Professional Documents
Culture Documents
George Et Al Chap 8
George Et Al Chap 8
8.3–8.9 Consideration
8.80–8.82 Conclusion
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Chapter 8: Consideration and Intention to Create Legal Relations
INTRODUCTION
8.1 In Chapter 7, we considered the circumstances in which the law would
recognise that parties have come to an agreement. However, the law does not
enforce all agreements. Generally, ideas of fairness, the concern to give effect
to the intention of parties to the agreement (thus facilitating “free market”
economy) and general public policy concerns are relevant in deciding which
agreements to enforce.
8.2 Hence, two other elements (in addition to the presenceI of an agreement) are
v
required for the formation of a contract: consideration n to create
and intention
legal relations. In this chapter, we shall consider the following questions for
each of these legal requirements:
° What are these legal requirements and the rationale or justification for
them?
° When, if at all, are these requirements not necessary for the enforcement
of an agreement (“the exceptions”) and what are the justifications for
allowing such exceptions?
CONSIDERATION
8.3 The general rule is that a promise is only enforceable if it is supported by
consideration, that is, where the promise is given in exchange for something
of value. Such reciprocity is said to be the reason and justification for
the enforcement of the promise. However, the reader should note that
exceptions to the general rule exist and will be discussed in detail later (see
paras 8.44–8.68).
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8.5 Take the example where A agrees to purchase B’s car at the price of $50,000
(see Figure 8.1). As is typical of most agreements, there are two promises.
There is A’s promise to purchase B’s car at $50,000 and B’s promise to transfer
ownership and possession of his car to A. For each promise to be enforceable,
the recipient of the promise must provide consideration in exchange. The
law refers to the maker of a promise as the “promisor” and the recipient
of a promise as the “promisee”. To determine if each promise is supported
v
by consideration and therefore enforceable, the benefit–detriment analysis
is used as follows:
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8.6 Consideration may also be defined as the price for purchasing a promise.
In the example above, A can be said to have bought B’s promise of sale
and delivery of the latter’s car at the price or consideration of $50,000.
Conversely, B can be said to have bought A’s promise of payment at a price
or consideration equivalent to the car.
8.8 The difficulty is illustrated by the differing views between the majority and
minority judges in Chappell & Co Ltd v Nestlé Co Ltd (1960). The defendant
company, Nestlé, offered to sell records of the tune “Rockin’ Shoes” for a
nominal cash price and three wrappers of their chocolate bars. The court had
to decide whether the chocolate wrappers formed part of the consideration
for the purchase of the records. The majority of the House of Lords thought
so as Nestlé had (indirectly) benefited from the receipt of the chocolate
wrappers since its chocolate sales might have increased in connection with
the promotion. Alternatively, the purchaser had suffered a detriment having
been put to the trouble of purchasing the chocolate bars in order to purchase
the record. The minority judges, however, disagreed as they felt that the
requirement for the wrappers was merely a condition which a purchaser had
to fulfil before he could purchase the records.
8.9 The definition of consideration is also significant in other ways (see Figure
8.2). First, consideration is defined as something given in exchange for a
promise. The idea of exchange or reciprocity is said to indicate that the law
will only enforce bargains as opposed to gifts. Thus gratuitous promises,
that is, promises to confer some thing or service for nothing in return, are
generally not enforceable (see exception in para 8.44). It also underlies other
rules concerning consideration:
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note
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8.15 Are all acts or forbearance occurring before the promise invalid consideration
for the promise? This may not be so. In Pao On v Lau Yiu Long (1980), the
plaintiffs had agreed, at the defendants’ request, not to sell the shares of a
company for a period of one year. Subsequently, the defendants agreed to
indemnify the plaintiffs for any loss which they might suffer as a result of
their earlier promise not to sell the shares. Eventually, the plaintiffs did suffer
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losses and sued the defendants on the indemnity. In defence, the defendants
argued that their promise to indemnify the plaintiffs was not enforceable as
it was not supported by consideration; the plaintiff ’s promise not to sell the
shares was given before the indemnity and was therefore past consideration.
8.16 The Privy Council rejected the defendants’ argument and held that the
indemnity was enforceable. Even though the plaintiffs’ promise to hold
the shares was given before the defendants’ promise to indemnify, it was
nonetheless good consideration as it satisfied all the conditions below:
° there was an understanding between the parties, at the time the request
was made, that the act would be compensated by payment or some other
benefit conferred; and
8.17 The first and second conditions are easy enough to understand. The third
condition is best explained as a safeguard against enforcing a promise that
would not have been enforceable for any reason under contract law (eg, due
to the lack of an intention to create legal relations or the presence of vitiating
factors, etc) even if the problem of past consideration is overcome by virtue
of the first and second conditions being satisfied.
