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Transferring Contracts in Singapore

In any contract, the parties to the contract are more or less set in stone. Only the parties which entered into the contract are allowed to make use of the rights and held to the obligations under the contract. What happens when you want to transfer the whole contract or parts of it?

In the corporate world, it is quite common for whole contracts to be transferred to other parties who were not originally parties to the contract. This routinely happens, for example, in major corporate settlements, intellectual property matters, mergers and acquisitions and the construction industry.

Such contractual transfers play an important role in the commercial world. They allow, amongst other things, a party with insufficient resources to fully complete the contract to transfer contractual obligations to another party, and they allow a party at risk of losing the benefits of the contract (due to an errant or impecunious contractor) to find another party to replace the errant or impecunious contractor so that the contractual benefits are not lost altogether.

This article seeks to introduce the ways of transferring rights and obligations under contracts in Singapore.

2 Ways of Transferring Contracts in Singapore

A contract is transferred by, you guessed it, yet another contract!

There are two ways to transfer contracts in Singapore – Assignment and Novation.

Assignment – if what is sought is the transfer of only rights under the contract, you enter into an Assignment of the contract.

Novation – if what is sought is the transfer of both rights and obligations under the contracts, you enter into a Novation of the contract.

Let’s discuss both in more detail.

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Assignments in Singapore

  As mentioned before, an assignment transfers only the rights under the contract and not the obligations. The assignment thus does not have the effect of transferring the obligations under the contract. The person or entity which assigned the contract to someone else is still liable to perform all of its obligations under the contract.

Some important things to keep in mind when it comes to assignments are:

  • The law treats the original assignor as the proper party to the original contract and not the assignee. If the assignor breaches the contract, the assignee is not to blame.
  • Contracts of a personal nature cannot be assigned. Such contracts were predicated upon the special or highly specific nature or character of one of the parties. Examples of such contracts are employment contracts and motor insurance policies.
  • Check the contract carefully to see if assignments are permitted at all in the first place. Many contracts include clauses expressly prohibiting either or both parties to the contract from assigning the contract to other parties.
  • Some contracts allow for assignments but contain terms that place limits or conditions on assignments. These limits or conditions may pertain to the types (or even exact identity/ies) of assignees permitted, prior written notice to the other party, limits on the number of assignments, types of rights which may be assigned, and even consent (which may not be unreasonably withheld at times) by the other party before assignments are undertaken.
  • In the absence of such clauses prohibiting assignment, contracts can usually be assigned to a third party without the consent of other parties to the contract.
  • The original contract remains in place (only the rights of one party have been transferred).
  • Once the assignment has properly been executed, the assignee now has a right to sue the other party to the contract for the rights it has received under the assignment. However, this can only be done by first joining the assignor as a party to the civil action.
  • In the real world, what sometimes happens is that the assignee does actually take over some or all of the obligations, and the assignee will indemnify the assignor against any breach or failure to perform contractual obligations.

Novations in Singapore

As mentioned before, a novation transfers both the rights and obligations under the contract to another party. In effect, what actually happens in a novation is that a new party replaces one of the original parties to the contract. The person or entity which is replaced is fully absolved of all obligations under the contract and no longer can exercise its rights under the contract.

Some important things to keep in mind when it comes to novations are:

  • Since all the rights and obligations have been transferred, the earlier contract is effectively extinguished. A new contract takes its place.
  • Check the contract carefully to see if novations are permitted at all in the first place. Many contracts include clauses expressly prohibiting either or both parties to the contract from novating the contract to other parties. Some contracts allow for novations but contain terms that place limits or conditions on novations. These limits or conditions may pertain to the types of novatees permitted, prior written notice to the other party, and even consent by the other party before assignments are undertaken.
  • If there are no such clauses prohibiting or limiting novations, contracts may usually be novated to a third party. Unlike assignments, though, novations generally require the consent of all parties to the original contract and the new third party.
  • Unlike assignments, where the original contract is retained, novations mean that all the rights and obligations are created in a new contract.
  • Novations may also be found by law to have arisen through the parties’ conduct, not just by agreement.
  • Consideration must be provided by the new party in return for the contract novated to it unless the novation is executed by a deed signed by all parties.
  • Once the novation has been properly executed, the original outgoing party to the contract is released from all future liabilities under the contract and may not avail itself of any of the rights it previously held under the contract.
  • Generally, novations do not cancel past rights and obligations under the original contract. Nevertheless, parties may agree to novate these as well.

