Singapore Contract Law – Key Features, Benefits & Challenges

Singapore contract law is based on British common law and incorporates the ideas that most people connect with contracts, such as offer and acceptance, consideration, performance, and violation. 

Singapore has been separate for over fifty years, but it still follows British contract law. It is simple for businesses to sign contracts in Singapore, even if they are with overseas partners because Singapore is aligned with the well-known and respected common law heritage.

Based on its basis of British common law, Singapore uses a well-functioning court system, supplemented with a very strong alternative dispute resolution system, to resolve contract disputes in a reasonable, business-friendly manner. Contractual disputes are settled rapidly in Singapore in large part because of the strong mediation and arbitration services that are offered here.

GOVERNING LAW AND VENUE

If the applicant opens a business in Singapore, he will want all contracts he signs to be “governed” by Singaporean law. This means that any disagreement they have with regard to the contract will be resolved according to Singaporean law. 

The contract’s validity, each party’s rights under it, their defenses, and the legal remedies open to the person who was wronged are all determined by reference to the applicable law. Regarding the same contract, the laws of several countries may come to different conclusions about each of these questions.

Singapore lets the parties decide which law will apply to their contract. So, it is possible but not recommended to agree that some foreign law will apply to the agreement in Singapore. The applicant cannot pick the court where their contract dispute will be heard in Singapore. Legal action involving a contract governing a transaction in Singapore must occur there. 

Choosing Singaporean law for contracts related to business activities in Singapore makes sense because Singapore’s judges and mediators are the most knowledgeable about that nation’s legal system. 

Given the benefits of Singapore’s contract laws, it can even make sense for the applicant to choose Singaporean law as the governing law for your contracts outside Singapore too.

HISTORY OF SINGAPORE CONTRACT LAW

The common law of contract in England serves as a major inspiration for Singaporean contract law. 

As a result, the laws established by Singaporean courts are extremely similar to those established by English common law. In fact, it is generally assumed that the status will initially be no different from that in England where there is no special Singapore authority on the matter. 

Upon its independence in 1965, Singapore’s Parliament made no attempt to codify the country’s contract law, in contrast to its neighbors Malaysia and Brunei. As a result, a large portion of Singapore’s contract law continues to be governed by judgments of judges.

KEY FEATURES OF CONTRACT LAW IN SINGAPORE

CAPACITY TO CONTRACT

Only parties who are “competent,” or possess the competence to contract, may enter into a valid contract. A contract made in Singapore with a minor, a person intoxicated, or of unsound mind may not be enforceable. If those people were unable to comprehend what they were signing, it is assumed that they lacked the mental capacity to enter into a contract. The conditions for the enforcement of a contract with a potentially incompetent person are mentioned in (Section 6).

Nonetheless, even though it appears odd to attribute “competence” and “understanding” to a legal entity like a firm, a contract with one is always enforceable. Companies are regarded as “persons” in the legal sense who are capable of signing contracts. Check out what a corporation is and how it functions on our Company Registration Singapore page. 

OFFER, ACCEPTANCE, AND CONSIDERATION

According to Singaporean law, a contract can only be made when all three conditions are met:

1. one party “offers” a good or service,
2. the other party or parties “accepts” the offer, and
3. some sort of value is exchanged.

The offer must express or imply a promise to be bound by it in order to meet the legal criteria and not just be a solicitation, often known as an invitation to treat.

For instance, putting products on display with prices simply serves as an invitation to buy, not a “offer” in the legal sense. Before it is accepted, an offer might be withdrawn at any time. The acceptance must be unconditional and can be conveyed verbally or physically. 

The absence of a response is virtually never sufficient to constitute acceptance. Electronic offers and acceptances between parties may result in contracts under the Electronic Transactions Act. The agreement must also be supported by consideration, which means that the parties must exchange something of value, in order for it to be regarded as a contract.

If not, the transaction is regarded as a gift. The value need not be the same for both parties; for one side, it can even be nominal. Value can be either positive or negative, such as payment or refraining from constructing on a plot of land.

In business interactions, there is a legal presumption that parties want to be bound by agreements they enter into. Such presumption would only be disproved by an explicit declaration that the parties did not intend to be legally bound. On the other hand, social ties require a clear declaration of intent in order to be legally binding.