Box 8.1
Reflecting
Pao On’s decision — a true exception?
on the law
If payment was contemplated by both parties at the time the act was requested,
it would be more accurate to say that the promisee’s act was executed for a
payment to be fixed in the future (ie, the promisee’s act is executed and not past
consideration for the promised payment). Indeed, a strictly chronological view of the
events should not be taken in deciding if an act is in fact past consideration. Rather,
the more important question is whether the preceding act and the subsequent
promise are in substance part and parcel of one and the same transaction.
godeeperinunderstandingespeciallyin
class
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8.19 While consideration must move from the promisee, it does not have to move
to the promisor. Hence, if A promises to pay B $50 if B washes C’s car, the
consideration provided by B is valid even though it does not confer a direct
benefit on A, the promisor (see Figure 8.3).
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of their own bargains and the court’s role is to ascertain whether a bargain
has been made, not whether it is a good bargain. This is consistent with
the free market philosophy of minimal state interference into bargains that
are freely and voluntarily made by its citizens. Hence, if A agrees to sell
his car to B for $20,000 although it has a market value of $50,000, B’s
payment of $20,000 is sufficient consideration even if it may not be a fair
price for A’s car. A more extreme example can be found in Chappell &
Co Ltd v Nestlé Co Ltd (1960) (see para 8.8), where it was held that even
used chocolate wrappers which were discarded on receipt could constitute
sufficient consideration for the sale of records. Thus a nominal consideration
can be sufficient consideration as long as parties freely consented to it.
8.21 Sometimes, a grossly inadequate consideration may indicate that the promisor
did not freely and willingly consent to a bargain but was in fact coerced or
improperly influenced into such agreement. In such situations, the contract
may be set aside on the ground of duress or undue influence. The relevant
legal principles will be considered in Chapter 14.
8.22 How then do we identify “value in the eyes of the law”? Clearly, where the
consideration is given in monetary terms or is readily measured in economic
terms, such consideration is sufficient in the eyes of the law. This is so in
most commercial contracts, where consideration is furnished in the form of
monetary payment or the provision of goods or services (with ascertainable
market prices). Where such price tags cannot be readily ascertained, identi-
fying such “value” becomes a much more difficult task. Table 8.1 provides a
list of what may be considered sufficient or insufficient consideration and the
underlying rationale.
8.24 Would the promisee’s promise of an act which he is already under a moral
obligation to perform be sufficient consideration in support of a promisor’s
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promise? In White v Bluett (1853), a father who was wearied by his son’s
frequent complaints that he had distributed his assets unfairly among
his children, agreed to release his son from his debt obligation under a
promissory note if he would cease complaining. It was held that the father
was not bound by his promise — it was his right to distribute the property as
he wished and the son had no right to complain. In ceasing his complaints,
the son was only doing what he was morally obliged to do and that was
no consideration for his father’s promise. As a matter of policy, the law
would not allow moral obligations or good behaviour to be used to extort
a favourable promise from the other party.
8.26 Where a person promises not to enforce an invalid claim and it is shown
that he knew such claim to be invalid at the time of his promise, such
forbearance is no consideration (see Wade v Simeon (1846)). The rationale
is that the surrender of a groundless claim is neither a benefit to the other
party nor a detriment to the one purporting to give up the claim. However,
it is not necessary for the person surrendering his claim to show that he
has given up a valid claim. It is sufficient if he could establish, first, that
he has reasonable grounds for his claim; and secondly, that he honestly
believes that he has a fair chance of success; and finally, that he has not
concealed from the other party any fact which he knows may affect the
validity of the claim (see Callisher v Bischoffsheim (1870)). This means that
the consideration furnished lies not in giving up a valid claim, but rather, in
giving up a right to claim. This makes practical sense as most compromises
and settlements relate to doubtful claims, the validity of which could not be
ascertained without a complete trial.
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8.28 Where the act or conduct in question exceeds the requirements of the legal
duty, it may constitute good consideration. In Glasbrook Bros v Glamorgan
County Council (1925), the appellant mining company agreed to pay the
respondent police authority to maintain a stationary troop at its mine to
protect workers returning to work during a strike. Later, the appellant refused
to make the promised payment and argued that the police authority had
provided no consideration for the promise as they were merely discharging
their legal duty to protect life and property. The House of Lords rejected
this argument; holding that the police were only legally obliged to provide a
mobile force in the circumstances, and by providing a stationary force, had
gone beyond their legal duty.