Assignments and novations are important mechanisms in the law of contract and offer a convenient way with which to transfer the rights and obligations under contracts. We would strongly advise you to examine all contracts you enter into from now on to see if there are any clauses that govern such novations or assignments.

How We Can Help You

Transferring of rights & obligations under a contract has to be done correctly. The matter is not as simple as using a template online. Do speak to us if you require assistance.

Lions Chambers LLC is an established law firm in Singapore. Our team of lawyers specialise in various areas of law and will be able to assist you. Our consultations are free. Please call +65 8777 3677 or  click here  to WhatsApp us today.

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Assigning rights where a contract contains a non-assignment clause

December 13, 2023 > Singapore >

This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.  

The High Court of Singapore has recently decided that a non-assignment clause in a contract did not prohibit the assignment of non-contractual (or tortious) rights arising out of or in connection with the contract. This article considers the practical implications of that decision.

Introduction

Can a party to a contract assign non-contractual rights arising out of the contract to a third party, notwithstanding the existence of a non-assignment clause in the contract?

The validity and enforceability of such an assignment were recently considered by the Singapore High Court (“HC”) in  Re Ocean Tankers (Pte) Ltd (in liquidation)  [2023] SGHC 330 (“ Ocean Tankers ”).

Contractual vs non-contractual rights

First, it is useful to understand the difference between “contractual” rights and “non-contractual” (or “tortious”) rights.  We will use the terms “non-contractual” and “tortious” interchangeably in this article to refer to the latter category of rights.

“Contractual” rights are rights which are set out in the provisions of the contract, reflecting the express agreement of the parties to the contract. Conversely, “non-contractual” rights are rights which arise as a matter of law and which are connected with (or which arise from) that contract, but are not specifically provided for in the text of a contract.

Ocean Tankers (Pte) Ltd (the “ Company ”) was placed under judicial management in August 2020. In the interim period between Company’s judicial management and its subsequent winding-up, the judicial managers of the Company (the “ JMs ”) brought actions concerning purported assignments of claims made by a creditor of the Company (the “ Assignor ”) in favour of a third-party debtor of the Company (the “ Debtor ”).

One of the issues the HC had to consider concerned the validity of an assignment of non-contractual claims made by the Assignor in favour of the Debtor, and whether that assignment was enforceable against the Company.

The assignment in question sought to assign the Assignor’s rights, title, interests and benefits in and to (amongst other things):

  • a storage agreement (the “ Storage Agreement ”) made between the Assignor and the Company;
  • a document (the “ Document ”) issued by the Company evidencing the existence and transfer of certain cargo; and
  • any and all causes of action the Assignor had or may have had against the Company in connection with or arising from (amongst other things) the Document.

As indicated above, there were various assignments which were purported to be made by the Assignor which were being challenged by the Company.  However, for the purposes of this article, the salient assignment was the purported assignment of the Assignor’s causes of action against the Company in connection with or arising from the Document, as referred to in paragraph (3) above (which the HC referred to as the “ Vessel [B] Document Claim ”).

The court had to consider if the assignment of the Vessel [B] Document Claim was valid in light of the non-assignment clause set out in the Storage Agreement (the “ Non-Assignment Clause ”).  The HC held that the Document was “not separate and independent from the Storage Agreement”, implying that the Document was subject to the provisions of the Storage Agreement, including the restrictions on assignment set out in the Non-Assignment Clause.

Did the assignment of the Vessel [B] Document Claim breach the Non-Assignment Clause?

The Non-Assignment Clause was in the following terms:

The HC noted that the text of the Non-Assignment Clause required the Company’s consent for the assignment and novation of rights under the Storage Agreement (and, by extension, the Document), and the parties did not dispute that no such consent was obtained.

