SIM MODULE BOOK

BUSINESS LAW

Module Book
BUSINESS LAW

Module Book Developer : George Hu & Thum Cheng Cheong

Production : SIM Global Education

Module Book © SIM Global Education 2015

All rights reserved.

No part of this material may be reproduced in any form or by any means without permission
in writing from SIM Global Education

First Version @ October 2015

Second Version @July 2020
 Table of Content

Introduction 4

Session 1: The Singapore Legal System 12

Session 2: Formation of Contract 28

Session 3: Contractual terms and exclusion / exemption clauses 47

Session 4: Vitiating Factors 60

Session 5: Discharge of Contracts and Remedies 85

Session 6: Sales of Goods 102

Session 7: The Law of Agency 115

Session 8: Legal Aspects of Business Organizations 135

Session 9: Corporate Management Issues in Company Law 151

Session 10: The Law of Tort I 168

Session 11: The Law of Tort II 181

Session 12: Protection of Intellectual Property Rights 193

Answers to end of session questions 206

Practice Questions for Quiz 263

Practice Questions for Quiz: Answers 275

Module Book
BUSINESS LAW
INTRODUCTION
Content

This module equips business managers and executives with key concepts and principles in
Business Law in Singapore. A firm grounding in the laws affecting business is an important
ingredient for success in today’s rapidly changing commercial landscape. With a sound
understanding of Business Law essentials, managers and executives are able to appreciate the
legal implications of various common business transactions and make better management
decisions regarding them. Topics covered include: the Singapore Legal System, Contract Law,
Sale of Goods, Agency Law, Company Law, Law of Torts and Intellectual Property.

Module Aims

The aims of this module are to:

1. Develop an understanding of the function of business law and the key legal concepts.

2. Develop an awareness of the practical applications of legal concepts, case law and
legislation in business transactions and management decisions.

Learning Outcomes

On completion of this module, a participant will typically be able to:

1. Show a detailed knowledge and understanding of:

i) Singapore legal system.

ii) Key elements of contract law.
iii) Law of Agency.
iv) Key elements of Company Law.
v) Law of torts.
vi) Intellectual Property law.
2. Demonstrate module specific skills with respect to:

i) Discuss the nature of law, function of business law and highlight the salient features of
Singapore legal system.
ii) Identify and explain the key elements of contract law: offer, acceptance, consideration,
legal intention, terms, sale of goods, discharge and remedies.
iii) Describe the creation and termination of agencies and the roles and duties of the parties.
iv) Explain the effects of incorporation, roles and duties of company officers and company
meetings and resolutions.
v) Identify the key elements of the tort of negligence and apply the legal principles to
hypothetical situations.
vi) State the requirements for the protection of intellectual property and the remedies for
breach of intellectual property rights.

3. Show cognitive skills with respect to:

i) Obtaining essential knowledge and techniques on legal analysis for identifying of key
legal issues and legal concepts from hypothetical situations.
ii) Applying legal analysis to fact situations and making sound business decisions.

4. Demonstrate transferable skills in:

i) Analyzing facts and identification of key legal issues.

ii) Application of case law and legislation to new situations.
iii) Decision making on the most appropriate judgment.
iv) Demonstrate well developed written proficiency.

Delivery of Module and Lesson Plan

Session Topics Session Learning Outcomes Prescribed

Text, Readings
At the completion of this session, and/or
participants will be able to: Activities

1. Singapore Legal 1. Define what law is Business Law

System Module Book
2. Describe common law & civil law Session 1
1.1 Nature & Function systems
of Business Law
3. Understand the classifications of
1.2 Sources of Law law
& Constitution of • Criminal v civil law
Singapore • Statute v case law

1.3 Dispute 4. State the sources of Singapore law

Resolution
5. Explain the Constitution of
Methods
Singapore
• Supreme law
 • System of government

6. Describe the alternative methods

of dispute resolutions

2. Law of Contract 1 1. Define a contract Business Law

Module Book
2. Identify the elements of a legally
2.1 Offer
binding contract Session 2

2.2 Acceptance 3. Explain the principles of offer in

contract

4. Discuss the principles of

acceptance in contract

3. Law of Contract 2 1. Understand the rules on Business Law

consideration Module Book
3.1 Consideration
2. Explain the requirement for Session 2 &
intention to create legal Session 3
3.2 Intention relationship
3.3 Terms 3. Define what are terms of contract
3.4 Exemption Clauses 4. Understand the following terms:

• Express & Implied Terms

• Condition, Warranties &
Innominate terms
• Exemption Clauses

4. Law of Contract 3 1. Discuss the effect of vitiating Business Law

factors Module Book
4.1 Vitiating Factors
2. Explain the following vitiating
Session 4
factors:
• Incapacity
• Misrepresentation

5. Law of Contract 4 1. Explain what is a discharge of Business Law

contract Module Book
5.1 Discharge of
2. Describe discharge by performance Session 5
Contract
3. Describe discharge by frustration
5.2 Common Law
Remedies 4. Discuss the common law remedy of
damages
5.3 Equitable
Remedies 5. Describe causation and remoteness
of damages

6. Explain equitable remedies

6. Law of Contract 5 - Business Law
1. Describe the meaning of goods
Sales of and its classification under the Module Book
Goods Sale of Goods Act Session 6

6.1 Introduction and 2. Explain the definition of the

importance of contract of sale
sale of goods in
3. Explain the implied terms/conditions
commercial law
of title, description, quality and
fitness in a sale of goods contract
6.2 Elements of sale of
goods contract

6.3 Implied terms

under the Sale of
Goods Act

7. Law of Agency 1. Define the meaning and legal Business Law

nature of what an agency is Module Book
7.1 Nature of Agency Session 7
2. Describe the creation of agency
by way of:
7.2 Creation of
• Agreement and consent
Agency
• Ostensible and apparent
authority resulting in an
7.3 Duties & Rights of
“Estoppel”
an Agent
• Ratification
• Operation of law
7.4 Relationship
between the
3. Explain the agent’s duties and rights
parties
4. State the issues in principal and
7.5 Termination of third party relationship
Agency
5. State the issues in agent and third
party relationship

6. Describe termination of agency

8. Company Law - 1 1. State what sole proprietorships, Business Law

partnership and companies are Module Book
8.1 Introduction to
2. Explain the legal effects of Session 8
Business
incorporation
Organizations
3. Explain the lifting of the veil of
8.2 Effects of incorporation
Corporate Status
4. Distinguish between different types
of companies

5. Describe the nature of prospectus

 6. Explain the nature of memorandum
& articles of association

7. State the “indoor management” rule

established in Turquand’s case

9. 1. Explain the role of a company Business Law

Company Law - 2
9.1 Company Officers
9.2 Directors &
Directors’ Duties
9.3 Meetings and
Resolutions
10. Law of Torts - 1
10.1 Introduction to
Torts
10.2 Tort of Negligence
secretary and auditor
Module Book
2. Explain the purposes of company Session 9
meetings
3. Describe the types of resolutions
passed at company meetings
4. Explain the role and duties of a
company director
1. Classify the different types of torts
Business Law
2. Explain the elements of the tort of
Module Book
negligence
Session 10
3. Apply the “neighbour” principle to
determine the duty of care
4. Apply the factors affecting the
standard of care

5. Explain the role of causation and

remoteness in resulting damage

11. Law of Torts – 2 1. Identify and apply the factors Business Law
determining a “special Module Book
11.1 Negligent relationship” in negligent Session 11
Misstatement misstatement cases

11.2 Malicious 2. Identify elements of malicious

Falsehood falsehood

3. Identify elements of defamation

11.3 Defamation and related defences

12. Intellectual Property 1. Describe the concept of Business Law

“intangible” property and the Module Book
regime of intellectual property
12.1 Introduction & Session 12
concept of protection in Singapore.
“intellectual
2. Describe what IPOS is and what it
property”
does
12.2 Types of 3. Explain what a patent is and the
intellectual criteria for registration of a patent
property and under the Patents Act
their
 protection & 4. Discuss the duration of protection,
enforcement: international protection and
infringements of patent rights
12.2.1 Patents
5. Explain what is a trade mark and
12.2.2 Trade marks criteria for registration under the
Trade Marks Act
12.2.3 Copyright
6. Discuss the duration of protection,
12.2.4 Design right international protection,
infringements of trade marks and
its enforcement under the Trade
Marks Act and also the tort of
“passing off”

7. Explain what is copyright and how

is it protected

8. Describe the “rights” conferred by

copyright

9. Discuss the duration of protection,

international protection and
infringements of copyright under
the Copyright Act

10. Discuss the consequences of

infringement of copyright and the
“defences” available

11. Describe what is a registered

design, its duration of protection,
international protection and how it
may be infringed.

Teaching and Learning Methods

Participants will learn through a combination of lectures and practical activities.

Participants will be expected to learn independently by carrying out reading and directed
study beyond that available within taught classes.

Indicative Readings

Textbooks required Chandran, R (2010). An Introduction to Business Law in

Singapore. (4th ed.). Singapore: McGraw-Hill (Asia).
ISBN: 978-007-127217-9
 MHID: 007-127217-8

Supplementary reading Tabalujan B & Du-Toit V. (2009). Singapore Business Law. (5th
ed.). Singapore: Business Law Asia.
ISBN: 978-981-08-3162-2

Online Resources Use of online resources like

http://statutes.agc.gov.sg/aol/home.w3p
http://www.acra.gov.sg/
http://www.ipos.gov.sg/

Indicative Readings
Textbooks required George Hu and Thum Cheng Cheong, Business Law Module Book, SIM
Global Education, 2015
Supplementary reading Chandran, R (2010). An Introduction to Business Law in Singapore.
(4th ed.). Singapore: McGraw-Hill (Asia).
ISBN: 978-007-127217-9
MHID: 007-127217-8

Online Sources Use of online resources like

http://statutes.agc.gov.sg/aol/home.w3p
http://www.acra.gov.sg/
http://www.ipos.gov.sg/

Assessment/coursework
All assessments must comply with the SIM Rules and Regulations. To satisfy module
requirements, students must:
1) Satisfactorily complete and present on due dates their completed assignment. A penalty of
20% of the total marks will be imposed for late submission. More than one day will get zero
marks.
2) Complete all assignments and the final examination in a satisfactory manner.
3) Must reference all their work and observe SIM’s policy on plagiarism. Students found guilty
of plagiarism will be dealt with severely.
4) Adopt either the Harvard or APA (American Psychological Association) Referencing Styles.
5) Spend at least 100 hours (including class attendance and assignments) on the module in order
to fare reasonably.
Specific for this module are the following requirements:

Weighting between components A and B - A: 70% B: 30%

Element Description Element Type % of Assessment

Component A (Controlled Conditions)

Examination (180 minutes) Summative 70%

Component B (CA: Continuous Assignments)

1. CA 1 (Individual Assignment) Summative 20%

Due: Session 7
2. CA 2 (Online Quiz) Summative 10%
Due: Session 10

Total 100%
 BUSINESS LAW

SESSION 1

THE SINGAPORE LEGAL SYSTEM

Session Learning Objectives.

When you finish this Session, you should be able to:

1. Define what law is

2. Describe common law & civil law systems
3. Understand the classifications of law
a. Criminal v civil law
b. Statute v case law
4. State the sources of Singapore law
5. Explain the Constitution of Singapore
a. Supreme law
b. System of government
6. Describe the alternative methods of dispute resolutions

Session Outline.

1. Law and Law of the State

2. Law, morality and ethics
3. Classification of Law
3.1 Civil law
3.2 Criminal law
4. The “Sources” of Singapore Law
4.1 The Constitution of Singapore
4.2 Legislation
4.3 Subsidiary or Subordinate legislation
4.4 The Common Law
5. The Reception of English Law
6. The Singapore Court Hierarchy or Structure
6.1 The State Courts
6.2 The Supreme Court
7. The Civil Litigation Process
7.1 Writ of Summons/Summons.
7.2 The Appearance.
7.3 The Pleadings
7.4 Interlocutory Proceedings
7.5 The Trial
7.6 Courts Dispute Resolution (CDR)
8 Alternative Dispute Resolution (ADR)
8.1 Mediation
8.2 Arbitration
1. Law and Law of the State

Law is simply defined as a body of rules recognized and applied by a state in the
administration of justice. Unlike most other rules (e.g. rules of a game) laws must be
strictly followed and obeyed. Why is there a need to have laws? In general, law
preserves peace and stability, thereby allowing members of society to pursue economic
and social activities. But it is ineffective unless the society also develops a legal system,
i.e. institutions and ways to enforce the law and to make the process transparent yet
efficient. In Singapore, the legal system consists mainly of the courts, which are part of
the system of government. The courts serve 2 very important functions: first, they
provide a forum and a system by which anyone who fail to obey the law are punished
by the state and second, they provide a system to resolve disputes among private
individuals, for instance, a person suing another for breaching (breaking) a contract. In
performing these functions the courts apply the rules of law or in the absence of such
rules develop new legal principles to bring resolution to the problem and thus maintain
order in society. Once a court makes a decision it has the power, with the support and
backing of the state/government to enforce compliance. Courts can impose punishment
against those who fail to follow legal rules.

2. Law, morality and ethics

Morality is derived from the Latin word “moralitas”. It defines our intentions, decisions
and actions based on values like principles of right, goodness and justice that are
acceptable by society to distinguish between what is good and bad. For example,
stealing and killing a human being are considered morally wrong. In fact most of the
moral values have been adopted as part of the law of the state. Unlike law, however,
moral values are not imposed or enforced by any authority. Immoral acts like adultery
are not crimes and abortion (which is morally wrong) is legally allowed. But the law
will only enforce a moral obligation if it is also a legal obligation. At an even deeper
level, there is something called “ethics”. This term, which is derived from the Greek
word “ethos”, defines how individuals choose to interact with others within a
community and embodies and establishes the nature of duties and rights which people
ought to ideally owe to each other. Although law often does embody ethical principles,
law and ethics are again far from being identical. Many acts that would be considered
unethical are normally not prohibited by law; an example would be betraying the loyalty
owed to a friend or one’s colleague.

3. Classification of Law

The two most common types of law, which you will come across, are criminal and
civil law.

3.1 Civil law defines the rights and duties of the individual in his dealings with other
individuals in society. It includes the law of contract, the law of tort, intellectual
property law and family law. The injured party (plaintiff) brings the dispute to
court, seeking a personal remedy from the wrongdoer (defendant). If the court
 finds that the defendant violated the rules of civil law, he is held liable for the loss
or injury. He will normally have to make monetary payment in the form of
compensation to the plaintiff for the loss or injury. This form of compensation is
called Damages. An example can be seen in the following contract law scenario:

Seng contracts to sell Beng 10,000 kg of sugar for $50,000. Seng fails to deliver the
goods. Beng buys the sugar from another source for $60,000. Beng takes Seng to
court alleging that the former had broken the contract. If the court finds for Beng,
Seng may have to compensate Beng for the loss suffered. He therefore may have to
pay Damages of $10,000.

There are many branches of civil law. Some of them are:

o Contract Law – This branch of law deals with agreements made between
persons (individuals or corporations).

o Law of tort – This branch of law provides for duties which we owe each other
independent of any agreement. These duties are imposed by general law, for
example I have a duty not to knock you down while I am driving.

o Intellectual property Law – This branch of law deals with “intangible” property
like copyright, trademark and patents. It involves a discussion of how they are
protected from illegal exploitation.

o Family Law – This branch of law deals with family and matrimonial matters;
for example, divorce adoption ad custody of children upon a divorce.

3.2 Criminal law consists of rules, which regulate the behaviour of people in the state.
The state is concerned to see that misconduct, or crime, which affects the
community as a whole, is punished. Criminal behaviour such as murder, robbery,
rape, cheating and assault are dealt with and punished by the state. Punishment
takes the form of a fine, prison term or both, caning or the death penalty. Criminal
laws are enforced by legal proceedings (prosecutions) in which the state
/government brings the alleged wrongdoer (the accused) before the court for a
determination of guilt or innocence. In criminal proceedings the state/government
acts on behalf of society. The state/government accepts responsibility for the
detention, prosecution and punishment of offences.

Yet again, certain conduct may violate both the civil and criminal law. Criminal law,
for example, requires that the driver of a motor vehicle who exceeds the maximum
speed limit should be penalized or punished. The government may prosecute the driver,
who must pay a fine if found guilty. But if the driver also caused an accident while
driving over the speed limit, he may have violated a civil law that prohibits negligent
(careless) conduct. A person injured in the accident might be able to sue the driver who
if a court finds to be negligent, will order him to pay monetary compensation (Damages)
to the injured plaintiff for injuries suffered and other losses. In this situation, the
criminal law serves to protect society: a speed limit reduces the likelihood of accidents
and therefore protects lives and property. The civil law protects the individual by
creating a source of compensation to someone injured by another person's carelessness.
4. The “Sources” of Singapore Law

Where does our Singapore Law come from? The laws applied by the Singapore courts
are derived from 4 principal sources; they are:

4.1 The Constitution of Singapore;

4.2 Legislation (statutes) enacted by Parliament (i.e. new law made by
Parliament);
4.3 Subsidiary legislation; and
4.4 Common law (judge-made law or case law).

The Constitution and statutes (legislation) are referred to as written law whereas the
common law is referred to as unwritten law.

4.1 The Constitution of Singapore

The Constitution establishes the basic principles, governmental structure, the law of the
nation and the fundamental rights of the individual. It is the supreme law of the land,
which means that any part of a law, which does not agree with the Constitution, is void.

4.2 Legislation

In any modern country, it is usual and common for a political body to be entrusted with
the authority to make laws. Under the Singapore Constitution, Parliament has been
given authority to make laws. Parliament is an important part of Singapore’s democratic
process in that it symbolizes the concept of majority rule. It represents the will of the
citizens who elected the members of Parliament. The rules of law enacted (made) by
Parliament are called Statutes. Statutes are also sometimes referred to as legislation or
Acts of Parliament. Examples are the Road Traffic Act (Cap 276), the Consumer
Protection (Fair Trading) Act 2003, the Companies Act (Cap 50). The purpose of
legislation is:

i) To introduce new law e.g. the compulsory wearing of seat belts in cars; or
ii) To repeal existing law which is no longer relevant and to update existing laws
e.g. the recent amendments in 2005 made to the Companies Act; or
iii) To consolidate (put together) all the law on a subject e.g. the Women's Charter
put together the law on divorce, rights and duties of married persons and so on;
or
iv) To implement government policy e.g. under the Residential Property Act (Cap
274) foreigners are generally not allowed to own landed properties like a
bungalow, terrace or semi-detached house.

It should be noted that once a statute is enacted by Parliament, it remains in force unless
and until it is repealed or amended by another statute subsequently passed by
Parliament.

When Parliament decides to make a new law, the proposed law starts as a “Bill”, which
is usually introduced by a government minister. The Bill goes through 3 readings. The
purpose of these readings is to ensure that the Bill is carefully considered, debated upon,
scrutinized and changes made where necessary. This process ensures laws are made in
an accountable and transparent manner. The first reading is when the Bill is formally
introduced into Parliament. During the second reading, the minister responsible will
give a speech explaining the purpose and reason behind the Bill. A debate and
examination of the Bill will follow. Sometimes an important and controversial Bill
may be sent to the Select Committee, which will then make a report. An example is the
Goods and Services Tax Bill where the Select Committee welcomed views from
members of the public and some of the views were included in the Committee's report.
Finally, the Bill goes through the third reading. Amendments, if any, may be inserted
at this stage. The Bill is then put to a vote. A simple majority is required as a general
rule to pass a Bill. Once the Bill is passed by Parliament it is presented to the
Presidential Council for Minority rights. If the Council concludes that the Bill does not
operate unfairly against any minority group it is then presented to the President for his
assent. Once the President assents to the Bill it becomes an Act of Parliament and the
law comes into force on the date of its official publication in the government Gazette.

4.3 Subsidiary or Subordinate legislation

A statute may give powers to a minister or other persons or bodies to make rules or
regulations for specified purposes. A statute may deal with technical matters that
require technical knowledge. It will lay down the outline and general principles leaving
the minister responsible or specified body to fill in the technical rules and regulations.
This method saves Parliament time and is convenient. Subsidiary or subordinate
legislation has the same status as an Act of Parliament but is not made by Parliament.
Instead it is made by a person or body authorized by Parliament. Every piece of
subsidiary or subordinate legislation is made pursuant to (or authorized by) an Act of
Parliament. An example of this are the Road Traffic Rules made pursuant to the Road
Traffic Act.

4.4 The Common Law

When an issue in a case is presented to a court for resolution, it looks first to the Statutes
to find out whether they provide a rule of law to resolve that dispute. If however,
legislation does not provide the judge with an answer, the court has to look at previous
similar cases to come to a conclusion. A previous case is called a “precedent”. For a
judge to be able to look at a previous case for assistance, the case must first be
“recorded” in some form. Indeed, over the span of many years, such cases have in fact
been recorded in volumes of books called Law Reports. By looking up the law reports
lawyers and judges are able to determine what the rules of law are in the precedents.
Determining the rule of law from a precedent is not an easy task and requires legal
training. The rules of law from these precedents form the rules of common law. This is
essentially judge-made law derived from case law. Common law is thus based on
judicial precedent. This means that when a judge decides on a case, he must always
look back to see how previous judges have dealt with previous cases (precedents)
involving substantially similar facts. In looking back, the judge will expect to discover
those legal principles, which are relevant to the case before him and then apply them
accordingly. A simple example may be seen in the following scenario:
 Wong promised to make a gift of $10,000 to the National Kidney Foundation in 2004.
In 2005 after the NKF scandal, Wong refused to fulfill his promise and the NKF sued
him alleging a breach of promise. The court ruled in favour of Wong holding that a
promise to make a gift is not legally enforceable. Five years later (2010), the Singapore
Children's Society sues Lee alleging that she had breached her promise to make a gift
of 5 diamond rings to the Society. The two cases are substantially similar: each involves
breaches of promise to make a gift. The court in the second case would most likely cite
the case of National Kidney Foundation v. Wong to hold that Lee's promise is not
legally enforceable.

In Singapore, the binding effect of judicial precedent is formally established under the
Doctrine of Binding Precedent. This doctrine states that a judge is bound to (must)
follow the precedents and principles of law declared by a more superior courts within
the court hierarchy. This means:

➢ Decisions of a higher court automatically bind all lower courts within the same
hierarchy.
➢ A court is not bound by its own prior decisions, but such a prior decision may be of
persuasive authority.
➢ Decisions of courts from another common law jurisdiction are not binding, but such
a prior decision may again be of persuasive authority.

The application of the doctrine of binding precedent within the Singapore Court
hierarchy means that there is consistency, fairness and predictability when the law is
formally applied and declared.

5. The Reception of English Law

When Sir Stamford Raffles first claimed Singapore for the British Crown, he
transplanted the system of English Law, then prevailing, into Singapore. A few years
later, by virtue of the Second Charter of Justice of 1826 it was enacted by London
that all English law prior to 27th November 1826 were received in Singapore. After
Singapore gained independence in 1965, English law continued to be received in
specific areas. This specific reception allows certain branches of English law to be
received. The Application of English Law Act 1993 (a Singapore Statute) allows the
reception of specific branches of English law relating to:
a) Contract law;
b) Partnerships;
c) Principals and agents;
d) Mercantile (commercial) law generally. For example: Sale of goods, shipping
& insurance.

However, the following English law cannot be received in Singapore:

a) English law on immovable property i.e. land;
b) Any English law that recognised international agreement;
c) Any English statute that Singapore already has. E.g. we have our own Bills of
Exchange Act and so the English Bills of Exchange Act is not applicable here.
 Under Section 3 of the Application of English Law Act 1993, all English case law up
to 12th November 1993 has effect in Singapore as law, but only if Singapore’s
circumstances permit it.

6. The Singapore Court Hierarchy or Structure

Courts may be classified as a court of original jurisdiction (or first instance) or of an

appellate jurisdiction. A court of original jurisdiction or first instance is the forum in
which the disputed matter is first heard. If a party (usually the loser) to the dispute is
not satisfied with the decision of this court he can appeal against the decision in an
appellate court. This appellate court's decision may again also be appealed against as
provided for by the relevant statutes. The court sitting as an appeal court therefore only
has appellate jurisdiction. The following are the courts that made up the Singapore court
structure or hierarchy:

6.1 The State Courts;

6.3 The Supreme Court;

6.1 The State Courts

The State Courts consist of the following:

(i) Youth Courts. This court deals with offences committed by children and young
persons. A "child" is a person below the age of 14; a "young person" is a person
between the age of 14 and 15. Persons below 16 who commit criminal offences
are tried by this court.

(ii) Coroner's Courts. This court finds out the cause of death where there is reason
to suspect that a person died in an unnatural way e.g. he/she died in an unknown
way or died violently. The court will also investigate whether any person is
criminally responsible for the death and name him as a potential defendant.

(iii)Small Claims Tribunal

These courts have limited jurisdiction (power). This court can only determine a
dispute:

1) Concerning contracts for goods or services;

2) If the claims do not exceed $20,000 or $30,000 if the parties agree; and
3) The claims must be brought within one year from the date the dispute
arose or when the plaintiff is entitled to claim.

The proceedings are conducted in an informal manner and lawyers are not
allowed to represent the parties to the dispute. The parties conduct their own
proceedings before a Referee who is a qualified lawyer. The parties can appeal
to the High Court on grounds of law (e.g. the Referee had made an error in
interpreting the law). The advantage of using the tribunal is that it is cheap and
disputes are resolved quickly.
 (iv) Magistrates' Courts

These are courts of original jurisdiction with magistrates presiding over the
dispute. The courts have power to preside over civil and criminal matters. In
civil matters, such as a breach of contract, a magistrate court's jurisdiction is
limited to a claim not exceeding $60,000. For example, if A is claiming against
B for $65,000 for breach of contract, the claim cannot be brought before the
magistrates' courts; they have no jurisdiction to preside over the case. The
parties can appeal to the High Court. But there can be no appeal if the parties
agreed in writing that the decision of the magistrate court is final. In criminal
matters, the jurisdiction of the court is generally limited to trying of offences
punishable with fine only or of offences for which the maximum jail sentence
does not exceed 3 years.

(v) District Courts

These are again courts of original jurisdiction. In civil matters, a District court's
jurisdiction is limited to a claim not exceeding $250,000. But in cases where
the amount in dispute exceeds this figure, the court could still have jurisdiction
if the parties agree to it. In all cases, the parties can appeal to the High Court
provided they did not agree in writing that the decision of the District court is
final. In criminal matters, a District court's jurisdiction is generally limited to
trying of offences punishable with fine only or offences for which the maximum
jail sentence does not exceed 10 years.

In this book, we are more concerned with the Small Claims Tribunal, Magistrate’s
Courts and District Courts.

6.2 The Supreme Court

The Supreme Court [under the Constitution (Amendment) Act 1993 and the Supreme
Court of Judicature (Amendment) Act 1993] consists of: -

(i) The High Court; and

(ii) The Court of Appeal

(i) The High Court

The High Court is a powerful court and can preside over any dispute whether
civil or criminal except those matters (like marriage, divorce, distribution of
property) relating to the Muslim community that are administered by the
Administration of Muslim Law Act (Cap 3) which is tried in the Shariah Court.
It has unlimited jurisdiction in all kinds of civil and criminal matters. It is
usually presided over by a Supreme Court judge or Judicial Commissioner when
the court is in session. It is also an appellate court and hears appeals from the
State Courts in both civil and in criminal matters.
 There are also two specialized courts within the Supreme Court hierarchy
(equivalent in status to the High Court). They are the Intellectual Property Court
and the Admiralty Court. The former specializes in cases involving trademarks
patents, copyright and other intellectual property matters. The latter court deals
with maritime-related matters like charter-party disputes, collisions, marine
insurance matters etc.

(ii) The Court of Appeal

It hears appeals against any judgment of the High Court in civil and criminal
matters whether the High Court is sitting as a court of first instance or an appellate
court (i.e. when the High Court hears appeals from the State Courts). The court
is usually presided by the Chief Justice and two Judges of Appeal. There is an
automatic right of appeal in civil matter if the claim exceeds $60,000. Any lesser
amount requires the permission from the Court of Appeal or a Supreme Court
judge.

In criminal matter, both the defendant and the prosecutor can appeal. The
defendant usually will appeal against conviction of a crime and for sentence for
the crime. The prosecutor may appeal if the defendant is acquitted of the crime
or against the sentence, which the prosecutor considers too light.

The Court of Appeal has the power to supervise the conduct of legal proceedings
in the high Court. Until 1993, there was a final route of appeal from the Singapore
Court of Appeal to the Judicial Committee of the Privy Council situated in
London. However, this method of appeal has been ended and the Court of Appeal
is now the final court of appeal in Singapore.

7. The Civil Litigation Process

Civil litigation is usually commenced by the plaintiff in either the High Court or the
State Courts; namely the Magistrates Court or the District Court. Although the
procedure applicable to the High Court and the State Courts differs slightly it is possible
to offer a general overview of the steps involved in taking a matter through the courts.
The rules of civil procedure in force in Singapore with regard to High Court
proceedings are contained in a book called the “Rules of the Supreme Court”. Similar
rules of civil procedure are applicable to the State Courts and these rules contain the
procedure to be adopted at each stage of the proceedings. A brief outline of these stages
may be summarized as follows: -

7.1 Writ of Summons/Summons.

The plaintiff commences proceedings by obtaining a Writ of Summons in the High

Court or a Summons in one of the State Courts. The Writ or Summons will be presented
by the plaintiff’s solicitor (Lawyer) at the registry of the court, from where it is formally
sealed and “issued”. The Writ or Summons commands the defendant to make an
“Appearance” before the court within a stated number of days to answer the complaint
made against him. The Writ or Summons must then be formally served on the
defendant or his solicitor, if they have instructions to accept service of process.
 7.2 The Appearance.

Once the Writ or Summons have been served the defendant must “enter an appearance”
within the specified time. By entering an appearance, the defendant is submitting
himself to the jurisdiction of the court and that whatever the court decides he will abide
by it. It is very crucial for the defendant to file his appearance as soon as the writ or
summons is received, as an appearance that passes the dateline will enable the plaintiff
to obtain judgment against the defendant.

7.3 The Pleadings

After the Appearance comes the “Pleadings”. These are documents which are filed into
court, drafted by the respective opposing lawyers and which defines the main issues in
dispute between the parties. The usual order of pleadings is as follows: -

i) The Statement of Claim

This is the first of the pleadings delivered after the issue of the writ or summons. It
may be included in the writ or summons or may comprise a separate document. It sets
down in summary form the circumstances giving rise to the plaintiff’s claim and states
the remedies sought from the defendant, e.g. Damages. Where the defendant has no
real defence and the plaintiff knows this, he can obtain summary judgment against the
defendant. This means that judgment is given in favour of the plaintiff without allowing
the defendant to fight the case to trial. The defendant must then satisfy the court that
there are important questions or issues, which the court must try.

ii) Defence and Counter-claim.

Assuming that the plaintiff does not succeed in obtaining summary judgment, the next
step will be the delivery of the “Defence”. This is a document where the defendant must
set out an answer to each of the plaintiff’s allegations contained in the statement of
claim. All allegations which the defendant does not specifically admit are then in issue
between the parties and must be proven by the plaintiff at the trial. If the defendant has
a claim against the plaintiff relating to the same set of circumstances, his defence may
be accompanied by a “Counter-Claim”. This will be heard at the same time as the
plaintiff’s claim.

iii) Reply, Defence to Counter-Claim, Rejoinder, Surrejoinder.

The plaintiff must reply to matters raised by the defendant in the “Defence”. At the
same time he may also serve a “Defence to the Defendant’s Counter-Claim”. The
“Rejoinder” is the defendant’s answer to the “Reply” by the plaintiff. The
“Surrejoinder” is the answer by the plaintiff to the “Rejoinder” by the defendant.
Sometimes more documents may follow if necessary. In practice, however, most
pleadings do not go beyond the “Reply” stage.

iv) Request for Further and Better Particulars.

 Either the plaintiff or the defendant may request for further and better particulars at
each stage of the proceedings. This will require the party so requested to provide further
details, explanations of the allegations and any grounds upon which he or she is relying.

7.4 Interlocutory Proceedings

After the close of the pleadings there follows what is called an “Interlocutory Stage”.
It is termed as such because these proceedings are convened in between the pleadings
and the trial. At this stage each party may submit a list of written questions relating to
the dispute, which are called “Interrogatories”, for the other party to answer. Answers
must be given on oath. These answers may help to sort out any matters and help in the
presentation of evidence at the trial. Care should be taken in presenting accurate
answers, as any inconsistencies between a party’s answers to interrogatories and
answers given in court will be quite damaging to that party’s case. At this stage the
court can also order “Discovery of Documents”. In this situation, both parties must
prepare lists of documents, which are relevant to the dispute. This list is then
incorporated in an “affidavit” which the party swears on oath. Thereafter the parties
have the right to inspect documents in the possession of the other, prior to the actual
trial. At any time during this stage, pre-trial conferences may be convened with the
view to settlement before a trial (see: CDR below).

The interlocutory stage ends with the plaintiff taking out a “Summons for Directions”.
At this stage, a judge sitting in chambers (i.e. private hearing, not in open court) will
give directions with regard to the coming trial; for example, how many witnesses to
call, how long the trial will take etc. The plaintiff will be given a hearing date.

7.5 The Trial

The parties and their respective witnesses will assemble at the respective court for the
trial. If a witness refuses to appear, a “subpoena” may be issued. This is a summons
to appear and give evidence on condition that reasonable expenses are offered by the
party calling for the witness. Those who ignore a subpoena are in contempt of court
and may be punished by fine or imprisonment.

The parties will be represented by their respective lawyers. The trial begins with the
plaintiff’s lawyer opening his case. He outlines his client’s case and lays the issues in
contention before the court. He will then call and examine the witnesses for the
plaintiff. This is called the “Examination in Chief”. Documentary evidence, such as a
letter, is not normally admissible and the writer must be called to give evidence on oath
unless it is difficult or impossible to call him. Furthermore, the plaintiff’s lawyer cannot
ask his own witnesses “leading questions”. These are questions that are phrased in such
a way as to elicit the answer he wants the court to hear. The court also does not permit
“hearsay evidence” to be admitted. These are evidence, usually orally given, when a
witness tells the court that he reportedly heard someone else tell him something. After
the examination in chief the defendant’s lawyer has the right to “cross examine” the
plaintiff’s witnesses. The object of this exercise is to discredit their previous testimony.
After this plaintiff’s lawyer may “re-examine” his own witnesses to clarify any earlier
discrepancies or confusion highlighted during the cross-examination. The process is
repeated for each witness.
 At the close of the plaintiff’s case, it is the turn of the defendant’s lawyer to open his
case and produce evidence to refute what the plaintiff contends. In a civil trial it is
important to note that the plaintiff does not have to prove his case “beyond a reasonable
doubt”, as the prosecution in a criminal trial has to. All the plaintiff’s lawyer has to do
is to show that what he alleges is more probably the correct version. This is called the
“balance of probabilities”. The defence will then call its witnesses who will then be
examined, cross-examined and re-examined. The defendant’s lawyer will then make
his closing speech showing how in his view, the plaintiff’s case has failed. The
plaintiff’s lawyer will then make his closing address. Both will the give an indication
of what they think the remedies or compensation should be.

After the closing speeches, the judge will consider the evidence before him and give
his judgment. Usually the judgment is an oral one. If the losing party files an appeal,
then the judgment must be written where he will state the grounds upon which his
judgment is based. If a judge requires more time to consider the case, he may “reserve”
judgment and give it at a later date. The judgment will also decide the remedies and
compensation to be awarded.

The end product of litigation is judgment. However the judgment would need to be
enforced because a successful litigant is entitled to the fruits of his efforts. The fruits,
however, can be quite illusive and may at times be “still-born” or rotten. Therefore
when businesses encounter legal disputes, they should seek clear advice from their
lawyers on the best course of action to adopt, whether it should be dealt with by
litigation or other forms of dispute resolutions for example, mediation or arbitration.
Of prime importance are the place it should be commenced and the enforceability of
the judgment, order or award that would be obtained. The domicile and nationality of
the parties and the probable location of the assets are also factors that must be
considered before steps are taken.

7.6 Courts Dispute Resolution (CDR)

Court Dispute Resolution contains a range of processes that is an alternative to litigation

under which disputing parties can rely on to resolve their civil disputes. These processes
are convenient and are provided free of charge by the state. It is hoped that these
processes will enable the disputing parties to settle their disputes with a “win-win”
outcome through co-operation, negotiation and mediation.

The process requires the parties to attend a Settlement Conference which will be
presided over by an objective and experienced Settlement Judge. He will manage the
on-going discussions but will leave the decision making to the parties themselves. To
request for CDR the disputing parties through their respective lawyers will have to write
in to the Director of the Primary Dispute Resolution Centre at the State Courts.

8. Alternative Dispute Resolution (ADR)

Apart from resolving a dispute by litigation through the courts system, which may be
overly formal, costly and time consuming, the law provides other alternative means of
settling disputes as follows: -
 8.1 Mediation
8.2 Arbitration

8.1 Mediation

Mediation is a voluntary process in which an impartial third party called a “mediator”

assists parties involved in a dispute to resolve their differences in an amicable manner.
Lawyers may represent the parties during the process. The object of the exercise is that
the mediator will discuss the dispute in detail with each of the parties involved and
advise them of his opinion on resolving it. The parties are not bound by his views and
his role is merely to assist the parties understand the whole situation and help them
reach a solution they are happy with. Once the parties have reached a settlement, the
mediator will draw up the agreement as reached and this agreement is then enforceable
at law. In Singapore, the flagship mediation arena is the Singapore Mediation Center
(SMC). In all cases referred to SMC, it will appoint a suitable mediator acceptable to
the disputing parties from its panel of experts.

Mediation is especially useful when there is a continuing relationship between the

parties and where the relationship is important to the. It is also suitable where there is
room for collaboration and compromise among the parties. However, where disputing
parties are not willing to settle the matter and insists on their strict legal rights and
views, mediation would generally not be appropriate.

8.2 Arbitration

Arbitration is the enquiry into and settlement of disputes other than in a court of law.
The enquiry is conducted in quite a “formal” way and the award is made by one or more
arbitrators, an umpire or a referee.

Commercial contracts like shipping contracts, industrial procurement contracts,

insurance contracts and building and civil engineering contracts frequently contains
clauses requiring the parties to settle any dispute by arbitration before they proceed to
litigation. If the dispute is settled by this means then the parties agree that the
arbitrator’s decision is final and binding upon the parties.

i) Advantages and Disadvantages of Arbitration

The following advantages can be gained by resolving the dispute through arbitration
instead of through legal proceedings through the courts: -

a) Arbitration may be quicker and lead to an early settlement of the dispute.

b) The arbitrator is appointed by the parties and he would normally be expected to

have some expertise relevant to the matter in dispute. For example, an architect
may be appointed to hear a building dispute.
 c) Arbitration proceedings are always conducted in private. This allows for
disputes to be aired without becoming public knowledge thus preserving
confidentiality, which is necessary for protecting business interests.

d) Sometimes it can be said that arbitration may be less expensive than litigation.
This advantage however depends on the relative speed the matter in dispute is
settled by arbitration. On a day-to-day basis, arbitration may sometimes be more
expensive as compared with litigation.

On the other hand, the following disadvantages may be seen in utilizing this method of
dispute resolution: -

a) The arbitrator does not have the power to make orders against third parties. Thus
he cannot order witnesses who may have knowledge of the dispute to appear
before him or order the production of documents held by third parties. If assets
held in banks needs to be seized, the arbitrator cannot make such orders.

b) The bringing up of issues, which would be of public interest, is prevented by

arbitration, essentially because the proceedings are held in private. These issues
could be important to the development of business law.

c) Any misconduct on the part of the arbitrator during the proceedings will
seriously undermine the reputation of arbitration for strict impartiality. In most
situations, the public’s perception is that a judge’s decision is always preferable.

ii) The Legal Effect of Arbitration

In Singapore, arbitration is governed by an act of Parliament called the Arbitration Act

Cap 16. As a general rule all arbitration awards in Singapore are final and binding on
the parties. This means that the parties may not bring the matter, which has been
arbitrated; to a court and the courts have no power to interfere with the award made by
the arbitrator. Furthermore if the agreement contains an arbitration clause excluding
even an appeal to a court, then such a clause will be given full effect.

Under the Arbitration Act, it is provided that an arbitration award can be enforced in
the same way as a judgment of a court if one of the parties applies to the court for the
award to be conferred the status of a judgment of the court. In practical terms this
means that a person in whose favour an arbitration award has been made has all the
rights that a person who has obtained a court judgment has i.e. he can satisfy the award
by seizing the goods, bank accounts or other property of the opposing party.

An arbitration award made in Singapore is enforceable in any country that has ratified
the United Nations Convention for the Recognition of Foreign Arbitral Awards 1958
(The New York Convention). In contrast, a court judgment is generally only
enforceable within the country.

iii) Venue of Arbitration

 In Singapore, the venue for arbitration proceedings is the Singapore International
Arbitration Center (SIAC). This is a non-profit organization with all fees being received
used to defray the costs and expenses of the center. Among the may services provided
by the center are free information and advice on alternative dispute resolution i.e.
mediation, negotiations, arbitration etc. The Centre maintains a panel of Accredited
Arbitrators of local and international experts. They also advice on the fees for
arbitration services and also provides the physical facilities for the conduct of
arbitration proceedings like meeting rooms, hearing rooms, and witnesses’ lounge and
computer workstations.

SESSION 1: The Singapore Legal System

Essential points

o Civil law and Criminal law

o Legislation and Case Law
o The Supreme Court and The State Courts
o The Civil Litigation Process and Alternative Dispute Resolution

Visual Overview
Practice Questions

1. Case law is the only source of law in Singapore. Discuss.

2. Discuss the doctrine of binding precedent.

3. Benjamin bought a new 78” Curved Smart television from Sum-It Apple Pte Ltd
(“SIA”). The television malfunctioned at the end of the first month of use. Benjamin
contacted SIA and requested for a refund of the purchase price of $18,888.00. SIA
ignored Benjamin’s request.

a. Advise Benjamin on the methods of resolving his dispute with SIA amicably
without engaging lawyers.
b. Advise Benjamin on the civil proceedings in court if SIA ignores his request
to settle the matter amicably.
 SESSION 2

THE LAW OF CONTRACT

FORMATION OF CONTRACT

Session Learning Objectives.

When you finish this Session, you should be able to:

• Define a contract
• Identify the elements of a legally binding contract
• Explain the principles of offer in contract
• Discuss the principles of acceptance in contract
• Explain the requirement for intention to create legal relationship
• Understand the rules on consideration

Session Outline

1. Introduction
2. Laws applicable to contract
3. Definition of Contract
4. The Offer
4.1 Offers vs Other Pre-Contractual Statements
4.2 To whom can an Offer be made to?
4.3 Communication of the Offer.
4.4 Termination of the Offer.
5. Acceptance
5.1 Communication of Acceptance is complete only when received.
5.2 Acceptance by Instantaneous communication
5.3 Communication of Acceptance in the electronic / digital Age
6. The Battle of Forms
7. Intention to create legal relations
7.1 Commercial and Business agreements
7.2 Family and Social agreements
8. Consideration
8.1 The Rules relating to Consideration

1. Introduction

In the modern world we live in, no aspect of life is free of contractual relationships. The
ordinary consumer, who buys a house, purchases a car or other goods, borrows money
from a bank, leases an apartment, insures his/her property or life, acquires rights and
obligations based on contract. Businessmen buying raw materials or equipment,
building a factory, selling goods or services to customers, borrowing money or insuring
their commercial property are involved in contracts. Therefore a grasp of the essentials
 of the law of contract is important for consumers and those who operate a business
enterprise.

2. Laws applicable to contract

The Application of English Law Act 1993 says that English legal principles of law of
contract are applicable in Singapore.

3. Definition of Contract

A contract is an agreement made between 2 or more parties, which are intended to be

legally binding and supported by consideration. It is a legally enforceable agreement.

A contract is legally enforceable if 3 fundamental requirements are met:

a) There must be an agreement or bargain between the parties. An agreement is

created when an offer made by one party is accepted by the other;

b) The parties must have intended that the agreement to be legally binding for intention
to create legal relations i.e. it is the intention of the parties that if one of them fails
to carry out his promise under the agreement, he would be answerable for the failure
in law; and

c) The contract must be supported by consideration.

Taken together, offer, acceptance, intention and consideration are the 4 elements
necessary for "contract formation".

4. The Offer

A party (offeror) is said to make an offer when he gives a definite indication to another
(offeree) of his willingness to enter into the contract on the terms set out in the offer.
Once the offeree accepts the offer then a contract comes into existence. For example:

Your neighbour says to you, "I offer to sell you my BMW car for $150,000". The
neighbour has made an offer. If you accept the offer and the other elements of contract
formation are present, there is a binding and enforceable contract.

An offer may be made orally, in writing or by conduct. An example of an offer made

by conduct:

When you get on the bus and pay the driver (your conduct) you, the customer are
making the offer to the bus company to use the transport service; the driver accepts
your offer by issuing a ticket.
4.1 Offers vs. Other Pre-Contractual Statements

There are some situations, which at first sight appear to be offers made, but the courts
have held that they are not. These pre-contract statements are termed “invitations to
treat”. So what is an “invitation to treat”? It is clearly not an offer; it merely invites
others to make an offer or to commence negotiations, which then may or may not be
accepted. When a retail outlet writes on its windows "year end offer" or "special offer"
and so on, it is not making an offer at all in the legal sense, but inviting shoppers to call
in and make an offer. No agreement will result if an invitation to treat is acted upon or
“accepted”. Examples of invitation to treat are:

4.1.1 Display of goods in a shop window or a self-service store

A shopkeeper who displays goods in his window with price tags does not make an offer;
he is merely inviting passers-by to make an offer to him to buy the goods at the price
stated. If a passer-by enters the shop, pays the price and demands the article, the
shopkeeper is not bound to sell to him. The demand of the customer is the offer to buy
which the shopkeeper is free to accept or reject it.

Pharmaceutical Society v. Boots Chemist 1953

Y had a self-service pharmacy store. Goods were displayed on the shelves. Customers
selected the goods, put them into a basket supplied by the shop and took them to the
cash counter where they paid the price. Held: the contract was made not when the
customers put the goods in the basket but when the cashier accepted the offer to buy
the goods and received the price.

Fisher v. Bell 1960

The shopkeeper displayed a flick-knife with a price tag in his shop window. He was
prosecuted for offering for sale such a knife, which was a criminal offence. Held: the
display was merely an invitation to the public (i.e. an invitation to treat) and did not
constitute an offer for sale. As a result the shopkeeper was found not guilty and
acquitted.

4.1.2 Tenders

A company may advertise asking suppliers to put in tenders for the provision of some
particular equipment or services. By doing so, it is making an invitation to treat. It is
the suppliers who make the offer to supply by submitting the tender. A contract will
come into existence only when the company accepts a particular tender.

Spencer v. Harding 1870

The defendant suppliers sent out a circular that invited tenders from buyers for the
purchase of certain stock-in-trade. The terms of the invitation provided for payment in
cash and mentioned a trade discount but the major issue concerning the price of the
goods was left solely at the supplier’s discretion. The plaintiff’s tender proved to be the
best and most competitive price submitted but the defendants refused to sell to them.
 The plaintiff sued for the delivery of the goods. The court held that the circular
amounted to an invitation to treat and so was not binding in law. The plaintiff’s
submission of the tender itself is the offer, which the defendant who invited it may or
may not accept. The defendant could only have been bound if they had promised to
sell to the highest bidder.

4.1.3 Advertisement and other Notices

Newspaper advertisement, catalogues, price list and circulars have all been held to be
invitations to treat and are not offers. This appears to be so even if the language used
refers to an offer for sale.

Partridge v. Crittenden 1968

X placed an advertisement in a periodical stating "Bramblefinch cocks and hens 25

shillings ". The words "offer for sale" were not used. X was prosecuted for offering for
sale a wild bird, which was banned under the U. K. law. Held: such an advertisement
was not an offer but merely an invitation to treat. But the court added that if the
advertisements or circulars came direct from the manufacturer they can amount to
offers. And Carbolic Smoke Ball (see below) is a case in point.

4.1.4 Supply of information

Very often during negotiation one party may supply information such as the price at the
request of the other party. Such information cannot be treated as an offer.

Harvey v. Facey 1893

This was a sale of land. X sent a telegram to Y. "Will you sell us Bumper Hall Pen?
What is the lowest price?" Y telegraphed back: “Lowest cash price for Bumper Hall
Pen £ 900." X replied: “We agreed to buy Bumper Hall Pen for £ 900 asked by you."
Held: there was no contract. Y's original reply was not an offer; it was merely
supplying information about the lowest price at X's request.

4.2 To Whom can an Offer be made to?

An offer may be made to:

1) A specific person and only that person is capable of accepting it;

2) A specific group of persons, which can only be accepted by a member of that group;

3) To the world at large, that can be accepted by anyone who complies with the terms
of the offer.

Carlill v. Carbolic Smoke Ball Co. (1873)

 The Carbolic Co. advertised and offered a reward of £100 to anyone who contracted
influenza after using their smoke ball. The offer further stated that it had deposited
£1,000 at the Co.’s bank to show their sincerity. Mrs. C bought the smoke ball, used it
as directed but still caught influenza. She remained unpaid. She sued the Co. She won.
The Co. argued that they were not able to contract with the whole world which was
defeated by the answer that the contract was made with those individuals in the world
who had read and acted on their offer, and that was what Mrs. C did.

This case also decided that an advertisement that offers a reward, say, for the return of
lost property (e.g. a pet or diamond ring) will be held to be an offer if the finder returns
the property, knowing of the reward offer, he should be entitled to the reward. The
advertiser does not intend further negotiation to take place with the reader; the reader
has simply to act accordingly and make his claim. In Carbolic Smoke Ball's case the
advertisement constituted an offer to the whole world which required no further
negotiation and the advertiser was bound when Mrs. Carlill fulfilled the conditions in
the offer. This is known as a Unilateral Contract.

4.3 Communication of the Offer

Once an offer is made, it must be communicated to the offeree. A person cannot be

said to accept an offer without knowledge of it. For example:

Raja loses his diamond ring and places an advertisement in the newspaper offering a
reward for its return. Lee finds the ring and returns it to Raja without knowledge of the
reward offer. Lee is not entitled to the reward. Because the offer has not been
communicated to him - his act of returning the ring does not constitute acceptance.

4.4 Termination of the Offer

Once an offer is made how long does it remain open? An offer can be terminated by:

4.4.1 Revocation by the offeror

An offeror may withdraw or revoke his offer at any time before the offeree's acceptance.
Revocation is effective when it is communicated to and received by the offeree.
Revocation by post is complete when the letter is received by the offeree and not when
it is sent out.

Byrne v. Van Tienhoven 1880

Oct. 1: Defendant posted a letter in U. K. offering to sell goods to the plaintiff in

the USA.

Oct. 11: The plaintiff received the offer and immediately telegraphed his
acceptance on the same day.

Oct. 8: Defendant changed his mind and posted a letter revoking the offer.

Oct. 20: Plaintiff received the letter of revocation.

 The plaintiff sued the defendant for Damages for not delivering the goods. The
defendant argued that the offer was revoked by the letter posted on Oct. 8 and therefore
there was no contract. Held: the revocation was ineffective until it reached the plaintiff
on Oct. 20 - by then it was too late as the plaintiff had already accepted the offer on
Oct. 11.

Communication of revocation need not be made directly by the offeror. It is effective

if the offeree receives reliable information from a 3rd party.

Dickinson v. Dodds 1876.

A house had been offered for sale. Before accepting the offer the prospective purchaser
was told by a third party that the house had been sold to someone else. The third party
was a reliable source of information. Held: there was no contract. The contract was
effectively revoked, even if the notice of revocation was given by a reliable third party.

4.4.2 Rejection by the offeree or rejection by way of counter-offer

A rejection by the offeree is effective to terminate the offer once it is received by the
offeror directly or indirectly. Because a rejection terminates the offer, the offeree
cannot later reconsider and accept the offer.

What happens if the offeree makes a counter-offer? This means he does not accept the
original offer. By making a new offer the offeree is in fact changing the terms of the
original offer.

The party who made the original offer may accept the counter-offer and form a binding
contract. But the offeree who made the counter-offer cannot change his mind and accept
the original offer unless the offeror agrees. An example can be seen in the following
case:

Hyde v. Wrench 1840

W offered to sell land for £1,000. H wrote back offering £950, which was refused. H
later wrote back saying he accepted the original offer and was willing to pay £1,000.
Held: there was no contract as the original offer had been terminated by H's counter-
offer.

Can it be conclusively stated that a change or alteration of any term from the original
offer amounts to a counter-offer? Not necessarily so, because each set of circumstances
must be judged according to its own particular facts, as the following example
illustrates: -

Stevenson v. McLean 1880

M. offered to sell iron at £2 per ton to S. S. subsequently enquired by telex whether M
would agree to delivery being spread over 2 months. M. did not reply and S, within
the time limit fixed by M. in his offer, accepted the offer as originally made. The court
held that S’s telex was not a counter-offer but merely a trade enquiry as to a variation
of terms.
4.4.3 Lapse of time

An offer lapses (ends and becomes invalid) if:

i) Before acceptance either the offeror or offeree dies.

ii) The offer has not been accepted within the prescribed time. If no prescribed time
is set for the offer then the offer lapses after a reasonable time. What is a
reasonable time depends on the nature of the contract and the circumstances of
each case.

Ramsgate Victoria Hotel Go v. Montefiore 1866

The defendant bought shares in the plaintiff company. He applied for the shares in June
and paid a deposit. He was only informed that his offer to buy was accepted at the end
of November. He refused to pay for the shares. Held: His offer should have been
accepted by the company within a reasonable time; it took the company far too long
and therefore his offer had lapsed. His refusal to pay was justified.

5. Acceptance

Once the existence of a valid offer has been established, the next stage in the formation
of a contract is to confirm that there is a valid acceptance of that offer. Acceptance is
done when the offeree unconditionally agrees to all the terms of the offer; i.e. without
changing the terms of the offer otherwise that may constitute a counter-offer (Hyde v.
Wrench). Acceptance may be made in writing, orally or by conduct for example,
sending goods in response to an offer to buy. If a method of acceptance has been
specified by the offeror, that specific method must be adopted; e.g. where the offeror
asks for acceptance in writing, a verbal acceptance will not suffice.

5.1 Communication of Acceptance is complete only when received

The general rule is that acceptance must be communicated to the offeror. And
communication is said to take place when the acceptance is actually received and/or
brought to the notice of the offeror by the offeree or his agent. This general rule,
however, is subject to 3 exceptions. These exceptional situations are as follows:

5.1.1 Acceptance must be by a positive act; mere silence is insufficient

The party accepting must make some positive act of acceptance, e.g. by a reply. The
offeror may not put in a condition in his offer that silence shall constitute acceptance
without the offeree's consent.
 Felthouse v. Bindley 1862

F wrote to his nephew offering to buy his horse saying, "If l hear no more about him, I
consider him mine”. The nephew did not reply to the letter but told the auctioneer not
to sell the horse as it was reserved for the uncle. The auctioneer sold it by mistake. F
brought an action against the auctioneer. Held: there was no contract between F and
his nephew because the condition that silence amounted to acceptance was ineffective;
the nephew had not communicated his acceptance.

5.1.2 Acceptance by post: The Postal Rule

Acceptance by letter or telegram is complete and effective once the letter is validly
posted or telegram handed to the post office, whether or not it ever reaches the offeror.
This is known as the "postal rule" of acceptance. One of the first reported cases that
establish this rule is:

Adams v. Lindsell 1818

The transaction here involved the sale of wool. The offeror had sent a letter of offer on
2 September 1817 requesting the offeree’s reply in “course of post”. This offer was
only received on 5 September (which was unduly late due to a postal delay). That same
evening, 5 September, the offeree posted his acceptance. This acceptance was received
on 9 September. Meanwhile, on 8 September the offeror, who had heard nothing from
the offeree, had sold the goods to a third party. Held: the contract was accepted and
the contract was made as soon as the letter of acceptance was posted on 5 September
1817.

The rule was subsequently applied again in the following case:

Household Fire Insurance Co. v. Grant 1897

G applied for shares in the company. A letter of allotment (acceptance) was posted to
him but it never reached him. The company then went into liquidation and G was called
upon to pay up. Held: a contract had been formed when the letter of acceptance was
posted to him despite the fact that it had never arrived. Therefore G had to pay for the
shares.

As can be seen from the foregoing cases, the postal rule is potentially a problem for an
offeror as he may be totally unaware of a binding contract since the letter of acceptance
may never reach him. For this reason, several safeguards are built-in to this rule to
ensure fairness. The rule applies only where it is reasonable to use the post as a means
to communicate acceptance. This means that the contracting parties must first have
agreed to the use of the post to communicate acceptance. But, however, it would still
be unreasonable to use the post when, for example, the offeree knows that the postal
service was disrupted at the time. Finally, the letter must be properly addressed and
adequately stamped. Handing the letter to the postman would not be sufficient. With
the preponderance of modern day communications in the 21st century (see below), it is
very likely that this rather archaic rule will lose its relevance over time.
5.1.3 Waiver of communication of acceptance

Where the offeror expects acceptance by conduct only, e.g. in a reward situation, the
offeror may be expressly or impliedly waiving the need for communication of
acceptance. The case of Carlill v. Carbolic Smoke Ball is a case in point, where
because it was a unilateral contract, by performing the specified act i.e. acting on the
offer by buying the product and using it, would be sufficient. There would be not need
to communicate acceptance.

5.2 Acceptance by Instantaneous Communications

In the case of communication by telephone, telex or facsimile transmissions, acceptance

is complete only when it is received by the offeror and not when transmitted (i.e. when
sent out). This, in fact, mirrors the general rule of communication of acceptance.

