparation of the performance of the contract in advance of the frustrating event may be reimbursed see Frustrated Contracts Act Cap 115 1985 Rev Ed s 2 2 and s 2 4 respectively Section 2 3 of the Frustrated Contracts Act also empowers the Singapore courts to make valuations of any non money benefits which may have been conferred by one contracting party on another prior to the frustrating event and to order the recipient of those benefits to pay for such value received Effects of a Breach of Contract 8 8 8 In the absence of a lawful excuse a breach of contract has two significant effects Contract Damages 8 8 9 First if the breach of contract by one contracting party the party in breach causes loss to the other the aggrieved party the party in breach may be ordered by the courts to compensate the aggrieved party in money damages for those losses in lieu of the primary obligations left unperformed under the contract However contractual damages which are compensatory and not punitive in nature is not the only judicial remedy available Other types of remedies may be available in lieu or sometimes in addition to damages depending on the nature of the obligation which has been breached See Section 13 below Right to Elect to Discharge for Breach 8 8 10 Second the breach may give the aggrieved party the right to bring the contract to an end ie to discharge the contract for breach In this connection it is useful to distinguish actual breaches of contract wherein the breach occurs at the actual time of performance as specified by the contract from anticipatory breaches of contract wherein the breach is said to occur in advance of the contractually stipulated time of performance Actual Breach Giving Rise to Right of Discharge 8 8 11 In the case of an actual breach of contract the aggrieved party may elect to discharge the contract for breach if the contractual term which has been breached is a a condition or b an innominate term the breach of which deprives the aggrieved party of substantially the whole of the benefit of the contract In such a case the aggrieved party may choose to discharge the contract for breach 8 8 12 The aggrieved party has no such power of election if the contractual term which has actually been breached is a a warranty or b an innominate term the breach of which does not deprive the aggrieved party of substantially the whole of the benefit of the contract In such a case the contract will persist despite the breach unless the contract is brought to an end by some other event 8 8 13 For details as to how a contract term may be categorised as a condition a warranty or an innominate term see Paragraphs 8 5 9 to 8 5 10 above Discharge by Actual Breach 8 8 14 If the aggrieved party is entitled to discharge the contract and elects to do so the contract is brought to an end prospectively That is the contract ceases to bind the parties to the contract from the time the election is effectively communicated to the other contracting parties Such communication may take the form of words acts or even in exceptional cases silence Prior to that time such an election may be withdrawn Following an effective discharge the parties are released from all outstanding contractual obligations Affirmation of Contract Following an Actual Breach 8 8 15 The aggrieved party may choose however not to discharge the contract Instead the aggrieved party may choose to affirm the contract thereby giving the party in breach another opportunity to rectify the non performance or defective performance If so the entire contract is kept alive and the aggrieved party loses the right to have the contract discharged although the right to sue the party in breach and recover money damages for any losses incurred as a result of the delay in procuring full performance may well be retained unless the aggrieved party also elects to waive his or her right to compensatory money damages Anticipatory Repudiatory Breach 8 8 16 A breach of contract may also occur anticipatorily in advance of the time of actual performance If this breach is also repudiatory where the evidence demonstrates that one party intends not to be bound by the terms of the contract nor to honour his or her contractual obligations as and when they fall due the aggrieved party has the right to choose whether to discharge or to affirm the contract Repudiatory intentions will be more readily proved where there are clear and express communications by the purported party in breach to such effect However they can also be inferred from actions or steps taken by the purported party in breach which render it impossible for his or her obligations to be performed when they become due Effect of Discharge by Anticipatory Repudiatory Breach 8 8 17 Significantly a party aggrieved by an anticipatory repudiatory breach may exercise his or her right to discharge the contract immediately without waiting until the time of actual performance If the aggrieved party elects to discharge the contract the contract is immediately and prospectively brought to an end The aggrieved party is then entitled to sue the party in breach for damages as compensation for any loss suffered by the aggrieved party as a result of the non performance of the contract Effect of Affirmation Following an Anticipatory Repudiatory Breach 8 8 18 On the other hand the aggrieved party may elect to affirm the contract If so the contract continues to bind all parties to the contract and the anticipatory breach is ignored Consequently once the aggrieved party affirms the contract there can be no liability for money damages for that anticipatory breach since it is treated as if the breach never occurred Limits on Right of Election to Affirm Contact 8 8 19 Although the aggrieved party s right of election to discharge affirm a contract following an actual anticipatory breach is largely unqualified the English case of White Carter Councils Ltd v McGregor 1962 AC 413 suggests that this right is limited under English law However it is arguable that the limitation is less strict in Singapore In MP Bilt Pte Ltd v Oey Widarto 1999 3 SLR 592 the Singapore High Court adopted the limitations set out in White Carter v McGregor that the aggrieved party may only elect to affirm a contract despite the other contracting party s breach if the aggrieved party was reasonably able to perform his or her part of the contract without the need for any cooperation from the party in breach and if the aggrieved party had a legitimate interest in doing so However the High Court stated that these limitations would not apply when the aggrieved party is under a legal obligation or practical compulsion to complete performance of the contract in question and other contracts he has entered into on the basis of the contract in question at p 607 Consequently it appears that an aggrieved party s freedom to elect to affirm a contract may be less strongly curtailed in Singapore as compared with the case in England Return to the top SECTION 9 MISTAKE Introduction 8 9 1 If one or both parties enter into a contract under a misapprehension of its basis or of an important aspect of the transaction the contract may either be completely void or voidable In the latter case the contract is valid until it is rescinded or set aside by the mistaken party This distinction is critical for determining third party rights see Paragraph 8 9 12 below Whether a mistake has the effect of rendering a contract void or voidable depends on the manner in which the mistake arises Mutual Mistake 8 9 2 If A contracts with B believing that he is purchasing X but B is in fact intending to sell Y to A there is no contract between A and B because they have failed to reach any agreement on the subject matter of the contract Mistakes of this nature are commonly referred to as mutual mistakes A transaction entered into under a mutual mistake relating to a fundamental aspect of the contract is void Common Mistake 8 9 3 A common mistake arises when an agreement is reached on the basis of a mistaken assumption or belief shared by both parties This occurs for instance when A contracts to sell a consignment of goods to B but unknown to both parties the goods had been destroyed before the contract was formed In this situation owing to the destruction or non existence of the subject matter the contract may justifiably be regarded as invalid and void even though it is otherwise properly formed 8 9 4 The more problematic situation arises when the common mistake relates to a less fundamental matter such as the quality of a subject matter of the contract as opposed to its existence Here the law has to strike an appropriate balance between doing justice to the party disadvantaged by the mistake and protecting the counter party s legitimate expectation that the contractual bargain would be upheld The common law and principles of equity respond to this problem in different ways on the distinction between common law and equitable rules see Chapters 1 and 18 Singapore Legal System and Trusts Common Mistake at Common Law 8 9 5 At common law precedence is given to upholding bargains Thus a common mistake as to quality would not in general render a contract void unless the mistake has the effect of rendering the subject matter of the contract essentially and radically different from what the parties believed it to be The ambit of the common law doctrine is therefore extremely narrow having little application outside cases involving non existent or destroyed subject matter Common Mistake in Equity 8 9 6 Equity in comparison permits a more liberal approach even if a mistake is not sufficiently fundamental to render a contract void at common law it may still be set aside provided that the mistake is sufficiently serious 8 9 7 Distinguishing between the different degrees of fundamental mistakes that are operative at common law and in equity is a difficult task Nevertheless the Singapore Court of Appeal s recent observations appear to favour the retention of this two prong approach Chwee Kin Keong v Digilandmall com Pte Ltd 2005 1 SLR 502 This may be contrasted with the position in England where the more flexible equitable rule appears to have been abolished Great Peace Shipping Ltd v Tsavliris Salvage International Ltd 2003 QB 679 Unilateral Mistake 8 9 8 A contract may also be affected by a unilateral mistake that is when only one party is acting under a mistake For purposes of discussion it is convenient to distinguish between the following two cases a where the mistake relates to the identity of a contracting party and b those where the mistake relates to a term of the contract Unilateral Mistake as to Identity 8 9 9 It is useful to note for a start that unilateral mistakes as to identity typically involve cases where one party s consent to an agreement is procured by deception If A agrees to sell his car to B who has deceived A into believing that B is C the contract is affected by A s unilateral mistake as to B s true identity provided that it is clear that B s identity is material ie an important factor which induced the contract As between A and B it is not essential to determine whether such a mistake renders the contract void or voidable since A the mistaken party would have the right to set aside the contract in either case However the distinction becomes critical if B has sold the car to T an innocent third party who acquires the car without notice of B s deception before A discovers the fraud If the mistake has the effect of rendering the contract between A and B void A will be able to recover the car from T because B not having acquired any property right in the car has nothing to sell to T In the converse situation where the contract between A and B is merely voidable B would have acquired property rights in the car which he could subsequently transfer to T A is therefore unable to recover against T in this instance 8 9 10 Disputes involving mistakes as to identity are invariably hard cases because they often require the court to prefer one of two innocent parties Nevertheless it may be observed that the general approach in these cases requires examination of the facts to ascertain whether there is in fact an agreement between the mistaken party and the fraudulent counter party Thus if A intends to sell his car only to C then no agreement is reached between A and B when B attempts to purchase the car by pretending to be C Such intention may for instance be inferred from the fact that A s offer is expressly addressed to C or where there is a written contract purportedly made between A and C although fraudulently signed by B on C s behalf However where A and B transact face to face there is a presumption that they intend to deal with the physical person present in which case A is presumed to have intended to contract with B the fraudster Such a presumption may however be rebutted by clear evidence to the contrary Unilateral Mistake as to a Term 8 9 11 Unilateral mistakes may also arise in relation to the terms of a contract If A enters into a contract under a misapprehension as to a particular important term other than the identity of the other party B and the mistake is known to B such a mistake may render the contract void at common law The Singapore Court of Appeal has recently clarified in Chwee Kin Keong v Digilandmall com Pte Ltd 2005 1 SLR 502 that this common law doctrine is confined to cases where the non mistaken party B has actual knowledge of A s mistake In addition if a case does not fall within the ambit of the common law doctrine because for instance it has not been established that B has actual knowledge of A s mistake the court may nevertheless exercise its equitable power to set the contract aside if B is guilty of unconscionable conduct This may arise where B suspects that A is labouring under a mistake but consciously omits to disabuse A of his error Documents Mistakenly Signed 8 9 12 Generally a person of full age and understanding who has signed a written contract is bound by it even if he or she has not read it Exceptionally a signatory to a contract may be able to set it aside if it is fundamentally or radically different from what the signatory believed it to be as may occur if the signatory s understanding is limited by some innate incapacity or when he or she has been tricked into signing it This defence cannot however be invoked by a person who has been negligent in signing the document Documents Mistakenly Recorded 8 9 13 If a written contract does not by reason of a mistake accurately record the agreement between the parties the court may rectify the contract so as to give effect to the parties true intention Originally the remedy of rectification was only available in cases where the mistake is shared by both parties but was subsequently extended to situations where only one party is mistaken and such mistake is known to the other party Return to the top SECTION 10 MISREPRESENTATION The Nature of the Representation 8 10 1 A contract which is induced by a misrepresentation may be set aside and may give rise to an action for damages A misrepresentation occurs when one party to a contract makes a false statement of fact to the other contracting party which induces the latter to enter into the contract To be operative the false representation must relate to a past or present fact It follows that a vague or exaggerated statement that is in the nature of a puff does not suffice Generally a statement of a party s intention or opinion is also not a sufficient ground for relief However if the representor does not honestly hold such intention or opinion there is a misrepresentation of fact as to the representor s state of mind A statement of opinion may also be actionable if it is made by a person who professes to have special skill or knowledge in the matter stated Statements of law appear still to be excluded from the ambit of operative representations although the correctness of this position must now be doubted in light of the abolition of this distinction in the context of mistakes see Chapter 19 on Restitution Mistaken Payments 8 10 2 A representation may be express or it may be inferred from the representor s conduct On its own silence or non disclosure does not usually constitute a representation There are however exceptions to this general rule If a party makes a positive but incomplete disclosure the omitted disclosure may amount to a misrepresentation if it has the effect of distorting the truth of the information disclosed Similarly a failure to correct an earlier and continuing representation that was true at the time it was made but which has subsequently become incorrect is actionable A failure to disclose material facts whilst negotiating contracts uberrimae fidei such as insurance contracts would also give rise to an action for misrepresentation 8 10 3 Generally a misrepresentation must also be material in the sense that it relates to a matter which would influence a reasonable person s decision whether to enter into the contract If a representation is ambiguous and may be interpreted in two or more ways of which one is true and the other false it is not a misrepresentation unless the representor has intended it to be understood in the sense that is false The Falsehood Must Have Induced the Contract 8 10 4 Misrepresentation is a ground for relief only where it has induced a contract Clearly if a person is unaware of the representation or knows that it is untrue or does not believe it to be true he or she cannot reasonably have relied on or be induced by the representation to enter into the contract Reliance may also be negated if the representee has independently verified the truth of the representation although the failure to verify when the opportunity to do so is available is not in itself a bar to relief If the misrepresentation has in fact induced the representee to enter into the contract it does not matter that it is not the sole inducing factor The persons who may rely on a representation are not confined to those directly addressed by the representor but include any person whom the representor intends to reach and influence even if such a person learns of the representation indirectly from a third party The Right to Rescind 8 10 5 Once it is established that a contract has been induced by a misrepresentation whether innocent negligent or fraudulent the party induced may elect to rescind ie set it aside or affirm it The effect of rescission is to release the parties from their contractual obligations and to restore the parties to their respective positions prior to the making of the contract The right to rescind will however be lost if a the induced party has affirmed the contract b innocent third parties have acquired for value rights in the subject matter of the contract c it is no longer possible to restore the parties to their respective prior positions and d except in the case of fraud an inordinate period of time has lapsed It should also be noted that the court may pursuant to s 2 2 of the Misrepresentation Act Cap 390 1994 Rev Ed award damages in substitution for the right to rescind Damages for Fraudulent Misrepresentation 8 10 6 Whether damages may be awarded for misrepresentation depends on whether the misrepresentation is fraudulent negligent or innocent At common law damages may be awarded for fraudulent misrepresentations A fraudulent misrepresentation is a false representation that is made 1 knowingly 2 without belief in its truth or 3 recklessly careless whether it be true or false In such a case the representor would have committed the tort of deceit and the representee is permitted to recover for all losses incurred as a consequence of the fraudulent misrepresentation even for losses which might not have been reasonably foreseeable Common Law Damages for Negligent Misrepresentation 8 10 7 Where an