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8.31 It has been suggested that the rationale behind Stilk v Myrick’s decision is to
discourage seamen from holding their employer to ransom by threatening to
breach their contracts and aggravating the perils of seafaring. A party should
not be encouraged to extort further concessions from the other party after
having already concluded a contract.
8.32 However, any performance which is over and above the promisee’s existing
contractual duty is sufficient consideration for a promise given in exchange.
In Hartley v Ponsonby (1857), the remaining crewmen were also promised
additional wages to continue on a voyage which had become too hazardous
after the desertion of 17 (out of 36) sailors. The promise was held to be
binding because in such circumstances, the remaining crew members were
no longer bound to complete the voyage and in agreeing to do so, they
have done more than what was required under their original contractual
undertakings.
8.33 Stilk v Myrick should be contrasted with the controversial case of Williams v
Roffey Bros & Nicholls (Contractors) Ltd (1991). The defendants (Roffey Bros)
were building contractors who were awarded a contract to refurbish 27 flats.
For that purpose, they engaged the plaintiff (Williams) as sub-contractor to
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carry out the carpentry work for £20,000. Shortly after commencing work,
the plaintiff got into financial difficulty; the agreed price of £20,000 was too
low to enable him to carry out the work satisfactorily and this was aggravated
by the slow progress of the work due to his own inadequate supervision. The
defendants, being aware of the plaintiff ’s problems, were concerned that if
the plaintiff did not complete the carpentry work on time, the defendants
would incur a delay penalty under the main contract. After some negotiation,
the defendants agreed to pay the plaintiff an additional sum of £10,300 at
the rate of £575 for each flat completed. Thereafter, the plaintiff resumed
work and substantially completed the work on eight more units but received
only one further payment of £1,500 from the defendants. The plaintiff then
ceased works and brought an action to enforce the defendants’ promise of
additional payment.
8.34 Relying on Stilk v Myrick, the defendants resisted the plaintiff ’s claim on
the ground that no consideration was furnished for the defendants’ promise
of additional payments — the plaintiff was already bound to complete the
carpentry work under the original sub-contract. However, the English Court
of Appeal disagreed. Clearly, the defendants had agreed to the additional
payment because they considered it advantageous to do so. They stood to
enjoy practical or factual benefits from the plaintiff ’s promise to complete
the work on time such as avoiding the need to engage another sub-
contractor and, more importantly, the avoidance of liability for delay to the
owners under the main contract. Such practical or factual benefits were held
to be sufficient consideration for the defendants’ promise. The result of this
decision is that the promise to perform an existing contractual duty owed to
the promisor may constitute sufficient consideration if the promisor derived
“practical benefits” from the performance. As summarised by Glidewell LJ
(at pp 15–16):
(1) if A has entered into a contract with B to do work for, or to supply
goods or services to, B in return for payment by B; and
(2) at some stage before A has completely performed his obligations under
the contract, B has reason to doubt whether A will, or will be able to,
complete his side of the bargain; and
(3) B thereupon promises A an additional payment in return for A’s promise
to perform his contractual obligations on time; and
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8.35 Clearly, Williams v Roffey marks a significant departure from the traditional
position represented by Stilk v Myrick. The defendant in Stilk v Myrick had
also benefited from the crew’s promise to sail the vessel back to the destined
port, yet such benefit was not held to be sufficient consideration. These
two decisions are (despite denials of the judges in Williams v Roffey to the
contrary) clearly inconsistent with each other. At present, the inconsistency
remains unresolved.
8.36 Williams v Roffey has been endorsed in two local decisions with, unfor-
tunately, dissimilar suggestions as to its ambit. In Sea-Land Service Inc v
Cheong Fook Chee Vincent (1994), the defendant employer issued a 30-day
termination notice to the plaintiff employee stating that his severance benefit
included an enhanced severance payment of $14,340 (which was not an
existing contractual entitlement). Subsequently, after serving out the notice
period, the defendants refused to pay the enhanced severance payment but
offered an ex gratia allowance of $4,780 instead. The plaintiff sued to enforce
the enhanced severance payment, arguing that the defendants had in fact
benefited from his services during the last month of his employment which
constituted consideration for the promised payment.
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8.38 In Sharon Global Solutions Pte Ltd v LG International (Singapore) Pte Ltd
(2001) (see Chapter 14, paras 14.21–14.22) however, the concept appears
to be interpreted more broadly. In this case, the defendant agreed to make
additional payments to the plaintiff in exchange for the latter’s promise to
deliver goods, which it was already bound to do under its existing contract
with the defendant. The Singapore High Court applied Williams v Roffey to
enforce the defendant’s promise. It found that the defendant had benefited
from the timely delivery of the goods and avoided “negative commercial
consequences” such as the damage to its reputation arising from its failure
to meet its customers’ orders. However, no attempt was made to reconcile
Williams v Roffey’s approach with that in Stilk v Myrick nor was the previous
Court of Appeal decision of Sea Land Services referred to. The law in
Singapore thus remains equally unsettled.