The HC was of the view that there were “ clear indications in the  [Non-Assignment Clause]  itself that it relates to contractual rights but not tortious rights ”. Three reasons were given by the HC in reaching this conclusion.

First, the Non-Assignment Clause referred to “novation”, which the HC noted is a process “ by which a  contract  between the original contracting parties is discharged through mutual consent and substituted with a new contract between the new parties ”. In the HC’s view, when the Non-Assignment Clause referred to the novation of “rights and obligations”, this must be understood to mean  contractual  rights and obligations, and the Non-Assignment Clause did not prohibit the assignment or novation of  tortious  rights and obligations.

Second, the heading of the Non-Assignment Clause – “TRANSFER OR ASSIGNMENT OF  AGREEMENT ” (emphasis added) – indicated the intention of the parties for the clause to cover only contractual rights.

Third, the HC noted that the Storage Agreement itself referred to rights other than contractual rights. For example, the Storage Agreement made references to claims “ in tort , under contract or otherwise at law” as well as obligations or liabilities “under or   arising  from [the Storage] Agreement or at law”. The HC was accordingly of the view that the Assignor and the Company (i.e., the original parties to the Storage Agreement) intended to refer specifically to  contractual  rights and obligations where the Non-Assignment Clause specifically referred to rights “under” the Agreement.

On the facts, the HC found that the assignment of the Vessel [B] Document Claim was a tortious claim and, consequently, held that the assignment of the Vessel [B] Document Claim was outside the ambit of, and did not breach, the Non-Assignment Clause.

In reaching its conclusion, the HC considered the judgment of the English High Court in  Burleigh House (PTC) Ltd v Irwin Mitchell LLP  (“ Burleigh House ”) [1]   which held that the non-assignment clause in that case prohibited both assignments of contractual  and  tortious rights.  However, the HC declined to follow  Burleigh House  for the following reasons:

  • first,  Burleigh House  concerned assignments in the context of a former client’s claim against a law firm for professional negligence. The HC was of the view that the implications that such an assignment would have on the solicitor-client relationship were a significant consideration for the English High Court in its interpretation of the non-assignment clause in the law firm’s retainer. The HC was quite clear that this concern did not apply in the context of the case before it and, accordingly, distinguished  Burleigh House ;
  • second,  Burleigh House  sought to apply the approach taken towards the construction of  arbitration  clauses, as set out in  Fiona Trust & Holding Corp v Privalov [2]  (“ Fiona Trust ”). That case held that rational businesspeople who agree to such clauses, regardless of whether they refer to disputes “arising under”, “in connection with” or “under” a contract, intend  any   dispute  arising out of their relationship to be decided by the same tribunal. While noting that  Fiona Trust  had been found by the Singapore Court of Appeal to apply to jurisdiction clauses generally [3] , the HC did not agree that the approach towards the interpretation of arbitration clauses as set out in  Fiona Trust  should  ipso facto  apply to other clauses in a contract or to non-assignment clauses generally. In the HC’s view, a non-assignment clause is not a dispute resolution clause and is intended to perform a very different function.

Implications for the drafting of non-assignment clauses

Ocean Tankers  illustrates the potential limits of a non-assignment clause under Singapore law and provides valuable guidance as to what type of rights and obligations parties can assign – or can prohibit the assignment of.

The judgment does, however, indicate that appropriate drafting  can  extend non-assignment clauses to prohibit or restrict the transfer of non-contractual rights. Such a prohibition on the assignment of non-contractual rights would work in tandem with the prohibition of an assignment of contractual rights under the agreement, such that  any  rights related to the agreement can be prevented from being assigned.

Ocean Tankers  has practical implications. For example, some industry standard form documents use language which is similar to that of the Non-Assignment Clause, in prohibiting assignments of rights or obligations “under” certain specifically identified documents.  Ocean Tankers  indicates that a Singapore court would construe this as applying only to contractual rights, and not to non-contractual/tortious ones.

Prior to  Ocean Tankers , parties to a contract would not have considered that such a clause would treat contractual and non-contractual rights differently and would have assumed that such drafting would apply to both categories of rights; there now appears to be a need to re-look and re-draft these clauses to reflect the contracting parties’ intentions.