operative misrepresentation results from negligence the party who has relied on it may obtain damages by commencing an action in the tort of negligence This requires proof that there is a special relationship between the parties which places the representor under a duty to take reasonable care in furnishing information or advice to the representee and that the representor has failed to do so A more extensive survey of the legal principles relating to this branch of the law is contained in See Chapter 20 on Tort Negligence Recovery in such a case would however be restricted to losses which are reasonably foreseeable Statutory Damages for Negligent Misrepresentation 8 10 8 Alternatively a party who has entered a contract in reliance on a negligent misrepresentation may claim damages under 2 1 of the Misrepresentation Act Cap 390 1994 Rev Ed In fact where the issue arises as between contracting parties this statutory action is generally the preferred route for recovering damages as its requirements are less onerous than those of the common law tortious action outlined in Paragraph 8 10 7 above Under s 2 1 the claimant only has to establish that he or she has contracted in reliance on the other party s misrepresentation whereupon the latter has the onus of proving that he or she was not negligent in that he or she had reasonable ground for believing in the truth of the statement In contrast the claimant in a tortious action bears the burden of proof of all elements of the action including the existence of a special relationship between the parties as well as the other party s negligence The language of the provision suggests that the measure of damages under s 2 1 should be the same as that for fraudulent misrepresentations which is more liberal than the measure which applies in contract cases see Paragraph 8 13 10 below or in cases based on the tort of negligence see Paragraph 8 10 7 above As a matter of principle however the contract measure appears to be the more appropriate option Innocent Misrepresentations 8 10 9 Misrepresentations may also be made innocently In such a case the claimant is not entitled to damages at common law but where the claimant still has the right to rescind and it appears beneficial to do so the claimant may persuade the court to exercise its discretion under s 2 2 of the Misrepresentation Act to award damages in lieu of rescission If the court is not so persuaded and the contract is rescinded the claimant may be compensated for expenses incurred in performing the contract in the form of an indemnity Misrepresentations and Terms 8 10 10 Misrepresentations are usually pre contractual statements made to induce a person to contract with the representor A pre contractual statement which has induced a contract may also have been incorporated as a term of the contract If so the person who made the statement would now also be in breach of the contract if the statement turns out to be false In such an event damages for breach of contract may be claimed and s 1 of the Misrepresentation Act makes it clear that the representee may still rescind the contract for misrepresentation For the test for distinguishing between terms and representations see Paragraph 8 5 1 Excluding Liability For Misrepresentation 8 10 11 Parties to a contract may agree to contractual terms which exclude or limit their liability for misrepresentation but s 3 of the Misrepresentation Act requires such a term to satisfy the test of reasonableness set out in s 11 1 of the Unfair Contract Terms Act Cap 396 1994 Rev Ed This test has been discussed in Paragraph 8 5 15 above Return to the top SECTION 11 DURESS UNDUE INFLUENCE UNCONSCIONABILITY Duress 8 11 1 If A enters into a contract with B as a result of B s coercion often taking the form of threats of unlawful acts the contract may be set aside by A on the ground of duress The types of unlawful or improper pressure that may have this effect include actual or threatened harm to a person a person s goods or his or her economic interests 8 11 2 The recognition that economic duress can suffice as a ground for avoiding a contract is a relatively recent development justified by the concern to prevent a party with strong bargaining power from exploiting the weaker position of the counter party However it is not the case that economic duress arises whenever a contract is entered into between

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  • Ch.08 The Law of Contract
    limited liability partnership is also a body corporate under Singapore law see Limited Liability Partnerships Act 2005 Act No 5 of 2005 It may in its own name sue and be sued in its own name acquire own hold and develop property hold a common seal and may do and suffer such other acts and things as any body corporate may lawfully do and suffer see s 5 1 Section 5 2 also extends s 41 of the Companies Act to apply to a limited liability partnership Return to the top SECTION 7 PRIVITY OF CONTRACT Third party Enforcement of Contractual Rights Generally not Permitted 8 7 1 As a general proposition only persons who are party ie privy to a contract may enforce rights or obligations arising from that contract This is sometimes referred to as the privity rule 8 7 2 A third party who is not privy to a contract is generally not allowed to bring any legal action in his or her own name for breach of contract against a contracting party who fails to perform his or her contractual obligations even if such failure of performance has caused the third party to suffer a loss When is Someone Party or Privy to a Contract 8 7 3There is no clear definition as to when a person is is not privy to a contract Generally a party who is an offeror or offeree will be privy to the contract However it seems that merely being mentioned in the contract is not enough 8 7 4 It is nevertheless possible to have a multilateral contract where there are multiple offerees one or more of whom accept the offer on behalf of the others or where there are multiple offerors one or more of whom make the offer on behalf of the others In either case each offeree or offeror is a joint party to the contract and the privity rule will not apply to them Non statutory Exceptions to the Privity Rule 8 7 5 The privity rule is not absolute It is subject to many exceptions Apart from the possibility of a multilateral or multi party contract mentioned above some other exceptions can be found in the law relating to a agency b trusts or c land in relation to covenants which run with the land or lease For an in depth discussion of these other legal techniques to circumvent the privity rule please see Chapters 15 and 18 Statutory Exceptions to the Privity Rule 8 7 6 There are also statutory exceptions Most of these are only applicable to specific and narrowly defined cases Two examples of such statutes include a the Bills of Exchange Act Cap 23 1985 Rev Ed see Chapter 22 on Banking Law and b the Bills of Lading Act Cap 384 1994 Rev Ed see Chapter 25 on Shipping Law Of more general application the Singapore Parliament enacted the Contracts Rights of Third Parties Act Cap 53B 2002 Rev Ed in 2001 Contracts Rights of Third Parties Act 8 7 7 Section 1 provides that the Contracts Rights of Third Parties Act has no retrospective effect it cannot apply to any contract formed before 1 January 2002 Section 1 also provides that the Act does not apply to any contracts which were formed on or after 1 January 2002 but before 1 July 2002 unless the contracting parties expressly provided in their contract for it to do so Contracts formed on or after 1 July 2002 are always subject to the Act 8 7 8 Where the Act applies it gives a third party a statutory right to enforce a term of a contract against a party who is in breach of his or her obligations under the contract the promisor even though even though the third party is a volunteer who has not provided any contractual consideration see s 2 5 8 7 9 This may occur if either a the contract expressly provides that the third party may enforce a term of the contract in his or her own right s 2 1 a or b the contract purports to confer a benefit on the third party s 2 1 b However s 2 1 b is qualified a third party will not be granted the direct statutory right of suit in the absence of an express provision permitting him or her to do so if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party s 2 2 8 7 10 This statutory right of enforcement is not just limited to cases where the promisor is under an obligation to act to confer a positive benefit on the third party Negative benefits such as the benefit of a term excluding or limiting the third party s legal liabilities to the promisor may also be enforced s 2 5 8 7 11 The third party s statutory right of enforcement against the promisor is qualified in a number of ways First the third party s statutory right of recovery may be qualified by a defence or set off which the promisor would have been able to assert vis à vis the other party to the contract the promisee s 4 Second any sum to be recovered by the third party pursuant to the Act may be reduced to take into account sums recovered by the promisee from the promisor in respect of the promisor s breach s 6 8 7 12 Once third party rights are created under the Act certain restrictions are imposed on the ability of the parties to the contract to vary or rescind their contract if this would extinguish or alter the third party s rights under the Act s 3 8 7 13 Though wider in its scope than many of the other legal techniques for circumventing privity the Act is not of universal application Section 7 of the Act sets out a number of situations where the Act does not apply Excluded cases include a contracts on a bill of exchange promissory note or other negotiable instrument b the statutory contract binding a company and its members under s 39 of the Companies Act Cap 50 2006 Rev Ed c limited liability partnership agreements as defined under the Limited Liability Partnerships Act Cap 163A 2006 Rev Ed d third party enforcement of any term of an employment contract against an employee and e third party enforcement of any term apart from any exclusion or limitation of liability for the benefit of the third party in a contract for carriage of goods by sea or a contract for the carriage of goods or cargo by rail road or air if such contract is subject to certain international transport conventions Return to the top SECTION 8 DISCHARGE OF CONTRACT Discharge by Performance 8 8 1 If all the contractual obligations as defined by the terms of the contract are fully performed the contract is brought to an end or discharged by performance In theory such performance must be precise However trivial defects in performance may be ignored as being negligible or de minimis In addition where full performance is only possible with the cooperation of the other party as is almost invariably the case with obligations of payment or delivery tender of performance in circumstances where the other party refuses to accept it is generally deemed to be equivalent to full performance so as to discharge the contract Non or Defective Performance 8 8 2 In the event that a contractual obligation is not performed or is performed defectively in a non trivial fashion Singapore law provides for a variety of legal responses and remedies depending on the nature of the failure of performance Lawful Excuses for Breach of Contract 8 8 3 If the failure of performance is not subject to any lawful excuse the contract is said to be breached In this context lawful excuses may take the following forms Discharge by Agreement 8 8 4 First just as parties are free to agree to bind themselves to a contract they are free to negotiate with each other to release themselves from the obligations of that contract Such agreement may well have been built into the original contract for example where parties agree that their original agreement be terminable by giving notice of termination or upon lapse of a specified period of time Alternatively contracting parties may release themselves from the obligations of the original contract by entering into a subsequent contract of release Where each contractual party is still subject to contractual obligations which have yet to be performed the mutual release of their outstanding obligations is generally effective under Singapore law without the need for any further formalities or any other consideration However where the party who is owed the obligation in question does not have any outstanding obligations under the original contract the party seeking to be released from that obligation will have to provide some form of valuable consideration in exchange for the release In the alternative the release must be executed under seal to be effective 8 8 5 Secondly it may be that the obligation which has not been performed is conditional upon the prior occurrence of certain specified events these may be external events or some contractually specified counter performance by the other party to the contract 8 8 6 Thirdly the parties may contractually provide for non performance following from certain events to be excused so as not to amount to a breach for example in the form of a force majeure clause At the very least such a clause will hold all parties innocent of liability for non performance following the specified force majeure event More detailed force majeure clauses may also make provision for issues such as the return and refund of advance payments reimbursements for expenses incurred in preparation of the performance of the contract and so forth Such provisions will generally be given effect by Singapore law Discharge by Frustration 8 8 7 Fourthly where the reason for the failure of performance lies in events beyond the control of the contracting parties and which neither party could have reasonably foreseen the contract is said to be frustrated In such cases there are statutory rules which set out the extent to which advance payments made before the frustrating event intervened may be refunded and work done in preparation of the performance of the contract in advance of the frustrating event may be reimbursed see Frustrated Contracts Act Cap 115 1985 Rev Ed s 2 2 and s 2 4 respectively Section 2 3 of the Frustrated Contracts Act also empowers the Singapore courts to make valuations of any non money benefits which may have been conferred by one contracting party on another prior to the frustrating event and to order the recipient of those benefits to pay for such value received Effects of a Breach of Contract 8 8 8 In the absence of a lawful excuse a breach of contract has two significant effects Contract Damages 8 8 9 First if the breach of contract by one contracting party the party in breach causes loss to the other the aggrieved party the party in breach may be ordered by the courts to compensate the aggrieved party in money damages for those losses in lieu of the primary obligations left unperformed under the contract However contractual damages which are compensatory and not punitive in nature is not the only judicial remedy available Other types of remedies may be available in lieu or sometimes in addition to damages depending on the nature of the obligation which has been breached See Section 13 below Right to Elect to Discharge for Breach 8 8 10 Second the breach may give the aggrieved party the right to bring the contract to an end ie to discharge the contract for breach In this connection it is useful to distinguish actual breaches of contract wherein the breach occurs at the actual time of performance as specified by the contract from anticipatory breaches of contract wherein the breach is said to occur in advance of the contractually stipulated time of performance Actual Breach Giving Rise to Right of Discharge 8 8 11 In the case of an actual breach of contract the aggrieved party may elect to discharge the contract for breach if the contractual term which has been breached is a a condition or b an innominate term the breach of which deprives the aggrieved party of substantially the whole of the benefit of the contract In such a case the aggrieved party may choose to discharge the contract for breach 8 8 12 The aggrieved party has no such power of election if the contractual term which has actually been breached is a a warranty or b an innominate term the breach of which does not deprive the aggrieved party of substantially the whole of the benefit of the contract In such a case the contract will persist despite the breach unless the contract is brought to an end by some other event 8 8 13 For details as to how a contract term may be categorised as a condition a warranty or an innominate term see Paragraphs 8 5 9 to 8 5 10 above Discharge by Actual Breach 8 8 14 If the aggrieved party is entitled to discharge the contract and elects to do so the contract is brought to an end prospectively That is the contract ceases to bind the parties to the contract from the time the election is effectively communicated to the other contracting parties Such communication may take the form of words acts or even in exceptional cases silence Prior to that time such an election may be withdrawn Following an effective discharge the parties are released from all outstanding contractual obligations Affirmation of Contract Following an Actual Breach 8 8 15 The aggrieved party may choose however not to discharge the contract Instead the aggrieved party may choose to affirm the contract thereby giving the party in breach another opportunity to rectify the non performance or defective performance If so the entire contract is kept alive and the aggrieved party loses the right to have the contract discharged although the right to sue the party in breach and recover money damages for any losses incurred as a result of the delay in procuring full performance may well be retained unless the aggrieved party also elects to waive his or her right to compensatory money damages Anticipatory Repudiatory Breach 8 8 16 A breach of contract may also occur anticipatorily in advance of the time of actual performance If this breach is also repudiatory where the evidence demonstrates that one party intends not to be bound by the terms of the contract nor to honour his or her contractual obligations as and when they fall due the aggrieved party has the right to choose whether to discharge or to affirm the contract Repudiatory intentions will be more readily proved where there are clear and express communications by the purported party in breach to such effect However they can also be inferred from actions or steps taken by the purported party in breach which render it impossible for his or her obligations to be performed when they become due Effect of Discharge by Anticipatory Repudiatory Breach 8 8 17 Significantly a party aggrieved by an anticipatory repudiatory breach may exercise his or her right to discharge the contract immediately without waiting until the time of actual performance If the aggrieved party elects to discharge the contract the contract is immediately and prospectively brought to an end The aggrieved party is then entitled to sue the party in breach for damages as compensation for any loss suffered by the aggrieved party as a result of the non performance of the contract Effect of Affirmation Following an Anticipatory Repudiatory Breach 8 8 18 On the other hand the aggrieved party may elect to affirm the contract If so the contract continues to bind all parties to the contract and the anticipatory breach is ignored Consequently once the aggrieved party affirms the contract there can be no liability for money damages for that anticipatory breach since it is treated as if the breach never occurred Limits on Right of Election to Affirm Contact 8 8 19 Although the aggrieved party s right of election to discharge affirm a contract