Introduction

Contracts are the legal foundation of any business relationship, and the importance of clear and comprehensive drafting cannot be overlooked. However, it is equally vital to consider the context of the contractual provisions to ensure their intended meaning is given effect. The Singapore Court of Appeal case of Y.E.S. F&B Group Pte Ltd v Soup Restaurant Singapore Pte Ltd [2015] SGCA 55 demonstrates how the context of an agreement can greatly affect the interpretation of its terms.

Brief Facts

The Appellant and the Respondent were, at the time, sister companies which operated separate restaurants. In a particular shopping centre, the Appellant had a lease over Unit 137, out of which it operated its restaurant. After discussions between the Appellant, the Respondent and the landord, it was agreed that the Respondent would lease the adjoining Unit 141 to operate its own restaurant, but that the Appellant would sub-lease part of Unit 141 to expand its existing outlet from Unit 137.

The Respondent and the landlord entered into a Lease Agreement in October 2010, which was to expire in October 2012. On the same day, the Respondent entered into a Sub-Lease Agreement with the Appellant. The terms of the Sub-Lease Agreement, which was a simple two page document apparently drafted without legal assistance, form the basis of the dispute.

In particular, the Sub-Lease Agreement stated that “This agreement shall survive as long as the Company‟s lease with the landlord is not terminated.”

  1. The Respondent submitted that “the Company‟s lease” referred specifically to that particular lease in force between the Respondent and the landlord, meaning that the Sub-Lease Agreement would terminate once the Lease Agreement expired in October 2010.
  2. The Appellant, however, submitted that “the Company‟s lease” was a broad reference to any lease which the Respondent had with the landlord over Unit 141. Therefore, since the Respondent entered into a fresh lease with the landlord after October 2010, the Sub-Lease Agreement was still in force.

​The Court of Appeal thus had to determine which interpretation of the Sub-Lease Agreement to accept.

The Court adopted the Appellant‟s interpretation, finding that the Sub-Lease Agreement was in fact still in force.

In reaching its decision, the Court highlighted the importance of considering both the text as well as the context of the contract.

  1. The text is generally the starting point for contractual interpretation, and the Court cannot use the context as an excuse to rewrite the contract according to its subjective view.
  2. Where contractual provisions are unclear or ambiguous, the relevant context will of course be of the first importance in interpreting the terms. For example, if there are two possible interpretations of a clause, the Court ought to adopt the interpretation more consistent with common business sense. This follows the position in the UK Supreme Court decision of Rainy Sky SA v Kookmin Bank[2011] 1 WLR 2900.
  3. Even where contractual provisions appear plain and unambiguous, if a plain reading would lead to an absurd result, the Court would re-examine the provisions in light of the relevant context to ascertain if the text is in fact as plain and unambiguous as originally thought.
  4. The Court should start from the working position that the parties did not intend for the text to produce an absurd result. However, if the evidence shows that the parties intended for the „absurd‟ result, or that they proceeded despite knowing of the „absurd‟  result, the Court  should  not disregard their intention and rewrite the contract. This is in keeping with another more recent UK Supreme Court decision, Arnold v Britton [2015] 2 WLR 1593, where the court upheld an allegedly absurd interpretation of a contract because the text was clear and unambiguous, and because the context was not helpful in disproving the parties‟ intention of such an absurd result.
  5. The Courts have adopted a contextual approach to contractual interpretation, so extrinsic evidence can be used to help interpret contractual terms even if there is no ambiguity.

On the facts, the Court here found that the term “the Company‟s lease” was not plain and unambiguous, as it bears different meanings. The Court then considered the relevant context, and found that it supported the Appellant‟s interpretation that “the Company‟s lease” referred to a generic head of lease which the Respondent held with the landlord.

  1. The parties had a close working relationship at the time, and would have expected it to continue for the forseeable future.
  2. Both parties were aware that the Appellant would have to incur significant costs in outfitting its section of Unit 141, and were thus unlikely to have agreed to a sub-lease of such short duration.

​​Concluding Words

It is often thought that agreements are never finalised until they are set in writing. However, even written contracts can be reinterpreted when they come before the Court. The Court will seek to give effect to the parties‟ objective intentions, and that includes interpreting contractual terms in a different manner if necessary.

The context of a contract thus plays a big role in its interpretation. Even where the text is seemingly clear and unambiguous, the context may suggest that it is in fact not so, giving cause for revisiting its true meaning. Where the text is not unambiguous, the context is then instrumental in shedding light on the intended definitions.

Ambiguous terms are often more likely to occur in contracts which are drafted without legal assistance. Partiees seeking to enter into business agreements should thus endeavour to obtain legal assistance when drafting contracts, so as to obtain a level of certainty over the precise terms of the agreement.