Having expended considerable effort to explain why the assignment of the Vessel [B] Document Claim did not breach the provisions of the Non-Assignment Clause, the HC ultimately found that the assignment of the Vessel [B] Document Claim was a “ champertous assignment of a bare right to litigate and therefore void and/or ineffective against the Company, the JMs and the liquidators  [of the Company]”.

This, however, does not have any bearing on (and should not distract us from) the HC’s conclusion that the Non-Assignment Clause did not prohibit the assignment of non-contractual rights.

Link to the full article: Assigning rights where a contract contains a non-assignment clause (cms-lawnow.com)

Co-authored by: Kerith Cheriyan, Practice Trainee, Holborn Law LLC

[1]   Burleigh House (PTC) Ltd v Irwin Mitchell LLP  [2021] EWHC 834

[2]   Fiona Trust & Holding Corp v Privalov  [2007] Bus LR 1719

[3]   Bunge SA and another v Shrikant Bhasi and other appeals  [2020] 2 SLR 1223

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Allen & Gledhill

Practical Law Intellectual Property Right Assignments Q&A: Singapore

6 February 2020

Contributed by Allen & Gledhill Partner Dr Stanley Lai, SC, this Q&A provides an overview of the legal regime governing intellectual property right assignments under Singapore law. Topics include the registration and recordal aspects, as well as warranties and indemnities. This Q&A forms part of Practical Law’s cross-border resource centre on intellectual property.

This Q&A is reproduced from Practical Law with the permission of the publishers. For further information, visit www.practicallaw.com .

To read the chapter, please click here .

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The Government restricts bans on assignment

United Kingdom |  Publication |  November 2018

Legislation now in force preventing parties from prohibiting the assignment of receivables under certain contracts.

At the moment, a contract can prohibit or restrict the parties’ ability to assign or transfer rights created under the contract. The extent of the restriction is a matter of interpretation of the clause concerned. If one of the parties to the contract attempts to assign the benefit of the contract in breach of the restriction, the purported assignment is ineffective.

One of the key assets of any business is its receivables, and restrictions on assignment can prevent the parties from factoring receivables or otherwise raising finance on them. The Government has decided that it should be easier for businesses to raise finance on their receivables. Accordingly the Small Business, Enterprise and Employment Act 2015 allows regulations to be made to invalidate restrictions on the assignment of receivables in particular types of contract. The regulations have now been made. They are contained in The Business Contract Terms (Assignment of Receivables) Regulations 2018. Draft regulations published in July, have been approved by both Houses of Parliament and are now in force.

What types of contracts do the Regulations apply to?

The Regulations apply to contracts for the supply of goods, services or intangible assets under which the supplier is entitled to be paid money. But there are a number of important exclusions from their application, including the following:

  • They only apply to contracts entered into on or after 31 December 2018.
  • They only apply where the person who supplies the goods, services or intangible assets concerned, and is therefore entitled to the receivable, is a small or medium-sized enterprise which is not a special purpose vehicle. Whether or not an entity qualifies in any particular case requires a detailed examination of the precise wording of the
  • Regulations. Counter-intuitively, the test is not applied at the time the contract is entered into, but at the time the assignment takes place.
  • There is a specific exemption for contracts “for, or entered into in connection with, prescribed financial services”: These are widely defined to include “any service of a financial nature”.
  • There are specific exclusions for particular types of contract, including certain commodities, project finance, energy, land, share purchase and business purchase contracts and operating leases.
  • As a general rule, it would seem that the Regulations only apply to contracts governed by English law or the law of Northern Ireland, but they prevent the parties from choosing a foreign law if it can be established that the purpose of doing so was to evade the Regulations.
  • The Regulations do not apply if none of the parties to the contract has entered into it in the course of carrying on a business in the United Kingdom.

What is the effect of the Regulations?

The Regulations provide that “a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction , on the assignment of a receivable arising under that contract or any other contract between the same parties.”

A receivable is the right to be paid any amount under a contract for the supply of goods, services, or intangible assets. The Regulations do not prevent the parties from restricting the assignment of other contract rights.