following an actual anticipatory breach is largely unqualified the English case of White Carter Councils Ltd v McGregor 1962 AC 413 suggests that this right is limited under English law However it is arguable that the limitation is less strict in Singapore In MP Bilt Pte Ltd v Oey Widarto 1999 3 SLR 592 the Singapore High Court adopted the limitations set out in White Carter v McGregor that the aggrieved party may only elect to affirm a contract despite the other contracting party s breach if the aggrieved party was reasonably able to perform his or her part of the contract without the need for any cooperation from the party in breach and if the aggrieved party had a legitimate interest in doing so However the High Court stated that these limitations would not apply when the aggrieved party is under a legal obligation or practical compulsion to complete performance of the contract in question and other contracts he has entered into on the basis of the contract in question at p 607 Consequently it appears that an aggrieved party s freedom to elect to affirm a contract may be less strongly curtailed in Singapore as compared with the case in England Return to the top SECTION 9 MISTAKE Introduction 8 9 1 If one or both parties enter into a contract under a misapprehension of its basis or of an important aspect of the transaction the contract may either be completely void or voidable In the latter case the contract is valid until it is rescinded or set aside by the mistaken party This distinction is critical for determining third party rights see Paragraph 8 9 12 below Whether a mistake has the effect of rendering a contract void or voidable depends on the manner in which the mistake arises Mutual Mistake 8 9 2 If A contracts with B believing that he is purchasing X but B is in fact intending to sell Y to A there is no contract between A and B because they have failed to reach any agreement on the subject matter of the contract Mistakes of this nature are commonly referred to as mutual mistakes A transaction entered into under a mutual mistake relating to a fundamental aspect of the contract is void Common Mistake 8 9 3 A common mistake arises when an agreement is reached on the basis of a mistaken assumption or belief shared by both parties This occurs for instance when A contracts to sell a consignment of goods to B but unknown to both parties the goods had been destroyed before the contract was formed In this situation owing to the destruction or non existence of the subject matter the contract may justifiably be regarded as invalid and void even though it is otherwise properly formed 8 9 4 The more problematic situation arises when the common mistake relates to a less fundamental matter such as the quality of a subject matter of the contract as opposed to its existence Here the law has to strike an appropriate balance between doing justice to the party disadvantaged by the mistake and protecting the counter party s legitimate expectation that the contractual bargain would be upheld The common law and principles of equity respond to this problem in different ways on the distinction between common law and equitable rules see Chapters 1 and 18 Singapore Legal System and Trusts Common Mistake at Common Law 8 9 5 At common law precedence is given to upholding bargains Thus a common mistake as to quality would not in general render a contract void unless the mistake has the effect of rendering the subject matter of the contract essentially and radically different from what the parties believed it to be The ambit of the common law doctrine is therefore extremely narrow having little application outside cases involving non existent or destroyed subject matter Common Mistake in Equity 8 9 6 Equity in comparison permits a more liberal approach even if a mistake is not sufficiently fundamental to render a contract void at common law it may still be set aside provided that the mistake is sufficiently serious 8 9 7 Distinguishing between the different degrees of fundamental mistakes that are operative at common law and in equity is a difficult task Nevertheless the Singapore Court of Appeal s recent observations appear to favour the retention of this two prong approach Chwee Kin Keong v Digilandmall com Pte Ltd 2005 1 SLR 502 This may be contrasted with the position in England where the more flexible equitable rule appears to have been abolished Great Peace Shipping Ltd v Tsavliris Salvage International Ltd 2003 QB 679 Unilateral Mistake 8 9 8 A contract may also be affected by a unilateral mistake that is when only one party is acting under a mistake For purposes of discussion it is convenient to distinguish between the following two cases a where the mistake relates to the identity of a contracting party and b those where the mistake relates to a term of the contract Unilateral Mistake as to Identity 8 9 9 It is useful to note for a start that unilateral mistakes as to identity typically involve cases where one party s consent to an agreement is procured by deception If A agrees to sell his car to B who has deceived A into believing that B is C the contract is affected by A s unilateral mistake as to B s true identity provided that it is clear that B s identity is material ie an important factor which induced the contract As between A and B it is not essential to determine whether such a mistake renders the contract void or voidable since A the mistaken party would have the right to set aside the contract in either case However the distinction becomes critical if B has sold the car to T an innocent third party who acquires the car without notice of B s deception before A discovers the fraud If the mistake has the effect of rendering the contract between A and B void A will be able to recover the car from T because B not having acquired any property right in the car has nothing to sell to T In the converse situation where the contract between A and B is merely voidable B would have acquired property rights in the car which he could subsequently transfer to T A is therefore unable to recover against T in this instance 8 9 10 Disputes involving mistakes as to identity are invariably hard cases because they often require the court to prefer one of two innocent parties Nevertheless it may be observed that the general approach in these cases requires examination of the facts to ascertain whether there is in fact an agreement between the mistaken party and the fraudulent counter party Thus if A intends to sell his car only to C then no agreement is reached between A and B when B attempts to purchase the car by pretending to be C Such intention may for instance be inferred from the fact that A s offer is expressly addressed to C or where there is a written contract purportedly made between A and C although fraudulently signed by B on C s behalf However where A and B transact face to face there is a presumption that they intend to deal with the physical person present in which case A is presumed to have intended to contract with B the fraudster Such a presumption may however be rebutted by clear evidence to the contrary Unilateral Mistake as to a Term 8 9 11 Unilateral mistakes may also arise in relation to the terms of a contract If A enters into a contract under a misapprehension as to a particular important term other than the identity of the other party B and the mistake is known to B such a mistake may render the contract void at common law The Singapore Court of Appeal has recently clarified in Chwee Kin Keong v Digilandmall com Pte Ltd 2005 1 SLR 502 that this common law doctrine is confined to cases where the non mistaken party B has actual knowledge of A s mistake In addition if a case does not fall within the ambit of the common law doctrine because for instance it has not been established that B has actual knowledge of A s mistake the court may nevertheless exercise its equitable power to set the contract aside if B is guilty of unconscionable conduct This may arise where B suspects that A is labouring under a mistake but consciously omits to disabuse A of his error Documents Mistakenly Signed 8 9 12 Generally a person of full age and understanding who has signed a written contract is bound by it even if he or she has not read it Exceptionally a signatory to a contract may be able to set it aside if it is fundamentally or radically different from what the signatory believed it to be as may occur if the signatory s understanding is limited by some innate incapacity or when he or she has been tricked into signing it This defence cannot however be invoked by a person who has been negligent in signing the document Documents Mistakenly Recorded 8 9 13 If a written contract does not by reason of a mistake accurately record the agreement between the parties the court may rectify the contract so as to give effect to the parties true intention Originally the remedy of rectification was only available in cases where the mistake is shared by both parties but was subsequently extended to situations where only one party is mistaken and such mistake is known to the other party Return to the top SECTION 10 MISREPRESENTATION The Nature of the Representation 8 10 1 A contract which is induced by a misrepresentation may be set aside and may give rise to an action for damages A misrepresentation occurs when one party to a contract makes a false statement of fact to the other contracting party which induces the latter to enter into the contract To be operative the false representation must relate to a past or present fact It follows that a vague or exaggerated statement that is in the nature of a puff does not suffice Generally a statement of a party s intention or opinion is also not a sufficient ground for relief However if the representor does not honestly hold such intention or opinion there is a misrepresentation of fact as to the representor s state of mind A statement of opinion may also be actionable if it is made by a person who professes to have special skill or knowledge in the matter stated Statements of law appear still to be excluded from the ambit of operative representations although the correctness of this position must now be doubted in light of the abolition of this distinction in the context of mistakes see Chapter 19 on Restitution Mistaken Payments 8 10 2 A representation may be express or it may be inferred from the representor s conduct On its own silence or non disclosure does not usually constitute a representation There are however exceptions to this general rule If a party makes a positive but incomplete disclosure the omitted disclosure may amount to a misrepresentation if it has the effect of distorting the truth of the information disclosed Similarly a failure to correct an earlier and continuing representation that was true at the time it was made but which has subsequently become incorrect is actionable A failure to disclose material facts whilst negotiating contracts uberrimae fidei such as insurance contracts would also give rise to an action for misrepresentation 8 10 3 Generally a misrepresentation must also be material in the sense that it relates to a matter which would influence a reasonable person s decision whether to enter into the contract If a representation is ambiguous and may be interpreted in two or more ways of which one is true and the other false it is not a misrepresentation unless the representor has intended it to be understood in the sense that is false The Falsehood Must Have Induced the Contract 8 10 4 Misrepresentation is a ground for relief only where it has induced a contract Clearly if a person is unaware of the representation or knows that it is untrue or does not believe it to be true he or she cannot reasonably have relied on or be induced by the representation to enter into the contract Reliance may also be negated if the representee has independently verified the truth of the representation although the failure to verify when the opportunity to do so is available is not in itself a bar to relief If the misrepresentation has in fact induced the representee to enter into the contract it does not matter that it is not the sole inducing factor The persons who may rely on a representation are not confined to those directly addressed by the representor but include any person whom the representor intends to reach and influence even if such a person learns of the representation indirectly from a third party The Right to Rescind 8 10 5 Once it is established that a contract has been induced by a misrepresentation whether innocent negligent or fraudulent the party induced may elect to rescind ie set it aside or affirm it The effect of rescission is to release the parties from their contractual obligations and to restore the parties to their respective positions prior to the making of the contract The right to rescind will however be lost if a the induced party has affirmed the contract b innocent third parties have acquired for value rights in the subject matter of the contract c it is no longer possible to restore the parties to their respective prior positions and d except in the case of fraud an inordinate period of time has lapsed It should also be noted that the court may pursuant to s 2 2 of the Misrepresentation Act Cap 390 1994 Rev Ed award damages in substitution for the right to rescind Damages for Fraudulent Misrepresentation 8 10 6 Whether damages may be awarded for misrepresentation depends on whether the misrepresentation is fraudulent negligent or innocent At common law damages may be awarded for fraudulent misrepresentations A fraudulent misrepresentation is a false representation that is made 1 knowingly 2 without belief in its truth or 3 recklessly careless whether it be true or false In such a case the representor would have committed the tort of deceit and the representee is permitted to recover for all losses incurred as a consequence of the fraudulent misrepresentation even for losses which might not have been reasonably foreseeable Common Law Damages for Negligent Misrepresentation 8 10 7 Where an operative misrepresentation results from negligence the party who has relied on it may obtain damages by commencing an action in the tort of negligence This requires proof that there is a special relationship between the parties which places the representor under a duty to take reasonable care in furnishing information or advice to the representee and that the representor has failed to do so A more extensive survey of the legal principles relating to this branch of the law is contained in See Chapter 20 on Tort Negligence Recovery in such a case would however be restricted to losses which are reasonably foreseeable Statutory Damages for Negligent Misrepresentation 8 10 8 Alternatively a party who has entered a contract in reliance on a negligent misrepresentation may claim damages under 2 1 of the Misrepresentation Act Cap 390 1994 Rev Ed In fact where the issue arises as between contracting parties this statutory action is generally the preferred route for recovering damages as its requirements are less onerous than those of the common law tortious action outlined in Paragraph 8 10 7 above Under s 2 1 the claimant only has to establish that he or she has contracted in reliance on the other party s misrepresentation whereupon the latter has the onus of proving that he or she was not negligent in that he or she had reasonable ground for believing in the truth of the statement In contrast the claimant in a tortious action bears the burden of proof of all elements of the action including the existence of a special relationship between the parties as well as the other party s negligence The language of the provision suggests that the measure of damages under s 2 1 should be the same as that for fraudulent misrepresentations which is more liberal than the measure which applies in contract cases see Paragraph 8 13 10 below or in cases based on the tort of negligence see Paragraph 8 10 7 above As a matter of principle however the contract measure appears to be the more appropriate option Innocent Misrepresentations 8 10 9 Misrepresentations may also be made innocently In such a case the claimant is not entitled to damages at common law but where the claimant still has the right to rescind and it appears beneficial to do so the claimant may persuade the court to exercise its discretion under s 2 2 of the Misrepresentation Act to award damages in lieu of rescission If the court is not so persuaded and the contract is rescinded the claimant may be compensated for expenses incurred in performing the contract in the form of an indemnity Misrepresentations and Terms 8 10 10 Misrepresentations are usually pre contractual statements made to induce a person to contract with the representor A pre contractual statement which has induced a contract may also have been incorporated as a term of the contract If so the person who made the statement would now also be in breach of the contract if the statement turns out to be false In such an event damages for breach of contract may be claimed and s 1 of the Misrepresentation Act makes it clear that the representee may still rescind the contract for misrepresentation For the test for distinguishing between terms and representations see Paragraph 8 5 1 Excluding Liability For Misrepresentation 8 10 11 Parties to a contract may agree to contractual terms which exclude or limit their liability for misrepresentation but s 3 of the Misrepresentation Act requires such a term to satisfy the test of reasonableness set out in s 11 1 of the Unfair Contract Terms Act Cap 396 1994 Rev Ed This test has been discussed in Paragraph 8 5 15 above Return to the top SECTION 11 DURESS UNDUE INFLUENCE UNCONSCIONABILITY Duress 8 11 1 If A enters into a contract with B as a result of B s coercion often taking the form of threats of unlawful acts the contract may be set aside by A on the ground of duress The types of unlawful or improper pressure that may have this effect include actual or threatened harm to a person a person s goods or his or her economic interests 8 11 2 The recognition that economic duress can suffice as a ground for avoiding a contract is a relatively recent development justified by the concern to prevent a party with strong bargaining power from exploiting

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  • MP-Bilt Pte Ltd v Oey Widarto [1999] 3 SLR 592; [1999] SGHC 70
