At a Legal Crossroads: Singapore’s Divergence

The Singapore Court of Appeal gave a judgement on 22nd April 2021 regarding a contractual non-oral modification (“NOM”) clause in Lim v Hong (“Hong”). NOM clauses dictate that any variation to a contract must be agreed upon, and this agreement must be set out in writing and signed by all the parties to the contract.

At a Legal Crossroads: Singapore’s Divergence

The Singapore Court of Appeal differs from the English position to acknowledge a liberal approach to Non-Oral Modification Clauses

What has happened?

The Singapore Court of Appeal gave a judgement on 22nd April 2021 regarding a contractual non-oral modification (“NOM”) clause in Lim v Hong (“Hong”).

NOM clauses dictate that any variation to a contract must be agreed upon, and this agreement must be set out in writing and signed by all the parties to the contract.

NOMs are added to contracts for various commercial reasons such as preventing the agreement from being varied orally or through the conduct of the parties. Another reason is to allow companies to monitor whether their employees agreed to variations with or without the authorization of the company.

Within a Sale and Purchase Agreement the claimant agreed (“SPA”) to sell shares to the defendant. However, the sale was never done, and no notice or update was provided for three and a half years. The claimants eventually brought an action for breach of contract, but the defendant argued in the Singapore High Court that the agreement had previously been orally rescinded through a mutual agreement via telephone.

In the SPA, there was a NOM clause expressly providing that any “variation, supplement, deletion, or replacement” in the SPA agreement would be invalid unless made in writing and signed by both of the parties.

Upon assessing the facts and circumstances, the Court of Appeal dismissed the appeal and held that the NOM clause in question did not apply to oral recissions, therefore the oral variation was valid.

What does this mean?

The decision piques curiosity as the Singapore Court of Appeal diverged from the decision of the UK Supreme Court in Rock Advertising v MWB (“MWB”).

Two approaches were laid down by the UK Supreme Court which were considered in depth by the Singapore Court of Appeal prior to making the decision. Lord Sumption noted that the NOM clause will be given full legal effect and any future modifications of the agreement would be invalid unless the parties fulfil the formalities listed in the NOM clause. (MWB at [15]).

Lord Briggs observed that the NOM clause should be given legal effect, but parties are allowed to agree orally to vary the terms of the agreement expressly or impliedly. (MWB at [30])

In contrast, the Court of Appeal disagreed with these two approaches and reiterated its previous decision in Comfort Management v OGSP Engineering, where it was held that a NOM clause merely raises a rebuttable presumption that in the absence of an agreement in writing, the variation of the contractual terms will be invalid. This approach was originally used by the English Court of Appeal in MWB but was later overturned by the UK Supreme Court upon appeal.

Next, the court noted that the party alleging the oral variation may rebut the presumption through providing cogent and compelling evidence to show that there was indeed an oral variation. This was based on the reason that it would be very unlikely that contracting parties would perform an orally agreed modification in practice since they ‘knew’ that there was a NOM clause in the agreement. (Hong at [56])

Finally, if the oral variation is proven on the balance of probabilities, the NOM clause no longer has any legal effect as the court will deem that the parties made a collective decision to orally vary the agreement. (Hong at [58])

The major difference between the English and Singaporean approaches is that the former focuses on the parties’ intentions at the point of contract formation. Thereafter, parties are legally bound by the terms in their agreement and party autonomy only operates up to the extent that the contract allows.

Conversely, the Singapore Court of Appeal opined that fixing parties’ intention at the point of contract formation would not take into account that parties were free to amend the contractual terms, which would resultingly combine parties’ individual autonomy with their collective autonomy. The court was liberal in its approach to uphold the freedom of parties to collectively agree to amend any terms stated in their agreement.

This was also previously held by the Singapore Court of Appeal in Denka Advantech v Seraya Energy(“Denka”). In Denka, the Court of Appeal emphasised the importance of not overlooking party autonomy.

However, it is noteworthy that the Singapore Court of Appeal had previously considered the doctrine of sanctity of contract in Alliance Concrete Singapore v Sato Kogyo (“Alliance”) that “courts should – as far as it is possible – endeavour to uphold the validity of contracts and ensure that they are performed according to their terms.” (Alliance at [30])

The Singapore Court of Appeal in Hong tried to draw the line between these two principles, deciding that the doctrine of sanctity of contract did not provide reasonable grounds to preclude the parties from an oral variation of their agreement although a NOM clause was already in place.

While the distinction between these principles is made in obiter and not legally binding, the court’s decision is very persuasive for future cases given that it was made by five justices of the highest court in Singapore.

What is the impacts?

  • Attention to detail with NOM clause

Any businesses and individuals dealing with commercial-related contractual agreements need to be very detailed when it comes to the NOM clause, as there are hurdles to overcome when trying to prove that there was an oral variation.