Entores v. Miles Far East Corporation 1955

The offeror in London sent off an offer by telex to the offeree’s agent in Amsterdam and
the latter sent an acceptance by telex. The legal issue was whether a contract had been
in London which was within the jurisdiction of the English courts or in Amsterdam in
which case the English courts had no jurisdiction. Held: The acceptance took effect
when the telex message was received and printed out on the offeror’s terminal in
London and not where it was transmitted in Amsterdam. The contract was therefore
made in London.

5.3 Communication of Acceptance in the electronic/digital Age

In 1998, to enable e-commerce to be facilitated effectively and securely, the Singapore

government enacted the Electronic Transactions Act (ETA). The ETA was recently
updated in 2010 to take into account new developments in this field of law. Under the
new updated ETA 2010:

1. An electronic communication is sent or dispatched when it leaves the

information system under the sender’s control. This is illustrated; for example,
an e-mail message is sent when the sender clicks on the “send” button of the e-
mail application.

2. As regards time of receipt of electronic communication, here there are 3 possible

scenarios:

a. An electronic communication is received when it is capable of being retrieved

from the electronic address designated by the addressee. So if Stanley
designates stanley@gmail.com as his receiving e-mail address to John, then an
e-mail from John is received when it enters the “inbox” of Stanley’s g-mail
address.
 b. If communication is sent to a non-designated address, it is received when it is
capable of being retrieved and the addressee is aware that it has been sent there.
So, if John sends it to Stanley’s Yahoo e-mail address, it is received only when
it enters the “inbox” and Stanley is fully aware of this, say, when he reads it.

c. When no address has been designated, the communication is received when it

is capable of being retrieved and the addressee is aware that it has been sent
there. In this case if Stanly does not designate any receiving e-mail address, the
same rules will apply to any e-mail sent to him.

6. The Battle of Forms

If the offer contains standard terms and conditions and the acceptance contains different
standard terms and conditions, it may sometimes be difficult to determine whether the
offeror’s or the offeree’s terms shall govern the contract. In such cases where there is
a “Battle of Forms” the contract is usually formed as soon as the last form is sent and
received without objection or counter-offer (or even in the event there is a counter-offer
this is unintentionally or inadvertently accepted by the offeror).

Butler Machine Tools v. Ex-Cell-O Corporation 1979

The plaintiffs who were suppliers had offered to sell tools to the defendant purchasers
and sent a copy of their standard terms and conditions of business. These terms and
conditions included a price variation clause. The purchasers accepted the offer on their
own standard terms and conditions of business, which did not provide for any variation
of the quoted price. The supplier acknowledged this acceptance by sending a “tear-off”
slip from the purchaser’s copy (which was not read by the supplier). When the tools
were delivered the supplier claimed an extra amount in reliance on the price variation
clause. The purchasers refused to pay. The Court held that the defendant purchasers
had not unconditionally accepted the original offer. They had made a counter-offer,
which had been inadvertently accepted by the plaintiff supplier (i.e. by returning the
“tear-off” slip without qualification). The defendant’s terms therefore governed the
contract.

7. Intention to Create Legal Relations

Apart from the requirement for an agreement to be clearly present, for a legal contract
to be valid the law further requires that the parties to the agreement must intend their
agreement to be legally binding, that is, if one party fails to carry out his promises and
obligations under the agreement, he must be answerable for the failure in law and is
liable to be sued in court. This is called the intention to create legal relations. In
determining whether this intention is present, the courts apply an “objective test”. This
test is satisfied if a reasonable man (say perhaps an objective bystander), after taking
into account all the circumstances of the case, believes from what he observes that the
parties intended to be bound. In assisting the courts prove the existence of this intention,
the law establishes two (2) rebuttable presumptions concerning:

➢ Commercial and business agreements

 ➢ Family and social agreements

7.1 Commercial and Business agreements

In all commercial and business agreements there is a presumption that the parties
intended that the agreements they make are legally binding. This presumption may,
however, be rebutted by the so-called gentlemen's agreement i.e. the agreement is
binding in honour only.

Rose and Frank v. Crompton Bros. Ltd. 1925

A British company agreed to sell stationery in America through a New York firm. This
marketing arrangement was renewable for a three-year period. The agreement was
drafted in very “legal” terms, but there was a clause, which read, “This arrangement
shall not be subject to legal jurisdiction in the courts”. Eventually the parties had a
dispute and the matter brought to court. Held: there was no breach of contract as there
was no valid contract because the agreement was binding in honour only.

In some other situations, “imprecise” words used in a legal document issued in a

commercial and business setting can also rebut the general presumption that there was
an intention to create legal relations. In commercial banking; for example, the wordings
of a “letter of comfort”, issued in the context of a commercial loan by a holding
company to support its subsidiary’s loan, may be insufficient to establish an intention
to create legal relations.

Kleinwort Benson v Malaysian Mining Co. 1989

K agreed with M to lend money to one of its subsidiaries. Instead of providing a loan
guarantee, M provided a “letter of comfort” instead, which stated that it was the
company's Group policy to ensure that the business of its subsidiary is at all times in a
position to meet its liabilities. Eventually the subsidiary went bankrupt. K sued M. Held:
a “Letter of comfort” was a mere statement of company policy and was not intended to
create legal relations.

7.2 Family and Social agreements

In the case of social agreements, such as arrangements to eat together, visit the cinemas
or to share household expenses, it is likely that the parties do not intend to be legally
bound. The courts also presume that such domestic agreements between husbands and
wives, parents and children and friend and friend are not intended to be legally binding.

Balfour v. Balfour 1919

Mr. B was a working in Ceylon. He promised his wife Mrs. B that he would send her
£30 a month for her living expenses in England. Mr. B stopped sending her the money
whereupon Mrs. B sued on the promise. Held: that arrangement of this kind between
a husband and wife was not a contractual agreement leading to legal consequences.
 But then again the presumption can be rebutted if the evidence is clear enough.

Merritt v. Merritt 1970

Mr. M left Mrs. M to live with another woman. The family home was in the names of
both Mr. and Mrs. M. Mr. M agreed to contribute to the mortgage payment. A
document was signed whereby Mr. M agreed to transfer the home to Mrs. M provided
she met all charges relating to the home. Mrs. M paid off the mortgage but Mr. M
reused to transfer the home to her. Held: there was an intention that the agreement
was intended to be legally binding as evidenced by the written document. Unlike
Balfour's case, the couple had already separated before the agreement was made. Mr.
M was ordered to transfer the home to his wife.

8. Consideration

The law will not enforce a contract unless it is supported by consideration. The law in
general will only recognize a two-sided bargain and not mere one-way promises. A
contract is basically a bargain, that is, it must involve each side promising to provide
"something of value" in exchange for what the other side is prepared to provide. This
requirement of "something for something" or “tit for tat” is called consideration. Let us
consider the following examples as illustrations:

Tan promises to give Lee a gold Rolex watch in 10 days. If Tan fails to transfer the
watch to Lee as promised, Tan incurs no liability because Lee has not given any
consideration to support Tan's promise i.e. to make it enforceable. Tan's promise is a
gratuitous one - a promise for nothing or an empty one-sided promise.

However, if John contracts to sell Mike his apartment for $950,000, Mike's promise to
pay $950,000 provides consideration for John’s promise to sell the apartment.
Conversely, John’s promise to sell the apartment provides consideration for Mike's
promise to pay $950,000.

Similarly, Fatty Fong, as part of the sale of his restaurant to Slim Soo for $500,000
promises also not to open a restaurant in competition with Slim Soo for the next 5 years
after the sale. Slim Soo's promise to pay $500,000 supports Fatty Fong's promise to
sell the restaurant as well as Fatty Fong's promise not to compete with Slim Soo.

A working definition of consideration capable of supporting a promise was given by

Sir Frederick Pollock and later adopted by the English House of Lords in the case of
Dunlop v. Selfridge 1915, as follows:

“An act or forbearance of one party, or the promise thereof, is the price for which the
other is bought, and the promise thus given is enforceable”.

So, it is clear that consideration can be either: -

a) A promise to do something; or
b) A promise to refrain from doing something (forbearance); or
c) An act or performance; or
 d) The payment of a price or an exchange of something valuable

8.1 The Rules relating to Consideration

8.1.1 Consideration must be real

It must have some value, however small, i.e. valuable consideration. Acts done out of
natural love or under moral obligation are not valuable consideration.

White v. Bluett 1853

In a dispute with his father’s executors, W. argued that he had given consideration to
his father for a promise of benefits under his will by promising not to complain
continually that his father had disinherited him. Held: No real and substantial
consideration had been given for the promise W. said he had obtained from his father.

8.1.2 Consideration must be legal

The courts will not allow the enforcement of a contract if the consideration is against
the law or is immoral e.g. claiming for the non- payment of a bribe.

8.1.3 Consideration may executory or executed but cannot be past

Executory consideration is a promise made by one party in return for a promise made
by the other. For example, S. promises to deliver the goods to B. and B. promises to
pay when these goods are delivered.

Executed consideration is an act done by one party in return for an act or promise made
by the other. For example, S. receives $500 from B. and S. promises to deliver the
goods. By paying S. the money B’s consideration has been executed.

Consideration is past when a party has performed an act before the other party makes
the promise. Past consideration is not a valid form of consideration. For example:

Ahmad paints the outside of Samy's bungalow as a voluntary act while Samy is on
holiday. After Samy returns he is pleasantly surprised by Ahmad's act of kindness and
generosity and promises to pay him $500. If Samy later refuses to pay can Ahmad
enforce payment? No... this is because Ahmad's act in painting the house is past
consideration in relation to Samy’s promise to pay. He painted the house before Samy
made the promise.

Sometimes, however, even though past consideration is unenforceable, yet under

certain exceptional circumstances although the actual promise to pay a specific amount
is made after the work has been carried out, there might have been an implied promise
to pay a reasonable sum before the work started. So, in the above example, if Samy had
asked Ahmad to paint his house, he may be impliedly promising to pay for the work
done by Ahmad.
 Stewart v. Casey 1892

S. was the owner of some scientific patents. He asked C. to promote and market these
patents. After C. had done so successfully, S. promised him a share in the resulting
profits. He failed to do so. Held: this promise was binding. The court reasoned that the
original request carried with it the implied promise to pay a reasonable amount for C’s
services. The subsequent promise to share in the promise merely fixed a precise figure
to that original promise.

8.1.4 Consideration must be sufficient but need not be adequate

Contract law is based on the principle of freedom of contract; meaning, the parties are
generally free to determine the terms of their contract through negotiation subject to
public policy. For this reason, as a general rule, courts do not inquire into adequacy of
consideration. Thus the courts will not ask whether the consideration provided by one
party is equal or proportional to the other party's consideration. For example:

If S promises to sell his car to B for $10, the $10 is treated as sufficient consideration.
But it is not an adequate consideration unless the car is in an extremely bad condition.
"Adequate" means each party's consideration is equal in value.

A good illustration of this concept of adequacy may be seen in the following case:

Thomas v. Thomas 1842

A widow had been promised by her deceased husband in his will that she would have
the matrimonial home in which they lived. The executors of her husband’s legal estate
promised to convey the house to her provided she paid £1 a year in rent and kept the
house in good repair. The executors later breached this agreement and claimed that
their promise to let her occupy the house was not supported by consideration. Held:
the £1 annual rent was treated by the court as sufficient consideration. This
consideration need not be equal in value to the promise. The court said it was
“something of value in the eyes of the law”.

However, it is important to note that performance of an existing obligation owed to a

promisor is no consideration in support of a further promise. For example:

John contracts with MediaCorp to perform a part in a movie for $5,000. At the last
moment, his “star ratings” improves and John now refuses to perform unless
MediaCorp pays him an additional sum of $7,000. MediaCorp reluctantly agrees. Here
assuming John performs as agreed, MediaCorp is not bound to pay the extra $7,000
because he has provided no consideration in support of the further promise of $7,000;
he is doing exactly what he is already contractually bound to do. MediaCorp is obliged
to pay the agreed $5,000 only.

It is clear from the above example that consideration must be “fresh” in the sense that
it cannot be something which the promisee is already required to do or something for
which the promisor is entitled to receive. An illustrative case can be seen in:
 Stilk v. Myrick 1890

The captain of a ship offered the crew extra wages to sail the ship home after some
crewmembers had deserted. When they arrived home, the crewmembers took legal
action to recover the wages, which was promised them. Held: they were not entitled to
the promised wages. There was no consideration as the men were already legally bound
to sail the ship home in any case.

But, clearly a promise to do more than the promisor was already legally bound to do is
good consideration. Here there would be “fresh” consideration and therefore valid.

Glasbrook Bros. v. Glamorgan County Council 1925

GB asked the local police for additional protection during a strike which was provided.
The county council who managed the police and other essential services, claimed for
the costs of providing for such added protection. GB refused to pay arguing that the
police were already legally bound to give protection as a matter of public duty and
policy and had therefore given no consideration for their claim. Held: GB was liable
to pay the added costs for the service. The police had done more than they were legally
obliged to do.

8.1.5 Consideration for Part Payment of a debt

In a loan contract situation, part payment of a debt is generally not regarded as

consideration in support of a promise not to sue for the balance. For instance:

Suppose D. owes C. $1,000 and on the due date C. agrees to accept $600 in settlement.
In law, C. is not bound by the promise and is entitled to claim the balance of $400 from
D. The reason is that D. has not provided consideration in support of C’s promise to
accept a lesser sum; D. is contractually bound to pay the full sum.

This rule, which has come to us through the common law since 1602, is known as the
Rule in Pinnel’s Case. It is a rather strict rule and its application can be seen in the
following cases:

Foakes v. Beer 1884

B. obtained a court judgment against F. for the sum of £2,091 with interest. By a written
agreement B. agreed to accept payment by installments of the sum of £2,091, no
mention was made of the interest due. Later B. reneged on his promise and claimed the
interest. Held: B. was entitled to the debt with interest. No consideration had been given
by F. for waiver of any part of B’s rights against him.

D&C Builders Ltd v. Rees 1966

R owed D&C Builders a sum of money. R pressured D&C who were having financial
difficulties, to accept a smaller sum in final settlement. Held: D&C Builders were
allowed to recover the balance of the debt from R.
 However, every rule has its rather quirky exceptions and the Rule in Pinnel’s Case is
no different. Therefore, this rule does not apply:

a) If the creditor asks for a “different performance” of the existing contractual duty,
the different performance will constitute valid consideration.
b) If the existing contractual debt was partly paid up by a third party on the condition
that the original debtor is released from his debt, the creditor who agreed to the part
payment would be bound.

So following from our previous example featured above: -

This time if C. asks for early settlement, saying $600 will extinguish the debt of $1000,
then C. is bound and the debt is settled. The reason is that if D. settles early before the
due date for repayment at C’s own request that is a “different performance” and the
law treats it as consideration in support of C’s promise to accept a lesser sum.
Alternatively, a part payment is made by a 3rd party (e.g. by D’s uncle – on the
condition that D is discharged from the debt) or D. pays in a different form (e.g.
together with a “token” like a gold coin), all these will be treated as a different
performance constituting valid consideration. And that will settle the debt.

8.1.6 Promissory Estoppel

Although a promise made without consideration cannot be actionable, as it will not

amount to a contract, it may sometimes have limited effect as a defence. For example:
-

If A promises not to enforce his rights against B and the promise is intended to be
binding and was in fact acted upon by B, then A may be prevented by the court from
later bringing any action which is inconsistent with his earlier promise. This defence
has been called Promissory Estoppel. It may be illustrated in the following case:

Central London Properties Ltd. v. High Trees House Ltd. 1947

C. leased a block of flats to H. at a fixed rent. As a result of the outbreak of the Second
World War in Europe, very few flats were sublet. This situation became very
unprofitable for H. C. then gave a written promise to reduce the rent while the war
lasted. After the war C. withdrew his promise and started to charge the full rent again.
Held: he was free to do this for the future because no consideration had been given for
the wartime promise. But the court also said in passing (Obiter Dicta) that C. could
not recover the full rent for the period of the war since H. had relied on his promise
and his promise can be set up as a defence to safeguard the interest of H.

In order for the defence of Promissory Estoppel to be successful, the following

conditions must be shown: -

• The plaintiff deliberately waived his strict legal rights against the defendant.

• The defendant gave no consideration for the waiver i.e. it was “gratuitous”.
 • The defendant altered his position in reliance on the waiver i.e. there was a
“suffering” and so it would be inequitable and unjust to allow the plaintiff to
capitalise on the lack of consideration.

• There must have been a pre-existing legal relationship between the parties e.g. as
landlord and tenant, which could give rise to liabilities.

8.1.7 Consideration must move from the promisee

The person who can sue for breach of contract is one who has provided consideration
i.e. the promisee. An outsider i.e. a party who has not provided consideration is not
allowed to do so. This is similar to the rule of privity of contract, which says that a
person who is not a party to a contract cannot sue on it. For example:

Chan contracted with ABC Contractors Ltd to paint Wong's house. Suppose that ABC
Contractors Ltd is in breach of contract. Chan is the person who can sue ABC
Contractors Ltd and not Wong because Wong is not a party to the contract. The parties
to the contract are Chan and ABC Contractors Ltd. Wong is not a party to the contract
and furthermore he has not provided any consideration.

An interesting application of this rule is illustrated in the following case:

Tweddle v. Atkinson 1861

T. married the daughter of G. On the occasion of the marriage T’s father and G.
exchanged promises that they would each pay a sum of money to T. The agreement
between the two fathers expressly made it clear that T. should have enforceable rights
against them in the event the sum of money was not paid. G. died without making the
promised payment. T. sued G.’s executor for the specified amount. Held: T. had
provided no consideration for G.’s promise. Furthermore, he was not a party to the
contract between his father and G. In spite of the express terms of the agreement, T.
had no enforceable rights under it.

Following from this rather archaic rule, the law has since established a number of
exceptions as it was felt that for commercial expediency these exceptions were
necessary for commercial transactions to be carried out more efficiently. An example
is the Contracts (Rights of Third Parties) Act. Under this Act, several new exceptions
to the “privity of contract” rule have been provided to enable third parties to enforce
contracts. Thus, a third party would be able to enforce a contract in the following
situations:

 The contract names the third party as having the right to enforce
 The contract benefits the third party
 The third party is identified as a member of a class of persons having the right to
enforce
SESSION 2: Formation of Contract

Essential points

o Definition of contract
o Offer and invitation to treat
o Communication and termination of offers
o Acceptance and counter offer
o Communication of acceptance and exceptions
o Presumptions and rebuttal of intentions to create legal relations
o Consideration and “good” consideration

Visual Overview

Practice Questions

1. All agreements are legally enforceable. Discuss.

2. The date of posting of a letter is the effective date of communication in the formation of a contract. Discuss.

3. Great Cafe Pte Ltd (“GC”) calls for tenders to supply the latest kitchen equipment and
renovated its kitchen. Premium Kitchen Pte Ltd (“PK”) submitted the lowest bid when
 the tender closed. PK had spent $1,000 preparing the tender bid. GC decided not to
proceed with the purchase of the kitchen equipment and renovation. GC informed PK of
its decision. PK wants to take legal action against GC for not proceeding with the
purchase and renovation. Discuss the elements of a contract and the existence of a
legally binding contract between GC and PK.

4. Are the following agreements enforceable? Give your reasons.

a) Charles promised his friend, Maria, that he would pay for her lunch. However,
Charles failed to turn up for the lunch appointment. Can Maria enforce the
agreement?
b) Charles refused to honour his agreement with his sister, Katy, to lend his lap-top
to her for a week.
c) Charles signed an application for a credit card from Fortune Credit Card
Company. The next day, Charles decided that he does not want the credit card as
he felt that the annual fee of $200 was too high after checking with his friends.
 SESSION 3

THE LAW OF CONTRACT

CONTRACTUAL TERMS AND EXCLUSION / EXEMPTION CLAUSES

Session Learning Objectives.

When you finish this Session, you should be able to:

• Understand express and implied terms

• Understand condition, warranty and innominate term
• Understand exemption clauses

Chapter Outline

1. Terms of a Contract vs Representations

2. Categories of terms of a Contract
2.1 Express Terms
2.2 Implied Terms
3. The Classification of Contractual Terms
3.1 Condition
3.2 Warranty
3.3 Innominate term
4. Exemption / Exclusion and limitation clauses
4.1 Incorporation of Exemption Clauses
4.2 Interpretation of Exemption Clauses
4.3 The presence of unusual factors and circumstances
4.4 Neutralization of Exemption Clauses (renders it ineffective & void)

A contract may be made either orally, in writing, or both. Having so far analyzed the
fundamental requirements for an enforceable contract, we now want to know what the
parties have actually promised one another to carry out under the contract. This is a
very important issue because if there were to be a dispute between the parties, the courts
would have to rely on the contractual agreement in order to determine which party is at
fault and the remedy the innocent party is entitled to get. The contractual agreement
would essentially consist of statements that set out the rights, duties and entitlements
of each party. These statements of duties, rights and entitlements are known as terms
of the contract. For example, in a contract for the sale of goods, one of the usual terms
included is the seller's duty to deliver the goods to the buyer on a stated date and the
buyer's duty to pay the contract price.

1. Terms of a Contract vs. Representations

 During the course of negotiation leading to the conclusion of a contract, the parties may
make many statements either orally or in writing. A seller may exaggerate the quality
of his product with statements like "it is the best in the country" or "this car is the best
value for your money" or "this health tonic will energize every part of your body". In
law, these statements are often regarded as sales talk or "mere puffs". They cannot be
taken seriously and have no legal consequences at all. But the situation is not as
simplistic as it appears; consumers and businesspersons need to be careful because
statements can amount to either a term of a contract or a representation. There is a
distinction between the two. A term is part of the contractual promise (the parties have
already agreed to it) and if it is not complied with the innocent party is able to sue the
other for a breach of contract. A representation, on the other hand, is NOT a term: it is
a statement, which generally induces the other party to enter into a contract. And if it is
untrue it amounts to a misrepresentation. The innocent party may be able to rescind the
contract and even sue the maker of the statement (the misrepresentor) for compensation
(you will learn more about this in the next topic). For example:

Tina is so very eager to sell her bungalow and in the course of negotiation she
represents to Willie that the bungalow is “termite free ". In reliance on the statement
Willie buys the bungalow. If later it turns out that the bungalow is infested with termites,
Tina may have committed a misrepresentation, which entitles Willie to rescind the
contract and other remedies under the Misrepresentation Act.

If, however, both Tina and Willie have already agreed and have it stated in the contract
that the bungalow is termite free, then the statement is very likely to be a term of the
contract. And if the bungalow is indeed infested with termites, Willie is entitled to
damages for breach of contract.

Since it is not easy in substance to show the difference between the two, how then does
a court faced with this problem distinguish between a term and a representation? They
do so by considering and adopting various factors as follows:

❑ If the statement is made closer to the time the contract is made, it is more likely to
be a term rather than a misrepresentation
❑ If, during negotiations, more emphasis is given to the statement, it is more likely to
be a term
❑ If the maker of the statement possessed special knowledge (relative to the other
party), it is more likely a term
❑ If the statement is reduced into writing, it is more likely a term
❑ If the other party is invited to verify the statement, it is more likely to be a
representation

2. Categories of terms of a Contract: Express vs. Implied Terms

The TERMS of the contract fall into 2 main categories; namely express terms and
implied terms.

2.1 Express Terms

When the parties explicitly communicate the terms to one another, the terms are known
as express terms. Express terms may be communicated orally, in writing or a
combination of both. In an oral contract, the terms are determined from the words
spoken by the parties.

A written contract, however, may be in the form of a single written document signed
by the parties or it may involve an exchange(s) of letters, telegrams, telexes, facsimile
letters e-mails or other written forms of communication. As a general rule, if a written
contract is adopted, then it is the intention of the parties that the written contract
becomes the final agreement so that if the written terms are clear and complete no party
is allowed to add to, change or contradict such written terms with oral evidence. This
general rule of law, known as the parol evidence rule, is to prevent a party from giving
evidence that the signed and written agreement did not contain the whole agreement
and that some previously agreed terms were omitted. In Singapore the parol evidence
rule is codified by Section 93 & 94 of the Evidence Act. However, the rule does not
always apply and the court may admit and let in evidence to clarify matters:

a) If the written agreement was not intended to be the complete agreement e.g. a
contract is partly in writing, partly oral (oral evidence may be admissible here).

b) Where the parties regularly used a particular set of written terms in their previous
dealings, it is not open to one of them to say such terms should not apply on this
particular occasion because the written terms had not been used;

c) If the validity of the written agreement is questionable (e.g. due to absence of

consideration or one of the parties entered into the agreement under duress).

The above situations are just a few instances where the court would allow the use of
other evidence to supplement, change or contradict the terms of a written agreement to
avoid the risk of injustice to any party.

Moreover, if the written terms are vague, oral evidence may still be employed to find
out the true intention of the parties. For example:

Tan agrees to sell to Wong for $400,000 "my red BMW car". Tan owns 2 red BMW
cars. In this case oral evidence may be given to find out which red BMW car is intended
for sale.

However, despite the admission of oral evidence and yet is not helpful to determine the
true intention of the parties, then the vague terms may render the contract void and
unenforceable because of uncertainty.

Scammel Ltd v. Ousten 1941

0 agreed to buy a van from S Ltd. The contract provided that the buyer could pay “on
hire purchase terms”. A dispute arose between the parties. Held: There was no contract
because there were many kinds of hire purchase agreements and “hire purchase terms”
were just too vague. It was impossible to say which hire purchase terms the parties
intended to contract on.
2.2 Implied Terms

These are terms which the parties have not communicated to one another but which the
law nevertheless inserts into the contract if it is to make business sense and allow the
contract to work (what the court deem terms implied to ensure “business efficacy"). For
example:

Harry, a successful business entrepreneur, seeks the services of a tax consultant. After
examining Harry's business affairs the consultant presents a detailed report. Neither
party mentioned a fee prior to the consultation. To give business efficacy to the
contract, the court would imply a term that Harry pays a "reasonable fee" for the
consultant's work.

The law may imply a term into a contract in the following ways:

2.2.1 Terms implied by Courts

If the parties have omitted to state it expressly, the court would imply a term into the
contract if it were their presumed intention in order to give business efficacy to the
contract.

The Moorcock 1889

The defendant owners of a jetty contracted to allow the plaintiff owner of a ship "The
Moorcock" the use of the jetty in order to unload cargo. The ship was grounded at low
tide and it was damaged because of the uneven seabed. The contract made no mention
as to whether it was safe to use the jetty at low tide. The plaintiff sued the defendants
for the damage sustained by the ship. Held: the defendants were liable as there was an
implied term of the contract that the defendants would take reasonable care to ensure
that the jetty was safe to use so as not to endanger the ship. That surely must be the
presumed intention of the parties. Unless the jetty was safe to use it would have made
little business sense.

2.2.2 Terms implied by Statutes

Terms may be implied by Statutes. For example, the Sale of Goods Act says that:

In every contract for the sale of goods it is an implied condition (under Section 12) that
the seller has a right to sell the goods i.e. he is the legal owner of the goods or is
authorised to sell on behalf of the owner.

It is also an implied condition that the good is fit for its purpose [under Section 14(3)]:
Tim has just bought a new car. The engine seizes and keeps catching fire every time the
car is driven for more than 2 kilometers. The car is then considered not fit for its
purpose as a car.

2.2.3 Terms implied by Custom or Trade usage

 Terms may be implied if they are well known within a particular trade or custom or in
a specific industry. As an illustration the following case adopted known customs within
the building industry:

British Crane Hire Co. v. Ipswich Plant Ltd 1974

There was a contract for the hire of crane. Both parties were in the same trade of hiring
out heavy earth-moving and excavation machines. IP hired a crane from BCH. While
the crane was put to use, it toppled over and sank in a swamp. A dispute arose as to
who should bear the cost of recovery as no mention was made of this in the written
contract. Held: it was generally acceptable as a custom in the trade that if a machine
became bogged down in swampy ground, it was the hirer and not the owner of the
machine to pay for the cost of recovery. The cost therefore fell on IP.

3. The Classification of Contractual Terms

What is going to happen if one party is in breach of one or more of the terms of the
contract? Can the innocent party consider himself no longer bound by the contract
and/or entitled to claim Damages (monetary compensation) from the defaulting party?
In order to decide what rights the innocent party has we must know the status of each
term because not every term is of equal importance. The more important terms are
called conditions and the less important are called warranties.

3.1 Condition.

A condition is a vital term so “fundamental” or important (one that goes to the very
root of the contract) that its breach destroys the very substance of the contract. If a party
breaks a condition the consequence is very serious. The innocent party can treat the
contract as at an end i.e. he does not have to do anything further under the contract and
he can also sue for damages. As an example:

Sweet Dream restaurant specialises in catering for outside functions. ABC company
Ltd. arrange a farewell buffet for their managing director, George, for May 1st and
Sweet Dream restaurant is engaged to provide the meals. It is expressly stated that the
buffet is on May 1st. If Sweet Dream fails to provide the buffet on May 1st, there is a
breach of condition because this goes to the very root (or basis) of the Contract.

Let us consider further the following case as an illustration:

Poussard v. Spiers 1876

P., an opera singer was contracted to perform at a concert. She failed to turn up for the
first few performances. The producer then engaged a substitute. The producer
thereafter refused to accept P.’s services for the remaining performances. Held: a
failure to sing for the first few performances was a breach of condition; this will entitle
the producer to treat the contract for the remaining performances not binding on him.

3.2 Warranty
A warranty, on the other hand, is not so vital a term but is subsidiary to the main purpose
of the contract. Its breach, no matter how serious, cannot destroy the substance of the
contract (i.e. it does not go to the very root of the contract). The innocent party can
only claim Damages but he cannot treat the contract as at an end. For example:

So, following from the above illustration if Sweet Dream Restaurant agrees to provide
the buffet and 2 bottles of vintage wine, a failure to supply the vintage wine would
probably be a breach of warranty. ABC Company Ltd. can only sue for Damages but it
cannot treat the contract as at an end.

The opera scene provides yet another illustration contra-indicating the previous
example above. So in:

Bettini v. Gye 1876

An opera singer had agreed to attend for rehearsals 6 days before his first performance.
He did not arrive until 2 days before the first performance and so had missed 4
rehearsal sessions. Held: This was only a breach of warranty; it did not entitle the
producer to terminate the contract but only to recover Damages. The rehearsal clause
was subsidiary to the main purpose of the contract (the main purpose being the
performance at the concert).

3.3 Innominate term

Finally, some terms belong to an intermediate classification known as an “innominate

term” which has both elements of a condition and a warranty. In such a case, the
tendency of the court is to look at the practical consequences of the breach rather than
adopting the view of whether the term is condition or warranty. If the consequences of
the breach are serious i.e. it deprives the innocent party substantially of the whole
benefit under the contract (destroying the substance of the contract) then the term is
treated as a condition. But where the consequences of the breach are minor, the term
is a warranty and the only available remedy is Damages. An illustration of this is seen
in the following case:

HongKong Fir Shipping Ltd v. Kawasaki Kaisen Ltd 1962

The defendant had chartered the ship “Hong Kong Fir” for a period of 2 years. There
were many problems relating to crewing and maintenance for the first 20 weeks of the
charter and so the defendants cancelled the charter thereby treating it as a breach of
condition. The Plaintiff sued for breach. The court held that when terms are difficult to
classify, they would first look at the consequences of the breach and then decide on the
appropriate remedy. In this case, it would be a breach of warranty as the consequences
(final result) did not deprived the defendant of substantially the whole benefit of the
contract which he should have obtained under the contract.
4. Exemption/Exclusion and limitation Clauses

Some of the express terms that are likely to be found in a commercial contract are
exemption clauses. An exemption clause is one that seeks to exclude or limit the
liability of the party in breach of a contract. Some examples include:

The proprietor of the Hotel cannot accept liability for loss or damage to guests'
property howsoever caused during their stay - exclusion of liability.

We, the contractors will indemnify you against any loss caused as a result of faulty
materials or workmanship, but in any case our liability is to be limited to the contract
price only - limitation of liability.

It is a term of the contract. Such a clause is particularly common in standard forms of

commercial contracts (parties regularly enter into the same kind of transaction).
However, it may be unfair if the clause is imposed by a party with stronger bargaining
power on another with weaker bargaining power, particularly consumer contracts.
Because of this fear of unfairness and the abuse of its use by the party seeking to rely
on it, the law lays down strict rules regarding the use of exemption clauses. For an
exemption clause to be valid and binding it must comply with 4 rules. These rules are:

1) Incorporation of exemption clauses; and

2) Interpretation of exemption clauses; and
3) Presence of unusual factors or circumstances; and
4) Neutralization of exemption clauses.

4.1 Incorporation of Exemption Clauses

A party to a contract who seeks to rely on the protection of an exemption clause has to
show that it has become incorporated (included) into the contract. There are 3 ways in
which he may be able to do this.

a) Incorporation by written and signed documents;

b) Incorporation in the case of unsigned document; or
c) Incorporation by previous course of dealings.

4.1.1 Written and Signed Documents

Where a contract is written and is signed by the parties, the general rule is that the
parties are bound by all the terms in that written contract. This includes exemption
clauses.

L'Estrange v. Graucob 1934

The plaintiff bought an automatic vending machine. The plaintiff signed the “Sales
Agreement” without thoroughly reading it. The document contained an exemption
clause in small print, which the plaintiff failed to read. The machine did not work
 properly and the defendants relied on an exemption clause to exclude their liability.
The plaintiff argued that she did not read the exemption clause and therefore should
not bound. Held: whenever a written document containing contractual terms was
signed, the party signing it was bound in the absence of fraud. It was irrelevant that the
party signing it did not read it. Thus the defendants were protected by the clause.

4.1.2 Unsigned Documents or contracts that don’t require signing

In the case of unsigned document, e.g. a ticket, the exemption clause will only form
part of the contract if 2 conditions are satisfied. They are:

a) The unsigned document containing the exemption clause can reasonably be

regarded as a contractual document - would a reasonable man assume that the
document was to be a contractual document?

Chapelton v. Barry UDC 1940

P hired a deckchair from D on the beach. He made payment and was given a ticket,
which he did not read. The chair collapsed when he sat on it. He sued the defendant for
injury sustained. The D relied on a clause on the back of the ticket, which excluded
liability for any damage or injury arising from the hire and use of the chair. Held: D
was liable because the exemption clause on the ticket did not form part of the contract.
It was merely a receipt for payment and cannot reasonably be regarded as a
contractual document.

b) The party relying on the exemption clause must take reasonable steps to bring the
clause to the notice of the other contracting party either before or at the time contract
is made.

Thornton v. Shoe Lane Parking 1971

P wanted to park his car in a car park operated by the D. Outside the car park was a
notice saying that vehicles were parked at the owner's risk. Entry to the car park was
controlled by an automatic machine, which issued a ticket to P. P did not read it. The
ticket referred to conditions displayed elsewhere inside the car park. One of the
conditions excluded D from liability for injuries suffered by customers. P was injured
in an accident inside the car park and sued D for damages. Held: D could not rely on
the exemption clause because it did not take reasonable steps to bring to the attention
of P the notice containing the conditions before or at the time the contract was made.
P put the money in the machine and received the ticket - the contract was formed at
that point and any conditions referred to came too late and were not part of the contract
(i.e. an exemption cannot be introduced into the contract after a contract has been
made).

A similar illustrative case is: -

Olley v. Marlborough Court Hotel Ltd 1949

 A husband and wife checked into a hotel. They went to the room allotted to them and
found a notice stating, “the hotel proprietors shall not be responsible for articles lost
or stolen within the premise”. The wife left a number of expensive fur coats in the room
which were subsequently stolen. She sued the hotel. The Hotel relied on the notice to
exclude their liability. Held: the contract had already been entered into at the
registration desk before the notice of the exemption clause had been brought to the
plaintiff's attention in the room. The Hotel was therefore liable.

4.1.3 Previous Course of Dealings

The courts may imply the notice of an exemption clause in the current contract where
the parties had a previous course of dealings and such an exemption clause was used in
their previous dealings.

Spurling v. Bradshaw 1965

D delivered some barrels of juice to P for storage. P gave an acknowledgement slip to

D, which amongst other things contained an exemption clause that exempted P from
any loss of or damage to goods caused by P's negligence. When D went to collect the
barrels he found them empty. He refused to pay the storage charges. D sued P for
negligence. P relied on the exemption clause for protection. D argued that the
acknowledgement slip was given after the contract was made and therefore the
exemption clause could not form part of the contract. But D also admitted that in his
previous dealings with P, the acknowledgement slip had been used and he had not
bothered to read it. Held: the exemption clause was part of the present contract by
virtue of the previous course of dealings that had taken place between the parties. Thus
D had to pay for the storage charges.

4.2 Interpretation of Exemption Clauses

Even if the exemption clause is properly incorporated as explained above, the clause is
still subject to strict interpretation by the courts against the party relying on the clause.

4.2.1 The Contra Proferentum Rule

When the words in the exemption clause are clear, the courts will interpret the words
strictly. But when the words are not clear and are capable of more than one
interpretation or meaning (ambiguous) the courts will choose the interpretation, which
is less advantageous to the party relying on the exemption clause for protection. This is
known as the contra proferentem rule.

4.2.2 The Fundamental Breach Rule

It was once thought to be a rule of law that if a party committed a fundamental breach
of his contractual obligations he was not entitled to rely on any exemption clause in the
contract. This rule no longer applies as it has since been held that an exemption clause
can still be relied on even though there has been a fundamental breach of the contract.
The party relying on the clause for protection, however, bears the burden of proving
that on its proper construction, the words used in the exemption clause are clear enough
 to cover the fundamental breach which has occurred otherwise the clause will be void.
A fundamental breach is one where the breach of contract was a failure to perform the
contract altogether. An interesting case on this point is:

Photo Production Ltd v. Securicor Transport Ltd 1980

The plaintiff company contracted with the defendant company for the provision of a
night patrol security service to protect their factory. One night, the employee of the
defendant company lit a fire that got out of control and burned down the factory. The
plaintiff company sued the defendant company. The defendant company relied on an
exemption that excluded amongst other things their liability for loss caused by fire.
Held: It was clear that the Defendant Company had committed a fundamental breach
of the contract by starting a fire that caused the destruction of the factory. But on a
proper construction, the exemption clause was clear and covered the situation, which
had happened. Thus the defendant company was not liable for the burnt-out factory.

4.3 The presence of unusual factors and circumstances

The use of any exemption clause may also be restricted by the common law by the
presence of unusual factors or circumstances. For instance, the clause will be held to be
ineffective in giving protection to the person relying on it should that person or his
agent, such as an employee, misrepresent the extent of the clause to the other party.

Curtis v. Chemical Cleaning & Dyeing Co. 1951

P brought a dress to D for cleaning. P was asked to sign a receipt containing an

exemption clause that exempted D from all liability for damage. Before signing, P
noticed the presence of the clause and upon further enquiry was told by D that the
clause was to exempt D from certain types of damage, in particular damage to beads
and sequins. When it was returned, the dress was badly stained whereupon D claimed
protection of the clause. Held: P succeeded in a claim against D because P was induced
to sign the document by D's misrepresentation as to the extent of the clause. Thus D
could not rely on the exemption clause.

4.4 Neutralization of Exemption Clauses (renders it ineffective & void)

Even if an exemption clause has been successfully incorporated, there are no issues
with its interpretation and there are no unusual factors present, it may still be made void
by the Unfair Contract Terms Act (UCTA). The Act applies to liabilities that result
in the course of a business.

a) Under Section 2(1) of UCTA, an exemption clause that excludes the liability for
negligence resulting in death or personal injury is automatically void. For example:

The proprietor of the Hotel cannot accept liability for death of or personal injury to
guests howsoever caused during their stay. If a guest slips on a banana skin that has
been left on the dinning floor and falls badly resulting in a broken arm, the Hotel cannot
rely on the exemption clause because it is not allowed by the Act. And the Hotel is
operating a business.
b) Under Section 2(2) of UCTA, an exemption clause that excludes liability for losses
other than death or personal injury (e.g. loss or theft of property) may only be valid
if it is reasonable. On whether a clause is reasonable, the court will take into account
the relative bargaining positions of the contracting parties; whether any inducement
was offered to the customer to persuade him to accept the exclusion or limitation,
and whether the customer knew of the existence and extent of the clause.

George Mitchell v. Finney Lock Seeds Ltd. 1983

Farmers ordered cabbage seed from the seller. The contract excluded the seller’s
liability for any loss or damage and limited the seller’s liability to replace the seed or
repay the price. The farmers planted the seed which was not the seed contracted for
and which produced a useless crop causing the farmers to suffer considerable financial
loss. Held: the clause was unreasonable and the seller was in breach of contract (the
goods were essentially different from the contracted ones).

c) Under Section 6 of UCTA, a consumer contract for the sale or hire purchase of
goods cannot exclude or restrict liability for breach of condition relating to the
seller’s right to sell, description of the goods, quality and fitness of the goods and
sample sale implied by the Sale of Goods Act and Hire Purchase Act. In a non-
consumer sale only the implied terms relating to description, quality, fitness and
sample sale may be excluded, subject to the clause again being reasonable. For
example:

Mr. Lim buys clothes from a departmental store. There is a big sign at the checkout
point that states, “All customers buy at their own risk, there will be no exchange or
refunds for defective merchandise”. After Lim puts on the new clothes, he suffers from
an incurable skin rash. This is a consumer sale and the store will not be allowed under
the Unfair Contract Terms Act to exclude liability for Lim’s loss and injury, resulting
from a defect in quality or fitness of the clothes.
SESSION 3: Contractual terms and exclusion / exemption clauses

Essential points

o Representations and terms of the contract

o Express and implied terms
o Condition, warranty and innominate term
o Exemption clause and rules relating to its validity

Visual Overview

Practice Questions

1. Discuss the ways in which terms may still be incorporated into a contract even though
not expressly agreed to by the contracting parties.

2. The innocent party will have the same remedies against the defaulting party in the event
of breach of any terms in a contract. Discuss.
3. Rosy parked her car in a parking lot at a library. It was a weekday and there were many
parking lots close to the main library building. She parked her car near the entrance to the
main library building. As she was locking her car, a small flower pot fell from the second
floor onto her car. The small flower pot bounced off the roof of her car and hit her left
shoulder. Rosy approached the management office of the library. Danny, who was in
the management office pointed Rosy to the big sign-board just before the entry to the car-
park. The sign-board has the following words written in huge bold words in red:

“Cars are parked at the owner’s risk. The management of the library shall not be
liable for any damage to cars parked in the premises of the library or any personal
injury or death howsoever caused to the persons in the premises of the library.”

Advise Rosy whether she could claim the following:

a) Damage to her car, and
b) Medical expenses for treatment to her injured left shoulder.
 SESSION 4

THE LAW OF CONTRACT

VITIATING FACTORS

Session Learning Objectives.

When you finish this Session, you should be able to:

• Discuss the effect of vitiating factors

• Explain the following vitiating factors:
o Incapacity
o Misrepresentation
o Duress and Undue Influence
o Mistake
o Illegal Contracts
o Contracts in Restraint of Trade

Session Outline

1. Void vs. Voidable contracts

2. Incapacity: Contracts made by Minors
2.1 Contracts for necessaries
2.2 Beneficial contracts for the minor’s educational, training and employment
2.3 Voidable contracts made by minors
2.4 Remedies available
3. Misrepresentation
3.1 Actionable Misrepresentation
3.2 Does Silence constitute Misrepresentation?
3.3 Types of Misrepresentation
3.4 Effects of Misrepresentation
3.5 Limits to the Right of Rescission
4. Duress and Undue Influence
4.1 Duress
4.2 Undue Influence
5. Mistake
5.1 Fundamental Mistake
5.2 Common Mistake
5.3 Mutual Mistake
5.4 Unilateral Mistake
5.5 Rectification of a Written Contract
6. Illegal Contracts
6.1 Contracts which are illegal at Common Law
6.2 Contracts which are made illegal by Statute
6.3 The effects of illegality
7. Contracts in Restraint of Trade
7.1 Contracts between employer and employee
7.2 Contracts for the sale of the goodwill of a business
 7.3 “solus” trading agreement
7.4 Severance

Even if the parties have entered into a contract that appears to be enforceable, there may
be problems or faults in the course of their negotiations so that one party may later say
that he agreed because he was being misled, was put under pressure or perhaps because
there was a serious misunderstanding, so that he should not be bound by the contract.
If you remember, the most basic requirement of a contract is the presence of an
agreement. It must always be entered into voluntarily and involve a genuine “meeting
of minds”. As a consequence of such problems or faults arising, the law might conclude
that there is no genuine agreement and therefore it does recognize that some factors
may ultimately spoil or ruin the contract. Such factors are called “Vitiating Factors”
and they include incapacity, misrepresentation, duress, undue influence, mistake and
illegality. The presence of such factors may render a party no longer bound by the
contract. The contract then becomes “vitiated” i.e. rendered void or voidable by the
presence of these factors.

1. Void vs. Voidable contracts

Whether or not the contract becomes void or voidable because of the presence of these
vitiating factors depends very much upon the rules of the common law. When we say a
contract is void, the law treats the contract as “void ab initio” i.e. it is a nullity from the
very start of its inception. It is as though the contract had never existed between the
parties in the first place. On the other hand, a voidable contract is one which is perfectly
valid until it is cancelled or terminated by the injured/innocent party. The latter party
has the right to choose whether to cancel/terminate (to rescind) the contract or to
continue with it. If it is affirmed, then it will remain valid between the parties. If it is
cancelled or terminated, then it will be treated as void from the very start.

2. Incapacity: Contracts made by Minors

The parties to a contract must have legal capacity to enter into it. Generally, all natural
persons of the age of majority and of sound mind have unlimited capacity to enter into
any lawful contract. Similarly, “artificial persons” like corporations created under the
relevant laws will have such capacity to contract provided it is set out clearly in their
constitutional documents.

Different countries have different ages of majority. Under English law persons who are
below the age of 18 are classified as minors. In Singapore, the age of majority is 21.
However, since 1 March 2009, an 18 year old may enter into most contracts as if he
were of full age.

The general rule at common law is that a contract between a minor and a person of full
age is only enforceable against that person by the minor, not the other way round. In
other words, the minor can sue, but cannot be sued. The aim is to protect minors from
entering into unfair contracts where adults may take advantage of the minor’s
inexperience and immaturity.
 Raj Bahadur Singh & another v. Bank of India 1992

2 minors (the plaintiffs) were shareholders of a company. They had fixed deposits with
the Bank. They agreed in writing with the Bank whereby the Bank would grant credit
facilities to the company. In return the Bank was given the right to claim from the
minor’s fixed deposits any amount that was owed by the company to the Bank. The
company failed to pay back a sum of money to the Bank whereupon the Bank claimed
the money from the minor’s fixed deposits under the written agreement. Held: the
written agreement was not valid because it was made when the plaintiffs were minors.
Thus the Bank could not enforce the agreement against the plaintiffs.

But there are, however, exceptions to this general rule, under which the contract would
then be binding on both the minor and the other party. These exceptions are as follows:-

a) Contracts for “necessaries”

b) Beneficial contracts for the minor’s education, training and employment
c) Voidable contracts made by minors.

2.1 Contracts for necessaries

A minor is bound by a contract for necessaries. Necessaries include things required to

maintain a bare existence such as food, clothing and shelter. But it is more than that,
and also includes articles necessary to the minor according to his position in life for e.g.
a $100,000 diamond ring may be necessary to a billionaire's daughter but it is probably
not a necessity for the daughter of an ordinary working person. Under the Sale of Goods
Act, “necessaries” are defined as “goods suitable to the condition in life of the minor
and to his actual requirements at the time of sale and delivery”. So, in order for the
plaintiff to enforce such a contract against a minor, he has to establish the following:

➢ The social standing of the minor and whether he is accustomed to enjoy the benefit

of such goods;

➢ Whether the minor has sufficient supply of such goods at the time of both sale and

also delivery;

➢ The burden is on the plaintiff (not the minor) to prove that the goods are necessaries.
Two interesting cases help to illuminate these requirements:

Nash v. Inman 1908

A minor was a student at Cambridge University. He bought 11 fancy waistcoats from

the plaintiff. However, he was at that time sufficiently provided with clothes. The minor
did not pay and so the plaintiff sued the minor for the price. Held: the waistcoats were
not necessaries because the minor had already sufficient supply of such clothes at the
time of sale and delivery. Thus the minor was not liable. (Note: under the Minors'
Contracts Act, the court could now require the minor to return the goods, as form of
“restitution”).
 Peters v. Fleming 1840

Fleming, a minor was a child of a Member of Parliament. He purchased rings, pins and
watch-chains from Peters but failed to pay. Held: These were considered to be
commensurate with his social status, and therefore constituted necessaries. Thus he
had to pay for them.

2.2 Beneficial contracts for the minor's educational, training and employment

Beneficial contracts for the minor's education and training are binding on the minor.
The classic illustration of this is an apprenticeship or training contract (say, for example
in professional sports) giving a minor an opportunity for proper training, so as to enable
him to earn a good living in the future.

Doyle v. White City Stadium 1935

D, who was a minor, obtained a licence to compete as a professional boxer. Under this
licence he agreed to be bound by the “Queensbury rules”, i.e. his prize money could
be withheld if he was disqualified for hitting a foul blow. In a particular match he was
disqualified for hitting below the belt. He argued that the contract was void as he was
a minor. Held: he was bound on the contract. The licence operated as a contract of
apprenticeship as it enabled him to pursue a lucrative occupation in the future. It was
beneficial to him as a whole and therefore he was bound as if the contract was
educational in nature.

An example of a minor’s employment contract that was not beneficial at all can be seen
in the following case:

De Francesco v. Barnum 1890

A 14 year old girl, B, had entered into a 7 year apprenticeship agreement with a stage
dancer. The Deed of Apprenticeship provided that she was not to marry, and could not
accept professional engagements without D’s consent. However, D did not attempt to
find engagements for her, and moreover her pay was poor. B wanted to set aside the
contract. Held: The terms of contract were unreasonable and not beneficial to the girl.
The contract was therefore unenforceable.

Traditionally, it was often thought that beneficial contracts of employment/service were

confined strictly to employment, apprenticeship and internship contracts. This view has
now changed to cover contracts through which a minor could make a living (e.g. as a
web designer or an author/publisher). The minor is bound even though the contract may
contain some unfavourable terms, so long as the contract as a whole is beneficial.

Chaplin v. Leslie Frewin Publishers Ltd 1966

The son of Charlie Chaplin, while still a minor, agreed to have his autobiography
written, in exchange for an advance of royalties on the book from the publishers. He
 wanted to stop the contract when the book featured unflattering remarks about his
“depraved” character. Held: even though he was a minor, it was a binding contract as
it enabled him to get a start as an author and earn money.

2.3 Voidable contracts made by minors

When a minor enters into a contract which imposes a continuous obligation (e.g. of
such contracts are a lease contract, a contract to buy shares in a company, a partnership
agreement) on him, the contract is valid and can be enforced against him unless he
rescinds it during his minority or within a reasonable time of his acquiring his age of
majority. An example can be seen as follows:

14 days before attaining the age of majority, a minor took a lease of a flat. 3 years later
he was sued for arrears of rent. Held: the minor was liable because he did not rescind
the voidable contract within a reasonable time of attaining majority. Voidable contract
here means the minor has the option of rescinding the contract during his minority or
within a reasonable time of attaining majority - Davies v. Beynon-Harris. (In a lease
contract, the tenant is usually required to keep the apartment in good condition, not to
be in arrears with rent payment, to pay rent on time, not to sub-let it and so on. These
are continuous obligations for, say, 3 years if the lease lasts that long).

2.4 Remedies available

The following remedies are available to the other party in all cases where a contract is
not binding on the minor (because it is neither valid nor voidable). These contracts are
termed “ratifiable” contracts:

a) The person who dealt with the minor may still avail himself of certain remedies
which the common law provides. Thus, if a minor is not bound by a contract because
he is a minor, the court has the power if it is just and fair, to order him to return any
property acquired under the contract to the other party. This right of restitution,
under the common law, could especially be exercised where a minor had acted
fraudulently and obtained money or property from the other party under a contract.

b) Alternatively under the provisions of the Minors’ Contracts Act, a court may order
the minor to return the property in his possession, which he had acquired under a
contract which is unenforceable against him or which he had repudiated. So, if the
facts of Nash v. Inman were to be repeated today, the minor would probably be
required to return the waistcoats to the plaintiff.

c) However, if the minor has paid money under a contract that is not binding on him,
he can still recover this amount provided he did not receive any benefit under the
contract. An example would be where there was “a total failure of consideration”.
An illustration of this can be seen as follows:
 X, a minor rented an apartment from the landlord. X also agreed to pay $1000 for
the use of the furniture. After paying the $1000, he discovered when he moved in
that the apartment was totally vacant without any furniture inside. He gave notice
and left within the month, sued the landlord for recovery of the $1000 by relying on
his minority. In this case, X would be able to succeed because he had obtained no
benefit from using the furniture – there was a total failure of consideration on the
landlord's part.

3. Misrepresentation

A misrepresentation is a false statement of fact. It is made by one party (the representor)

in the course of negotiations to the other (the representee) which induces the representee
to enter into the contract. It only induces the party to enter into the contract but does
not actually become a term of the contract (although this may be possible if the
representation becomes incorporated as a term). As an illustration, you might recall the
example given in the previous chapter, when we attempted to distinguish a
representation from a term of the contract, as follows:

Tina is so very eager to sell her bungalow and in the course of negotiation she
represents to Willie that the bungalow is “termite free ". In reliance on the statement
Willie buys the bungalow. If later it turns out that the bungalow is infested with termites,
Tina may have committed a misrepresentation.

A recent case in Singapore brings to light the prevalence of misrepresentations made in

many commercial-related transactions. This case has come to be known as the Raffles
Town Club Case:

Tan Chin Seng & Others v. Raffles Town Club Pte. Ltd (2003)

The Raffles Town Club (RTC) promises its potential members an “exclusive and
premier club with first-class facilities”. The club claimed in its prospectus that there
will not be more than 9,000 members. As a result of the above, members pay $28,000
membership fee in 1996 to enjoy the premier facilities. It was discovered later that RTC
was not so “exclusive and premier” after all. RTC in fact accepted 19,000 members in
all during its launch and opening ceremony. HELD: By the Court of Appeal (Justices
Chao Hick Tin, Lai Siu Chiu and Tan Lee Meng), that by taking in about 19,000
members later, RTC had breached its obligations to deliver a premier club. There was
a misrepresentation and also a breach of contract. RTC is hence liable to compensate
their members for misrepresentation and breach of contract.

3.1 Actionable Misrepresentation

To successfully bring an action for misrepresentation against the representor, the

representee has to show the following:

a) The misrepresentation is a statement of fact. Thus when Tina in our example above
represents that the bungalow is "termite free", she is asserting the existence of a
fact. A statement that a car has run 20,000 km is a statement of fact because it could
 be verifiable upon checking the odometer reading. However, sales talk or "puffs"
cannot amount to statements of fact. On the other hand, a statement of opinion may
not amount to misrepresentation. A statement that “I think...”; or “I believe...”; or
“the second-hand camera is good value for money” these are all statements of
opinion. An illustration can be seen in the following case:

Bisset v. Wilkinson 1927

B sells land to W. The land has not been used to rear and support sheep before.
However, B represents that in his belief the land would support 2,000 sheep. Held: this
would be a statement of opinion that B honestly believes. B cannot be made liable for
misrepresentation on the statement.

But a statement of opinion may be a statement of fact if the maker of the statement has
special knowledge or expertise; for example, in the following case:

Smith v. Land and House Property 1884

Prior to the sale of an apartment to B. 0 the owner describes the sitting tenant in the
apartment as “a most desirable tenant”. In reliance on this statement B continues to
rent it out to the tenant. It later transpires that the tenant was always in arrears with
his rent payment. Here the court held that there would be a misrepresentation of fact
by 0 because he must have known of the tenant's position regarding arrears of rent
payment before as the former landlord.

b) The statement must induce the representee to enter into the contract, that is, the
statement must be material. Material means important enough that will make the
representee decide whether or not to enter into the contract.

c) The representee must rely on the statement. Here there is a requirement that the
representee must, to some extent at least, believe and trust the statement to be true.
So, in our previous example, there will be no actionable misrepresentation if Willie
is really not bothered by the termite statement and assures himself that the place is
termite free after a thorough personal inspection of the building. Here he is
influenced instead by his own investigation and judgment and cannot be said to
have relied on Tina's statement. An illustration of this from an actual case is a
follows:

Redgrave v. Hurd 1881

R told H that the income of his business was £300 per annum and produced documents
to H showing only an income of £200 per annum only. H queried the difference and R
produced additional papers that R stated showed how the additional income was
obtained. H did not fully examine these papers, which showed only a very small amount
of additional income that did not add up. But, on the faith of what R stated, H
nonetheless entered into the contract. A dispute arose and H refused to be bound. Held:
the contract may be set aside (made void). He had relied on R’s statement and not on
his own independent investigations.
3.2 Does Silence constitute Misrepresentation?

As a general rule, silence cannot amount to a misrepresentation. However, there are 3

exceptions to this general rule as follows:

a) A representation may be true at the time when it is made. But if there is a change in
circumstances, which renders the statement no longer true, the representor must
disclose it before making the contract. This is illustrated by the following case:

With v. O’Flanagan 1936

A doctor was negotiating the sale of his medical practice. He represented to the buyer
that a certain amount of fee income could be earned by it per annum. The statement
was true at the time of negotiation. Subsequently, the doctor fell ill so that the income
earned falls sharply. This fall in income is not made known to the buyer, who buys the
practice on the strength of the statement on the original earnings. Held: there is an
actionable misrepresentation against the doctor.

b) If the statement made is only half the truth i.e. the representor suppresses anything
disadvantageous which is relevant, it may be a misrepresentation. As an example:

A landlord sells his factory and tells the buyer that it has been tenanted and therefore
capable of earning investment income. He does not tell the buyer that the tenants in fact
have given notice to quit because of poor facilities. This suppression of relevant
information is a misrepresentation.

c) In Insurance contracts there is also a duty on the insured person to disclose to the
insurer any circumstances which might influence the insurer in fixing an appropriate
premium or even to insure the risk. Failure to disclose relevant information will
render the contract voidable (i.e. capable of being set aside) at the option of the
insurer. So in the case of:

Merchants and Manufacturers Insurance v. Hunt 1941

A proposal form for a motor vehicle policy had asked the question “Have you or any
person who to your knowledge will drive the car ever been convicted of any driving
offence?” In all honesty the proposer answered “No”. Unknown to him, a relative of
his who was also to be covered by the policy in fact had four previous convictions. A
claim was later made and the insurer refused to pay. Held: the insurance company can
validly refuse to settle the claim because of the material non-disclosure which
amounted to a misrepresentation.