    as for a breach on that date and he would be bound to act reasonably in the circumstances that was to say to take advantage of any mitigating circumstances there might be All the discussions as to how the damages were to be mitigated rested on the foundation that there had been a breach of the contract The argument came to this that the plaintiffs ought to have treated the repudiation as a breach and that it was unreasonable in them not to have so treated it seeing that the market was then a rising one There was no foundation in the authorities for that proposition Emphasis here and hereafter supplied Accordingly the stance taken by the defendant does not accord with the law The duty to mitigate does not arise if the innocent party decides to affirm the contract The duty to act reasonably arises only when the innocent party decides to treat the breach as repudiation and also annuls the contract No duty to mitigate before breach No duty to mitigate when debt is claimed 19 Common sense and authorities affirm the principle that there is no duty to mitigate where a debt is claimed A creditor is entitled to recover a debt and it is independent of his duty to mitigate damages if and when he accepts a breach by the other party 20 The duty to mitigate arises only after a breach has occurred By definition the duty to mitigate is a failure of the innocent party to behave reasonably after the breach By definition a debt is a sum of money fixed by the contract for the completed performance of a given obligation while the contract is alive Damages arise and flow from a breach It follows that once a debt has crystallized there is nothing for the creditor to mitigate Once a debt always a debt After a debt has fallen due the debtor cannot decide to dishonour it and convert it into damages There being no claim for damages no duty to mitigate can arise Instalments which have already accrued and due are recoverable as a debt even if the contract is rescinded subsequently See White and Carter Councils Ltd v McGregor 1962 AC 413 at 445 HL and Stocznia Gdanska SA v Latvian Shipping Co 1998 1 All ER 883 1998 1 WLR 574 HL 21 In Workman Clark Co Ltd v Lloyd Brazileno 1908 1 KB 968 the plaintiffs by a contract agreed to construct a ship The agreed price was 89 800 It was payable in five instalments based on the completion of different stages of construction When the first instalment fell due after due performance by the plaintiffs the defendants failed and refused to pay it They sought judgment under O 14 for the instalment amount on the ground that it was for a debt or liquidated demand in moneys The defendants objected that it was not a claim for a debt or liquidated demand as money They said that when a sum is payable in instalments an action of debt would not lie for one or more instalments before the whole is due that is until the entire performance is completed It was argued that the claim arising upon default in payment of such an instalment was a claim for damages and not a liquidated sum The objection was overruled by the Master the judge and the Court of Appeal It was held that the claim was for a debt or liquidated demand for money It was not a claim for damages 22 Farwell LJ said at pp 977 978 I agree that upon the true construction of this contract it contains separate promises to pay five several sums on the happening of five several events If that be so it can make no difference that all the promises are contained in one document But even if on its true construction it must be regarded as one contract to pay the whole of the sum named as the price of the ship by five instalments each instalment is to become due and payable upon the happening of the particular event specified in that behalf by the contract eg the first instalment is to become payable upon the laying of the keel of the ship In my opinion the claim for that instalment upon the happening of that event is a liquidated demand in money within the meaning of O III r 6 It has been argued that technically the claim arising upon default in payment of such an instalment is a claim for damages and not for a liquidated sum I confess that I cannot follow this argument 23 Lord Alverstone CJ in giving judgment explained the logic of the decision at pp 974 975 It is however suggested that by reason of some rule of law to be deduced from the old authorities as to the action of debt or the principle upon which they were founded the claim in this action is not for a debt or liquidated demand in money within the meaning of O III r 6 I cannot take that view One knows that in the case of contracts of this kind eg contracts for the construction of ships or buildings where the contractor has to incur heavy expenditure for labour and materials to be used in the work contracted for it is the practice to insert provisions such as were inserted in the present case for payment of the contract price by instalments as the work proceeds and I cannot understand why or on what principle the claim for such an instalment when it becomes due according to the terms of the contract should not be regarded as a liquidated demand in money within the meaning of O III r 6 It seems to me to answer exactly to the description contained in the rule as being a liquidated demand in money payable by the defendant under an express contract The suggestion made as I understand it was that because in such a case the shipbuilder still having the ship so far as she is built in his hands may be later on if the purchaser finally makes default in carrying out his side of the contract be in a position to dispose of the ship possibly at a profit the claim in respect of this instalment must be one for unliquidated damages only and therefore is not within the words of the rule I am unable to assent to this suggestion It seems to me clear from a business and common sense point of view that if in consideration of the shipbuilder s finding materials and labour and carrying out the work of building the ship up to a certain stage the purchaser agrees when the work has reached that stage to pay him a certain sum in cash that is an express contract to pay a liquidated sum in that event and within the meaning of the rule and that it makes no difference in principle that four other instalments of the price of the work are subsequently to become payable on other events I think that this contract is for the present purpose to be regarded as an express contract to pay five different liquidated sums of money upon five different events It follows that since the present claim is for a debt and not for damages no question of mitigation of damages can arise No duty to mitigate by discontinuing contractual performance 24 In White and Carter Councils Ltd v McGregor 1962 AC 413 Mr McGregor the defendant was a garage proprietor White and Carter Councils Ltd the plaintiffs were advertising contractors An agreement was made between them for the plaintiffs to display advertisements for his garage for three years There was a default acceleration clause by which if any instalment being due for payment remained unpaid for a period of four weeks the whole sum payable under the contract would fall due for payment The contract was headed by a warning notice that it was not to be cancelled by Mr McGregor The contract further provided that the contract was not subject to countermand by Mr McGregor The defendant repudiated the agreement the very day it was made by saying that it was made without his authority He was held to be wrong The plaintiff did not accept the repudiation and thereby annul the agreement They kept it alive They went ahead and displayed the advertisement on litter bins as they had undertaken to do After complete performance they sued for the full contract price Be it noted that the plaintiffs claim was not for damages or specific performance It was for a debt due under contract made for good consideration There was not even the faintest suggestion that it was in the nature of specific performance The defendant contended that since he repudiated the contract before anything was done under it the plaintiffs were not entitled to perform it and sue for the contract price but can only sue for damages The company did not sue for damages and so the action must be dismissed It would be well nigh impossible to quantify the damages in a case like that This practical difficulty was not addressed by the defendant His argument was made at an abstract level based on emotion No principle of equity was invoked Mr McGregor relied on a line by Portia in The Merchant of Venice and made the emotive pitch What the appellant company is seeking is its pound of flesh 25 Rudimentary principles of law entitle the innocent party to a no loss position That is the position he would be in if the contract had been performed If they had accepted the repudiation that would be price for three years less what they had saved by not performing If they had not performed the contract they would have been in a predicament The amount was fixed subject only to completion of performance So they performed and demanded the price The defendant could not assure that they would be in a no loss position if they had not performed 26 Before the House of Lords the plaintiffs claim succeeded by numerical strength three in favour and two against The majority held that the plaintiffs were entitled to carry out the contract and claim the full contract price They were not obliged to accept the repudiation and sue for damages The decision amounts to practical justice Lord Hodson one of the majority said There is no equity which can assist the defendant Lord Hodson added at p 445 It is trite that equity will not rewrite an improvident contract where there is no disability on either side There is no duty laid upon a party to a subsisting contract to vary it at the behest of the other party so as to deprive himself of the benefit given to him by the contract To hold otherwise would be to introduce a novel equitable doctrine that a party was not to be held to his contract unless the court in a given instance thought it reasonable so to do In this case it would make an action for debt a claim for a discretionary remedy This would introduce an uncertainty into the field of contract which appears to be unsupported by authority either in English or Scottish law 27 It is an opportune moment now to echo the words of Wright J in Lever Brothers Ltd v Bell 1931 1 KB 557 at 568 It is important to uphold the binding force of contracts so far as possible especially in commercial matters And I desire to add that courts should be slow to tinker with clearly worded commercial contracts in the name of discretionary justice 28 Professor JW Carter in his Breach of Contract 2nd Ed 1991 at pp 407 408 summarises the reasoning of the majority of the House of Lords with startling clarity in five paragraphs They feature now as five fundamentals relating to repudiatiory breach of contract The pages where the reasoning appears are indicated by the numbers in parenthesis First a repudiation of obligation does not operate to terminate the performance of a contract and McGregor could not rely on his repudiation as terminating performance 444 Secondly a repudiation of obligation gives rise to an option a plaintiff may either elect to terminate the performance of the contract or elect to continue performance Thus the appellants could elect to continue performance notwithstanding the right to terminate arising from McGregor s repudiation of obligation 427 Thirdly the ability to elect in favour of continuation of performance is not limited to situations in which the remedy of specific performance is available and the fact that the appellants could not have obtained specific performance did not fetter their right of election 429 445 Fourthly there is no requirement that a promisee act reasonably when making an election and the appellants did not have to prove that they had acted reasonably when electing for continuation rather than termination 430 Finally the law governing the mitigation of damages is not relevant to an action to recover a debt due under a contract and the appellants in claiming the contract price were doing no more than enforcing their right to recover a debt due 445 29 The reasoning totally demolishes the arguments of the defendants on the repudiation point 30 The correctness of the case on its special facts cannot be disputed The aim of the law is to ensure that an innocent party receives his full due and there is no rule or equity which can compel him to take a loss no matter how minute it may be Lord Denning in Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GmbH 1976 1 Lloyd s Rep 250 see below agreed that an innocent party should be adequately compensated The only compensation for non payment of a debt is payment of the debt The innocent party in other words is entitled to that no loss end and is empowered to achieve it by an action for debt The contract breaker cannot escape his contractual liability or limit his liability by repudiating it and insisting that such repudiation be accepted by the innocent party That is the immutable decisional law of England and Singapore 31 Furthermore White and Carter by implication affirmed the principle that the duty to mitigate affects only a claim to damages and not debt In that case the claim was for a debt It was argued for the defendant that the plaintiffs claim in reality was that the defendant in respect of his repudiation and breach of contract was liable in damages In other words by his own breach he converted the claim in debt to a claim in damages The minority view was that the plaintiffs should have mitigated damages by not proceeding with the performance of the contract This was rejected by the majority who held that the claim was in debt Be it noted again that the plaintiffs had performed the contract unilaterally 32 The reports are replete with authorities which show that there can be no question of mitigation of damages where a claim for debt and not damages has accrued The plaintiffs in the present case therefore were never subjected to the duty to mitigate because their claim is in debt The defendant cannot convert it into a claim for damages by his own breach Lord Reid s doctrine 33 I shall now consider the principal argument advanced before the court below and me that the plaintiffs were obliged to accept the defendant s repudiation The germ of that argument is a dictum of Lord Reid in White and Carter He said It may well be that if it can be shown that a person has no legitimate interest financial or otherwise in performing the contract rather than claiming damages he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself If a party has no interest to enforce a stipulation he cannot in general enforce it so it might be said that if a party has no interest to insist on a particular remedy he ought not to be allowed to insist on it 34 Lord Reid appears to have relied on the general equitable jurisdiction in formulating his doctrine He explained it by way of an example If I may revert to the example which I gave of a company engaging an expert to prepare an elaborate report and then repudiating before anything was done it might be that the company could show that the expert had no substantial or legitimate interest in carrying out the work rather than accepting damages I would think that the de minimis principle would apply in determining whether his interest was substantial and that he might have a legitimate interest other than an immediate financial interest But if the expert had no such interest then that might be regarded as a proper case for the exercise of the general equitable jurisdiction of the court Be it remembered here that Lord Hodson at p 445 said that there was no equity which could assist Mr McGregor and that equity would not rewrite an improvident contract where there is no disability on either side It is therefore difficult to comprehend Lord Reid s explanation 35 Lord Reid s dictum nonetheless was approved or applied in Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GmbH 1976 1 Lloyd s Rep 250 255 Gator Shipping Corp v Trans Asiatic Oil Ltd SA 1978 2 Lloyd s Rep 357 372 374 Clea Shipping Corp v Bulk Oil International Ltd 1983 2 Lloyd s Rep 645 In Stocznia Gdanska SA v Latvian Shipping Co 1996 2 Lloyds Rep 132 CA Straughton LJ posed this question at p 138 Is an innocent party bound to treat a contract as repudiated if he has no legitimate interest in future performance The Lord Justice provided the following answer This doctrine stems from a passage in the speech of Lord Reid in White and Carter Councils Ltd v McGregor 1962 AC 413 at p 431 It has the support of this court in Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GmbH 1976 1 Lloyd s Rep 250 It was applied by Mr Alec Kazantsis a maritime arbitrator where the point does arise from time to time in Clea Shipping Corp Ltd v Bulk Oil International Ltd No 2 1983 2 Lloyd s Rep 645 with the approval of Mr Justice Lloyd I can readily accept that there is such a doctrine 36 The doctrine as applied does not expect the innocent party to act to his detriment and settle for less than what is legitimately due to him The court under O 14 r 3 has the power to give such judgment for the plaintiff against the defendant on the claim or such part of such claim as may be just having regard to the nature of the remedy or relief claimed The court under this rule can do practical justice without resorting to any esoteric doctrine of equity 37 In any event the doctrine has a number of limitations First it cannot apply retrospectively to accrued debts Accrued debts can be sued for even after acceptance of repudiation 38 Next it does not apply where the innocent party can reasonably perform his obligation without the co operation of the contract breaker Illustrations a contractor who has undertaken to repair a house for a lump sum cannot perform his obligation because the house owner can prevent him by denying access The contractor will need an order of court to force the house owner to give him access which will ordinarily be refused as damages would suffice The only remedy in such instance is to sue for damages and not the full contract price 39 Thirdly and more importantly the doctrine was conceived in the context of the innocent party rejecting the repudiation by the other party and exercising his right to complete performance when the former has a legitimate interest to protect A fortiori the doctrine cannot apply when the innocent party is under a legal obligation or practical compulsion to complete performance of the contract in question and other contracts he has entered into on the basis of the contract in question 40 A number of authorities were cited to sustain the defendant s arguments based on Lord Reid s dictum I shall consider them now 41 In Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GmbH 1976 1 Lloyd s Rep 250 CA the plaintiffs Ferrostall had chartered out their ship Puerto Buitrago to the defendants Attica for a period of 17 months It was by way of a demise charter a time charter where the charterer supplies the crew Six months later the ship broke down The charterers in breach of their obligation sought to redeliver the ship without repairing it The owners refused to accept redelivery It would have cost an estimated sum of US 2m to repair the ship and the value of the ship after repairs would be about US 1m The owners lodged the action claiming hire at 46 000 a month until the vessel was repaired and redelivered Thus the primary purpose of the action was to compel the charterer to have the ship repaired The secondary claim was in respect of unaccrued moneys being hire payable after the failure to repair In effect therefore it was for specific performance of the obligation to repair the ship Next the claim was for future hire and not an accrued debt The claim was not for an accrued debt because the ship had not performed any service after it broke down The owners were prepared to accept re delivery only after repairs The owners thus were seeking to unjustly enrich themselves by attempting to go far beyond a no loss position It was held on the facts of that case that the owners had actually accepted the repudiation They were therefore rightly denied the remedy they sought and directed to recover damages In this case we are in an entirely different realm 42 White and Carter was not relevant to the Attica case In Attica there was no claim for an accrued debt as it was in White and Carter Additionally in Attica there was a finding that the owners had accepted the charterers repudiation in that there was an effective redelivery of the ship to them The ship was no longer in the charterers possession The owners insistence that the charterers must repair the ship in effect meant that the owners were seeking an order for specific performance of the obligation to repair and continue to pay hire even though they no longer had possession of the ship The ship was not earning hire The future hire would form part of the compensation the owners would be entitled to under principles enunciated in Interoffice Telephones Ltd v Robert Freeman Co Ltd 1958 1 QB 190 CA and Yeoman Credit Ltd v Waragowski 1961 3 All ER 145 1961 1 WLR 