Can a contract be formed via continuing negotiations without a precise point in which there was a clear acceptance?
1 In Day, Ashley Francis v Yeo Chin Huat Anthony and others [2020] SGHC 93 (“Ashley Day”), the Singapore High Court was invited to decide whether a contract could be formed via continuing negotiations without the need to identify a single point in time when the necessary consensus ad idem was reached between the parties.
2 In seeking to claim damages against his former business parties for the alleged breach of two oral agreements, the plaintiff argued that the court should ensure that “the reasonable expectations of honest men are not disappointed” by adopting a “flexible and holistic approach” for oral agreements which were based on continuing negotiations (i.e. where there was more than one meeting or conversation). Such a holistic approach was sensible as oral agreements may be based on unspoken understandings.
3 However, in his judgment, Justice Aedit Abdullah rejected the radical approach advocated by the plaintiff, and affirmed the traditional position that a contract or an agreement can only come into being when there was a precise point of formation of the contract. Abdullah J also briefly touched on the argument of proprietary estoppel.
4 The facts of this case are not particularly interesting. Hence, I thought I should simply highlight the salient learning points.
Learning points
5 First, there must be a precise point of formation of a contract. This is important because the time of formation affects matters such as:
- the limitation period for contractual actions;
- the time when obligations begin;
- the time of expiry of the contract;
6 This requirement is also necessary in order to give commercial certainty to the parties that their continuing negotiations would not be taken to be a binding contract unless there was a clear acceptance at some point in time.
7 Second, it is not desirable or sufficient for a plaintiff to put together a universe of emails, messages and conduct, and argue that the collective sum of these show that an agreement was reached, without showing when the definitive point was. The strands of evidence must be mutually reinforcing and must definitively point to the fact of an agreement.
8 If the court is too ready to conjure up a binding contract from a series of equivocal negotiations and subsequent conduct, it may encourage litigation by hopefuls.
9 Third, continuing negotiations can be complicated as it is difficult to ascertain the subjective intentions of parties. It provides more certainty for the court to draw a clear line, and for parties to meet that standard, than for the court to have such a flexible standard that parties never know when it is met in each case.
10 Fourth, the courts should not impose proprietary estoppel too willingly in the commercial context. Parties dealing at arm’s length in a commercial setting would expect their dealings to be resolved through contractual arrangements more than anything else. Representations made in such a setting would be less likely to be relief upon, and representations would be less likely to be treated as operative representations that are effective in proprietary estoppel. In other words, negotiations falling short of agreement would likely not sufficiently constitute a representation making out proprietary estoppel.
11 The risk of allowing proprietary estoppel full reign in a commercial setting is that it could engender uncertainty. Proprietary estoppel claims are intensely fact sensitive, and there are no bright line rules; it would require careful consideration of the facts, and careful sifting of the various allegations that were made to determine what the facts are. The whole process is inimical to the sort of fast and robust determination that is required to ensure that commercial transactions are not hindered.