Summary
In Charles Lim Teng Siang and another v. Hong Choon Hau and another [2021] SGCA 43, the Singapore Court of Appeal (CoA) provided valuable insight on the legal effect of a ‘no oral modification’ clause, which prohibits “variation, supplement, deletion or replacement” of an agreement or any of its parts unless made in writing and signed by both parties (a NOM Clause).
The CoA considered the two approaches set out in the seminal English authority of Rock Advertising Limited v. MWB Business Exchange Centres Limited [2018] UKSC 24 (Rock Advertising), namely that any oral modification subsequent to an agreement containing a NOM Clause is invalid, albeit that parties can orally agree to deviate from the NOM Clause.
In the present case, the CoA endorsed a broader approach, in which NOM Clauses merely create a rebuttable presumption that oral modifications are invalid. Although the CoA’s approach did not form part of the decision (i.e., it was obiter), this Singaporean approach represents a material divergence from the position in English law, which takes a stricter approach to the enforcement of NOM Clauses.
What happened between the parties?
On 17 September 2014, the appellants signed a sale and purchase agreement (SPA) to sell shares to the respondents, who were acting on behalf of another party (the Buyer). The SPA required completion by 17 October 2014 (the Completion Date).
The SPA included a NOM Clause at clause 8.1, which stated that “[no] variation, supplement, deletion or replacement of or from this Agreement or any of its terms shall be effective unless made in writing and signed by or on behalf of each Party.”
The SPA also provided that (a) time was of the essence, and (b) delayed exercise of any right, remedy, power or privilege under the SPA was not a waiver.
The sale was never completed. About four years after the Completion Date, the appellants commenced action against the respondents, claiming damages for breach of the SPA.
What did the High Court decide and why?
The respondents argued that the SPA had been orally rescinded by mutual agreement in a phone call between the first appellant (for the appellants) and the Buyer (for the respondents) shortly after the Completion Date. Alternatively, they argued that the appellants were estopped from relying on their legal rights under the SPA. The appellants denied that the SPA had been rescinded or that they were estopped.
The Judge held that the SPA had been rescinded for the following reasons:
(a) The appellants did not serve a notice to complete the sale until May 2018, and there was no documentary evidence that the first appellant (on behalf of the appellants) chased the respondents to complete until that time; and
(b) The first appellant’s account of events was inconsistent and materially contradicted his own witnesses and conduct.
The appellants appealed the Judge’s decision, raising a new argument that an oral rescission (if proven) was invalid by virtue of clause 8.1. This new point was permitted for appeal by the CoA.
What did the Singapore CoA decide and why?
The issues which arose for determination on appeal were as follows:
(a) Does clause 8.1 of the SPA apply to an oral rescission?
(b) If it applies, what is the legal effect of clause 8.1 on an oral rescission?
(c) Did the High Court Judge err in finding there was in fact an oral agreement to mutually rescind the SPA between the first appellant and the Buyer?
(d) Would the appellants have been estopped from enforcing the SPA in any event?
The CoA held that clause 8.1 did not apply to oral rescission as it prohibited only “variation, supplement, deletion or replacement”. Clause 8.1 only stipulated that such modifications would have to be made in writing, after which the SPA would remain valid and to be performed. Rescission, on the other hand, would void the SPA entirely.
Treatment of NOM Clauses
Notwithstanding its decision, the CoA made obiter comments on the legal effect of NOM Clauses, which provide useful guidance for parties to contracts containing such clauses.
The CoA summarised the current three prevailing approaches as follows:
(a) Lord Sumption’s approach in Rock Advertising gives a NOM Clause its full effect, and any modification (including to the NOM Clause) is invalid unless compliant with the formalities stipulated in the NOM Clause (the Sumption approach).
(b) Lord Briggs’ approach in Rock Advertising is similar to the Sumption approach but states that oral agreements to depart from a NOM Clause can be valid, whether made expressly or by necessary implication (the Briggs approach). However, in the absence of an express reference to the NOM Clause in the oral agreement, the inference cannot be made lightly and a strict test must be applied before the court finds that parties had, by necessary implication, agreed to depart from such NOM Clause.
(c) The CoA endorsed in obiter in Comfort Management Pte Ltd v. OGSP Engineering Pte Ltd [2018] 1 SLR 979 a third approach: a NOM Clause only raises a rebuttable presumption that, in the absence of a written agreement, there would be no variation (the Comfort Management approach). This approach derives from the English Court of Appeal decision, which was reversed by Rock Advertising.
The CoA disagreed with the Sumption approach as it appears to conflate parties’ individual and collective autonomy. While the autonomy of an individual party may be bound by contractual terms, the parties collectively retain the power to mutually agree to vary their agreement. The CoA noted that this view is supported by the Briggs approach, long-standing U.S. authority (also endorsed in Australia and Canada), and commentary on the Sumption approach.
Furthermore, the CoA saw no legitimate reason to prevent parties from orally agreeing to depart from a NOM Clause and viewed Lord Sumption’s analogies to entire agreement clauses and statutory provisions mandating formalities requirements as distinguished and unpersuasive. The CoA considered that concern for contractual certainty should be resolved by evidential and not contractual principles.
The CoA found the Briggs approach more agreeable as it respects and upholds parties’ collective autonomy to depart from NOM Clauses. However, the drawback of the Briggs approach is that express oral departure from a NOM Clause by parties would be rare in practice, and necessary implication may only be made where performance of modified obligations is urgent and in cases where estoppel would likely also be applicable. Therefore, the Briggs approach may not add much to the existing requirements under the doctrine of estoppel.
Ultimately, the CoA preferred a wider test to determine when it can be necessarily implied that parties intended to depart from a NOM Clause: when parties agreed the oral variation, would they 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?
Noting that both the Briggs approach and the Comfort Management approach require compelling evidence before an oral variation is found to be valid, the CoA ultimately preferred the Comfort Management approach that the NOM Clause offers a rebuttable presumption that there was no variation without a written agreement.
Applying the Comfort Management approach, the CoA agreed with the High Court decision and its factual reasoning that the SPA had been orally rescinded. For completeness, the CoA observed that even if the oral rescission was invalidated by clause 8.1, the appellants would have been estopped from enforcing the SPA. The oral agreement to rescind the SPA in itself contained a clear and unequivocal representation by the appellants that they would not enforce the SPA, which the respondents had relied on to their detriment.
What does this decision mean for you?
Parties choose to include a NOM Clause in their agreements for many reasons, such as to reduce the risk of written agreements being undermined by informal means and for certainty of terms.
Although the CoA’s comments on its treatment of NOM Clauses were obiter, they indicate the approach Singapore courts will likely take if asked to rule on the legal effect of a NOM Clause. As such, where parties have orally agreed to modify a NOM Clause, this may be upheld. However, parties should ensure there is compelling evidence to support the oral modification as the evidential threshold is high. Most specifically, parties should immortalise any oral agreement in writing so as to avoid any later misunderstandings.
To avoid further disagreement, should parties want their NOM Clause to exclude oral rescission, they could consider providing for this explicitly in the NOM Clause.
Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style, Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.
Client Alert 2021-284
