Singapore contract law is largely based on the English common law of contract. Unlike some neighbouring States, Singapore’s Parliament did not codify Singapore’s contract law following its independence in 1965. Hence, most of Singapore’s contract law is based on the common law, although some statutes apply to specific areas of contract law, such as the Misrepresentation Act (Cap 390, 1994 Rev Ed), the Frustrated Contracts Act (Cap 115, 2014 Rev Ed), and the Sale of Goods Act (Cap 393, 1999 Rev Ed).
For a contract to be formed, one party needs to have made an offer which the other accepted. Both parties must have the objectively ascertained intention to be bound and must provide consideration (something of value requested by the party making the promise and given by the party receiving the promise) for the promise. The terms of the contract must also be sufficiently certain such that the courts can interpret the terms. The Electronic Transactions Act (Cap 88, 2011 Rev Ed) clarifies that offers and acceptances may be made in electronic form. It also has specific provisions governing how the time and place of dispatch (of contractual documents) are to be determined. Even if not all the elements of a binding contract are present, the promising party may still be bound to his word by promissory estoppel, which occurs when that party makes an unequivocal representation, relied on by the other party to his detriment, and in circumstances that would make it inequitable for the promising party to resile.
Once a contract is formed, the parties need to perform it. At times there will be disputes as to what the contractual terms mean. The courts, when asked to interpret these terms, will take an objective view of what these terms mean to a reasonable person in the parties’ shoes. Evidence outside the four corners of the contract can also sometimes be adduced in court to interpret the terms, but these are subject to the conditions in the Evidence Act (Cap 97, 1997 Rev Ed) and the common law. Essentially, they must not serve to contradict the express contractual terms, and must be relevant to the dispute at hand, reasonably available to both parties, and point to a clear and obvious context in which the term should be interpreted. Apart from the terms expressly written in the contract, there may be times where parties try to imply a term which is not written into the contract. The threshold for doing so is high so as not to disturb commercial certainty. The implied term must be necessary to fill a gap in the contract and the contents of the implied term must be so obvious that if it had been put to the parties at the time they were contracting whether that term forms part of the contract, the parties would have reacted by saying “oh, of course!”
Not all contracts are performed. Where they are not, the innocent party is always entitled to damages but at times may also be entitled to terminate the entire contract at his option. Damages are always available to the innocent party and the court will award damages that put the innocent party in the position as if the breach had not occurred (ie, the expectation interest), or, if that cannot be calculated, the amount which the innocent party invested into the contract (ie, the reliance interest). However, the innocent party can only claim damages that are foreseeable and he must also mitigate his losses. As for the right to terminate, only breaches of certain types of terms give rise to this right. The term that is breached must either be a condition, meaning that the parties assigned a high importance to it, or the term must be an innominate term and its breach must substantially deprive the innocent party of the benefit he would have received under the contract. Generally speaking, only parties to the contract may invoke the rights under the contract. Third parties can only do so under the limited situations spelt out in the Contracts (Rights of Third Parties) Act (Cap 53B, 2002 Rev Ed).
Contracts may also be discharged by law through no fault of the parties (ie, if the contract is frustrated) or by one party’s volition if that party has been induced to enter the contract (eg, by misrepresentation, mistake, or undue influence). Many of these specific areas are governed by statutes, such as the Frustrated Contracts Act (Cap 115, 2014 Rev Ed) and the Misrepresentation Act (Cap 390, 1994 Rev Ed).
In Singapore, companies are principally governed by the Companies Act (Cap 50, 2006 Rev Ed) as supplemented by the common law. It must be noted that some types of companies are also governed by other statutes, such as the Limited Liability Partnership Act (Cap 163A, 2006 Rev Ed), the Banking Act (Cap 19, 2008 Rev Ed), and the Insurance Act (Cap 142, 2002 Rev Ed).
Section 17(3) of the Companies Act provides that a business organisation with more than 20 members must be incorporated as a company. When incorporating or registering a company, s 22 of the Companies Act details the requirements for the corporate constitution, including the company’s name and whether it is limited or unlimited. Once incorporated, s 19(5) provides that the company is a body corporate with all the powers that flow from such an entity, such as being able to sue and be sued in its own name, perpetual succession, and the ability to hold land. While the company is a separate legal entity from its members, the courts may at times lift the veil of incorporation – ignoring the separate personality and treating the company and its members as one for limited purposes. This is generally done by statute and under limited common law exceptions, such as where there is fraud or where the company and its members have conducted themselves as one entity.