TERMS OF THE CONTRACT

The provisions of the contract outline the parties’ rights and obligations.

The duration of the agreement, the cost of an item or service, and the specifics of the good or service being given are some of the key terms.

A contract must have all necessary provisions in order to be enforceable.

In the absence of a formal contract, the parties’ statements and conduct are considered by the courts to establish whether the parties meant to be bound by them. The courts consider the date the representation was made, the value the party placed on it, and the party’s level of understanding when making that decision.

Singapore follows the parol evidence rule when a contract is written down, which provides that only the written contract, not earlier negotiations or other oral or written evidence, can be utilized to determine the contents of the agreement.

If a term is required to carry out the parties’ objectives and does not conflict with any clear terms in the contract, the court may occasionally suggest it. The Sale of Goods Act, which mandates that sales contracts contain the implied condition that the seller has the right to sell the items, is an example of a statute that may force the court to imply a term.

The court must now interpret the words after confirming them. It applies the “reasonable person” standard in doing so. Not how the persons involved would interpret it, but how a reasonable person would.

PERFORMANCE AND BREACH

According to the law, performance has occurred if both parties comply with all of the terms of the agreement. According to the law, there has been a breach of the contract if any party, or both, fail to fulfill their obligations.

At that point, the party that was harmed has the option of terminating the agreement and turning to the legal system to bring the person responsible for the consequences of the breach accountable.

An actual breach wasn’t necessary. The legal notion of anticipatory repudiatory breach allows the other party to terminate the agreement before performance is necessary if it is obvious that one of the parties has no intention of carrying out their end of the bargain.

DEFENCES TO BREACH

Liability is not usually the result of a breach. A contract can be terminated by the parties due to their consent, dissatisfaction, error, misrepresentation, duress, undue influence, unconscionability, or illegality.

Agreement

The following are some ways the parties may decide to release one another from the contract’s obligations:

• A termination clause in the first contract
• A “novation” is a recently reached understanding that releases both parties from liability.
• A clause for force majeure that indicates that, in the event of a specific event, neither party shall be held responsible for a breach.

Frustration

The legal concept of frustration also permits the parties to be released from a contract without being held responsible. If anything that could not reasonably have been anticipated prevents one or more parties from performing, frustration releases the parties from liability.

Mistakes 

When one or both of the parties entered into the agreement with incorrect expectations regarding a crucial term, the agreement is void for error. A mistake would be made, for instance, if a consignment shop sold a coat to a customer that the store was unaware had been lost or destroyed.

If the term is less important, the court will try to strike the right balance between defending the party who was misled and meeting the other party’s contract expectations.

Yet, since the law presumes that the applicants have read the contract before signing it, failing to do so will prevent them from later claiming error.

Misrepresentation

The contract is void when one party uses misrepresentation to trick another party into signing it (Section 10). The false statement may be made explicitly or inferred. It might also be removed. A “puff,” or vague or inflated sales promise, is not, however, a deception. A major misrepresentation is one on which a reasonable person would have relied in making a decision to engage into a contract.

If the deception was fraudulent or negligent as opposed to innocent, the harmed party may also seek further damages in addition to the right to have the contract  annulled.

Undue Influence, Duress, and Unconscionability

A contract will be void if one party is forced into signing it by the other, or if that other party threatens or otherwise negatively affects the first party’s property or financial interests. A more subtle kind of coercion and undue influence occurs when one party dominates the other and threatens that person’s independence. Finally, if a contract is fundamentally unfair due to the parties’ uneven negotiating strength, it may be voidable as unconscionable.

Illegality or Against Public Policy

Any agreement that violates the law or the public interest will be invalid.

Examples are:

• Deceive public officials
• Undermine justice
• Create a threat to public safety
• Commit a crime, fraud or a tort
• Promote sexual immorality

Unless it is reasonable, a contract that restricts trade will be void as unlawful. The term, or portion of the term, will be severed from the rest of the contract and struck out, leaving the rest of the agreement intact if the illegality only affects a portion of the agreement, such as a clause in an employment contract prohibiting employees from ever competing against the employer.

LEGAL REMEDIES FOR A BREACH

When one party violates the terms of the agreement, the court may order that party to “compensate” for the violation by using one or more of the following: contract damages, liquidated damages, specific performance, or an injunction. The party who was wronged should bring their claim as quickly as possible.