8.39 The Sea Land Services decision has been subsequently referred to by the
Singapore High Court in Teo Seng Kee Bob v Arianecorp Ltd (2008) and the
principle in Williams v Roffey applied; again without any discussion as to its
scope of application. Despite remaining ambiguities, the Williams v Roffey
exception is part of Singapore law. Indeed, the Singapore Court of Appeal in
Gay Choon Ing v Loh Sze Ti Terence Peter and another appeal (2009) affirmed
as much (at [118]), in observing that a diluted doctrine of consideration
represents the current state of Singapore law. The traditional role played
by the doctrine of consideration in guarding against extortionate behaviour
is diluted if practical or factual, as opposed to legal, benefit is accepted as
sufficient consideration in return for a promise for more (see “Implications
of Williams v Roffey” in Box 8.2).
Box 8.2
Reflecting
Implications of Williams v Roffey
on the law
note
Theoretically, the captain in Stilk v Myrick could sue the sailors for breach if they
decided to discontinue the voyage, but the practical value of such action is minimal
compared to the loss, expense and inconvenience which could result from a delayed
or abandoned voyage. Thus the sailors’ promise to sail the ship to the destined
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port was undoubtedly a factual benefit. But the court appears to have construed
consideration as a legal rather than a factual concept.
By accepting “practical benefits” as sufficient consideration, the court in Williams
v Roffey has shifted the focus of enquiry from “Has the promisee provided something
that has value in the eyes of the law?” to “Did the promisor in fact benefit from
the promisee’s promise?” This is a broader and more flexible understanding of the
concept of consideration which arguably accords with commercial reality — parties
do often agree to pay more for the same goods or services (or render more services
for the same price) where it is beneficial to do so.
Yet, if the slightest benefit could constitute consideration, almost all modifications
of (especially commercial) contracts will be upheld as the promisor would almost
always benefit more from the promisee’s continued performance than a breach of his
contractual duty. In practice, this will mean that the requirement for consideration
will cease to have a meaningful role in defining the kinds of agreements which
are enforceable at law.
The inconsistency between these two cases is also reflective of the tension between
two legitimate concerns when deciding whether a contract modification is valid and
enforceable. On the one hand, there is concern that such modification might have
resulted from one party’s exploitation of the other’s weaker bargaining position.
In Stilk v Myrick, the court dealt with such risks by insisting on the presence
of consideration, the assumption being that where fresh consideration has been
furnished, the variation is less likely the result of duress or coercion. However, a
counter argument is that a freely agreed modification should be upheld even in the
absence of consideration. If one party encounters problems in the performance of
his contractual obligations, should he not seek a solution by negotiating with the
other party for a modification of the contract terms? Such self-help methods are
likely to be more time and cost effective than formal dispute resolution processes
such as litigation.
Indeed, some commentators have argued that the concept of consideration
is no longer necessary to curb such risks, as this function is more aptly performed
by the doctrine of economic duress (see Chapter 14, Box 14.1). See R Halson,
“Sailors, Sub-Contractors and Consideration” (1990) 106 Law Quarterly Review 183;
A Phang, “Whither Economic Duress? Reflections on Two Recent Cases” (1990)
53 Modern Law Review 107; and A Phang, “Consideration at the Crossroads”
(1991) 107 Law Quarterly Review 21. They argue that instead of depending on the
presence or absence of consideration, such modification is valid as long as it can
be shown that both parties intended to be bound by the modification and that no
improper pressure has been applied on the promisor in the bargaining process.
This reasoning is persuasive in that, if accepted, it will bring the law closer to
commercial reality.
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Table 8.1 rr
Sufficiency of Consideration Proferred and Rationale
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8.41 The general rule laid down in Pinnel’s case (1602) is that the payment of a
lesser sum is not a complete satisfaction of the debt. The rationale is that a
promisor is not bound by his promise to forego the unpaid portion of the
debt as the promisee has not furnished any consideration for the promise
— in making part payment, the promisee has done no more, and in fact, less
than what he is contractually bound to do. Thus, such contract modifications
are not enforceable in the absence of consideration, and in the example
above, B may insist on the full repayment of A’s debt despite his promise to
the contrary. The rule in Pinnel’s case has been affirmed and applied by the
House of Lords in Foakes v Beer (1884).