3.3 Types of Misrepresentation

There are 3 types or forms of misrepresentation, namely; innocent, negligent and

fraudulent misrepresentation.

a) Innocent misrepresentation
 This is a statement made honestly with reasonable grounds for believing in its truth.
The representor if sued has the burden of proving that he has reasonable grounds for
believing that the statement is true. An illustration:

If Tina in our earlier example, say, receives a certificate from a government inspection
body certifying that the bungalow is termite free 3 weeks before the sale to Ben, then
Tina's termite free statement would be an innocent misrepresentation. She is considered
to have made the statement honestly. Furthermore, the certificate gives her reasonable
grounds for believing in the truth of her own statement.

b) Negligent misrepresentation

This is a statement made honestly but without reasonable grounds for believing in its
truth.

If Tina's termite statement to Willie has been made without, say the government
certificate or without any “reasonable” justification then she would have no
reasonable grounds for believing in its truth. The statement will amount to negligent
misrepresentation.

An illustrative case can be seen in:

Howard Marine Ltd v. Ogden Ltd 1978

O chartered two barges from HM. HM had made representations about the capacity of
the barges which were based on entries found in Lloyd’s Register and not the actual
shipping documents. Held: Court said that a reasonable person would have checked
the shipping documents and not Lloyds Register. There was no reasonable ground for
believing in the Lloyd’s register, when the actual documents could be verified. It was
therefore a negligent misrepresentation.

c) Fraudulent misrepresentation

This is when the representor makes a statement dishonestly knowing it to be untrue or

being reckless as to whether it was true or not. So:

Assuming that Tina in our example above, knows and is further informed by the
government inspection body that the building is heavily infested with termites before
the sale. And if she represents to Willie that it is "absolutely termite free" the statement
will amount to a fraudulent misrepresentation; it has been made dishonestly by Sally
knowing it to be untrue.

An illustrative Singapore case will help to enlighten us, as follows:

Panatron Pte. Ltd v. Lee Cheow Lee 2001

A had induced L to invest in a company, Panatron, by stating that the company was
profitable. In fact A knew that this was not the case and knew instead the company was
 chalking up massive losses, which was not formally reported. Held: the
misrepresentation was fraudulent.

3.4 Effects of Misrepresentation

If it has been proved that there has been a misrepresentation, its general effect is to
make the contract voidable and not void (of no legal effect). This means the contract is
still valid but the innocent party has the option to rescind (cancel or terminate) it. To
rescind means to treat the contract as if it had never been made in the first place (to
cancel the contract or to set it aside or terminate it). The effect of this is that property is
returned to the seller and the price to the buyer. So, for example:

If Tina's "termite free" statement to Willie is not true, she commits a misrepresentation.
Willie will apply to court to have the contract rescinded, that is, Willie wants his money
back and would like to return the bungalow to Tina.

3.4.1 Remedies for Innocent Misrepresentation

If the representor's statement is neither fraudulent nor negligent, then his

misrepresentation is innocent. The effect is that the party misled has no right to
Damages (monetary compensation) - Section 2 Misrepresentation Act. He can only
apply to the court to rescind the contract. For example:

S sells to B a painting. Suppose S innocently misrepresents to B that it was painted by

a famous local artist. B later discovers the truth that it is not and is sorely disappointed.
He can apply to the court to have the contract rescinded i.e. return the painting to S
and get his money back. He cannot claim monetary compensation.

But the court sometimes has a discretion to award damages instead of rescission if it
thinks it is just and equitable, under the circumstances. This is provided under Section
2(2) Misrepresentation Act. So for example:

Suppose B’s daughter in the above example accidentally spills a bottle of ink over the
painting causing it considerable damage. In such a case the court may award Damages
to B instead of rescission, which may be fairer to both parties. Rescission would not be
possible as S, certainly will not accept the return of the painting.

3.4.2 Remedies for Negligent Misrepresentation

The party misled by the negligent misrepresentation can ask the court for rescission and
Damages as well - Section 2(1) Misrepresentation Act. This can be illustrated in the
following:

Esso Petroleum v. Mardon 1976

E had negligently told M. that a petrol station had an annual turnover of 200,000
gallons. This false statement induced M. to lease the station. In fact the turnover never
rose to more than 100,000 gallons. Held: In addition to the contract being rescinded,
 damages were also awarded to M as E was found to have negligently misrepresented
the facts to him.

3.4.3 Remedies for Fraudulent Misrepresentation

Fraudulent misrepresentation is outside the ambit of the Misrepresentation Act. The

deceived party can apply to the court for rescission and damages under the tort of
Deceit. Fraud in contract could sometimes also result in prosecution for the crime of
cheating under the Singapore Penal Code (Singapore’s laws concerning crime and
punishment).

3.5 Limits to the Right of Rescission

In all cases of misrepresentation the party misled will apply to the court for rescission
of the contract. But this right to rescind may be lost if:

a) There is a lapse of time. Where the misled party takes an unduly long period of
time to rescind, the court may take this delay as an affirmation of the contract. So
in:

Leaf v. International Galleries 1950

L bought a painting from IG after being told that it was painted by a famous painter,
named Constable. After L discovered that IG had innocently misled him, L took 5 years
to bring an action to rescind the contract. Held: the delay of 5 years was beyond a
reasonable period of time. L therefore lost the right to rescind the contract.

b) The party misled affirms the contract

If the party misled chooses to go on with the contract either by word or by conduct,
then he cannot rescind afterwards. Thus in Leaf's case (above), L was considered to
have affirmed the contract by his conduct of keeping the item for an unreasonable
period of time before taking action.

c) Restitution is impossible

Restitution involves the party misled returning the goods to the misrepresentor and
getting his money back. If the goods have changed substantially (e.g. the goods are
damaged) then restitution is impossible. The misled party may have to be content with
Damages.

d) Rights of third parties affected.

An illustration of this can be seen in the following example:

After a sale in which Seller had misrepresented the condition of the goods to Buyer, the
Buyer in turn resold the goods to a third party, Buyer would not be able to return the
goods to Seller. In such a case rescission is not possible, as the court will be hesitant
to take the good back from the innocent third party. Damages will be given instead.
4. Duress and Undue Influence

As mentioned many times before, when parties enter into a contract they are expected
to give their free consent to be bound by the terms of the contract. It follows, therefore,
that when a party is forced into a contract by threats or undue pressure that destroys this
principle of free consent, that party should not be bound by the contract that has been
made. Under the common law, the courts have long recognised that some forms of
threats or pressures are totally unacceptable. These are called duress and undue
influence.

4.1 Duress

A party who enters into a contract under duress does not give his free consent to the
terms of the contract. Traditionally, threats of physical violence that would cause
personal injury or loss of life to the person or to an immediate member of his family
would more likely amount to duress. Currently, the courts have expanded the scope of
duress to include a threat to goods or to a person's business or a threat to break the
contract in order to force the other party to agree to new terms. This new form of duress
is called “economic duress” and can be seen for example when one party to a contract
unreasonably demands an increase in the prices of the goods or service leaving no
alternative to the other party to refuse.

Atlas Express Ltd v. Kafco Ltd 1989

AEL were carriers of goods and agreed with KL the price they charged to carry KL’s
goods to X Ltd who were the purchasers of the goods. After a few deliveries to X Ltd.,
AEL realised it was not profitable and informed KL they would stop delivery unless a
new price was agreed on. AEL knew KL's business would survive only if the terms of
its contract with X Ltd. were fulfilled. KL was under pressure and they unwillingly
signed a new agreement to pay the new price. Held: the pressure to pay additional
charges amounted to economic duress and was not binding on KL. KL was entitled to
recover the additional charges. Also there was no valid consideration provided for the
additional charges.

The effect of duress is that the contract is voidable. This means the party acting under
the duress has the option of setting aside (or rescinding) the contract, if he so wishes. If
he does not take such steps to rescind or set the contract aside, then the contract will be
binding.

4.2 undue influence

A contract may also be set aside (rescinded) on the basis of the equitable doctrine of
undue influence. This often happens where one party has exercised a dominating
influence over the other resulting in a contract or transfer of property, which is
obviously unfair. Compared with duress it is a more subtle form of pressure. The courts
have also held that certain relationships quite automatically give rise to a presumption
of undue influence. This means that the presumption can only be rebutted by the party
who is presumed to have a dominating influence if he can show that:

i) The contract was not unfair; and

ii) The other party exercised his free independent will, for instance by showing that
he received competent and independent advice from a third party before
entering into the contract.

Some examples of relationships giving rise to such “presumed” undue influence are:

1) Guardian and ward

2) Solicitor and client
3) Doctor and patient
4) Religious advisor and disciple
5) Trustee and beneficiary
6) Banker and customer

An illustration of this concept of “presumed” undue influence can be seen in the

following scenario:

Mrs. Fool needs money to help her son in business. She decides to sell her bungalow.
She goes to see Mr. Con, her lawyer for many years. Anxious to make some money for
himself, Mr. Con suggests to Mrs. Fool that she should accept his offer of $800,000.
Mrs. Fool accepts and the sale goes through. In fact the bungalow is worth three million
dollars.

So what can Mrs. Fool do? Here we have a lawyer and client relationship. Because of
this relationship the law presumes that Mr. Con must have exercised a dominating
influence over Mrs. Fool, which prevented her from exercising her free independent
will. This has resulted in an obviously unfair contract. Mr. Con can rebut this
“presumed” undue influence if he can show that: 1) Mrs. Fool sought competent and
independent advice from; say, another lawyer and 2) the contract was not unfair. On
the facts in the scenario, it seems very difficult for Mr. Con to rebut the presumption.
If that is the case, Mrs. Fool can have the contract set aside (rescinded) i.e. she is able
to get her bungalow back and return Mr. Con his $800,000.

A noteworthy case can be seen in:

Lloyds Bank v. Bundy 1975

A bank manager told an elderly man that the bank would take bankruptcy action against
his son if his loan were not repaid. The man was told that if he mortgaged his property
to secure his son’s additional facilities the bank would withhold legal action against
his son. He was not given an opportunity to seek independent advice. Nevertheless, he
granted the bank a charge over his property. Eventually the bank sought to recover the
loan by selling off the security. Held: the charge made in favour of the bank could be
set aside, since the bank had not arranged for the elderly man to get independent
advice. The bank could not itself give independent financial advice on a matter on which
it had an interest as a creditor.

The claim to set aside the contract must be made within a reasonable time, otherwise
too long a delay may be treated as evidence of affirmation of the contract.
 Allcard v. Skinner 1887

Ms A was a sister of a religious institution of nuns. She gave some £7,000 to the superior
of the institution during her 8 years' stay. 6 years after leaving the institution she sued
to recover the money. Held: clearly the gift was voidable on the grounds of undue
influence but she could not recover because of the long delay after leaving the
institution.

5. Mistake

As a general rule, when a party enters into a contract under a mistake, it does not make
the contract void (i.e. of no legal effect). The mistake must be sufficiently fundamental
in order to make a contract void. The Singapore Court of Appeal in the case of Adani
Wilmer v. Rabobank (Netherlands) 2002, had reiterated this position clearly once
again when the court said: “Contracts are robust creatures, they do not fall to just any
mistake. Only mistakes which lie at the root of the contract will have that effect”.
Hence, a mistake as to quality will not usually be treated as fundamental enough to
vitiate a contract. An illustration can be seen from the following:

Smith v. Hughes 1871

S offered to sell oats to H, who was an owner and trainer of racehorses. H had
requested for “good old oats”. The oats supplied under the contract were “new oats”
and were not suitable for racehorses. H. refused to pay for them. Held: the contract
was valid as there was no “fundamental mistake”. There was, however, a mistake as
to the attribute or quality of the goods that was not sufficiently fundamental enough to
render the contract void for mistake.

5.1 Fundamental Mistake

At common law, a fundamental mistake (also known as operative mistake) is a mistake

that is so serious that it goes to the “root” of the contract. Such a mistake will make the
contract void if its net effect is that it results in no real agreement between the parties.
For example:

Supposing S has 2 cars, a BMW 2009 and a BMW 2010. He agrees to sell his car to B.
B has seen the 2 cars on many occasions. The price is agreed and a date is fixed for B
to take delivery. When B arrives to collect the car he is presented with the BMW 2009.
He explains to S that he thought he was buying the BMW 2010. Here there was no real
agreement. S wanted to sell the BMW 2009 model whereas B wanted to buy the BMW
2010 model. Both S and B are suffering under a serious fundamental mistake. Their
minds never met; the parties are at cross-purposes; there never was a contract between
them in the first place; here the contract is void for mistake.

The Common Law recognizes three different fundamental types of mistakes, these are:

a) Common mistake. This is the situation when both parties make the same mistake.
For example:
 S sells a painting to B which both mistakenly believed to be painted by a famous artist
Mr. Leonard Lim Da Vinci when in fact it was painted by Mr. Lim Ah Beng.

b) Mutual mistake. This is when there is no real meeting of minds like the above
example where S contracts to sell his car to B. S means to sell the BMW 2009
whereas B thinks he is buying the BMW 2010.

c) Unilateral mistake. This is when one party is mistaken and the other party knows of
the mistake. For example:

S sells a painting to B. B mistakenly believes it was painted by the well-known artist

Mr. Picasso Phua. S knows it was not and knows of B’s mistake. In actual fact, S may
even have induced B’s mistake with the intention of defrauding him.

5.2 Common Mistake

When contracting parties’ contract under a common mistake that a certain fact exists
which is so fundamental that they would not have contracted had it not existed, the
contract is void. For instance, the existence of the subject matter of the contract is basic
and fundamental. If by a common mistake and unknown to both parties at the time of
making the contract the subject matter did not exist, the contract is clearly void. 2
interesting cases help to highlight this point:

Couturier v. Hastie 1856

There was a contract for the sale of corn. Unknown to both the buyer and the seller,
the corn had already been sold in transit during the ship voyage since the cargo of corn
was found to be rotting. As far as the parties were concerned the goods no longer
existed as it had failed to answer to contract description. Held: the contract was void
for common mistake. This was because the subject matter of the contract (i.e. the corn)
no longer existed.

Associated Japanese Bank v. Credit du Nord 1988

The plaintiff bank AJB agreed to buy machines for £1 million from X and then lease
them back to X, but before that AJB wanted a guarantor for X and the defendant bank
CN agreed to take on this position. The whole arrangement was a fraud by X since the
machines did not exist at all. On receiving the £1m, X absconded and disappeared. The
plaintiff bank in order to recover their money then enforced the contract of guarantee
against the defendant bank. The defendants claimed that the contract of guarantee was
void since the subject matter of the contract of guarantee (i.e. the machines) which
unknown to both parties did not exist. The court accepted this argument and the
defendant bank was not liable. The existence of the machines was so basic and
fundamental to the contract of guarantee. If both the parties knew that they were
non-existent, they would not have made the contract of guarantee in the first place.

5.3 Mutual Mistake

This mistake occurs when the parties are at cross-purposes; there is no meeting of minds
due to a total misunderstanding. The following case is a good illustration:
 Raffles v. Wichelhaus 1864

The plaintiff seller agreed to sell cotton to the defendant buyer. According to the terms
of the contract, the cotton was to arrive by the ship "Peerless” from Bombay and so
delivery would take place from that vessel. By coincidence there happened to be 2 ships
named “Peerless" sailing from Bombay. The defendant was thinking of the one sailing
in October while the plaintiff was referring to the one sailing in December. Held: no
contract had been created, so the whole transaction was void because the two parties
were at cross-purposes; there was no real meeting of minds.

5.4 Unilateral Mistake

This occurs when one party makes a mistake and the other party is aware of the mistake.
Unilateral mistake falls into 3 sub-categories as follows:

1. Mistake as to the identity of the person contracted with; and

2. Mistake as to signed documents; and
3. Mistake as to contractual terms

5.4.1 Mistake as to the Identity of the other Person

This arises where, for example, Tay intends to contract with Goh, but by mistake
contracted with Goon instead. Is the contract with Goon valid? The contract will only
be void if Tay can show that 1) the identity is of fundamental importance to him, 2) he
intended to contract with Goh only and 3) Goon knew of his intention.

a) Where persons contract face to face

Where the parties are dealing face to face, it is presumed that the identity of the person
is immaterial. Normally in such a situation, it is very difficult to convince the court that
the person alleging mistake did not intend to contract with the person in front of him
i.e. there is no mistake as to identity. Instead more often the case the person alleging
mistake usually makes a mistake as to the attributes of the other person e.g. his ability
to pay for the goods and services (sometimes called “creditworthiness”). An illustration
of this can be seen in:

Phillips v. Brooks 1973

A con-man and rogue, X, went into a jeweler’s shop owned by Phillips. X selected some
jewellery and offered to pay by cheque. While writing out a cheque he said, “I am Sir
George Bullough” (this was a fraudulent misrepresentation). Phillips had heard of
such a person and allowed X to take the jewelry. X later pawned it to the defendant
Brooks who took it in good faith (without knowing that the jewellery had been obtained
by Fraud). The cheque was subsequently dishonoured. Phillips then sued Brooks for
the return of the jewellery on the grounds that the contract between him and X was void
for mistake. Held: Phillips intended to contract with the person in front of him although
he mistakenly believed he was Sir George Bullough. The identity of the person in front
 of Phillips was of no fundamental importance at the time of contracting. He was
mistaken as to the attributes of the person i.e. his credit-worthiness. Phillips thus failed
in his action against Brooks. (If the contract between Phillips and X were void, X would
not have title (ownership) to the jewellery. If X had no title, he would not be able to give
Brooks a good title. Brooks would be required to return it to the rightful owner,
Phillips).

b) Where persons do not contract face to face

If persons do not contract face-to-face, mistake as to the identity of the other person
may possibly make the contract void. The party alleging mistake must show that (see
the example on Tay, Goh and Goon above):

i) The identity is of fundamental importance to him;

ii) He intended to contract with some other person; and
iii) The other contracting party knew of his intention.

There must be an intention to deal with some other person than the one with whom he
appears to make the contract with (there is clearly a mistaken confusion between two
identities).

Cundy v. Lindsay 1878

A crook named Blenkarn pretended to be a respectable firm called Blenkiron & Co.,
an old customer of Lindsay. The crook imitated and forged the signature of Blenkiron
& Co. and ordered goods from Lindsay, the plaintiff. Blenkarn having received the
goods then quickly re-sold them to the defendants Messrs Cundy who took the goods in
good faith. The plaintiffs after realizing the fraud, attempted to recover the goods from
the defendants. Held: the plaintiffs succeeded because they had intended to contract
with Blenkiron & Co. and nobody else and the identity of that person they were to
contract with was of such great fundamental importance. Thus the contract was void
for mistake and therefore the defendants had to return the goods to the Plaintiff, as they
were not able to get a good title from the crook, Blenkarn.

At common law, once a contract is void then no title to property (ownership) can pass
to any subsequent person. It follows that the original owner can recover the property
from the third party even if he is an innocent buyer who has no knowledge of the fraud.
Cundy v. Lindsay is a case in point. If the contract is not void but voidable (say due to
a fraudulent misrepresentation instead), the innocent third party may get a good title to
the property if he had bought it before the original owner took steps to avoid the
contract. For example, in the case of Phillips v. Brooks, the contract was voidable for
fraudulent misrepresentation. This means that Phillips could avoid (set aside) the
contract. He did but it came too late. One must avoid the contract BEFORE the sale by
the rogue to the innocent third party. If it were done AFTER the sale to the third party
it would be too late in which case the third party will get a good title. In a practical
context, one tries to avoid the contract by making a police report.

5.4.2 Unilateral Mistake as to Signed Documents

 The general rule is that in the absence of fraud or misrepresentation a person signing a
document is bound by the written terms. It is immaterial that he is illiterate or he did
not read the document. But when a person is induced by a false statement made by some
other person to sign a written contract that is fundamentally different from the one he
thought he was signing he can rely on the defence of non-est factum (literally meaning
“this is not my deed”). The signer, however, should not be careless and must check
what he is signing. Two conflicting cases help to highlight the difficulty and problems
faced in proving this defence:

Saunders v. Anglia Building Society 1970

An old lady was made to sign a deed thinking it was a deed of gift when in actual fact
it was an assignment of a lease. She was induced to sign the document by a crook that
promised in return to arrange a loan for her nephew. At the point in time she was about
to sign the document, her reading glasses had broken. She pleaded “Non Est Factum”.
Held: there was no mistake and her plea of non est factum failed. She had intended to
effect a conveyance of property; the character of the document signed was not
fundamentally different from what she thought she was signing. Furthermore she had
been negligent by not reading the document (even if her glasses were broken, she could
have asked someone to read it over to her).

Awang Bin Omar v. Omar Bin Ismail & another 1949

The plaintiff sued the defendant for breach of contract. The defendant did not know
English. He had been induced by his brother to sign the contract under the pretense
that he was only witnessing his brother's signature. In actual fact, he was made a party
to a contract of guarantee; the defendant relied on the defence of non est factum. Held:
the defendant succeeded. He was deceived and induced to sign a document that was
fundamentally different from the one he thought he was signing i.e. merely witnessing
a person's signature and not a contract of guarantee.

5.4.3 Unilateral Mistake as to Contract Terms

In this type of situation, one party makes a mistake as to the terms of the contract and
the other is aware of it. For instance in our above example, S sells a painting to B. B
mistakenly believes it was painted by the well-known artist Mr. Picasso Phua. S knows
it was not and knows of B’s mistake. Here there will be no cause of action for
misrepresentation because it was not brought about by S. However, under the common
law, S will still not be allowed to “snap up” the bargain and establish a contract on these
terms. In fact, the contract would be void for unilateral mistake relating to a
fundamental contract term. We can see how the Singapore Courts dealt with a similar
situation in a recent case as follows:

Chwee Kin Keong v. Digilandmall 2004

Digilandmall was a Singapore company selling IT products. Their printers were priced
at $3854.00 but owing to a unilateral mistake, a typo error was made and the printers
were advertised on their website as going for $66. The buyers, who were
technologically savvy and in the same trade, ordered a large number of these printers.
 It appeared that the buyers were aware of the mistake and attempted to exploit it to
their benefit. When the seller discovered the mistake they refused to deliver the printers
and were sued by the buyers. Held: The contract made between the parties was void
for a unilateral mistake relating to a fundamental contract term, that of the price.
Moreover, the court as a matter of equity will not allow the buyers, who knew of the
mistake, to exploit the mistake to their benefit. Hence the sellers were not liable for a
breach of contract.

5.5 Rectification of a Written Contract

If both parties have agreed on the terms of a contract but made a mistake in the written
document, the court may, at its discretion, order the alteration of the written document
to best reflect what the parties originally intended and agreed to. This is illustrated as
follows:

Joscelyne v. Nissen 1970

Mr. J had by a written document transferred his business to his daughter Mrs. N.
During the negotiations it had been expressly agreed that the daughter would pay
certain household expenses for her father in return for the transfer of the business but
this obligation was left out in the written document. Mrs. N. paid the expenses for a
time and then stopped. She relied on the written document. Held: the court allowed the
written document to be amended to include the terms regarding expenses. This was
intended to reflect what the parties originally agreed to.

6. Illegal Contracts

What is an illegal contract? This concept seems rather odd like a “misnomer” because
most of us are under the impression that once a contract has been effectively made it is
obviously legal and so the issue of illegality will not arise. Well, this impression or
assumption is a misunderstanding and at times is clearly wrong! A contract can be
illegal if:

➢ It is in the public interest that it should not be enforced; for example several parties
contracted to kill someone;

➢ The consideration is illegal; for example, a contract to receive a bribe;

➢ The purpose of the contract is illegal; for example, a contract to hire a car to smuggle
illicit drugs into a country.

A contract that is illegal is void and also unenforceable. The courts will not lend their
support on the matter. Property and money cannot pass under an illegal contract.

6.1 Contracts which are Illegal at Common Law

1) Contracts where the objective is to commit a crime, a civil wrong, or fraud e.g.
contract to defraud the Inland Revenue Authority is illegal.
 Miller v. Karlinski 1945

An agreement was made between an employer and his employees to disguise part of
their salary as expenses so as to evade the payment of income tax. Held: the contract
was illegal and void. As a result the employees were not entitled to reclaim arrears of
salary from their employer.

2) Contracts which are, by their very nature, sexually immoral.

Pearce v. Brooks 1866

A prostitute failed to pay the plaintiffs for the hire of a carriage. The carriage was
specially made for her and the plaintiff knew that it was to be used for immoral purpose
(i.e. soliciting customers when she was plying her trade). Held: It was an illegal
contract and the plaintiff could not recover the price.

3) Contracts that promote corruption in public service.

Parkinson v. College of Ambulance 1925

The secretary of the College promised that if the plaintiff donated a large sum of money
to the College he would receive a knighthood. The plaintiff did donate the money and
when he failed to be knighted he sued for the return of the money. Held: the contract
was against public policy and illegal. Thus the plaintiff failed to recover the money.

4) Contracts that interfere with the administration of justice. A contract not to bring
criminal proceedings against the criminal is illegal.

For example, an agreement between A and B under which A would not report to the
police a robbery committed by B. It is against the interest of the public not to report a
crime or give evidence in court.

6.2 Contracts which are made Illegal by Statute

An act of Parliament may prohibit a particular type of contract. For example, in

Singapore, Section 5 of the Civil Law Act says that all gaming or wagering contracts
whether oral or in writing shall be void. A “gaming” contract is a contract that is based
on a game e.g. a football bet. A “wagering” contract, on the other hand, is not dependent
upon a game – it can be made simply by betting on the outcome of an uncertain event.
Both these types of transactions are treated as gambling contracts under the Civil Law
Act and are generally illegal. The law courts will not allow or assist anyone in his or
her claim for recovery of money or any valuable items won under such contracts.

This will be the case unless the relevant transactions are exempted under the Common
Gaming Houses Act. It should be noted that under this Act there are exempted
“legalized” forms of gambling run by Singapore Pools and the Singapore Turf Club
such as bets on horse-racing, 4D, Singapore Big Sweep and Toto. More recently, the
 Casino Control Act also “legalizes” gambling activities within Singapore’s 2 casinos at
Resorts World Sentosa and Marina Bay Sands.

6.3 The effects of Illegality

When a contract is illegal it is void and also unenforceable. Furthermore, as a general

rule, any money or property transferred under the contract is irrecoverable. For
example, X and Y agree that Y will murder Z. X pays Y $50,000 to do the job. Y breaks
his agreement. The courts will not allow nor assist X to recover the money because to
do so will amount to assisting a criminal act, which is against public policy. There are
exceptions to this rule.

1. Where the parties are not equally in the wrong, for example, a party contracted as
a result of fraud or duress, the innocent party may recover any money or property
transferred.

2. If one party genuinely repents before the illegal purpose of the contract has been
carried out, he may recover any money or property transferred. X in the above
example may genuinely repent and ask Y to abandon the plan originally concocted,
in which case he may be able to recover the money from Y.

3. A party may be able to recover money or property that was transferred if he relies
on an additional ground not based on the illegality. For example:

L rents out his house to T for illegal purposes for 2 years. L will not be able to sue T
for non-payment of rent because of the illegal purposes of the contract. But he can
recover the house as owner (this additional ground is not based on the illegal contract)
when the lease expires.

7. Contracts in Restraint of Trade

A contract in restraint of trade is a contract under which a person restricts or restraints

another from carrying on a lawful trade, business or profession. Such a contract is prima
facie (on the face of it, unless proven otherwise) void because it has a rather negative
economic impact on society and it is against public policy to restrict a person’s talent,
creativity and employment. Such restraint contracts are often found in:

7.1 contracts between employer and employee

An employee may, while negotiating for a job, agree in his/her contract of employment
that on leaving the service of this employer he will not work for a competitor or set up
a rival business for a specified period. Such a contract is void unless the employer can
show that he had a proprietary interest worthy of protection (i.e. usually something of
recognized value like confidential information or trade secrets) gained by the employee
during the course of his employment. In coming to its decision, the courts will also
consider the following factors in circumscribing whether or not the restriction is
reasonable:
 a) The nature of the business and the presence of a legitimate or proprietary interest
to protect;
b) The position of the employee;
c) The area of restraint; and
d) The duration of restraint.

Several illustrative cases help to show the interaction of these factors: -

Forster & Sons Ltd v. Suggett 1918

The defendant employee was employed as a works manager by the plaintiff company.
He had acquired knowledge of the secret mixture of gas and air in the manufacture of
glass bottles. The defendant employee agreed in his contract that he would not for a
period of 5 years on leaving the employment, carry on or be interested in the
manufacture of glass bottles in the UK. Held: the restraint was valid and reasonable to
protect the legitimate trade secrets of the plaintiff company.

Framroz v. Mistri 1932

The defendant employee was engaged as a manager in the plaintiff Company. The
company’s business was in the manufacturing of mineral water. The defendant agreed
that he would not engage in a similar business for 5 years in Singapore on leaving the
company. When he left he wanted to set up a similar business, which prompted the
company to take legal action against him for breaking the agreement. Held: there was
no particular trade secret worthy of protection in the company's business: the nature
of the business was quite ordinary and the facts showed that the defendant was in no
position to solicit the company's customers. Thus the restraint was unreasonable and
void.

Stratech Systems Ltd v. Nyam Chui Shin & Others 2005

G Corp, had worked with Stratech on a number of projects. Eventually their

relationship deteriorated and G approached 2 of Stratech’s employees, Nyam & Wong,
with offers of employment. Both of them accepted the offers and left Stratech. Their
employment contracts had a clause which restrained them from joining “any company
in a habit of dealing with Stratech” within 9 months after leaving it. Stratech then sued
both of them for breaching the restraint clause in their employment contract. The court
held that the action failed since the purpose of such a restraint clause should not be to
inhibit competition in business but to protect a legitimate interest that Stratech had
failed to demonstrate existed.

7.2 contracts for the sale of the goodwill of a business

When a buyer purchases a business, the purchase price includes a sum for goodwill.
This goodwill represents reputation of the business sold and the expectation that old
customers will patronise the old place (it is the connection and reputation of the
business being sold). And this is a legitimate proprietary interest capable of protection.
 To protect it the buyer will require the seller to agree that for a specified period of time
and within a specified area, the seller will not set up a similar business to compete with
the buyer. The courts are more sympathetic and willing to uphold such restraint if the
area and period of duration are reasonable. In one rather extreme situation, a period of
25 years throughout the world was considered “reasonable”, having regard to the
proprietary interest that needed protection:

Nordenfelt v. Maxim-Nordenfelt Gun Co. 1894

N, an inventor of guns and ammunition sold his worldwide business to M-N & Co. He
agreed in the sale contract that for the next 25 years, he would not engage in the
manufacture of guns and ammunition anywhere in the world. Held: though the area of
restraint was very wide it was reasonable because N’s business was worldwide. The
period of restraint - 25 years was also reasonable in view of the nature of the business
and the type of interests that needed protection.

7.3 “solus” trading agreement

These types of trading agreements happen when a person agrees to sell the products of
a particular manufacturer or wholesaler in return for certain benefits from the latter.
The restraint imposed by the manufacturer or wholesaler must be reasonable in order
to be valid. An example can be seen for instance in petrol companies making agreement
tying petrol stations to their own particular brand of petrol and products to the exclusion
of all others. So, one will never get to see “Shell” petrol station selling “Esso” petrol
and products.

Esso Petroleum Co. Ltd. v. Harper’s Garage Ltd 1967

The defendants agreed to buy all their petrol from Esso and sell their products only.
The agreement was to last 4½ years in relation to one station and 21 years for another.
Meanwhile the defendants took a loan from Esso repayable over 21 years. Held: both
agreements were in restraint of trade and were prima facie void. This was especially
so since the station owner received financial backing in the form of loans and a discount
on purchases of petrol. However, the restraint for 4½ years was reasonable and was
upheld. But, the restraint for 21 years was considered unreasonable and was struck
down.

7.4 Severance

If a restraint is void, it is totally void. For example, the court will not reduce a 20-year
restraint or an area of restraint, say 10 km within a certain location to a more acceptable
figure. If the restraint is void, the person restrained is not bound and he can set up
business say, next door.

However, if the agreement restricts several activities, it may be possible to sever

(remove) the objectionable restrictions from the valid ones. Severance refers to the
power of the court to remove an objectionable restraint and enforce the remainder. The
court will sever the objectionable restraint provided that there leaves a complete
contract that is still capable of being carried out. An illustration of this is seen in:
 Goldsoll v. Goldman 1915

The defendant operated an imitation jewellery business in London. He sold the business
to the plaintiff and agreed that he would not, for a period of 2 years, deal in real and
imitation jewellery in the UK, France, USA, Russia or Spain. Held: the restraint
relating to UK was reasonable but the restraint relating to countries outside the UK
was unreasonable. The restraint on imitation jewellery was reasonable but that on real
jewellery was not because the defendant's business was in imitation jewellery. The court
therefore removed the restrictions relating to real jewellery and those countries outside
the UK leaving a valid restraint against dealing in imitation jewellery in UK, which
was capable of being enforced.

SESSION 4: Vitiating Factors

Essential points

o Void vs. Voidable contracts

o Validity of contracts with Minors and remedies available
o Types of Misrepresentation and remedies available.
o Duress and Undue Influence
o Types of Mistake and remedies available
o Types of Illegal Contracts and the effects of illegality
o Contracts in Restraint of Trade and Severance

Visual Overview
Practice Questions

1. Discuss the validity of the following contracts.

a. A contract with an unlicensed money lender.

b. A contract with a minor.

2. Elizabeth recently returned to Singapore after completing her hospitality and tourism
course in Sweden. She was in Sweden for 4 years and realized that there were many
changes to the HDB neighbourhood where she stayed. She met Jennifer who owns a café
in the neighbourhood. Jennifer was looking for a potential buyer to take over her café
and would like to retire in the neighbourhood.

Jennifer told Elizabeth that HDB will be building more residential blocks in the
neighbourhood within two years. She further said that the business in the café would
bound to double or more when residents shift to the new blocks.

Elizabeth decided to buy and take over Jennifer’s café because of Jennifer’s statements
regarding the development of more residential blocks.

One month after taking over the café, Elizabeth met a former classmate, Sandy, who was
working in HDB. Sandy told Elizabeth that all residents have been informed by HDB
through flyers that it has no plans to build more residential blocks in her neighbourhood.

Advise Elizabeth on her right to rescind the contract and get back her money from
Jennifer.
 SESSION 5

THE LAW OF CONTRACT

DISCHARGE OF CONTRACTS AND REMEDIES

Session Learning Objectives.

When you finish this Session, you should be able to:

• Explain what is a discharge of contract

• Describe discharge by performance
• Describe discharge by frustration
• Discuss the common law remedy of damages
• Describe causation and remoteness of damages
• Explain equitable remedies

Session Outline

1. Discharge of Contract by Agreement

2. Discharge of Contract by Performance
2.1 General Rule: Precise and Exact Performance
2.2 Exceptions to the General Rule.
3. Discharge of Contract by Breach or Repudiation
3.1 Actual vs Anticipatory Breach or Repudiation
4. Discharge of Contract by Frustration
4.1 Circumstances leading to frustration
4.2 Situations that do NOT lead to frustration
4.3 Effects of Frustration at Common Law
4.4 Effects of the Frustrated Contracts Act
5. Common Law Remedies.
5.1 Damages
5.1.1 Damages for non-pecuniary loss
5.1.2 Damages for pecuniary loss
5.1.2.1 Assessment of Damages
5.1.3 Liquidated Damages
5.2 Quantum Meruit
6. Equitable Remedies
6.1 Specific Performance
6.2 Injunction

Each party to a contract is legally obliged to carry out their part of the promise. Once
this has been done the obligations created by the contract are discharged i.e. the contract
is terminated or comes to an end and both parties are released from their obligations.
For example, in a simple sale of goods contract when the seller receives the price from
the buyer who has no complaint about the goods, each party's obligations are
discharged. The seller has performed his obligation by delivering the contracted goods
and the buyer paying the contract price. Nothing more needs to be performed by each
 party. The contract is therefore discharged. However, problems arise if either party
fails to carry out their obligations. Here, the law regards the defaulting party will be in
breach of contract and liable to compensate the other innocent party who has suffered
a loss in consequence.

In law a contract may be discharged in the following ways:

1) Discharge by Agreement;
2) Discharge by Performance;
3) Discharge by Breach or repudiation;
4) Discharge by Frustration.

1. Discharge of Contract by Agreement

Since a contract is always made by agreement, it is true to say that it can also be
terminated by agreement. If neither party has performed his obligations, then both
parties may mutually agree to excuse the other from performance. This is known as
waiver. As required for in the formation of the contract, here in its termination each
party must also provide consideration to the other in order to be released from the
contract. And the consideration each provides is the promise to excuse the other from
performance. For example:

Andrew agrees to hire a bus from SBS Transit on May 1. Later he changes his plans
and agrees with SBS to cancel his booking for that day. In this situation both parties
agree to terminate the agreement: Andrew releases SBS's obligation to provide a bus
(Andrew's consideration) and SBS releases Andrew's obligation to pay for the hire of
the bus (SBS's consideration).

What happens if one party has already performed part of his obligation, say SBS has
specially decorated the bus at Andrew's request? In this situation, if Andrew wants to
terminate his agreement he may be required to make some payment e.g. forfeiting his
deposit, which is his consideration to SBS. And SBS's consideration to Andrew is the
promise to release him from the contract to hire the bus. This is known as accord and
satisfaction. Accord, being the agreement to discharge the original agreement and
Satisfaction is the consideration from either party to make the agreement operative. The
rules we have studied in the earlier chapter on the topic of Consideration especially on
waiver of rights apply equally here as in that topic.

If an agreement to discharge a contract is in the form of a deed (a contract made under

seal) then no consideration is required.

The parties to a contract may also effect a variation of the contract by modifying or
altering the contractual terms by mutual agreement, but without intending to cancel
(rescind) it. This is known as variation of the contract. The parties may or may not
substitute a wholly new contract for it. If a new contract is substituted for the old one,
the legal process is called a Novation. For example:
 A owes B $100 and B owes C $100. The three met up one day and agreed that among
them A shall pay C $100 and B’s debt is discharged and C may recover his $100 from
A.

2. Discharge of Contract by Performance

If a delivery date is mentioned in a contract for the sale of goods the stated delivery
date must be strictly complied with. The delivery date forms part of the description of
the goods. This means that if the date is not adhered to, there will be a breach of
condition under the Sale of Goods Act which may allow the injured party to consider
himself discharged and/or seek damages from the other party.

2.1 General rule: Precise and exact performance

As mentioned above, a contract will come to an end only when each party has done
exactly what they promised they would do; the contract is said to be discharged by
performance. Provided that performance is complete i.e. precise and exact on both sides
that will be the end of the matter. However, problems arise when performance is
incomplete. The general rule is that part performance is no performance. This rule is
clearly illustrated by a very old common law case that goes back 300 over years ago,
as follows:

Cutter v. Powell 1795

The defendant shipping company had agreed to pay C 30 guineas (the old form of
sterling £) on a “lump sum” basis for acting as an officer on board a ship sailing from
Jamaica to Liverpool, UK. C began the journey but died about 1 week before the ship
arrived in Liverpool. His wife sought to recover a proportion of the wages from the
defendant. Held: the defendant was not liable, as the husband did not complete the
whole voyage from Jamaica to Liverpool.

Strictly speaking, any deviation from complete performance will be a breach of

contract. This general rule may be unjust as you can see from the facts of the above
case. But over the years, the courts have developed exceptions to reduce the harshness
of this rule. The following are the exceptions:

2.2 Exceptions to General Rule

2.2.1 Substantial Performance

This exception provides that even though performance of the contract is not complete,
a party can still claim if his performance is substantial. Certainly he cannot claim the
full contract price. But the injured party is not entitled to treat the contract as terminated
and not pay a cent; he has to pay although he will not have to pay the full sum because
of the incomplete or defective performance. If he is allowed not to pay then that would
mean an “unjust enrichment” to his benefit and this would deprive the other party to a
fair payment. What then is substantial performance? The courts have laid down the
following guidelines for determination:
a) If the difference between the contract price and the cost of correcting the defects/or
omission (the “rectification costs”) is not too great; and

b) It is unjust for the party who had substantially performed the contract not to receive
the contract price minus the cost of correcting the defects or omissions.

Hoenig v. Isaacs 1952

Isaacs contracted to renovate and decorate Hoenig’s flat. On completion, Hoenig paid
only £400 instead of the contract price of £750 because of what he claimed was poor
workmanship. Held: on the facts the contract had been substantially performed even
though defects would cost £55 to correct. Thus, Isaacs was entitled to recover £750
minus £55. The Court of Appeal disallowed Hoenig’s appeal.

2.2.2 Prevention of Performance

In the event that incomplete performance of the contract is caused by the other party
who prevented full performance then the party who has partly performed is entitled to
be paid for what he/she has done. The party who prevented full performance of the
contract is in fact in breach of contract.

Planche v. Colburn 1831

P agreed to write a book for a publisher. After he had completed about half the work
the publishers unilaterally decided to cancel the publication and terminate the
agreement. He was thereby unable to completely perform his part of the agreement. He
sued to claim for the work already done. Held: he was entitled to half the contract sum
he would have been paid if he had been allowed to complete the work. He recovered on
a “quantum meruit” basis i.e. a sum that his work deserved.

2.2.3 Acceptance of Partial Performance

When one party has partially performed the contract and the other has accepted it, then
the latter must pay a reasonable amount for the work done (quantum meruit basis). This
is the position provided that the injured party has willingly accepted the partial
performance. If he accepts it as a result of improper pressure or duress applied by the
defaulting party, then the defaulting party is not able to recover at all for his partial
performance.

Sumpter v. Hedges 1889

The plaintiff contracted to build 2 houses for the defendant. He did part of the work and
abandoned the contract due to financial difficulties. The defendant completed the work
himself. The plaintiff brought an action and claimed against the defendant on a
quantum meruit basis. He argued that the defendant by completing the work himself
had impliedly accepted his partial performance. Held: the fact that the defendant took
it upon himself to complete the work was not regarded, by the court, as accepting the
plaintiff’s partial performance willingly. He had no alternative or choice but to do it
 himself because of the bad state of workmanship. The plaintiff could recover nothing in
this instance.

2.2.4 Severable or Divisible Contract

If a contract is not a whole transaction (entire contract or “lump sum” contract) but is a
series of smaller deals then the contract is regarded as divisible. For example:

In installment contracts where the parties may agree that the goods are to be delivered
in, say 5 installments and payment is to be made for each installment delivered. In this
situation, normally a party can claim for the installment(s) that he has delivered even
though he failed to deliver all the 5 installments as agreed.

3. Discharge of Contract by Breach or Repudiation

In an earlier chapter, we learned that contracts consist of contractual terms and that
these terms are not of equal importance. The vital terms are classified as conditions and
the less vital terms are warranties. We also noted that a breach of a condition is a serious
matter that entitles the injured party to treat the contract as discharged and also entitles
him to sue for Damages. In the case of a breach of a warranty, the injured party cannot
treat the contract as discharged. He still has to carry out his obligations. His only remedy
against the other party is to claim for Damages. Against this backdrop, we can conclude
that what we are talking about here regarding a discharge by breach or repudiation, we
are in fact referring to a breach of those vital and important terms known as conditions
and not to breaches of warranties.

3.1 Actual vs. anticipatory Breach or Repudiation

An actual breach occurs when a contracting party fails to perform his contractual
obligations when they arise. This may then allow the innocent party to discharge the
contract and sue for damages.

What is the position if one party indicates to the other that he no longer wishes to
perform the contract before the date for performance has arrived? In law he has
committed what is called an anticipatory breach. The innocent or injured party may
have the following options:

a) He may treat the contract as discharged and claim damages at once, for example:

Hochster v. De La Tour 1853

D entered into a contract in April to employ P in June as a courier. In May D wrote

that he no longer required P's services. P immediately brought an action before the
date on which he was supposed to start work (i.e. in June). Held: before the date (i.e.
in June) for the performance of the contract had arrived, D had repudiated the contract.
P was thereby entitled to claim damages at once.

OR
 b) The injured party can reject the anticipatory breach and insist on the performance
of the contract on the due date. However, in this case he runs the risk of the contract
being discharged in some other way (other than by actual breach when performance
is due) thus freeing the contract breaker from all potential liability. This unlikely
scenario happened in the following case:

Avery v. Bowden 1885

B agreed to load A’s ship with wheat. Due to shortages B informed A before the date
for performance that he would not be able to perform the contract. A, however, ignored
the anticipatory breach and waited fort B to provide the cargo as contracted. By
refusing to accept the anticipatory breach the contract continued in existence. Before
the date for performance arrived, war broke out which caused the contract to be
discharged by frustration instead. A lost the right to sue and could claim nothing.

4. Discharge of Contract by Frustration

Frustration happens when a supervening event beyond the control of the parties occurs,
after a contract has been formed and through no fault of the parties, which makes the
performance of that contract impossible, futile or illegal. The effect is that the very basis
of the contract is destroyed or even if it is not, makes the contract radically different
from what was originally contemplated. In Singapore, the discharge of contract by
frustration is governed by the common law and the Frustrated Contracts Act (Cap 115).

4.1 Circumstances leading to frustration

The following are circumstances or situation under which the courts have decided that
the contract had been frustrated at common law:

a) Destruction of the subject matter of a contract.

In a contract for the hire of a music hall for conducting a series of concerts, the contract
was frustrated when a fire destroyed the hall before the first day of the concert - Taylor
v. Caldwell 1863.

b) The non-happening of an event central to the contract

In a contract for the hire of a room to watch the coronation of a King, the contract was
frustrated when the King fell ill resulting in the cancellation of the coronation - Krell
v. Henry 1903.

c) The death, incapacity or illness serious enough in a contract involving personal

services.

In a contract of employment of a drummer by a Band to play 7 nights a week, the

contract was frustrated when the drummer could only play for 4 nights a week because
of his prolonged illness - Condor v. The Barron Knights Ltd 1966.
 d) If one party is substantially deprived of the use of the subject matter caused by
the shortening of the time period that was beyond the control of the parties.

In a contract for the charter of a ship for 12 months, which was to start in April 30, the
contract was frustrated because the ship was only available in September. Between
April and September the government took over the use of the ship in an emergency.
That means the charterer could only use the ship for about 6-7 months instead of 12
months - Bank Line Ltd v. Capel Ltd 1919.

e) Governmental Interference or Acquisition

In a contract to build a reservoir in 6 years, the contract was frustrated when work was
stopped by government order after 5 years. To resume the work would make the
contract essentially different from the original contract intended by the
parties - Metropolitan Board v. Dick. Kerr Ltd 1918.

A contract for the sale of property was frustrated when the government acquired the
land under the law for the purpose of public development – Lim Kim Som v. Shariffa
Taibah 1994

f) A change in the law affecting the contract

In a contract made in 1939 to display neon sign advertisements on top of buildings, the
contract was frustrated when the government passed wartime defence regulations
prohibiting these types of advertisements as it may make buildings the target of aerial
bombings - White and Carter Ltd. v. Carbis Bay Ltd. 1941.

4.2 Situations that do NOT lead to frustration

The following are situations under which the courts have declared the contracts are not
frustrated:

a) If the contract becomes more difficult or more expensive to perform

In a contract to build 78 houses within 8 months for £95,000, the contract was not
frustrated due to shortages of labour and materials and which took 22 months to
complete at a cost of £115,000 - Davies Contractors v. Fareham 1956.

b) Self-induced frustration

A contract for the hire of a ship to be used for commercial fishing was not frustrated
by the charterer's deliberate failure to obtain a government licence for the ship. It was
the charterer's responsibility to obtain the licence. The inability to operate the ship was
the result of his deliberate decision; he took upon himself the risk and therefore
impossibility of performance was self-induced - Maritime v. Ocean Trawlers Ltd
1935.
 c) If the parties agreed that they should continue with the performance of the
contract even if it is frustrated. Such provisions are found in what is popularly
known as “force majeure” clauses.

In a contract to charter a ship for 3 months with a clause saying that if the ship was
detained, the charterer was to continue paying the charter rate, the contract was not
frustrated when the ship was detained. The charterer had to pay the agreed rate - Chan
Buck Kia v. Naga Shipping

4.3 Effects of Frustration at Common Law

When frustration occurs, the contract automatically comes to an end. The parties are
released from all future obligations. Any obligations already due before the frustration
had to be performed. This common law rule is illustrated in:

Chandler v. Webster 1904

The plaintiff hired a room to view the coronation of a King for £141, payable
immediately. He paid £100 at the time and still owed the balance. The coronation was
cancelled because the King fell ill. The plaintiff sued to recover the £100 and the
defendant counter-sued for the balance of £41. Held: plaintiff’s action failed. The
defendant could recover the £41 because the plaintiff’s obligation to pay the rent had
become due (payable immediately) before the frustrating event.

It is clear from Chandler's case that the common law rule operated unfairly against the
plaintiff who had to bear the loss through no fault of his own. To correct this injustice,
the FRUSTRATED CONTRACTS ACT (CAP 115) was enacted. It seeks to spread the
loss or benefit as reasonably and as fairly as possible between the parties. This statute
now regulates the position of the parties if the contract is frustrated.

4.4 The effects of the Frustrated Contracts Act

Section 2 of this Act provides that when a contract is frustrated:

a) A party who has paid money before the contract was frustrated is generally allowed
to recover from the other party.

b) Any money payable at the time of frustration ceases to be payable.

c) If a party has incurred expenses in performing the contract before it was frustrated,
the court may allow him to keep a part or all of the money he has received from the
other party to cover his expenses. For example:

If X receives $10,000 in advance from the other party and incurred $1,000 as expenses
in performing the contract before frustration, the court may allow him to recover the
sum by deducting from the advanced payment i.e. $10,000. He has to return the $9,000
to the other party.
 d) If a party has received some benefits under the contract before the frustration the
court may order him to pay the other party a reasonable sum.

However, it is important to note that there are 3 specific contracts to which the
FRUSTRATED CONTRACTS ACT does not apply. These are:

a) In “force majeure” clauses where the parties have included in the contract the
measures to be taken with regard to frustration when it happens (see above).

b) Contracts for the hire of ships (charter parties) and contracts for the carriage of
goods by sea, generically termed “shipping contracts”.

c) Contracts for the sale of “perishable” specific goods (perishable goods that are
identified and agreed upon by the parties) which unknown to both parties the goods
have been destroyed. This situation is dealt with under the Sale of Goods Act.

Remedies for Breach of Contract

Where a contract party fails, without lawful excuse to perform his contractual
obligations, he will be in breach of contract. The law offers the innocent party (injured
party) a range of remedies, which he may claim. In this chapter we will examine this
range of remedies available under the common law and provided for by equity
(equitable remedies).

5. Common Law Remedies

The common law remedies we will be looking at are

5.1 Damages and

5.2 quantum meruit.

At this juncture, it is important to note that once the defendant is proven to have been
liable for breach of contract, the common law remedy must be awarded by the court to
the plaintiff i.e. he is entitled as of right and the court cannot refuse to give this remedy.

5.1 Damages

Damages are monetary compensation awarded to the injured party when there is a
breach of contract. The innocent party may claim nominal damages (a small amount)
despite the fact that he has suffered no loss. The purpose of awarding Damages is to
put the innocent party, so far as money can do it, in the same position as if the
contract had been fully performed. The innocent party is thus claiming Damages for
the gains he could have reasonably expected from the performance of the contract.
Following are the types of damages:

5.1.1 Damages for non-pecuniary loss (loss not involving money);

 5.1.2 Damages for pecuniary loss (loss involving money);
5.1.3 Liquidated Damages i.e. the sum agreed in advance by the parties to be
payable if there is a breach of contract.

5.1.1 Non-pecuniary loss

This type of loss is not a direct monetary loss. Examples of such losses include mental
distress, embarrassment and loss of enjoyment. In the English Court of Appeal case of
Jarvis v. Swan's Tours 1973 the plaintiff was compensated for his disappointment at
not getting as good a holiday as he had contracted for. In awarding such a loss the court
will come up with a monetary estimate for e.g. the embarrassment or mental distress
suffered by the plaintiff.

5.1.2 Pecuniary loss

When a contract is breached, the injured party may suffer pecuniary losses i.e. monetary
losses. These losses include loss of profits (e.g. a middleman who hopes to resell goods
for a profit but the goods are not delivered to him for sale), additional expenses in
getting a substitute (having to buy a substitute from another source at a higher price),
or expenses on repairs (paying for the cost of repairs).

5.1.2.1 Assessment of Damages

Not every loss suffered by the plaintiff will be compensated. The court will have to
consider the following issues when deciding what losses are entitled to compensation:

a) Causation
b) Remoteness of Damages
c) Mitigation

a) Causation

The first aspect to note is causation. It is very clear that the plaintiff should not be
entitled to recover damages if the defendant’s breach did not cause him any loss. In a
Singapore Court of Appeal decision in the case of The Cherry 2003, the court made it
abundantly clear that for the plaintiff to recover damages for his loss, the defendant’s
breach must have been the “effective” or “dominant” cause that brought about the
plaintiff’s loss.

b) Remoteness of Damages

When the damage (loss) is too remote i.e. it is not connected closely enough with the
breach, the court will not compensate for such a loss. The test for remoteness of damage
is based on the rules laid down in:
Hadley v. Baxendale 1854

The plaintiffs were millers and had to stop grinding when the main shaft of their
machine broke. They ordered a shaft from a firm but had to send the old shaft to be
used as a pattern for a new shaft. A contract was made with the defendant carrier who
promised to deliver the shaft to the firm on the following day. In fact the defendant took
a week to deliver. This caused the mill to remain idle for longer than necessary. The
plaintiffs claimed for loss of profits caused by the defendant's delay. Held: the plaintiffs
cannot recover the loss of profits because the carrier did not know that the mill would
have to stand idle if there was any delay. And according to the usual course of things,
the absence of a shaft will not cause the mill to remain idle because the plaintiffs may
have had a spare shaft. The special circumstance that the mill will remain idle was not
known to the defendant and therefore it could not be in the contemplation of the parties
at the time of making the contract.

Thus from this decision, it can be seen that the injured party can only recover those
Damages that may fairly and reasonably be considered to:

1) Arise naturally i.e. according to the ordinary or usual course of things from such
breach (this covers loss that is an inevitable and direct consequence of the breach);

OR

2) Have been within the reasonable contemplation of the parties at the time of the
contract as the result of the breach (this will cover losses, which the defendant had
actual knowledge of or could have reasonably contemplated those losses when he
entered into the contract. This part deals with special or abnormal loss).

The contract breaker is, therefore, liable for the normal loss that results in the ordinary
course of things, plus any abnormal loss which he specifically knows about or could
have contemplated had he applied his mind to it at the time the contract was made. In
Hadley v. Baxendale, the defendant did not know that the delay in returning the shaft
would cause the mill to stand idle; for he knew the plaintiffs could have had a spare
shaft and so was not liable to pay damages.

The application of the first limb is further illustrated by the case of:

Koufos v Czarnikow Ltd. (The Heron II) 1969

The plaintiffs were sugar merchants and hired a ship, the Heron II, to carry sugar to
an established sugar market in Basra, Iraq. The ship was delayed, and during that time,
the price of sugar fell, and plaintiff made less profit that he would have. He sued the
owners of the Heron II. Held: that defendant knew very well that there was a market
for sugar and it was likely that plaintiff wanted to sell the sugar immediately. He
therefore bore responsibility for the plaintiff’s loss of profit.

The application of the second limb is further illustrated by the case of:
 Victoria Laundry Ltd. v. Newman Industries Ltd 1949.

The plaintiffs wished to expand their business and bought a boiler, which was to be
delivered by the defendants on 5 June. In anticipation of the expansion of the facilities,
the plaintiffs made contracts to dye fabrics with the Ministry of Supply, which would
have earned them exceptionally good profits. The boiler was not delivered until 9
November, so the plaintiffs claimed a) loss of ordinary profits and b) loss of exceptional
profits which they could have made with the Ministry of Supply. Held: the defendants
knew that a laundry would suffer loss of ordinary profits caused by their delay i.e. this
loss was an inevitable consequence of their breach and therefore they were liable. But
they were not liable for the exceptional profits because they knew nothing about the
lucrative contracts with the Ministry of Supply nor were such contract within their
reasonable contemplation at the time of making the contract (they might have been
liable for the loss had the plaintiffs made known to them of the lucrative contracts with
the Ministry).

c) Mitigation

In assessing the Damages to be paid to the plaintiff, the law requires that the plaintiff
take all reasonable steps to mitigate his loss. This means that the plaintiff must try to
reduce his losses. Failure to do so may result in the award of nominal Damages by the
court. If the plaintiff incurs a greater loss when he tries to reduce his losses, he may be
entitled to recover the greater loss. The duty to mitigate is illustrated in:

Brace v. Calder 1895

The plaintiff was wrongfully dismissed by the defendant and his partners when the
partnership was dissolved. The defendant and his remaining partner offered to re-
employ the plaintiff who declined the offer. The plaintiff claimed the full loss caused by
the wrongful dismissal. Held: the plaintiff was not entitled to the full loss but only to
nominal Damages. This was because he did not mitigate his loss by accepting the offer
of re-employment.