In particular, the party seeking to enforce the contract must be aware of the possibility of the application of contractual estoppel which prevents the contract from being enforced. If parties want to specifically “rescind” (revoke) a contract, then they need to expressly and clearly state “rescission” in the NOM clause for such a variation to be deemed as valid by the Singapore courts.

  • Cogent and compelling evidence needed to prove oral variation

As the Singapore Court of Appeal emphasised, cogent and compelling evidence is needed to show an oral variation. Such evidence includes testimonies from independent witnesses, contemporaneous documents (i.e., parties’ correspondence, meeting minutes, online chat messages), and any evidence showing the parties’ objective conduct in performing the contract in the way that was orally varied.

  • Modifications are recommended to be in writing

A very good way of ensuring that oral variations are valid is to put all modifications in writing and signed by all parties. Written amendments should expressly state the clauses that are to be amended, the new conduct of the agreement, and the date that the amendments will be in force.

  • Instantaneous communication

The Singapore Court of Appeal’s liberal approach adds a practical touch to contractual dealings. Instantaneous communication methods such as emails may be deemed to be ‘in writing’ and thus fulfil the requirements of a valid variation under a NOM clause. This has previously been the case under the English jurisdiction. In C&S Associates UK Ltd v Enterprise Insurance Company plc, the English Commercial Court held that a set of email correspondence was ‘in writing’ and the signature affixed to the correspondence was sufficient for the agreement to be ‘signed’. This fulfilled the requirements of the NOM clause, thus making the variation valid.

  • Governing Jurisdiction

When deciding on the “governing jurisdiction” clause at the point of contract formation, parties need to discuss the different approaches of English, Singaporean, and other jurisdictions relating to the legal effect of NOM clauses. This enables them to pre-empt the potential pitfalls and legal barriers that each jurisdiction poses regarding contractual variations. This is particularly important for international corporations and parties who carry out business activities on a global scale.

Given Singapore’s liberal approach to the interpretation of NOM clauses, it may be more attractive for businesses to draft their contracts to be governed by Singapore law.

 

The Legists Content Team

By Nickolaus Ng

Assessing Firms:

#Bird&Bird #Allen&Gledhill #CMS #Rajah&TannAsia #TwentyEssex

This article was based on the following sources:

Charles Lim Teng Siang and another v Hong Choon Hau and another [2021] SGCA 43

<https://www.supremecourt.gov.sg/docs/default-source/module-document/judgement/-2021-sgca-43-pdf.pdf>

C&S Associates UK Ltd v Enterprise Insurance Company plc [2015] EWHC 3757 (Comm)

<https://www.bailii.org/ew/cases/EWHC/Comm/2015/3757.html>

Denka Advantech Pte Ltd and another v Seraya Energy Pte Ltd and another and other appeals [2021] 1 SLR 631

<https://www.supremecourt.gov.sg/docs/default-source/module-document/judgement/-2020-sgca-119final1-pdf.pdf>

Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd [2014] 3 SLR 857

<https://www.supremecourt.gov.sg/docs/default-source/module-document/judgement/2014-sgca-35.pdf>

Comfort Management Pte Ltd v OGSP Engineering Pte Ltd [2018] SGCA 19

<https://www.supremecourt.gov.sg/docs/default-source/module-document/judgement/final-version-for-release-(12-04-18)-pdf.pdf>

Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24

<https://www.bailii.org/uk/cases/UKSC/2018/24.html>

Chui Li Jun, ‘No Oral Modification (NOM) Clause Does Not Exclude Oral Rescission’ (Bird & Bird, May 2021) <https://www.twobirds.com/en/news/articles/2021/global/no-oral-modification-nom-clause-does-not-exclude-oral-rescission>

CMS, ‘Singapore Court of Appeal declines to follow Rock Advertising: endorses more liberal approach to NOM clauses’ (CMS Law-Now, 2nd June 2021) <https://www.cms-lawnow.com/ealerts/2021/06/singapore-court-of-appeal-declines-to-follow-rock-advertising-endorses-more-liberal-approach>

David Lewis QC and Daniel Bovensiepen, ‘Singaporean and English law diverge on fundamental contract law issue: Singapore Court of Appeal rejects reasoning in Rock Advertising’ (TwentyEssex Bulletin, May 2021) <https://twentyessex.com/singaporean-and-english-law-diverge-on-fundamental-contract-law-issue-singapore-court-of-appeal-rejects-reasoning-in-rock-advertising/>

Allen & Gledhill, ‘Singapore Court of Appeal finds “no-oral modification” clause did not apply to rescission of agreement’ (Perspectives Publications, 2nd July 2021) <https://www.allenandgledhill.com/vn/publication/articles/18885/court-of-appeal-finds-no-oral-modification-clause-did-not-apply-to-rescission-of-agreement>

Rajah & Tann Asia, ‘Drafting Cautionary: Be Very Specific with "No Oral Modification" Clause’ (Client Update: Singapore, June 2021) <https://eoasis.rajahtann.com/eoasis/lu/pdf/2021-06_Drafting-Cautionary-Be-Very-Specific.pdf>

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