8.42 The rule in Pinnel’s case does not apply where the debtor has provided
something different to the creditor, at the creditor’s request. Thus if A owed
B $1,000 and B agreed to treat the debt as discharged in full if A washes
B’s car, or make partial payment of $500 and washes B’s car, the rule in
Pinnel’s case would not apply since A would have furnished consideration
for B’s promise to forgive the debt or forgo the balance. Alternatively, partial
repayment of a debt at a different place or on an earlier date would suffice
as fresh consideration for the creditor’s promise.
8.43 The rule in Pinnel’s case has been criticised on the ground that it runs counter
to the ordinary expectations of the business community. As Lord Blackburn
observed in Foakes v Beer (at p 622):
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Promissory Estoppel
(1) Meaning and origin
8.45 An important exception to the rule in Pinnel’s case, the equitable doctrine
of promissory estoppel prevents a person from going back on his promise
even though the promise is not supported by consideration. The origin of
this doctrine is often traced to Denning J’s (as he then was) obiter remarks
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understanding
key
to Create Legal Relations
in Central London Property Trust Ltd v High Trees House Ltd (1947). In
that case, a 99-year lease was granted by the plaintiffs to the defendants
in 1937 for a block of flats at a rent of £2,500 per year. In January 1940,
the plaintiffs agreed to halve the rent as the defendants were encountering
difficulty securing sub-tenants for the flats owing to the war conditions then
prevailing. The defendants thereafter paid the reduced rent. However, the
flats were again fully let by early 1945 and the plaintiffs sought to restore
the rent to £2,500 from mid-1945. Denning J held that the plaintiffs were
entitled to do so as the reduced rent was intended to apply only while the
adverse conditions persisted. More importantly, Denning J observed that if
the plaintiffs had claimed for the full rent for the period prior to 1945, they
would have been estopped from doing so as they could not go back on a
promise that was intended to be binding and which was in fact relied upon
by the defendants as it would have been inequitable for them do so under
the circumstances.
° a clear and unequivocal promise by the promisor not to insist upon his
original contractual rights;
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8.48 Silence or mere inaction would not generally constitute a clear promise as
it lacks certainty. Thus, a mere failure to enforce a contractual obligation
does not amount to a promise to abandon such a right of enforcement.
However, a promise does not have to be express but can be implied by words
or conduct. In Hughes v Metropolitan Railway Company (1877), a landlord
gave his tenant six months’ notice to repair the premises but thereafter, the
parties commenced negotiations for the sale of the lease to the landlord. The
tenant had indicated that he would not effect the repairs whilst negotiations
continued. And in fact, in the course of negotiations, the landlord raised the
state of disrepair of the premises as a reason for objecting to the tenant’s
asking price for the lease. Soon after, the negotiations broke down and the
landlord sought to forfeit the lease as the tenant had not carried out the
repairs on the expiry of the original six months’ notice. It was held that
he could not do so as it could reasonably be inferred from his conduct in
entering into negotiations with the tenant that the notice period would not
run while the negotiations continued and would only continue to run after
the negotiations ended.
(b) Reliance
8.49 The second requirement is that the promisee must have acted in reliance on
the promise. Generally, such reliance is evidenced by the promisee’s change
of position on the faith of the promise, that is, by doing or omitting to do
something which he would otherwise not have done or omitted to do.
8.50 Is it sufficient for the promisee to merely alter his course of action in
reliance on the promise made, or must he also have suffered some detriment
or disadvantage as a result? Some cases suggest that detrimental reliance is
necessary. The rationale is that only where the promisee has suffered such
detriment would it be inequitable for the promisor to go back on his word
(see paras 8.61–62).
8.51 The English position does not require detrimental reliance. In W J Alan &
Co Ltd v El Nasr Export and Import Co (1972), Lord Denning rejected the
suggestion that a promisee must adduce evidence of detriment in order to
invoke promissory estoppel; all he needed to demonstrate was that he had,
in reliance on the promise, acted differently from what he otherwise would
have done. Similar observations were made in Société Italo-Belge pour le
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8.52 The English position was endorsed by the Singapore High Court in Abdul Jalil
bin Ahmad bin Talib v A Formation Construction Pte Ltd (2006). In that case,
Judith Prakash J commented (at [44]) that “the better view is that detriment
of the kind required for the purpose of estoppel by representation is not an
essential requirement and all that is necessary is that the promisee should
have acted in reliance on the promise in such a way as to make it inequitable
to allow the promisor to act inconsistently with it”. Under this approach, the
question whether the promisee has suffered any detriment would only be
a factor to be taken into account when considering the last element of the
doctrine, that is, whether it is in fact inequitable for the promisor to retract
his promise in all the circumstances (see para 8.61). When the case went up
on appeal, this point was not challenged and the Court of Appeal (at [48])
chose not to rule on the correctness of Judith Prakash J’s approach without
the benefit of arguments (see Abdul Jalil bin Ahmad bin Talib and others v
A Formation Construction Pte Ltd (2007)).
