CONSIDERATION NEEDED FOR VARIATION / MODIFICATION OF A PRE-EXISTING CONTRACT
The concept of consideration in contract law is one over which much ink has been spilled. In the recent Singapore Court of Appeal (“SGCA”) decision of Ma Hongjin v SCP Holdings Pte Ltd [2020] SGCA 106 (“MHJ v SCP”), the 5-member SGCA dealt with the issue of whether consideration is needed insofar as the variation or modification of a pre-existing contract is concerned in an unanimous judgment delivered by Andrew Phang Boon Leong JA.
Scope of blog. In this blog, we will only focus on the comments made by the SGCA on the issue of the doctrine of consideration in the context of the variation or modification of pre-existing contracts.
Requirement for consideration not dispensed with for contractual variations. Cutting to the chase, the SGCA unequivocally held at [60] MHJ v SCP that “none of the arguments in favour of the abolition of the doctrine of consideration in the context of the variation or modification of contracts is persuasive” (emphasis in original).
In this regard, the SGCA highlighted the following:
1. At [61] MHJ v SCP, the SGCA re-iterated that it was “most practically wise to maintain the status quo… as such an approach would afford the courts a range of legal options to achieve a just and fair result …” (emphasis in original).
2. At [62] MHJ v SCP, the SGCA noted that even though it has been more than a decade since the decision of Gay Choon Ing v Loh Sze Ti Terence Peter and another appeal [2009] 2 SLR(R) 332, the “… difficulties with regard to the possible alternatives to the doctrine of consideration… do not appear to have been resolved…”.
3. At [63] – [65] MHJ v SCP, the SGCA highlighted that as a legal rule must be intended to be applicable universally, a change in law in dispending with the requirement of consideration would only be consistent with a basic scenario where the parties in an existing contractual relationship are seeking to cooperate with each other, and does not address other scenarios. This, the SGCA pointed out, would bring us back full circle to the difficulties with alternative doctrines. Further, given that it is no longer onerous to demonstrate that the requirement of consideration has been met, and that parties can exclude the requirement for consideration for the variation of the contract, it may be that the “inconvenience” of consideration may have been somewhat exaggerated.
4. At [67] – [93] MHJ v SCP, the SGCA also highlighted that the case law is inconclusive. Traversing the authorities from New Zealand to Canada, the SGCA concluded that the case law is inconclusive insofar in terms of whether consideration is or is not required in the context of contractual variation or modification, and that there are difficulties which the case law have not addressed.
5. At [94] MHJ v SCP, the SGCA also highlighted that if the doctrine of consideration is abolished in context of contractual variation or modification, why should the doctrine of consideration not be abolished with regard to the formation of contracts? And, the SGCA highlighted, “brings us back – full circle once again – to the more general issue as to whether or not the doctrine of consideration as a whole should be abolished…”
For some of our readers, the above discussion is of little practical significance. This is a point acknowledged by the SGCA itself at the very second paragraph of MHJ v SCP, where the SGCA stated that “… the existing case law renders it relatively easy to demonstrate the presence of valid or sufficient consideration in practice.”
Importance of contractual clauses. As such, we will end off by highlighting that in MHJ v SCP, the SGCA distinguished between the following clauses:
1. Clause 9.3 in MHJ v SCP, which provided that “No amendment of variation of this Agreement shall be effective unless so amended or varied in writing and signed by each of the Parties” ([30] MHJ v SCP).
2. Clause 14.2 in the case Benlen Pte Ltd v Authentic Builder Pte Ltd [2018[ SGHC 61, which provided that “This Sub-Contract shall be varied or modified only with prior written consent from both parties.” ([41] MHJ v SCP).
On a cursory reading, both clauses appear to be the same: they appear to be simple “no oral variation” clauses.
However, the SGCA held that the two clauses have a substantive difference:
1. The former clause “cannot be construed to mean that the parties agreed that no fresh consideration would be required for subsequent variation” ([42] MHJ v SCP). So, you need fresh consideration for a variation.
2. However, the latter clause does not require fresh consideration, because it provided that “… the contract “shall [ie, must] be varied or modified only with [ie, as long as there is] prior written consent from both parties”…” ([42] MHJ v SCP). You only need the parties’ agreement in writing to support a variation.
This is significant because if your construction contract does not have a variation clause (which it should have, given how common variations are), then you may still be able to have variations without needing fresh consideration if your contract has a clause similar to Clause 14.2.
Or to put it in another manner, if your contract has a clause similar to Clause 9.2, even if the parties agree in writing to vary the contract, unless there is fresh consideration (e.g., additional payment), the agreement will not be valid to support a variation of the contract as the requirement for writing is merely a minimum threshold.
We do highlight, however, that the variations usually contemplated by variation clauses are not necessarily the same as the type of variations we are discussing in this context, though they may overlap.
Nonetheless, pay attention to what your contract says. While the doctrine of consideration does not frequently feature prominently in most construction disputes, it can arise, and when it arises, it can pose difficulties.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.