All questions

Contract interpretation

The principles of contractual interpretation in Singapore are well-established. These principles were summarised by the Court of Appeal in PT Bayan Resources TBK and another v. BCBC Singapore Pte Ltd as follows:

  1. The starting point is to look at the text of the contract.
  2. The court may have regard to the relevant context if it is clear, obvious and known to both parties.

Examples of the relevant context include the entirety of the contract and the entirety of the commercial documents entered into as part of the transaction which is the subject matter of the contract.

Generally, the meaning ascribed to the contractual terms must be one that the expressions used by the parties can reasonably bear.

i Admissibility of extrinsic evidence

The admissibility of evidence in Singapore is governed by the Evidence Act (Cap 97). In particular, Section 94 of the Evidence Act provides that, where the terms of a contract are reduced to a written document, no evidence of any oral agreement or statement shall be admitted for the purpose of contradicting, varying, adding to, or subtracting from its terms. This is subject to a general exception in Section 94(f), which the Singapore courts have construed as allowing extrinsic evidence of the surrounding circumstances in aid of contractual interpretation, even in the absence of ambiguity.

However, the admission of extrinsic evidence is subject to a number of restrictions including the nature, particulars, and effect of the extrinsic evidence sought to be relied on must be pleaded with specificity.

There is a general bar against the admissibility of evidence on the subjective intentions of the drafters at the time of the conclusion of the contract, except in situations where there is latent ambiguity. The Singapore Court of Appeal has not expressed a concluded view on the admissibility of extrinsic evidence on pre-contractual negotiations or on the admissibility of extrinsic evidence on subsequent conduct. Nonetheless, evidence of subsequent conduct has been observed to generally fall into one of two categories which militate against their use, namely: (1) such evidence would either be inadmissible because it does not fulfil the relevant criteria; or (2) be superfluous because it does no more than echo what were the objectively ascertained intentions of the parties based on the contextual evidence at the time of the contract.

ii Implied terms

Under Singapore law, the court may imply terms into a contract, to the extent that such implied terms do not contradict express provisions.

Terms may be implied in law (e.g. by statute or policy considerations) or by custom (where the relevant usage is 'notorious, certain and reasonable').

Terms may also be implied in fact to give effect to the presumed intentions of the parties so as to fill a gap in their contract. The Singapore Court of Appeal in Sembcorp Marine Ltd v. PPL Holdings Pte Ltd set out a three-step test for implying terms in fact:

First, the court will ascertain how the gap arose. The court will only consider implying a term if the gap arose because the parties did not contemplate it.

Second, the court will consider whether implying a term is necessary in the business or commercial sense to give the contract efficacy.

Third, the court will consider the specific term to be implied. The term 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 time of the contract.