More difficult is to establish what is meant by assignment. Receivables are transferred in various ways in practice. Sometimes the transfer is outright (for instance by way of sale); and sometimes it is by way of security (for instance to secure a loan). The transfer may be effected by a statutory assignment, an equitable assignment, a charge or a trust. “Assignment” is not defined in the Regulations, and so there is some doubt as to which of these transactions are covered.

Although charges are not expressly referred to, they might be covered by the expression “assignment” if it is given a broad interpretation. But because of the uncertainty, the best course is to take an assignment by way of security over a receivable where there is, or might be, a restriction. That way, it is clear that the Regulations do apply.

Non-assignment clauses come in a variety of forms. They will be covered by the Regulations if they prohibit or impose a condition , or other restriction on the assignment of a receivable. The Regulations expressly invalidate terms which prevent the assignee from determining the validity or value of the receivable or their ability to enforce it. Whether or not the Regulations apply in any particular case will require an analysis of the precise terms of the restriction.

The Regulations will be of particular importance to businesses involved in the financing of receivables. And they will also be of concern to buyers because they will override their contractual protections.

Richard Calnan

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Contract Law in Singapore: Understanding Legal Agreements

Author Jon Mills

Singapore's contract law is crucial, governing legal agreements to ensure they're valid and protective. This guide delves deep, from core components to handling breaches. Navigate your agreements with confidence and knowledge.

Contract Law in Singapore: Understanding Legal Agreements

In Singapore, contract law plays a crucial role in ensuring that legal agreements are valid, enforceable, and protect the rights of all parties involved. Understanding the key elements of contract law is essential for individuals, businesses, and organisations operating within the city-state. For a more detailed understanding of the employment laws, check out the employment act .

In this article, we will delve into the various aspects of contract law in Singapore, examining its formation, enforceability, breach, and resolution.

Key Elements of a Contract Law in Singapore

A contract comprises several vital elements, with each playing a significant role in upholding its validity under Singaporean law. Before diving deep, let's explore the contract law basics in Singapore to provide a foundation for the upcoming detailed discussion.

Essential components for a valid and enforceable contract

When it comes to creating a contract that is both valid and enforceable, there are certain essential components that need to be considered. In addition to the key elements mentioned above, there are other factors that contribute to the validity and enforceability of a contract. Let's take a closer look at these components:

  • Offer and acceptance — one of the fundamental requirements of a contract is the presence of a clear offer and an unambiguous acceptance of that offer. This means that both parties involved must clearly communicate their intentions and reach an agreement on the terms of the contract.
  • Intention to create legal relations — for a contract to be considered valid, both parties should have a genuine intention to enter into a legally binding agreement. However, businesses must also consider other aspects like corporate secretarial services which play a role in contract formulation.
  • Consideration — another crucial aspect of a valid contract is the presence of consideration. Consideration refers to the exchange of something of value between the parties involved. It can be in the form of money, goods, services, or even a promise to do or refrain from doing something. Without consideration, a contract may lack the necessary element of mutual obligation.
  • Legal compliance — it goes without saying that a contract must not involve any illegal activities. It must comply with relevant laws and regulations in order to be considered valid and enforceable. This means that the terms and conditions of the contract should not violate any statutory provisions or public policy.
  • Consent — last but not least, the parties entering into a contract should do so freely and willingly. Consent plays a vital role in ensuring the validity of a contract. It means that the parties must agree to the terms and conditions of the contract without any duress, undue influence, or coercion. Consent obtained through fraudulent means or misrepresentation can render a contract voidable.

These components are essential in creating a contract that not only meets the basic requirements but also stands up to legal scrutiny. It is important to carefully consider each of these elements when drafting a contract to ensure its validity and enforceability.

Remember, a well-drafted contract not only protects the rights and interests of the parties involved but also provides a solid foundation for a successful business relationship . So, take the time to understand and incorporate these essential components into your contracts to avoid any potential disputes or legal complications down the line.

Formation and enforceability of contracts

Once all the necessary components are in place, contracts are formed and can be enforced under Singaporean law.

Process of contract formation and the role of mutual consent

The process of contract formation involves mutual consent between the parties. It is crucial to note that contracts can be oral or written, and no specific formality is required. The registrar of companies (ROC) also plays a significant role in ensuring proper documentation and legitimacy for businesses.

