RELEVANCE OF SUBSEQUENT CONDUCT IN DETERMINING CONTRACT FORMATION
This week’s blog covers the decision in Chng Heow Ho v Chng Choon Ming Roger [2023] SGHC 325, in particular the use of subsequent conduct in determining if parties have actually entered into a contract.
Facts. The background of the case is in relation to the business empire of one Chng family. There was a breakdown of relationships between the family members participating in the business culminating in a suit by the plaintiff, Mr Victor Chng (“Victor”) against his nephew, the defendant, Mr Roger Chng (“Roger”), essentially for moneys held by the latter in an account with Standard Chartered Bank in which the profits of the family business were occasionally deposited (“Family Account”). Victor claims he has a one-quarter share pursuant to a purported agreement (the “Purported Agreement”) made orally in 2006 during a family meeting in Hanoi.
Commencement of the suit and claims. Victor commenced the suit based on a breach of the Purported Agreement by Roger and alternatively, relying on the Purported Agreement, that Roger held the money in the Family Accounts or the profits on an express trust, a common intention constructive trust or a presumed resulting trust, partly for Victor’s benefit.
This article will only discuss the court’s judgment in relation to the issues of contract formation regarding the Purported Agreement.
The approach. As set out in [55], in determining the existence of an oral agreement, “… the court will consider the relevant documentary evidence and contemporaneous conduct of the parties at the material time, and where possible the court should look at the documentary evidence first. Where there is little or no documentary evidence, the court will examine the precise factual matrix to ascertain if an oral agreement has been concluded between the parties.”
The Court also re-iterated that it is permissible to look at parties’ subsequent conduct to determine if a contract was formed (at [55]).
The Terms of the Purported Agreement. In analysing if the Purported Agreement was formed, it is important to see what the alleged terms of the Purported Agreement are.
And according to Victor, the terms of the Purported Agreement include, among others, the following (see [53]):
That the profits deposited in the Family Account were to be distributed equally to Victor and his brothers (the “Brothers”) and Mdm. Lim (the matriarch of the family);
That Roger will continue to manage the “SC18 Account” (one of the Family Accounts) and that he would distribute the profits to each Brother equally whenever that Brother requested for his share;
That if the profits were not distributed, Roger would hold, invest or use the profits for the benefit of the each of the Brother and his family, until such time payment was requested by that Brother; and
That Roger would render an account of the profits to every Brother on a regular basis, or an account of a Brother’s share of the profits when requested by that Brother.
No contemporaneous evidence. To begin with, the Court found that there is no contemporaneous documentary evidence to support the existence of the Purported Agreement (at [57]).
Oral evidence not cogent. Next, the Court noted that Victor’s own oral testimony casted doubt on the existence of the Purported Agreement (at [59]) and contradicted his claims as to the terms of this Purported Agreement at (at [60]).
Furthermore, the Court noted that Victor asserted at trial that an agreement subsequent to the Purported Agreement was entered into (at [70]).
The Court found that Victor’s assertion was merely an “afterthought” to shore up the inconsistencies in his claim (at [71]).
The Court also found that the two witnesses who attested in support of Victor were unreliable witnesses who were partial to Victor (at [72] – [78])
More importantly, the Court found that the oral testimony of another witness (one of Victor’s brothers) was credible, consistent and pointed to there being no Purported Agreement formed (at [61] – [62]).
Additionally, the Court at [63] found that on the evidence, there was no intention to create legal relations (which is a necessary element for contract formation). The Court noted that Victor, despite being a seasoned businessman, was “unsure as to whether he could take legal action if the Purported Agreement was breached” and that Victor initially disagreed that the legal action could be taken on the Purported Agreement, before qualifying and “prevaricated” on whether legal action could be taken. The oral testimony of another witness also stated that any understanding regarding the Purported Agreement was merely a “loose family understanding” and was “not a legally binding contract”.
Subsequent conduct. In terms of subsequent conduct, the Court highlighted that the existence of the Purported Agreement was directly contradicted by Victor’s subsequent conduct (at [64]).
Despite the terms of the Purported Agreement to share the profits equally and only among the Brothers, the Brothers did not receive equal amounts (at [65]).
Furthermore, money in the Family Accounts were expended on various matters, reducing the overall fund for distribution to the Brothers. These expenditures were contrary to the alleged terms of the Purported Agreement (at [67]).
The Court thus concluded that the subsequent conduct of parties militates against a finding that the Purported Agreement existed (at [69]).
Significance. The Court clearly took the view that Victor’s subsequent conduct supported the finding that there was no Purported Agreement in the first place.
In this regard, it could be questioned if the approach taken differed from the more cautious position taken in Ramo Industries Pte Ltd v DLE Solutions Pte Ltd [2020] SGHC 4 at [117], where the Court, referring to ARS v ART and anor [2015] SGHC 78, stated that “…given the complex relationships between human beings… conduct can be explained by a number of reasons which does not have only one explanation or there may be varying degrees of weight pointing to one conclusion. …”
Hence, one may wonder whether the subsequent conduct could have equally been characterized as showing breaches of the Purported Agreement, and not that the Purported Agreement did not even exist in the first place.
Nonetheless, it does not appear that the Court had to grapple with this argument, since it appears that this point was not argued.
And perhaps more importantly, subsequent conduct was only dealt with by the Court after finding that there was a lack of certainty of terms based on the oral evidence and that there was no intention to create legal relations.
At the end of the day, this decision makes clear that if there is a dispute over contract formation, one should also examine the parties’ subsequent conduct to see if it sheds light on the issue of whether a contract was formed or not.
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.