A company is managed by its directors. Section 157A of the Companies Act gives the board of directors this power subject to any limits in the company’s constitution. Along with these powers come duties owed to the company, under both common law and s 157 of the Companies Act. A director should act in the company’s best interests and avoid conflicts of interest in carrying out his role. If a director breaches these duties, the company may be able to take action against him.
A company may sue its director (or other third parties) in its own name. Because of the separate personality it possesses, a member of the company cannot sue to enforce rights that belong to the company – this is known as the ‘proper plaintiff’ rule. Exceptions to this include derivative actions under the common law and under s 216A of the Companies Act, which allow any member to bring an action in the company’s name when certain conditions are met. These individual (or minority) members may also bring an action to vindicate their own interests against the majority members through a minority oppression claim under s 216 of the Companies Act. When minority members take out such an action, the court usually orders a buyout of their shares, or in extreme cases, a winding-up of the company, under s 254 of the Companies Act.
A company is owned by its members. Each member’s rights are determined by the amount and nature of the shares he holds. Specific provisions in the Companies Act govern the proper use of shares, including the principle that the company may only purchase its own shares under certain circumstances and may only reduce its capital when certain conditions are met.
In dealing with third parties a company may issue shares and debentures. Certain types of charges, including all floating charges, must be registered under s 131 of the Companies Act within 30 days after their creation or they will be void against the liquidator and any creditor the company.
Finally, a company in distress may be wound up either voluntarily (by its members or creditors) or compulsorily by court order. Alternatively, the company could undergo a scheme of arrangement if it is desirable that the company remains functional, but where the rights of the company, its creditors, and its shareholders need to be rearranged, especially where the company is financially unstable. The company could also undergo judicial management for rehabilitation or preservation of its assets. These provisions under the Companies Act have recently undergone significant changes with the coming into force of the Companies (Amendment) Act 2017 with effect from 23 May 2017.
In Singapore, the laws regulating banking are found in statutes (principally the Banking Act (Cap 19, 2008 Rev Ed)) and the common law.
The relationship between banker and customer is largely governed by the common law and is essentially one of contract. However, establishing a banker-customer relationship gives rise to certain duties on the part of the banker, such as a duty of care in carrying out the banker’s mandate and the duty to make reasonable attempts to contact the customer to obtain his mandate. Most commonly, this relationship is established by the customer opening an account with the bank.
Although the banker-customer relationship is largely governed by the common law, s 47 of the Banking Act provides that a banker has a duty of secrecy. Section 47 provides that customer information shall not be disclosed by a bank or its officers (including a director, secretary, employee, receiver, manager, and liquidator) unless specified exceptions in the Third Schedule apply, for example where the bank is authorised to do so or if required by court order. Contravening s 47 is an offence for which the individual involved may be convicted. Because of s 47, the common law exceptions to the duty of confidentiality (or secrecy) no longer apply in Singapore.
Banks are also subject to the Personal Data Protection Act (No. 26 of 2012) (“PDPA”), which requires banks (amongst other organisations) to only collect, use, and disclose an individual’s personal data with his consent and for a reasonable purpose that the bank has made known to the individual. The bank is also subject to other requirements under the PDPA to ensure that this overarching purpose is complied with.
The bank is a lender. When lending money, it may obtain security for a loan such as a charge over the lender’s property. Certain types of charges, including all floating charges, must be registered under s 131 of the Companies Act within 30 days after their creation. Other types of security include mortgages, pledges, and liens. Apart from lending, the bank may also issue a guarantee.
Finally, banks may carry on and offer financing based on Islamic concepts of murabaha, ijara wa-gtina, diminishing musharaka, and istisna. In 2010, the Monetary Authority of Singapore issued its comprehensive “Guidelines on the Application of Banking Regulations to Islamic Banking” to provide banks with guidance on the issue. The overall policy approach is to align the tax treatment of Islamic contracts with the tax treatment of the conventional financing contracts to which the Islamic contracts are economically equivalent.