5.1.3 Liquidated Damages

Liquidated Damages are a “genuine pre-estimate of loss”; i.e. a sum fixed in advance
by the parties which will become payable in the event of a breach. For example, in a
building contract, the parties may provide that the building must be completed by a
fixed date and the builder shall pay a fixed sum for each day of delay. This will be the
sum the court awards unless the sum is considered a penalty. A penalty may be said to
be a sum payable that is greater than the genuine pre-estimate of loss and is meant to
punish the defaulting party in the event of a breach and to pressurise him into carrying
out his contractual obligations. If the pre-estimate of loss is considered a penalty, the
court will not allow the penalty to be recovered but will instead assess Damages
according to the rules in Hadley v. Baxendale. The landmark case which could assist
future courts to distinguish between liquidated Damages and penalty is the case of:
 Dunlop Pneumatic Tyres Co. v. New Garage & Motor Co. Ltd 1915

The defendant agreed to sell the plaintiffs’ tyres at a price that is not below a certain
list price. It was further agreed that liquidated Damages of £5 was payable for each
ease of breach committed. The defendant breached the contract and the plaintiffs
claimed the liquidated Damages. Held: on the facts the court found that the sum was a
genuine pre-estimate of loss and it was not a penalty. The defendant therefore was
ordered to pay the liquidated Damages.

The court in this case also took the opportunity to outline the distinction between a
genuine pre-estimate of loss and a penalty, as follows:

1) The parties' use of the term liquidated Damages was not final. The court will make
the final decision on the individual facts of the case;

2) The sum will be regarded as a penalty if it is extravagant or unreasonable;

3) If the obligation of the promisor is to pay a certain a sum of money and he agrees
that if he should fail to do so, he will pay a larger sum, the larger sum will be
regarded a penalty (e.g. if the promisor failed to pay $1,000 under the contract, then
he shall pay $1,300);

4) Where a single sum is payable for a range of breaches of differing degrees of

severity, the sum is a penalty;

5) Difficulty in calculating the loss in advance that may flow from the breach is no
obstacle to the sum stated being a genuine pre-estimate of loss.

5.2 Quantum Meruit

When a party claims on a quantum meruit basis, he is claiming a reasonable value for
the work done i.e. a sum that his work deserved. For example:

De Bernardy v. Harding 1853

DB had agreed to advertise and sell tickets for H who was organising an event to view
the funeral of the famous Duke of Wellington. H then cancelled the arrangement with
DB without justification. Held: DB may recover from H the value of the services
rendered on a quantum meruit basis.

Claiming on a quantum meruit basis is an alternative remedy to a claim for Damages.

A person may ask for this remedy when for example:

1) A contract is performed but the contract sum or price is not stated;

2) A contract is discharged and the claimant is not the defaulting party;

3) There is contract for necessaries with a minor;

 4) When the claimant has performed part of the contract before the contract was
frustrated.

5) The claimant's partial performance of the contract has been willingly accepted by
the other party.

6. Equitable Remedies

The equitable remedies which we are dealing with here are specific performance and
injunction. You will recall that at common law, once it is proved that the defendant is
in breach of contract, the plaintiff is entitled to the award of Damages as of right. But
in the case of equitable remedies, the award of such remedies is at the discretion of the
court i.e. the plaintiff is not entitled as of right but only if the courts consider it just and
reasonable.

6.1 Specific Performance

This is an order of court, which orders the party in breach to do what he promised to do
under the contract (e.g. to deliver an antique vase). It is appropriate if a party who has
suffered a breach may not be adequately compensated by money and would prefer the
other party to be compelled to carry out his contractual obligations. Thus the court may
grant a decree of specific performance if monetary Damages are inadequate. This
decree of specific performance will not be granted:

i) To enforce a contract for personal service because it is improper to make a

person to serve another against his will;

ii) If there has been unreasonable delay by the injured party in bringing legal
proceedings;

iii) If performance of the contract would require the constant supervision of the
court.

The courts have usually granted specific performance in the following situations:

A) Contracts for the sale of land. This is because the law regards monetary Damages
as inadequate compensation since each piece of land is unique.

Rawlinson v. Ames 1925

R orally agreed to lease his flat to A and at her request made extensive renovations and
alterations to the property. Later A refused to finalize the contract and attempted to
avoid the lease. R applied to the court for an order for specific performance. Held: R
could obtain specific performance as the contract related to land since each piece of
land is unique. This order may be granted despite of the absence of written evidence.
 B) Contracts for the sale of items of unusual beauty or rarity or in limited supply like
antiques, vintage and classic items where monetary compensation will not be
adequate to compensate the injured party. However where the item could still be
obtained elsewhere, the courts may not consider it “rare”.

Cohen v. Roche 1927

S contracted to sell “hepplewith” chairs to B. Such chairs were quite rare but could
still be obtain in the antiques market, although with some difficulty. When S refused to
deliver the chairs, B applied to court for an order for specific performance. Held: the
remedy of specific performance was refused. This was because the chairs were, no
doubt, rare but not unique in that it could still be obtained elsewhere since there was
an available market for it.

Once granted by the court, the decree of specific performance must be obeyed and
complied with by the defendant. Failure to do so is a contempt of court for which the
defendant could be punished with fine or imprisonment.

6.2 Injunction

This is an order of court that prevents a party from carrying out what he has promised
NOT to do under the contract e.g. not to work for the competitors of his present
company for the next 12 months on leaving the company. Basically an injunction
enforces the negative obligations, examples of which would be restraints of trade and
non-competition clauses.

Warner Brothers Pictures Inc. v. Nelson

Nelson, a film actress, popularly known as Bette Davis, had contracted with Warner
Studios NOT to undertake any film work for another film producer during the
contractual period. She breached the promise when she contracted to act for a rival
studio. Warner applied to court for an injunction to stop her from working with the
rival studio. Held: an injunction was granted to Warner studios to prevent her from
working with the rival company, which she promised NOT to do so during her
contractual period with the company.

Before the court grants the injunction, the applicant must show that monetary Damages
would not be adequate. It would not be granted if the applicant encourages the party in
breach to break his promise e.g. the applicant might say to the other party that he has
no objection if he (the other party) breaks the promise.
SESSION 5: Discharge of Contracts and Remedies

Essential points

o Discharge of Contract by Agreement

o Discharge of Contract by Performance and its exceptions
o Actual and Anticipatory Breach or Repudiation
o Discharge of Contract by Frustration and the operation of the Frustrated Contracts Act
o Common Law Remedies
o Equitable Remedies

Visual Overview

Practice Questions (5)

1. Discuss the two types of breaches of contract.

2. Discuss the right of election of the innocent party in an anticipatory breach situation.

3. There must be complete and precise performance of the contractual obligations.

Discuss.
4. Jason entered into a contract with a contractor, Derrick, to renovate his 2-storey semi-
detached house by building an extra floor making it into a 3-storey semi-detached
house. Mid-way through the construction, Derrick had to stop the renovation works.
Advise Jason on the following scenarios.

a) Derrick informed Jason that Jason has to pay extra costs in employing local
workers due to a change in government’s policy which imposed a temporary freeze
on the renewal of work permits for foreign workers. Derrick could not renew the
work permit for all his foreign workers due to no fault of his. 50% of his workers
are foreigners. Derrick has completed 70% of the renovation works.
b) Derrick informed Jason that the government revoked the permits of owners of
landed property to build extra floors to their houses due to a change in policy.
Derrick has only transported the materials to Jason’s house but has not commenced
renovation works. Derrick informed Jason that Jason is to compensate his for the
transport charges in bringing the materials back and also the loss of profit.
 SESSION 6

ELEMENTS OF THE SALE OF GOODS ACT

Session Learning Objectives.

When you finish this Session, you should be able to:

• Describe the meaning of goods and its classification under the Sale of Goods Act
• Explain the definition of contract of sale
• Explain the implied terms / conditions of title, description, quality and fitness in a
sale of goods contract.

Session Outline

1. Discharge of Contract by Agreement Law Applicable to Contracts of Sale of

Goods
2. Definition
2.1 Meaning of “Goods”
2.2 Meaning of “Contract for the Sale of Goods”
3. Terms of a Contract of Sale of Goods.
3.1 Title and “Right to sell”
3.2 Description of Goods.
3.3 Satisfactory Quality.
3.4 Fitness for Purpose
3.5 Sale by Sample
4. Excluding liability for breach of SOGA Implied Terms
5. The passing of property or ownership in goods.
5.1 Specific goods
5.2 Unascertained Goods
5.3 Passing of Risk
6. Delivery, Acceptance and Payment

Introduction

The buying and selling of goods is perhaps one of the most common examples of
commercial activity. The contract for the sale of goods is therefore probably the best-
known form of all commercial contracts. The framework of the obligations arising from
the sale of goods was first established by mercantile customs and practices, called the
“Law Merchant”, its history dates back to the 15th century in Europe among the many
important trading states (including the city of London). In England in 1893 the first Sale
of Goods Act was enacted. This Act marks the culmination and consolidation of all the
earlier customs and practices of the merchants. In 1979, the English 1893 Act was
“updated” and amended to take into account new changes in commercial practice.
1. Laws Applicable to Contracts of Sale of Goods

The principles governing the sale of goods are presently regulated, for the most part,
under the Singapore Sale of Goods Act (Cap. 393) – SOGA, which is modeled on the
provisions of the English Sale of Goods Act 1979.

2. Definitions

2.1 The meaning of “Goods”

The Act defines goods as including “all personal chattels, emblements, industrial
growing crops and things attached to or forming part of the land”. Basically, the
definition refers to all tangible moveable things (things one can feel, touch and hold)
such as cars, computers, raw materials, ships, planes, machinery, industrial growing
crops and food etc. The Act does not apply to freehold or leasehold real property i.e.
land, houses or leases, stocks and shares in a company, trademarks, patents or
copyright, debts or negotiable instruments i.e. bills of exchange and cheques. All these
other transactions and rights are governed by their respective legislations e.g. the
Singapore Companies Act deals with the transfer and transmission of stocks and shares
in a company.

Goods by itself may be further classified into various types of goods as follows: -

• Existing goods - These are goods owned and possessed by the seller at the time of sale
transaction.

• Future goods - This is defined as goods, which are to be manufactured or acquired by

the seller after the making of the sale contract.

The Act next adopts the distinction between “Specific Goods” and “Unascertained
Goods”. “Specific” goods are defined as goods, which are identified or agreed upon
(ascertained) at the time the contract of sale is entered into. An example of a specific
good is:

“My car, registration No SZA 1088 parked in my garage”; OR “The reaping machine
S/No. 134975X in my warehouse”.

The term “Unascertained” goods is not so certain and clear. It may comprise 3 distinct
possible categories, namely; Future goods (e.g. sale of a propeller yet to be
manufactured or sale of crop yet to be grown); Generic goods (e.g. Ten Mercedes Benz
C 200 cars in my showroom); or, the unascertained part of an ascertained whole (e.g.
50 tons of rice out of a consignment of 1000 tons now on board S.S. Singapore).

2.2 The meaning of “Contract for the Sale of Goods”

Under Section 2(1) of SOGA, a contract of sale is defined as “a contract by which the
seller transfers or agrees to transfer the property (ownership) in the goods to the buyer
for a money consideration called the price”. From this definition, we need to consider
the following: -
 a) Contract - The transaction must involve a contract. SOGA says that no formalities are
required for such a contract of sale of goods. It may be created orally, in writing, or by
a combination of both. In general, the requirements of the common law must be met,
i.e. there must be agreement, intention and consideration. Especially so, there must be
clear agreement relating to important matters for example; price, delivery dates, mode
of payment etc. Failure to agree on these may make the contract void for uncertainty.

b) Seller and buyer - There must be a seller and buyer in any sale transaction.

c) Transfer of property – The transaction must essentially involve the transfer of the entire
property interest in the goods sold. This means the “ownership” in the goods and not
merely some lesser interest such as possession. So when someone contracts to hire
goods it is not a sale of goods contract as it involved the transmission of possession and
not property: the hirer obtains the possession of the goods but not the property or
ownership since this was never intended to pass to him.

d) Price - This reflects the consideration for the contract of sale, it is the money paid for
the goods. If the consideration for the goods is other goods, the contract is one of
exchange (or barter), not sale. But where goods are exchanged for a combination of
money and other goods, the contract may be one of sale of goods, for example, buying
a new car by trading-in an old one, the difference to be paid by cash. The Act further
states that the price may be fixed by contract, fixed in a manner agreed by contract, or,
where no price is fixed, a reasonable price is to be paid to the buyer. As to what
constitute “reasonable price”, this is a question of fact having regard to the
circumstances of each case.

3. Terms of a Contract of Sale of Goods

Contractual terms are statements of the rights and duties of the buyer and seller. A
contractual term may be a condition or warranty. The meaning of “condition” is not
defined by SOGA. Since SOGA preserves the common law rules unless otherwise
provided we may therefore assume that a condition (according to common law) is a
vital or important term of the contract. SOGA, however, does explain the legal effect
of a condition in the event of its breach. The buyer can do one of three things. Firstly,
he can treat the contract as repudiated i.e. return the goods and get his money back.
Secondly, he can keep the goods and sue for Damages to compensate his loss. Finally,
he can waive the breach and take no action at all. A warranty is defined by the SOGA
as a term, which is collateral to the main contract and breach of which gives rise to a
claim for Damages. This definition clearly gives both the meaning and legal effect of a
warranty.

3.1 Title and “Right to sell”

Under Section 12(1) of SOGA there is an implied condition that the seller has the right
to sell in the case of a sale and in the case of an agreement to sell he will have the right
to sell at the time the property is to pass. So in any sale contract it is legally expected
that the seller is the owner of the goods in order for the buyer to inherit this owner’s
title from him. Alternatively, the seller can transfer ownership to the buyer even if he
 is not the owner provided he has the owner’s authority and permission to do so. On the
other hand, a seller or supplier may be the owner of goods, but if in the course of a sale,
he might have breached another person’s intellectual property rights in the process that
would still amount to a breach of this section.

Niblett v. Confectioners’ Co. 1921

A contract of sale was made concerning the importation of cartons of tinned milk. The
cartons of milk were detained at the customs because its labels had infringed the
trademark of an existing brand of tinned milk. The buyers were legally compelled to
remove the labels, which in turn reduced its sale value. The court Held that even though
the property (ownership) in the goods had passed to the buyers, the sellers were still in
breach of Section 12. The sellers had no “right to sell” as the third party (i.e. the
original trade mark owner) still had the legal right to stop the sale at any time because
of the infringement.

One of the consequences of this provision is that if the seller is in breach, the buyer
can recover the price he has paid even though he has used the goods for a period of
time. The basis being that there has been a “total failure of consideration”, i.e. he has
paid something for nothing.

Rowland v. Divall 1923

The purchaser of a car used it for about three months, but later discovered that it was
stolen and was compelled to return it to the true owner. He sued for the original
purchase price he had paid. The court Held that the seller was in breach of section 12
and the plaintiff was entitled to recover the full purchase price, as there had been a
total failure of consideration. No allowance should be made for the use of the car, which
the plaintiff had enjoyed during the 3 months period.

3.2 Description of Goods

Under Section 13(1) of SOGA, where there is a sale of goods by description, there is
an implied condition that the goods will correspond with the description. Section 13(2)
states further that where the sale is by sample as well as description, the bulk must
correspond with both sample and description.

What then is a sale by description? Goods are sold by description when the buyer
contracts in reliance on the description as given by the seller if the goods have not been
seen. This means that the buyer must show that the description exerted a sufficient
influence in bringing about the sale. The buyer may therefore be said to have relied on
the truth of the seller’s representation. However, even if the buyer does see the goods,
as long as he has relied on the seller’s description of it to some extent (no matter how
little) then he is treated as buying the goods by description. An illustration of this can
be seen in the following case:

Beale v. Taylor (1967)

The seller had advertised the sale of a 1961 Triumph Herald. The plaintiff buyer
inspected the car before buying it. It later transpired that the vehicle consisted of the
 rear (back) half of a 1961 Herald welded to the front of an earlier model. The court
Held that even though the plaintiff had inspected it, the transaction could still constitute
a sale by description and so the defendant seller would be liable.

If the buyer does not believe in the description given by the seller or he decides to test
its truth and thereafter forms his own independent opinion or judgment, he may lose
the protection of Section 13. This contrasting situation occurred in the following case:

Harlingdon Enterprises v. Christopher Hull Art Ltd (1991)

Here a commercial seller of artwork sold to a commercial buyer a painting that he

described as one by “Muenter”. However, during the course of the sale, he made it
clear that he was not an expert on “Muenter” and so his judgment should not be relied
upon. The buyer inspected the painting and upon his own judgment, found it to be
original and so bought it. Later after the sale it transpired that the painting was a good
forgery (a fake). The court Held that Section 13 was not breached since the buyer did
not rely on the seller’s description but on his own judgment.

The term “description” is to be construed as strictly as possible to protect the buyer and
prevent sellers from arguing that the goods were not part of the description. Thus, a
buyer cannot be compelled to accept goods, which do not strictly comply with the
description, even though they are not in any way defective in quality. This point is
illustrated in the case of:

Arcos Ltd. v. Ronaasen & Sons 1933

Sellers supplied a quantity of timber staves half an inch thick. When these were
delivered it was discovered that 85% of these were slightly thicker at nine-sixteenth of
an inch. The timber was fit for the purpose, merchantable (satisfactory) and
commercially within the contract description. Nevertheless, the buyers rejected it. The
court Held that there was a breach of section 13, as in a sale by description compliance
needs to be precise, exact and complete with no deviation whatsoever.

3.3 Satisfactory Quality

Under Section 14(1) of SOGA, the common law rule of Caveat Emptor (this means
“Let the buyer beware”) is retained, so the buyer has a duty to examine the goods that
he purchases. However, Section 14(2) of SOGA qualifies this general statement by
stating that where the seller sells goods in the course of business, there is an implied
condition that the goods are to be of satisfactory quality. The following points needs
to be highlighted: -

a) This condition applies only to sales “in the course of business”. Business means that
the seller must be in commercial, professional and/or government undertakings.
Essentially the transaction must involve “B to B” and “B to C” contracts but not “C to
C” thus private sales between individuals are excluded from protection.

b) The courts interpret the term “satisfactory quality” rather strictly in the interest of
consumer protection. Invariably a commercial purchaser (in “B to B” contracts) may
 also be indirectly protected this way. An illustration of the application of this implied
condition could be seen in the following case: -
Rogers v. Parish Ltd 1987

S sold a brand new Nissan Laurel to B. It turned out to be faulty. In addition to this
there were some defects in the body work. It later transpired that the defect was not a
major one and could quite easily be put right. The car could still be driven. The buyer
sued for breach of satisfactory quality. The court Held that the car was not of
satisfactory quality. The car was a brand new one and despite the fact that the defect
was not major it was reasonable to expect that new products ought not to have such
defects.

c) The term “satisfactory quality” is defined as being fit for the purpose for which the
goods are commonly bought having regard to the description applied to it, the price of
the goods and all other relevant circumstances. Some of these circumstances may imply
fitness for purpose for which goods of that kind are commonly supplied; its appearance,
finish, freedom from minor defects, safety and durability. Furthermore, Section 14(2)
not only covers the goods itself but also extends to the packaging. An illustration is
seen in:

Geddling v. Marsh (1920)

A shopper in a supermarket bought a bottle of mineral water. The bottle exploded

although nothing was wrong with the water inside. The court Held that there was a
breach of Section 14(2).

d) The condition of satisfactory quality does not apply where defects have been
specifically drawn to the buyer’s attention before the sale or if the buyer had examined
the goods before the sale and that examination ought reasonably to have revealed any
defects.

3.4 Fitness for Purpose

Under Section 14(3) of SOGA, where a seller sells goods in the course of business and
the buyer expressly or impliedly makes known to the seller the particular purpose for
which he is buying the goods, there is an implied condition that the goods should be
reasonably fit for that purpose. The following case is an illustration of how this
provision works: -

Priest v. Last 1903

A customer at a chemist shop asked for a hot water bottle and was told in answer to his
question that it should not be filled with boiling water. He used as was directed but it
burst after only five days in use. The court Held that there was a breach of section
14(3). The logic is clear - It would not be an effective hot water bottle if it cannot even
hold hot water (not to say boiling water).

a) The provision applies when the buyer expressly makes known a purpose he wants the
goods to comply with or fulfil, it is only then that the goods must be reasonably fit for
 that purpose. However, the provision also applies where there is an “implied” purpose
that is obvious, say for example, food for eating and clothes for wearing (all of which
has a common purpose). An illustration of this implied undertaking is seen in the
following case:

Grant v. Australian Knitting Mills (1936)

There was a sale of undergarments which was left out in an open shelf. The buyer
selected a woolen pair and bought it. She developed dermatitis after wearing the wool
underwear purchased from seller. It transpired that the underwear had chemicals
leftover from the manufacturing process, which could not be washed off easily. The
court Held that there was a breach of implied condition of fitness for purpose under
Section 14(3).

b) If the buyer wants the goods for a particular or specific purpose that is not obvious, he
should clearly make it known to the seller otherwise he will not get any benefit under
this provision. So, in the case of:

Griffiths v. Peter Conway (1939)

A buyer, who had abnormally sensitive skin, had bought a tweed (woolen) overcoat
from a seller. She had not told the seller about her specific abnormality and after taking
the item home and wearing it, she developed dermatitis. It was proved in evidence that
a normal person would not have been so affected and it was for this reason that the
Court Held that the seller was not liable since the buyer had not expressly informed the
seller of his abnormally sensitive skin.

c) Section 14(3) does not apply if the buyer does not rely on or if it unreasonable for the
buyer to rely on the seller’s skill and judgment.

d) There is quite a substantial overlap between this condition and that of satisfactory
quality. The first is that both provisions apply to a “sale in the course of business”. The
second common feature is that satisfactory quality under Section 14(2) “encompass”
fitness for purpose (S. 14(2) is thus wider in scope) whereas Section 14(3) is very much
more specific to fitness for purpose. A third common feature is that compliance with
both Sections 14(2) and 14(3) are strict. Finally, the buyer is not precluded from
enforcing both provisions at one time so that if he does not succeed in one he may still
succeed in the other, or even both.

3.5 Sale by Sample

Under Section 15(2) of SOGA, where the seller agrees with the buyer that the sale
should be based on sample, there is an implied condition that: -

a) On delivery the bulk must correspond with the sample in quality. Failure to correspond
precisely would render a breach of this condition. If goods deviate from the sample, it
is irrelevant that some simple process will bring them up to sample standard.
 b) The buyer must be given a reasonable opportunity of comparing the bulk with the
sample.

c) The goods must be free from any defect rendering them unfit or unsatisfactory. A seller
of goods will be liable under this section where a reasonable examination by the buyer
could not reveal the defect. Thus where a reasonable examination of a product could
not reveal an inherent defect, a seller will still be liable if in fact a defect does exist.

d) In cases where there has been a sale of goods based on description as well as sample,
the buyer is free to enforce his rights either under Section 13 of 15 SOGA. However,
not every sale will be a sale by sample simply because the buyer has seen specimens of
the goods. It may very well only be a sale by description.

4. Excluding liability for breach of SOGA Implied Terms

Can a seller of goods use any “exclusion clauses” to exclude the application of sections
12, 13, 14(2), 14(3) or 15 SOGA? Whether an exclusion or exemption clause will be
valid here depends on 3 situations as follows:

a) Under Section 6(1) of the Unfair Contract Terms Act (UCTA), liability under Section
12 of SOGA cannot be excluded under any circumstances.

b) Under Section 6(2) of the UCTA, in a consumer-related sale transaction, liability under
Sections 13, 14(2), 14(3) or 15 of SOGA cannot be excluded.

c) Under Section 6(3) of UCTA, in a non-consumer-related sale transaction, liability

under Sections 13, 14(2), 14(3) or 15 may be excluded if it is “fair & reasonable”.

5. The passing of property or ownership in goods

The purpose of the contract of the sale of goods is to transfer ownership of the goods
from the seller to the buyer. SOGA contains detailed rules for determining precisely
when this happens. Ownership is transferred in goods from seller to buyer depending
whether the goods are specific or unascertained.

5.1 Specific goods

Under Section 17 of SOGA, specific goods are transferred from seller to buyer at such
time as they intend it to be transferred. The Key factor is Intention. Such intention can
be deduced from the terms of the contract, the conduct of the parties and the relevant
circumstances of the case. If the contract contains an express provision as to when
ownership in the goods is to be transferred, there is therefore no problem and the matter
is concluded. However, sometimes problems do arise when the contract is silent as to
when ownership is to pass. In these instances, the rules in section 18 rules 1 to 4 of
SOGA will apply to assist a court in ascertaining the true intentions of the parties.
5.2 Unascertained Goods

Under Section 16 of SOGA, it is provided that property in unascertained goods does

not pass until they have been ascertained. How goods are to be ascertained are usually
decided by the parties to the contract. Once again if the contract is silent, then Section
18 rule 5 will operate to assist the court in determining when and how goods are to be
ascertained.

5.3 Passing of Risk

Under Section 20(1) of SOGA, risk passes with the property so that when property has
passed to the buyer, the goods will be at his risk, whether delivery has been effected or
not. This will be the default position unless the parties agree otherwise. So, for example,
where the parties have agreed that risk is to pass before property passes this provision
will not apply. The parties’ intention is an objective one and can be inferred from the
circumstances.

6 Delivery, Acceptance and Payment

6.1 Delivery - The rules governing the delivery of goods are essentially a matter of
agreement by the parties, the provisions of the Act only apply where there is no
agreement made on the particular point. The Act defines “Delivery” as “a voluntary
transfer of possession from one person to another”. Delivery can mean the transfer of
possession in the following goods: -

a) In goods where property (ownership) has passed

b) In goods, which are unascertained

c) In goods where property has not passed

There are basically 4 methods of delivery, namely: -

❑ By the physical transfer of goods

❑ By the delivery of the means of control. For example, where the seller hands over to
the buyer the keys to the warehouse where the goods are stored.
❑ By attornment. This means that where A sells B a crate of wine stored at C’s warehouse,
the property may pass as soon as the contract is made or payment is tendered but
delivery will not take place until C acknowledges that he holds the goods on behalf of
A and allows B to take possession of it.
❑ By delivery of the documents of Title representing the goods. This form of delivery is
common in International Sales e.g. CIF or FOB contracts.

SOGA lays down detailed rules governing the situation where delivery is deficient. If
the seller delivers a lesser amount than contracted the buyer has two options: -

• He can refuse the whole consignment

 • He can accept the lesser quantity and pay the contract price for it.

If the seller delivers a larger quantity than contracted, the buyer has three options; these
are: -

▪ He can reject the whole consignment

▪ He can accept the amount contracted and reject the rest

▪ He can accept the whole amount delivered and pay for the surplus at the contract price.

If the seller delivers goods contracted, but these are mixed with goods of a different
description, and which are not part of the contract, the buyer has two options: -

o He can accept the goods in accordance with the contract and reject the rest

o He can reject the whole.

6.1.1 Place of Delivery

Under Section 29 of SOGA, if there is no agreement between the parties as to the place
of delivery, then it is the seller’s duty to have the goods available at his place of business
or residence and he is not bound to send them to the buyer.

6.1.2 Time of Delivery

The time of delivery (and payment) is usually of the essence in commercial sale
contracts. Under Section 10(2) of SOGA it is provided that whether any stipulation as
to time being of the essence depends on the terms of the contract. However, under
Section 29 of SOGA, where no time of delivery has been stipulated by agreement of
the parties, then the seller is bound to deliver the goods within a reasonable time. Even
though time may be agreed to be essential, the buyer may still waive it unilaterally, in
which case the seller must still deliver the goods within a reasonable time.

6.1.3 Expenses incurred

The expenses of putting the goods in a deliverable state, is to be borne by the seller.

6.1.4 Installment Delivery

If the contract provides for delivery by installments with separate payments for each
installment, the contract is said to be “Severable”. Unless agreed, the buyer cannot be
compelled to take delivery by installments. If, however, one or more installments under
a Severable contract are defective, this may give rise to two implications: -

❖ The breach may amount to a repudiation of the entire contract.

 ❖ It may only give a right to claim Damages for the defective deliveries only.

6.1.5 Delivery to Agent

Under Section 32 of SOGA, where the contract requires the goods to be moved in the
course of delivery, delivery to a carrier or other agent for transmission to the buyer is
deemed to be delivery to the buyer. The seller must make reasonable arrangements with
the carrier and must give the buyer notice in time to permit him to arrange insurance.
Under Section 33, the buyer must bear the risk of any deterioration necessarily
incidental to the course of transit.

6.2 Acceptance and Rejection

First of all, the buyer must be given a reasonable opportunity to examine the goods
before accepting them. This opportunity arises when the seller delivers the goods to
him. But sometimes in a “re-sale” situation possibly with direct delivery from seller to
sub-buyer, the buyer may not get his opportunity to examine the goods. He will only be
aware of defects when the sub-buyer complains to him. Under these circumstances, the
buyer is allowed to reject the goods notwithstanding the re-sale.

Acceptance of goods or parts of it, will deprive the buyer of his right to treat the contract
as discharged by breach of condition (For example as to quality or fitness) on the part
of the seller. He will not be entitled to reject it, once goods have been accepted. The
buyer may, however, claim Damages for breach of warranty. Acceptance takes place
when the buyer: -

a. Informs the seller that he accepts the goods.

b. Does any act to the goods, which is inconsistent with the seller’s ownership. For
example, he changes the nature or character of the goods or he re-sells them to a third
party.

c. Retains the goods, after the lapse of a reasonable time, without informing the seller that
he has rejected them. What is reasonable time is a question of fact in each case.

Under the Act, where a seller has breached a condition of the sale contract, the buyer
may treat the contract as repudiated and reject the goods. He does not have to return the
goods to the seller but needs only to inform the seller of his rejection. Generally
speaking the buyer loses his right to reject goods if: -

▪ He waives the breach of condition

▪ He elects to treat the breach of condition as a breach of warranty

▪ He has “accepted” the goods

 ▪ He is unable to return the goods. For example, because he has re-sold them to a sub-
buyer who keep the goods refusing to return them.

6.3 Payment of the Price - Under Section 28 of SOGA, unless otherwise agreed, delivery
of the goods and payment of the price are concurrent conditions. This means that both
must be done at the same time. The buyer after examining the goods and accepted them
must therefore be ready to pay the price agreed in exchange for the possession of the
goods.

SESSION 6: Sales of Goods

Essential points

o Contracts of Sale of Goods and SOGA

o Implied terms under the SOGA
o Passing of property or ownership in goods
o Delivery, Acceptance and Payment
o Excluding liability for breach of SOGA Implied Terms

Visual Overview
Practice Questions

1. Consumers are protected by the Sale of Goods Act. Discuss briefly the duties imposed
on sellers.

2. Sellers who are aware of the terms implied into their contracts with the customers may
exclude the operation of the Sale of Goods Act. Discuss.

3. Michael held a garage sale in his house. Michael told Betty who was at the garage sale
that the handbag is made of genuine leather. Betty collects leather hand-bags and bought
the handbag for $100 after hearing Michael’s statement. Betty also bought a lap-top
which looks used for $300.00. There was no packaging for the lap-top.

When Betty was using the lap-top to prepare her report, she realized that the lap-top was
slow in saving the documents but can still be used. Betty had lunch with her friend, Ivy,
who is a leather goods dealer. Ivy saw Betty’s new handbag and told her that it was not
made of leather after inspecting it.

Advise Betty as to her remedies with regards to

a) lap-top,
b) Handbag.
 SESSION 7

THE LAW OF AGENCY

Session Learning Objectives.

When you finish this Session, you should be able to:

• Define the meaning and legal nature of what an agency is

• Describe the creation of agency by way of:
o Agreement and consent
o Ostensible and apparent authority resulting in an “Estoppel”
o Ratification
o Operation of law
• Explain the agent’s duties and rights
• State the issues in principal and third party relationship
• State the issues in agent and third party relationship
• Describe termination of agency

Chapter Outline

1. Law Applicable to Agency

2. Definition of Agency
3. The Creation of the Agency Relationship
3.1 Agency created by express agreement
3.2 Agency created by implied agreement
3.3 Apparent Authority resulting in an agency created by Estoppel
3.4 Agency created by Ratification
3.5 Agency created by Operation of law
3.5.1 Agency by necessity
3.5.2 Agency by Cohabitation
4. The Relationship between the Agent and the Principal
4.1 Duties of an Agent
4.2 Duties and liabilities of the Principal
5. Relationship between the Agent and the Third Party
5.1 Where the agent accepts liability
5.2 Where a trade custom or usage makes the agent liable
5.3 Breach of warranty of authority
6. Relationship between the Principal and the Third Party
6.1 An agent acting on behalf of a disclosed principal
6.2 An agent acting on behalf of a undisclosed principal
7. Termination of Agency
7.1 Complete performance of the agent’s functions
7.2 Withdrawal of authority (revocation)
7.3 Death, insanity or bankruptcy
7.4 Expiration of the agency contract
7.5 Frustration
7.6 Repudiation by either party
8. Some Common types and classes of Agents
8.1 Universal
8.2 General
8.3 Special
8.4 Factors
8.5 Brokers
8.6 A Banker
8.7 Auctioneers

Introduction

Agents play a vital and important role in commercial and business transactions. Any
person, whether it is an individual, a firm or a company can appoint an agent to act on
his behalf in a particular matter. The role of agents in commerce and business is to
negotiate and make contracts on behalf of someone else; that someone is called the
“principal”. An agent plays the role of a “middleman” because they possess special
skills, have certain expertise, or have some special knowledge of a particular market
etc. The principal may require someone urgently to negotiate the contract, or the
principal may be too busy to make every contract personally. In a sophisticated
economy, commercial and business transactions would be impossible if businessmen
could not employ the services of travel agents, insurance brokers, forwarding agents,
estate or property agents and the like and were expected to do everything themselves.

1. Laws Applicable to Agency

By virtue of Application of English Law Act, English common law principles on

contract and agency are applicable in Singapore.

2. Definition of Agency

An agent is a person who acts on behalf of another person known as the principal and
is empowered to make binding contracts between his principal and third parties. It is
clear from the definition that an agency involves 3 parties: 1) the agent, 2) the principal
and 3) the third party. Once a binding contract between the principal and the 3rd party
had been made, the agent drops out of the transaction and incurs no liability (but later,
we will learn that there are some exceptional situations in which the agent can be
personally liable). An agent's power to bind the principal to a contract is derived from
the principal's instructions to the agent. This power is referred to as the agent's
“authority”.

Sometimes a person is described as an “agent” or “representative” when he may not be

an agent in law at all. The person so described may in point of fact be the principal. For
example, a car dealer may be described as “sole agent” for a particular car manufacturer.
The dealer is not the agent of the manufacturer in law and the description “sole agent”
actually means “sole distributor”. The buyer of the car only has a contract with the
dealer; not the car's manufacturer. The dealer will buy cars in order to resell them and
are therefore directly liable on the contract as principal.
 Franchising of particular products or services such as McDonald’s burgers or Nike
sports shoes is a common business activity. An entrepreneur with a product or service
to market may, instead of selling direct to the public, authorise other businesses (called
franchisees) to supply the product or service. The franchisee has to pay the franchiser a
fee in return for the right not only to sell the product or service but also the right to use
the trade name, style, logo and sale system of the franchiser. The franchiser normally
agrees to supply the franchisee with goods to sell as well as the system to sell them. But
you will notice here that the franchisee deals with the public as seller i.e. as principal
and not as an agent for the franchiser.

Another area of confusion concerns the distinction between an agent and an

“employee”. When an agent is engaged to perform a task, he does not become an
employee just because of his appointment as an agent; it could simply be a one-off
assignment in which case the fulfilment of the task will end the agency – there is no
real “employment” as such here. Such a person is usually classified as an “independent
contractor” who works on his own account and is usually free to choose how he wishes
to perform his work. On the other hand, if a person is a real “employee” having a valid
contract of employment with his employer, then depending on his employer’s
instructions, his acts could create legal relationship between his employer and third
parties. In this situation he may be treated as the agent of his employer, who is his
principal.

3. The Creation of the Agency Relationship

An agency relationship may arise from an express or implied agreement. But an agency
may also arise without any agreement between the principal and the agent. This happens
when the agency is created by estoppel, ratification and the operation of law. Thus an
agency may come about in 4 ways, as follows:

a) By agreement either (i) expressly or (ii) impliedly;

b) By apparent authority leading to an estoppel;
c) By ratification;
d) By Operation of law either (i) in necessity or (ii) in cohabitation

3.1 Agency created by express agreement

This type agency is created by express agreement when the principal has expressly
appointed the agent either orally, in writing. Sometimes this could be done by a deed
i.e. a formal contract which is under seal. So, for example, when an agent is appointed
to sign a contract under seal (like a conveyancing document which transfers ownership
of land) he must himself be appointed by a deed known as a “Power Of Attorney”.
Other examples of normal agency contracts created by express appointment are an
“exclusive right to sell” given to an estate/property agent appointed to try and find a
buyer for a house; or an agency contract appointing a stockbroker to buy or sell shares
on behalf of his client.

3.2 Agency created by implied agreement

 This happens when the agency is implied from the circumstances such as the conduct
of the parties. Implied authority may also be conferred on agents who are engaged in a
particular trade or occupation to act in a certain manner, which is customarily usual to
persons in that trade or occupation. You may remember the illustration above of the
employee who may also be the agent of his employer. A good illustration of this is
found in the case of:

Watteau v. Fenwick 1893

A, who was the manager of a pub (an employee of the pub owner) had ordered cigars
from X, a supplier. Unknown to X, P the pub owner had expressly forbidden A to
purchase cigars. Held: P was bound on the contract made by A with X. The purchase
of cigars was within the usual scope of authority of pub managers. Here A, an employee
also became the agent of his employer P when ordering goods from a supplier.

Another situation involves business partners and company directors. Here any partner
of a partnership firm is regarded as each other's agents as well as agents for the firm.
Similarly, any company director is regarded as the agent of the company when
transacting with a third party. Two cases help to illustrate these aspects of agency as
follows:

Mercantile Credit Ltd v. Garrod 1962

X a partner in a motor repair workshop, sold a car to B for which he and the partnership
had no title (they had no ownership in the car). Title to the car was still with the finance
company under a hire purchase transaction. The partners of the business firm had
earlier agreed not to sell cars while in the course of their business as a motorcar repair
workshop. Held: G, the other partner was liable for the default of his other partner X.
This was so despite the agreement not to sell cars, as B was not expected to be aware
of the internal agreement of the partners.

Hely-Hutchinson v. Brayhead Ltd 1968

The directors of a company allowed X to act as if he were the managing director,

although he had never been expressly appointed to that position. X concluded a
contract on behalf of the company with T. T later sought to enforce the contract against
the Company. The company denied that X had the authority. Court Held: by allowing
X to act in this way, the company had given him implied authority to act as managing
director. Thus the company was bound.

3.3 Apparent Authority resulting in an agency created by Estoppel

This type of agency comes about because the principal through his conduct towards
third parties “held out” his agent as appearing to have the authority i.e. to say that his
agent has “apparent authority”. Hence A (the agent) has apparent authority to act on
behalf of P (his principal) in the following situations:
a) A is appointed to act as P’s agent. Supposing A is acting in the capacity of a
managing director that gives him the usual authority to act on behalf of the
company (his Principal). Also assume that A’s authority is expressly restricted
by P, his company. The restriction is that A is not permitted to enter into a
contract that involves more than $50,000 without the prior approval of the Board
of Directors. A now orders goods worth $80,000 from T (the third party
supplier) who does not know of the restriction on A’s authority. A would be
considered to have apparent authority to order the goods and P is bound.

b) A is appointed to act as P’s agent, but for some reason this agency is terminated.
A, meanwhile, continues to act as an agent and enters into a contract with T (a
third party) who does not know of the termination. P is bound.

c) P does not appoint A as his agent, but P allows A to act as if he were. This leads
T (a third party) to believe that A is P’s agent. On this basis, A contracts with
T. P is bound.

In order for apparent authority to give rise to an agency created by estoppel the
following conditions must be fulfilled:

i) There must be a representation (by words or conduct) by the Principal or

someone in authority that the Agent has the authority to act on the principal’s
behalf;
ii) There must be a reliance on the representation by the third party; and
iii) The third party must show that he had suffered a detriment (i.e. a loss) as a result
of the reliance on the representation.

A good illustration of the application of these principles can be seen in the following
case:

Freeman & Lockyer v. Buckhurst Park Properties Ltd 1964

The defendant company had power to appoint a managing director under the
company's constitution. However, that power was never exercised but A, acted as if he
had been appointed to the post, managing the daily affairs of the company. The other
directors knew of A’s actions but did nothing to prevent them. A, on behalf of the
company contracted with the plaintiffs, a firm of architects. The company later refused
to pay the plaintiffs’ fees and they therefore sued the company. The company argued
that A had no authority to enter into such a contract on behalf of the company. Held:
the company knew of A’s conduct (acting as managing director) and by agreeing to it,
the directors had represented that A was authorised to act as managing director; the
plaintiffs had relied on that representation and the company was estopped (prevented)
from denying that A had no authority to act on behalf of the company. The
representation was crucial in supporting the apparent authority. Thus the company was
bound and had to pay the plaintiffs’ fees.

Another example of agency by estoppel is when the principal has not made it clear to
the third party that the agency has been terminated. This is illustrated by:
 Summers v. Solomon 1857

P employed A, as a manager and general agent to run a jewellery shop. P regularly

paid for jewellery ordered by A from T for resale in the shop. One day, A left P's
employment, but continued to order further supplies of jewelry in P’s name. Eventually
A absconded with the goods. T made a claim against P. P denied liability. Held: P was
liable as principal. P’s past conduct of paying regularly to T was a representation that
led T to believe that A had the authority to contract on behalf of P. T acted on the
representation and more importantly he was not aware that the agency had been
terminated.

3.4 Agency created by Ratification

Ratification takes place when the principal adopts, accepts or confirms (treat as
authorised) a previously unauthorised contract made on his behalf. In other words, a
principal may ratify afterwards an act of an agent done earlier. A principal can only
ratify in any one of the following situations:

i. An agent who is duly appointed, has exceeded the principal's authority given to him;
OR

ii. A person having no authority (e.g. he was not appointed as agent in the first place)
to act as agent at all acted as if he was an agent and identified or named the person
for whom he was acting.

Thus if the “agent” has made a contract with a third party under either one of the above
situations, the “principal” may reject the contract because he has not authorized the
“agent” to make the contract on his behalf. But in the event his principal chooses to
ratify the contract, then he (the principal) shall be bound. The effect of ratification is
that the unauthorised contract is treated as though it has been properly authorized by
the principal. Ratification has the strange effect of working backwards or
“retrospectively”. The following case helps to elaborate this important point:

Bolton Partners v. Lambert 1889

T made an offer to A (P's agent) who acting without authority accepted on behalf of P.
T later sought to withdraw his offer. After this, P ratified A’s act. Held: T was bound
by the contract because when P ratified the contract, P had become a party to the
contract as from the time A accepted the offer on P's behalf. Thus, T’s withdrawal of
the offer came too late and he was bound.

For an effective ratification to take place, the following conditions must be satisfied:

a) The agent must contract as agent and must not be contracting for himself. The
principal must be clearly identified and disclosed.
Keighley, Maxted & Co. v. Durant 1901

P authorised A, his agent to buy goods from T at a certain price. A exceeded his
authority and bought the goods at a higher price in his own name. Whilst he intended
to buy on behalf of his principal, P, he failed to disclose the existence of his principal
to T. P initially ratified the contract but later refused to accept the goods. The seller
sued P. Held: P was not liable to T for the price. He could not ratify the unauthorised
contract because the agent had not disclosed the existence of the principal.

b) The principal must be in existence at the time the agent made the contract. He
must also have the contractual capacity to make the contract both at the time the
agent acts and at the time of the ratification.

Kelner v. Baxter 1866

The promoters (persons engaged in the formation of a company) bought goods on

behalf of a company (P), which had not been formed at that time. When the company
was formed it ratified the contract entered into by the promoters. Held: as the company
was not in existence at the time the contract was made, ratification was not possible
and the contract could not be enforced against the company. [Now under Section 41 of
the Singapore Companies Act, a company can ratify contracts that are made before the
company is formed].

c) Knowledge of material facts. The actions of an agent are only capable of being
ratified if the principal was aware of all the material facts like the names of the
parties to the contract, terms and subject matter of the contract etc.

Marsh v. Joseph 1897

A crook pretended to be acting on behalf of a lawyer in transactions with a third party,

which turned out to be fraudulent. When confronted by the lawyer, he gave only a
partial account of what he had done, suppressing vital information on some important
material facts. The lawyer believing the transactions to be in order ratified the crook’s
action. Held: the crook will be personally liable as the ratification was inoperative.
His principal, the lawyer was not aware of all the material facts when he ratified.

d) Ratification of the whole contract within a reasonable time

If a principal chooses to ratify then he must ratify the whole contract. He cannot ratify
those parts of the contract which suits his purpose, and not adopt parts that do not suit
him. Ratification is a “package deal” – you take both the good and the bad. Furthermore,
ratification if it is done, must be done within a reasonable time period; otherwise the
“retrospective” effect of ratification may cause grave and serious injustice to innocent
third parties.
3.5 Agency created by Operation of law

This situation means that the law deems an agency exists despite the fact that there is
no clear agreement to this effect either by the agent or his principal. Two common
instances when this arises are:

3.5.1 Agency of Necessity

This happens when a person is entrusted with another person’s property and is
compelled to act in an emergency situation to preserve the property. In such a case,
although the person has no actual authority to do the act necessary to preserve the
property, he is regarded as the agent of necessity. His action is deemed to be authorized
by the principal. The agent must show that 3 requirement are satisfied.

a) There must be a real emergency. Such an emergency must have arisen that
endangers the goods.

Great Northern Railway v. Swaffield 1874

A horse had been sent by rail. It was nighttime when the train arrived at the station.
There was no one to collect the horse. The railway company did not know the identity
of the owner of the horse nor his address. Since there was no suitable accommodation
for the horse on the railway company's premises, the horse was put in a stable. The
railway company later claimed the expenses from the owner of the horse. Held: as the
railway company could not obtain the owner's instructions and had acted in an
emergency, they could recover the expenses from the owner of the horse as agent of
necessity.

b) It must have been practically impossible to obtain instructions from the

principal

Springer v. G. W. Railway 1921

Due to a storm at sea, a consignment of tomatoes arrived late. There was a railway
strike that would have caused further delay. The railway company therefore sold the
tomatoes. The consignees sued the railway company for damages. Held: the railway
was liable. They were not agent of necessity because they could have communicated
with the consignees to obtain instructions. (Given modern-day communication like the
internet and GPS, it would be quite rare that an agent can establish this requirement
today).

c) The “agent” must have acted honestly and reasonably in the interest of his
principal.

3.5.2 Agency by Cohabitation

The law may also deem an agency in favour of a wife living with her husband. In this
instance, she is deemed to be the agent of her husband (the principal) and is entitled to
 pledge her husband’s credit for the purchase of “Necessaries” suitable to their style of
living. This presumption may only be rebutted by showing that:

a) The husband had expressly warned the retailer not to supply goods on credit to his
wife, or

b) The husband had expressly forbidden the wife to pledge his credit, even though this
prohibition was unknown to the particular retailer. But if the wife had previously
been given authority to deal with a particular retailer, they person must be notified
otherwise agency by estoppel may arise, or

c) His wife had a sufficient allowance to cover “necessaries” without pledging the
husband’s credit, or

d) The wife had already been sufficiently supplied with the goods in question, or that
it was unreasonable having regard to the husband’s income at the relevant time.

4. The Relationship between the Agent and the Principal

If the agency is created by an express agreement, the basic rights and obligations of the
principal and agent may very well be set out in the agreement. But even if the agency
is not created by express agreement, the agent and the principal will still be subject to
a number of duties and liabilities recognized (and implied) by the law.

4.1 Duties of an Agent

a) Duty of Obedience and to follow instructions when performing his work

As the relationship between the principal and the agent is usually based on the law of
contract, an agent who breaks the contract will be liable to his principal for damages if
he fails to obey the principal's instructions contained in the contract. For example, if an
agent is instructed to take cash payments only but accepts a cheque in payment, the
agent is liable for the loss caused to the principal when the cheque is dishonoured by
non-payment. Likewise, when an insurance broker undertakes to obtain a policy of
insurance for a principal that will provide a specified coverage, (protection against
certain risks) but fails to obtain a policy with the proper coverage, the broker, as agent
of the principal, is liable to the principal for the loss thereby caused. The following case
provides an illustration:

Turpin v. Bilton 1843

An insurance broker agreed to arrange marine insurance cover for his principal’s
ships. He failed to do so properly. One of the principal’s ships (which, was uninsured)
was subsequently lost at sea. Held: the broker was liable to make good the loss, as he
had failed to obey and follow his principal’s instructions.

b) Duty to act personally and not to delegate

 It is the duty of the agent not to sub delegate his authority to another person. The agent
has the duty to act for his principal personally unless given the authority by the principal
to sub delegate. The principal places utmost trust and confidence on an agent. Because
of this, the law regards the relationship between the principal and the agent as being of
a fiduciary nature. The relationship is therefore a very personal one. Also since an agent
is usually selected because of some personal qualifications, it would be unfair and
possibly injurious to the principal if the authority to act could be shifted by the agent to
another person, the sub agent. This is particularly true when the agent was originally
appointed for the performance of a task requiring discretion and judgment. For
example, an estate agent who is appointed to sell a property is not entitled to delegate
his duties to a sub agent as can be seen in the following case:

John McCann & Co v. Pow 1975

A firm of real estate agents was appointed to sell the vendor’s flat. Unknown to the
vendor and without his permission, the firm passed over details of the flat to a sub agent
to enable him to find a suitable buyer. The flat was eventually sold by the sub agent.
When the principal found out about this he refused to pay the agreed commission. Held:
the firm was not entitled to the agreed commission.

c) Duty of Care and Skill

The agent has a duty to exercise reasonable care and skill in the performance of his
work and in addition, to exercise any special skill he may have. For example, if an agent
holds himself out as a professional estate agent, he will be expected to show the
standard of care and skill reasonably to be expected of a professional estate agent.

Keppel v. Wheeler 1927

A firm of estate agents was employed to sell a block of flats. They received an offer from
a prospective purchaser, which was accepted “subject to contract”. The agents later
received a higher offer, but instead of telling their principal, (the owners) they arranged
for the first transaction (which was not a firm contract) to be transacted instead. Held:
the agents had acted in breach of their duty to exercise care and skill. This duty included
passing on details of better offers until a binding contract was concluded. They were
held liable for the difference between the two contracts.

d) Duty to Keep and Render Accounts

An agent must account accurately to the principal for all property and money belonging
to the principal that comes into the agent's possession. The agent should within a
reasonable time, give notice of collections made and render an accurate account of all
receipts and expenditures.

e) Duty of Good Faith

Because of the fiduciary relationship between the principal and the agent, an agent
should not allow his personal interests to conflict with his duty to his principal. Some
examples of conflict of interest situations for which the agent should ideally avoid,
includes:

i) An agent must not buy or sell his own personal property to his own principal
without full disclosure. Let us consider an interesting case:

Lucifero v. Castel 1887

An agent was asked to buy a yacht for his principal. The agent, who was himself quite
well to do, decide to make some more money and buy the yacht for himself and then
resell it to his principal thereby making a large undisclosed profit. The principal was
absolutely not aware that he was buying the agent's own property. Held: The agent
must account to the principal for the large undisclosed profits he made.

ii) An agent must not use confidential information acquired during the course of
the agency for his own benefit or disclose it to the competitor of the principal.
Protected information includes specialised business practices or trade secrets,
and customer lists.

Peter Pan Manufacturing Corp Ltd v. Corsets Ltd 1963

An agent had received confidential information relating to the peculiar design of

women’s brassieres in the course of his work. After the agency ended, he made use of
the information to design and manufacture brassieres in a company he owned. Held:
an injunction was granted to prevent him from further use of the confidential
information and he was also made to account for the profits he made out of the stolen
designs.

iii) An agent must not make any secret profit or accepts secret gifts from his
position. If the agent does so, the principal may sue the agent for those gifts or
secret profit. A secret profit includes a bribe or any financial advantage that
exceeds the agent's agreed commission.

Mahesan v. Malaysian Government Officers' Housing Society 1978

M was engaged by the Housing Society to find building land. He found a cheap and
suitable plot of land but accepted a bribe from a property speculator to keep silent
about it. This enabled the speculator to buy the land cheaply himself and resell it to the
Society at a huge profit. Held: the Society was entitled to recover the bribe or the
speculator's profit from M but not both amounts. The Society decided to claim the
speculator's profit as this amount far exceeded the bribe.

Under the common law, ordinarily if the agent has made a secret profit from the third
party, the principal has the following remedies:

I) Claim the secret profit made by the agent;

II) End the agency without notice or compensation;
III) Rescind (set aside) the contract made through the agent and refuse to pay the
agent's commission.
4.2 Duties and Liabilities of the Principal

a) Duty to pay commission

If there is no agreement to serve gratuitously, an agent is entitled to commission for

work performed on the principal's behalf.

b) Duty to indemnify

The principal must indemnify the agent for any losses or Damages suffered on account
of the agency, which were not caused by the agent's fault. When the loss sustained is
not the result of obedience to the principal's instructions but of the agent's misconduct,
or of an obviously illegal act, the principal is not liable for indemnification. The
principal must also reimburse the agent for all disbursements (payments) made at the
request of the principal and for all expenses necessarily incurred in the lawful discharge
of the agency for the benefit of the principal. The agent cannot recover, however, for
expenses caused by the agent's own misconduct or negligence. So by way of
illustration, if the agent transfers ownership of goods to the wrong person, the agent
cannot recover from the principal the expense incurred in correcting the error.

c) Agent’s right of Lien

A lien is a right to retain possession of goods as security for payment. In general, an

agent is entitled to a lien over his principal’s property to secure payment of
remuneration and expenses. This lien, however, does not give the agent the right to sell
the principal’s goods, but merely to retain them pending payment of his remuneration.

5. Relationship between the Agent and the Third Party

The general rule is that an agent is not liable and acquires no rights on the contract that
is concluded between the principal and the third party (although the contract was in fact
entered into by the agent on his Principal’s behalf). There are 3 (three) exceptions to
this general rule. We will examine the following situations in which an agent can be
personally liable:

5.1 Where the agent accepts liability

In the situation when a contract is made between the agent and a third party and the
terms of that contract expressly shows the agent accepts liability, clearly the agent shall
be so liable. This will especially be the case when the agent signs the contract in his
own name without reference to his principal or if the agent expressly uses words in the
written contract that indicates he is the principal. An illustrative case can be seen in:

Humble v. Hunter 1848

P authorized A to charter out a ship for him. A then chartered out the particular ship
to T without disclosing that he was acting on behalf of P. A signed the agreement with
T as “owner” of the ship. Held: A will be solely liable on the charter contract. P (an
undisclosed principal) could not enforce the contract since A by describing himself as
 “owner” of the ship had contracted as principal. P was not allowed to use oral evidence
to contradict the terms of the written contract.

5.2 Where a trade custom or usage makes the agent liable

In certain business sectors and industries, customs and trade usage have established that
an agent may sometimes be made personally liable while performing his agency duties.
An example can be seen in the freight forwarding industry where it was decided in the
case of Perishable Transport Ltd v. N Spyropoulus Ltd 1964 that freight forwarding
agents were responsible for the freight payable to airlines when they arrange for
transportation of their customer’s goods for shipment.

5.3 Breach of warranty of authority

An agent may be liable to the third party for Breach of Warranty of Authority. This
happens when the agent indicates to the third party that he is acting as an agent (but in
actual fact he has no authority to do so, or he has exceeded his authority). When the
agent does so, he impliedly promises that he has the authority to act. This implied
promise is known as his “warranty of authority”. In the case when the agent acts
without authority (or exceeds his authority) the principal is not bound. If the principal
chooses to accept liability, he may ratify his agent’s act but if he decides not to, the
third party can sue the agent for losses suffered for “breach of warranty of authority”.

Collen v. Wright 1857

A professed to act on behalf of P and leased P’s farm to X. Unknown to X, the agent
had no such authority to act on behalf of P. When X discovered the true state of affairs,
he sued A for the resultant loss. Held: A was liable to X. as he had impliedly warranted
(promised) that he had the necessary authority to make the lease when in fact he did
not.

The warranty of authority is a “strict” duty. This means that the agent may be liable
even though he acted in all innocence and genuinely believed that he had the necessary
authority. An illustrative case can be seen in:

Yonge v. Toynbee 1910

A lawyer (in a foreign jurisdiction) acting on behalf of his client did not know that his
authority to act had been terminated by his client’s insanity. He continued to act for his
client and the third party was made to bear considerable loss and expense. Held: the
third party was entitled to recover their loss and expense from the lawyer since he had
acted in breach of his warranty of authority when his principal became insane. Whether
he knew of his principal’s insanity or not was not material here – the warranty was a
“strict” duty.

It is the third party who can sue for breach of warranty of authority; the principal can
also sue the agent for acting without authority. But the action by the principal against
the agent is for breach of duty.
6. Relationship between the Principal and the Third Party

As a general rule, the agent who acts within his authority cannot be personally liable
under the contract he has brought about between his principal and the third party. There
are, however, situations in which the agent can be personally liable – we have seen
some of these cases above. To examine the situation closer, it is necessary to distinguish
between:

a) A situation where an agent has acted on behalf of a principal whose name or

existence the agent has disclosed to the third party – the disclosed principal; and

b) A situation where the agent has acted on behalf of a principal whose existence the
agent has not disclosed to the third party – the undisclosed principal.

6.1 An agent acting on behalf of a disclosed principal

A principal is disclosed if the third party knows both that the agent is acting for a
principal as well as the principal's identity. In this type of situation, if the agent is
authorised and acts within the scope of his authority, the principal is liable on the
contract i.e. he becomes a party to the contract - the agent is not. An agent acting on
behalf of a disclosed principal does not intend to become personally liable on the
contract. Rather, the intention of all concerned is that the principal and the third party
are to be the contracting parties.

If the agent has acted outside the scope of his authority and his principal has not ratified
his act, no contract will be formed between the principal and the third party and
generally, the agent will not be personally liable on the contract. But the agent can be
sued by the third party (breach of warranty of authority) and the principal for acting
without authority (breach of duties).

An agent acting for a disclosed principal can be personally liable on the contract. This
will be the case whether the agent acts within or outside his authority when, for
example, where the agent has signed a deed in his own name, but he has not been
appointed by a power of attorney.