Specific performance and injunction requests, will only be granted if presented as soon as the party learns of the breach. In Singapore, a contract dispute has a six-year statute of limitations on damages.

Contract Damages

The court has the authority to order the party that violated the contract to compensate the party who was wronged for any monetary damage sustained as a result of the violation. These are referred to as contract damages. The amount that the aggrieved party would have received if there had been no breach is taken into account while determining the contract damages.

It can include both the agreed-upon sum and any additional costs incurred as a result of the breach as consequential damages. Instead, the court may award damages in the amount that the offended party spent depending on the contract. For mental distress, the court makes no allowances. Additionally, the court will not help compensate for problems brought on by the wronged party’s failure to minimise his or her damages.

Liquidated Damages

Liquidated damages are those that are specified in a contract by the parties as the amount of losses they would incur in the event of a breach. The court will grant those damages as long as they indicate an honest attempt to estimate the loss a party would endure and are not an attempt to punish the party who breached the agreement.

Specific Performance

The court may order specific performance, which calls for the party in breach to carry out what is required by the contract, in the rare instance when damages will not appropriately compensate the harmed party.

Injunction

The opposite of specified performance is an injunction. The court forbids a party from acting through an injunction. This remedy is rarely used, just like with specific performance.

Dispute Resolution

In the case that a contract is broken, the Singapore government strongly supports alternative dispute resolution as a strategy to shorten the length of lawsuits and their financial impact on businesses. 

It established the  State Courts Centre for Dispute Resolution, 

Singapore Mediation Centre,Singapore International Arbitration Centre,Singapore Chamber of Maritime Arbitration, and the Consumers’ Association of Singapore, all of which offer mediation and arbitration services to potential litigants.

It takes 150 days on average in Singapore to enforce a contract, as opposed to the global average of 510 days, because of Singapore’s support of alternative dispute resolution and its effective judicial system. Just 25% of the claim is spent on the cost of enforcement. With those figures, Singapore is among the finest nations in the world for contract enforcement.

If the applicant needs to file a lawsuit in court, Singapore offers a productive system and infrastructure for doing so. A contract dispute can be heard anywhere from Singapore’s Small Claims Courts all the way up to the Supreme Court, depending on its worth.

• Small Claims Tribunal: disputes up to S$10,000
• Magistrates’ Courts: disputes up to S$60,000
• District Courts: disputes up to S$250,000
• Supreme Court: disputes over S$250,000

BENEFITS OF SINGAPORE CONTRACT LAW

Clarity

Singapore contract law is relatively clear and predictable, as it is based on well-established legal principles and precedents. This helps parties to contracts understand their rights and obligations under the contract, and can help prevent disputes.

Freedom of Contract

Singapore contract law allows parties to enter into contracts freely, subject to certain legal requirements. This means that parties can negotiate terms that suit their individual needs and interests.

Enforceability

Singapore contract law provides for strong enforcement mechanisms, such as court orders for specific performance or damages, which can help parties to contracts obtain redress in the event of a breach.

International Recognition

Singapore contract law is widely recognized internationally as being reliable and effective. This can be particularly important for parties to cross-border contracts, who need assurance that their contract will be enforceable in other jurisdictions.

CHALLENGES OF SINGAPORE CONTRACT LAW

Complexity

Singapore contract law can be complex and technical, particularly for parties who are not familiar with legal terminology and concepts. This can make it difficult for parties to negotiate and understand the terms of a contract.

Cost

Enforcing a contract through the Singapore legal system can be expensive, particularly if parties need to engage lawyers or seek court orders. This can be a barrier for parties with limited resources.

Limited Flexibility

While Singapore contract law allows parties to negotiate terms freely, there are certain legal requirements that must be met, such as the requirement that contracts must be in writing for certain types of transactions. This can limit the flexibility of parties to contracts.

Limited Remedies

While Singapore contract law provides for strong enforcement mechanisms, there may be limitations on the types of remedies that are available to parties. For example, specific performance may not be available in all cases, and the amount of damages that can be awarded may be limited. 

Reach out to us at Relin Consultants – Leading Global Business Set Up Partners for more information.