1124 Lord Denning MR with whom Orr LJ and Browne LJ concurred decided against the owners Lord Denning took the opportunity to make his critical comment on White and Carter He spoke with his customary exuberance at p 255 The House of Lords by a majority of three to two held that they were entitled to do so The decision has been criticized in a leading textbook Cheshire Fifoot pp 600 and 601 It is said to give a grotesque result Even though it was a Scots case it would appear that the House of Lords as at present constituted would expect us to follow it in any case that is precisely on all fours with it But I would not follow it otherwise It has no application whatever in a case where the plaintiff ought in all reason to accept the repudiation and sue for damages provided that damages would provide an adequate remedy for any loss suffered by him The reason is because by suing for the money the plaintiff is seeking to enforce specific performance of the contract and he should not be allowed to do so when damages would be an adequate remedy 43 The specific performance mentioned by the Master of the Rolls was the obligation to repair the ship and the incidental obligation to pay future hire during the repairs There was no question of a specific performance of an obligation to pay an accrued debt In any event the Master of Rolls said that there would be an adequate remedy for any loss suffered by the owners in damages The only adequate remedy for non payment of an accrued debt is the payment of the debt and if it is not paid a judgment for the debt Whether it is in the form of a judgment for damages or specific performance the result is the same A judgment for debt is a simple and adequate remedy There is no necessity to ask for specific performance Lord Denning s statement therefore has no application to the present case 44 The Alaskan Trader Clea Shipping Corp v Bulk Oil International Ltd No 2 1983 2 Lloyd s Rep 645 is somewhat similar There was a time charter The ship broke down The owners repaired the ship and sought to deliver the ship into the charterer s service The charterer refused delivery and thereby repudiated the contract The owners left the ship to idle with a full crew also idling on board The owners at first drew hire from a letter of credit Then the owners paid the hire without prejudice It was held that they were not entitled to the hire for the entire period during which the vessel was not under actual service Lloyd J relied on Lord Reid s doctrine in White and Carter Their entitlement was restricted to damages and subject to the rules governing mitigation The result of the decision was entirely consistent with the principle of Interoffice Telephones and Yeoman Credit cases It was not a case on an accrued debt The present case is in an entirely different realm 45 Finally Stocznia Gdanska SA v Latvian Shipping Co the appeal concerned decisions by four judges Clarke J Waller J Longmore J and Colman J Only one point of decision made by Clarke J is relevant to the present case Lord Reid s doctrine was not really relevant to the case since the repudiation had been accepted by the innocent party It concerned a shipbuilding contract It arose from a humble O 14 application The plaintiffs were shipbuilders They entered into six contracts to build six ships for the defendant buyers Under each contract the price was payable in instalments Work was begun on the ships The buyers failed to pay the instalments due on keel laying of two hulls The plaintiffs rescinded the contracts and sued for damages in addition to the unpaid instalments They applied for summary judgment for those claims The defendants objected on the ground that the provisions in the contracts precluded the plaintiffs from recovering the unpaid instalments as they formed part of the damages Clarke J granted them summary judgment for both The Court of Appeal allowed the buyers appeal from Clarke J on the ground that once the contracts were rescinded the innocent party s rights were exclusively governed by the contract and the unpaid second instalments although recoverable at common law were not recoverable On further appeal to the House of Lords it was held that the unpaid instalments of the price which had already accrued due were recoverable The contract did not contain clear words to annul the accrued right to recover unpaid instalments of the price as a debt at common law Lord Lloyd said at p 597 The right to claim the keel laying instalment had already accrued before the plaintiffs rescinded the contracts It would take very clear language to deprive the plaintiffs of their right to recover those instalments in debt I do not find such language in cl 5 05 2 The right to retain instalments which have already been paid does not exclude the right to recover instalments which have not been paid I can see no purpose in drawing a distinction between paid and unpaid instalments provided the instalments have fallen due under cl 5 02 The crucial distinction is between instalments which have fallen due whether paid or unpaid and instalments which have not fallen due As will be seen the remaining provisions of cl 5 02 work sensibly and fairly on that basis If the logic of the Court of Appeal namely that by rescinding the plaintiffs in Stocznia lost their common law rights was applied to the present case the plaintiffs in the present case by not rescinding would be in an even stronger position The defendant cited the Stocznia case to support his stand on the repudiation point In the end he was hoisted by his own petard The relevant ruling on the accrued instalment unconditionally favours the plaintiffs claim in this case 46 Finally an American case Centex Homes Corp v Eugene H Boag Anor 1974 128 NJ Super 385 The plaintiffs were the developers of a condominium comprising more than 3 000 units The defendants Mr and Mrs Boag signed a contract for the purchase of one apartment and paid 525 as deposit Then they gave a cheque for 6 870 The two sums amounted to 10 of the purchase price Then Mr Boag was transferred to a far away place Mr Boag stopped payment and thereby repudiated the contract The plaintiffs sued Mr and Mrs Boag for specific performance of the entire purchase agreement or in the alternative for liquidated damages Be it noted that it was not a claim for a debt which had fallen due by reason of performance The court held that under their law the remedy of specific performance was not available for the sale and purchase of a condominium house Damages sustained by the developers were readily measurable and the damage remedy at law was wholly adequate The alternative claim was dismissed on the basis of the peculiar wording of the contract We are in a different world Before me there is no claim for specific performance of the entire contract or part of a contract What is before me is a claim for a debt which has fallen due by reason of the performance by the plaintiffs Additionally I do not believe the law of Singapore to be that specific performance is not available in respect of condominium units or HDB flats That issue is not before me and accordingly I make no decision on it The issue of pleadings 47 It was held that the claim in the present case was for specific performance By implication the statement of claim did not disclose a cause of action in debt This is a startling proposition and requires a detailed discussion From time out of mind under common law it was possible to obtain an order for specific performance of an obligation to pay a debt To be sure the only contractual obligations which at common law could be enforced by specific performance were those consisting debts For everything else the remedy was damages In practical terms its significance was the mode of execution It was given effect by the arrest and incarceration of the debtor Even the admiralty court followed this procedure the debtor and not the ship was arrested Under the common law procedure of specific performance debtors prisons were overflowing Gaolers had a field day torturing and tormenting debtors who in the fit of things were moneyless in order to extract moneys Their monstrosity was a public scandal Even the compassionate court of equity was unable to ameliorate their lot Eventually mitigation came from Parliament Arrest and imprisonment for debt were done away with in stages The Debtors Act 1869 drove the last nail into the coffin Section 4 of the Debtors Act pronounced that with the exceptions hereinaftermentioned no person shall be arrested or imprisoned for making default in payment of a sum of money Thereafter a debtor could not be taken in execution Instead only his property was subject to execution Paradoxically when equity made an order of specific performance for payment of money or other obligations it was enforced by the harsh remedy of committal Thus equity imitated the common law by incarcerating debtors when it was no longer possible under common law 48 This divergence was reflected in the form of judgments and orders The common law court gave a negative form of judgment for money That is the do recover form Enforcement was by execution on property The equity court order was in specific performance form namely the do pay form In this case enforcement was by incarceration This is derived from the equitable doctrine that the court acts in personam So an order for specific performance was expressed in the form of requiring the defendant to do a specific act within a specified time All that changed in 1966 New forms of judgments and orders were introduced in the interest of providing uniformity and consistency in the forms of judgments and orders and the methods of their enforcement Judgments for money were all in the same form the do pay form 49 The new common form of judgment was introduced in Singapore in 1970 and is still in use When a plaintiff obtains a judgment for money he can avail himself the same execution process irrespective of whether the cause of action is founded on common law or equity However there is one important point to note It arises from the double dimension of the relief of specific performance one relating to procedural law and the other substantive law The change in procedure did not change the substantive law In either case if the judgment creditor desires to avail himself of committal proceedings he must ask for insertion in the judgment or order a time limit within which the money is to be paid In which case material must be placed before the court to enable it to exercise its discretion It will not be given as a matter of course Without the insertion of the time limit there can be no committal proceedings Without it it is not an order for specific performance in its true sense and form All that is procedural law That does not alter the substantive law governing debt damages and specific performance 50 In the result the defendant was wrong in his submission that there was no claim in debt This is not to say that when a cause of action is based on debt the substantive principles governing it will be eschewed In this case the plaintiffs have not asked for the traditional equitable form of judgment stipulating a time limit Accordingly the argument based on the allegation that specific performance was not pleaded was a red herring It becomes material only when committal of the defendant is contemplated Committal of the defendant was not in the contemplation of the plaintiffs There was a valid cause of action founded on debt and that claim was governed by the principles I have enunciated Principles governing the granting of specific performance do not apply to a claim in debt Summary judgment for specific performance in Singapore 51 Now is a good moment to attend to Excelsior Hotel Pte Ltd v Hiap Bee Singapore Pte Ltd 1989 2 SLR 902 It concerned two sale and purchase agreements in respect of two shop units The price was to be paid in instalments in accordance with the progress of

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  • Chwee Kin Keong and others v Digilandmall.com Pte Ltd[2005] 1 SLR(R) 502; [2005] SGCA 2
    be used for the purchase The third appellant placed two orders for the sixth appellant the first for 30 units and the second for 300 units with payment to be by way of cash on delivery In the circumstances it would be reasonable as far as the sixth appellant is concerned to impute the knowledge of the third appellant to him 24 Another material fact which the judge took into account in assessing the credibility of the appellants was their conduct after the event Upon being told that the respondent did not intend to fulfil its obligations pursuant to the sales made on the Internet they took the matter to the media There were reports in The Straits Times and Channel News Asia CNA both on 15 January 2003 The first to fifth appellants exhibited these reports in their affidavits without any qualification to substantiate their case In The Straits Times report the crucial part read While surfing the Net at about 2 am on Monday Mr Tan Wei Teck the second appellant stumbled upon an offer he could not believe 66 for a Hewlett Packard laserjet printer that normally sells for 3 854 before GST emphasis added 25 In the CNA report it was stated that the appellants saw a great opportunity and grabbed it We should add that while the appellants took issue as to the accuracy of these reports it was they who put the reports in evidence without demur 26 We agree with the trial judge that these reports not only failed to substantiate the appellants claim of innocence but they also corroborated the respondent s contention that the appellants knew that there was a mistake in the price of the product 27 In his judgment Rajah JC found that the appellants had constructive knowledge that there was an error in the pricing on the websites He held that as the mistake related to a fundamental term the apparent contracts formed were thereby void under the common law In this appeal the appellants do not dispute this statement of the law but have questioned whether the judge had correctly applied the law to the facts However we would pause here to note that the amicus curiae Assoc Prof Daniel Seng submitted that a contract is void under the common law only where there is actual knowledge not just constructive knowledge of the mistake 28 At this juncture we should mention that the trial judge also went on to consider the position under equity Following the decision of the English Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage International Ltd 2003 QB 679 Great Peace Shipping which denied the existence of an equitable jurisdiction to rescind agreements on the ground of common mistake he said that he was not in favour of a separate equitable jurisdiction to rescind agreements for unilateral mistakes Presumably he felt it was logical to extend the decision in Great Peace Shipping which was a case on common mistake to a case on unilateral mistake Nevertheless he opined that the law in this area should be rationalised by legislation as was done in New Zealand Contracts made through the Internet 29 It is common ground that the principles governing the formation of written or oral contracts apply also to contracts concluded through the Internet In the present case it is not in dispute that prima facie a contract was concluded each time an order placed by each of the appellants was followed by the recording of the transaction as a successful transaction by the automated system The system would also send a confirmation e mail to the person who placed the order within a few minutes of recording a successful transaction Unilateral mistake in common law 30 We will first consider the statements of law advanced by the judge below It is trite law that as a general rule a party to a contract is bound even though he may have made a mistake in entering into the contract The law looks at the objective facts to determine whether a contract has come into being The real motive or intention of the parties is irrelevant see Treitel The Law of Contract Sweet Maxwell 11th Ed 2003 at 1 The raison d etre behind this rule is the promotion of commercial certainty 31 However there is an exception to this rule when the offeree knows that the offeror does not intend the terms of the offer to be the natural meaning of the words see Shogun Finance Ltd v Hudson 2004 1 AC 919 Shogun Finance at 123 and Hartog v Colin Shields 1939 3 All ER 566 Hartog The reason behind this exception is self evident as a party who is aware of the error made by the other party cannot claim that there is consensus ad idem The law should not go to the aid of a party who knows that the objective appearance does not correspond with reality It would go against the grain of justice if the law were to deem the mistaken party bound by such a contract 32 One of the earliest cases which propounded this principle was Smith v Hughes 1871 LR 6 QB 597 where Hannen J said at 610 The promiser is not bound to fulfil a promise in a sense in which the promisee knew at the time the promiser did not intend it And in considering the question in what sense a promisee is entitled to enforce a promise it matters not in what way the knowledge of the meaning in which the promiser made it is brought to the mind of the promisee whether by express words or by conduct or previous dealings or other circumstances If by any means he knows that there was no real agreement between him and the promiser he is not entitled to insist that the promise shall be fulfilled in a sense to which the mind of the promiser did not assent 33 Indeed in law there are three categories of mistake namely common mutual and unilateral mistakes In a common mistake both parties make the same mistake In a mutual mistake both parties misunderstand each other and are at cross purposes In a unilateral mistake only one of the parties makes a mistake and the other party knows of his mistake For the purpose of the present proceedings we are only concerned with the effect of a unilateral mistake 34 However it does not follow that every mistake would vitiate a contract It has to be a sufficiently important or fundamental mistake as to a term for that to happen There is no doubt that the error in the present case as to the price is a fundamental one Accordingly it is wholly unnecessary for us to deal with the question as to what nature of mistake would constitute a serious mistake sufficient to vitiate a contract It is also unnecessary for us to address a related controversial question whether a mistake as to quality or the substance of the thing contracted for is of sufficient gravity to negate an agreement 35 The locus classicus on unilateral mistake is Hartog There the defendants offered to sell to the plaintiff Argentine hare skins but by mistake offered them at a price per pound instead of at a price per piece The offer was accepted However the court held that the apparent contract was void because the plaintiff must have known and did in fact know that there was a mistake in the offer because their previous negotiations had proceeded on the basis as was usual in the trade that the price was by per piece and not by weight The case represents a typical scenario where a party who knowing of the mistake of the other party sought to hold the latter to it Phrases such as must have known could not reasonably have supposed are really evidential factors or reasoning processes used by the court in finding that the non mistaken party did in fact know of the error made by the mistaken party 36 Hartog was applied in McMaster University v Wilchar Construction Ltd 1971 22 DLR 3d 9 McMaster University In the latter case the defendant tendered for the construction of a building but due to an error omitted a wage escalator clause in the tender All the other tenders contained such a clause The court found that when