Case Summaries

Charles Lim Teng Siang and another v Hong Choon Hau and another

22 April 2021

Case summary

Charles Lim Teng Siang and another v Hong Choon Hau and another [2021] SGCA 43
Civil Appeal No 49 of 2020

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Decision of the Court of Appeal (delivered by Steven Chong JCA):

Outcome: The Court of Appeal dismissed the appeal.

Pertinent and significant points of the judgment

  • The court held that a no-oral modification clause (“NOM clause”) which prevented the variation, supplement, deletion or replacement of any term of the agreement unless in writing signed by or on behalf of all parties did not apply to the rescission of that agreement.
  • The court opined that parties could depart from a NOM clause via an oral agreement if parties had expressly or impliedly intended to depart from it. The test to imply such intention is whether at the point when parties agreed on the oral modification, they would necessarily have agreed to depart from the NOM clause had they addressed their mind to the question, regardless of whether they had actually considered the question or not.
  • The court also opined that more cogent evidence will be needed to prove an oral modification where there is a NOM clause, due to the inherent improbability that parties would make an oral modification in spite of such clause.

Background to the appeal 

1 The appellants entered into a Sale and Purchase Agreement (“SPA”) to sell shares to the respondents. The Completion Date passed but the transaction was never completed. More than 3.5 years after the Completion Date had passed, the appellants brought a suit against the respondents to claim damages for breach of the SPA.

2 The respondents argued that the SPA had been orally rescinded by mutual agreement, via a telephone call between the first appellant and first respondent. They alternatively argued that the appellants were estopped from enforcing the SPA. The appellants denied that there was rescission via a telephone call, or that they were estopped from enforcing the SPA.

3 The High Court Judge (“Judge”) accepted the respondents’ version of events and found that the SPA was indeed rescinded by mutual agreement, but did not make any findings on estoppel.

4 The appellants appealed. On appeal, they raised a new point concerning cl 8.1 of the SPA which prevented variation, supplement, deletion, or replacement of or from the agreement unless made in writing and signed by or on behalf of both parties. They argued that even if there had been an oral rescission, this was invalid by virtue of cl 8.1.

The Court of Appeal's decision 

5 The Court of Appeal dismissed the appeal.

6 Clause 8.1 of the SPA was a NOM clause which only prevented an oral variation, supplement, deletion, or replacement. It did not apply to rescission of the SPA: at [26] to [34].

7 The Court of Appeal nevertheless went on to make certain obiter remarks about the legal effect of a NOM clause. The court first observed that there were several legitimate commercial reasons why parties may choose to include a NOM clause in their contract: (a) to prevent attempts to undermine written agreements by informal means, such as by raising an alleged defence of oral modification in order to prevent summary judgment; (b) to ensure the certainty of the terms and existence of any modification, since oral discussions are difficult to prove and may also easily give rise to misunderstandings; and (c) such formality makes it easier for corporations to police internal rules which restrict their employees’ authority to agree to any variation: at [36].

8 To the court’s knowledge, there were at least three schools of thought in relation to the legal effect of a NOM clause. First, there was the approach taken by the majority in Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] 4 All ER 21 (“Rock Advertising UKSC”) (with the grounds delivered by Lord Sumption), namely, that a NOM clause will be given full effect such that any subsequent modification to the contract will be deemed to be invalid unless it complies with the formalities stipulated in the NOM clause (“the Sumption approach”). Under this approach, a NOM clause can only be removed by an agreement of the parties which complies with the formalities set out therein. Second, there was the approach developed by Lord Briggs in Rock Advertising UKSC, which was similar to the Sumption approach, save that where parties orally agree to depart from a NOM clause, such agreement would be treated as valid (“the Briggs approach”). An oral agreement to depart from a NOM clause can be express or by necessary implication, but should not be lightly inferred in a situation where parties merely agree to an oral variation without express reference to the NOM clause. A strict test should be applied before the court finds that parties had, by necessary implication, agreed to depart from the NOM clause. Third, there was the approach which the Court of Appeal had endorsed in obiter in Comfort Management Pte Ltd v OGSP Engineering Pte Ltd [2018] 1 SLR 979 (“Comfort Management”), namely, that a NOM clause merely raises a rebuttable presumption that in the absence of an agreement in writing, there would be no variation (“Comfort Management approach”): at [38].

9 The court expressed reservations regarding the Sumption approach. Lord Sumption had conflated a contracting party’s individual autonomy with the parties’ collective autonomy, which led him to erroneously conclude that once parties have agreed to a certain set of rules, they cannot together agree to change those rules. The court had thus far only circumscribed the parties’ autonomy to contract in limited situations where it is contrary to public policy, and there was no legitimate reason to prevent parties from orally agreeing to depart from a NOM clause. Lord Sumption’s analogies to entire agreement clauses and statutory provisions mandating formalities requirements were distinguished and were not persuasive. While the Sumption approach seemed to be concerned with contractual certainty, this should be resolved by evidential principles and not contractual principles: at [40] to [50].

10 The court opined that the Briggs approach accords with their view as it respects and upholds the parties’ collective autonomy to depart from NOM clauses if they decide to do so either by: (a) express agreement; or (b) necessary implication. However, there is a drawback to the Briggs approach as these situations will be very rare with the result that a NOM clause will practically never be done away with. Under the Briggs approach, a necessary implication may only be made in circumstances where performance of the modified obligations is urgent, but these circumstances would in most cases also give rise to an estoppel. The Briggs approach may thus not meaningfully add much to the requirements under the doctrine of estoppel, in practical terms: at [51] to [54].

11 Instead, the court preferred a wider test as to when it can be necessarily implied that the parties had intended to depart from a NOM clause, namely, whether at the point when parties agreed on the oral variation, they would necessarily have agreed to depart from the NOM clause had they addressed their mind to the question, regardless of whether they had actually considered the question or not: at [54].

12 The court observed that there was some similarity between the Briggs approach and its approach in Comfort Management in that both require rather compelling evidence before the court will find and give effect to an oral variation, and ultimately maintained its preference for the Comfort Management approach: at [56] to [61].

13 On the facts, the court agreed with the Judge that there was indeed an oral rescission via a telephone call between the first appellant and first respondent. First, the Completion Date had passed without the SPA being completed, and for more than 3.5 years thereafter, the appellants did not serve any notice to complete on the respondents. The appellants were unable to offer a satisfactory explanation for their complete inaction over the 3.5 years. While Mr Lim claimed to have continually attempted to persuade the respondents to complete, there was not a single shred of evidence to support this: at [62] to [64].

14 Second, the first appellant’s contemporaneous conduct in or around 31 October 2014 (the date of the alleged oral rescission) supported the oral rescission. Third, the evidence supported the respondents’ account that the first respondent had confronted the first appellant on 31 October 2014 concerning certain announcements which had made the respondents doubtful about the share transaction: at [67] to [71].

15 While the Judge erred on two points, this did not displace the other more damaging findings made against the appellants’ case: at [76] to [81].

16 The court observed for completeness that even if the oral rescission was deemed invalid by operation of the NOM clause, the appellants would have been estopped from enforcing the SPA: at [83] to [85].

 

This summary is provided to assist in the understanding of the Court’s judgment. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s judgment.

 

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