8.53 The issue of detrimental reliance was finally clarified in Lam Chi Kin
David v Deutsche Bank AG (2010) by the Singapore High Court whose
position appears to have been implicitly endorsed by the Court of Appeal
(see Lam Chi Kin David v Deutsche Bank AG (2011)). Of further interest
is the novel approach introduced by the Court of Appeal in Lam Chi Kin
to establish promissory estoppel in the absence of “detrimental reliance”.
This will be explained in para 8.59 but first, the issue of detrimental reliance
is elucidated.
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8.54 In Lam Chi Kin, the Singapore High Court, upon a short survey of the
law, noted (at [55]–[56]) that conflicting views on the requirement of
detriment arose because some courts used the word “detriment” in a narrow
sense while others used it in a broad sense. The narrow sense was used
in situations where the promisee was put to some trouble in acting (or
relying) upon the promisor’s promise and thus already suffered a detriment
prior to any indication that the promisor wished to resile from his promise.
For example, the promisee had to incur expenditure of money (see, eg,
Yokogawa Engineering Asia Pte Ltd v Transtel Engineering Pte Ltd (2009))
or time, or was placed in a position of disadvantage such as incurring
legal obligations (see, eg, Fenner v Blake (1900)). The broad sense was
used in situations where the promisee did not suffer any immediate trouble
or disadvantage in acting (or relying) on the promisor’s promise; instead,
the promisee might have enjoyed a benefit from doing so. “Detriment”
or disadvantage to the promisee would only arise if the promisor was
permitted to go back on his promise (see, eg, Hughes v Metropolitan Railway
Company (1877) and WJ Alan Co Ltd v El Nasr Export and Import Co
(1972)).
8.55 The facts of Hughes v Metropolitan Railway Company (see para 8.48) may be
used to illustrate the difference. Relying on the landlord’s implied promise not
to insist on repairs to the leased premises during the period of negotiations
for the sale of the lease, the tenant did not effect the repairs within the
notice period. Was there detrimental reliance? There was no “detriment”
in the narrow sense of the word — the promisee-tenant did not suffer any
detriment in relying on the promise. Instead, the tenant enjoyed the benefit
of not being put to the trouble and expense of effecting repairs, which might
be rendered unnecessary (and wasted) had the negotiations resulted in a
successful sale of the lease. Nevertheless, “detriment” in the broad sense
existed — the tenant’s reliance on the implied promise to suspend the notice
period for repairs had resulted in a change of the tenant’s position; the
tenant-promisee would suffer detriment, that is, the prospect of eviction for
failing to effect repairs within the original notice period, if the landlord was
permitted to go back on his word.
8.56 Steven Chong JC (as he then was) rejected a technical approach of dwelling on
the narrow or broad sense of detriment in establishing promissory estoppel.
Instead, the learned judge distilled (at [57]) an overarching principle that ran
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through the decided cases in which the doctrine of promissory estoppel had
been applied:
Applying the principle to the facts of Lam Chi Kin, the learned judge
concluded that it was not inequitable to allow the promisor to go back on
the promise — no detriment was suffered by the promisee in reliance on
the promise to justify preventing the promisor from insisting on their strict
legal rights.
8.57 On appeal, while the Court of Appeal disagreed with the High Court’s
conclusion, they appear to have implicitly approved of the identified principle
(see, however, A Phang (general ed), The Law of Contract in Singapore (2012)
at para 04–082 where doubt is expressed on whether the Court of Appeal
has embraced the “overarching principle”). What is clear is that the Court of
Appeal’s focus of inquiry into the existence of detriment was on establishing
the last element, that is, that it will be inequitable to allow the promisor to
go back on his promise (see [38]). Detriment suffered by the promisee is
therefore relevant towards justifying the inequity of allowing the promisor
to resile from his promise.
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of Appeal concluded that Lam relied on the bank’s promise and thereby
suffered sufficient detriment to make it inequitable to permit the bank to
resile from their promise.
Applied to the facts, the court found that the bank’s promise of a grace period
enabled them to attract and induce Lam to use their wealth management
services. Since the bank had benefitted considerably as a result of Lam’s
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reliance on their promise, the court concluded that it was inequitable for the
bank to resile from their promise.