Factors that render contracts unenforceable or void

However, there are instances when a contract may not be enforceable or even considered void. Several factors can render a contract unenforceable under Singaporean contract law, including:

  • Misrepresentation — if one party has made false statements or concealed material facts, the contract may be rendered unenforceable.
  • Mistake — a contract may be void if both parties were mistaken about essential elements of the agreement.
  • Illegality — contracts involving illegal activities or those against public policy will not be enforceable.
  • Undue influence — if one party exerts undue influence on the other, the contract can be set aside.

Breach of Contract and Remedies

Inevitably, breaches of contract can occur, leaving one party unable or unwilling to fulfill their obligations. When a breach occurs, the innocent party may seek remedies to resolve the issue.

Identifying breaches of contract and their consequences

Identifying breaches of contract is essential, as it determines the subsequent consequences.

There are various types of breaches, including:

  • Material breach — a significant violation of the contract that goes to the root of the agreement.
  • Minor breach — a relatively minor violation that does not substantially affect the overall purpose of the contract.
  • Anticipatory breach — if one party indicates their intention not to perform their obligations before the agreed-upon time.

Available remedies for parties affected by a breach

Parties affected by a breach have several remedies available to them, including:

  • Rescission — cancelling the contract and restoring the parties to their original positions before entering into the agreement.
  • Damages — seeking monetary compensation for the losses suffered as a result of the breach.
  • Specific performance — requesting the court to order the breaching party to fulfill their contractual obligations.

Contractual Disputes and Resolution

In the unfortunate event of a contractual dispute, parties may need to consider other measures such as closing down a company if resolutions are not found.

Exploring methods of resolving contractual disputes in Singapore

One of the primary methods is negotiation, where the parties involved discuss their concerns and seek a mutually acceptable resolution. If negotiations prove unsuccessful, alternative dispute resolution methods like mediation and arbitration can be employed.

Role of negotiation, mediation, arbitration, and litigation

Mediation involves a neutral third party assisting the parties in reaching a settlement. In some cases, businesses may even involve non-executive directors as mediators to aid in dispute resolution.

If all else fails, parties can resort to litigation and have their dispute resolved through the court system. The choice of dispute resolution method will depend on the nature of the dispute, the complexity of the issues, and the parties' preferences.

Specific Aspects of Singaporean Contract Law

Although contract law principles apply universally, there are specific considerations and regulations unique to Singapore.

Statutory provisions heavily influence contract interpretation and enforcement in Singapore. The Contract Law Singapore Act, commonly referred to as the Singapore Contracts Act, is one of the key legislation governing the law of contracts in the country. This Act sets out the rules and requirements for forming contracts, interpretation of terms, and remedies for breach.

Another aspect to consider within Singapore's contractual framework is the assignment of contract Singapore law. In Singapore, contracts can typically be assigned unless there's a clause preventing assignment. This means one party can transfer their rights and obligations under the contract to another party, provided the contract allows for such a transfer.

Contracts concluded electronically, commonly known as e-contracts, are also subject to relevant electronic transaction laws. Singapore has enacted legislation to ensure the validity and enforceability of contracts formed electronically , providing a regulatory framework for online transactions.

Examination of unique considerations and regulations in Singapore contract law

Singapore's contract law is not just a mere replication of common law principles. It is interspersed with unique considerations and regulations that specifically address the socio-economic fabric of the nation. For instance, Singaporean contract law considers the multi-cultural business environment, often emphasising good faith negotiations and dealings, especially in business contexts where different cultural values intersect.

One distinctive feature is the strong emphasis on freedom of contract. For those starting or managing a business, understanding the guidelines for company constitution preparation is essential to ensure alignment with Singaporean contract law.

While many jurisdictions emphasise this principle, Singapore enforces it robustly, allowing parties significant autonomy in drafting their agreements. However, this freedom is balanced against public interest considerations, ensuring that the wider societal interests are not compromised.

Singapore has been proactive in adopting measures to tackle emerging trends. For instance, as technology continues to evolve, there have been new regulations introduced to address issues related to digital contracts and online transactions, ensuring that the law remains relevant and up-to-date.