6.2 An agent acting on behalf of an undisclosed principal

In this type of situation the third party is under the impression that he has entered into
a contract with the principal when in fact he is contracting with the agent. Thus a
contract can be formed EITHER between:

a) The third party and the principal; or

b) The third party and the agent.

So far as the third party is concerned, he may elect to hold the agent liable since he is
not aware that there is a principal involved, or hold the principal liable after discovering
the existence and identity of the principal. But if the third party elects to hold one liable,
he cannot afterward sue the other. An example of how this doctrine of the
“undisclosed principal” works can be illustrated as follows:
 Patrick, an undisclosed principal, appoints Arthur to purchase land for a shopping
center. Tim contracts with Arthur to sell a plot of land. In this case, Tim will initially
look to Arthur for performance of the contract because Tim is unaware of the existence
of the agency. Once Tim discovers Patrick's existence and identity, the law permits Tim
a right to elect either to hold Arthur liable on the contract, thereby releasing Patrick,
or he may choose to hold Patrick liable, thereby releasing Arthur. However, no election
can be made unless and until the third party (Tim) discovers the principal's existence
and identity.

The doctrine of the undisclosed principal is certainly a strange anomaly and this
doctrine has faced the brunt of academic criticism because it forces a person to be
contractually liable or bound to another whose existence he was totally unaware of.
Strange though it may be, the Singapore courts have nevertheless held that this doctrine
is applicable in Singapore. (See: HSBC Banking Corp v. San’s Rent-a-Car Pte. Ltd
1994; The “Rainbow Spring” 2003; Family Food Court v. Seah Boon Lock 2008).

So far as the undisclosed principal is concerned, where an agent for an undisclosed

principal has acted within his authority, the undisclosed principal can also enforce the
contract against the third party. But there may be situations where the law may not
allow the undisclosed principal to do so because it will cause unfairness to the third
party. For example, where the agent expressly uses word in the written contract that
indicates he is the principal. See: for example, the case of Humble v. Hunter 1848,
above. Similarly, in situations where the nature of the contract is such that the identity
of the parties is important or third party has special reasons for contracting with the
agent, for example, if a person accepted a job and then stepped aside and revealed that
he was only doing so on behalf of his older brother, the employer will not be bound to
employ the older brother, or where a third party contracts with the agent because of his
creditworthiness, the undisclosed principal cannot enforce the contract.

Where the agent has NOT acted within the scope of his authority, the undisclosed
principal cannot enforce the contract against the third party; only the agent can hold the
third party liable on the contract. This is because the undisclosed principal cannot be a
party to the contract as he CANNOT RATIFY the agent's unauthorized act – a condition
for effective ratification is that the agent must EXPRESSLY act as agent. And if the
agent has acted for an undisclosed principal, the agent cannot be said to have expressly
acted as agent.

5. Termination of Agency

An agency can come to an end or be terminated in the following ways:

7.1 Complete performance of the agent's functions

An agency is terminated when the agent has completed his performance of the task. For
example, when an estate agent appointed to sell a property completes the sale, the
agency comes to an end and the commission is paid.
7.2 Withdrawal of authority (revocation)

In general the principal can withdraw the agent's authority thereby terminating the
agency at any time, although he may have to pay damages to the agent if this involves
the breach of contract between the principal and the agent (since an agency is a contract
between the agent and the principal). But the principal cannot withdraw the agent's
authority when the authority is coupled with an interest. This can happen when the
agent has been appointed in such a way as to enable him to recover some debt owed to
him by the principal. So for example, if A is put in charge of P’s land in order to manage
it so that money could be raised to pay off P’s debt to A. P will not be allowed to
withdraw A’s authority since the authority given to A is coupled with an interest in
favour of A. This is to ensure that P pays the debt owed to A. A realistic illustration of
this can be seen in the case of:

Smart v. Sanders 1848

An agent was contracted by P to sell goods on his behalf. He made advances to P on

the security of these goods in his possession. The principal, P, later sought to revoke
his agent’s authority. Held: the authority was irrevocable as it was coupled with an
interest i.e. the agent was appointed in order to enable him to secure some benefit
already owed to him by his principal.

7.3 Death, insanity or bankruptcy

If either the principal or agent dies or becomes insane or becomes a bankrupt, the
agency comes to an end.

7.4 Expiration of the agency contract

If the agency is appointed for a fixed term (e.g. this agency shall expire on 1 January
2014, then the agency automatically comes to an end on 1 January 2014). If no time
limit is fixed, the agency agreement may provide for termination on the giving of notice
by either side.

7.5 Frustration

As with other contracts, an agency contract can be frustrated by events. For example,
the contract is made illegal or the agent becomes an alien enemy. Under such
circumstances the agency contract is frustrated and the agency is terminated.

7.6 Repudiation by either party

Where either principal or agent performs an act of repudiation, for example, the agent
has been guilty of misconduct when he accepts bribes, then the contract of agency
automatically comes to an end and he will also be liable for breach of contract.

8. Some Common types and classes of Agents

We will finally consider some common types and classes of agents found in the
commercial and business world as follows:
8.1 Universal

This is an agent appointed to handle all the affairs of his principal. This type of agency
is very rare. It has to be created by deed and is a form of “general power of attorney”.

8.2 General

This is an agent who has authority to represent his principal in all business of a certain
kind, for example to manage all my shops. Such an agent has implied authority to
represent his principal in all matters incidental to the business in question. A third party
who deals with the agent is not affected by any secret restriction on the agent’s
authority. (See for example, the case of Watteau v. Fenwick, above).

8.3 Special

An agent appointed for a particular purpose which is not part of his normal activities,
and who is therefore given only certain limited powers, for example, a bank manager
is asked by a friend to act as agent in the sale of the friend’s house.

8.4 Factors

A factor is an agent employed to sell goods for a commission. A factor has possession
of goods, unlike a broker, and can therefore claim a lien (i.e. a right of possession) over
the goods for the unpaid commission. He can also sell, pledge and insure the goods
even if he exceeds his authority by doing so. Once the factor has possession of goods
he can give good title to an innocent purchaser of the goods and his principal may be
estopped (prevented) from denying that he was entrusted with the goods.

8.5 Brokers

A broker is a mercantile agent employed to make commercial contracts between other

parties for a commission called a “brokerage”. An example is a stockbroker, an
insurance broker etc. Unlike a factor, a broker does not have possession of goods for
sale and cannot sell in his own name. They have no lien over the goods and no power
to pledge them. A broker is first and foremost an agent of the seller of goods or service,
but on making the contract with the purchaser he also becomes agent for the purchaser
as well.

8.6 A Banker

The relationship between a banker and his customer is primarily that between debtor
and creditor. However, in addition to this, an agency also arises when the banker is
employed to pay out sums of money at the direction of his customer (e.g. payment of
cheques under a current account). A banker has a general lien over the securities
belonging to his customer and can retain such securities pending settlement of debts
owed by the customer to him. He must not disclose the state of a customer’s account,
unless under compulsion of law.
8.7 Auctioneers

Auctioneers are agents employed to sell goods by auction. An auctioneer is primarily

the agent of the seller, but when he accepts a bid from a purchaser he becomes agent of
the purchaser as well. Auctioneers do not warrant (or guarantee) the seller’s right to sell
(i.e. the seller’s title), but is liable to the purchaser for damages if he fails to deliver
property sold and is liable to the seller if he delivers before receiving payment. He has
possession of goods and a lien over them for his commission. He must sell only for cash
and at the best price available. If his principal, the seller, fixes a minimum reserve price,
he will be liable in damages to the seller if he sells below the reserve price. The buyer
however gets a good title to the goods unless he knew of the auctioneer’s breach of
authority.
SESSION 7: The Law of Agency

Essential points

o Agency created by express agreement and implied agreement

o Apparent Authority
o Agency created by Ratification
o Agency created by Operation of law
o Relationship between the Agent and the Principal
o Relationship between the Agent and the Third Party
o Relationship between the Principal and the Third Party
o Termination of Agency

Visual Overview

Practice Questions (7)

1. An agent may still have authority beyond that expressly stated in his agreement with the
principal. Discuss.

2. Discuss the precautions a principal may take after terminating a disgruntled agent.
3. The duties of an agent are more than that expressly stated in the agreement with his
principal. Discuss.

4. Paul is the sole proprietor of Paul Smith Accessories (“PSA”), specialising in the sale
of accessories for smartphones. He employed William to run his shop in Rochor Road.
William has been purchasing smartphone accessories for PSA. On 1 May 2015, Paul
terminated William’s employment with immediate effect due to a very serious
disagreement over the accounts. Paul took over the management of the shop in Rochor
Road and kept the termination secret.

On 1 June 2014, the manager of Vincent Accessories Pte Ltd (“VAPT”), a regular
supplier of PSA, visited Paul to follow-up on the outstanding payment for smartphone
accessories ordered by William. VAPT produced invoices dated 1 April 2015 and 3
May which were acknowledged by William.

Paul refused to pay VAPL as he had not ordered the smartphone accessories and there
were no records in PSA’s books. Paul replied that is must be an “April Fools” joke.
Advise Paul.
 SESSION 8

LEGAL ASPECTS OF BUSINESS ORGANISATIONS

Session Learning Objectives.

When you finish this Session, you should be able to:

• State what sole proprietorships, partnership and companies are

• Explain the legal effects of incorporation
• Explain the lifting of the veil of incorporation
• Distinguish between different types of companies
• Describe the nature of prospectus
• Explain the nature of memorandum and articles of association
• State the “indoor management” rule established in Turquand’s case.

Session Outline

Introduction
1. Sole Trader or Proprietorship
2. Partnership
2.1 Ordinary Partnership
2.2 Limited Partnership
2.3 Limited Liability Partnership
3. The Incorporated Company: Introduction & Sources of Company Law
3.1 Administration of the Singapore Companies Act
3.2 Types of Companies
3.3 Factors affecting choice of corporate form
3.4 Procedure of Incorporating a Company
3.5 The Effects of Incorporation
3.6 The Effects of Incorporation: The “veil of incorporation”
3.7 Incorporated company can sue & sued in its own name
3.8 Incorporated company can own, hold, manage and dispose of its own property
3.9 Incorporated company has perpetual succession

Introduction: Business Organizations in General

In Singapore there are many types of business enterprises used by business persons to
undertake business activities and transactions. The law treats each enterprise
differently. Most business enterprises in Singapore will usually be one of the following
three types; which are:

1. The sole trader or proprietorship

2. The partnership firm; comprising ordinary partnerships and the new forms of
partnerships like the limited liability partnership (LLP) and the limited partnership
(LP).
 3. The incorporated company; comprising private companies and public companies and
their variants.

1. Sole Trader or Proprietorship

This form of business enterprise is simply one man in business for himself. He owns
and manages the business himself, bears all the risks and takes all the profits. This
medium of business is chosen because the capital fund needed is usually within the sole
proprietor’s own financial resources and therefore it is not necessary for him to invite
others to join the business. Another pertinent reason may be because he does not wish
to share his profits with others or perhaps to keep his financial affairs solely to himself.
The legal characteristics of this particular form of business enterprise may be
summarized as follows:-

a) The owner and his business are not separate entities

b) As the sole proprietor is an individual, there is legally no distinction between his

personal assets and the assets of his business. The business cannot own assets, as it is
not an entity.

c) The proprietor has unlimited liability, this means he runs the risk of being made a
bankrupt if he is not able to settle his business debts. His personal property such as his
house, car or savings accounts are at risk and may be seized by his creditors to pay his
losses.

d) The proprietor sues and is sued in his own name and not in the name of his business.

e) No particular legal formalities are required to dissolve the business. He may just simply
“close shop” provided, of course, that all his creditors are fully paid. The business may
also be dissolved upon his death, bankruptcy or insanity.

f) The sole proprietor is generally not regulated by any legislation except that he must
register his business with the Accounting & Corporate Regulatory Authority (ACRA)
under the provisions of the Business Registration Act (BRA). Failing to do so is an
offence punishable with a fine or term of imprisonment or both (Section 12 BRA).
Furthermore, he is unable to enforce any contracts against a third party whilst using the
unregistered Business Name (Section 21 BRA). Under the BRA, Certain classes of
persons are exempted from registration such as hawkers, taxi drivers, domestic
craftsmen, private fish or prawn pond keepers. Similarly, professionals such as lawyers,
doctors and accountants need not register. Societies, co-operatives and charitable
organisations are also not required to be registered with ACRA.

2.1 Ordinary Partnership

By virtue of the Singapore Application of English Law Act, the U.K. Partnership Act
applies in Singapore. A partnership is defined as the relationship, which exists between
persons carrying on a business with a view of profit. Generally speaking, each and every
partner would contribute something to the partnership business like property, financing
 or skill. A partnership may be formed by oral or written agreement. If it is in writing it
may take the form of an agreement or a formal Deed. This will make clear the nature
of the business, the rights and duties of the partners, contribution of each partner,
sharing of profits and dissolution and other important matters. A partnership has the
following distinct legal characteristics:

a. All partnerships must be registered under the provisions of the Business Registration
Act and this entails each partner submitting his personal particulars to ACRA. Failure
to register is an offence punishable with a fine or a term of imprisonment or both.

b. A minimum of 2 persons or a maximum of 20 persons may form a partnership. Under

Section 17 of the Singapore Companies Act (SCA) it is provided that any partnership
with more than 20 partners must be incorporated as a company. But a partnership can
have more than 20 partners if it is formed for the purposes of carrying on any profession,
which by law can be exercised by persons who possess the stipulated qualifications.
Thus, professionals such as accountants, doctors, lawyers and dentists can practice in
partnerships of more than 20 persons.

c. Each partner is entitled to share equally in the management of the business unless the
partnership agreement provides otherwise. Management decisions are usually made by
majority vote or mandate.

d. All partners are agents of the partnership firm. Section 5 of the Partnership Act
provides that the partnership firm is bound by the acts of a partner acting within his
authority (both actual and apparent). Thus a partner would usually have authority to
buy and sell goods on behalf of the partnership, issue cheques or give receipts
acknowledging payment.

e. All partners share equally in the profits and losses of the firm, unless agreed otherwise
by agreement. Distribution of profits may be unequal if there is an expressed agreement
among the partners to this effect.

f. The partnership firm does not have a separate legal entity of its own. Thus the firm’s
property does not belong to the firm but instead belongs to the partners. Each partner
has unlimited liability for the debts of the firm and thus personal assets of all partners
may be seized to settle the debts of the firm. He is liable jointly and severally for the
debts of the enterprise. This means that one partner may be held liable for the
wrongdoings of another. If a partner is sued, and if the claim is not paid or fully paid,
the claimant (plaintiff) may subsequently still sue the other partners. An easier
alternative usually practiced is that a single action may be brought against all the
partners at once by suing in the name of the firm. Once the firm is held liable, the
judgment can be enforced against the firm. If the firm’s assets are insufficient, each and
every partner’s personal property may be seized to satisfy the partnership debts –
partners thus have joint and several liability as well as unlimited liability.

g. Unless the partners have agreed otherwise to the contrary, death or bankruptcy of a
partner automatically dissolves the firm.
2.2 Limited Partnership

With effect from May 2009, it is now possible to set up a “Limited Partnership” (LP)
under the Limited Partnership Act. A Limited Partnership is not a separate entity
distinct and separate from the partners, unlike a Limited Liability Partnership (LLP). It
is generally more similar to an ordinary partnership with a notable difference – that of
the role of the limited partner(s). The LP may be ideal for investors who do not want to
take active roles in the management of the business or incur liability beyond what they
have invested; they can be limited partners. The general partner(s) benefits from the
investment by the limited partners, but remains liable for all the debts of the LP. Details
include:

A) The presence of at least 1 general partner and 1 limited partner (although no maximum
number of partners is prescribed)

B) Must be registered under the Limited Partnership Act, disclosing all limited and general
partner(s) (NOT under the Business Registration Act)

C) The name of the enterprise must contain or end with “limited partnership”/LP

D) A general partner manages the LP and is liable for all the debts and obligations of the
LP – he has unlimited liability

E) A limited partner’s liability is limited – effectively capped at the amount of his agreed
contribution to the LP. His position in the enterprise is subject to the following strict
conditions:

❑ He must not take part in management of the LP, otherwise he will be liable for debts
and obligations while he was in management
❑ His acts and conduct cannot and does not bind the LP
❑ He cannot dissolve the LP by serving notice of resignation or retirement
❑ The LP will not dissolve when he dies, goes insane or is made bankrupt

2.3 Limited Liability Partnership

This is a sort of “hybrid” between an ordinary partnership and an incorporated

company, since the LLP combine the positive features of an ordinary partnership with
that of an incorporated company. We have seen the disadvantages of unlimited liability,
so this type of partnership is one where the individual partner’s liability is generally
limited. It also creates an enterprise which has a separate legal entity from the partners
who comprise the firm. Registration of the business has to be done at ACRA under the
provisions of the Limited Liability Partnership Act 2005 and once it is registered, the
enterprise must have the acronym “LLP” as part of its name. The Limited Liability
Partnership Act (LLPA) also provides that the enterprise must have at least 2 partners
(although no maximum limit is prescribed) and at least 1 manager, who may also be a
partner. The unique characteristic of such an enterprise may be summarized as follows:-

A. So far as the “internal relations” among the partners are concerned, it is run very much
like an ordinary partnership. For example; there is equal right of management & control
 among partners unless agreed otherwise, equal share in profits & losses (unless agreed
to the contrary) and decisions are generally made by majority mandate.

B. In its “external relations” with outside third parties, it is run and perceived very much
like an incorporated company, this is because under Section 4 of the LLPA:-

➢ It is recognised by law as a body corporate – separate legal entity

➢ It has perpetual succession
➢ It can sue and be sued in its own name
➢ It can acquire, own and hold property in its own name
➢ The partners have limited liability

C. Every partner of the LLP has limitation of liability and is not personally liable to
contribute in the event of a winding up of the LLP. Upon dissolution or winding up of
LLP, liability is limited to the amount of capital actually contributed by the individual
partners. There is no personal liability for the debts of the firm or for another partner’s
wrongdoing. He is only personally liable (unlimited liability) for his own wrongdoing
e.g. his own negligence. Because of this significant benefit of limitation of liability, the
LLP is saddled with an important responsibility; it is subjected to financial reporting
requirements, essentially to lodge annual declaration of solvency with ACRA.

D. As far as the ending of the enterprise is concerned, the LLP dissolution process is quite
similar to that of an incorporated company.

3. The Incorporated Company: Introduction & Sources of Company Law

The basis of Singapore company law is the Singapore Companies Act Cap 50 (SCA).
The SCA, however, does not purport to be a comprehensive code on Singapore
company law. In most respects, the Act preserves the continued application of the
common law and its rules. It was until 1993 a matter of continuing difficulty whether
and to what extent the body of English Common Law applied to Singapore. This matter
has now been resolved with the enactment of the Singapore Application of English
Law Act. Under Section 3 of this Act the common law of England is to be part of
Singapore law in so far as the circumstances permit and subject to such modifications
as those circumstances may require. In addition, Singapore company law is also greatly
influenced by the Malaysian Companies Act and the Australian Corporations
Legislation as well as precedents and case laws emanating from these two jurisdictions.

3.1 Administration of the Singapore Companies Act

The administration of the SCA comes under the direct supervision of the Registrar of
Companies who is a key official within ACRA. To ensure compliance with the
provisions of the SCA, he is given authority to keep and inspect any books, minutes,
registers or documents. Those documents which are required to be filed and kept by
him may be inspected by any member of the public on payment of a search fee. The
registrar is given wide powers of discretion and may refuse to register any document
and to require amendments to be made where in his opinion it contains any matters
contrary to law or by reason of any omission or misdescription has not been duly
completed or does not comply with the provisions of the SCA or contains any errors,
 alterations or erasures. The SCA further empowers him to apply to court for orders
directing the lodgment or filing of any return, accounts or other documents or the giving
of notice.

3.2 Types of Companies

There are various types of companies which can be registered under the SCA, these
may be summarised as follows: -

A. Private Companies - Under Section 18 of the SCA a private company is one where its
articles of Association:-

➢ Restricts the right of transfer of shares (so that a member must seek the board
of directors approval before he/she is allowed to transfer his/her shares).
➢ Limits the number of members to 50.
➢ Does not allow the company to invite members of the public to subscribe for its
shares or debentures.
➢ Does not allow the company to invite members of the public to deposit money
with the company.

A private company must have at least 1 member and it can be limited by shares,
guarantee or unlimited. A private company may be created by incorporation from the
very start under the provisions of the SCA or it may be converted from a public
company under Section 31. A private company is identified by the word “private” (or
abbreviated “Pte”) as part of its name.

B. Exempt Private Company – According to Section 4 of SCA, this is a company which

has no more than 20 members and none of its shares are held by another company. It is
not identifiable through its name but only through its annual return, which would
indicate that, no financial statements have been filed. The status is not a permanent
feature and is dependent on the conditions being satisfied annually and certified by its
secretary, director and auditor as such. An exempt private company has certain
advantages. Firstly, in recognition of the needs of privacy for what are essentially in
fact “incorporated sole proprietors” or “incorporated partnerships”, they are exempted
from filing its balance sheet and profit and loss account with its annual returns to
ACRA. This does not mean that the company need not prepare its financial statements,
but merely that it does not have to be filed. The second important attribute is that the
company can make a loan of money or give guarantees on behalf of its directors, which
would otherwise be unlawful under Section 162.

C. Public Companies - A public company is defined by Section 4 of SCA as being a

company other than a private company. In essence it is everything a private company
is not. This means it has no share transfer restriction, has more than 50 members, can
invite public subscriptions for its shares or debentures and is not prohibited from issuing
any invitation to the public to deposit money with the company. A public company can
be limited by shares, by guarantee or unlimited. It must have at least 1 member although
there is no maximum number.
 A public company may be created by incorporation as a public company or by
conversion from a private company. Having obtained the Certificate of Incorporation
after filing the requisite documents, the public company may proceed to invite public
subscription of its shares. In so doing it must prepare and register a prospectus in the
form provided for under the SCA. A public company cannot proceed to commence
business until it has obtained from the Registrar a Certificate to Commence Business.
This certificate is normally only available if the company has succeeded in obtaining a
listing on the Singapore Exchange (SGX). A company that is listed on the stock
exchange must have a minimum of 500 shareholders (members).

D. Companies limited by Guarantee - Companies limited by guarantee can be either

private or public companies. Such companies are formed on the principle of having the
liability of its members limited by the memorandum of association to such amount as
the member may respectively undertake to contribute to the assets of the company on a
winding up. Under Section 22 of the SCA the memorandum of such a company must
state that the liability of its members is limited and that each member undertakes to
contribute to the assets of the company. In the event of the company being wound up
while he is a member or within one year after he ceases to be a member, he remains
liable for the debts and liabilities of the company. Under Section 35, the articles shall
state the number of members with which the company proposes to be registered. If such
number is increased, the company shall give notice to the Registrar within one month
after the increase. Such companies are formed mainly for the purpose of promoting
clubs, associations or charitable institutions where no division of profits is
contemplated.

E. Holding and Subsidiary Companies - Under Section 5 of the SCA, Company A is the
holding company of Company B, called the subsidiary company, if the following
conditions are met: -

❑ Company A controls the composition of the Board of Directors of Company B.

❑ Company A controls more than half the voting power of Company B; or
❑ Company A owns more than half the issued share capital of Company B (not counting
preference shares).

3.3 Factors affecting choice of corporate form

Any business person or entrepreneur intent upon forming a company must decide on
the type of company to form. As we can see above, there are several possible types of
corporate forms. In many cases the selection of the type of company chosen is
dominated by several major factors. For example, a trading business with the usual
speculative nature would probably select private limited status with the view to
converting to public if the business demands for capital warranted such a change. The
types of factors, which influence choice of corporate form, are:

➢ The objectives of the business, i.e. is the business commercial, professional, charitable
or non-profit making?
➢ The capital needs of the business. Is public investment necessary?
➢ Is the company required by any external regulations, for example a professional body,
to adopt a particular from?
➢ The extent of risk in the operation of the business for members?
 ➢ The importance of secrecy concerning the company’s financial position.

3.4 Procedure of Incorporating a Company

To form a company, certain legal and procedural requirements under the SCA must be
observed and complied with. The following are the procedures (in brief only) for
registering an incorporated company:

A. Choosing a Corporate Name

A name for the proposed company must be chosen. The SCA clearly forbids a name,
which is identical or similar to the name of an existing company. Where a person is
aggrieved by the incorporation of a company with a name, which he/she believes is
liable to cause confusion between his her goods or services and those of the new
company, a possible action may lie in the civil law under the tort of passing-off. It is
also advisable not to use a foreign company’s name unless a franchise has been granted
by the company. The name must not be a trademark or patent name of any product.
Thus, it may be wise to make a cursory check at the IPOS (Intellectual Property Office
of Singapore) before deciding on a possible name. Words like State, National,
Singapore, Merlion, Government, Temasek, Raffles, Republic, and Lion City would
not be approved by the Registrar as these words suggest connection with the
government, a government department or statutory body. Approval from the Monetary
Authority of Singapore must be sought for the use of words like bank, insurance or
finance. Permission from the Singapore Tourism Board is necessary for the use of the
words Tours, Travel or Tourist. Similarly, approval from the Ministry of Education is
necessary for use of the words like Institute, College or Academy.

B. Reserving a Name

An application is required to be filled and submitted to ACRA if a proposed name is to

be reserved. If the registrar approves the use of the name, the name would be reserved
for 2 months and during this period no one is allowed to use the name.

C. Lodging the Incorporation documents at ACRA

The following documents must then be lodged with the Registrar at ACRA, these are:

1. Memorandum of Association - This is the company’s Constitution or charter and sets

out its name, share capital and the scope of its business activities. In essence it sets out
matters like:

❖ The name of the company

❖ The objects of the company
❖ The amount of share capital, if any.
❖ The liability of the members (whether limited or unlimited)
❖ The names, addresses and occupations of the subscribers
2. Articles of Association - These are regulations meant for the internal management of
the company’s business affairs. They contain regulations relating to matters like:

❑ Allotment, issue and transfer of shares and dividends

❑ Increase of share capital
❑ Notice of general meetings, proceedings at general meetings
❑ Appointment of directors, powers and duties of directors
❑ The position of the secretary
❑ Matters concerning accounts and audits.

3. Statutory Declaration of Compliance

This document states that all matters relating to the registration of the company has
been done in compliance with the Companies and its regulations. This declaration may
be made by the company’s first director or the secretary or the solicitor accountant
engaged to form the company.

4. Consent to Act

The directors must state that they have consented to act as directors. They must also
state that they have not been disqualified to act as directors. An undischarged bankrupt
cannot act as a director without the permission of the court.

5. Certificate of Identity

This document identifies the officers and subscribers of the company.

6. Certificate of Incorporation

Once the registrar is satisfied that the documents are in order, he will issue a Certificate
of Incorporation. A private company can immediately commence business after
receiving this certificate. In relation to a public company, in addition to the above-
mentioned documents a public company is required to submit a prospectus to the
registrar. Once the Registrar issues the public company with a trading certificate to
commence business only then can the company commence such business.

3.5 The Effects of Incorporation

Under Section 19 of the SCA, incorporation has the following consequences: -

a. The company is a body corporate, i.e. a legal person separate and distinct from its
members.

b. The company as a legal person can sue to enforce its legal rights or be sued for breach
of its legal duties. If a company has a right to sue someone it is only for the company
to sue. If a director has breached any of his duties, it is for the company to enforce those
duties. This is called the “proper plaintiff rule”.
c. The company has perpetual succession such that the death of any of its members does
not at all affect the existence of the company. A company is created by a process of law
called incorporation and its life can only be terminated by a process of law called
winding up.

d. The company can own its own property. The property of the company belongs to the
company itself and not to individual members.

e. In the case of a company limited by shares, the liability of its members is limited. This
means that member’s liability for the debts of the company is limited to the amount
fully paid up on his shares.

Main Summary of Differences between the various Business Organizations

Sole Proprietorship Partnership, LP & Incorporated Company

LLP
Legal Status No separate legal Generally no separate Separate legal status
status legal status for (S.19 SCA)
ordinary partnerships
and LP. LLP has
separate legal status
(S.4 LLPA)
Liability of Sole trader is solely Partners have Shareholders’ liability is
Owners responsible for the unlimited liability limited to the paid-up
debts of the business and liability is value of the shares they
usually joint and hold. No further liability
severable in ordinary for the debts of the
partnership & LP company beyond this.
(general partners)
except for partners in
LLP
Transferability Transfer of ownership Partners usually Shares are generally
of Ownership means the sale of the cannot transfer their transferable although it
business share of the is usual for companies
partnership without to have conditions
the agreement of the restricting the transfer of
others shares
Existence The business In ordinary Company has perpetual
existence comes to an partnerships, it succession. When a
end when the dissolves shareholder dies, it does
proprietor dies, automatically when a not affect the life of the
becomes insane or partner dies or company.
bankrupt. withdraws or
becomes incapable of
continuing as a
partner. LLP has
perpetual succession.
Management The proprietor Partners share Management powers
manages the business. equally in managing usually vest in the
He can also employ the partnership. Board of Directors
someone to do the although the meeting of
job. shareholders will retain
the right to decide on
some important matters.
Formalities Few. Few, except with Companies subject to
LLP there is a need certain formalities
to submit annual during registration and
declaration of is required to file annual
solvency. returns, have AGM etc.
during its life
Financing Self-funded. Limited Capital available Companies have greater
means of raising depends on the flexibility at raising
funds. Difficulty in number of partners finance. If necessary,
obtaining bank loans. and their respective they may raise finance
contributions. from the public –
through IPO.
Taxation Little tax incentives Little tax incentives. Many tax incentives
for the business. Partner’s profits available for different
Owner’s profits taxed treated as income tax. types of companies.
as income.

3.6 The Effects of Incorporation: The “veil of incorporation”

In law, a registered company is a legal person separate and distinct from the members
who compose it. This means it has a legal personality all of its own. This fundamental
principle of company law was first established in the case of Salomon v. Salomon Co
Ltd 1897. The implications of this decision was to set the basis of company law, for
while legislation had establish the framework of company formation, operations and
liquidation, it was essentially left to the judiciary to develop a common law theory that
would accommodate a business entity with a personality independent of the members
who compose it. The facts of this case were that Salomon had incorporated his boot
and shoe repair business (previously a sole proprietor), transferring it to a company.
He took all the shares in the company except six, which were held by his wife, daughter
and four sons. Part of the payment for the transfer of the business was made in the form
of debentures (the company acknowledging that the loan was secured) issued by the
company to Salomon. The company’s business deteriorated and the unsecured
creditors attempted to put the company into liquidation. A dispute arose as to whether
Salomon or the unsecured creditors had priority in relation to the payment of the debts.
It was argued by the liquidator on behalf of the unsecured creditors that Salomon’s
security was void as the company was a sham (i.e. the transaction was a fraud) and the
company was in reality the agent of Salomon. The Court (House of Lords) held that this
was not the case and the company was a distinct entity separate from the shareholders,
which compose it. The company had been properly incorporated and the loan was
genuine, so therefore the security was valid and could be legally enforced.
3.6.1 Lifting the Veil of Incorporation

There are exceptions to the Salomon principle where the law disregards the separate
legal existence of the company. Under these exceptions the members are identified with
the company, as a single person i.e. there is no distinction between them. This is
sometimes known as “lifting the veil of incorporation”. The general purpose here is to
make the members or controllers of the company responsible for the company’s acts or
indebtedness. The following are some exceptions that have been provided by
legislation as well as the common law: -

1. Under Section 144 of the SCA, where an officer of a company signs on behalf of the
company, a bill of exchange, cheque or promissory note or orders goods in which the
company’s name is not mentioned, the officer is personally to the holder of the
document unless the debt is paid by the company.

2. Under Section 339 of the SCA, where an officer of the company contracted a debt on
behalf of the company and knows or ought to know that the company has no reasonable
expectation to settle its debts as it falls due, the officer may be personally liable for the
debt.

3. Under Section 340 of the SCA, if it appears to a court that a company is formed for a
fraudulent purpose or is engaged in fraudulent trading, any persons who knowingly
participate in the fraud shall be personally liable for the debts and liabilities of the
company.

4. Under Section 403 of the SCA, where an officer of a company willfully pays or permits
dividends to be paid where there are no available profits out of which to pay them, he
is personally liable to the creditors of the company for the amount of debts due to them
to the extent by which the dividends exceeded the available profits.

5. When the company was formed for fraudulent purpose. The courts generally will
not permit the corporate form to be adopted to perpetrate or conceal a fraud. In Jones
v. Lipman 1962, a person had agreed to sell a house. Subsequently he changed his
mind. With a view to defeat an order for specific performance of the sale contract, the
vendor transferred the house to a company, which he controlled. The court held that
this fraudulent device would not be permitted. The veil was lifted and specific
performance was ordered against the vendor and his company. Similarly, in Gilford
Motor Co Ltd v. Horne 1933, an employee had entered into an agreement not to
compete with his former employer after ceasing employment. In order to avoid this
restriction, the employee set up a company and acted through it after he had ceased
employment. The court held that this fraudulent maneuver would not be tolerated. The
veil was lifted and an injunction was issued against both the employee as well as the
company.

3.7 Incorporated company can sue & be sued in its own name

An incorporated company may sue and be sued only in its own name. This right of
action is sometimes called the “proper plaintiff” rule. The rule was first established in
the case of:-
 Foss v. Harbottle 1843

In this case, a small group of minority shareholders of an incorporated company

alleged that the company’s directors had caused loss to the company in a transaction
under which it was claimed that they sold their own land to the company at a price
above its true value. The court held that the company was the proper plaintiff to sue the
directors and if it had suffered loss it was for the company to litigate to recover the loss
and not for the group of minority shareholders to do so.

Sometimes, the strict application of the “proper plaintiff” rule can lead to grave
injustice, so in order to ensure fairness, the courts have allowed a strange device known
as a “derivative action” to be used to pursue justice yet at the same time avoid
inconsistency. What this means is that the court may, under exceptional circumstances,
allow an individual to bring an action on behalf of the company, to right a serious wrong
done when the company itself is reluctant or ill-prepared to bring such an action. One
of these exceptions is when a fraud is perpetrated against minority shareholders by the
directors or majority shareholders. An illustration of this can be seen in the following
case:-

Cook v. Deeks 1916,

In this case, the company was a railway construction company that had 4 directors. 3
of the directors on becoming aware of a prospective contract available to the company
took over the contract in their own name and formed a new company to carry out the
works. Since the 3 of them were also majority shareholders in their other capacity as
shareholders, they called a general meeting and using their majority votes passed a
resolution stating that the company had no interest in the construction contract. The
remaining director (who was also a minority shareholder) was very unhappy and
strenuously objected to this. He sued. The court held that the contract clearly belonged
to the company and the directors were in breach of their fiduciary duties by
misappropriating the company’s property. The minority shareholder was permitted to
sue in the company’s name to enforce the company’s rights.

In Singapore, the position is now regulated by Section 216A of the SCA. This provision
permits enforcement of corporate rights by an individual through a “statutory derivative
action”.

3.8 Incorporated company can own, hold, manage and dispose of its own property

This means that the property of the incorporated company belongs to the company itself
and not to individual members. An illustration of this principle can be seen in the
following case:

Macaura v. Northern Assurance Co Ltd. 1925.

M, who was the owner of timbers estates, formed a company and sold the timber to that
company. He was the sole owner and major creditor of the company. He insured the
timber in his own name (instead of the company’s name). The timber was destroyed by
 fire and M made a claim under the fire policy. The Court held that he could not succeed
in his claim as he had no insurable interests in the company’s assets. It was not his
timber but that of the company (i.e. a separate legal person or entity). In this case, he
ought to have insured the timber in the company’s name after the sale of the timber to
the company.

3.9 Incorporated company has perpetual succession

The concept of perpetual succession means that the death, bankruptcy or insanity of
any of its members (or shareholders) does not at all affect the existence of the company.
A company is created by a process of law called incorporation and its life can only be
terminated by a process of law called winding up. A practical illustration of this
principle can be seen in the following case:

Re Noel Tedman Holdings Pty Ltd. 1967.

Mr. Noel Tedman and his wife were the sole shareholders and directors of two
companies. They were both killed in a road traffic accident and the question arose
whether the company would still be in existence. The court held that the companies
continued to exist as owners of property and parties to uncompleted contracts. The
personal representatives of the deceased shareholders were given the right to appoint
new directors of the companies to enable the companies to deal with their business
affairs.
SESSION 8: Legal Aspects of Business Organizations

Essential points

o Sole Trader or Proprietorship

o Types of Partnerships
o The Incorporated Company and the Singapore Companies Act
o Types of Companies and choice of corporate form
o Incorporating a Company
o The “veil of incorporation” and lifting the veil

Visual Overview
Practice Questions

1. Complete the table below for unincorporated entities.

Unincorporated Governing Disadvantages Advantages

entities legislations

2. Complete the table below for incorporated entities.

Incorporated Governing Disadvantages Advantages

entities legislations

3. Briefly describe the two stages of incorporating a company.

4. Arthur was appointed as a sales and marketing director of Advance Tutors Pte Ltd (“AT”)
on 1st January 2014. AT is in the tuition business. His contract of employment with AT
contains a clause which prohibits Arthur from competing against AT for a period of 4
months after he leaves AT. Most of AT’s customers are primary school students from
Tampines.

After working for 1 year, Arthur resigned from AT to incorporate Art Cost Tutors Pte
Ltd. (“ACT”). Arthur employed part-time tutors and gave them names of students from
AT to contact. ACT started its first tuition class in Tampines on 1st March 2015. Arthur
is a major shareholder of ACT and he appointed Peter, a minority shareholder, as ACT’s
managing director.

Advise AT.
 SESSION 9

CORPORATE MANAGEMENT ISSUES IN COMPANY LAW

Session Learning Objectives.

When you finish this Session, you should be able to:

• Explain the role of a company secretary and auditor

• Explain the purposes of company meetings
• Describe the types of resolutions passed at company meetings
• Explain the role and duties of a company director.

Chapter Outline

1. Definition of Company Officer

1.1 Company Secretary
1.2 Company Auditor
2. Company Director
2.1 The Board of Directors
2.2 Appointment of Directors
2.3 Directors Remuneration, salary and pay
2.4 Resignation and removal of Directors
2.5 Retirement by rotation of directors
2.6 Automatic Vacation of Office by Directors
2.7 Disqualification Provisions concerning directors
2.8 Duties of Directors
2.8.1 Fiduciary Duties
2.8.2 Duties of Care and Skill
2.8.3 Directors’ Statutory Duties
2.8.4 Insider Trading
3. Corporate Meetings & resolutions
3.1 Meetings
3.2 Company Resolutions
3.3 The Indoor Management Rule

Management decisions within a company are divided between the directors and the
members. There are a number of powers which are exercisable solely and only by the
members (shareholders) under the provisions of the Singapore Companies Act,
although where the vast majority of these powers are concerned, the company is free to
choose its own procedures. Usually these are laid down in the Articles of Association
and these often give very wide powers to officers and directors especially in the day-
to-day operations of the company. The other issue this topic will be looking at relates
to the formal holding of meetings, the various types of meetings and also the types of
resolutions that invariably are passed during the course of such meetings and its impact
on the company.
1. Definition of Company Officer

The term “officer” which is often used in the Singapore Companies Act to impose
obligations on such persons, is defined by Section 4 of the SCA to include a director,
manager or secretary, or employee of a company, any auditor or receiver and manager
appointed by a creditor and any liquidator who is appointed in a winding up. The
powers exercised by these persons depend on what is mandated under the SCA, and
also what is delegated to them by the board of directors. Their capacity to bind the
company also depends very much on the agency principles of actual and apparent
authority. We shall now look at 2 particularly important “officers” of the company and
consider their roles and duties as follows:

1.1 Company Secretary

Under the provisions of the SCA every company must have at least one company
secretary who has to be a natural person (i.e. a human being and not a company)
ordinarily resident in Singapore (at least a permanent resident). He/she is appointed by
the board of directors and is only removable by the board (Table A, Art 95). There is
nothing in the SCA preventing a director from also being appointed the company
secretary of the same company, although it would not be possible for him/her to act in
this dual capacity at the same time especially if there might be a conflict of interest. In
exceptional cases (e.g. single director companies) that director cannot also be
designated as company secretary: S. 171(1E) SCA. The Singapore Companies Act
mandates that the position of company secretary cannot be left vacant for a period of
more than 6 months otherwise the company may be liable to face a fine.

So far as the legal status of a company secretary is concerned, he/she is deemed to be

an “officer” of the company under Section 4 of the SCA and is considered the chief
administrative officer pursuant to Section 171 of the SCA. In the case of public
companies, the company secretary must possess the necessary knowledge, experience
and qualifications which are set out in Section 171(1AA), although this requirement is
usually waived for private companies. Being the chief administrative officer, he/she has
both actual and “apparent authority” to bind the company in all matters relating to
company administration. This is clearly illustrated by the case of:-

Panorama v. Fidelis 1971

A company secretary had hired limousine cars from the plaintiff using the company’s
stationery letterhead and claiming that the cars are be used for company business.
Instead he had used the cars for his own personal matters. The company refused to pay
for the hiring costs and the plaintiff sued. The Court held that the company was bound
on the hiring contract on the basis of apparent authority.

The company secretary has the duty to ensure that the many administrative matters
required under the Singapore Companies Act are properly adhered to. His/her duties
include:-

➢ Ensuring the company and its various officers comply with SCA and all relevant
regulations
 ➢ Calling meetings, preparing agendas, issuing notices and taking minutes during the
course of these meeting
➢ Liaising with ACRA and other agencies, including MAS & SGX (Public companies)
and IRAS on taxation matters
➢ Filing returns and attending to all administrative matters

1.2 Company Auditor

Every company must have an auditor (Section 205 SCA). He must be a qualified
accountant. The company auditor is appointed by the general meeting of shareholders
on the recommendation of the board of directors. He is appointed within 3 months of
the company’s incorporation and hold office until the next AGM (although he may be
re-appointed again the next year). His duties are to report to the general meeting on the
state of the company’s financial accounts. This would entail scrutinizing, checking and
certifying the company’s accounts and also detecting errors, omissions and fraud
concerning the company’s financial position. Under Section 207 of the SCA, if any
discrepancy, fraud or dishonesty is found he must report to ACRA and relevant
authorities (e.g. CAD, MAS and SGX etc.) as soon as practicable.

At the close of each financial year end, the auditor is entitled to receive notice of all
meetings (especially AGM or EGM) and may attend and speak at any meeting
concerning the financial affairs of the company. Legally, he is likened to a “watchdog”
and reports to the shareholders at the AGM on the company’s accounting policies, profit
and loss account, balance sheet and consolidated accounts (if a holding company). At
these meetings, he is expected to give the shareholders his opinion as to whether these
accounting records give a “true and fair view” of the company’s financial position. An
auditor is liable for negligent misstatement under the law of tort.

2. Company Director

Under Section 4 of the SCA, the term “director” includes: -

a. Any person occupying the position of director of a corporation;

b. Includes a “shadow director” who is not named as a director as such but whose
directions or instructions the officers of the company are accustomed to act upon (i.e.
one who pulls the strings from behind the scene); or

c. An alternate or substitute director.

In practice, the term “director” covers a number of various types of individuals. The
usual types of directors who may work within the company’s management structure
are:

i. The Managing Director. He is often a full-time officer of the company who carries out
the day-to-day administration and is sometimes called the Chief Executive Officer of
 the company. There is no statutory or automatic right of a company to appoint a
Managing Director. However, under Article 91 of Table A the board of directors may
appoint one of their number to the office of managing director.

ii. Executive Director. It is common in most business organizations to distinguish between

executive and non-executive officers. In a corporation, the Executive Director is a
person who usually works full-time in the company. The person may occupy a
particular role perhaps as finance director, marketing or Business Development director
or research director. But such a person is not a true director to whom the rules of
company law apply unless he is also a member of the board. By comparison, a non-
executive director is not a full-time officer of the company. Such a person will only
attend board meetings as and when they are held. Usually he will not take responsibility
for any particular management function.

iii. Shadow Director. As mentioned above, such a person is one who pulls the strings from
behind the scene in that such a person usually gives advice to directors who are
“beholden” to act upon his instructions. However, a person is not deemed to be a
shadow director if he or she gives advice to the directors in a professional capacity e.g.
a lawyer or investment banker giving advice to the board.

iv. Chairman. The board of directors will usually wish to appointment someone as
Chairman. In this context, he is both the Chairmen of the board of directors as well as
the general meeting of shareholders. His role is to preside over board meetings and
general meetings of the company. Under Article 85 of Table A the board of directors
may appoint one of their number as Chairman.

2.1 The Board of Directors

The Singapore Companies Act does not impose any particular managerial structure
upon companies. In small and medium sized companies the board will exercise a close
control over the company’s affairs since in most cases the distinction between the board
of directors and shareholders are blurred. In cases of large public companies or
corporations, the board exercises only a general control leaving the task of management
including the implementation of policy to the managing director. Modern articles of
association normally confer executive powers on the board of directors and a managing
director. An individual director will exercise executive powers only where he occupies
a position of employment and where the board has delegated such powers to him.

2.2 Appointment of Directors

Under Section 153 of the SCA, a person over the age of 70 may not be appointed as a
director of a public company or a subsidiary of a public company, however that person
may be re-appointed by a 75% majority of those present and voting at the company’s
annual general meeting. There are no age limits with regard to directors of private
companies that are not subsidiaries of public companies. Section 145(1) of the SCA
provides that every company must have at least 1 director, who must be ordinarily
resident in Singapore. This first director of the company must be named in the
memorandum or the articles of association and unless this is done the company cannot
be registered. In practice directors are normally named in the articles. Thereafter, the
Act does not prescribe the manner in which other directors are to be appointed. This is
 generally left to the memorandum or articles. Article 67 of Table A (the model articles)
provides for appointment of directors by ordinary resolution (that is, by a simple
majority at a general or extraordinary general meeting of the company or by unanimous
written consent of all the members). Furthermore Article 68 of Table A provides that
appointments to fill vacancies on the board and appointments of additional directors
(up to the maximum, if any, fixed by the members) may be made by the board itself. A
person co-opted this way holds office until the next Annual General Meeting. A person
may not be named as a director in the memorandum or articles or register of directors
unless he signs a consent form (Form 45) to act as director and this consent is lodged
with the ACRA.

2.3 Directors Remuneration, salary and pay

The SCA does not prescribe the remuneration to be paid to directors. Article 70 of Table
A merely states that it shall be determined by the company in general meeting from
time to time. As for managing directors their remuneration by Article 91 is to be
determined by the directors. Remuneration is determined purely by contract. Section
164A of the SCA, however, does empower 10% of the members representing 5% of the
shares of the company to require disclosure of the emoluments (i.e. remuneration) and
other benefits received by directors – this is to ensure transparency and accountability.
The company shall thereupon prepare an audited statement showing the total
emoluments and other benefits, including salary paid to and received by each director
of the company and its subsidiary, for the preceding financial year. A director who
performs valuable services for the company may be remunerated on a quantum meruit
basis if there is no existing contract between him and the company or if the contract is
silent on the question of remuneration. So, in Craven Ellis v. Canons Ltd, a court
allowed a director to recover on a quantum meruit basis in the absence of a binding
contract.

2.4 Resignation and removal of Directors

A director may cease to hold office through his resignation or his removal by the
company or by becoming disqualified (disqualification is dealt with in the sections
below). A Director may resign his office at any time and may retire at the expiry of his
term of office. Where a director is also an employee, his resignation must be in
accordance with the terms of his employment failing which he may be liable for an
action for breach of contract. The company must notify ACRA of the resignation of a
director. Under Section 145 (5) of the SCA, a director may not resign if his resignation
would leave the company with less than 1 director, however, Section 146 (6) provides
that if a person is disqualified from being a director under Sections 148, 149, 154 and
155 of the SCA he/she must nevertheless resign even if he/she is the last resident
director. The rationale behind this provision is probably because to permit the director
to retain his/her directorship in contravention of the SCA disqualification provisions
would clearly not be correct in principle. Section 152 of the SCA permits the removal
of directors by the general meeting of shareholders. This is further reinforced by Article
69 of Table A which allocates the power of removal to the company in general meeting
by ordinary resolution. The power given by Section 152 overrides anything in the
company’s articles. So, for example, an article naming a director for life may be
overridden by Section 152. When a director is prematurely removed from office in
 breach of an existing service contract with the company, he is entitled to an award of
damages for such breach although he cannot prevent a company from exercising its
statutory right under Section 152 to remove him, say by applying to court for an
injunction to restrain the company from removing him in breach of his contract. An
indirect way of protecting a director from being removed from office would be the use
of weighted voting rights in favour of the shareholder cum director. In the case of
Bushell v. Faith 1970, a company had an article which provided that if the company
in general meeting wished to remove a director from office, any shares held by the
director shall on a poll carry with it three votes per share. The company had a share
capital of $300 and Faith, the director to be removed, held 100 shares. He was thus
able to record 300 votes and outvoted the other 2 shareholders who recorded a
combined vote of 200 only. This approach may be effective only in private companies,
as Section 64 of the SCA does appear to preclude this approach with regard to public
companies. However, even though there is any contract protecting a director from
removal say, by appointing him to hold office for life, there is an implied term that he
shall only continue in office only so long as he performs his duties satisfactorily and in
the interest of the company and its members.

2.5 Retirement by rotation of directors

In the case of public companies and if Table A (the model articles) applies, all directors
must retire from office at the first annual general meeting and one third of them at each
subsequent AGM. This is provided for in Article 63. Article 64 provides that the retiring
directors are eligible for re-election and Article 66 states that they are automatically re-
elected unless someone else is appointed or the company resolves not to re-elect them
or the company resolves not to fill the vacancy. In the case of private companies,
provisions for retirement by rotation are usually unnecessary and are often removed so
that once appointed directors hold office permanently until a stipulated time or death,
voluntary retirement, disqualification or removal from office under Section 152. If
directors are majority shareholders as well they will invariably be able to ensure their
own re-election even if such retirement by rotation provisions are included in the
articles.

2.6 Automatic Vacation of Office by Directors

The SCA provides for automatic vacation of office when a director of a public company
attains the age of 70. Similarly, directors also automatically vacate office when the
company is in liquidation; in this case the liquidator takes over all duties and powers
from the board. Furthermore, in both public and private companies, Article 72 of Table
A provides for the automatic vacation of office upon the happening of specified events
like bankruptcy, unsoundness of mind, resignation, absence for more than 6 months,
failing to disclose his interest in a contract with his company and of course,
disqualification. Under Article 91, the managing director must vacate his office when
he ceases to be a director.

2.7 Disqualification Provisions concerning directors

There are certain categories of persons who are not eligible to be company directors
owing to various disqualification factors. The Singapore Companies Act provides the
following: -
A. Under Section 148 of the SCA, an undischarged bankrupt may not be a director of a
corporation or take part in the management of the corporation. This section is designed
to protect the public on the basis that an undischarged bankrupt is prima facie not a fit
and proper person to be entrusted with the management of a company. A person who
violates this section is liable to a fine or imprisonment or both. However, the
disqualification order may be lifted if the leave of the court or the written permission
of the Official Assignee is obtained [(S. 148(2)].

B. Under Section 149 of the SCA, the court is empowered to grant a disqualification order
preventing a person from becoming a director on the application of the Minister for
Finance if the court is satisfied that:

1. The person concerned have been a director of a company which went into insolvent
liquidation (a company is insolvent if it is unable to pay its debts); and

2. The company must have gone into insolvent liquidation on or after 15 August 1984
(these provisions came into force in 1984) either while he was a director or within 3
years of his ceasing to be such; and

3. His conduct as a director makes him unfit to be a director and manage companies.

Some guidelines are provided for the court to consider whether such a director is unfit
to manage the affairs of the company. These include:

❑ Any breach of fiduciary duties by the director;

❑ Any misapplication or retention of the company’s money or property by the director;

❑ Any failure to comply with the requirements of filing annual returns, audited accounts,
etc. with the ACRA;

❑ The extent of the director’s responsibility for the causes of the insolvent liquidation.

The disqualification order once granted may last up to a maximum period of 5 years.
During the currency of the order, the person so disqualified may not be a director or
participate in the management of the company. An example of the effect of Section 149
can be seen in the following scenario:

XYZ Pte Ltd was insolvent and went into insolvent liquidation on 1 September 2011.
Tan was a director at the date of liquidation. Lim was also a director of the company
but had resigned earlier on in 1 June 2009. Both Tan and Lim may be disqualified
under Section 149 if the court is satisfied that both are unfit to manage companies. Tan
is caught under the section when the company went into insolvent liquidation. Although
Lim had resigned earlier on, he is also caught as the company went into insolvent
liquidation within 3 years of his resignation on 1 June 2009.

C. Under Section 154 of the SCA, a person convicted of certain offences may not be a
director or participate in the management of a company for 5 years unless the court
gives him permission to do so. These offences are:
 1. An offence in connection with the promotion, formation or management of a
corporation; or

2. An offence involving fraud or dishonesty that is punishable with imprisonment for 3

months or more; or

3. An offence under Section 157 of the SCA in that he has failed to act honestly or fails to
use reasonable care and skill in the discharge of his duties; the improper use of corporate
information to benefit oneself or others or causing harm to the corporation through the
use of such information; or

4. An offence as a result of failing to keep proper accounts.

The disqualification under Section 154 takes effect on the conviction if the person is
not given a prison sentence. If the person is imprisoned, the disqualification takes effect
from the person’s release from prison.

D. Under Section 155 of the SCA, a person is disqualified from acting as a director if he
has been persistently in default in filing returns, accounts or other documents with
ACRA. The term “persistently in default” means that the person has been convicted of
3 or more offences for failing to file returns, accounts or other documents with ACRA.

2.8 Duties of Directors

Company directors are primarily fiduciary agents of the company. They are essentially
agents standing in a fiduciary relationship with their company, their principal. It is also
important to note that directors’ duties are owed to the company as a separate entity and
not to individual shareholders. So in Percival v. Wright 1902 it was held that directors
do not owe any duty to any individual shareholder but to the company as a whole. This
rule accords well with and is entirely consistent with the corporate entity principle and
the proper plaintiff rules discussed earlier on (see above). Directors must also manage
the company’s affairs in accordance with law and are bound by the provisions in the
company’s memorandum and articles of association. We will now examine the
following duties that directors owe to their company:

1. Fiduciary duties of good faith and loyalty,

2. Common law duties of care and skill’

3. Statutory duties of disclosure, most of which relate to the fiduciary position of directors.

2.8.1. Fiduciary Duties

Directors are expected to display good faith and loyalty in their dealings with the
company. Fiduciary duties owed by directors are:

a. To act bona fide in the interest of the company – The point here we have to ask ourselves
is “whose interests are the company’s interest”? It is clear that while the company is a
 going concern and solvent, the interest of the company must be equated with that of the
collective interest of the members (shareholders). Moreover, in this context Section 159
of the SCA also requires the directors to consider the interests of the employees.
However, where the company becomes insolvent, then the interests of the company
may be attributable to the creditors. Where a director is a nominee of a major
shareholder or creditor to look after his personal interest, the common law dictates that
the director cannot bind himself to vote in accordance with the directions of his patron.
He is not permitted to sacrifice the interest of the company in favour of his patron and
is required to act “independently”. A disenchanted minority shareholder is free to obtain
relief under the SCA if the powers of directors have been exercised oppressively against
his interest as a shareholder. Directors when exercising their powers must ensure that
their ultimate objective is to promote and advance the prosperity of the company. So in
the case of Re W & M Rioth Ltd 1967, a company’s memorandum and articles
provided that a pension was to be paid to an employee’s dependents upon their death.
A director cum general manager, R, was given a service contract stating that if he died
while in office the company would pay his widow a pension for the rest of her life. The
court held that the agreement was not binding because it was not for the company’s
benefit. The rationale behind the decision was that when the board of directors made
the contract on behalf of the company they were not considering the company’s interest
but that of R’s wife (although this was a noble sentiment but which is not a factor to be
considered when exercising director’s powers).

b. To avoid a conflict of interest – Since a director is treated as a fiduciary i.e. in a position

of confidence and trust, this rule is an extension of a wider concept that a fiduciary
ought not to place himself/herself in the position where his duty to the company and his
own personal interest may conflict. The “conflict test” is satisfied if a reasonable man
looking at the facts of the case thinks that there is a real possibility of a conflict of
interest arising. So in the case of Aberdeen Railways Ltd v. Blaikie Brothers 1843,
a company entered into a contract with a firm for the supply of certain manufactured
goods. At the time of making the contract, the company’s chairman was also a
managing partner of the firm supplying the goods. The court held that the company was
not bound by the contract because of the clear breach of the conflict of interest rule.

For practical purposes, this aspect of the rule states that directors who obtain any benefit
while being a director in circumstances where there could have been a conflict of
interest is accountable to the company for that benefit unless he has disclosed it and
obtained the company’s approval. The general rule therefore is that the director is free
to enter into any transaction if the company in general meeting approves. Until then,
the contract is voidable at the company’s option. The company in this case may either
recover the amount of the profit or sue for damages.

c. Not to abuse his position by misusing the company’s property, information or

opportunities to acquire gains for himself – There will be Circumstances arising where
director “usurp” and personally take over opportunities for their own rather than for the
company’s benefit. This is known as secret profiteering or unjust enrichment. So in case
of Industrial Development Consultants Ltd v. Cooley 1972, the managing director
of a company sought to obtain contracts on behalf of the company. The third party made
it clear to the MD that while it was prepared to engage him personally to carry out the
work on the contract, it would not be prepared to engage his company to do such work.
The MD then gave notice to his company of his retirement on grounds of ill health and
 thereafter accepted the work from the third party. The plaintiff company found out
about this and claimed that the MD should account to them for the profits he had
enjoyed from the contract with the third party. The court held that he was liable to
account for the breach of his fiduciary duty. Since he had come across information in
his capacity as MD, this information should rightly be passed on to the company. It was
therefore wrong in law for him to take this information and use it for his own benefit.

d. The directors are under a duty to exercise their powers conferred by the Singapore
Companies Act and the Memorandum and Articles of the company for a proper purpose
– The directors may well have acted in the best interest of the company but if they use
their powers for an improper purpose, then they would have exceed their authority and
can be made personally liable to the company. So in case of Howard Smith Ltd v.
Ampol Petroleum Ltd 1974, a company was threatened with a takeover bid by two
associated companies who between them held 55% of the company’s share capital. The
company needed additional working capital but it also feared the impending takeover
bid. The directors therefore decided to make an issue of shares to members other than
the takeover bidders. The effect of this exercise was to “dilute” and reduce the bidders’
shareholding to a minority position and to make their future acquisition unlikely. In
acting as they did the directors were trying to advance the interest of their company.
The court held that the issue of shares was invalid as evidence clearly showed that the
directors’ primary purpose had been to exclude the takeover bidder from a successful
acquisition. The power to issue shares was for the purpose to raise money not to
forestall a takeover bid. It was an abuse of power even if the directors had not acted to
further their self-interest. The court, however, also did recognize that directors have
several distinct objectives when they make a share offer and the court implied that as
long as the directors’ dominant purpose was to raise capital then they would have acted
properly even though the indirect effect of this was to further their incidental purpose
of manipulating the majority shareholding.