8.60 Various observations on the “novel approach” are pertinent. First, the status
of the “broader principle” is unclear — the Court had already decided
the case on the “detriment” analysis and the novel approach would likely
be obiter. However, the language used by the Court (in [40] reproduced
above and the summary of findings in [48]) seems to suggest that it could
be an alternative ratio decidendi. This remains to be clarified by the Court
of Appeal. Second, the focus of the broader principle is on the attainment
of an advantage (or benefit) by the promisor as a result of the promisee’s
reliance on the promise — and whether this circumstance makes it
inequitable for the promisor to resile from his promise. This is in stark
contrast to the traditional focus on whether the promisee had suffered a
detriment as a result of his reliance on the promise. Traditionally, promissory
estoppel is used to protect the promisee from disadvantage in relying on
the promisor’s promise and not to prevent the promisor’s advantage as a
result of such reliance. Third, the “broader approach” raises a number of
interesting questions: What sort of “advantage” will trigger the operation
of promissory estoppel? Will it result in greater availability of the doctrine
constrained only by the need to link the promisor’s enjoyment of advantage
to the resulting inequity if the promisor is to go back on his promise?
It may be fair to say that a promisor would enjoy an advantage or benefit
in not insisting on his original contractual rights in most, if not all,
voluntary contract modification scenarios. Indeed, academics have
commented, inter alia, that the Court of Appeal’s novel approach is likely
to further dilute the role played by the doctrine of consideration (see, eg,
Yeo Tiong Min, “The Future of Promissory Estoppel in Singapore Law”
Fifth Yong Pung How Professorship of Law Lecture, Singapore Management
University, 16 May 2012).
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promisor to recede on his word. Notably, in The Post Chaser (see para 8.51)
although the court held that detriment was not necessary, it nonetheless
held that it was not inequitable for the promisor to recede on his promise
because the lapse of two days between the time of the promisee’s reliance
and the time at which the promisor retracted his promise was too short
to have caused any prejudice to the promisee. Thus, even if one accepts as
correct the English position that detriment is unnecessary, detriment remains
an important factor in the general assessment of whether it is just and
equitable to permit the promisor to go back on his word, a point implicitly
acknowledged by the Singapore High Court in Lam Chi Kin. Additionally,
the Court of Appeal in Lam Chi Kin signalled that it is pertinent, in the
absence of detriment, to examine if the promisor has obtained an advantage
or benefit as a result of the promisee’s reliance to decide if such inequity is
made out.
8.62 Ultimately, the issue of inequity must be determined by taking into account
all the relevant circumstances. Any factor that could tip the balance one way
or the other must be considered. D&C Builders v Rees (1966) is a useful
illustration. The defendant owed the plaintiffs £482 but offered, through
his wife, to pay £300 in full settlement of the account, stating in effect that
the plaintiffs would get nothing if they did not accept the lesser sum. The
plaintiffs were then on the verge of bankruptcy and the defendant’s wife was
well aware of that fact. For lack of a real option, the plaintiffs accepted the
payment but subsequently brought an action to recover the balance of the
debt. Lord Denning held that it was not inequitable for the plaintiffs to resile
from their promise as the defendant had improperly procured the plaintiffs’
agreement by taking advantage of their weak financial position.
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8.64 One may question why the doctrine of promissory estoppel is limited to
operate only as a shield but not as a sword. If the rationale is to protect
reasonable reliance placed on a promise, why should such protection be
allowed only by way of a defence but not as a cause of action? Some other
jurisdictions such as Australia have allowed the doctrine to be used as a
sword. Neither Singapore nor English courts have thus far adopted this
bold approach.
8.66 It should be noted, however, that in the High Trees case, the court was
prepared only to allow a restoration of the landlord’s rights to future rental
at the full rate. Lord Denning was of the view that the landlords would not
have been able to recover the full rent for the war years. This indicates that
the payment obligations falling within the duration of the suspension were
actually extinguished. This is inconsistent with the view that promissory
estoppel is suspensory in nature.
8.67 Perhaps a better view is to determine the effects of the doctrine by reference
to the nature, intent and circumstances of the promise made. In exceptional
circumstances, an obligation may be extinguished because the reliance
placed on the promisor’s assurance makes it impossible for the promisee to
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8.68 In cases such as High Trees, which involved periodic payments, a distinction
may have to be drawn between the payments which accrued before the
notice and those accruing thereafter. Where it is not possible to recover the
former payments, the right to these payments is therefore extinguished; but
the general right to future payments is merely suspended and may be revived
upon reasonable notice. The suspensory effect is justifiable by the fact that
the promises were given in response to acute and temporary circumstances
and thus it is likely that the said promises were only intended to be binding
while the extenuating circumstances lasted. In the case of one-off payments,
where a creditor accepts a lesser sum in satisfaction of a larger debt, the
effect of promissory estoppel should ultimately depend on whether the
creditor’s intention (objectively determined) is to forgive the entire debt or
merely to allow the debtor more time to pay.