Impact of statutory provisions on contract interpretation and enforcement

Statutory provisions play a pivotal role in guiding the interpretation and enforcement of contracts in Singapore. One classic example is the Singapore Contracts Act, which provides specific guidelines on aspects such as when a contract is formed, the obligations of parties, and the remedies available in case of breaches.

A unique aspect of Singapore's approach is its adaptability to international standards. Recognising Singapore's role as a global business hub, the statutes incorporate internationally recognised principles, ensuring contracts are enforceable not just locally but also in other jurisdictions.

The Electronic Transactions Act is another critical piece of legislation, especially in the digital age. It gives legal recognition to electronic contracts, ensuring that they are just as enforceable as their paper counterparts. This Act has paved the way for businesses to operate seamlessly in the online domain, reaffirming the country's commitment to staying at the forefront of technological advancements.

In essence, while the foundational principles of contract law remain consistent with universal standards, Singapore's statutory provisions ensure that contracts are interpreted and enforced in a manner that reflects the nation's unique cultural, economic, and technological landscape.

Contract Law in Commercial Transactions

Contract law plays a pivotal role in business and commercial transactions in Singapore. It provides a foundation for trade and commerce, protecting the rights and interests of parties engaged in these transactions.

Application of contract law principles in business and commercial dealings

The application of contract law principles ensures that agreements entered into by businesses are clear, enforceable, and fair to all parties involved. Contracts in commercial transactions often contain specific clauses and terms tailored to meet the needs of the industry or market in which the parties operate.

Contractual safeguards for parties engaged in trade and commerce

Parties engaged in trade and commerce often include contractual safeguards to protect their interests. These safeguards may include clauses related to confidentiality, intellectual property rights, indemnity, limitations of liability, and dispute resolution mechanisms.

Contract law in Singapore is an intricate and essential branch of law that underpins the legal framework governing agreements. Understanding the key elements, formation, enforceability, breach, and resolution of contracts is vital for individuals and businesses operating in Singapore.

By comprehending the unique features and considerations of Singaporean contract law, parties can ensure their agreements are valid, enforceable, and provide adequate safeguards to protect their rights and interests. Whether engaged in commercial transactions or personal arrangements, a strong grasp of contract law is crucial in facilitating smooth relationships and resolving disputes effectively.

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Conventus Law

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Singapore – Reservation Of Rights Letters And “No Waiver” Clauses.

April 28, 2020 by Conventus Law

28 April 2020

Introduction

A financial crisis looms, or has already arrived. Increasingly, financiers face payment defaults and requests for moratoriums on payment, interest waivers, and similar.   

Tightly drafted financing documentation will probably allow the calling of an Event of Default, whether for straightforward payment defaults, (less straightforward) material adverse changes, or inability to provide further collateral following drops in the valuation of secured assets. In turn, an Event of Default generally allows remedies including acceleration, termination, and enforcement over securities and, in lease financings, repossession of ships.  

A financier may choose to temporarily refrain from exercising such remedies, and discuss restructuring the debt. This could be for any number of reasons, reflecting the commercial relationship with a particular debtor or broader considerations such as the existing proportion of bad debt on a financier’s books at the time or even wider ramifications as to cross-default implications on the debtor’s group of companies.  

It is important to ensure the financier’s rights are preserved in the meantime.  

What if the financier does nothing following an Event of Default?

The initial position is, silence alone is unlikely to amount to a waiver of the financier’s rights, or estop the financier from relying on its remedies. You may have in mind the “no waiver” or “no variation except in writing” clauses common in financing documentation (more on such clauses below). 

However, that can easily change. Perhaps there is continued silence in the face of repeated breaches. Perhaps there is an act or representation reasonably relied upon by the debtor who therefore believes the financier will not insist upon strict legal rights. Examples might include, after an Event of Default has occurred: (1) a financier allowing continued drawdowns from a facility, (2) a financier maintaining the debtor’s operating account which receives charter income, and allowing continued payments of operating expenses from that account, or (3) a financier entering into preliminary discussions to compromise the debt on the understanding of a standstill in the interim.