2.8.2 Duties of Care and Skill

The duty of care and skill of a director is founded in the tort of negligence. In contrast
to fiduciary duties (which is founded on the law of trust), this duty is often open to
severe criticism as being unduly lenient.

In the case of Re City Equitable Fire Insurance Co Ltd 1925 Romer J. identified 3
important factors which are present in this duty. These factors are construed as
minimum standards and will generally apply to all directors. The 3 factors are: -

❑ A director must show the degree of care and skill, which might reasonably be expected,
from a person based on his own knowledge and experience.

❑ A director is not bound to give continuous attention to the affairs of the company. He
is expected to attend board meetings as required but attendance need not be continuous,
although he should attend when it is reasonable and feasible to do so.

❑ A director may, in the absence of grounds for suspicion, trust a company official to
perform duties, which may properly be delegated.
 Perhaps because of this rather lenient approach, currently there is a greater emphasis on
directors performing their duties with a higher level of responsibility. This higher
standard of care took effect first in Australia in the case of Daniels v. Andersen (1995).
The approached was gradually followed up in Singapore in the case of Lim Weng Kee
v. Public Prosecutor (2002). In this case, the court took a very much more objective
and realistic approach by stipulating that the standard of care should not be lowered to
accommodate an individual’s lack of experience and knowledge but to view it as a
continuum depending on factors like:

▪ The director’s role within the company (e.g. a possibly different approach might be
taken between full-time executive directors as opposed to non-executive directors).
▪ The nature and type of decision made (e.g. the significance and perhaps value of
the transaction etc.)
▪ The size and business of the company (e.g. perhaps a different approach may be
taken for a public listed as opposed to a small private closed company).
▪ The standard would be raised if he held himself out to possess special knowledge
and skills.

2.8.3 Directors’ Statutory Duties

Apart from his duties at common law, the Companies Act imposes many statutory
duties on directors. Most of these duties relate to his overriding duty of disclosure of
relevant information to his company. These duties include:

A. Duty to disclose any conflict of interest. Under Section 156 of the SCA, a director must
disclose all interest that he has in any contract or proposed contract with the company
of which he is a director. He must also disclose all property he owns or office, which
he occupies, that might lead to a conflict of interest. Disclosure must be made to the
board of directors and failing to observe this duty is an offence punishable under the
Act with a fine or imprisonment.

B. Duty of diligence. Under Section 157 of the SCA, a director has the duty to act honestly
and use reasonable diligence in performing the duties of his office. This provision was
intended to reinforce the position at common law (above), failure to observe this
provision may result in the company suing the offending director for damages to
compensate it for any losses suffered consequent upon his breach of duty.

C. Loans to directors. Section 162 of the SCA prohibits the company from making loans,
guarantees or securities to its directors or its related companies unless it has been
approved by members in a general meeting and the loan is given in conjunction with a
scheme for making loans to all employees. Section 163 further extends this prohibition
to include loans given or made to a member of the director’s immediate family or to a
director of its holding company.

D. Disclosure of director’s interest in shares etc. Under Section 165 of the SCA, a
director must disclose particulars of any interest in shares, debentures, rights, options
and contracts for the purpose of maintaining the register of director’s shareholdings.
Any particulars of change in these interests must also be disclosed within two days of
the change. Under Section 166, where the interest relates to shares listed on the Stock
 Exchange of Singapore, the directors involved must also give notice to the SGX within
the stipulated time frame.

22.8.4 Insider Trading

An insider is a person who has, by reason of his relationship with a public listed
company, acquired in confidence a particular piece of information materially affecting
the value of the shares of the company and who uses the information so acquired for
his personal advantage (e.g. to trade or assist others to do so, at the expense of
shareholders who bought or sold their shares to the insider without knowledge of such
information). Insider trading is both a criminal offence as well as a civil wrong
(although limited in application) and in Singapore it is regulated by Securities and
Futures Act (SFA) 2000.

3. Corporate Meetings & resolutions

The board of directors and general body of shareholders are 2 organs of the company
which have the power to make decisions affecting the way in which the company is run
and managed. These decisions are generally deliberated upon at corporate meetings.
Such meetings usually consist of director’s board meetings; shareholders’ meetings like
annual general meetings, extraordinary general meetings and statutory meetings.
During these gatherings, the wishes of its participants are invariable expressed in
“resolutions” which are an expression of what have been decided at these meetings. In
this section we shall be considering these issues.

3.1 Meetings. These will comprise the following types of company meetings:-

A. Directors’ board meetings – For private companies there is usually no requirement

for board meetings to be held at any fixed interval. Board meetings are generally
held on a “need to” basis. In public listed companies, however, board meetings are
normally convened on a regular basis and on fixed dates. Article 79 of Table A
provides that any director may call or summon a board meeting. Notice of board
meetings should be given to all directors in sufficient time to enable them to attend.
What is sufficient “reasonable” time is a question of fact having regard to all the
circumstances of each case. In most situations, unless the articles provide otherwise,
seven (7) days of notice is generally considered adequate for board meetings. The
notice need only specify when and where the board meeting is to be held but case
law establishes that it is not necessary to set out the business to be transacted. A
board meeting cannot proceed onto business unless a quorum of directors is/are in
attendance (present); this quorum is usually fixed by the articles of association.
During the course of the board meeting, unless the articles provide otherwise, each
director has one vote and a motion is carried and becomes a board resolution only
if there are more votes for than against it.

B. Statutory Meetings – Such meetings are peculiar only to public companies. The
SCA requires all members to meet once the initial public offering (IPO) has been
successful and the listing is approved. The meeting should be held not earlier than
1 month and not later than 3 months after the date at which the company is entitled
to commence business. A “Statutory Report” must be forwarded at least 7 days
 before the meeting to all members eligible to vote. The contents of the report should
state the total number of shares allotted; the total amount of cash received in respect
of such allotments; an abstract of the receipts of the company and payments made
up to 7 days before issue of the statutory report; names and particulars of directors,
auditors, company secretary, managers and debenture-holders of the company;
particulars of contracts together with any modifications required for company
approval etc. Failure to hold the statutory meeting or lodge the statutory report is a
ground upon which a petition to wind up the company may be presented.

C. Annual General Meetings – Under Section 175 of the SCA, a company must hold
its first AGM within 18 months of its incorporation. Thereafter, AGMs must be held
once every calendar year but not more than 15 months must elapse between any two
AGMs. Failure to hold an AGM is an offence. The directors are responsible for
calling the AGM and a company which fails to hold the AGM may be ordered by
the court on the application of any member, to hold such a meeting. Article 45 of
Table A provides that at least 14 days before the AGM, the company must give
written notice of the meeting to every member of the company who has the right to
vote, although a shorter period is possible if it is agreed by ALL members entitled
to attend and vote. The notice should state the date, time, place and purpose of the
AGM. Typically, the ordinary business normally dealt with in the AGM includes:-

❖ Consideration and adoption of the company’s accounts

❖ Declaration of dividends by the directors

❖ Retirement, election and re-appointment of directors

❖ Consideration and approval of director’s and auditor’s reports

❖ Appointment of auditors and fixing of their remuneration

❖ Approval of the issue and allotment of shares

❖ Any other matters dealt with other than the above constitutes “Special” purpose.

D. Extraordinary General Meetings – All other company shareholder meetings which

are not AGMs and Statutory Meeting are known as extraordinary general meetings.
Under Article 44 of Table A an EGM may be convened by any director whenever
he thinks fit or in accordance with the provisions of the SCA. Under Section 177 of
the SCA, two or more members holding at least 10% of the issued capital of the
company with voting rights may request the board of directors to hold an EGM.
The requisition must state the objects of the meeting, signed by all the applicants
and deposited at the registered office of the company. The directors must convene
a meeting which must be held within 2 months of the receipt of the requisition by
the company. If the company directors do not convene the EGM within 21 days
after receipt of the requisition, the applicants may themselves convene the EGM
within 3 months from the date of the deposit of the requisition. If the company does
not have a share capital (e.g. a company limited by guarantee), then 5% of the total
membership of the company may call for an EGM.
3.2 Company Resolutions

A resolution may be defined as a collective expression of opinion by the

members/shareholders of a company in a meeting. It comprises three (3) basic types of
resolutions which are:-

i. Ordinary Resolution – An ordinary resolution requires only a simple majority of votes

from those who are present and voted i.e. more than 50%. So, for example, at a meeting
attended by ten members, five voted in favour of a resolution, three voted against it
while two abstained, the ordinary resolution is carried. Notice of the intention to pass
the resolution must be given to members as is provided by the articles. Under article 45
of Table A, the notice period required for ordinary resolutions is 14 days. Unless the
SCA or company’s articles of association so provide, most routine business of the
company are usually transacted by ordinary resolutions.

ii. Special Resolution – Under Section 184 of the SCA, this is defined a resolution
requiring a majority of not less than three-fourths of members present and voting (i.e.
75% or more majority in favour from among those members who are entitled to vote
and does in fact attend the meeting). The notice of the meeting, whether AGM or EGM
must specify the intention to propose a special resolution and at least 21 days clear
notice of the meeting must be given. These resolutions are required for more important
matters such as the alteration of the memorandum and articles of association, changes
to the name of the company and the reduction of share capital under Section 73 SCA.
Section 184 of the SCA also allows a special resolution to be passed by short notice
provided it is agreed by at least 95% majority of the members who have the right to
vote at the meeting. The notice must be made in writing and must specify that the
resolution proposed is a special resolution.

iii. Special Notice – There are some resolutions under the SCA which require “special
notice”. This means that the resolution is not effective unless notice has been given to
the company not less than 28 days before the meeting at which it is moved (Section
185). This type of resolution must not be confused with special resolutions. Special
notice must be given to the company if there is any transaction to remove an auditor or
director of the company before the expiration of his term of office (Sections 152 and
205 SCA).

3.3 The Indoor Management Rule

This rule state that an outsider i.e. a third party dealing with a company in good faith is
entitled to assume that the company’s articles of association and other formalities (like
the passing of resolutions at a general meeting) have been duly complied with by the
company. The rationale behind this rule could probably be because such outsiders have
no way of checking whether the internal rules of management have actually been
followed to the letter and also they are under no duty in law to do so. The effect of this
rule is that it offers protection to an outsider dealing in good faith with the company
where there is some irregularity on the part of the company’s internal management
procedures. This rule had its roots from the important case of Royal British Bank v.
Turquand 1856. In this case, the articles of a company gave directors the power to
 issue bonds as security for loans. However, the approval of the company by ordinary
resolution was required. The directors issued the bond to the bank but the requisite
resolution was never obtained. When sued the company argued that it was not bound
because the required resolution authorizing the borrowing was not passed and
therefore not authorized. The court held that the company was bound and that the bank
was entitled to assume that such a resolution has been passed since the directors have
been given the power to borrow and there was no way of knowing whether the
requirement or restriction had been complied with by the company.

The company, however, will not be bound by this rule in the following circumstances:

a) Where the transaction was so unusual or the case appears to be so suspicious that the
outsider ought to have enquired about the regularity of the transaction.

b) In cases where the outsider knows that any matter relating to internal management has
not been complied with.

c) Where the public documents of the company i.e. memorandum and articles of
association as well as other public documents required to be filed at ACRA indicate
that the director’s authority is limited, the outsider cannot rely on the rule. He is
precluded from saying that he has no knowledge of these filed public documents since
everyone who deals with the company is expected to make a “search” at ACRA and is
deemed to have “constructive notice” of these filed public documents and if he had
bothered to check these at the ACRA he surely would have known of its contents.

d) In cases where the document is a forgery since a forged document is a nullity and void,
the company will not be bound and the indoor management rule has no application here.
SESSION 9: Corporate Management Issues in Company Law

Essential points

o Company Officers
o Appointment, resignation and removal Company Directors
o Retirement, vacation and disqualification of Company Directors
o Duties of Directors and consequences of breach of duties
o Corporate Meetings, resolutions and the Indoor Management Rule

Visual Overview

Practice Questions

1. There are statutory penalties for breach of company directors’ duties. Discuss the
consequences of the breach of key directors’ duties.

2. Discuss the “indoor management rule”.

3. There are two types of resolutions passed at general meetings of companies. Discuss.
4. Larry is a director of Fun Schools Pte Ltd (“FS”). He negotiated the following
contracts on behalf of FS:

i. A contract with Brain Stuff Pte Ltd (“BS”) for the supply of visual objects to be
used by educators. The directors of FS are not aware of Larry’s shareholding in
BS. Larry is of the view that there is no necessity to disclose his shareholdings
in BS as he is not a director of BS. The board of directors including Larry
approved the contract with BS during its board of directors’ meeting.
ii. A contract with Mighty Thoughts Pte Ltd (“MT”) for the provision of
consultancy services for a project undertaken by FS to redesign the on-line
materials. MT invited Larry to a lavish dinner to celebrate the successful deal
with FS. Larry was complaining about the existing lap-top he was using and that
FS is very “budget conscious”. The following day, MT delivered a tablet valued
at $2,000.00 to Larry as a gift to help him in his work. Larry was pleasantly
surprised to receive the gift and felt that it was a thoughtful gesture from MT.

Discuss the legal issues of the following:

a) The contract between FS and BS.

b) Larry’s acceptance of the tablet valued at $2,000.
 SESSION 10

THE LAW OF TORT I

Session Learning Objectives.

When you finish this Session, you should be able to:

• Classify the different types of torts

• Explain the elements of the tort of negligence
• Apply the “neighbour” principle to determine the duty of care
• Apply the factors affecting the standard of care
• Explain the role of causation and remoteness in resulting damage.

Chapter Outline

1. Introduction
2. Distinction between Tort, Crime and Contract
2.1 Tort and Crime
2.2 Tort and Contract
3. The Tort of Negligence
3.1 Duty of Care
3.1.1 Legal Position in Singapore
3.2 Breach of duty of Care
3.3 Resulting loss and damage must have been caused by the breach of duty
3.4 Losses cannot be too remote
3.5 The Egg-shell skull principle
4. Proving Negligence: Res Ipsa Loquitur (The event speaks for itself)
5. Defences in Negligence
a) Denial of liability
b) Inevitable accident
c) Act of God
d) Voluntary assumption of Risk (Volenti non fit injuria)
e) Contributory negligence
f) Disclaimers

1. Introduction

A “tort” is a civil wrong. This branch of the law seeks to compensate the victims of
certain forms of harmful conduct. The most commonly accepted definition of tort is that
of the late Professor Winfield who defined it as follows:-

Tortious liability arises from the breach of a duty primarily fixed by

the law; such duty is towards persons generally and its breach is
redressable by an action for unliquidated damages.

The essential feature of a tort is that it is a breach of civil duty and the person who commits
the tort is known as the “tortfeasor”. In other words, a tort is a civil wrong that entitles a
 person who has suffered damage or injury to compensation, usually in the form of a sum
of money. The amount awarded is intended to place the plaintiff in the same position he
enjoyed before the tort occurred. Naturally, there are limitations to this because it can only
be expressed in terms of money. Very occasionally exemplary damages, that is, an amount
that goes beyond the sum necessary to compensate the plaintiff are awarded in order to
punish the defendant. This would tend to arise in situations where it is the view of the court
that an award which merely compensated the plaintiff would be insufficient to deter the
defendant from repeating his wrongdoing.

Torts may take several forms. These comprise negligence, nuisance, trespass and
defamation. However, torts are not crimes nor are they breaches of contract. There are
differences between torts and crimes and torts and breaches of contract.

2. Distinction between Tort, Crime and Contract

2.1 Tort and Crime

Crimes are offences like murder, robbery etc. which are dealt with by the State. The
offender is brought before a criminal court and if convicted, punishment is imposed.
This may take the form of a fine, a prison or both or caning. Torts are civil wrongs, not
criminal acts. The injured party sues the defendant (tortfeasor) in a civil court for
damages. Like all civil proceedings, the object of such proceedings is not to extract
punishment, but to award compensation to the injured person for his loss or injury.

Sometimes in unusual situations, a single act can both be a tort and a crime. For
example:

When a driver exceeds the maximum speed limit and causes an accident. The driver would
have committed a criminal offence under the Road Traffic Act and would be fined by the
State. A person injured in the accident might sue the driver in a civil court and if the court
finds negligence is proven, will order the driver to pay monetary compensation to the
injured party for injuries suffered.

2.2 Tort and Contract

The most important distinction between tort and contract relates to the element of choice
about entering into a contract. Any breach of contract is a breach of a duty, which an
individual has voluntarily assumed under an agreement. It follows that only the parties to
that agreement can be affected. In contrast, a tort is a breach of duty, which a person
owes to people (any person) in general.

A further distinction is that under the terms of a contract, damages for any breach may
be agreed in advanced or left to the court's discretion, depending upon the actual contract
terms. These are referred to as liquidated damages (in the case of those agreed in
advanced) or unliquidated damages (in the case of those where no fixed amount or
 formula is agreed in advanced). In tort, the plaintiff has a legal right to unliquidated
damages, i.e. the amount of damages is always fixed by the court.

Generally speaking, liability in contract is strict; if there is a breach of contract, the party
in breach is liable in damages irrespective of any fault on his part. Liability in tort on the
other hand, is based on fault; the tortfeasor has done something (or failed to do
something) either intentionally or negligently and has caused damaged or injury. The
mere occurrence of an act does not make him liable - it is only if there is damage or
injury caused is he personally liable.

Here, too, a single act may sometimes give rise to breach of contract as well as
commission of a tort. For example:

A person hires a contractor to build his house. The contractor was negligent in his work
resulting in a badly constructed house. This requires remedial works before the house is
safe for occupation. The owner may sue the contractor for breach of contract.
Alternatively, he could also sue in tort for negligence.

3. The Tort of Negligence

Negligence is now by far the most important of all torts in terms of the practical
implications it has for the business world. It is also one of the commonest torts, often
litigated in the courts. The growth of this tort is the result of a number of factors,
including an increase in building and manufacturing, professional exposure to liability
and also motor accidents on our highways. It may also be attributed to the general
availability of insurance and a greater awareness of the legal rights of individuals when
they suffer personal injury or damage to their property through some other person’s
fault.

It might be worth committing to memory the definition of negligence, which was given in
the judgement in Blyth v. Birmingham Waterworks Co. 1856:

Negligence is the omission to do something, which a reasonable

man, guided upon those considerations, which ordinarily regulate
the conduct of human affairs, would do, or doing something, which
a prudent and reasonable man would not do.

Before an action for damages (compensation) can be sustained, the plaintiff must prove
the following important elements:

1. The defendant was under a duty to exercise care towards the plaintiff. There is a
requirement in law for the presence of a “duty of care”.

2. There was a breach of that duty by the defendant (tortfeasor).

3. The plaintiff suffered injury, loss or damage caused by that breach of duty.
 4. The injury, loss or damage sustained was not too remote in that the injury, loss or damage
sustained was reasonably foreseeable.

The test for negligence can be illustrated by the following simple example:

X, a driver exceeded the speed limit and failed to keep a proper look out, as he was talking
on his smartphone without a hands-free. X's car struck Y, a pedestrian, causing personal
injuries to Y. We can analyse this situation by saying that: X owed a duty of care to Y as
one road user to another; X was in breach of the duty in speeding, failing to keep a proper
look out and talking on his smartphone; and Y had suffered damage which was caused by
X's breach of duty of care.

3.1 Duty of Care

The duty to take care must be a legal duty and not a moral one. This means that the law
must recognise that a person is under a particular duty to other persons to regulate his
actions, business practices, conditions of his property and the activities of his employee
so as not to cause injury, loss or damage to those persons. Whether in any particular
situation there is a "legal" duty of care is a question of law. In other words, it is for the
court to determine whether, as a matter of law, the defendant was under a duty to take
care. So, for example, the law does not recognise a duty on any person to save a
drowning boy. Failing to do so would not render a person liable for negligence.

The landmark case of Donoghue v. Stevenson 1932 developed a general test for deciding
whether a duty of care, in law, exists.

A friend of the plaintiff bought a bottle of ginger beer in a dark opaque bottle. The plaintiff
poured half the ginger beer into the glass and drank it. She later discovered the remains
of a decomposed rotting snail. She claimed to have suffered gastro-enteritis as a result.
She had no claim in contract against either the retailer or the manufacturer because it
was not she but her friend who bought the beer. She then sued the manufacturer of the
ginger beer in negligence. The court held that the defendant manufacturer of the ginger
beer owed a duty of care to the plaintiff as the ultimate consumer. The defendant
manufacturer could have reasonably foreseen that the plaintiff was likely to be injured as
a result of their negligence in not making sure that the ginger beer was safe to drink.

This case also establishes to whom this duty of care is owed. The duty of care is owed to
those who may be directly affected by the wrongdoer's act or omission to act. This is
known as the "neighbour principle" which may be summarised in the speech of Lord
Atkin as follows:

“You must take reasonable care to avoid acts or omissions which you
can reasonably foresee would be likely to injure your neighbour. Who
then, in law, is my neighbour? The answer seems to be - persons who
are so closely and directly affected by my act that I ought reasonably
to have them in contemplation as being so affected when I am directing
my mind to the acts or omissions, which are called into questions.”
 In short, the general test says that a duty of care exists if the defendant could reasonably
foresee the damage to the plaintiff. The test for foreseeability is an objective one, it is the
foresight of a reasonable man that counts, not the foresight of the defendant. The test
requires the court to ask the question whether a reasonable person in the defendant’s shoes
could have reasonably foreseen that his acts or omissions are likely to cause harm to the
victim. In other words, did he realize beforehand the likely effects of his actions or
omissions? A good illustration of this test may be seen in the following case:-

Smith v. Littlewoods 1987

The defendants had bought an old cinema for restoration. Unknown to them, vandals had
intruded into the premise. In the ensuing cold, these vandals had set up a fire to keep
warm. The spread of the fire destroyed an adjoining property owned by the plaintiff. The
plaintiff sued the defendant claiming he owed him a duty of care. The court Held that the
defendant did not owe a duty of care to the Plaintiff for the independent acts of third
parties. The rationale was because a reasonable man (objective test) could not possibly
be aware of the independent acts of the vandals for which he no control and for which he
had no reason to suspect a fire would be started and also could not have imagined the
extent of its spread.

This duty of care is now clearly imposed in the following situations (the list, however, is
not exhaustive, as the “neighbour principle” could ultimately be expanded to suit the
required circumstances):

a) Highway – All road users owe a duty of care to other road users. The duty of care applies
to railways, air transportation and shipping at sea as well (see below).

b) Employer's liability – An employer owes a duty of care to all his employees. He is under
an obligation to provide a reasonably safe system of work, reasonably safe place of work,
the provision of reasonably safe machinery and plants, to exercise care in the selection of
competent employees. The employer may also be vicariously liable for the negligence of
his employees.

c) Professional persons – All professional persons (doctors, surgeons, dentists, lawyers,

accountants, engineers, architects, etc.) in holding himself out as one with skills, expert
knowledge and qualifications not share by the rest of the community owes a duty of care
to his clients to exercise a degree of skill which is to be expected of his profession. He
must be competent and must also have knowledge of the law and custom applicable to his
profession. The standard of care expected of a professional is that he must exercise such
skills as could be expected from an average member of his profession, but he is not
required to possess the highest level of expert skills. If there were a commonly accepted
method of doing things, he would be expected to conform to such method.

d) Carriers – These are persons, organizations, authorities or bodies such as railways, motor-
coach companies, shipping companies and airlines who carry persons or freight for
reward. They owe a duty of care to the passengers and goods in addition to the contractual
duty.
3.1.1 Legal Position in Singapore

The current legal position regarding the duty of care has expanded and in Singapore is
represented by the case of Spandeck Engineering (S) Pte Ltd. V. DSTA 2007. This
important case sets out the process and “limits” in determining whether a duty of care is
owed. The first step in determining a duty of care is a “factual” determination whether it
was reasonably foreseeable that the defendant’s actions would cause harm to the plaintiff.
The courts in subsequent cases have stated that this “factual” determination will almost
always be satisfied with a positive or negative finding of fact (see above). This will then
be followed up by a 2-stage test to determine the issues of:-

A. Proximity – Whether there was a proximate relationship (i.e. a close and direct
relationship) between the parties involved; and if so

B. Public policy – Whether there are any public policy reasons that would negate the finding
of a duty of care.

Let us examine in greater detail these interesting concepts.

A. Proximity. The test is whether there is sufficient “closeness” or connection between the
plaintiff and defendant. A good illustration of this concept is seen in the “nervous shock”
case of:

McLoughlin v. O’Brien 1983

The plaintiff, a housewife, had suffered severe medical trauma after seeing her husband
and her 3 children in hospital shortly after a serious road accident. The accident was
caused by the defendant’s negligence. She sued the defendant for negligence claiming
damages for nervous shock. The court Held that she should succeed in her action. The
court highlighted 3 elements to the test of proximity in “nervous shock” cases. These are:

❑ Proximity to the accident in time and space.

❑ Closeness of the relationship with the person injured.
❑ The means by which the shock is caused, which must be by sight or hearing of the event
or its immediate aftermath.

B. Public Policy. Here, the court needs to look at the circumstances of each case, and consider
whether is it just and reasonable to conclude that there is a duty of care. The courts being
the “guardians of public policy,” use this as a ‘catch-all’ factor which allows them to view
the entire case in perspective before deciding whether to impose a duty of care on the
plaintiff. A good illustration of this is seen in the case of:

Hill v. Chief Constable of West Yorkshire 1989

In this case, a person had been murdered. A member of his family brought an action in
the name of the estate of the deceased to sue the police for failing to apprehend the
offender, who at the material time was still at large. The issue arose as to whether the
police owed a duty of care to the deceased. The court Held that the police did not owe a
duty of care to the deceased. To make them liable would have required the police to
embark on “defensive policing” which would not be in the interest of public policy.
3.2 Breach of duty of Care

Once it has been established that there exists a duty of care, the plaintiff must prove that
there has been a breach of this duty. There is a breach of duty of care when the defendant
does not take steps to ensure the standard of care required by the duty. The standard of
care is what a reasonable man would take, use or show in the circumstances of the
particular case under consideration. In other words, there will be deemed a case of
negligence if the defendant did not act in a reasonable manner in the circumstances of
the situation. What is reasonable will depend on a number of “factors” or considerations,
as follows:-

1. Where the defendant professes to have a particular skill, he is required to show the skill
normally possessed by persons doing that work. A carpenter will be required to show the
skill of an average carpenter and a plumber that of an average plumber. The test to be
applied is: What is reasonable in the circumstances of the case, having regard to his
particular profession or skill. The case of Roe v. Minister of Health 1954 is a good
example of how this test is applied. In 1947, a patient in a hospital was given a spinal
anaesthetic to prepare him for a minor operation. The anaesthetic was contained in a
glass ampoule, which had been kept before use in a chemical solution. Unknown to the
doctors at the time, the ampoule of injection had “hairline” cracks in it which when mixed
with the chemical solution caused a poisonous concoction. The defendant later suffered
permanent spinal disability and sued the Ministry of Health. The court held that the doctor
and ministry were not negligent in causing the defendant’s injury. Evidence was shown
to the court that such hairline cracks were not known to the existing medical profession of
1947 and it was not until 1951 that such a phenomenon was generally known to occur. A
reasonable and prudent medical practitioner in 1947 could not have reasonably foreseen
such injury occurring. However, a person acting in an emergency would only be judged
by the standards of a reasonable person and not a specialist. For example, a climber who
has to treat an injured fellow climber will not be judged by the standard of a doctor.

2. The magnitude of the risk of injury involved. The greater the risk the greater the care
required. In the case of Bolton v. Stone 1951, the plaintiff was struck by a cricket ball
while standing on the street outside her house. Her house was situated near a cricket
ground. Under normal circumstances, cricket batsman could not possibly have hit the ball
so hard so as to reach her house. Evidence showed that over the past 30 years, this had
occurred only 6 times. The court held that although there was a duty of care, the defendant
had not breached the duty and hence were not liable. The court reasoned that the chances
and probability of such a happening were so insignificant that it made little sense for the
cricket club to take preventive measures.

3. The characteristics of the victims, which either increase the likelihood of injury or increase
the seriousness of injury. Thus, greater care must be taken towards children and blind
people. In the case of Paris v. Stepney Borough Council 1951, the plaintiff had one eye
and worked as a mechanic in the defendant’s garage. He sometimes had to do welding
works. Normally, eye goggles were not supplied to men involved in such work. A piece of
metal flew into the plaintiff's eye with the result that he became completely blind. The court
held that the defendant were liable, although they would not be liable to a person with
normal sight. The greater the risks to the plaintiff meant greater care than normal had to
be taken.
 4. The cost of prevention and avoiding the risk. If the cost of eliminating the risk is too great
and out of proportion to the risk, the defendant is not obliged to take preventive measures.
In the case of Latimer v. A.E.C. Ltd 1953, heavy rain flooded the defendants’ workshop
and factory, which caused oil to be spread over the floors. The defendants used sawdust
to cover the floors, but some areas of the floor remained uncovered. The plaintiff slipped
and sustained injuries. He sued the defendants in negligence alleging that the workshop
should have been closed and all employees sent home. The court held that the defendants
had done all that could reasonably be expected of them; it was not necessary to close the
workshop as it was out of proportion to the risk involved.

3.3 Resulting loss and damage must have been caused by the breach of duty

In order for the plaintiff to succeed in an action for damages, i.e. compensation that will
place him in the position he would have been had not the tort been committed, he must
prove that the injury, loss or damage suffered by him was caused by the defendant's
breach of duty of care. Thus, if the proximate or overwhelming cause of injury, loss or
damage suffered by the plaintiff was something other than the defendant’s negligent act
or omission, then the defendant would not be liable. The defendant will not be
responsible if there are any intervening events between the defendant’s negligent act and
the damage which eventually occurs over which he has no control. This episode will
effectively "break the chain of causation". This is well illustrated by the following case:-

Barnett v. Chelsea Hospital 1969

The plaintiff had been poisoned with arsenic. Not knowing of his predicament, family
members had brought him to the hospital’s emergency department after he had
complained of stomach pains and great discomfort. The doctor in attendance was
clearly negligent as he failed to examine him properly. The plaintiff was sent home and
he died the next morning. The court held that there was a duty of care owed by the
hospital to the plaintiff and that this duty was breached by the attending doctor. But the
doctor’s negligence did not cause the plaintiff’s death. Even if the correct treatment had
been given, death would have taken place anyway since the effects of arsenic poisoning
is irreversible.

The types of losses and damages recognised by the law are as follows:

i. Death or personal injuries, which includes illness and diseases.

ii. Loss of or damage to property.

iii. Under certain exceptional circumstances, financial or economic loss.

3.4 Losses cannot be too remote

Finally, the plaintiff must prove that the damage in law is not too remote. In other words,
the plaintiff must be able to prove that the defendant's act or omission was reasonably
foreseeable from the perspective of a reasonable man. The court has ruled on many
occasions that loss and damage would be too remote if it is not reasonably foreseeable.
An illustration is seen in the case of Overseas Tankships Ltd v. Mort Docks and
Engineering Co Ltd (The Wagon Mound I) 1961, here, a ship was taking on fuel and
some of this fuel was negligently discharged into Sydney harbour. The defendants did
not know nor could they reasonably be expected to know that such fuel was capable of
being easily ignited while floating on water. Meanwhile, welding was taking place on a
nearby wharf and a stray spark ignited the film of fuel floating on the water. A massive
fire ensued and extensive damage was caused. The court held that the defendant were
not liable for the loss and damage as they could not have reasonably foreseen such a
probability happening.

3.5 The Egg-shell skull principle

While it is imperative that the defendant must foresee the loss and damage happening, it
is not necessary to foresee the exact type of damage actually occurring. So if the type of
loss and damage suffered by the plaintiff was more severe than what was reasonably
foreseeable, the defendant could still be liable and the damage not too remote. This rule is
called the “egg-shell skull rule”. Thus, the defendant would be liable for the full extent of
injuries sustained by the plaintiff despite the fact that the plaintiff’s injuries were
aggravated by his own particular susceptibility to that kind of injury, even though a normal
person may have suffered a smaller injury or escaped injury altogether. We can see a good
illustration of this in the case of Smith v. Leech Brain 1962 here a plaintiff got burnt on
his lip while working for the defendant. Unfortunately the burn was a “promoting agent”
for a predisposition to cancer that he already had, and as a result he died 3 years later
from cancer. That there was negligence was not disputed. What was challenged was
whether or not the death was too remote. The court held the defendant to be liable. The
court said: “If a man is negligently run over... it is no answer to the sufferer’s claim for
damages that he would have suffered less injury... if he had not had an unusually thin skull
or an unusually weak heart”. This creates a rule that a tortfeasor (defendant) must take
his victim as he finds him.

4. Proving Negligence: Res Ipsa Loquitur (The event speaks for itself)

The general rule says that when a plaintiff brings his action in negligence, he bears the
burden of proving his case based on the civil standard of a balance of probability. This
means that he must prove that the defendant failed in his duty to take reasonable care and
that the failure was the proximate cause of the accident that resulted in his loss. However,
in certain circumstances it may be difficult or unnecessary to prove all the ingredients of
negligence. In such situations, a court may be prepared to draw an inference of negligence
against the defendant without the need to hear detailed evidence of what he did or did not
do. In other words, in these situations unless the defendant can prove that he was not
negligent the plaintiff will automatically succeed in his action. This is the Latin maxim
called res ipsa loquitur, which in English means, “The event speaks for itself”.
 In the case of Scott v. London Dock Co 1865, several bags of sugar fell while being
hoisted up to a second floor warehouse and the falling bags injured the plaintiff. The court
held that this to be a case of res ipsa loquitur. More importantly, the court held that three
requirements must be fulfilled before the maxim can apply:

o The "thing" causing the loss/damage must be under the control of the defendant or
his servant or agents.

o The accident must be such that in the ordinary course of things, the loss/damage
would not have occurred had proper care and skill been taken.

o There is no adequate and reasonable explanation concerning the accident and no

evidence is forthcoming on the actual cause of it.

The following two cases will help explain the application of the principle:

Ward v. Tesco 1976

A plaintiff shopper was injured when she slipped on some yogurt spilt on the floor of the
defendant’s supermarket. Since the supermarket was under the control of the defendant
and normally such accidents do not happen unless there was negligence, the plaintiff
shopper was able to raise the doctrine of res ipsa loquitur and the defendant was then
saddled with the burden of proving that it was not due to a lack of care on their part.
Unfortunately they were unable to discharge that burden. The Court therefore held the
defendant liable.

Teng Ah Kow & Anor v. Ho Sek Chiu 1993

Here 2 cooks were employed by the defendant restaurant. They suffered severe burns when
a major explosion occurred in the restaurant kitchen because of a defective gas cylinder.
Since the entire restaurant was under the control of the employer and such explosions
would usually not occur unless there was negligence in failing to maintain the equipment,
the Court Held that res ipsa loquitur would apply and the employers had to show that they
had taken reasonable care by providing a safe place of work. The employers were unable
to show they had taken reasonable care, especially in regularly checking and maintaining
the gas cylinder in good order and repair. They were thus found liable.

5. Defences in Negligence

If a plaintiff succeeds in establishing negligence, the defendant may attempt to take

cover under the following general defences available to him. These defences are:

a) Denial of liability – The defendant denies that he is liable. For example, in an action for
negligence, he may argue that there was no duty of care owed or even if there was, there
was no breach of duty or even if the duty had been breached, he had not caused the injury,
loss or damage.
b) Inevitable accident – This defence is usually raised when an accident occurs despite the
exercise of reasonable care on the part of the defendant.

c) Act of God – This defence involves the operation of natural forces such as storms,
earthquake and flood over which the defendant has no control over. For example, a
defendant who manages and maintains a building may claim that a building set ablaze on
fire by lightning may very well be considered an act of God, rather than his negligence.

d) Voluntary assumption of Risk (Volenti non fit injuria) – This Latin phrase literally
means, "To him who is willing there can be no injury", so that the plaintiff is barred to the
extent of his consent. In other words, if the plaintiff had consented to incur or assume a
risk, he cannot blame someone else for injury, loss or damage sustained as a consequence
of his own action. An example can be seen when a boxer is unable to claim damages for
injuries inflicted by his opponent. By way of an actual illustration, let us consider the case
of Morris v. Murray 1991. Here, the plaintiff helped a pilot by accompanying him on a
flight in his light aircraft. The defendant pilot had spent the whole afternoon drinking,
where he had consumed the equivalent of more than ½ a bottle of whisky. The plaintiff
was aware of this. Soon after take off the plane crashed, where the plaintiff also sustained
injuries. The Court held that the defence of “volenti non fit injuria” would apply here,
since the plaintiff knew the drunken condition of the defendant and voluntarily assumed
the risk of his negligence by accompanying him as a passenger in his plane. This was
especially so since piloting an aircraft was far more complex and demanding a task than
driving a car and the risks of mismanagement was correspondingly greater.

e) Contributory negligence – This arises when both the defendant and plaintiff are
negligent. The defendant may prove that the contributory negligence of the plaintiff was
the sole cause of the accident or that it had contributed to it. A vivid illustration of this
principle can be seen in the case of Sayers v. Harlow 1958, here the plaintiff had entered
the defendant's public toilet, but was unable to leave the cubicle as a result of a faulty lock.
After trying unsuccessfully to attract attention, she attempted to climb over the top of the
door, placing one foot on the toilet roll dispenser. She slipped and fell resulting in her
injury. The court held that damages recoverable would be reduced by 25% in view of her
contributory negligence. In a Singapore case, Ng Weng Cheong v. Soh Oh Loo 1993, a
pedestrian was hit by a bus at a traffic junction. He had attempted to cross the road against
a “red man” signal. The court held that the motorist was negligent but there was
contributory negligence on the part of the pedestrian and his claim was reduced by 30%.
It used to be the position at common law that, if an injured plaintiff was himself liable for
contributory negligence, the defendant could sometimes escape liability altogether. In
Singapore, however, under Section 3 of the Contributory Negligence and Personal
Injuries Act, blame is now apportioned and the plaintiff's contributory negligence merely
has the effect of reducing the amount of compensation that could be recovered by him.

f) Disclaimers – These are often used to exclude or limit liability in the tort of negligence.
The effect of a disclaimer in the law of tort is very similar to an exclusion or exemption
clause under contract law. In tort, disclaimers are often used to negate liability for a duty
of care. We shall consider this in greater detail when we come to the next topic on
negligent misstatement, below.
SESSION 10: The Law of Tort I

Essential points

o Tort, Crime and Contract

o The Tort of Negligence
o Duty of Care
o Breach of duty of Care
o Resulting loss and damage
o Defences in Negligence

Visual Overview

Practice Questions (10)

1. The “neighbor” principle is relevant in establishing one of the elements in the tort of
negligence. Discuss.

2. How does the court determine whether the defendant has breached its duty of care owed
to the plaintiff?
3. Explain the tests adopted by the courts to establish the defendant’s liability for the injury
/ damage suffered by the plaintiff.

4. Tony bought a smartphone called “B8” from a retailer in IT Square, Be Smart Pte Ltd
(“BS”). After using the B8 for two weeks, Tony realised that there was a defect in the
batter. He has to charge the B8 after 2 hours of usage.

While Tony was using B8 to surf the internet, the smartphone started to heat up very
quickly. It exploded and Tony suffered burns to both his hands. He went back to IT
Square but was informed by the building management that BS has moved out and
creditors have applied to court to wind-up BS.

Tony referred to B8’s packaging and managed to locate the manufacturer of B8, B8
Smartest Phone Pte Ltd (“BSP”). He contacted the customer service department of BSP.
The customer service officer said that BSP not give any warranties or guarantees on its
products and it is for the customer to claim from the retailer.

Advise Tony on his claim against BSP for injuries to both his hands as a result of using
B8.
 SESSION 11

THE LAW OF TORT II

Session Learning Objectives.

When you finish this Session, you should be able to:

• Identify and apply the factors determining a “special relationship” in negligent

misstatement cases.
• Identify elements of malicious falsehood
• Identify elements of defamation and related defences.

Chapter Outline

1. The Tort of Negligent Misstatement

1.1 Duty of Care: The “special relationship”
1.2 Breach of the duty of care
2. The Tort of Defamation
2.1 Scope and types of Defamation
2.2 Elements of Defamation
A. Statement must be defamatory
B. Statement must identify or refer to the plaintiff
C. Statement must be communicated or “published”
2.3 Defences in Defamation
• Justification
• Absolute privilege
• Qualified privilege
• Fair comment on a matter of public interest
• Offer of amends
2.4 Remedies for Defamation
a. Damages
b. Injunction
c. Apology, retraction and / or rectification
3. The Tort of Malicious Falsehood
3.1 Comparison between Defamation and Malicious Falsehood

1. The Tort of Negligent Misstatement

A negligent misstatement is a piece of advice given by a person (an adviser) orally or in

writing which is relied on by the recipient (his advisee) that may result in his own loss
and detriment. To fully understand the nature of this particular tort, it may first be useful
to refer to the history of its development.
 In 1951, an interesting case came before the English courts. The name of that case was
Candler v. Crane, Christmas & Co. There, the plaintiff, who was an independent
investor, invested £200 on the strength of false accounts given to him by the company’s
auditor. Eventually he lost his investments after the company went insolvent. He sued the
auditor for negligent misstatement. The majority of the judges in deciding this case were
not prepared to extend a tort recovery to pure economic (financial) losses caused by
negligent misrepresentation. However, an important dissenting judgment came from one
of the judges, Lord Denning who said, “where the accountant prepares his accounts and
makes his report for the guidance for the very persons in the very transaction in
question” he should be liable. He further said that the duty to take care should not only
be confined to between the accountant and his client (contract) but should extend to any
person the accountant foresee would rely upon his accounts (tort). Lord Denning’s
dissenting view was finally accepted and approved in 1964 in the subsequent important
case of Hedley Byrne v. Heller 1964. Here, the plaintiff (Hedley Byrne) was an
advertising agent. They were about to enter into a contractual relationship with another
business party, Easipower. Through its bank, it requested from the defendant, another
bank (Heller), information about the creditworthiness of Easipower who was the bank’s
customer. In response to the enquiry, Heller wrote that Easipower was a “respectably
constituted company, considered good for its ordinary business engagements”. On the
strength of this, the plaintiff went into business with Easipower. Easipower subsequently
collapsed owing the plaintiff huge debts. The plaintiff sued the defendant bank Heller for
his losses. The court held that there was a “special relationship” between the defendant
and the plaintiff that gave rise to a duty of care and thus there could be potential liability
for such negligent misstatements.

As in conventional negligence claims, the recipient (advisee), in order to succeed in his

action needs to establish:-

❑ A duty of care
❑ Breach of that duty
❑ Causation and resulting loss which was not remote.

1.1 Duty of Care: The “special relationship”

In the Hedley Byrne decision, there was great concern expressed by the court that if the
duty of care here was as wide as the “neighbour principle” established for negligent acts
in Donoghue v. Stevenson, it would lead to the opening of “a floodgate of claims” since
it would expose those giving advice to an indeterminate amount of liability to an
unlimited number of plaintiffs. It was for this policy reason that some limits had to be
imposed on negligent misstatements as opposed to negligent acts. The duty therefore
could only arise where a “special relationship” existed between the inquirer and the
maker of the statement. The court in the Hedley Byrne case held that there were certain
factors which determined this “special relationship” under the duty of care. These are:-

a. The type of advice given – In the Hedley Bryne case itself, one of the judges, Lord Devlin
mentioned that 2 major questions come to mind; namely, whether the advice given was
 paid by the recipient or simply gratuitous (Free of Charge) and secondly, in what context
was the advice given, social or strictly professional? It would then be reasonable to say
that if the advice was paid and given in a purely professional context, the recipient can
expect to receive the expected standard of care from his adviser, whereas if it was given
free of charge and/or in a social context, the same standard might usually not be expected.

b. The advisor’s business – In the Hedley Byrne decision, it was earlier thought that the
adviser must be in the specific business of giving advice for liability to attach. However,
since the decision of Esso Petroleum v. Mardon this now appears to be unnecessary. The
only requirement is that it was reasonable under the circumstances, for the recipient of the
advice to rely on the adviser’s skill and judgment.

c. Whether there was “reliance” by the advisee – Here the question arises as to whether the
adviser knows or ought reasonably to know that the recipient is likely to rely on his advice?
This naturally draws us to a deeper discussion of what was the purpose of the advice in
the first place. So in the case of Caparo Industries v. Dickman 1990, the plaintiff
acquired a company, claiming that it did so based on the accounts audited by the
defendant, a firm of auditors who was the appointed statutory auditor. It later turned out
that the audit was negligently performed and the plaintiff suffered loss relying on it. The
defendant strenuously resisted the claim and denied owing the plaintiff a duty of care. The
court held that the auditor was not liable. He had prepared his report for the shareholders
at the AGM to enable the shareholders to exercise their functions. It was not prepared for
investors to make investment decisions. Therefore it was not foreseeable from the
auditor’s perspective for an investor to rely on it and hence there was no duty of care.

d. The presence of a suitably worded “disclaimer” of liability clause – As stated above, the
effect of a disclaimer in the law of tort is very similar to an exclusion or exemption clause
under contract law. Here it may help the adviser exclude or limit his liability to recipients
of his advice. In the Hedley Bryne Case itself, a disclaimer clause was used (“for your
private use and strictly without responsibility on the bank or its officials”). This disclaimer
in that case, proved to be effective and the bank was able to disclaim liability. However,
it is important to note that in the present context, the provisions of the Unfair Contract
Terms Act (UCTA) would apply and it may not be so easy to escape responsibility
altogether.

1.2 Breach of the duty of care

The standard of care required in negligent misstatement cases is that of the reasonably
competent fellow professional in the same field. In ordinary circumstances, proper
adherence or conformity to some standard professional practice would be adequate.
Sometimes, however, this may not be enough and the professional may have to go
beyond minimum standards. The following case illustrates the point:-
 Yeo Yoke Mui v. Ng Liang Poh 1999

Y had engaged N, a lawyer, to convey the property of a corner house to him. In line with
normal practice, N obtained a road interpretation plan from the Land Transport
Authority (LTA) and sent it to Y without explaining what a “Category 4 road proposal”
that affected a corner of the land meant. Y paid the deposit, and only after that, then
discovered that he could not redevelop or build on that corner because of the proposal.
Y was very unhappy and sued N. The court held that it was not enough that N just
followed normal practice in this case, because as a professional he owed a duty of care
to explain to his lay client what the Category 4 road proposal meant.

2. The Tort of Defamation

Defamation is a tort which occurs when someone make statements about another person
that has the effect of damaging that person’s reputation. The net result must be that:

➢ “It lowers plaintiff in the estimation of right-thinking members of society”

➢ “This causes a plaintiff to be shunned and avoided”
➢ “Has a tendency to excite adverse opinions against the plaintiff”

The law concerning the tort of Defamation in Singapore is set out in the common law
and also the Singapore Defamation Act (Cap. 75). Both these sources of law define the
following:

❖ Scope and types of Defamation

❖ The elements of Defamation
❖ Defenses in Defamation
❖ Remedies for Defamation

2.1 Scope and types of Defamation

How can a person be defamed? The scope of defamation can be very “wide”. This can
be done through speech made personally, or broadcasted in film, video and/or audio
recording. It can also be committed through written words made in a publication,
newspaper article and/or through the fax. In the “digital age” defamation can be done
through the Internet, e-mails, blogs, face book, twitter or Instagram. Bloggers and
subscribers to face book, twitter etc. must remember that the same rules of defamation
apply whether it is in print or on the internet. In fact, they are a lot more exposed on the
Internet because their publication has far wider reach, which means they may be exposed
to higher damages. Worst of all, they may unwittingly be publishing defamatory
materials in jurisdictions which attracts substantial damages when they feature other
people’s comments on their blogs. This is because liability is often not restricted only to
the original author as every person who re-publishes the defamatory statement is also
 liable as publisher. This will be the case unless the original author authorizes the
republication of the statement, only then is he liable for their subsequent publication as
well.

Essentially, defamation can take two (2) main forms or types. These are:-

1. Libel – This means the defamatory statements are communicated or published in

permanent form. E.g. newspaper article, a fax, an e-mail or face-book posting. The
presumption in law here is that damage has automatically occurred, without the need for
strict proof.

2. Slander – This means the defamatory statements are communicated or published in

transient (temporary) form e.g. speech made at a wedding reception. In slander, the
plaintiff must prove special damage unless it falls within certain recognized exemptions.

Section 5 of the Defamation Act, however, does not require proof of damage:

a) If words or statements complained of are published in permanent form or

b) If the words used are calculated to cause pecuniary damage in respect of any office,
profession, calling or business at the time of publication

2.2 Elements of Defamation

There are three elements that have to be present in any defamation action, these are:-

A. The statement or words complained of must be defamatory

B. The statement or words identify or refer to the plaintiff
C. The statement or words must be “communicated” or what is traditionally called a
“publication” (meaning that another person or persons have been exposed to the statement)

A. Statement must be defamatory

Remarks must be untrue (false) and also has the effect to lower or worsen the person’s
standing in society. There is no requirement to show malice, although if it is shown it
may help to reinforce the plaintiff’s case. The remarks would need to bring a person into
disrepute or tend to lower him in the estimation of right thinking members of society.
What does this mean? The test here is whether the remarks made indeed have a negative
impact on a person’s reputation from the point of view of a reasonable person or
reasonable people in general. In practice, the court will consider the following:
 ➢ The impression that the allegedly defamatory statement leaves with the ordinary person
➢ The context and circumstances leading up to the making of the statement

The law also accepts that it is possible, sometimes, for defamatory meanings to be
implied “within words and statements”. This is known as “defamation by way of an
innuendo”. An example can be seen when a person says of his teacher “Our Biology
teacher, Mr. Chua, likes to eat snake”. This may imply that Mr. Chua, the Biology
teacher is a lazy fellow.

B. Statement must identify or refer to the plaintiff

The second element the Plaintiff will have to show is that the defamatory remarks are
capable of being identified or referred to him.

C. Statement must be communicated or “published”

The third element is that of communication or “publication”. Defamatory statements do

not become actionable until they are made known or published to another person or
persons. To fulfill this requirement, the Plaintiff has the burden to show:-

❑ The remarks must be in a language understood by third parties

❑ The plaintiff must identify the third party whom the words were published
❑ The plaintiff must pinpoint the exact words that he claims are defamatory.

An illustrative case that features the interplay of these 3 important elements can be seen
as follows:-

Cristofori Music Pte. Ltd. v Robert Piano Pte. Ltd. 2000

The plaintiff (Cristofori) is a company in the music training business and also import
and sell piano brands like Asahi and Paco. The defendant (Robert) is a business
competitor selling piano brands like Kawai and Samick. The plaintiff advertised their
Asahi and Paco pianos selling at $3799 and $4970 respectively. One month later, the
Defendant advertises in the Straits Times and commented as follows:

“BEWARE! Pianos, like “A & P” brands (retailing at $3799 & $4970 respectively, as
advertised) are made and assembled in Pyongyang, North Korea. Both brands are made
in the same factory and claim to use mainly Japanese parts when in actual fact 80% to
90% of these piano parts are made in North Korea by North Korean labour. These
pianos are therefore 100% made and assembled in Pyongyang, NOT JAPAN!!! Isn’t this
a “Sales Gimmick”? Do not let such sales people “PULL WOOL OVER YOUR EYES”!
 Insist on a written statement for your own protection. The old Chinese proverb “ONE
CENT BUYS YOU ONE CENT PRODUCT” does apply here. Therefore such pianos
cannot be compared with world re-owned KAWAI & SAMICK Pianos – The Two Names
You Can Trust!”

The plaintiff took action against the defendant for defamation. The court held that the
statements were indeed defamatory as evidence was tendered to show the defamatory
statement were untrue. Further, the statements were capable of being understood as
referring to the plaintiff and was generally communicated by way of publication via a
newspaper advertisement. These allegations had the tendency to lower the plaintiff in the
estimation of right thinking people generally (especially their common customers in
particular), and was therefore defamatory.

2.3 Defences in Defamation

We shall now consider the various defences available in a defamation action. These are:-

❖ Justification – The defendant has to prove that the defamatory statement is true in
substance and in fact. If it is successfully plead it is a complete defence to a defamation
action.

❖ Absolute privilege – The law recognizes certain legal communications are privileged. As
examples, statements made in Parliament when it is in session or statements made during
the course of judicial proceedings are protected. Thus statements made under these
circumstances are rendered absolutely privileged.

❖ Qualified privilege – Provided there is an absence of malice, certain types of statements

enjoy qualified privilege. So, communications between people under a legal, social or
moral duty to communicate e.g. references by employers enjoy qualified privilege.

❖ Fair comment on a matter of public interest – An honest comment made on a matter of

public interest e.g. freedom of the press is a defence to defamation.

❖ Offer of amends – Any person who defames another innocently can offer to publish a
correction and an apology, and pay such compensation as may be agreed.

A case law illustration of the workings of these “defences” can be seen in the case of:-

National Kidney Foundation v. Singapore Press Holdings 2005

The National Kidney Foundation's (NKF) sues the Singapore Press Holdings (SPH) for
defamation over an article written by Susan Long on 19 April 2004 entitled "The NKF
Controversially ahead of its time". The article spoke of a glass panelled shower, a pricey
 German toilet bowl and a gold plated tap. SPH’s argued the defences of justification and
also fair comment on a matter of public interest. The trial was unceremoniously cut
short and the case against SPH was dropped on the second day of trial after it was
shown by evidence that SPH was telling the truth.

2.4 Remedies for Defamation

There are several remedies available to the plaintiff in an action for defamation. These
are:-

a. Damages – The plaintiff has a right to damages to compensate for his/her loss of
reputation. How much should the quantum (amount) he/she should be entitled to? The
actual amount is to be determined on a case by case basis. Many factors come to, some of
these factors include:-

o Defendants malicious motives

o Standing of both parties in society
o Gravity of libel and the scope of its publication
o Manner and timing of publication
o Conduct of plaintiff up to the end of trial

b. Injunction – The plaintiff can also seek an injunction from further publication.

c. Apology, retraction and/or rectification – An apology must be adequate in that the

defendant must acknowledge that the words were false and that he retracts the statements
made and also makes an attempt to rectify the false impression given to the public.

3. The Tort of Malicious Falsehood

This tort deals with false representations made maliciously by someone with an intention
to injure the plaintiff’s goodwill or economic reputation. It is not concerned with
protecting personal reputation. So, when a person’s business reputation (as opposed to
his personal reputation), his title to goods or his general material or financial interests
has been harmed or injured by a false and malicious statement, that person may bring an
action in the tort of malicious falsehood. A statement may be a malicious falsehood if it
satisfies all the following elements:-

1. An untrue statement (falsehood) made orally, in writing or by way of conduct

2. Communicated to third parties (publication).
3. Maliciously, without cause or excuse and with dishonest, improper motive or ill-will.
Mere negligence is not sufficient.
4. About the plaintiff, his property, trade or occupation
5. Resulting in a loss of business or any material or financial loss
 Two interesting cases help to illustrate how and to what extent the tort operates. These
are:-

Kaye v. Robertson 1991

The plaintiff, Gordon Kaye (a well-known actor), had suffered serious life threatening
injuries in a traffic accident. He attempted to sue for malicious falsehood and ask for an
injunction to restraint the publication of photographs of the injuries he suffered in the
crash. These photographs were obtained by deception when a tabloid journalist and
photographer had entered the hospital ward without permission to take photographs
when he was undergoing treatment. The court held that malicious falsehood had been
made out and an injunction was issued to restraint the tabloid from publishing the story
with the accompanying photographs.

Sin Heak Hin Pte Ltd. v. Yuasa Battery Singapore Co Pte Ltd. 1995

The plaintiffs dealt in vehicle batteries, tyres and accessories. The defendant was a
Singapore subsidiary of a Japanese company which manufactured car batteries for
vehicles. In September 1990, the plaintiffs imported 1,400 pieces of “Yuasa” brand
batteries from China to Singapore. These were parallel imports made under licence
from China. The defendant then maliciously issued a circular addressed to all their
dealers claiming the Yuasa batteries from China were illegal imitations (but knowing
full well that these were original but parallel imports. The plaintiffs brought an action
for malicious falsehood. The court Held that the plaintiffs should succeed as the
defendant had a) made a false statement concerning the plaintiff’s goods; b) it was made
with a malicious intent; and c) the plaintiffs, as a result was unable to sell a substantial
portion of the import amounting to almost $40,000 which represented a
financial/material loss on his part.