the plaintiff accepted the defendant s tender it knew that the defendant had made a mistake in the tender 37 Accordingly the law will declare void a contract which was purportedly entered into where the non mistaken party was actually aware of the mistake made by the mistaken party This proposition is not in dispute But should this rule also apply to a case where the non mistaken party did not have actual knowledge of the error but ought to have known about the other party s mistake ie where there is constructive knowledge The judge below thought that it should be the case 38 Rajah JC found at 140 and 142 that the appellants had actual knowledge that the price stated on the websites was a mistake However he also found in the alternative that the appellants had constructive knowledge at 144 145 I find in the alternative that the appellants given each of their backgrounds would in any event each have separately realised and appreciated before placing their purchase orders that a manifest mistake had occurred even if no communications on the error had taken place between them Further the character of the mistake was such that any reasonable person similarly circumstanced as each of the appellants would have had every reason to believe that a manifest error had occurred If the price of a product is so absurdly low in relation to its known market value it stands to reason that a reasonable man would harbour a real suspicion that the price may not be correct or that there may be some troubling underlying basis for such a pricing 39 The authors of Chitty on Contracts Sweet Maxwell 28th Ed 1999 think that the position is still fluid as they state at para 5 035 It is not clear whether for the mistake to be operative it must actually be known to the other party or whether it is enough that it ought to have been apparent to any reasonable man In Canada the latter suffices 40 It is clear that the state of a person s mind is a question of fact It has to be proved like any other fact In Vallance v The Queen 1961 108 CLR 56 Windeyer J put the point very eloquently at 83 A man s own intention is for him a subjective state just as are his sensations of pleasure or of pain But the state of another man s mind or of his digestion is an objective fact When it has to be proved it is to be proved in the same way as other objective facts are proved 41 As is so often alluded to in the cases in the absence of an express admission or incontrovertible evidence the fact of knowledge would invariably have to be inferred from all the surrounding circumstances including the experiences and idiosyncrasies of the person and what a reasonable person would have known in a similar situation If a court upon weighing all the circumstances thinks that the non mistaken party is probably aware of the error made by the mistaken party it is entitled to find as a fact that the former party has actual knowledge of the error Following from that holding the court should declare the contract so formed as void on the ground of unilateral mistake 42 In order to enable the court to come to the conclusion that the non mistaken party had actual knowledge of the mistake the court would go through a process of reasoning where it may consider what a reasonable person placed in the similar situation would have known In this connection we would refer to what is called Nelsonian knowledge namely wilful blindness or shutting one s eyes to the obvious Clearly if the court finds that the non mistaken party is guilty of wilful blindness it will be in line with logic and reason to hold that that party had actual knowledge 43 This then gives rise to the question as to the circumstances under which a party should make inquiry When should such a party make inquiries failing which he would be considered to be shutting his eyes to the obvious We do not think this question is amenable to a clear definitive answer Situations in which such a question could arise are infinite But we could accept what Mance J said in OT Africa Line Ltd v Vickers Plc 1996 1 Lloyd s Rep 700 OT Africa at 703 that there must be a real reason to suppose the existence of a mistake What would constitute real reason must again depend on the circumstances of each case Academicians may well query whether this should be based on an objective or subjective test At the end of the day the court must approach it sensibly The court must be satisfied that the non mistaken party is in fact privy to a real reason that warrants the making of an inquiry 44 Here we would reiterate that expressions such as taking advantage good faith snapping up used by the courts to describe the situations under consideration were often just the bases upon which the court in each case had come to its conclusions as to whether the non mistaken party had actual knowledge of the error made by the mistaken party While we recognise that the distinction between actual knowledge and constructive knowledge can be a fine one and can often be difficult to discern it is nonetheless not something unfamiliar to the courts The courts are accustomed to making such a distinction 45 In coming to his conclusion that constructive knowledge would suffice to bring a case within the common law principle of unilateral mistake the judge had relied on Canadian cases and on OT Africa and Ho Seng Lee Construction Pte Ltd v Nian Chuan Construction Pte Ltd 2001 3 SLR R 184 Ho Seng Lee Construction 46 We must note that the Canadian cases tend to adopt a fused and more elastic approach than permitted by the doctrine of the common law They subsume the common law principles under equity They emphasise more on the need to do justice and to relieve hardship In many of the cases the courts had held that constructive notice of the mistake would be a sufficient basis to grant relief However it is vital not to conflate actual knowledge of the mistake by the non mistaken party with deemed or constructive knowledge by that party for the reason that the consequences vis à vis innocent third parties are different A contract void under common law is void ab initio and no third parties can acquire rights under it see Shogun Finance Where a contract is voidable under equity the court in determining whether to grant relief would have regard to rights acquired bona fide by third parties Statements such as this at 22 60 of McMaster University should be read with care In my view this is truly a case of unilateral mistake F rom the circumstances the plaintiff must in any event be taken to have known of the mistake before acceptance of the offer In this context it should be stressed that one is taken to have known that which would have been obvious to a reasonable person in the light of the surrounding circumstances see Hartog v Colin and Shields 47 The second sentence of the passage above indicated a finding of the court that the plaintiff must have known and did in fact know of the mistake The reference in the third sentence to what a reasonable man would have known in the circumstances was not to suggest that an objective test was to apply to the non mistaken party and thus impute knowledge to him Such references as indicated before are really reasoning processes and unless there are other reasons which indicate to the contrary the court is entitled to infer that a person would know what any other reasonable person would have known in similar circumstances Therefore the following passage in Cheshire Fifoot and Furmston s Law of Contract 2nd Singapore and Malaysian Ed 1998 by Andrew Phang at p 418 should be viewed in a similar light We must now consider the attitude of common law to unilateral mistake the distinguishing feature of which as we have seen is that the mistake of X is known to the other party Y It must be stressed that in this context a man is taken to have known what would have been obvious to a reasonable person in the light of the surrounding circumstances 48 The fused Canadian approach appears clearly in First City Capital Ltd v British Columbia Building Corp 1989 43 BLR 29 First City Capital where the defendant purportedly entered into a contract to purchase a portable building when it was already informed that the owner had previously entered into an agreement to sell it to another party but chose to disbelieve it Later another employee of the owner mistakenly delivered a bill of sale for the building to the defendant The owner and the first buyer instituted proceedings to rescind the transaction on the ground of mistake since the defendant had entered into the transaction in bad faith The Supreme Court of British Columbia rejected the argument that the court s power to relieve against the consequences of mistake was confined to cases of mistake as to the identity of the subject matter and instead held that since Bell v Lever Brothers Limited 1932 AC 161 Bell v Lever Bros the law had developed further McLachlin CJSC held at 20 that the haste with which the defendant moved to consummate the transaction leads me to conclude that it in fact knew or at very least suspected that such a mistake had been made In discussing precedents the court did not expressly distinguish between the positions in common law and in equity It also said that the equitable jurisdiction should be applied to relieve against mistake even where fraud in the strict legal sense was not present It would apply to a situation where there was fraud in the wider sense namely equitable fraud or constructive fraud 49 However we must point out that in First City Capital the court did in fact find that the defendant probably knew that the owner was operating under a mistake when it agreed to transfer the building to the defendant On this finding the court could have declared that the transaction was void in law It did not do so Perhaps that was because the relief prayed for in the action was an equitable one ie rescission However the court did go on to hold at 34 that if it was wrong to have made that finding this is most certainly a case where the defendant ought to have known that the owner had no right to sell the building to it Nevertheless the defendant in its negotiations with the owner pursued a course designed to inhibit discovery of the mistake moving with uncharacteristic haste to snap at the owner s mistaken offer 50 Equally reflective of the fused approach is this statement of Baker J in Craig Estate v Higgins 1993 86 BCLR 2d 64 at 72 25 The court may grant relief from a contract entered into on the basis of unilateral mistake where the plaintiff has established and has met the high burden imposed upon it of doing so that a mistake has been made and that it would be unjust or inequitable for the court to allow the other party to uphold the bargain One of the grounds on which a court may find that it would be unfair or inequitable is if the party seeking to enforce it had actual knowledge or constructive knowledge that a mistake had been made prior to acceptance of the offer emphasis added 51 We cannot glean from the Canadian cases that the common law principles on unilateral mistake would encompass a case where the non mistaken party has only constructive knowledge of the mistake The fact of the matter is that they had fused the application of common law and equitable principles and had referred to them interchangeably Those decisions were founded in equity rather than in law This appears clearly from the judgment of Donald JA of the British Columbia Court of Appeal in the case of 256593 BC Ltd v 456795 BC Ltd 1999 171 DLR 4th 470 where he said at 25 In summary therefore the equitable jurisdiction of the Courts to relieve against mistake in contract comprehends situations where one party who knows or ought to know of another s mistake in a fundamental term remains silent and snaps at the offer seeking to take advantage of the other s mistake In such cases it would be unconscionable to enforce the bargain and equity will set aside the contract emphasis added 52 As regards the two cases 45 supra namely OT Africa and Ho Seng Lee Construction which were relied upon by the judge below we would only say this Both cases did not really examine the doctrinal issue as to whether constructive knowledge by a non mistaken party of the mistake would suffice to vitiate the contract ab initio They assumed that to be the position Moreover in OT Africa the court added that for constructive knowledge to void a contract there had to be some real reason to suppose the existence of a mistake clearly a reasoning process to determine actual knowledge Similarly in Ho Seng Lee Construction reference was made by the court to fraud or a very high degree of misconduct before the non mistaken party could be affixed with constructive knowledge 53 In our opinion it is only where the court finds that there is actual knowledge that the case comes within the ambit of the common law doctrine of unilateral mistake There is no consensus ad idem The concept of constructive notice is basically an equitable concept see The English and Scottish Mercantile Investment Company Limited v Brunton 1892 2 QB 700 at 707 per Lord Esher MR In the absence of actual knowledge on the part of the non mistaken party a contract should not be declared void under the common law as there would then be no reason to displace the objective principle To the extent that the judge below seems to have thought otherwise ie that where the non mistaken party has constructive knowledge of the mistake the contract thus entered into would be void under common law we would respectfully differ 54 The following statement of Thompson J in McMaster University succinctly encapsulated the inter relation between law and equity in the area of unilateral mistake at 18 47 As a general rule equity follows the law in its attitude towards contracts which are void by reason of mistake If the contract is void at common law equity will also treat it as a nullity Equity however will intervene in certain cases to relieve against the rigours of the common law even though the mistake would not be operative at law If for lack of consensus no contract comes into existence there of course is nothing to which an equity can attach It is only in cases where the contract is not void at law that equity may afford relief by declaring the contract voidable It gives relief for certain types of mistakes which the common law disregards and its remedies are more flexible Thus equity does not require the certainty which had led to the narrow common law doctrine of fundamental mistake It seeks rather the more broad and more elastic approach by attempting to do justice and to relieve against hardship emphasis added 55 Accordingly we would endorse the following views expressed by Steyn J in Associated Japanese Bank International Ltd v Crédit du Nord SA 1989 1 WLR 255 Associated Japanese Bank at 267 268 No one could fairly suggest that in this difficult area of the law there is only one correct approach or solution But a narrow doctrine of common law mistake as enunciated in Bell v Lever Brothers Ltd 1932 AC 161 supplemented by the more flexible doctrine of mistake in equity as developed in Solle v Butcher 1950 1 KB 671 and later cases seems to me to be an entirely sensible and satisfactory state of the law Equitable jurisdiction 56 We now move to consider the second issue of law raised by the court below namely whether there should be an equitable jurisdiction in the courts to grant relief where there is a bona fide unilateral mistake on the part of one party which does not come within the common law doctrine of unilateral mistake and if the answer to this issue is in the affirmative to consider the circumstances under which equity should intervene to grant relief The case which is at the heart of the controversy is Solle v Butcher 1950 1 KB 671 That is a case which concerned a common mistake ie where both parties assumed that a flat was no longer subject to rent control when in fact it was The majority in Solle v Butcher held that the contract entered into on the basis of that common mistake should be rescinded The minority Jenkin LJ thought that rescission was not possible because the mistake was not one of fact but of law 57 In that case the basis of the equitable principle was enunciated by Denning LJ at 692 in the following general terms Let me next consider mistakes which render a contract voidable that is liable to be set aside on some equitable ground Whilst presupposing that a contract was good at law or at any rate not void the court of equity would often relieve a party from the consequences of his own mistake so long as it could do so without injustice to third parties The court it was said had power to set aside the contract whenever it was of opinion that it was unconscientious for the other party to avail himself of the legal advantage which he had obtained Torrance v Bolton 1872 LR 8 Ch 118 at 124 per James LJ 58 However in his judgment Denning LJ seemed to have conflated law with equity He gave as an example of the special circumstances where the court would grant relief the case where one party knowing that the other is mistaken about the terms of an offer or the identity of the person by whom it is made lets him remain under his delusion and concludes a contract on the mistaken terms instead of pointing out the mistake at 692 Surely in such circumstances the common law would in any event have held that there was no contract It seems to us that Denning LJ gave this illustration because he thought in our view erroneously that following Bell v Lever Bros only mistake relating to identity or subject matter would come within the common law doctrine of common mistake Mistake of any other nature however important would not In those situations relief could be obtained only in equity It was probably on that basis that Denning LJ opined at 693 that a common mistake even on a most fundamental matter would not render a contract void at law a view which he reiterated in Magee v Pennine Insurance Co Ltd 1969 2 QB 507 at 514 59 It appears to us that these views of Denning LJ were not sanctioned in Bell v Lever Bros On the contrary they have been the subject of much criticism see Associated Japanese Bank at 266 267 per Steyn J 60 Be that as it may subsequent to Solle v Butcher the courts had in several cases held that there was an equitable jurisdiction to set aside a contract even though it did not meet the strict criteria necessary in common law to establish that it was void for common mistake eg Grist v Bailey 1967 Ch 532 Magee v Pennine Insurance Co Ltd Laurence v Lexcourt Holdings Ltd 1978 1 WLR 1128 61 In Associated Japanese Bank Steyn J having held that the guarantee in question was void ab initio at common law went on to opine at 270 that Equity will give relief against common mistake in cases where the common law will not and it provides more flexible remedies including the power to set aside the contract on terms If I had not decided in favour of the defendants on construction and common law mistake I would have held that the guarantee must be set aside on equitable principles 62 The equitable jurisdiction of the courts has developed over the years to ameliorate the rigours of the common law and to give relief where justice so requires The main authority which the court below relied upon to reject the existence of an equitable jurisdiction in the courts to deal with unilateral mistake is Great Peace Shipping where Lord Phillips of Worth Matravers MR who delivered the judgment of the English Court of Appeal found difficulties with Denning LJ s broad formulation of the equitable jurisdiction in Solle v Butcher because of his failure to distinguish between what was void in law and what was voidable in equity 63 However it seems to us that there is probably another reason why the court below had to come to that conclusion By holding that the