It may be the Event of Default continues for a longer time than initially anticipated, and the financier later decides to enforce. At a minimum, it would be prudent for the financier to provide a final warning to the debtor, stating a reasonable time for the debtor to rectify its Event of Default, before proceeding further, and also to formally state that it is not the financier’s intention to forego its rights to subsequently rely on that Event of Default. 

“No waiver” clauses 

These clauses exist in almost every suite of financing documentation, in favour of the financier, to try to ensure that the financiers do not by inference accidentally or informally waive their rights to any remedies in the event of a breach of the contract by the debtor.

However, English judicial opinion on them has varied over time. 

In the 2000s and up to the mid-late 2010s, there appeared acknowledgment that a “no waiver” clause could itself be waived. For example: “When one looks at a clause of this kind, however, the position is this. This clause, along with any other clause, can be the subject of waiver, and the requirement for a waiver to be in any particular form is one which can itself be waived. These clauses, inevitably, give rise to little more than an evidential requirement to establish that there truly has been a waiver in the case in question.”1 

However, more recently, there appears to have been a re-focusing on party autonomy and the literal words of the contract. For example, in SMBC v Euler Hermes2 , SMBC was the assignee (as security trustee) of rights under a performance bond. The bond required its beneficiary to later repay sums paid if a Court decided that less was payable under the underlying contract. The bond could be assigned, if the assignee confirmed acceptance of this repayment obligation. A notice of assignment was issued and accepted by the obligor. 

SMBC SMBC never confirmed acceptance of the repayment obligation. Instead, the notice of assignment indicated that the assignor retained responsibility for any obligations and that the assignee had no liability under the assigned document (only rights). Among other things, SMBC argued that this notice of assignment amounted to a waiver of the need for it to confirm acceptance before it could take the benefit of the assignment.

” The English High Court did not agree. In so deciding, it read the “non-waiver” clause closely – and found that the notice of assignment did not meet those requirements because it had not made specific reference to the repayment obligation: “No waiver under clause 12.1 shall be a waiver of a past or future default or breach, nor shall it amend, delete or add to the terms, conditions or provisions of this Bond unless (and then only to the extent) expressly stated in that waiver.” 

Although the non-waiver clauses were different in each case, the Court also discussed the earlier cases (including that cited above) and emphasized: “…if it is said that waiver prevents reliance on a no waiver clause there would have to be something which indicated that the waiver was effective notwithstanding its noncompliance with the non-waiver clause and something more would be required for this purpose than what might otherwise simply constitute a waiver of the original right itself.”

 In any event, the prudent counsel for financiers would be to avoid arguments about the operation of these clauses altogether (or arguments about how a particular clause is more similar to a clause discussed in case A than that in case B) – and expressly make clear that no waiver or estoppel at all can arise.  

Reservation of rights letters

Such letters are not uncommon, and are usually exhaustively worded. They are intended to exclude arguments by the debtor, again, that the financier has waived its rights or is estopped from relying on them. They are indeed evidence that the financier did not intend to do so. However, they are not conclusive. A Court or Tribunal would consider matters overall, including in particular acts or omissions later in time than such letters so from a financier’s perspective it may be prudent to consider refreshing such letters from time to time in the absence of settlement arrangements.

It is also usual to see wording in such letters that you would expect to see in a contract. For example, a lengthy recital of contract clauses relied upon and reference to governing law and jurisdiction. However, if and to the extent that such letters simply reserve the financier’s rights, they are not a contract and such wording is probably unnecessary. (The position would be different if, for example, the letter also indicated the financier’s agreement to make certain concessions or restructure some financing terms. In that event, the letter might either reflect an offer or an acceptance, or record a variation – assuming the other elements of a contract are present.)  

Whether you are a (1) financier facing defaults, requests for a moratorium or similar, or suspect impending defaults, or (2) a debtor seeking relief, protection, or restructuring, please don’t hesitate to reach out to the Stephenson Harwood team today. Early and accurate advice can help clarify the options realistically available and help ensure proper protection of your rights, to the greatest extent possible.  

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For further information, please contact:

Evangeline Quek  , Partner, Stephenson Harwood

[email protected]

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