3.1 Comparison between Defamation and Malicious Falsehood

These 2 torts have a tendency to look quite similar and there appears to be some overlap
between them. In most situations, the plaintiff will be wise to pursue both actions at
once, as alternatives. Key differences between these 2 torts are:-
➢ In malicious falsehood the statement must be false, but need not be about plaintiff’s
character. Defamation, on the other hand, is about reputation and character of the plaintiff.
➢ In malicious falsehood, the plaintiff must prove malice. Defamation does not normally
require proof of malice.
➢ In malicious falsehood, actual damage suffered and financial/material losses must be
proven. Defamation (especially Libel) general damages are awarded without the need to
prove actual damage – Section 5 Defamation Act.
➢ In defamation, the subject (the plaintiff) must be alive – you cannot defame a dead person!
In malicious falsehood the subject could be dead or non-existent, action can still proceed.
SESSION 11: The Law of Tort II

Essential points

o The Tort of Negligent Misstatement and the “special relationship”

o Defamation and the Elements of Defamation
o Defences in Defamation
o Remedies for Defamation
o Malicious Falsehood and the elements of Malicious Falsehood
o Comparison between Defamation and Malicious Falsehood

Visual Overview

Practice Questions (11)

1. There are limits imposed by courts in determining the liability of advisers in a

negligent misstatement claims. Discuss.

2. Statements published in the social media may be the subject of a malicious

falsehood claim. Discuss the elements which a plaintiff is required to establish
in a malicious falsehood claim.

3. The publishers of defamatory statements may raise several defences. Discuss.

4. The “Real World News” published an article about a prominent politician, Mr.
Tan Lau See, on its front page under the headline “Cash Wine for Mr.
Prominent”. The article stated that Mr. Tan Lau See entertains businessmen
frequently.

The newspaper named Mr. Alan Low as one of the businessman. Mr. Alan Low
Li is the owner of a catering service, ALL Good Services Pte Ltd. (“ALL”).
ALL has been providing catering services for various events held by Mr. Tan
Lau See’s political party, Workmen Action Party (“WAP”). ALL’s unique
selling point besides high quality food is the supply of fine wines from Europe.
Mr. Tan Lau See has a wine cellar in his house with a stock of the finest wine
from Europe.

The second person named in the newspaper is Mr. Jean Lee, a banker from
Europe. The newspaper stated that Mr. Tan Lau See received cash donation
from Mr. Jean Lee. Most readers assumed that Mr. Jean Lee is the Chief
Financial Officer of bank in Singapore with the same name.

Advise Mr. Tan Lau See, Alan Low Li and Mr. Jean Lee (CFO of a bank in
Singapore) on their claims for defamation against the newspaper. In your
advice, include the availability of any defences for the newspaper.
 SESSION 12

PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

Session Learning Objectives.

When you finish this Session, you should be able to:

• Describe the concept of “intangible” property and the regime of intellectual property
protection in Singapore.
• Describe what IPOS is and what it does
• Explain what a patent is and the criteria for registration of a patent under the Patents
Act
• Discuss the duration of protection, international protection and infringements of patent
rights
• Explain what is a trade mark and criteria for registration under the Trade Marks Act
• Discuss the duration of protection, international protection, infringements of trade
marks and its enforcement under the Trade Marks Act and also the tort of “passing off”
• Explain what is copyright and how is it protected
• Describe the “rights” conferred by copyright
• Discuss the duration of protection, international protection and infringements of
copyright under the Copyright Act
• Discuss the consequences of infringement of copyright and the “defences” available

Chapter Outline

1. Introduction
1.1 Laws Applicable to Intellectual Property protection in Singapore
2. Law of Patents
2.1 How to get registration
2.2 The characteristics of patent
2.3 Duration of Patent
2.4 Patent Infringement and remedies
3. Law of Trade Marks
3.1 The requirements of registration: Distinctiveness
3.2 Objections & Obstacles to registration
3.3 Duration of protection
3.4 Infringement of Trademarks and remedies available
3.5 Passing Off and Trade Marks
4. Registered Design Law
4.1 Registration of registered design
4.2 Duration of protection
4.3 Infringement of registered designs and remedies
5. Law of Copyright
5.1 The 4 Basic Copyright Principles
- Idea v Form of Expression
- Original works
- Copyright arises automatically
- Connecting factor with Singapore
 5.2 Ownership of copyright works
5.3 The Duration of protection in copyright
5.4 Exclusive Rights
5.5 Infringement & Defences available
5.6 Remedies
5.7 Criminal Offence

1. Introduction

Several branches of law are commonly classified under the term “intellectual property”.
The common thread that links them together is that the subject matters they deal with
are abstract human creations. They protect inventions and designs, various works of
authorship and associated works of entrepreneurial activities and the goodwill
associated with the setting up of products or services. Intellectual property has a money
value attached to it and can be sold and dealt with just like any other types of goods and
other properties. In the process of a sale or supply of goods, there may ultimately also
involve a transfer of intellectual property rights. The law in this area gives exclusive
legal rights to intellectual property owners and seeks to protect their creations and
innovations.

1.1 Laws Applicable to Intellectual Property protection in Singapore

The different branches of intellectual property law that we will cover in this work are:-

A. Law of patents – A patent is a right of exclusive use of a new invention, which may be
a product or a process. In Singapore, this is governed by the Patents Act Cap. 221.

B. Registered trademark, trade names and design – A registered trademark is a sign that
distinguishes the goods and/or services of a trader from that of another. In Singapore,
this is governed by the Trade Marks Act Cap. 332. A registered design is the exclusive
right to use features of a shape, pattern or ornament applied to an article by any
industrial process. Examples of registered designs are jewelry designs and furniture
designs. They are regulated by the United Kingdom Designs (Protection) Act Cap. 339
(a Singapore legislation/Act) and the Singapore Registered Designs Act 2000.

C. Law of Passing Off – The law of passing off is founded on a tort or civil wrong. It is
not under the Trade Marks Act but is part of the common law. The law of passing off
protects a person’s goodwill firmly associated with the business mark or sign utilized
in his business.

D. Law of Copyright – A copyright is the exclusive right to reproduce publish, perform,

broadcast, include in a cable program and/or adapt a work. Works, which are protected
by copyright, includes original literary works, musical works, artistic works and
dramatic works. This branch of intellectual property is governed by the Copyright Act
Cap. 63.
2. Law of Patents

Essentially, a registered patent is intended to protect scientific and technological

“inventions”. A patent provides a full monopoly for the exploitation of a person’s
invention and gives the patent owner the exclusive right to use the invention and the
right to stop others from using, making, importing or keeping it without his permission.
In Singapore for patent to be enforceable it must first be registered at the Intellectual
Property Office of Singapore (IPOS). The rationale for the need to register and gain
monopoly is that persons or companies who have incurred vast amounts of time, effort
and financial investments into research and development (R &D) should freely be able
to protect their inventions from unauthorized exploitation.

2.1 How to get registration

In Singapore, this is done at IPOS, where there are procedural requirements and
processes to be fulfilled before the patent is granted and registered. The procedural
requirement goes through 3 formal stages, these are:-

❑ The Filing Stage – This is when the application is filed and statements of the
inventors are attached.
❑ The Examination Stage – Search, examination and detailed formalities.
❑ The Publication and Grant Stage – this is where the patent is formally registered
and granted in favour of the applicant

In addition, there are also two further procedural requirements to be complied with.
Firstly, there must be disclosure about the invention in a manner that is clear enough
and complete enough for the invention to be performed by a person skilled in the art.
The second requirement is the claim shall:-

✓ Define the matter for which the applicant seeks protection,

✓ Be clear and concise,
✓ Be supported by the description, and
✓ Relate to one invention or to a group of inventions, which are so linked as to form
a single inventive concept

Any failure with these requirements could be a ground for the revocation of the patent.

However, there is also the “international application” which is an indirect route, since
Singapore also adopts a “piggy back” procedure. Under this procedure, you first have
to obtain registration by filing an international application designating Singapore,
among other countries where patent protection is required. The international filing can
be done at the IPOS, since Singapore is a signatory to the Patents Cooperation Treaty.
Under this treaty, after registration the patentee would acquire rights and privileges in
Singapore similar in all respects to those conferred by the issue of the patent in other
countries who have signed the Treaty.

2.2 The characteristics of patent.

A patent is granted when the following conditions are satisfied:

 o The invention is new
o It involves an inventive step in a sense that it must not be obvious to any specialist
in that particular industrial field
o It must be capable of industrial application

The following are not the subject of a patent and therefore are NOT patentable:-

➢ Discoveries, scientific theories or mathematical methods; literary, dramatic,

musical or artistic works or any other aesthetic creation; schemes, rules or
methods for performing a mental act, playing a game or doing business, or a
program for a computer application; method and style in the presentation of
information etc.;

➢ Methods of medical treatment for humans or animals, e.g. a surgical technique

➢ Any variety of animal or plant or any essentially biological processes for the
production or reproduction of animals or plants;

➢ On the grounds of public policy, for instance invention, publication, or

exploitation of which would be generally expected to encourage offensive,
immoral or anti-social behavior

2.3 Duration of Patent.

The applicant (patentee) enjoys a monopoly of 20 years once the patent is granted. Once
granted, a patent may be sold, assigned or mortgaged. It may also be licensed to third
parties for use.

2.4 Patent Infringement and Remedies

If an unauthorized person(s) has infringed a patent without the consent or license of the
owner, the owner can do any of the following:-

o Apply for an injunction to restraint further acts of infringement;

o Sue for damages, account of profits and claim legal costs;
o Apply for a “delivery up or destruction” of infringing items

3. Law of Trade Marks

Trade mark law is to protect the goodwill, brand consciousness and loyalty associated
with a person’s trade as well as certain types of business “indicia” which an
entrepreneur may have built up through long use or advertising campaigns aimed at
creating brand consciousness and customer loyalty. A trademark may be a letter, word,
name, numeral, device, signature, brand, heading, label, ticket, shape, colour, aspect of
packaging or any combination of these. A 3-dimentional shape is also capable of
registration as a trademark. Under quite recent amendments to the Trade Marks Act,
 registration of service marks is also now permitted. In Singapore, the protection for
trade mark is generally covered by way of two methods, namely:

❑ Under the registration system provided by the Trade Marks Act Cap. 332; and/or
❑ Under the common law tort of “passing off” (a civil wrong)

3.1 The requirements of registration: Distinctiveness

Registration must be made by the applicant/proprietor (a person or company) claiming

to be the owner of the trademark used or proposed to be used by him in the course of
business in Singapore. The proprietor has to prove that at the date of application there
has either been actual use or a bona fide intention to use the trademark in Singapore in
relation to the goods or services being provided. The proprietor must then file the
application at the IPOS registry. A trademark may be registered either under Part A or
Part B of the register. To qualify for registration under Part A, the trademark must be
distinctive of the goods or services of a person. A mark may be distinctive because it is
inherently adapted to distinguish itself specifically from others, furthermore it must
contain or consist of at least one of the following essential particulars:

❑ A name of a company, individual or firm represented in a special or particular

manner;
❑ The signature of the applicant or a predecessor in business;
❑ An invented word or invented words;
❑ A word or words having no direct reference to the character or quality of the goods
or services, and not being according to its ordinary signification a geographical
name or surname;
❑ Any other distinctive mark.

If a trade mark is not sufficiently distinctive to qualify for Part A registration, Part B
registration may be possible if the goods or service is/are capable of distinguishing itself
with which the proprietor is connected in the course of trade from those with which
there is no such connection. Such capability to distinguish itself may be inherent or
factual through use and other circumstances and if disputes arise the court may consider
both factors in assessing distinctiveness. The test of distinctiveness in Part B is thus
less stringent than that for Part A.

3.2 Objections & Obstacles to registration.

There are also stringent obstacles and objections to registration. The Trade Marks Act
makes it unlawful to register a trademark if:-

▪ The trade mark is not distinctive enough, in either or both Part A & B registration;
▪ Trade Marks which are wholly descriptive;
▪ Trade Marks which are contrary to law or public policy (something immoral,
offensive, scandalous or unlawful).
▪ Trade Marks which are identical or similar to an existing trade mark, which if it is
allowed to be registered is likely to confuse the public.
 ▪ Flags, state emblems, names of international organizations etc. which if registered
is likely to given an inaccurate impression of connection with such governments or
organizations.

3.3 Duration of protection.

The Trade Marks Act provides that registration lasts for an initial period of 10 years
and which may be renewed for a further period(s) of 10 years from the expiration of the
last registration of the trademark, provided the trademark is used by the registered
proprietor.

3.4 Infringement of Trademarks and remedies available

Upon his mark being infringed, the registered proprietor of the trademark can:-

➢ Apply for an injunction.

➢ Obtain damages or an account of profits.
➢ Obtain an order for removal or delivery up and/or destruction of infringing items.
➢ Proceed with an action for the tort of “passing off”.
➢ Criminal sanctions may also be involved if there is evidence of “counterfeiting”

3.5 Passing Off and Trade Marks

Passing Off is a tort or civil wrong, which protects a person against the misappropriation
of goodwill that is firmly associated with certain marks, signs or “indicia” of that
person’s business. The tort of passing off is often classified under intellectual property
protection rather than under the law of tort and is the common law alternative to
protection for registered as well as unregistered trademarks.

In the case of Rickett & Coleman v. Borden Inc. 1990, the court defined the elements
of a passing off action and stated that the plaintiff must establish the following
conditions to succeed:-

A. There must be goodwill or reputation attached to the business.

B. A misrepresentation by the defendant made in the course of business to his
prospective customer or ultimate consumers that the goods or services offered by
him are the same as those offered by the plaintiff and;
C. This causes actual financial damage or likely to cause such loss to the business or
goodwill of the plaintiff

The usual remedies available in an action for passing off are:-

o An injunction, which may be granted to restrain the defendant from continuing with
the breach.
o In addition, damages may also be granted to compensate the plaintiff for losses
suffered, if any.
4 Registered Design Law

A “design” refers to features of shape, configuration, pattern or ornament applied to an

article by any industrial process or means. Design rights are rights that give the owner
the exclusive right to use and exploit the design commercially. It also allows the owner
of the rights to prevent others from dealing with articles bearing that design for the
purpose of making, importing, selling or using it. The protection of design protection
is dependent upon registration of the design. Prior to the enactment of the Singapore
Registered Designs Act 2000, if a person registers the design in UK, it is automatic and
does not require any re-registration in Singapore. The registered design law provides
protection for industrial designs, which are to be used as a basis or model for the
production of articles based on such designs.

4.1 Registration of registered design.

In order for the design to be registered, the requirements are:-

❑ Design must be new

❑ Design must have eye appeal
❑ Design whose features of shape or configuration of the article must not be dictated
solely by the function that the article has to perform
❑ Design whose features of shape or configuration of an article must not be dependent
upon the appearance of another article of which the article is intended by the author
of the design to form an integral part
❑ The appearance of the article based on the design must be material.

4.2 Duration of protection

Once protection is granted, the registered proprietor has a maximum period of 5 years.
Thereafter it can be renewed for 2 subsequent periods of 5 years each, thereby making
a total period of 15 years in all.

4.3 Infringement of registered designs and remedies

If anyone infringes an owner’s registered design, the owner is entitled to initiate

infringement proceedings and may obtain the following remedies:-

▪ An injunction to stop the infringement; and

▪ An order for damages to compensate the owner for losses sustained

5 Law of Copyright

This is a legally enforceable intellectual property right. The person who owns the
copyright has the right to stop others from copying his work. Copyright exists to protect
an author’s rights in the following:
 o Original literary work
o Original dramatic work
o Original musical work
o Original artistic work
o Sound recordings
o Cinematograph films
o Television broadcasts and sound broadcasts
o Cable programming
o Published editions of any work.

It is important to note, at the very outset, that different copyright can co-exist in one
particular product and the rights can also belong to different parties. For example, in a
popular song album recorded in a CD, there will be Lyrics or words of the song –
Literary work; Music score – Musical work; Record Production – Sound recordings;
Design Cover of CD – Artistic work.

5.1 The 4 Basic Copyright Principles. These are:-

1. Idea v Form of Expression – Copyright protects the form of expression and not the
ideas. Protection is available regardless of the merit or quality of the work, so long
as it is reduced into a material form. For copyright to be infringed, the wrong doer
must have copied the form of expression and not merely the idea (or concept)
inherent in the work.

2. Original works – In order to gain copyright protection, a work must be original.

Original means that it must be unpublished (not communicated) and independently
created by the author and the work exhibits intellectual effort, skill and labour on
his part. In order to decide whether the work is original will sometimes depend on
whether it is a derivative work or non-derivative work.

3. Copyright arises automatically – Copyright, unlike patents, trademarks and

registered designs, does not require “registration” at IPOS. Copyright protection is
automatic. Copyright in a work subsists the moment it is reduced to writing or some
other material form. Since there are no formal requirements of registration to secure
copyright in Singapore, there is no need even to mark “©” to indicate the ownership
of the copyrighted work

4. Connecting factor with Singapore – The copyright owner must be a Singapore

Citizen. Works created by non-Singaporeans will not enjoy copyright protection
unless the rights under the Copyright Act have been extended to other countries
pursuant to bi-lateral treaties. An example of such a bilateral treaty is the Berne
Convention 1998 where Singapore is a signatory together with the United States,
United Kingdom, Australia, amongst others.
5.2 Ownership of copyright works

In general, the copyright in an author's works will belong to the author. There are,
however, exceptions where the copyright work does not belong to the author. These
are:

✓ Where the works are made by journalist employees within media company
✓ In case of limited categories of commissioned artistic works found in photographs,
paintings, drawing of portraits or the making of an engraving.
✓ Where the works are made in the course of employment, and that the terms of the
employment contract stipulate that copyright would vest with the employer.

5.3 The Duration of protection in copyright.

The duration of the copyright in a literary, dramatic, musical or any artistic work would
continue to subsist for a period of the life of the author plus 70 years after the expiration
of the calendar year in which the author died. However the law also provides that if
before the death of the author of a literary, dramatic or musical work, these have not
been offered or exposed for sale, and then the protection will last for 70 years after the
year one of these acts is first done.

5.4 Exclusive Rights

The Copyright Act provides for the exclusive rights of the owner/author such as:

❑ To reproduce the work in a material form

❑ To publish an unpublished work in Singapore or any country to which the Act
applies
❑ To perform the work in public
❑ To include the work in a cable program
❑ To make an adaptation of the work
❑ To do any of the acts stated above in relation to an adaptation of the work.

Other exclusive rights are:

• In a sound recording, the copyright owner gets the right to made a copy of the
sound recording
• In the film industry, the copyright owner acquires the right to make a copy of
the film, and cause the film to be seen in public as well as to broadcast the film

5.5 Infringement & Defences available

Whenever a person does any act, without the consent or license of the copyright
proprietor/owner, which only the proprietor/owner has exclusive rights to do (see
 above), there will be an infringement. Should there be such a copyright infringement,
the defences generally available to the defendant are:

• It was done for research or private study

• It was done for the purpose of criticism or review,
• It concerns the reporting of current events.

5.6 Remedies.

The main remedies for copyright infringements are:-

❖ Injunction
❖ Damages and an account of profits
❖ Delivery up and destruction of infringing copies

5.7 Criminal Offence.

Certain types of copyright infringement may also amount to a criminal offence. These
are mainly infringement done for commercial purposes. It covers a very wide area and
most types of commercial exploitation of infringing copies of works and other subject
matter of copyright protection will be caught.
SESSION 12: Protection of Intellectual Property Rights

Essential points

o Intellectual Property protection in Singapore

o Registration of Patents and remedies for infringement
o Registration of Trade Marks and remedies for infringement
o Passing Off and Trade Marks
o Registration of registered design and remedies for infringement
o Law of Copyright and remedies for infringement
o Defences to infringement of copyright

Visual Overview

Practice Questions (12)

1. What is a patent and what are the characteristics of a patent?

2. Explain the differences between a “passing off” action and an enforcement proceeding
under the Trade Marks Act.

3. What is a copyright and what are the rights conferred by copyright?

4. Bicycle Unlimited Pte Ltd is the authorized agent in Singapore for “Relay” bicycles
made in France. They are permitted to use the “Relay” trademark in Singapore to
market the “Relay” bicycles.

Michael, an enthusiastic cyclist, registered his business as a sole-proprietorship trading

under the name of Mike Bikes Trading. He conducted a market research on “Relay”
bicycles and discovered the authorized agents of “Relay” bicycles in Taiwan. Michael
started to import “Relay” bicycles from authorized agents in Taiwan and managed to
sell them cheaper than Bicycle Unlimited Pte Ltd.

Bicycle Unlimited Pte Ltd is unhappy. Advise Bicycle Unlimited Pte Ltd whether it
can take any action against Michael.
Answers to end of session questions

Lectures 1 and 2: The Singapore Legal System

Module Book Session 1

Essential points

o Civil law and Criminal law

o Legislation and Case Law
o The Supreme Court and The State Courts
o The Civil Litigation Process and Alternative Dispute Resolution

Visual Overview

Practice Questions

1. Case law is the only source of law in Singapore. Discuss.

2. Discuss the doctrine of binding precedent.

3. Benjamin bought a new 78” Curved Smart television from Sum-It Apple Pte Ltd (“SIA”).
The television malfunctioned at the end of the first month of use. Benjamin contacted SIA
 and requested for a refund of the purchase price of $18,888.00. SIA ignored Benjamin’s
request.

a. Advise Benjamin on the methods of resolving his dispute with SIA amicably
without engaging lawyers.
b. Advise Benjamin on the civil proceedings in court if SIA ignores his request to
settle the matter amicably.

Relevant Legal Concepts

Essay question

1. Case law is the only source of law in Singapore. Discuss.

Answer plan

➢ Singapore legal system is the common law system

➢ Two sources of law in Singapore: case law and legislation
➢ The common law evolved from what is essentially judge-made law (“case law”).
➢ Case law is an important source of law and precedent is critical in the common law.
➢ Legislature is the main law-making body in Singapore.
➢ The law-making process requires all “Bills” to be passed by Parliament and assented
to by the President under Article 58(1) of the Constitution.
➢ The official Singapore Government website for online publication of legislation:
Singapore Statutes Online - Home
 ➢ Acts of Parliament may empower the Minister responsible for the Act to make more
detailed rules to implement the provisions of the Act known as Subsidiary Legislation.

2. Discuss the doctrine of binding precedent.

Answer plan
➢ Case law is an important source of law in the common law.
➢ The principles of law is the cumulative reasoning of the judges in decided cases.
➢ Binding precedent is the principle whereby past cases decided by superior courts are
binding and authoritative for future cases decided by lower courts in the same
hierarchy.
➢ The principle of precedent is summed up by the term stare decisis which literally
means “to stand by decisions”.

Problem question

3. Benjamin bought a new 78” Curved Smart television from Sum-It Apple Pte Ltd
(“SIA”). The television malfunctioned at the end of the first month of use. Benjamin
contacted SIA and requested for a refund of the purchase price of $18,888.00. SIA
ignored Benjamin’s request.

a. Advise Benjamin on the methods of resolving his dispute with SIA amicably
without engaging lawyers.

Answer plan

➢ Benjamin’s dispute with SIA is a civil matter.

➢ Benjamin may resort to alternative dispute resolution (“ADR”) methods to
amicably resolve the civil dispute with SIA.
➢ Two main types of ADR available are mediation and arbitration.
➢ Arbitration may not be appropriate in this case.
➢ Mediation. A third party is appointed to help Benjamin and SIA to work
through the dispute with the goal of reaching a mutually acceptable
compromise. The main mediation institution in Singapore is the Singapore
Mediation Centre established in 1997. Mediation maintains confidentiality.
The compromise reached is usually non-binding upon the parties.

c. Advise Benjamin on the civil proceedings in court if SIA ignores his request to
settle the matter amicably.

Answer plan

➢ The civil dispute may be resolved in the courts.

➢ The two levels of courts: Supreme Court and State Courts.
➢ The Rules of Court (“RC”) govern the civil litigation process in both the
Supreme Court and the State Courts.
➢ Benjamin’s dispute is within the jurisdiction of the State Courts.
➢ Benjamin may consider settling the dispute in the Small Claims Tribunal
(“SCT”). SCT deals with claims for up to $10,000.00 in relation to contracts
for the sale of goods or for the provision of services and certain property
 damage claims (excluding those arising out of the use of a motor vehicle).
SCT can hear claims of up to $20,000.00 if both Benjamin and SIA agree.
Parties not represented by lawyers and their cases are heard before the
registrar. A claim is typically heard within a few weeks after filing.
➢ If SIA does not agree to bringing the matter to SCT, then Benjamin will have
to engage lawyers and institute civil proceedings in the Magistrates’ Court.
➢ The Magistrates’ Court is a court of first instance and has jurisdiction not
exceeding claims of $60,000.00.
➢ The civil litigation process may be viewed as having six stages. The time
required for the entire process varies from case to case.
➢ Decisions of the Magistrates’ Court can be appealed to the District Courts
or High Court (on grounds of error of law).
Lectures 3 & 4: Formation of Contract
Module Book Session 2

Essential points

o Definition of contract
o Offer and invitation to treat
o Communication and termination of offers
o Acceptance and counter offer
o Communication of acceptance and exceptions
o Presumptions and rebuttal of intentions to create legal relations
o Consideration and “good” consideration

Visual Overview

Practice Questions

1. All agreements are legally enforceable. Discuss.

2. The date of posting of a letter is the effective date of communication in the formation of
a contract. Discuss.

3. Great Cafe Pte Ltd (“GC”) calls for tenders to supply the latest kitchen equipment and
renovated its kitchen. Premium Kitchen Pte Ltd (“PK”) submitted the lowest bid when
the tender closed. PK had spent $1,000 preparing the tender bid. GC decided not to
proceed with the purchase of the kitchen equipment and renovation. GC informed PK of
its decision. PK wants to take legal action against GC for not proceeding with the
 purchase and renovation. Discuss the elements of a contract and the existence of a
legally binding contract between GC and PK.

4. Are the following agreements enforceable? Give your reasons.

a) Charles promised his friend, Maria, that he would pay for her lunch. However,
Charles failed to turn up for the lunch appointment. Can Maria enforce the
agreement?
b) Charles refused to honour his agreement with his sister, Katy, to lend his lap-top to
her for a week.
c) Charles signed an application for a credit card from Fortune Credit Card Company.
The next day, Charles decided that he does not want the credit card as he felt that
the annual fee of $200 was too high after checking with his friends.

Relevant Legal Concepts

Essay question

1. All agreements are legally enforceable. Discuss.

Answer plan

➢ All contracts are agreements but not all agreements are contracts.
➢ Contract is defined as “an agreement giving rise to obligations which are enforced or
recognized at law”.
➢ The essence of a contract is the “meeting of minds” where the parties agree on all the
relevant terms.
➢ The law sets out 4 basic elements to ascertain whether a contract exists:
 1) Offer,
2) Acceptance,
3) Consideration,
4) Intention to create legal relations.
➢ Agreements do not have the 4 basic elements and are not legally enforceable.

Essay question

2. The date of posting of a letter is the effective date of communication in the formation of
a contract. Discuss.

Answer plan

➢ The 4 basic elements in the formation of a contract are:

1) Offer,
2) Acceptance,
3) Consideration,
4) Intention to create legal relations.
➢ The general rule is that offer and acceptance must be communicated.
➢ Acceptance is an unconditional expression of assent to the terms of the offer and
acceptance may be made orally, in writing or by conduct.
➢ The Postal Rule is an exception to the general rule of acceptance. It was held in the case
of Adams v Lindsell (1818) that the acceptance was communicated and the contract formed
as soon as the plaintiff posted the acceptance letter.
➢ The Postal Rule applies where the parties agree that acceptance should be send by post.
The Postal Rule may be avoided by stipulating that acceptance is not valid until physically
received by the offeror i.e. the general rule of acceptance applies.
➢ The Postal Rule applies only to Acceptance where it is an agreed mode of communication.
This will result in the formation of a contract.
➢ The Postal Rule does not apply to communication of Offers where the general rule of
communication applies.

Problem question

3. Great Cafe Pte Ltd (“GC”) calls for tenders to supply the latest kitchen equipment and
renovated its kitchen. Premium Kitchen Pte Ltd (“PK”) submitted the lowest bid when
the tender closed. PK had spent $1,000 preparing the tender bid. GC decided not to
proceed with the purchase of the kitchen equipment and renovation. GC informed PK
of its decision. PK wants to take legal action against GC for not proceeding with the
purchase and renovation. Discuss the elements of a contract and the existence of a
legally binding contract between GC and PK.

Answer plan

➢ Define contract and list the four elements.

➢ Define invitation to treat.
➢ Identify the advertisement / call for tenders as an invitation to treat.
➢ Define an offer.
➢ Identify PK as the offeror
➢ The tender as constituting the offer.
➢ Define acceptance.
➢ Identify whether GC accepted the offer.
➢ GC did not accept the offer and rejected it.
➢ No legally binding contract between GC and PK.

Problem question

4. Are the following agreements enforceable? Give your reasons.

a) Charles promised his friend, Maria, that he would pay for her lunch. However,
Charles failed to turn up for the lunch appointment. Can Maria enforce the
agreement?

Answer plan

➢ Presumption that there is no intention to create legal relations because this is

a social agreement between friends.
➢ No facts to rebut this presumption.
➢ Agreement not enforceable.

b) Charles refused to honour his agreement with his sister, Katy, to lend his lap-top
to her for a week.

Answer plan
➢ Presumption that there is no intention to create legal relations because this is
a domestic agreement between a brother and sister.
➢ Agreement not enforceable.

d) Charles signed an application for a credit card from Fortune Credit Card Company. The
next day, Charles decided that he does not want the credit card as he felt that the annual
fee of $200 was too high after checking with his friends.

Answer plan

➢ The presumption that there is intention to create legal relations in a

commercial agreement between Fortune Credit Card Company and its
customer, Charles.
➢ Not rebutted merely because Charles felt that the annual fee of $200 was too
high.
➢ Agreement enforceable.
Lecture 5: Contractual terms and exclusion / exemption clauses
Module Book Session 3

Essential points

o Representations and terms of the contract

o Express and implied terms
o Condition, warranty and innominate term
o Exemption clause and rules relating to its validity

Visual Overview

Practice Questions

1. Discuss the ways in which terms may still be incorporated into a contract even though
not expressly agreed to by the contracting parties.

2. The innocent party will have the same remedies against the defaulting party in the event
of breach of any terms in a contract. Discuss.

3. Rosy parked her car in a parking lot at a library. It was a weekday and there were many
parking lots close to the main library building. She parked her car near the entrance to the
main library building. As she was locking her car, a small flower pot fell from the second
 floor onto her car. The small flower pot bounced off the roof of her car and hit her left
shoulder. Rosy approached the management office of the library. Danny, who was in
the management office pointed Rosy to the big sign-board just before the entry to the car-
park. The sign-board has the following words written in huge bold words in red:

“Cars are parked at the owner’s risk. The management of the library shall not be
liable for any damage to cars parked in the premises of the library or any personal
injury or death howsoever caused to the persons in the premises of the library.”

Advise Rosy whether she could claim the following:

c) Damage to her car, and
d) Medical expenses for treatment to her injured left shoulder.

SESSION 3: Contractual terms and exclusion / exemption clauses

Relevant Legal Concepts

Essay question

1. Discuss the ways in which terms may still be incorporated into a contract even though
not expressly agreed to by the contracting parties.

Answer plan

➢ Terms are promises and undertakings given by one contracting party to the
other.
➢ Express terms are terms explicitly agreed to by the contracting parties either
orally or in writing.
 ➢ Terms which are not expressly agreed to but which may nevertheless be implied
or understood to apply into the contract.
➢ Terms may be implied into the contract in 2 ways:
a) By a court. There are two main reasons terms are implied into a contract:
i. Long usage or custom.
ii. Business efficacy to ensure that the contract will proceed on normal
business lines. The courts in Singapore use both the officious bystander
test and the business efficacy test which are alternative grounds upon
which terms may be implied.
b) By a statute. Statue law / legislation which has been passed by Parliament
may also imply terms into contracts. Implied conditions to protect the
interests of buyers of goods are incorporated by virtue of the provisions of the
Sale of Goods Act.

2. The innocent party will have the same remedies against the defaulting party in the event of
breach of any terms in a contract. Discuss.

Answer plan

➢ Terms may be classified into 3 categories:

a) Conditions are terms which are important, essential or fundamental to the
contract and go to the root of the contract.
b) Warranties are less important terms.
c) Innominate terms are too complicated to be classified under the condition-
warranty dichotomy.

➢ The court will consider all the relevant aspects of the case, including the purpose
of the contract and the intention of the parties to decide on the categorization of
the term.
➢ More important terms tend to generate more serious consequence if they are
breached.
a) Condition: Innocent party may be allowed to discharge his obligations and
also claim damages for breach from the defaulting party.
b) Warranty: Innocent party is not entitled to discharge his obligations and
merely allowed to claim damages from the defaulting party.
c) Innominate term: The test is whether the breach is such as to deprive the
innocent party of substantially the whole benefit which it was intended to
obtain as the consideration for his own undertakings. The innocent party
can set aside the contract and claim damages if the breach is serious. The
innocent party can only sue for damages if the breach is trivial. Refer to the
case of Hongkong Fir Shipping Co Ltd v Kawasaki Kaisen Kaisha Ltd
(1962).

Problem question

3. Rosy parked her car in a parking lot at a library. It was a weekday and there were many
parking lots close to the main library building. She parked her car near the entrance to the
main library building. As she was locking her car, a small flower pot fell from the second
floor onto her car. The small flower pot bounced off the roof of her car and hit her left
shoulder. Rosy approached the management office of the library. Danny, who was in the
management office pointed Rosy to the big sign-board just before the entry to the car-park.
The sign-board has the following words written in huge bold words in red:

“Cars are parked at the owner’s risk. The management of the library shall not be
liable for any damage to cars parked in the premises of the library or any personal
injury or death howsoever caused to the persons in the premises of the library.”

Advise Rosy whether she could claim the following:

e) Damage to her car, and
f) Medical expenses for treatment to her injured left shoulder.

Answer plan

LAW:
➢ The relevant law is on exemption clauses.
➢ Define exemption clauses and the types i.e. exclusion of liability or limitation of
liability clauses. Exclusion of liability in this case.
➢ List down the criteria which the courts use to determine the validity of the
exemption clauses:
i. Clause must form part of the contract
ii. Clause must be brought to the victim’s attention.
iii. Oral undertaking overrides an exemption clause.
iv. Clause covers the kind of loss or damage that has occurred.
v. Contra proferentum rule applied by courts when interpreting an exclusion
clause.
vi. The statutory effect of Unfair Contract Terms Act (“UCTA”) especially
section 2(1)

APPLICATION OF LAW TO THE FACTS.

➢ Analysis of the facts i.e. the clause and provide an opinion that the clause is an
exclusion of liability.
i. Clause must form part of the contract. Incorporated by notice which was at
or before the contract between Rose and the management of the library was
entered. Notice was placed just before the entry to the parking lot. The
contract was made when Jeremy entered the parking lot, accepting the terms
of the parking including the exemption clause.
ii. Clause must be brought to the victim’s attention. The notice was place just
before the entry to the car park. Reasonable to conclude that Rosy have
notice of the exemption clause in the notice board.
iii. Oral undertaking overrides an exemption clause. There is no evidence.
iv. Clause covers the kind of loss or damage that has occurred. Clause covers
the damage to Rosy’s car and also the injury to her left shoulder due to the
falling small flower-pot.
v. Contra proferentum rule applied by courts when interpreting an exclusion
clause. Rule is not applicable as the clause appears to be clear.
vi. The statutory effect of UCTA especially section 2(1). Rosy suffered personal
injury as her left shoulder was injured. The exemption clause is void under
 the UCTA as the clause attempts to avoid liability for personal injuries or
death.

CONCLUSION:
➢ Exclusion clause will be strike out by the courts for violating the provisions of the
UCTA. In conclusion, Rosy may claim from the library management the damage
to her car as well as medical expenses for treatment to her injured left shoulder.
Lecture 6: Vitiating Factors
Module Book Session 4

Essential points

o Void vs. Voidable contracts

o Validity of contracts with Minors and remedies available
o Types of Misrepresentation and remedies available.
o Duress and Undue Influence
o Types of Mistake and remedies available
o Types of Illegal Contracts and the effects of illegality
o Contracts in Restraint of Trade and Severance

Visual Overview

Practice Questions

1. Discuss the validity of the following contracts.

a. A contract with an unlicensed money lender.

b. A contract with a minor.

2. Elizabeth recently returned to Singapore after completing her hospitality and tourism
course in Sweden. She was in Sweden for 4 years and realized that there were many
changes to the HDB neighbourhood where she stayed. She met Jennifer who owns a café
in the neighbourhood. Jennifer was looking for a potential buyer to take over her café
and would like to retire in the neighbourhood.
 Jennifer told Elizabeth that HDB will be building more residential blocks in the
neighbourhood within two years. She further said that the business in the café would
bound to double or more when residents shift to the new blocks.

Elizabeth decided to buy and take over Jennifer’s café because of Jennifer’s statements
regarding the development of more residential blocks.

One month after taking over the café, Elizabeth met a former classmate, Sandy, who was
working in HDB. Sandy told Elizabeth that all residents have been informed by HDB
through flyers that it has no plans to build more residential blocks in her neighbourhood.

Advise Elizabeth on her right to rescind the contract and get back her money from
Jennifer.

SESSION 4: Vitiating Factors

Relevant Legal Concepts

Essay question

1. Discuss the validity of the following contracts.

a. A contract with an unlicensed money lender.

Answer plan

➢ Define vitiating factor: factor that makes a contract invalid.

➢ Invalid contract: contract either void or voidable.
➢ Define void and voidable.
 ➢ Vitiating factors: incapacity, misrepresentation, duress and undue influence,
mistake and illegality.
➢ The contract with an unlicensed money lender is void as it is an Illegal contract.
➢ The contract that is expressly prohibited by statute. The precise terms of the
statutory provisions must be interpreted carefully to determine whether the
statute:
i. expressly or impliedly prohibits certain types of contract and prevents their
inception altogether. The contract is void and unenforceable, whether or
not the parties are aware of the statutory illegality.
ii. seeks only to penalize certain types of unlawful conduct without prohibiting
the underlying lawful contract.
iii. penalizes illegal performance without affecting the parties’ contractual
rights at all. The passenger of a taxi cannot refuse payment of the fare by
relying solely on the fact that the taxi-driver is charged for an offence under
the Road Traffic Act.
Conclude: expressly prohibited.

b. A contract with a minor.

Answer plan

➢ Define vitiating factor: factor that makes a contract invalid.

➢ Invalid contract: contract either void or voidable.
➢ Define void and voidable.
➢ Vitiating factors: incapacity, misrepresentation, duress and undue influence,
mistake and illegality.
➢ The law views certain persons as not having the capacity to enter into contracts
e.g. a young child. The rationale is rooted in public policy and. a young child
does not have sufficient experience or understanding to make binding
agreements. Their contracts may be unenforceable by reason of incapacity.
➢ Define minors. Persons who have not reached the age of majority. The common
law age of majority is 21 years. The enactment of the Civil Law (Amendment)
Act came into force on 1st March 2009 and two new sections 35 and 36 in
particular were inserted
i. “to give to contracts entered into by minors who have attained the age
of 18 years the same effect as if they were contracts entered into by
persons of full age” and
ii. “to allow such minors to bring certain legal proceedings and actions
in their own names as if they were of full age.”

➢ Minors’ contracts may be categorized into three categories:

i. Valid contracts. Elaborate on contracts for necessaries and
beneficial contracts of service or employment which enables the minor
to earn a livelihood. Contracts are fully enforceable and binding on
both the minor and the other party.
ii. Voidable contracts. Contracts such as contracts for lease, partnership
or purchase of shares. Contract is voidable from the minor’s point of
view. Minor is entitled to “repudiate” the contract before reaching
the age of 18 or soon after attaining majority.
 iii. Ratifiable contracts. Any other type of contracts that do not fall within
the first two categories. The contract is generally not binding on the
minor unless the minor ratifies the contract soon after attaining
majority. Examples of such contracts are retail goods which are not
“necessaries”.

Problem question

2. Elizabeth recently returned to Singapore after completing her hospitality and

tourism course in Sweden. She was in Sweden for 4 years and realized that there
were many changes to the HDB neighbourhood where she stayed. She met
Jennifer who owns a café in the neighbourhood. Jennifer was looking for a
potential buyer to take over her café and would like to retire in the neighbourhood.

Jennifer told Elizabeth that HDB will be building more residential blocks in the
neighbourhood within two years. She further said that the business in the café
would bound to double or more when residents shift to the new blocks.

Elizabeth decided to buy and take over Jennifer’s café because of Jennifer’s
statements regarding the development of more residential blocks.

One month after taking over the café, Elizabeth met a former classmate, Sandy,
who was working in HDB. Sandy told Elizabeth that all residents have been
informed by HDB through flyers that it has no plans to build more residential
blocks in her neighbourhood.

Advise Elizabeth on her right to rescind the contract and get back her money from
Jennifer.

Answer plan

LAW:

➢ Define representations – statements made during negotiations which induce

another party to enter into the contract.
➢ Define misrepresentation and the elements.
o False statement of fact, not opinion or intention.
o Material enough to enough the other party to enter into the contract.
o Other party must rely on it during the course of negotiations.
➢ Set out the 3 types of misrepresentations and the requirements.
➢ The effect of misrepresentation – contract voidable until “rescinded” by the
misled / innocent party. Innocent party may claim for damages for
fraudulent and negligent misrepresentation.
➢ Bars to rescission – contract has been affirmed, reasonable time has elapsed
since discovering the misrepresentation, parties cannot be restored to their
pre-contractual positions.

APPLICATION:
➢ Jennifer made 2 representations to Elizabeth namely, HDB will be building
more residential blocks in the neighbourhood within two years and that the
business in the café would bound to double or more when residents shift to
the new blocks.
➢ Analyse the two statements: statement of facts or opinion. First statement is
statement of fact regarding HBD building more residential blocks. The
second statement is arguable – fact regarding the business bound to double
or more or an opinion based on the first statement.
➢ Elizabeth need to prove one of the statements to be false. First statement is
false as Sandy confirms that HDB will not be building any new blocks.
➢ The two statements are material to induce Elizabeth to enter into the
contract with Jennifer to buy her café.
➢ Elizabeth relied on the statements to enter into the contract.
➢ The misrepresentation is likely to be fraudulent misrepresentation as all
residents have been informed by HDB through flyers.

CONCLUSION:
➢ Elizabeth has a strong case against Jennifer for fraudulent
misrepresentation. She may rescind the contract and claim damages.
Lecture 7 & 8: Discharge of Contracts and Remedies
Module Book Session 5

Essential points

o Discharge of Contract by Agreement

o Discharge of Contract by Performance and its exceptions
o Actual and Anticipatory Breach or Repudiation
o Discharge of Contract by Frustration and the operation of the Frustrated Contracts Act
o Common Law Remedies
o Equitable Remedies

Visual Overview

Practice Questions (5)

1. Discuss the two types of breaches of contract.

3. Discuss the right of election of the innocent party in an anticipatory breach situation.

3. There must be complete and precise performance of the contractual obligations.

Discuss.
4. Jason entered into a contract with a contractor, Derrick, to renovate his 2-storey semi-
detached house by building an extra floor making it into a 3-storey semi-detached
house. Mid-way through the construction, Derrick had to stop the renovation works.
Advise Jason on the following scenarios.

a) Derrick informed Jason that Jason has to pay extra costs in employing local workers
due to a change in government’s policy which imposed a temporary freeze on the
renewal of work permits for foreign workers. Derrick could not renew the work
permit for all his foreign workers due to no fault of his. 50% of his workers are
foreigners. Derrick has completed 70% of the renovation works.

b) Derrick informed Jason that the government revoked the permits of owners of
landed property to build extra floors to their houses due to a change in policy.
Derrick has only transported the materials to Jason’s house but has not commenced
renovation works. Derrick informed Jason that Jason is to compensate his for the
transport charges in bringing the materials back and also the loss of profit.

SESSION 5: Discharge of Contracts and Remedies

Relevant Legal Concepts

Essay question

1. Discuss the two types of breaches of contract.

Answer plan

➢ Define breach of contract - When one party fails to perform all his obligations
under the contract.
➢ The two types of breaches of contract are:
i. Actual breach. Failure to perform obligations when the time of performance
has arrived.
ii. Anticipatory breach. The promisor has clearly expressed his intention not
to perform his future obligations. The innocent party may have the right of
election. (see next question).

2. Discuss the right of election of the innocent party in an anticipatory breach situation.

Answer plan

➢ Define Anticipatory breach. The promisor has clearly expressed his intention not
to perform his future obligations under the contract.
➢ The threatened non-performance in an anticipatory breach must have the effect
of depriving the innocent party of substantially the whole benefit which it was
intended the contract to confer i.e. repudiatory breach of contract.
➢ The innocent party has a right of election. The innocent party should
communicate unequivocally to the other party his decision.
➢ The innocent party may:
a) Accept the repudiation and treat the contract as discharged. The parties
are released from the obligations under the contract that have not been
performed yet. The innocent party is entitled to claim damages to put him
into the position as if the contract had been performed properly.
b) Affirm the contract so that it remains on foot. The innocent party retains the
right to claim damages for the breach. The innocent party risks the contract
being discharged by frustration which will relieve the defaulting party of his
liability under the contract.

3. There must be complete and precise performance of the contractual obligations.

Discuss.

Answer plan

➢ Complete and precise performance: The general rule as enunciated in Cutter v

Powell.
➢ The general rule is rather harsh. The following are exceptions to the rule.
i. De minimis rule. Microscopic deviations are allowed.
ii. Divisible contract. The contract may be viewed as a series of sub-
contracts and a deviation may affect only the sub-contract in question.
The other sub-contract(s) may be performed completely and precisely.
 iii. Substantial performance. The whole contract may be deemed to be
discharged by substantial performance. The result is that the contract
price is payable subject to retention of a part to remedy the defects in
the performance. Relevant case law is Hoenig v Isaacs.
iv. Prevented performance. The promisee prevents the promisor from
continuing to perform his obligations under the contract. In this
situation, the promisor may claim payment on the basis of quantum
meruit and discharge his obligations under the contract. Relevant case
law is Planche v Colburn.
v. Partial performance. If promisee voluntarily accepts the partial
performance, the promisor may claim payment on quantum meruit basis
and his future obligations under the contract are discharged.

Problem question

4. Jason entered into a contract with a contractor, Derrick, to renovate his 2-storey semi-
detached house by building an extra floor making it into a 3-storey semi-detached
house. Mid-way through the construction, Derrick had to stop the renovation works.
Advise Jason on the following scenarios.

c) Derrick informed Jason that Jason has to pay extra costs in employing local
workers due to a change in government’s policy which imposed a temporary freeze
on the renewal of work permits for foreign workers. Derrick could not renew the
work permit for all his foreign workers due to no fault of his. 50% of his workers
are foreigners. Derrick has completed 70% of the renovation works.
d) Derrick informed Jason that the government revoked the permits of owners of
landed property to build extra floors to their houses due to a change in policy.
Derrick has only transported the materials to Jason’s house but has not commenced
renovation works. Derrick informed Jason that Jason is to compensate his for the
transport charges in bringing the materials back and also the loss of profit.

Answer plan

LAW:
➢ Establish the existence of the contract between Derrick and Jason. The terms were
agreed to and Derrick is obliged to perform his obligations by complete the
renovation according to the terms of the contract.
➢ Define discharge of contract – contract coming to an end and parties are relieved
of their obligations under the contract.
➢ Set out the ways in which a contract may be discharged – performance, frustration,
agreement and breach.
➢ Define frustration and set out the elements:
o A supervening event occurring
o Which is neither party’s fault that
o Causes the parties to be committed to something radically different from what
they originally contemplated, so that they originally contemplated, so that the
very basis of the contract has been destroyed.
➢ Set out situations which do not constitute frustration:
o Performance more expensive or difficult
o Foreseeability
o Force majeure clauses
o Self-induced frustration.
➢ Set out the effects of frustration under the common law and the Frustrated Contracts
Act in particular section 2(2).

APPLICATION (a):
➢ Analyse the facts and determine whether the change in government’s policy
amounts to a frustration of the contract.
➢ The supervening event is the change in government’s policy which results in
increase in costs in employing local workers.
➢ The change in government’s policy is neither party’s fault.
➢ The result of the change in government’s policy is increase in costs to complete the
balance 30% of the renovation works. It may be argued that the parties are not
committed to something radically different from what they originally contemplated
which is to renovate Jason’s house. Furthermore this very basis of the contract has
not been destroyed.
➢ In support of the argument, it has been held in Glahe International Expo v ACS
Computer Pte Ltd that performance which is more expensive or difficult does not
constitute frustration.

CONCLUSION (a):
➢ Derrick is not entitled to claim the extra costs from Jason. Derrick has to absorb
the extra costs and complete the balance 30% renovation work according to the
terms of the contract. Failure to do so will amount to a breach of contract by
Derrick and Jason is entitled to sue Derrick for damages for breach of contract.

APPLICATION (b):
➢ Analyse the facts and determine whether the revocation of permits by the
government amounts to a frustration of the contract.
➢ The supervening event here results stoppage of the renovation work.
➢ The revocation of permits by the government is neither party’s fault.
➢ The result of the revocation of permits is stoppage of all renovation works. It may
be argued that very basis of the contract which is to renovate the house has been
destroyed. It will be illegal to proceed with the renovation works according to the
terms of the contract.
➢ The effects of frustration under the common law is the automatic discharge of the
contract and the parties’ rights and losses lie where they fall. In this case, both
Derrick and Jason will have no rights against each other once the permit has been
revoked.
➢ The Frustrated Contracts Act provides under Section 2(2) that money already paid
is recoverable and money yet to be paid ceases to be payable. Jason will be able to
recover any payments to Derrick and need not pay further sums.
➢ In addition, under the Frustrated Contracts Act, prior expenses incurred are
recoverable if just and prior benefits gained before frustration must be justly
compensated. Derrick will have to prove that it is just for Jason to compensate him
for the transport charges and also any benefits which Jason has obtained.
CONCLUSION (b):
➢ The contract is frustrated in this scenario. Jason may claim any amount paid and
future payments ceased. However, it will be difficult for Derrick to seek
compensation from Jason for the transport charges or any benefit conferred on
Jason.
SESSION 6: Sales of Goods

Relevant Legal Concepts

Essay question

1. Consumers are protected by the Sale of Goods Act. Discuss briefly the duties imposed
on sellers.

Answer plan

➢ The Sale of Goods Act (“SOGA”) applies to sale of goods. The transaction must
involve:
o A sale,
o The subject matter must involve goods, not land, shares or provision of services.
➢ SOGA applies to web-based sales where both seller and buyer are based in Singapore
and as long as Singapore law governs the transaction.
➢ The SOGA imply conditions into sale of goods contract in favour of consumers.
➢ The following conditions implied into the sale of goods contract impose obligations on
the seller apart from agreed express terms:
o Section 12. The seller must be the owner or has the owner’s authority to sell
and must be in a position to ultimately pass ownership to the buyer.
o Section 13. The goods sold by description must correspond with the description
provided by the seller even where the goods are selected or inspected by the
buyer. The buyer must show that he has relied on the said description.
 o Section 14(2). The goods sold by the seller must be of satisfactory quality which
encompass description applied to the goods, price, fitness for purpose,
appearance, finish, freedom from minor defects, safety and durability based on
a “reasonable man” test.
o Section 14(3). The goods sold by the seller in the course of business must be
reasonably fit for the purpose which is made known by the buyer to the seller.
This condition also applies when the purpose is “obvious” i.e. food for eating
clothes for wearing.
o Section 15. The bulk of goods delivered by the seller to the buyer which was
sold by sample must correspond with the sample in quality. The buyer must be
given reasonable opportunity to compare the bulk with the sample.
➢ If the above conditions are breached, the consumer has the right to repudiate the
contract and sue for damages.

2. Sellers who are aware of the terms implied into their contracts with the customers may
exclude the operation of the Sale of Goods Act. Discuss.

Answer plan

➢ Seller may incorporate exemption clauses into the sale of goods contract to exclude his
liability under the SOGA.
➢ Such attempts to exclude liability will be subject to the provisions of the Unfair
Contracts Terms Act (“UCTA”).
➢ The UCTA specifically neutralizes certain types of exemption clauses.
➢ Section 6 of the UCTA is the key provision entrenching certain implied conditions listed
in the SOGA particularly those in respect of consumer transactions i.e. SOGA Sections
12, 13, 14(2), 14(3) and 15.
➢ However in non-consumer transactions i.e. contracts between manufacturers,
wholesalers and retailers, the liability imposed under the SOGA may be excluded if the
exemption clause is reasonable.

Problem question

3. Michael held a garage sale in his house. Michael told Betty who was at the garage sale
that the handbag is made of genuine leather. Betty collects leather hand-bags and bought
the handbag for $100 after hearing Michael’s statement. Betty also bought a lap-top
which looks used for $300.00. There was no packaging for the lap-top.

When Betty was using the lap-top to prepare her report, she realized that the lap-top was
slow in saving the documents but can still be used. Betty had lunch with her friend, Ivy,
who is a leather goods dealer. Ivy saw Betty’s new handbag and told her that it was not
made of leather after inspecting it.

Advise Betty as to her remedies with regards to

a) lap-top,
b) Handbag.

Answer plan
 LAW.
➢ The Sale of Goods Act (“SOGA”) applies to sale of goods. The transaction must involve.
o A sale,
o The subject matter must involve goods, not land, shares or provision of services.
➢ The SOGA imply conditions into sale of goods contract in favour of consumers.
➢ Conditions implied into the sale of goods contract impose obligations on the seller apart
from agreed express terms i.e. passing of title and right to sell, correspondence with
description, goods to be of satisfactory quality.
➢ If the above conditions are breached, the consumer has the right to repudiate the contract
and sue for damages.

APPLICATION (a)
➢ The sale of a lap-top comes within the definition of a sale of goods transaction under
the definition of the SOGA.
➢ Conditions will be implied into the said sale transaction between Michael and Betty.
➢ The relevant condition which may be implied is that under Section 14(2) where goods
are to be of satisfactory quality.
➢ The following are challenges which Betty will face in establishing a case under Section
14(2):
o The garage sale held by Michael is not done in the course of business. This is a
requirement under Section 14(2).
o Even if it comes within Section 14(2), the lap-top may be of satisfactory quality
for a second-hand lap-top. It is still functioning except that it was slow in saving
documents.

CONCLUSION (a)

➢ Based on the analysis of the facts and application of the law to the facts, Betty may not
have a claim against Michael. The general rule, caveat emptor (“buyer beware”)
applies and Betty has no remedies.

APPLICATION (b).

➢ The sale of a hand-bag comes within the definition of a sale of goods transaction under
the definition of the SOGA.
➢ Conditions will be implied into the said sale transaction between Michael and Betty.
➢ The relevant condition which may be implied is that under Section 13 where goods are
sold by description.
➢ Betty will have to establish a case under Section 13:
o There was a description by the seller, Michael, regarding the material of the
handbag. In this case, Michael, described the material which is leather.
o Betty, as a buyer, relied on the description put up by Michael, the seller. There
is strong evidence of reliance as Betty bought the handbag soon after hearing
Michael describing the material of the handbag.
o The handbag sold did not correspond with the said description. Ivy will provide
evidence that the handbag was not made of leather.

CONCLUSION (b)
➢ Based on the analysis of the facts and application of the law to the facts, Betty has a
strong case against Michael for breach of Section 13 of the SOGA. Betty is entitled to
repudiate the contract and sue for damages which is the return of her cash of $100.
Lectures 9 & 10: The Law of Agency
Module Book Session 7

Essential points

o Agency created by express agreement and implied agreement

o Apparent Authority
o Agency created by Ratification
o Agency created by Operation of law
o Relationship between the Agent and the Principal
o Relationship between the Agent and the Third Party
o Relationship between the Principal and the Third Party
o Termination of Agency

Visual Overview

Practice Questions (7)

1. An agent may still have authority beyond that expressly stated in his agreement with the
principal. Discuss.

2. Discuss the precautions a principal may take after terminating a disgruntled agent.
3. The duties of an agent are more than that expressly stated in the agreement with his
principal. Discuss.

4. Paul is the sole proprietor of Paul Smith Accessories (“PSA”), specialising in the sale
of accessories for smartphones. He employed William to run his shop in Rochor Road.
William has been purchasing smartphone accessories for PSA. On 1 May 2015, Paul
terminated William’s employment with immediate effect due to a very serious
disagreement over the accounts. Paul took over the management of the shop in Rochor
Road and kept the termination secret.

On 1 June 2014, the manager of Vincent Accessories Pte Ltd (“VAPT”), a regular
supplier of PSA, visited Paul to follow-up on the outstanding payment for smartphone
accessories ordered by William. VAPT produced invoices dated 1 April 2015 and 3
May which were acknowledged by William.

Paul refused to pay VAPL as he had not ordered the smartphone accessories and there
were no records in PSA’s books. Paul replied that is must be an “April Fools” joke.
Advise Paul.

SESSION 7: The Law of Agency

Relevant Legal Concepts

Essay question

1. An agent may still have authority beyond that expressly stated in his agreement with the
principal. Discuss.

Answer plan

➢ Define an agent: An agent is a person who has the authority of the principal to establish
legal relations on the principal’s behalf with a third party
➢ List the way an agency may be created and elaborate:
➢ Agreement. Express terms with regards to the authority of the agent. Agent has actual
authority.
➢ Agreement. Authority of the agent may be implied. “Usual” scope of authority.
Relevant case law: Watteau v Fenwick.
➢ Apparent / ostensible authority. Where agent does not have actual authority. Briefly
discuss the conditions for apparent / ostensible authority and the pragmatic approaches
to dispel apparent authority. Relevant case law: Freeman & Lockyer v BPPM,
Summers v Solomon.
➢ Ratification. Principal ratifies / confirm the unauthorized contract entered by the agent
on his behalf. Briefly discuss the conditions for ratification. Relevant case law: Bolton
Partners v Lambert.
➢ Operation of law. Law deems that an agency exists and the two instances. Agency of
necessity and cohabitation.
➢ Conclusion. An agency may be created in the various ways highlighted above.

2. Discuss the precautions a principal may take after terminating a disgruntled agent.

Answer plan

➢ Effect of termination. Agent does not have actual authority.