doctrine of unilateral mistake in common law encompasses even situations where the non mistaken party does not have actual knowledge but only constructive knowledge of the mistake there will hardly be any need or room for the intervention of equity This is of great importance for as we will come to later even in equity constructive knowledge per se will not entitle the mistaken party to relief Rajah JC s concept of the common law doctrine of unilateral mistake would be wider than what we envisage the scope of the court s equitable jurisdiction should be 64 In Great Peace Shipping a contract was entered into under the mistaken belief by both parties that a vessel which was to be engaged to assist the crew of another vessel which was in distress was only 35 miles away from the latter It later transpired that the two vessels were in fact 410 miles apart Upon obtaining knowledge of the true position the defendant did not cancel the contract straight away but sought to engage another vessel which was nearer A few hours later the defendant found such a vessel and then cancelled the contract The Court of Appeal rejected the defendant s averment that the contract was void at common law or voidable in equity for common mistake and instead allowed the claimant s claim for the contract sum 65 The contention of the defendant in that case was that it was a fundamental assumption of the two parties under the contract that the rescuing vessel was only a few hours sailing time away from the distressed vessel when in fact the two vessels were much further apart and that it would take about 39 hours for the rescuing vessel to reach its target The Court of Appeal put the issue on appeal to be whether the mistake as to the distance between the two vessels had the effect of rendering the services that the rescuing vessel was to provide essentially different from that to which the parties had agreed The Court of Appeal answered this question in the negative and upheld the decision of the first instance judge What the court seems to be saying was that the distance between the two vessels was not really that critical a matter 66 That was not all that was decided in Great Peace Shipping The court went on to disapprove the views of Denning LJ in Solle v Butcher and held that there was no room for rescission in equity if a contract would already have been void under the common law However it also noted at 96 that It is axiomatic that there is no room for rescission in equity of a contract which is void Either Lord Denning MR was purporting to usurp the common law principle in Bell v Lever Bros Ltd and replace it with a more flexible principle of equity or the equitable remedy of rescission that he identified is one that operates in a situation where the mistake is not of such a nature as to avoid the contract The alternative approach postulated by the Court of Appeal above would be an eminently proper basis to found an equitable jurisdiction That was indeed the genesis of the jurisdiction 67 The House of Lords decision in Bell v Lever Bros a case of common mistake played a pivotal part in the consideration of the Court of Appeal in Great Peace Shipping While Bell v Lever Bros was a majority decision the minority did not disagree with the law enunciated by Lord Atkin who was in the majority but differed on how the law was to be applied to the facts of the case There the parties erroneously assumed that the contract of service could not be terminated except by agreement A new agreement was made under which the employer agreed to pay two employees a sum each to terminate the service contracts Later the employer discovered that the contracts of service had been rendered voidable by reason of the two employees breach of fiduciary duties in trading for their own account The minority thought that the assumption was essential and was the foundation upon which the termination agreements were entered into The majority held otherwise and they distinguished between a case where the subject matter of a contract did not exist and a case where the mistake related to the quality of the subject matter In the latter situation the quality must be such that without it the subject matter of the contract would be essentially different from the thing it was believed to be In other words the mistake must render the subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist Unless this test was satisfied the contract would be valid in law and following from this there would be no basis to set aside such a contract on account of a variation in the quality of the subject matter 68 It seems to us that the principal reason the Court of Appeal in Great Peace Shipping re examined the foundation of Denning LJ s judgment in Solle v Butcher was the absence of any test to determine how the equitable jurisdiction should be applied to rescind a contract which was distinct from that which rendered a contract void in law It noted at 153 that since the decision in Solle v Butcher it had not proved possible to define satisfactorily two different qualities of mistake one operating in law and one in equity It said at 156 that Bell v Lever Bros had set out the perimeters of the common law rule and the effect of Solle v Butcher was not to supplement or mitigate the common law it is to say that Bell v Lever Bros Ltd was wrongly decided The court was therefore constrained to declare that there was no jurisdiction in equity to grant rescission of a contract on the ground of

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  • Ch.20 The Law of Negligence
    Authority 1994 5 Med LR 170 confirm a rigid application of the need for a secondary victim to be at the actual scene of an accident and to suffer sudden shock some like Galli Atkinson v Seghal 2003 EWCA 697 where the physical proximity requirement was relaxed seemed to point to a partial easing of Alcock However in Taylor v A Novo UK Ltd 2013 3 WLR 989 the English Court of Appeal held when refusing a woman s claim for post traumatic stress suffered after she witnessed her mother collapse and die following a workplace accident which had occurred three weeks previously that any extension of the boundaries in secondary victim claims must be left to Parliament In Singapore a secondary victim s claim for psychiatric harm without proof that the claimant had witnessed a sudden shock inducing event was allowed on special facts in the medical negligence case of Pang Koi Fa v Lim Djoe Phing 1993 2 SLR R 366 1993 SGHC 153 Following a detailed examination of the rules on psychiatric harm the Court of Appeal in Ngiam see Section 20 3 5 above while recognizing arguments for comprehensive legislative reform confirmed the applicability of the McLoughlin proximities in Singapore In Man Mohan Singh Anor v Zurich Insurance Singapore Pte Ltd now known as QBE Insurance Singapore Pte Ltd Anor Anor appeal 2008 3 SLR R 735 2008 SGCA 24 Man Mohan Singh see Section 20 6 3 below decided just after Ngiam the McLoughlin proximities were applied in refusing a claim by parents who had neither been at the scene of the accident in which their children were fatally injured nor had witnessed the immediate aftermath and whose action had not been definitively shown to relate to psychiatric harm rather than pathological grief D Pure economic loss not linked to physical damage 20 3 7 The courts have always allowed recovery for economic loss which flows from physical damage Spartan Steel and Alloys Ltd v Martin Co 1972 QB 27 20 3 8 It was however historically impossible to recover for pure economic loss ie loss which could not be linked to physical damage The refusal to allow such claims was attributable to a number of concerns the most significant of which was the perceived danger of a possible flood of litigation due to the knock on effect of economic damage Statements 1 Negligent statements recovery possible when there is voluntary assumption of responsibility and reasonable reliance 20 3 9 In Hedley Byrne Co v Heller Partners Ltd 1964 AC 465 Hedley Byrne the House of Lords first recognized the possibility of recovering for pure economic loss caused by negligent statements The Hedley Byrne principle based on reasonable reliance by a claimant in circumstances where a defendant voluntarily assumes responsibility for his statement has since been applied in numerous cases in all major jurisdictions The decision by the House of Lords in Caparo see Section 20 2 6 above which confined the principle to situations where the statement was given by the maker to a known recipient for a specific purpose of which the maker was aware led for some years to a more cautious approach to imposing liability for negligent misstatements particularly with respect to the liability of auditors when preparing company accounts see eg Ikumene Singapore Pte Ltd Anor v Leong Chee Leng 1993 2 SLR R 480 1993 SGCA 50 and Public Prosecutor v Tan Cheng Yew and another appeal 2013 1 SLR 1095 Standard Chartered Bank Anor v Coopers Lybrand 1993 3 SLR R 712 However in recent years the courts have shown a renewed willingness to allow claims for negligent misstatements see eg Law Society v KPMG Peat Marwick 2004 4 All ER 540 For an application of Hedley Byrne in the context of an architect s duty to advise of the risks inherent in a building contract see Sonny Yap Boon Keng v Pacific Prince International Pte Ltd Anor 2009 1 SLR R 385 2008 SGHC 161 Note that the courts remain cautious about allowing claims in negligence where the relationship is governed by contract although in Go Dante Yap v Bank Austria Creditanstalt AG 2011 4 SLR 559 2011 SGCA 39 Go Dante Yap see Section 20 3 13 below the Court of Appeal recognised both an implied contractual duty of care on the part of a bank in carrying out its client s instructions as well as a duty of care in negligence to give advice of a kind which could reasonably have been expected of it when providing the client with financial services On the facts however there was no breach of either the contractual or the tortious duty Professional Responsibility 2 Professional responsibility recovery possible for negligent performance 20 3 10 The Hedley Byrne principle has also been extended in most jurisdictions to cover professional responsibility eg the negligent drafting or execution of wills and other documents by solicitors White v Jones 1995 2 AC 207 AEL and Ors v Cheo Yeoh Associates LLC Anor 2014 SGHC 129 In such situations a duty of care is held to exist even when the negligence complained of takes the form of an act rather than a statement and even in the absence of active reliance by the claimant For a decision of the Court of Appeal finding that a solicitor who negligently caused loss to non contracting parties owed those parties a duty of care see Anwar Patrick Adrian Section 20 2 13 above With respect to the overlap between professional responsibility and negligent statements see too Plan Assure PA formerly known as Patrick Lee PAC v Gaelic Inns Pte Ltd 2007 4 SLR R 513 2007 SGCA 41 and for further discussion of the liability of professionals see Section 20 4 6 below Acts 3 Negligent acts causing pure economic loss recoverable under the Spandeck test 20 3 11 The position with respect to negligent acts which cause pure economic loss varies from jurisdiction to jurisdiction In Singapore Australia and other jurisdictions it is in some circumstances possible to sue for pure economic loss caused by negligent acts However English law still takes an extremely restrictive approach to such claims 20 3 12 In Singapore the Court of Appeal has imposed a duty of care for pure economic loss in actions brought by management corporations for the negligent design and defective construction of condominiums in Ocean Front see Section 20 2 9 above and RSP Architects v MCST Plan No 1075 Eastern Lagoon 1999 2 SLR R 134 The position in Singapore is similar to that in Bryan v Maloney 1995 182 CLR 609 where the Australian High Court in a decision based largely on the economic vulnerability of individuals when purchasing their homes imposed on the builder of a house a duty of care towards a subsequent purchaser Indeed the decision of the High Court of Singapore in Management Corporation Strata Title Plan No 2757 v Lee Mow Woo 2011 SGHC 112 suggests that the courts in Singapore might even be willing to extend this principle to commercial properties If this is in fact the case it will be consistent with the decision of the Supreme Court of New Zealand in Body Corporate 207624 v North Shore City Council 2012 NZSC 83 but not that of the High Court of Australia in Woolcock Street Investments Pty Ltd v CDG Pty Ltd 2004 216 CLR 515 The House of Lords on the other hand unequivocally rejected the possibility of recovering for pure economic loss associated with any category of defective premises in Murphy v Brentwood District Council 1991 AC 398 which overruled Anns on the economic loss point and the English courts have shown no sign of relaxing this attitude 4 More restrictive approach adopted when imposing a duty of care for pure economic loss in comparison to that applied in cases of physical damage 20 3 13 In P T Bumi see Section 20 2 10 above a case which involved an unsuccessful claim for a defective chattel the Singapore Court of Appeal expressed the need for extreme caution in allowing claims outside the arena of actions by management corporations with respect to residential property particularly where the circumstances were fundamentally contractual In United Project Consultants Pte Ltd v Leong Kwok Onn 2005 4 SLR R 214 United Project Consultants see Section 20 7 3 below the Court of Appeal confirmed that in deciding whether to impose a duty of care for pure economic loss the courts would adopt a more restrictive approach than that applied in cases of physical damage and a similarly cautious approach prevailed in the Court of Appeal in Sunny Metal see Sections 20 2 12 above and 20 5 1 and 20 5 2 below a contractual matrix case which raised issues of both tort and contract In Spandeck see Section 20 2 13 above the Court of Appeal held that the same two stage test of proximity based on assumption of responsibility and reliance and policy should be used with respect to all categories of claim However it recognised that a more restrictive application might be appropriate in cases of economic loss and held that the action in that case which again involved a contractual matrix must fail The existence of a contractual matrix will not however necessarily prove fatal to an action in negligence In Animal Concerns see Section 20 2 13 above the Court of Appeal held that both assumption of responsibility and reliance were satisfied in an action brought by the claimant which had commissioned a construction project against the project s clerk of works notwithstanding the existence of a contract between the claimant and the project s contractor Similarly in Go Dante Yap see Section 20 3 9 above it was held that in addition to an implied contractual duty a bank owed its client a duty of care in negligence when providing financial services although neither duty was breached on the facts For an economic loss case involving different issues see Kimly Section 20 2 13 above in which the Court of Appeal held that a certifying engineer ought not to have to act as insurer for a contractor s statutory obligations to ensure worker safety 20 3 14 Where a claimant suffers pure economic loss through damage not to his own property but to property belonging to someone else actions have been allowed in Australia again based on the specific economic vulnerability to which the defendant s negligence has exposed the claimant Perre ors v Apand Pty Ltd 1999 198 CLR 180 However English law does not allow such actions in any circumstances Candlewood Navigation v Mitsui OSK Lines 1986 AC 1 C No general duty for pure omissions 1 Reasons for not imposing duty with respect to pure omissions 20 3 15 Generally no duty is imposed with respect to pure omissions ie situations in which a defendant who has created no danger to the claimant merely fails to prevent him from sustaining harm There are a number of reasons for this One is the large number of potential defendants in situations of failure to act Another is society s focus on the more modest aim of discouraging wrongdoing rather than on the more ambitious one of encouraging good deeds For these and other reasons there is for example ordinarily no duty to rescue even when such an act could be carried out without personal risk 2 Situations where there is a duty to act to prevent harm 20 3 16 However there will be a duty to act to prevent harm in certain situations eg where the defendant and the claimant are in a special relationship of dependence such as guardian child carrier passenger employer employee where the defendant has control over something which or someone who poses a threat to the claimant in which respect note that the responsibility of an occupier of premises to persons entering those premises which was formerly determined by the application of special rules relating to occupiers liability is now broadly governed by the Spandeck test for duty of care Toh Siew Kee v Ho Ah Lam Ferrocement Pte Ltd 2013 SGCA 29 or where the defendant has assumed responsibility for the claimant or his property F Statutory authorities owe a duty only in restricted circumstances 1 Duty of care unlikely to arise where conduct involves policy discretionary elements or the balancing of resources 20 3 17 A statutory authority owes a duty of care to members of the public for a failure to exercise its statutory powers or for the improper exercise of those powers only in restricted circumstances This is because statutory authorities invariably have limited resources and are unlikely when allocating those resources to be able to act in a way which satisfies all those affected by their decisions The courts faced with turning what is effectively a public duty in to a private one have attempted to delimit the duty of care in negligence by developing various tests These tests include the operational policy test Anns see Section 20 2 4 to 20 2 5 above the irrationality test Stovin v Wise 1996 AC 293 and the justiciability test Barrett v Enfield London Borough Council 1999 3 WLR 628 It is generally more likely that an act rather than an omission will be regarded as justiciable and it is unlikely that conduct which involves policy or discretionary elements or the balancing of resources or competing functions will be held to give rise to a duty of care 2 Developments in the United Kingdom 20 3 18 For several years the UK courts were extremely cautious in their attitude to claims against statutory authorities X Minors v Bedfordshire County Council 1995 2 AC 633 However later cases suggest a slight relaxation in this respect particularly where there is a direct relationship between the statutory authority and the claimant Phelps v Hillingdon London Borough Council 2001 2 AC 619 In Singapore observations by the Court of Appeal in Andrea De Cruz see Section 20 2 10 above and 20 5 13 below indicate the possibility of regulatory bodies being held responsible for the negligent rubber stamping of commercial products 20 3 19 A number of cases relate to the duty owed by the emergency services in the exercise of their statutory functions The majority of these cases concern the police whose duty to protect the public at large does not extend to a duty to protect individual members of the public during the conduct of an investigation Hill v Chief Constable of West Yorkshire Police 1989 AC 53 or even in response to an emergency call Michael v Chief Constable of South Wales Police 2015 UKSC 2 The rationale for this seemingly harsh approach is that a private law duty by the police to protect individuals from criminal acts committed by third parties would not