All questions

Contract interpretation

Under Singapore law, the overriding principle in contractual interpretation is to determine and give effect to the intention of parties as objectively ascertained.20 The courts adopt a two-step approach under which21 the starting point is to look at the text of the contract and thereafter the court may have regard to the relevant context of the contract if it is clear, obvious and known to both parties.22

i Parol evidence rule and the admissibility of extrinsic evidence

Where the contract is in writing and the parties intended for the written contract to contain all the terms of the agreement, the terms of the contract are determined only by reference to the written document.23 No other evidence may be relied upon as proof of the terms of the contract,24 and no evidence of any oral agreement or statement will be admitted for the purpose of contradicting, varying, adding to or subtracting from the terms of the written contract.25

However, extrinsic evidence may be admitted if it meets the requirements of any of the situations under Section 94(a) to 94(f) of the Evidence Act 1997. In particular, Section 94(f) allows the use of extrinsic evidence to show how the words of the contract are 'related to existing facts'. The use of extrinsic facts for this purpose is governed by the following principles:26

  1. extrinsic evidence is admissible so long as it is relevant, reasonably available to all the contracting parties, and relates to a clear or obvious context. In this context, 'relevant' means that it would affect the way in which the words would have been understood by a reasonable person in the position of the parties;
  2. the court will only adopt a different interpretation from that suggested by the plain language of the contract if the context of the contract is clear and obvious. This is intended to strike a balance between commercial certainty and give effect to the parties' intentions; and
  3. the party seeking to rely on extrinsic evidence has to comply with the following requirements of civil procedure:
    • they must plead with specificity each point of the factual matrix that they wish to rely on in support of their construction of the contract;
    • they must plead the factual circumstances in which the facts were known to all the relevant parties; and
    • they must specify in their pleadings the effect that such facts will have on their contended construction.
ii Implied terms and collateral contracts

Although Singapore law does not countenance the addition or variation of terms, based on extrinsic evidence, the courts may imply terms into a contract if these are implied by law or custom, or, in exceptional cases, to give effect to the presumed intentions of the parties. There is a three-stage test for implying such terms, although these stages have at times been described as overlapping requirements or different expressions of the same test:27

  1. there must be a gap in the terms of the contract that requires the implication of a term. In addition, the court will imply a term if the gap arose because the parties did not contemplate it;
  2. the court will consider whether implying a term is necessary in the business or commercial sense to give the contract efficacy; and
  3. the term to be implied must be one that the parties, having had regard to the need for business efficacy, would have responded 'Oh, of course!' if the proposed term had been put to them at the time of the contract.
iii Best endeavour clauses

A common contractual term or obligation in commercial contracts is for a party to use all its best endeavours or efforts to achieve or procure a contractually stipulated outcome. The Court of Appeal recently reaffirmed the following principles and guidelines on what a 'best endeavour' clause entails:28

  1. 'the obligor has a duty to do everything reasonable in good faith with a view to procuring the contractually-stipulated outcome within the time allowed. This involves taking all those reasonable steps which a prudent and determined man, acting in the interests of the obligee and anxious to procure the contractually-stipulated outcome within the available time, would have taken';
  2. 'the test for determining whether a “best endeavours” obligation has been fulfilled is an objective test';
  3. 'in fulfilling its obligation, the obligor can take into account its own interests';
  4. 'a “best endeavours” obligation is not a warranty to procure the contractually-stipulated outcome';
  5. 'the amount or extent of “endeavours” required of the obligor is determined with reference to the available time for procuring the contractually-stipulated outcome; the obligor is not required to drop everything and attend to the matter at once';
  6. 'where breach of a “best endeavours” obligation is alleged, a fact-intensive inquiry will have to be carried out'; and
  7. 'best endeavours' clauses require the obligor 'to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted' or 'to do all that it reasonably could'.