➢ Agent may still have apparent authority.
➢ Set out the conditions for apparent / ostensible authority and the precautions a
principal may take to protect himself.
▪ The representation that the agent had authority.
▪ Representation must be made by the principal or by persons who had
actual authority.
▪ The third party must have been induced to enter into the contract by
showing reliance based on the representation
▪ Principal himself must have the “capacity” to enter into the contract.
➢ The pragmatic approaches are basically to prevent third parties from raising the
argument of apparent authority.
➢ Existing customers: notify them directly by email, telephone calls, letters regarding the
termination of the agent.
➢ Potential customers: placing public notices in newspapers advertising an agent’s
termination.

3. The duties of an agent are more than that expressly stated in the agreement with his
principal. Discuss.

Answer plan
 ➢ The basic rights and obligations of the agent and principal would be set out in the
agreement.
➢ The law implies a number of duties applicable to all agency relationships. The duties
include:
a) Duty of obedience to follow instructions
b) Duty of care and skill
c) Duty to act personally and not to delegate
d) Duty of good faith to avoid conflict interest, refrain from accepting bribes / secret
profits and preserve confidence
e) Duty to keep and render proper accounts.
➢ Elaborate with discussion on the duty which is most onerous. Students to form their
own views. Most likely to be duty of good faith which is also linked to directors’ duties.

Problem question

4. Paul is the sole proprietor of Paul Smith Accessories (“PSA”), specialising in the sale
of accessories for smartphones. He employed William to run his shop in Rochor Road.

William has been purchasing smartphone accessories for PSA.

On 1 May 2015, Paul terminated William’s employment with immediate effect due to
a very serious disagreement over the accounts. Paul took over the management of the
shop in Rochor Road and kept the termination secret.

On 1 June 2015, the manager of Vincent Accessories Pte Ltd (“VAPT”), a regular
supplier of PSA, visited Paul to follow-up on the outstanding payment for smartphone
accessories ordered by William. VAPT produced invoices dated 1 April 2015 and 3
May 2015 which were acknowledged by William.

Paul refused to pay VAPL as he had not ordered the smartphone accessories and there
were no records in PSA’s books. Paul replied that is must be an “April Fools” joke.

Advise Paul.

Answer plan

LAW:

➢ Define agency.
➢ Agency by agreement.
➢ Termination and the effect on the agent’s authority.
➢ Define apparent / ostensible authority
➢ Set out the conditions for apparent / ostensible authority
o The representation that the agent had authority.
o Representation must be made by the principal or by persons who had actual
authority.
o The third party must have been induced to enter into the contract by showing
reliance based on the representation
o Principal himself must have the “capacity” to enter into the contract.
 ➢ The pragmatic approaches which the principal may take to prevent third parties from
raising the argument of apparent authority.

APPLICATION:

➢ William is an agent of PSA with authority to run PSA’s shop and to purchase
smartphone accessories for PSA.
➢ William does not have authority to act on behalf of PSA after Paul terminated his
employment on 1 May 2015.
➢ William will still have authority if VAPT is able to establish the elements for apparent
/ ostensible authority as follows:
a) The representation that the agent had authority. This started with Paul
employing William to run his shop and purchase smartphone
accessories.
b) Representation must be made by the principal or by persons who had
actual authority. During his employment, William has actual authority.
After the termination, there is strong evidence that Paul continue to
allow the representation as he kept the termination secret.
c) The third party must have been induced to enter into the contract by
showing reliance based on the representation. VAPT is a regular
supplier of PSA and would have been induced to enter into the two
contracts by relying on the representation.
d) Principal himself must have the “capacity” to enter into the contract.
Paul has capacity to enter into the contracts with VAPT.
➢ Paul did not take any steps to prevent VAPT and other third parties from raising the
argument of apparent authority. In fact, Paul kept the termination secret.

CONCLUSION:

➢ Based on the analysis of the facts and application of the law to the facts, Paul is obliged
to pay both invoices. The two contracts are valid and bining.
a. The contract dated dated 1 April 2015 which was entered during William’s
employment as an agent is valid and binding on Paul.
b. Apparent authority is established for the contract dated 3 May 2015 after the
date of termination.
SESSION 8: Legal Aspects of Business Organizations

Relevant Legal Concepts

Essay question

1. Complete the table below for unincorporated entities.

Answer plan

Unincorporated Governing Disadvantages Advantages

entities legislations
Sole Business ▪ Finance is usually ▪ Minimal regulatory /
proprietorships Registration by proprietor. administrative
Act ▪ Not a separate legal compliance
entity. requirements.
▪ Unlimited liability. ▪ Full profits from
business is for
proprietor.
▪ Personal tax paid by
proprietor.
Partnerships Business ▪ Finance is usually ▪ Minimal regulatory /
Registration by partners. administrative
Act. ▪ Not a separate legal compliance
entity. requirements
 Partnership ▪ Unlimited liability ▪ Full profits from
Act of the partners business is shared by
partners.
▪ Personal tax paid by
partners on their share of
profits.
Limited Limited ▪ Finance is usually ▪ Low regulatory /
Partnerships Partnership by partners. administrative
Act ▪ Not a separate legal compliance
entity. requirements
▪ Unlimited liability ▪ Full profits from
of the general business is shared by
partners partners.
▪ Personal tax paid by
partners on their share
of profits.
▪ Limited partners have
limited liability.

Note: Students to compare and contrast the disadvantages and advantages. There may be
different views.

2. Complete the table below for incorporated entities.

Incorporated Governing Disadvantages Advantages

entities legislations
Limited Limited ▪ Finance is usually ▪ A separate legal entity.
liability Liability by partners. ▪ Limited liability.
partnerships Partnership ▪ Partners have a share in
Act the capital and profits of
the LLP.
▪ Low regulatory /
administrative
compliance
requirements
▪ Personal tax paid by
partners on their share
of profits.

Private Companies Act ▪ Low to high ▪ Finance is usually from

companies SGX Listing regulatory / shareholders’
Including Manual administrative subscription of shares
Public listed compliance and borrowings.
companies requirements ▪ Able to access capital
depending on size market.
and whether listed.
 ▪ Management by ▪ Shareholders entitled to
board of directors dividends declared by
(could be an the company.
advantage – ▪ No tax paid by
corporate shareholders on
governance issues) dividends.
▪ Separate legal entity.
▪ Limited liability.

Note: Students to compare and contrast the disadvantages and advantages. There may be
different views.

3. Briefly describe the two stages of incorporating a company.

Answer plan

The two stages of incorporation are:

1) Preparation and execution of compulsory documents.

➢ Section 27(12). The promoter typically reserve a company name for the proposed
company.
➢ Section 27(1). The name must not be identical to any other company name or business
name and must not be an undesirable name or a name which has been declared by the
authorities not to be used.
➢ Section 27(7) and Section 29. All companies which are limited by shares or guarantee
must include the word “Limited” / “Ltd” or “Berhad” / “Bhd” in their names unless
specifically exempted.
➢ Section 27(8). Private companies must include the word “Private” / “Pte” or
“Sendirian” / “Sdn” in their names.
➢ Memorandum of association
o the constitutional document of the company which must be prepared and
executed.
o Section 22 (1). It must state the name of the company, details of the initial
members who must be natural persons (called “subscribers”) of the
company, whether it is limited or not, its initial capital structure, at least one
director who is ordinarily resident in Singapore and a natural person.
➢ Articles of association
o Section 35(1). The rules governing the operation of a company e.g. holding
ofmembers’ and directors’ meetings, appointment of directors.
o Section 36(2). “Table A” articles in the Fourth Schedule of the Companies
Act is the standard set of articles of association. It applies to all companies
limited by shares unless specifically excluded.

2) Submission of documents and relevant fees with the Registrar of Companies.

➢ Section 19(1). The executed memorandum of association and articles of
association (“MAA”) together with ancillary papers must be lodged with the
Registrar of Companies.
 ➢ Section 19(3) and 20(2). The Registrar should register the company unless he
is satisfied that the company is likely to be used for an unlawful purpose, for
purposes prejudicial to Singapore’s national interest.
➢ Section 19(4). The Registrar must issue a notice of incorporation in respect of
the company once it is registered.
➢ Section 19(5).On the date the notice of incorporation is issued, the company
obtains separate legal personality.

Problem question

4. Arthur was appointed as a sales and marketing director of Advance Tutors Pte Ltd (“AT”)
on 1st January 2014. AT is in the tuition business. His contract of employment with AT
contains a clause which prohibits Arthur from competing against AT for a period of 4
months after he leaves AT. Most of AT’s customers are primary school students from
Tampines.

After working for 1 year, Arthur resigned from AT to incorporate Art Cost Tutors Pte
Ltd. (“ACT”). Arthur employed part-time tutors and gave them names of students from
AT to contact. ACT started its first tuition class in Tampines on 1st March 2015. Arthur
is a major shareholder of ACT and he appointed Peter, a minority shareholder, as ACT’s
managing director.

Advise AT.

Answer plan

LAW:

Separate legal personality.

➢ Incorporation of a business organization creates separate legal personality.

Salomon v Salomon & Co. Ltd.
➢ The business organization becomes an artificial person capable of possessing rights
and owing duties independent of its members.
➢ The important consequences of this separate legal personality are set out below:
1) An incorporated entity can enter into contracts and exercise rights and owe
obligations in its own name.
2) The liabilities of the incorporated entity are its own liabilities and not of its
members.
3) It has perpetual succession.

Lifting the corporate veil.

➢ The court may in certain circumstances go behind the separate legal personality. It
may “lift or pierce the corporate veil” to impose liability on its members.
➢ Some of the circumstances where the corporate veil is lifted so that the acts of the
incorporated entity are deemed to be the acts of its members are as follows:
o Substantial wrongdoing by the company where the wrongdoing can be attributed
to one or more of its members.
 o Company formed to avoid and evade legal obligations and responsibilities.
Gilford Motor v Horne.
o The company has a debt which was knowingly created by a company officer who,
at that time, had no reasonable or probable expectation that the company could
pay the debt. Section 339(3) and 340(2) of the Companies Act.
o The business of a company has been carried on with the intention of defrauding
creditors of the company. Section 340(1) of the Companies Act.

APPLICATION.

➢ Arthur incorporated ACT in early 2015.

➢ Effects of incorporation: ACT is a separate legal entity from Arthur who is a major
shareholder.
➢ ACT is capable of possessing rights and can enter into contracts and exercise rights
and owe obligations in its own name.
➢ When ACT’s part-time tutors contacted students from AT and entered into contracts
with them, the contracts are between ACT and the students.
➢ Arthur did not compete against AT as ACT is a separate legal entity from Arthur who
is the major shareholder.
➢ Arthur did not breach the terms of his contract with AT which prohibits Arthur and
not ACT from competing against AT for a period of 4 months after Arthur leaves AT.
➢ AT may put up a strong case against Arthur based on the facts of the case law of
Gilford Motor v Horne.
➢ ACT was formed to avoid and evade Arthur’s legal obligations and responsibilities
under the contract between Arthur and AT.
➢ Arthur would have breached the terms of his contract with AT if he was to solicit AT’s
clients and also by setting up a tuition centre in competition with AT.
➢ The court may in these circumstances go behind the separate legal personality. It
may “lift or pierce the corporate veil” to impose liability on Arthur, its members.

CONCLUSION:

➢ Based on the analysis of the facts and application of the relevant law to the facts, there
is a strong case in favour of AT to sue Arthur for breach of the term of the contract.
SESSION 9: Corporate Management Issues in Company Law

Relevant Legal Concepts

Essay questions.

1. There are statutory penalties for breach of company directors’ duties. Discuss the
consequences of the breach of key directors’ duties.

Answer plan

Key duties of a company director.

➢ Directors have the overall management responsibility over the company.
➢ Common law duties and statutory duties impose upon the directors overlap to some
extent.
➢ The common law imposes upon the directors fiduciary duties and the duty to
exercise due care and skill.
➢ The director owes duties to the company and not to an individual or group of
shareholders, employees or creditors.
➢ Section 157(1) of the Companies Act. The director is required at all times to act
honestly and use reasonable diligence in the discharge of the duties of his office.
➢ The duties may be classified into the following key duties:
(1) Duty to use powers for proper purposes.
 (2) Duty to act with due care and skill.
(3) Duty to act bona fide in the interests of the company.
(4) Duty to avoid conflicts of interests.

➢ Consequences of breach of key directors’ duty:

• Section 157(3)(a) of the CA: The company can either sue for damages or
claim for the profit earned by the director.
• Section 157(3)(b) of the CA: The breach may also constitute a criminal
offence.
• The company may rescind the tainted contract and recover its lawful property.
• A tracing order may be obtained to recover money improperly taken.
• The company can also claim full restitution or indemnity.
• The director will be held liable for any gain he has made by virtue of his
position as a director even if he was honest and had not intended to defraud
the company. Regal (Hastings) Ltd v Gulliver (1942).

2. Discuss the “indoor management rule”.

Answer plan

Indoor Management Rule.

➢ Under the “rule in Turquand’s Case” which is also known as the “indoor
management rule”, a third party can assume that all internal procedures of the
company relating to the grant of the authority have been complied with.
➢ The rationale: a third party is usually not in a position to determine whether a
company’s internal procedures have been fully complied with.
➢ The rule may not be relied on if the third party knows or ought to know that the
internal procedures have not been complied with.

3. There are two types of resolutions passed at general meetings of companies. Discuss.

Answer plan

➢ Resolutions: The wishes and decisions of the members of a company are expressed
through resolutions passed at general meetings.
➢ The two types of resolutions are:
1) Ordinary resolutions
o require a simple majority of votes for passage.
o 14 days prior written notice of the meeting to consider an ordinary
resolution must be given to members of a private company or a public
company.
2) Special resolutions
o require a 75% majority of votes for passage.
o required for major decisions e.g. amendments of specific parts of the
memorandum or articles of association.
 o Section 33(1) and Section 37(1) of the Companies Act. Prior written
notice of the meeting to consider a special resolution must be given to
members as set out below:
• 14 days prior written notice for private companies.
• 21 days prior written notice for public companies.

➢ Every member can vote at the general meeting.

➢ The 2 types of voting procedures are:
Show of hands.
• Each member personally present shall have one vote regardless of the
number of shares he holds.
• The procedure is subject to the provisions to the contrary in the
articles of association.
• Section 179(1)(c)(i). A proxy cannot vote on a show of hands.
A poll.
• A written ballot whereby each member has one vote in respect of
each share held by him.
• The articles of association usually specifies the circumstances in
which members or proxies can demand a poll.

➢ A private company may pass written resolutions in hard copy or by electronic

means without having face-to-face meetings. Section 184A(1) of the
Companies Act.
➢ Members representing not less than 5% of total voting rights to request a
general meeting to discuss the resolution. This is to protect minority
shareholders. Section 184D(1) of the Companies Act.

Problem question

4. Larry is a director of Fun Schools Pte Ltd (“FS”). He negotiated the following
contracts on behalf of FS:

iii. A contract with Brain Stuff Pte Ltd (“BS”) for the supply of visual objects to be
used by educators. The directors of FS are not aware of Larry’s shareholding in
BS. Larry is of the view that there is no necessity to disclose his shareholdings
in BS as he is not a director of BS. The board of directors including Larry
approved the contract with BS during its board of directors’ meeting.
iv. A contract with Mighty Thoughts Pte Ltd (“MT”) for the provision of
consultancy services for a project undertaken by FS to redesign the on-line
materials. MT invited Larry to a lavish dinner to celebrate the successful deal
with FS. Larry was complaining about the existing lap-top he was using and that
FS is very “budget conscious”. The following day, MT delivered a tablet valued
at $2,000.00 to Larry as a gift to help him in his work. Larry was pleasantly
surprised to receive the gift and felt that it was a thoughtful gesture from MT.

Discuss the legal issues of the following:

c) The contract between FS and BS.

d) Larry’s acceptance of the tablet valued at $2,000.
Answer plan

LAW:

➢ Refer to answer plan for Question 1.

Key duties of a company director.
➢ Directors have the overall management responsibility over the company.
➢ Common law duties and statutory duties impose upon the directors overlap
to some extent.
➢ The duties may be classified into the following key duties:
(1) Duty to use powers for proper purposes.
(2) Duty to act with due care and skill.
(3) Duty to act bona fide in the interests of the company.
(4) Duty to avoid conflicts of interests.

Consequences of breach of key directors’ duty:

➢ Section 157(3)(a) of the CA: The company can either sue for damages or
claim for the profit earned by the director.
➢ Section 157(3)(b) of the CA: The breach may also constitute a criminal
offence.
➢ The company may rescind the tainted contract and recover its lawful
property.
➢ The director will be held liable for any gain he has made by virtue of his
position as a director even if he was honest and had not intended to defraud
the company. Regal (Hastings) Ltd v Gulliver (1942).

APPLICATION:

a) The contract between FS and BS.

➢ Identify the breach of duty: Duty to avoid conflicts of interests.

➢ Larry as a director of FS owes a duty to FS.
➢ Larry has an interest in BS as a shareholder.
➢ Larry’s interests in FS and BS are in conflict when both companies enter into a
contract for the supply of visual objects.
➢ FS interest as a buyer and BS interest as a seller are in conflict.
➢ Larry has placed himself in a conflict of interest situation and is in breach of the
duty as a director in FS
➢ Larry’s views: discuss whether it would mitigate his breach. Larry will be held
to have breached his duties even if he was honest and had no intention to defraud
the company.
➢ Larry did not disclose his interest in BS. He would have avoided a breach by
not participating in the board of directors’ meeting concerning the contract with
BS.

b) Larry’s acceptance of the tablet valued at $2,000.

➢ Identify the breach of duty: Duty to avoid conflicts of interests.

➢ Larry as a director of FS owes a duty to FS.
 ➢ Larry’s potential conflict of interests in the situation is with regards to the lavish
dinner and the gift.
➢ Directors will be in breach of their duties if they receive secret profits.
➢ The lavish dinner and especially the gift will come within the definition of secret
profits. Larry had benefitted from the lavish dinner and gift. These are personal
benefits which conflicts with his position as a director.
➢ Similar to (a) above, Larry is to disclose both items.
➢ Larry would be in breach of his duties as a director of FS if there was no
disclosure to FS.

NOTE: Students may also put forth arguments regarding breach of duties to use powers
for proper purposes and / or duty to act with due care and skill. Duties may overlap in
certain circumstances.

CONCLUSION:
a) Contract between FS and BS. FS may rescind the contract with BS. However,
in this case, a practical approach may be to reprimand Larry and / or remove
him as a director in accordance with the articles of association of FS.
b) Larry’s acceptance of the tablet valued at $2,000. FS may sue for damages and
claim for the secret profit from Larry i.e. the tablet. Similar to (a) above, FS
may reprimand Larry and / or remove him as a director.
Lectures 11 & 12: The Law of Torts
Module Book Session 10

Essential points

o Tort, Crime and Contract

o The Tort of Negligence
o Duty of Care
o Breach of duty of Care
o Resulting loss and damage
o Defences in Negligence

Visual Overview

Practice Questions (10)

1. The “neighbor” principle is relevant in establishing one of the elements in the tort of
negligence. Discuss.

2. How does the court determine whether the defendant has breached its duty of care owed
to the plaintiff?
3. Explain the tests adopted by the courts to establish the defendant’s liability for the injury
/ damage suffered by the plaintiff.

4. Tony bought a smartphone called “B8” from a retailer in IT Square, Be Smart Pte Ltd
(“BS”). After using the B8 for two weeks, Tony realised that there was a defect in the
batter. He has to charge the B8 after 2 hours of usage.

While Tony was using B8 to surf the internet, the smartphone started to heat up very
quickly. It exploded and Tony suffered burns to both his hands. He went back to IT
Square but was informed by the building management that BS has moved out and
creditors have applied to court to wind-up BS.

Tony referred to B8’s packaging and managed to locate the manufacturer of B8, B8
Smartest Phone Pte Ltd (“BSP”). He contacted the customer service department of BSP.
The customer service officer said that BSP not give any warranties or guarantees on its
products and it is for the customer to claim from the retailer.

Advise Tony on his claim against BSP for injuries to both his hands as a result of using
B8.

SESSION 10: The Law of Tort I

Relevant Legal Concepts

Essay question

1. The “neighbor” principle is relevant in establishing one of the elements in the tort of
negligence. Discuss.

Answer plan

➢ Define tort: breach of legal duty to take care which results in injury to the plaintiff and
/ or damage to the plaintiff’s property.
➢ There are 3 essential elements in the tort of negligence, namely, duty of care, breach of
duty and resulting damage.
➢ A legal duty of care is imposed by law on a person to take reasonable care for his acts
or omissions that may result in harm to others.
➢ The landmark case of Donoghue v Stevenson enunciated the “neighbor” principle to
establish a duty of care owed by the defendant to the plaintiff, who is his “neighbor”.
➢ The defendant’s neighbors are
– persons who are so closely and directly affected by the defendant’s act that
– the defendant ought reasonably to have them in contemplation as being so
affected when the defendant is directing his mind to the acts or omissions which are
called in question.
➢ The 3-stage test is adopted by the courts to determine whether plaintiff is a “neighbor”:
▪ Proximity. Parties proximate to one another.
▪ Foreseeability. Foreseeable that plaintiff will suffer harm.
▪ Policy. Just and reasonable overall to find a duty of care.

2. How does the court determine whether the defendant has breached its duty of care owed
to the plaintiff?

Answer plan

➢ Plaintiff must show that the defendant had breached the duty of care.
➢ The court would enquire whether the defendant had met the expected “standard of
care”
➢ The standard of care is based on the standard of an ordinary, reasonable and prudent
person. Relevant case law is Blyth v Birmingham Waterworks Co.
➢ If the standard of care is not met, then there would be a breach of the duty imposed
by law.
➢ The court considers various factors in its determination of the standard of care:
o Level of skill. Case law of Roe v Minister of Health.
o Likelihood of injury. Case law of Bolton v Stone.
o Seriousness of injury. Case law of Paris v Stepney.
o Costs of avoiding the risk. Case law of Latimer v AEC Ltd.

3. Explain the tests adopted by the courts to establish the defendant’s liability for the injury
/ damage suffered by the plaintiff.

Answer plan

➢ Plaintiff must show that the defendant’s breach of duty must have resulted in the
plaintiff’s injury / damage.
 ➢ The court will consider two issues:
o Causation. The “but-for” test is used by the court to determine whether the
plaintiff’s loss, damage or injury have been caused by the defendant’s breach of
duty. The defendant would not be liable if the proximate or overwhelming cause
of the injury / damage was something other than the defendant’s act or omission.
Case law of Barnett v Chelsea Hospital.
o Remoteness. The injury / damage suffered by the plaintiff must be “reasonably
foreseeable” by the defendant. In other words, the injury / damage must have
been “closely connected” to the defendant’s breach of duty. Case law is The
Wagon Mound No. 1.

Problem question

4. Tony bought a smartphone called “B8” from a retailer in IT Square, Be Smart Pte Ltd
(“BS”). After using the B8 for two weeks, Tony realised that there was a defect in the
batter. He has to charge the B8 after 2 hours of usage.

While Tony was using B8 to surf the internet, the smartphone started to heat up very
quickly. It exploded and Tony suffered burns to both his hands. He went back to IT
Square but was informed by the building management that BS has moved out and
creditors have applied to court to wind-up BS.

Tony referred to B8’s packaging and managed to locate the manufacturer of B8, B8
Smartest Phone Pte Ltd (“BSP”). He contacted the customer service department of BSP.
The customer service officer said that BSP not give any warranties or guarantees on its
products and it is for the customer to claim from the retailer.

Advise Tony on his claim against BSP for injuries to both his hands as a result of using
B8.

Answer plan

LAW:

➢ The relevant law is tort of negligence.

➢ There are 3 essential elements in the tort of negligence, namely, duty of care, breach of
duty and resulting damage.

(a) Duty of care.

➢ A legal duty of care is imposed by law on a person to take reasonable care for his acts
or omissions that may result in harm to others.
➢ The landmark case of Donoghue v Stevenson enunciated the “neighbor” principle to
establish a duty of care owed by the defendant to the plaintiff, who is his “neighbor”.
➢ The 3-stage test is adopted by the courts to determine whether plaintiff is a “neighbor”:
▪ Proximity. Parties proximate to one another.
▪ Foreseeability. Foreseeable that plaintiff will suffer harm.
▪ Policy. Just and reasonable overall to find a duty of care.

(b) Breach of duty of care.

 ➢ Plaintiff must show that the defendant had breached the duty of care.
➢ The court would enquire whether the defendant had met the expected “standard of
care”
➢ The standard of care is based on the standard of an ordinary, reasonable and prudent
person. Relevant case law is Blyth v Birmingham Waterworks Co.
➢ If the standard of care is not met, then there would be a breach of the duty imposed
by law.
➢ The court considers various factors in its determination of the standard of care.

(c) Resulting damage / injury.

➢ Plaintiff must show that the defendant’s breach of duty must have resulted in the
plaintiff’s injury / damage.
➢ The court will consider two issues:
o Causation. The “but-for” test is used by the court to determine whether the
plaintiff’s loss, damage or injury have been caused by the defendant’s breach of
duty. Case law of Barnett v Chelsea Hospital.
o Remoteness. The injury / damage suffered by the plaintiff must be “reasonably
foreseeable” by the defendant i.e. the injury / damage must have been “closely
connected” to the defendant’s breach of duty. Case law is The Wagon Mound No.
1.

APPLICATION:

➢ Tony will have to establish the 3 essential elements in the tort of negligence.

(a) Duty of care.

➢ The law may imposed a duty of care on BSP to take reasonable care for its acts or
omissions in the manufacture of B8 that may result in harm to its customers including
the users of B8.
➢ Applying the “neighbor” principle, there is a strong case in favour of Tony being a
neighbor to BSP and thus BSP owes a duty of care owed Tony.
➢ Applying the 3-stage test, Tony is BSP’s “neighbor”:
▪ Proximity. The relationship of BSP, a manufacturer of B8, is proximate to Tony, a
purchaser and user of B8.
▪ Foreseeability. It is foreseeable that Tony will suffer harm if BSP’s product, B8, is
defective and explodes when in use.
▪ Policy. It is just and reasonable overall to find a duty of care on the manufacturer
of smartphones, BSP, to ensure that its products are not defective and do not
explode.

(b) Breach of duty of care.

➢ Tony must show that BSP had breached the duty of care.
➢ The standard of care is based on the standard of an ordinary, reasonable and prudent
person, in this case, a manufacturer of smartphones. Relevant case law is Blyth v
Birmingham Waterworks Co.
➢ Consider various factors in its determination of the standard of care: level of skill
expected of manufacturers of smartphones, the likelihood of injury to smartphone
users and the seriousness of injury to smartphone users. The weight to be attached to
costs of avoiding the risks in this case will be low in view of the high risk of injury to
smartphone users.
 ➢ The standard of care was not met as smartphones are not expected to explode. As B8
exploded, it has not met the standard of care and thus BSP has breached its duty of
care owed to Tony.

(c) Resulting damage / injury.

➢ Tony must show that the defendant’s breach of duty must have resulted in the injuries
to both his hands when using B8.
➢ The two issues to be considered:
o Causation. Applying “but-for” test, Tony’s injuries was caused by BSP’s breach
of duty in manufacturing B8 which exploded. Case law of Barnett v Chelsea
Hospital.
o Remoteness. Tony’s injuries are “reasonably foreseeable” by BSP and is “closely
connected” to BSP’s breach of duty. Case law is The Wagon Mound No. 1.

CONCLUSION:

➢ Based on the analysis of the facts and application of the relevant law, Tony has a strong
case to claim for damages from BSP for injuries to both his hands under the tort of
negligence.
SESSION 11: The Law of Tort II

Relevant Legal Concepts

Essay question

1. There are limits imposed by courts in determining the liability of advisers in a

negligent misstatement claims. Discuss.

Answer plan

➢ Define negligent misstatement: A piece of advice given by an adviser orally

or in writing which is relied on by the recipient (advisee) to his detriment.
➢ The recipient / advisee must establish a duty of care, breach of that duty and
causation and resulting loss in a negligent misstatement claim.
➢ The duty will be imposed on the advisor where a “special relationship”
existed between the recipient / advisee and the maker of the statement /
advisor. Landmark case law of Hedley Byrne.
➢ The “special relationship” requirement limits the wider “neighbor” principle
enunciated by the court in Donoghue v Stevenson.
➢ The court will consider the following factors when determining the existence
of a “special relationship”.
▪ Type of advice given.
▪ The adviser’s business. It is not necessary for the advisor to be in the
specific business of giving advice for liability to attached. Refer to case
law of Esso Petroleum v Mardon.
 ▪ “Reliance” by the advisee. It must be established that it was reasonable
under the circumstances for the recipient of the advice to rely on the
adviser’s skill and judgment. The court will also consider the purpose
of the advice. Refer to case law of Caparo Industries v Dickman.
▪ Presence of a suitably worded “disclaimer” of liability clause. The
provisions of the Unfair Contract Terms Act would apply here.

2. Statements published in the social media may be the subject of a malicious

falsehood claim. Discuss the elements which a plaintiff is required to establish
in a malicious falsehood claim.

Answer plan

➢ Define malicious falsehood: false representations made maliciously in order

to injure plaintiff’s goodwill or economic reputation.
➢ The elements to be established are:
o Falsehood. False representation made orally, in writing or by way of
conduct.
o Made to a third party. The false representation must be published to a
third party (besides the plaintiff).
o Maliciously. There must be evidence of ill will or intention to injure on
the part of the defendant.
o About the plaintiff, his property or trade.
o Resulting in a loss of business. Section 5 of the Defamation Act does not
require proof of damage if the words / statements complained of are
published in permanent form or the words used are calculated to cause
pecuniary damage in respect of any office, profession, calling or
business at the time of publication.

3. The publishers of defamatory statements may raise several defences. Discuss.

Answer plan

➢ Define defamation. The plaintiff must establish that there was a defamatory
statement, about the plaintiff which was made to third parties.
➢ If the elements of defamation are established, the defendant (publishers of
the defamatory statements), may raise the following defences:
o Justification. Prove that the defamatory statements are true in substance
and in fact. This is a complete defence.
o Absolute privilege. Certain legal communications are privileged e.g.
statements in Parliament or during judicial proceedings.
 o Qualified privilege. Examples are communications between people
under a legal, social or moral duty to communicate. References by
employers is another example.
o Fair comment on a matter of public interest. Freedom of press to express
an honest comment on a matter of public interest.
o Offer of amends. The defendant may offer to publish a correction and
an apology and / or pay compensation as may be agreed by the plaintiff.

Problem question

4. The “Real World News” published an article about a prominent politician, Mr.
Tan Lau See, on its front page under the headline “Cash Wine for Mr.
Prominent”. The article stated that Mr. Tan Lau See entertains businessmen
frequently.

The newspaper named Mr. Alan Low as one of the businessman. The following
details were provided in the article. Mr. Alan Low Li is the owner of a catering
service, ALL Good Services Pte Ltd. (“ALL”). ALL has been providing
catering services for various events held by Mr. Tan Lau See’s political party,
Workmen Action Party (“WAP”). ALL’s unique selling point besides high
quality food is the supply of fine wines from Europe. Mr. Tan Lau See has a
wine cellar in his house with a stock of the finest wine from Europe.

The second person named in the newspaper is Mr. Jean Lee, a banker from
Europe. The newspaper stated that Mr. Tan Lau See received cash donation
from Mr. Jean Lee. Most readers assumed that Mr. Jean Lee is the Chief
Financial Officer of bank in Singapore with the same name.

Advise Mr. Tan Lau See, Mr. Alan Low Li and Mr. Jean Lee (CFO of a bank in
Singapore) on their claims for defamation against the newspaper. In your
advice, include the availability of any defences for the newspaper.

Answer plan

LAW.

➢ Define defamation. The plaintiff must establish that there was a defamatory
statement, about the plaintiff which was made to third parties.
➢ The elements of defamation to be established are:
o Defamatory statement. An untrue statement may not be
defamatory. The court will consider the statement in its “natural
and ordinary meaning”. The objective test is applied to determine
whether the statement lowers plaintiff in the estimation of right-
thinking members of society or causes him to be shunned and
avoided. The subjective intention of the defendant in making the
statement is irrelevant.
 o About the plaintiff. The statement does not have to specifically
identify the person so long as ordinary people acquainted with the
plaintiff will know it refers to him.
o Made to third parties. The statement must be published to third
persons other than the plaintiff. The statement is a libel if it is
published in permanent form and a slander if it is published in
transient form.
➢ Section 5 of the Defamation Act does not require proof of damage if the
words or statements complained of are published in permanent form or the
words were calculated to cause pecuniary damage in respect of any office,
profession, calling or business at the time of publication.
➢ Remedies. The plaintiff may claim for damages to compensate for loss of
reputation. The actual amount to be determined depends on the various
factors including whether the defendants have malicious motives, the
standing of both parties in society, gravity of libel, manner of publication,
conduct of the plaintiff up to the end of trial. The plaintiff may seek injunction
from further publication.
➢ The defendant (publishers of the defamatory statements), may raise the
following defences:
o Justification. Prove that the defamatory statements are true in
substance and in fact. This is a complete defence.
o Absolute privilege. Certain legal communications are privileged
e.g. statements in Parliament or during judicial proceedings.
o Qualified privilege. Examples are communications between
people under a legal, social or moral duty to communicate.
References by employers is another example.
o Fair comment on a matter of public interest. Freedom of press to
express an honest comment on a matter of public interest.
o Offer of amends. The defendant may offer to publish a correction
and an apology and / or pay compensation as may be agreed by
the plaintiff.

APPLICATION
➢ Mr. Tan Lau See, Mr. Alan Low Li and Mr. Jean Lee (CFO of a bank in
Singapore) must establish that the article published in “Real World News”
by the newspaper contains defamatory statements, about them and was made
to third parties, the readers of the newspaper.
➢ The elements of defamation to be established by each of them are:
o Defamatory statement.
▪ Mr. Tan Lau See. The relevant statements are “Mr. Tan Lau See
entertains businessmen frequently and named Alan Low as one of
the businessman. The court will consider the various statements in
its “natural and ordinary meaning” especially the headline “Cash
Wine for Mr. Prominent”. The objective test is applied to determine
whether the statements lower plaintiff in the estimation of right-
thinking members of society or causes him to be shunned and
avoided. The further details in the article seem to imply that cash
donations and wine were given to Mr. Tan who is a prominent
politician. The details give the readers the impression of some
wrong-doing on the part of Mr. Tan and Mr. Alan with regards to
 the catering services provided by ALL to WAP and also Mr. Tan’s
wine collection in his house.
▪ Mr. Alan Low Li. Similar to above analysis of the facts and
application of the law to the facts, Mr. Alan has a strong case that
the details in the article is defamatory and likely to lower him in the
minds of right-thinking people.
▪ Jean Lee. The issue is whether the statement that Mr. Tan received
cash donation from Mr. Jean Lee implies any breach of legal duty
imposed on Mr. Tan in his position as a politician. This depends
on whether the statement will lower Mr. Tan and Mr. Alan in the
minds of right-thinking people. Strong case in favour of Mr. Jean
Lee.
o About the plaintiff.
▪ The ordinary people acquainted with Mr. Tan and Mr. Alan will
know that the article refer to them.
▪ If the article does not make it clear that Mr. Jean Lee the
newspaper was referring to is the banker from Europe, it will be
for the court to determine whether a reasonable person reading
the newspaper would think that the statement refers to Mr. Jean
Lee the Chief Financial Officer of a bank in Singapore. There is
a strong case for Mr. Jean Lee as he is the Chief Financial Officer
and the reasonable person would have associated him to the name.
o Made to third parties. The statements are libel and published in
newspapers for third party readers.
➢ Proof of damage is not required under Section 5 of the Defamation Act as
the statements were published in permanent form.
➢ Remedies. All three parties may claim for damages to compensate for loss of
reputation and seek injunction against the newspaper from further
publication. All the three parties appear to be prominent and successful in
their respective fields and the publication in newspaper will reach a large
number of readers. Based on this, the damages will be high for both Mr. Tan
and Mr. Jean Lee. The damages awarded to Mr. Alan Low Li will be subject
to the courts determination of the other factors.
➢ The newspaper may raise the following defences:
o Justification. Prove that the defamatory statements about the three
persons are true in substance and in fact. This is a complete
defence.
o Fair comment on a matter of public interest. Freedom of press ie.
Newspaper to express an honest comment on a matter of public
interest which is integrity of the prominent politician.
o Offer of amends. The newspaper may offer to publish a correction
and an apology and / or pay compensation as may be agreed by
the three parties.

CONCLUSION
➢ Mr. Tan Lau See, Mr. Alan Low and Mr. Jean Lee have strong case against
the newspaper in an action for defamation. However, the newspaper may
put up various defences.
SESSION 12: Protection of Intellectual Property Rights

Relevant Legal Concepts

Essay question

1. What is a patent and what are the characteristics of a patent?

Answer plan

➢ A patent is the grant of a monopoly to an inventor for his inventions.

➢ An invention is registrable as a patent under the Patents Act.
➢ An invention must satisfy the following conditions before it can be registered and
protected under the Patents Act:
o Invention must be new. The invention is not previously available on the market.
o The invention must involve an inventive step. An inventive step in the process
of thinking up something new.
o The invention must be capable of industrial application.

2. Explain the differences between a “passing off” action and an enforcement proceeding
under the Trade Marks Act.

Answer plan

➢ Passing off is a tort or civil wrong which is part of common law. It protects a
person’s goodwill associated with the trade mark or sign utilized in his business
 where the trade mark or sign is not registered under the Trade Mark Act. The
plaintiff must prove the following:
o there is goodwill attached or reputation attached to his business either by the
trade mark or sign
o the defendant’s misrepresentation that his goods or services are those of the
plaintiff or is likely to confuse the public
o there is resulting loss or damage to the plaintiff.
➢ A trade mark that is registered under the Trade Mark Act may commence
enforcement proceedings. The trade mark owner will need to prove infringement
in that his registered trade mark was used by the defendant for the same goods or
services under the Trade Mark Act. Where the marks are similar rather than
identical, the plaintiff will have to show that the use of the unregistered mark will
be likely to cause confusion to the public under the Trade Mark Act. When an
infringement is established, the plaintiff can apply for an injunction, obtain
damages or account of profits. Criminal sanctions may also be involved if there is
evidence of “counterfeiting”.

3. What is a copyright and what are the rights conferred by copyright?

Answer plan

➢ Copyright is the area of law which protects the form of expression and not the ideas.
The work which is protected must have originated from the author and involve some
effort, skill and labour.
➢ Examples of work which are protected include original literary, dramatic, musical
and artistic works, sound recordings, cinematograph films.
➢ The relevant statute is the Copyright Act which grants certain “exclusive” rights to
the copyright owner to:
o Reproduce the work in material form,
o Publish the work,
o Perform the work in public
o Communicate the work to the public
o Make an adaptation of the work.

Problem question

4. Bicycle Unlimited Pte Ltd is the authorized agent in Singapore for “Relay” bicycles
made in France. They are permitted to use the “Relay” trademark in Singapore to
market the “Relay” bicycles.

Michael, an enthusiastic cyclist, registered his business as a sole-proprietorship trading

under the name of Mike Bikes Trading. He conducted a market research on “Relay”
bicycles and discovered the authorized agents of “Relay” bicycles in Taiwan. Michael
started to import “Relay” bicycles from authorized agents in Taiwan and managed to
sell them cheaper than Bicycle Unlimited Pte Ltd.

Bicycle Unlimited Pte Ltd is unhappy. Advise Bicycle Unlimited Pte Ltd whether it
can take any action against Michael.
Answer plan

LAW
➢ Define trademark. A trade mark that is registered under the Trade Mark Act may
commence enforcement proceedings. The plantiff will need to prove infringement
under the Trade Mark Act. When an infringement is established, the plaintiff can apply
for an injunction, obtain damages or account of profits. Criminal sanctions may also
be involved if there is evidence of “counterfeiting”.
➢ Passing off is a tort or civil wrong which is part of common law. It protects a person’s
goodwill associated with the trade mark or sign utilized in his business where the trade
mark or sign is not registered under the Trade Mark Act. The plaintiff must prove the
following:
o there is goodwill attached or reputation attached to his business either by the
trade mark or sign
o the defendant’s misrepresentation that his goods or services are those of the
plaintiff confuses or is likely to confuse the public
o there is resulting loss or damage to the plaintiff.

APPLICATION
➢ The issue is whether “Relay” trademark is registered in Singapore. If it is and Bicycle
Unlimited Pte Ltd (“BU”) has been authorized by the trade mark owner, presumably,
a company from France, BU will need to prove infringement. Michael sold “Relay”
bicycles which he imported from authorized agents in Taiwan. The “Relay” bicycles
sold by Michael are parallel imports of original products. On the face of it, there is no
infringement as the source of the “Relay” bicycles is from agents authorized by the
trade mark owner. BU will need to check the terms of his contract with the trademark
owner.
➢ An alternative claim is in the tort of passing off where the “Relay” trade mark is not
registered under the Trade Mark Act in Singapore. BU will face difficulties in
establishing the elements of passing off:
o there is goodwill attached or reputation attached to his business either by the
trade mark or sign. The goodwill is more likely to be attached to the trade mark
owner rather than the authorized agent.
o Even if BU has goodwill attached to the trade mark, BU will not be able to
prove that Michael misrepresented that his goods or services are those of BU
or is likely to confuse the public. In this case, the “Relay” bicycles from BU
and Michael are originals. There is no confusion between the bicycles sold by
BU and Michael.

CONCLUSION

➢ BU will not be able to take any action against Michael for infringement under the Trade
Mark Act or in the tort of passing off. BU’s recourse will be against the trademark
owner based on the terms of the authorized agency contract.
 PRACTICE QUESTIONS FOR QUIZ

PRACTICE A

1. Which of the following courts hears ONLY civil cases?

(A) District Court

(B) Coroner’s Court
(C) Small Claims Tribunal
(D) High Court

2. What is the effect of misrepresentation on a contract?

(A) The contract is void from the date the misrepresentation was communicated to
the innocent party.
(B) The party who made the misrepresentation is entitled to ratify the false
statement.
(C) The contract is void as soon as the misrepresentation is discovered by the
innocent party.
(D) The contract is voidable.

3. Which ONE of the following statements regarding frustration is TRUE?

(A) Frustration automatically discharges the contract under the provisions of the
Frustrated Contracts Act.
(B) One of the contracting parties must be at fault.
(C) There must be a supervening event occurring.
(D) Performance of the contract must be more difficult.

4. Which ONE (1) of the following is a remedy for breach of implied conditions under the
Sale of Goods Act?

(A) fine
(B) injunction
(C) specific performance
(D) restitution

5. Which ONE of the following is a condition to establish apparent authority of an agent?

(A) The third party must have capacity to enter into the contract.
(B) There must be a representation made by the principal or by persons who had
actual authority that the agent had authority.
(C) The agent’s authority must be granted impliedly from the agent’s occupation.
(D) The third party is not aware of agent’s termination which was advertised in the
newspaper.
6. Which ONE (1) of the following statements is TRUE regarding negligence?

(A) The standard of care to be established is based on the standard of an ordinary,

reasonable and prudent person.
(B) The foreseeability test in establishing a duty of care is a subjective test.
(C) The court will attach high weightage to the costs of avoiding the risk of injury
in cases where the risk of injury to the plaintiff is high.
(D) The “but-for” test is applied to determine remoteness of damage.

7. How does the court determine the existence of intention to create legal relations?

(A) Presumption of intention based on types of agreement.

(B) Reasonable man test.
(C) All written agreements are presumed to have the necessary intention to create
legal relations.
(D) All social agreements do not have the intention to create legal relations.

8. What is the effect of a vitiating factor?

(A) It makes the contract void.

(B) It makes the contract voidable.
(C) It makes the contract invalid.
(D) The contract is invalid unless ratified by the non-defaulting party.

9. An agent is under a duty to act personally and not to delegate. What is the reason for
this duty?

(A) The contract between the principal and agent is a “personal” one.
(B) The agent cannot delegate his skill to another person.
(C) The agent cannot ensure that the person to whom he delegate is able to keep and
render proper accounts.
(D) The principal’s interest is not protected if the agent delegates his responsibilities
to another person.

10. What is the “egg-shell skull” principle?

(A) The defendant will not be liable to the plaintiff if the injury was not “reasonably
foreseeable” by the defendant.
(B) The defendant is only liable to the plaintiff for the kind of injuries which a
normal person may have suffered in a negligence action.
(C) The defendant is not liable to compensate the plaintiff for injuries which were
aggravated by the plaintiff’s predisposition to injuries.
(D) A defendant would be liable for the full extent of injuries sustained by the
plaintiff in a negligence action.
PRACTICE B

1. Which of the following forms part of the ‘written law’ of Singapore?

(A) Trade usage and Custom

(B) Case law
(C) Tradition
(D) Subsidiary legislation

2. Which ONE of the following is a court within the hierarchy of the Supreme Courts?

(A) Bankruptcy Court

(B) District Court
(C) High Court
(D) Magistrates’ Court

3. Which ONE of the following is a frustration circumstance?

(A) Imposition of import duty tax which increases the cost of the contract.
(B) Destruction of the subject matter of the contract.
(C) Non-occurrence of event which is foreseeable by both parties.
(D) Personal incapacity which is self-induced.

4. What is the effect of a breach of the conditions that are implied in a sale of goods contract
by the Sale of Goods Act?

(A) Same effect as a breach of warranties.

(B) The court will decide the effect using the innominate terms approach.
(C) The buyer is entitled to damages only.
(D) A breach of a fundamental term.

5. What is the duty of an agent?

(A) The agent is under a duty to act personally.

(B) The agent is under a duty to delegate responsibly.
(C) The agent is under a duty to provide full disclosure of his principal’s details to
the third party.
(D) The agent is under a duty of care to both the principal and the third party.
6. What is the first step in determining duty of care under the Spandeck’s test for an action in
the tort of negligence?

(A) “Public policy” reasons to determine if there are any public policy reasons that
would support a finding of a duty of care.
(B) “Proximity” test to determine whether there was a proximate relationship
between the parties involved.
(C) Determine whether the plaintiff’s injuries were aggravated by the plaintiff’s
predisposition to injuries.
(D) “Factual” determination whether it was reasonably foreseeable that the
defendant’s actions would cause harm to the plaintiff.

7. Which ONE of the following is a fundamental term in a contract?

(A) Condition
(B) Exemption clause
(C) Warranty
(D) Innominate term

8. What happens to a contract when the Plaintiff successfully proved misrepresentation?

(A) The contract is void from the date the misrepresentation was communicated to
the Plaintiff.
(B) The Plaintiff is only entitled to damages.
(C) The contract is void as soon as the misrepresentation is discovered by the
Plaintiff.
(D) The contract is voidable.

9. What must be proven to establish frustration of a contract?

(A) The contracting parties have difficulties performing their obligations.

(B) One of the contracting parties must be at fault.
(C) There must be a supervening event occurring.
(D) Performance of the contract must be more difficult.

10. What is a shop doing in displaying a lap-top with a price tag of $2,000?

(A) Making a unilateral offer

(B) Asking for acceptance
(C) Making an invitation to treat
(D) Making a bilateral offer.
PRACTICE C

1. Benny offered to sell his smart phone to John. John immediately replied by letter accepting
Benny’s offer but his letter never reached Benny. Which ONE of the following statements
is TRUE?

(A) Benny is bound by the contract because John.

(B) Benny is bound by the contract because the postal rule applies.
(C) Benny is not bound by the contract because the letter was lost in the post.
(D) Benny is bound by the contract if it was reasonable for John to have used the
post.

2. Which ONE (1) of the following statements is TRUE regarding negligence?

(A) The “but-for” test is applied to establish the proximity between the parties.
(B) The standard of care to be established is based on the standard of an ordinary,
reasonable and prudent person.
(C) A subjective test is adopted by the court to determine breach of duty.
(D) The court does not attach any weightage to the costs of avoiding the risk.

3. Which one of the following defines an exemption clause?

(A) It is an essential term in a contract

(B) It is a secondary term of a contract
(C) It limits the liability of a contracting party
(D) It is a term with no name

4. Which one of the following is a factor which the court will consider when deciding whether
a contract with a minor is a contract for necessaries?

(A) The status of the seller

(B) The minor’s station in life
(C) The terms of the contract
(D) The presence of any misrepresentations by the seller

5. What is the general rule on performance of the obligations in a contract?

(A) Performance of the obligations are divisible

(B) Performance is acceptable as long as there is substantial performance
(C) Performance of the obligations must be exactly according to the terms
(D) Performance of the obligations must not be prevented by the contracting party
6. Which ONE of the following statements about a condition is TRUE?

(A) It goes to the root of the contract.

(B) It is a secondary term of the contract.
(C) It refers to an event upon which the innocent party may claim liquidated
damages.
(D) It is a term which excludes the liability of a defaulting party.

7. Which ONE of the following statements in relation to a contract is correct?

(A) The contract must contain all the terms in one document.
(B) The contract need not be in writing.
(C) The contract must be signed by both parties to the contract.
(D) The contract must be dated.

8. Which ONE of the following is a relevant legal principle for duty of care in a negligence
action?

(A) The standard of care of an ordinary, reasonable and prudent person

(B) The “egg-shell skull” rule
(C) The Spandeck test
(D) The “but-for” test

9. The “contra proferentum” rule is applied by courts to determine the validity of exemption
clauses. The rule is applied to which one of the following factors?

(A) Incorporation of the exemption clause

(B) Construction of the exemption clause
(C) Presence of unusual factors which invalidate the exemption clause
(D) Neutralisation of the exemption clause by Unfair Contract Terms Act

10. What is the age of majority for most situations for example purchase of a lap-top?

(A) 18
(B) 19
(C) 20
(D) 21
PRACTICE D

1. Under which one of the following scenarios will the court grant equitable remedy of
specific performance?

(A) When damages are inadequate

(B) Negative obligations in the contract
(C) Employment contracts
(D) Carriage of goods by sea contracts

2. What is an agent’s right of lien?

(A) The agent may sell the principal’s goods without authority.
(B) The agent has the right to delegate his skill to another person.
(C) The agent may possess the principal’s goods as security for payment.
(D) The agent has the implied authority to incur expenses and claim
reimbursement from the principal.

3. Which one of the following statements regarding the proximity test in tort of negligence
cases is TRUE?

(A) The test is also known as “The Egg-shell Skull” test.

(B) The test is to determine the quantum of damages to be awarded to the plaintiff.
(C) The test is to determine the connection between the plaintiff and the defendant.
(D) The test is a subjective test.

4. Which one of the following defines an exemption clause?

(A) It is an essential term in a contract

(B) It is a secondary term of a contract
(C) It limits the liability of a contracting party
(D) It is a term with no name

5. Which one of the following is a factor which the court will consider when deciding whether
a contract with a minor is a contract for necessaries?

(A) The type of product bought by the minor.

(B) The minor’s status having regard to the minor’s parents.
(C) The value of the contract
(D) The presence of any misrepresentations by the seller
6. What is the general rule on performance of the obligations in a contract?

(A) Performance of the obligation is quantifiable.

(B) Performance is acceptable as long as there is substantial performance.
(C) Performance of the obligations must be precisely according to the terms.
(D) Performance of the obligations must not be illegal.

7. An agent may have apparent authority. What is a condition for apparent authority?

(A) The agent must have capacity to enter into the contract.
(B) There must be a representation made by the principal that the agent had
authority.
(C) There must be implied authority in addition to actual express authority.
(D) The third party must not know the principal personally.

8. Which ONE of the following is a relevant legal principle for duty of care in a negligence
action?

(A) The neighbor principle.

(B) The standard of care of a professional.
(C) The main purpose rule
(D) The “but-for” test

9. What is the rule applied by courts to determine the validity of exemption clauses.

(A) The main purpose rule

(B) The “contra proferentum” rule
(C) The reasonable man rule
(D) The majority rule

10. What is the age of majority for entering into a lease of more than 3 years?

(A) 18
(B) 19
(C) 20
(D) 21
PRACTICE E

1. When will the court grant equitable remedy of specific performance?

(A) When damages are inadequate

(B) When there are negative obligations in the contract
(C) When the innocent party is an employee
(D) When the contract relates to carriage of goods by sea.

2. What is an agent’s right of lien?

(A) The authority of an agent to sell the principal’s goods.

(B) The agent’s right to delegate his obligations to another person.
(C) The agent may possess the principal’s goods as security for payment.
(D) The agent’s implied authority to incur expenses on behalf of the principal.

3. Which one of the following statements regarding the proximity test in tort of negligence
cases is TRUE?

(A) The test is also known as “but-for” test.

(B) The test is to determine the remoteness of damages.
(C) The test is to determine the connection between the plaintiff and the defendant.
(D) The test is a subjective test.

4. A contracting party would like to limit liability in the event of a breach. What type of terms
should be drafted to limit liability?

(A) Conditions
(B) Exemption clauses
(C) Warranties
(D) Innominate terms

5. An innocent party claims that there was misrepresentation. What is the effect of such a
claim on a contract?

(A) The contract is void from the date the misrepresentation was communicated to
the innocent party.
(B) The party who made the misrepresentation is entitled to ratify the false
statement.
(C) The contract is void as soon as the misrepresentation is discovered by the
innocent party.
(D) The contract is voidable.
6. What happens when a contract is frustrated?

(A) The contract is automatically discharged under the provisions of the Frustrated
Contracts Act and money paid is not recoverable.
(B) The contract is discharged because one of the contracting parties has breached
the obligations under the contract.
(C) A supervening event has occurred to destroy the basis of the contract.
(D) Performance of the contract becomes more difficult.

7. The seller has breached an implied condition under the Sale of Goods Act. What is the
buyer’s remedy to return the goods and seek a full refund known as?

(A) damages
(B) injunction
(C) specific performance
(D) restitution

8. An agency may be created by apparent authority. What is the condition for apparent
authority of an agent?

(A) The third party must have capacity to enter into the contract.
(B) There must be a representation made by persons who had actual authority that
the agent had authority.
(C) The agent’s authority must be granted impliedly from the agent’s occupation.
(D) The third party is not aware of agent’s termination which was advertised in the
newspaper.

9. Which ONE (1) of the following statements regarding negligence is TRUE?

(A) The standard of care to be established is based on the standard of a reasonable

and prudent person.
(B) The foreseeability test in establishing a duty of care is a subjective test.
(C) The court will not attach any weightage to the costs of avoiding the risk of
injury.
(D) The “but-for” test is applied to determine remoteness of damage.

10. What is the guideline to determine the existence of intention to create legal relations?

(A) Presumption of intention based on types of agreement.

(B) The subjective view of a reasonable man.
(C) The presumption based on the existence of any written agreements.
(D) The rule that all social agreements do not have the intention to create legal
relations.
PRACTICE F

1. A contracting party has established his incapacity to contract. What is the effect on the
contract?

(A) It makes the contract void and there are no exceptions.

(B) It makes the contract voidable at the option of the defaulting party.
(C) It makes the contract invalid.
(D) The contract is invalid unless adopted by the defaulting party.

2. Which ONE (1) of the following statements regarding the law of agency is TRUE?

(A) The contract between the principal and agent is a “personal” one.
(B) The agent can delegate his authority without limits to another person.
(C) The principal is under the obligation to ensure that the agent keeps and renders
proper accounts.
(D) The principal is not liable if the agent commits fraud when entering into a transaction
on behalf of the principal.

3. Which ONE (1) of the following statements regarding the “egg-shell skull” principle is
TRUE?

(A) The defendant will not be liable to the plaintiff if the extent of injury was not
“reasonably foreseeable” by the defendant.
(B) The defendant is only liable to the plaintiff for the kind of injuries which a normal
person may have suffered in a negligence action.
(C) The defendant is not liable to compensate the plaintiff for injuries which were
aggravated by the plaintiff’s predisposition to injuries.
(D) A defendant would be liable for the full extent of injuries sustained by the plaintiff
in a negligence action.

4. How does the court determine the existence of an intention to create legal relationship in
the context of formation of contract?

(A) The court adopts an objective test based on the types of agreement.
(B) The court adopts the reasonable man test to determine the intention of the parties.
(C) The court makes a presumption based on the capacity of the parties.
(D) The court’s decision is based on expert evidence.

5. What is the effect of a vitiating factor on a contract?

(A) A contract becomes enforceable in law.

(B) A contract is unenforceable with immediate effect.
(C) A contract becomes invalid.
(D) A contract is unaffected.
 6. Which ONE of the following circumstances will result in the discharge of a contract by
frustration?

(A) Increase in the cost of a contract due to the imposition of import duty tax.
(B) The subject matter of the contract is destroyed.
(C) Non-occurrence of event which is foreseeable by both parties.
(D) Self-induced personal incapacity of one of the contracting parties.

7. Which ONE of the following is a duty of an agent?

(A) A duty to avoid conflict of interest.

(B) A duty of care when delegating the authority to another agent.
(C) A duty to provide full disclosure of the principal’s details to the third party.
(D) A duty of ensure that the interests of the third party are protected.

8. Which ONE of the following is a step under the Spandeck’s test in the context of the tort
of negligence?

(A) Standard of care based on industrial practice.

(B) The presumption of duty of care based on the type of agreements and the existence
of any evidence to rebut the presumption.
(C) The egg-shell skull rule.
(D) “Factual” determination whether it was reasonably foreseeable that the defendant’s
actions would cause harm to the plaintiff.

9. What is the type of terms which excludes the liability of the party in breach?

(A) Conditions
(B) Exemption clauses
(C) Warranties
(D) Innominate terms

10. Intention to create legal relations is one of the elements in the formation of a contract.
Which ONE of the statements regarding intention to create legal relations is TRUE?

(A) The presumption of intention is based on types of agreement.

(B) The court adopts the reasonable man test to identify the type of agreements.
(C) Parties to written agreements have the necessary intention to create legal relations.
(D) Expert evidence is necessary to prove intention to create legal relations.
PRACTICE QUESTIONS FOR QUIZ: ANSWERS

PRACTICE

No. A B C D E F

1 C D C A A C

2 D C B C C A

3 C B C C C D

4 D D B C B A

5 B A C B D C

6 A D A C C B

7 A A B B D A

8 C D C A B D

9 A C B B A B

10 D C A D A A