only be difficult to confine within rational parameters but would also be contrary to the ordinary principles of common law The fire services owe no duty to individual members of the public either even when they have undertaken to deal with a fire unless they actually make matters worse through their positive intervention Capital and Counties v Hampshire County Council 1997 QB 1004 However the ambulance services have been held to owe a duty of care to individual members of the public whom they have undertaken to assist Kent v London Ambulance Services 1999 Lloyd s Rep Med 58 Return to the top SECTION 4 BREACH OF DUTY 20 4 1 Before a court can determine whether the defendant has breached his duty to the claimant it is first necessary to establish the standard of care to which he will be held The Standard of Care A Establishing the due standard of care whether reasonable care has been taken to avoid reasonably foreseeable harm 20 4 2 The basic question in every case is whether reasonable care has been taken to avoid reasonably foreseeable harm Government of Malaysia v Jumal b Mahmud 1977 2 MLJ 103 Factors which are relevant in this determination include the likelihood or probability of the risk eventuating the seriousness or gravity of the foreseeable risk the practicability of avoiding or minimising the risk the justifiability of taking the risk the time for assessing the risk the relevant characteristics of the foreseeable plaintiff For an application of these factors see the judgement of Choo Han Teck J in Tesa Tape see Section 20 3 1 above The test used is that of the reasonable person in the circumstances It is an objective test under which a defendant is judged not by his own characteristics and attributes but by the nature of the task he is performing and the circumstances in which he is performing it For a clear illustration of the balancing of factors including the magnitude of the risk inherent in an activity the social utility of that activity the seriousness of the harm should the risk eventuate and the cost of taking precautions against the risk see too the judgment of Coomaraswamy J in BNJ v SMRT Trains Ltd and another 2014 2 SLR 7 2013 SGHC 286 BNJ see too Section 20 4 13 below 20 4 3 Note that in certain areas such as industrial safety there is considerable interplay between duty and standard of care For a Court of Appeal decision recognising the extensive non delegable nature of an employer s obligations to its employees and the standard of care to which the employer will consequently be held see Chandran a l Subbiah v Dockers Marine Pte Ltd 2010 1 SLR 786 2009 SGCA 58 For confirmation that industry standards should be taken into account in assessing the standard of care see too Jurong Primewide Pte Ltd v Moh Seng Cranes Pte Ltd and others 2014 SGCA 6 B Special standards of care 1 Standard of care not normally lowered to take account of a defendant s inexperience 20 4 4 The standard of care is not normally lowered to take account of a defendant s inexperience since that would be unfair to those whom he injures Nettleship v Weston 1971 2 QB 581 For much the same reason an amateur is judged according to objective standards of acceptability for the task in which he is engaged not according to his personal level of expertise 2 Lower standard applied to children 20 4 5 A lower standard is applied to children Mullin v Richards 1998 1 WLR 1304 and it seems to conduct in the heat of competition during sporting events Wooldridge v Sumner 1963 2 QB 43 see too Section 20 7 8 below A higher standard is applicable where the defendant knows or can foresee that a claimant is particularly vulnerable Paris v Stepney Borough Council 1951 AC 367 3 Professional negligence standard of care is that of the ordinary skilled man exercising and professing to have that special skill 20 4 6 The duty owed by professionals extends equally to acts and statements and is nowadays encompassed by the notion of professional responsibility see Section 20 3 10 above The applicable standard of care as laid down by McNair J in Bolam v Friern Hospital Management Committee 1957 1 WLR 582 Bolam at 586 is that of the ordinary skilled man exercising and professing to have that special skill Under the Bolam test a professional will not be negligent as long as he meets the standard of an ordinary competent exponent of his profession For an application of the Bolam test with respect to auditors see JSI Shipping S Pte Ltd v Teofoongwonglcloong A Firm 2007 4 SLR R 460 2007 SGCA 40 JSI Shipping see Sections 20 4 8 and 20 4 10 below 20 4 7 In the conduct of trades and professions the law allows for a variety of levels of qualification and thus a variety of standards as long as the level of expertise which can be expected from any given professional is readily apparent from his particular qualification eg that he is a general practitioner rather than a specialist However every professional must achieve an acceptable level of basic competence Ang Tiong Seng v Goh Huan Chir 1970 2 MLJ 271 20 4 8 When assessing whether or not a professional has been negligent the courts will normally use as their benchmark the common practice within the relevant profession However where they consider that a profession adopts an unjustifiably lax practice they may condemn the common standard as negligent Edward Wong Finance Co Ltd v Johnson Stokes and Master 1984 AC 296 and JSI Shipping see Sections 20 4 6 above and 20 4 10 below Medical Negligence 4 Medical negligence different applications of the Bolam test in various jurisdictions 20 4 9 In his decision in Bolam see Section 20 4 6 above McNair J laid down a specific test for determining the standard of care applicable to the medical profession Under this test a doctor is not guilty of negligence if he has acted in accordance with a practice accepted as proper by a responsible body of medical men skilled in that particular art 20 4 10 The Bolam test forms the basis for assessing medical negligence in Singapore and in the UK although in the latter its application is now confined to negligent treatment and diagnosis see Section 20 4 11 below Even though the question of whether or not a doctor has been negligent is ultimately for the court to decide Bolitho v City and Hackney Health Authority 1998 AC 232 the significance which the courts place on the opinions of fellow doctors when determining the issue of negligence tends particularly in Singapore to make it more difficult for claimants to succeed in medical actions than might be the case in actions against other professions Dr Khoo James and anor v Gunapathy d o Muniandy 2002 2 SLR 414 For an application of Gunapathy see Re JU Section 20 3 2 above a decision which also raises issues relating to the difficult and somewhat controversial areas of wrongful life and wrongful birth Note however that the decision of the Court of Appeal in JSI Shipping see Sections 20 4 6 and 20 4 8 above could be interpreted as favouring a common professional standard 20 4 11 In Rogers v Whitaker 1992 175 CLR 479 which concerned failure to disclose a risk involved in medical treatment the Bolam test was rejected in Australia in favour of a test based on the duty to disclose a risk which a reasonable patient would consider material This followed the approach already adopted in Canada under Reibl v Hughes 1980 114 DLR 3d Although under the decision in Sidaway v Bethlem Royal Hospital 1985 AC 871 Sidaway the English courts traditionally applied the Bolam test to cases of negligent non disclosure of risks the decision of the House of Lords in Chester v Afshar 2004 UKHL 41 Chester see Section 20 5 11 below while focusing primarily on the issue of causation effectively favoured a reasonable patient approach to failure to disclose a risk of treatment Application of the reasonable patient approach in the UK has now been confirmed by the Supreme Court in Montgomery v Lanarkshire Health Board 2015 UKSC 11 Montgomery which overruled Sidaway Interestingly although in most jurisdictions the rejection of the Bolam test has been largely confined to cases involving non disclosure of medical risks the Federal Court of Malaysia held in Foo Fia Na v Dr Soo Fook Mun 2007 1 MLJ 593 that the reasonable patient test should be used in Malaysia to assess all forms of medical negligence In Singapore however under Gunapathy see Section 20 4 10 above the Bolam test continues to apply not only to negligent diagnosis and treatment but also to negligent non disclosure of risks In the wake of Montgomery the High Court has left open for determination at a later date the question of whether Singapore should now adopt the same approach to the non disclosure of risks as that in the UK see Chua Thong Jiang Andrew v Yue Wai Mun and another 2015 SGHC 119 Proof of Breach C Proving breach of duty is a question of fact determined by specific circumstances of each case 20 4 12 Whether or not a duty has been breached is a question of fact to be determined according to the specific circumstances of each case For this reason precedents are of value only in terms of the general principles which they establish Qualcast Wolverhampton Ltd v Haynes 1959 AC 743 1 Shifting of burden to the defendant where exact cause of incident is unknown defendant had control over the agent of harm and that relevant damage would not normally have occurred in the absence of negligence 20 4 13 In some circumstances the claimant may lack sufficient knowledge to prove negligence on the part of the defendant In such circumstances the defendant will clearly choose to remain silent unless the normal rules for establishing negligence are varied The courts will vary the rules and infer negligence if the claimant can show that the exact cause of the incident is unknown that the defendant had control over the agent of harm and that the relevant damage would not normally have occurred in the absence of negligence On occasion the effect of this inference sometimes referred to under the Latin maxim res ipsa loquitur has been to shift the legal burden of proof onto the defendant but it more frequently results only in the evidentiary burden being shifted This requires the defendant to adduce evidence in rebuttal failing which the claimant s case will succeed Awang b Dollah v Shun Shing Construction 1996 SGHC 296 Note however that in BNJ see section 20 4 2 above the High Court of Singapore confirmed that res ipsa loquitur will not apply where the circumstances are clear and there is no evidentiary gap Return to the top SECTION 5 CAUSATION OF DAMAGE A Causation the physical link between the defendant s negligence and the claimant s damage 20 5 1 Causation relates to the physical link between the defendant s negligence and the claimant s damage Even if it can be shown both that the defendant breached his duty of care to the claimant and that the claimant sustained damage the claim will not succeed unless the damage is shown to have resulted from the breach For a detailed analysis of the rules on causation as applied in Singapore albeit with little discussion of recent developments elsewhere see the decision of the Court of Appeal in Sunny Metal Sections 20 2 12 and 20 3 13 above and 20 5 2 below Simple Issues of Causation B The but for test dealing with simple issues of causation 20 5 2 The basic test for establishing causation is the but for test under which the defendant will be liable only if the claimant s damage would not have occurred but for his negligence or looked at the other way round the defendant will not be liable if the damage would or could have happened anyway regardless of his negligence Yeo Peng Hock v Pai Lily 2001 3 SLR R 555 In Sunny Metal Sections 20 2 12 20 3 13 and 20 5 1 above the Court of Appeal held that the but for test could also be extended to determine the issue of causation in fact in contract cases C Multiple consecutive causes involvement of either a second tortfeasor or a natural event 20 5 3 The but for test works well in straightforward situations where it is easy to establish that the damage has been caused by the defendant s negligent act see dicta in F v Chan Tanny 2003 4 SLR R 231 but it proves inadequate in establishing causation in more complex situations where a number of actual or potential causes operate either consecutively or concurrently Multiple Consecutive Causes 20 5 4 When there are two discrete torts one following the other but no additional damage is caused by the second tort only the first tortfeasor is liable Where additional damage is caused by the second tort each tortfeasor is liable for the damage he has caused The first tortfeasor s liability remains what it would have been had the second tort not occurred even if the physical manifestations of the second tort appear to wipe out the damage caused by the first tort Baker v Willoughby 1970 AC 467 Baker This avoids the claimant being under compensated or the second tortfeasor compensating for more harm than he has actually caused Note that in Salcon Ltd v United Cement Pte Ltd 2004 4 SLR R 353 the Court of Appeal held that even assuming Baker to be applicable in Singapore it must be confined to personal injuries and cannot extend to commercial disputes 20 5 5 However when a tort is followed by a natural event which wipes out the physical effects of the tort the tortfeasor s liability ceases at the date when the supervening condition manifests itself Jobling v Associated Dairies 1982 AC 794 If this were not so the defendant would be liable for damage which would have occurred naturally anyway due to the vicissitudes of life D Multiple potential causes claimant can succeed only if he proves on the balance of probabilities that the damage is attributable to the tort 20 5 6 Where there are several discrete potential causes of harm some of which are tortious and some of which are natural the basic rule is that the claimant can succeed only if he proves on the balance of probabilities that the damage is attributable to the tortious conduct Wilsher v Essex Area Health Authority 1988 AC 1074 Wilsher 20 5 7 In circumstances where a defendant has exclusive control over a damage causing agent he may be held liable even if his negligence cannot be shown to be the sole cause of the damage as long as it can be proved to have made a material contribution Bonnington Castings v Wardlaw 1956 AC 613 Wardlaw The Wardlaw principle was extended in McGhee v National Coal Board 1973 1 WLR 1 McGhee to provide for liability even where a claimant can establish only that the defendant negligently increased the risk of harm Although McGhee was implicitly criticised in Wilsher see Section 20 5 6 above its fortunes were revived in Fairchild v Glenhaven Funeral Services Ltd 2003 1 AC 32 Fairchild where it was held that several defendants who consecutively exposed claimants to the same risk of mesothelioma involving the same damage causing agent asbestos fibres could all be treated as having materially contributed to the disease and could thus be held jointly liable even though it was impossible to determine which of them was actually responsible for triggering the condition The subsequent decision in Barker v Corus UK Ltd 2006 2 WLR 1027 re interpreted Fairchild as having been based on increased risk and favoured apportioned liability but the effect of this decision was reversed by legislation which reinstated joint liability at least in mesothelioma cases The application of Fairchild to all mesothelioma cases even those where exposure to the damage causing agent is both tortious and environmental was confirmed by the Supreme Court in Sienkiewicz v Greif UK Limited 2011 UKSC 10 However as the judgments in Zurich Insurance PLC UK Branch v International Energy Group Limited 2015 UKSC 33 demonstrate departure from the but for test in the UK under Fairchild and its satellite cases has given rise to some judicial disquiet Fairchild has yet to be accepted as good law in Australia and in Amaca v Booth 2011 HAC 53 the High Court of Australia accepted evidence that mesothelioma could in fact develop as a result of cumulative exposure to asbestos fibres rather than being triggered at a single moment 20 5 8 Note that while the Wardlaw McGhee and Fairchild principles were developed in the context of industrial diseases contracted through exposure to dangerous dusts and fibres several decisions in recent years have applied the principles in other circumstances and most notably in medical negligence situations For an application of McGhee in Singapore with respect to a hospital s liability for negligent failure to monitor a post operative patient see Surender Singh s o Jagdish Singh and another v Li Man Kay 2010 1 SLR 428 2009 SGHC 168 And for an application of Wardlaw in the wake of McGhee and in particular Fairchild in the UK with respect to a hospital s liability for a patient s brain damage see Bailey v Ministry of Defence 2008 EWCA Civ 883 2009 1 WLR 1052 Loss of a Chance 20 5 9 The standard requirement that in civil actions a claimant must establish his case on the balance of probabilities applies equally to actions based on loss of a chance Under English law if there is a less than 51 chance that the thing which might have happened would actually have happened had it not been for the defendant s negligence the claimant will fail even if he seeks to recover not for the whole of his damage but only for the chance which the defendant caused him to lose This analysis has been applied primarily in medical cases where actions by claimants whose chances of recovery from illness or injury have been reduced due to the negligence of their doctors have failed when they could not establish that with proper treatment their chances of recovery would have exceeded 50 Gregg v Scott 2005 UKHL 2 2005 2 WLR 268 Although in the past claims for loss of chance succeeded in medical negligence cases in some Australian states see eg Rufo v Hosking 2004 NSWCA 391 the decision of the High Court of Australia in Tabet v Gett 2010 HCA 12 established that Australian law does not recognise the concept of loss of chance in medical negligence proceedings 20 5 10 The rule that a claimant cannot normally recover for a lost chance is modified in cases where a defendant negligently deprives the claimant of the opportunity to gain financial benefit or to avoid financial risk In such cases damages are assessed not on the outcome which the claimant would have sought but on the economic opportunity which he has lost The claimant must prove on the balance of probabilities that he would have taken action to obtain the relevant benefit or avoid the relevant risk Once this has been established he need then only show that the chance which he has lost was real or substantial Asia Hotel Investments Ltd v Starwood Asia Pacific Management Pte Ltd Anor 2005 1 SLR R 661 which although a contract case made reference to and for the most part approved the test applied in the tort decision of Allied Maples Group Ltd v Simmons Simmons 1995 1 WLR 1002 F Loss of a right recovery possible if it can be shown that defendant s failure to advise claimant of risks inherent in treatment has deprived him of the right to choose a more experienced doctor or defer treatment 20 5 11 Founded on the notion of patient autonomy medical negligence cases from both Australia and the UK suggest tacit recognition of a more rights based approach to damage Under this approach a claimant who cannot establish causation using the traditional rules may nevertheless recover if he can show that in failing to advise him of the risks inherent in treatment a defendant has deprived him of the right either to choose a more experienced doctor Chappel v Hart 1998 195 CLR 232 or to defer the date of the treatment Chester see Section 20 4 11 above However the concept of patient autonomy has

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