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8.70 Generally, the agreements are analysed under two broad categories:
agreements made in social and domestic contexts and agreements arising
in business and commercial contexts.
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was binding. Unlike the facts of Balfour v Balfour, where the couple were
living in amity at the time of the agreement, the couple in Merritt v Merritt
was estranged when the agreement was made. As such, they were clearly
making a serious bargain and not merely relying on the other’s affection and
good faith for the fulfilment of the promises.
8.74 As the issue of contractual intent is a question of fact, all the surrounding
facts of a case are relevant in considering whether the presumption against
contractual intent has been displaced. It is not possible to list all the relevant
factors but cases have shown that two factors are of particular significance.
I
The first is the certainty of the terms of the agreement. The more certain
the terms, the more likely that the parties would have carefully considered
the content and effects of the agreement. Conversely, vague and imprecise
terms are likely to be construed as evidence of lack of contractual intent.
v placed on the agreement; evidence of
The second factor is the actual reliance
such reliance will tend to suggest that the parties intended the agreement to
be binding. Both factors were present in Merritt v Merritt; the court found
that the agreement was written with sufficient certainty and that the wife
had acted in reliance on the husband’s promises in settling the mortgage
loan and other related expenses.
8.76 It is not uncommon for parties to expressly state in their agreement that they
have no intention to create legal relations. Where this is done in clear terms,
the presumption is effectively rebutted. In Rose & Frank Co v J R Crompton
& Bros Ltd (1923), the parties included the following clause (commonly
known as an “honour clause”) in their agreement:
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The court held that the arrangement was not enforceable as a contract as it
was clear from the honour clause that they did not intend the agreement to
have any legal consequence.
8.78 In Kleinwort Benson Ltd v Malaysia Mining Corp Bhd (1989), the defendant
parent company issued a comfort letter which contained the statement that
“It is our policy to ensure that the business of [our subsidiary] is at all times
in a position to meet its liabilities to you under the above arrangements.”
Upon examining the wording of the letter, the English Court of Appeal held
that the statement did not amount to a contractual promise. In contrast, the
Australian Supreme Court upheld a letter of comfort containing a similarly
worded statement as having contractual force in Banque Brussels Lambert
SA v Australian National Industries Ltd (1989). In the latter case, Rogers
CJ disapproved of the English court’s approach in attempting to resolve a
commercial dispute with excessive emphasis on the text of a document.
Rogers CJ also took the view that generally commercial agreements which
resulted from hard bargaining should be given significant weight and not be
lightly reduced to a “merely honourable engagement” except in the clearest
of circumstances.
8.79 Significantly, the Singapore High Court has declined to give legal effect to
a letter of comfort in the case of Hongkong and Shanghai Bank Corporation
Ltd v Jurong Engineering Ltd (2000). Though the court acknowledged that
the letter of comfort should, as a commercial document, be presumed to
have legal effect, it nonetheless held that the presumption was displaced by
two important considerations. First, the evidence showed that the parties did
not seriously place any reliance on the comfort letter; and secondly, the text
of the letter was not sufficiently certain to support the creation of binding
obligations. This decision suggests that our courts may be more inclined
towards a restrictive approach in interpreting letters of comfort, such that
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CONCLUSION
8.80 The reader should realise by now that much uncertainty still surrounds the
concept of consideration and in particular, the necessity for such a concept.
Though consideration is unlikely to be abandoned, its role in contract law
has been considerably whittled down.
The modern approach in contract law requires very little to find the
existence of consideration. Indeed, in difficult cases, the courts in several
common law jurisdictions have gone to extraordinary lengths to conjure
up consideration. (See for example the approach in Williams v Roffey
Bros & Nicholls (Contractor) Ltd …).
8.82 Perhaps the fate of the doctrine of consideration lies more tellingly in the
comments of the Singapore Court of Appeal (comprising Judges of Appeal
Chao Hick Tin, Andrew Phang Boon Leong and VK Rajah) in Gay Choon
Ing v Loh Sze Ti Terence Peter and another appeal (2009). Andrew Phang JA
(delivering the judgment of the court) observed, at [117], that the doctrine
of consideration has survived much criticism and remains an established
part of Singapore and the common law; albeit reform is still necessary as
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249