PREVIOUS COURSE OF DEALING AND INCORPORATION BY REFERENCE
In Nambu PVD Pte Ltd v UBTS Pte Ltd [2021] SGCA 98 (“Nambu v UBTS”), the Court of Appeal dealt with when a contract may be “supplemented” by additional terms pursuant to a previous course of dealing between the parties or by way of incorporation by reference.
In this brief blog, we will focus only on the legal issues raised by the Court of Appeal in Nambu v UBTS. While many of the legal issues raised and clarified may seem trite, nonetheless, they have important practical implications.
Receipt vs Contract. To start, at [24] Nambu v UBTS, the Court of Appeal clarified that if “… the document containing the particular term sought to be incorporated into the contract is intended merely as a receipt and not as a contractual document as such, that term will not be incorporated into the contract” (emphasis added by the Court of Appeal).
The practical relevance of this trite proposition is can be seen from the two cases referred to at [24] Nambu v UBTS.
In Chapelton v Barry Urban District Council [1940] 1 KB 532, it was held that the terms found inside a ticket did not form part of the contract, as the contract was formed before the ticket was issued.
And in Olley v Marlborough Court Ltd [1949] 1 KB 532, it was held that clauses found inside the notice within the bedrooms of a hotel did not form part of the contract between the hotel and the guest, as the contract was formed at the reception.
Timing is critical. The key point is that timing is critical: in general, once the contract is formed, you cannot incorporate a term if that term is based on a document issued after the contract is concluded.
However, there are two specific situations identified by the Court of Appeal at [25] Nambu v UBTS where the timing may not be so important.
Supplementation. The first situation set out in [25] Nambu v UBTS is the situation where “the contracting parties intend to supplement an otherwise bare agreement with more detailed terms subsequently”, which is also known as incorporation by reference.
As highlighted at [28] Nambu v UBTS, the leading Singapore decision on this is the case of R1 International Pte Ltd v Lonstroff AG [2015] 1 SLR 521 (“R1 International”). And as clarified by the Court of Appeal at [32] Nambu v UBTS, there were three factors which led to the inference in R1 International that the parties had intended for the basic terms to be supplemented by further standard terms:
“First, there was evidence to show that it was the practice in the international rubber commodities to deal on standard terms, and the buyer was a known player in the rubber trade.”
“Second, the second transaction was too complicated to have been governed by the terms in the email confirmation alone.”
“Third, the buyer sought to impose its own set of standard terms over the terms proposed by the seller, which must have referred to the industry standard terms.”
Therefore, when parties enter into a Letter of Intent to carry out works pending the entry into a formal sub-contract, R1 International may apply such that the terms of the formal sub-contract will apply to regulate the parties’ obligations for works carried out under the Letter of Intent.
However, sometimes, R1 International does not apply because, e.g., it is clear that the parties intend for the works under the Letter of Intent to be governed by one set of terms, which is different from the set of terms under the formal sub-contract.
In addition, we highlight that the term “incorporation by reference” is sometimes also used to refer to documents which are incorporated into the contract because they are “referred” to specifically inside the contract.
This is not the same type of “incorporation by reference” as the R1 International situation: if the terms are expressly incorporated into the contract, they are simply part of the contract.
Previous course of dealing. The second situation where timing may not be so important is the situation when there has been a previous course of dealing between the parties ([25] Nambu v UBS).
As set out in [26] Nambu v UBTS, “a particular term can be incorporated in a particular contract if it can be shown that there has been a previous course of dealing in which the term has figured.” And as held at [26] Nambu v UBTS:
“… It must follow, as a matter of first principles as well as general logic, that the term has figured during those previous occasions as part of the contracts concerned (see Chitty at para 13-011). Put simply, the term can be incorporated in the present contract because it had been a contractual term on those previous occasions. This is also only logical, for it would be both senseless and unprincipled to permit a term that had no contractual force during those previous occasions to be incorporated as a term with contractual force in the present contract. In other words, the court would be prepared to incorporate that term in the present contract (thus conferring upon that term contractual effect) despite the fact that it was not otherwise incorporated (for example, by way of signature or reasonable notice) precisely because the contracting parties had consistently contracted with reference to that term on previous occasions in the past. …” (emphasis as in original)
Flowing from the above, the Court of Appeal held that the obiter observations of McLure P and Buss JA in the Court of Appeal of Western Australia decision of La Rosa v Nudrill Pty Ltd [2013] WASCA 18 should not be followed ([40] – [55] Nambu v UBTS). In summary, “as a matter of both principle and authority, non-contractual documents cannot give rise to a course of dealing” ([55] Nambu v UBTS; emphasis in original).
The practical significance of this can be seen from, e.g., the case of Huationg Contractor Pte Ltd v Choon Lai Kuen (trading as Yishun Trading Towing Service) [2020] SGHC 129 referred to at [56] Nambu v UBTS, where it was held that liability clauses found in various works orders were not part of the contract between the parties as they were “mere “operational documents” evidencing the work done, and not documents which “sought to establish the terms of the contract itself”.”
In other words, even if you set out detailed terms and conditions in works order issued under a written contract to your sub-contractor, even if you issue many works orders to your sub-contractor, and the sub-contractor has been carrying out works pursuant to the works order, unless it is clear that the terms and conditions found within the works order are meant to and have been agreed to have contractual effect, they will not be taken as being part of the contract between you and your sub-contractor.
Conclusion. Nambu v UBTS is therefore an important decision as it is a reminder that once a contract is formed, it is difficult to impose additional terms or supplement the “original” terms by way of a document that is issued after the formation of the contract.
The two situations dealt with in Nambu v UBTS, where there has been a previous course of dealing and where the parties intend to supplement a bare agreement with detailed terms, are highly fact specific and need to meet specific requirements before the “original” terms can be supplemented.
Contractors should therefore take note and make sure that all salient terms are expressly incorporated into the relevant contract. If you wish to supplement your contract with additional terms, it is prudent to ensure that the additional terms are expressly recorded in writing and to obtain the counter-party’s written agreement that these additional terms form part of the contract.
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.