31 August, 2012

 

Legal News & Analysis – Asia Pacific – Singapore – Dispute Resolution

 

In the case of Sembcorp Marine Ltd v PPL Holdings Pte Ltd & Anor [2012] SGHC 118, the Singapore High Court upheld the traditional tests for implying terms into a contract, but appeared to impose a further requirement that any term sought to be implied had also to satisfy the requirement that it should be in consonance with a reasonable interpretation of the contract.
 
The facts of the case are not complex. The plaintiff had entered into a joint venture with the defendant, pursuant to which a joint venture company had been incorporated. Each of the plaintiff and the defendant held 50% of the shares in the joint venture company. The legal action was commenced by the plaintiff, alleging that the defendant had acted in such a manner as to effectively drop out of the joint venture, with its place taken by a Chinese company, which happened to be a competitor of the plaintiff.
 
Among the issues to be decided by the High Court was that of whether a term could be implied into the joint venture agreement that neither party would, without offering its shares in the joint venture company to the other, act in any manner that would cause the other party to end up as a “partner” in the joint venture company with a party that was not controlled by the parties to the joint venture.
 
The High Court noted that the longstanding tests for implying terms – the officious bystander test and the business efficacy test – are regarded in Singapore as complementary and that the officious bystander test is the practical mode to implement the business efficacy test. This was the approach taken by the Singapore Court of Appeal in the earlier cases of Forefront Medical Technology (Pte) Ltd v Modern-Pak Pte Ltd [2006] 1 SLR(R) 927 and Chua Choon Cheng v Allgreen Properties Ltd [2009] 3 SLR(R) 724. However, the plaintiff had argued that the Court should adopt a different approach to implying terms, as set out in the Privy Council decision of Attorney General of Belize & Ors v Belize Telecom & Anor [2009] 1 WLR 1988.
 
The test set out in that case was for the court to determine the question of whether a term sought to be implied would spell out in express terms what the contract, read against the relevant background, would be reasonably understood to mean. We shall refer to this as the Belize approach.
 
The Belize approach has been criticised as subsuming the implication of contract terms within a doctrine of interpretation, which are conceptually separate doctrines. The High Court agreed that these were indeed separate doctrines, but were, nevertheless, related, such that the process of implication must accord with the process of interpretation.
 
After a detailed analysis of the Belizetest and recent cases on implied terms, the High Court stated that this test was not intended to supersede or render obsolete the traditional tests, which remain available. Indeed, the Belize test was only to be applied as a “last hurdle” after the successful application of the officious bystander test and the business efficacy test. As the learned judge put it: “If a term is thought fit for implication on the satisfaction of either of the traditional tests, Belize demands that the term implied must be checked for consonance with a reasonable interpretation of the contract.”
 
Thus, the judgment in Sembcorp Marine Ltd v PPL Holdings Pte Ltd & Anor appears to imply that there is now a new step which has to be satisfied for implying terms into a contract – after the term has passed the two traditional tests, it must still comply with the Belizetest, for consonance with a reasonable interpretation of the contract.
 
In the view of this writer, this extra step seems unnecessary and tautological. If a term satisfies both the business efficacy and the officious bystander tests, it must mean that both parties had intended the term to be a part of the agreement, but it had simply been so obvious that it had occurred to neither party to incorporate the term expressly. In light of this, any term which satisfied these tests must, of 
necessity, be in consonance with the interpretation of the contract. 
 
 
For further information, please contact:
 
Swee Siang Boey, ATMD Bird & Bird
sweesiang.boey@twobirds.com

 

ATMD Bird & Bird Dispute Resolution Practice Profile in Singapore

 

 

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