Court Determines if There's a Contract Existence

Following closely to the Singapore High Court in Chwee Kin Keong & Others v Digilandmall.com Pte Ltd [2004] 2 SLR 594 as a precedent with similar context, the court would most likely try to determine if there is an existence of a contract or if an agreement has been reached in the first place, so we refer to Lord Phillips in Shogun Finance Ltd v Hudson (2003) 3 WLR 1371 at [123], also quoted in Chwee Kin Keong & Others v Digilandmall.com Pte Ltd (2004), whereby it was stated that:-

“A contract is normally concluded when an offer made by one party (“the offeror”) is accepted by the party to whom the offer has been made (“the offeree”). Normally the contract is only concluded when the acceptance is communicated by the offeree to the offeror. A contract will not be concluded unless the parties are agreed as to its material terms. There must be “consensus ad idem”. There is one important exception to this principle. If the offeree knows that the offeror does not intend the terms of the offer to be those that the natural meaning of the words would suggest, he cannot, by purporting to accept the offer, bind the offeror to a contract: Hartog v Colin & Shields [1939] 3 All ER 566.”

Betty knew that the toy figurine was worth more than $500 and must have realized the offer did not express the true intention of Mimi. Her immediate response to Mimi’s advertisement displayed the characteristics of “snapping up”, stated in the Digilandmall case as “the haste or urgency with which the non-mistaken party seeks to conclude a contract; the haste is induced by a latent anxiety that the mistaken party may learn of the error and as a result correct the error or change its mind about entering into the contract.” Further to it, on 3rd May, upon realizing the error made in the advertisement, Mimi sent out an email to Betty to clarify that it was a typographical error which was advertised. Based on the above, our opinion is that there is no existence of a binding contract because Betty could not bind Mimi to a contract since she was aware of the error.

Invitation to Treat

Betty could try to argue that she understood the advertisement as an offer based on the natural meaning of the words “You may accept the following offer…” posted the online advertisement and therefore a contract was concluded when she sent an acceptance of offer back to Mimi on 1st May.

To counter this argument, our opinion is that, a genuine offer must first be distinguished from an invitation to treat. An offer may be defined as a statement of willingness to contract on specified terms made with the intention that, if accepted, it shall become a binding contract. An invitation to treat, on the other hand, is not an offer which is capable of being turned into a contract by acceptance. It is a mere invitation by one party to the other party to make an offer, where the first party is free to accept or reject.

Advertisements of goods for sale, including web advertisements, are generally viewed as invitation to treat (per Chwee Kin Keong & Others v Digilandmall.com Pte Ltd [2004] 2 SLR 594 at [93]), as “placing an advertisement on the Internet is essentially advertising or holding out to the world at large”. However, there are also exceptions to this principle. Advertisements may be also construed as offers if they are of the unilateral type, such as offer for rewards because it is a contract brought into existence by the act of one party in response to a conditional promise by another (in Carlill v Carbolic Smoke Ball Co [1892]).

Therefore, we would advise Mimi that the court most likely would not hold her online advertisement as an offer; or rather, it is merely a general example of an invitation to treat.

Intention to Create Legal Relations

We would also like to add that generally advertisements, referred to as invitation to treat, can only be considered mere declarations of intention and should not be legally binding or have any legal consequences. Due to the lack of intention to create legal relations, it has once again, supported our assumption of the non-existence of a binding contract in Mimi’s situation.

Acceptance of Offer via Automated-generated E-mail System: Electronic Transactions Act (2010)

Further to our arguments above, we refer to Betty’s email and Mimi’s auto-generated reply dated 1st May. It could be argued that they are Betty’s offer to buy the Duperman Figurine Model and Mimi’s acceptance of the offer respectively. The issue that arises in this situation is whether the auto-generated email can be considered as an acceptance to Betty’s offer. Although s15 ETA (2010) states that an offer and acceptance of offer through the use of automated-generated email system can form a contract, it is evidently clear that the context of Mimi’s auto-generated reply does not indicate an acceptance to Betty’s offer. Rather, it seems more than a provision of information to inform the sender that the email has reached its designated email address.

Unilateral Mistake

In the event that the court accepts the existence of a contract, we explored the possibility of the situation being one of the operative unilateral mistakes which would discharge Mimi from any obligations in fulfilling the contract which Betty claimed to exist.

As per the Digilandmall case at [106], it refers to Professor Andrew Phang’s treatise on Cheshire, Fifoot and Furmston’s Law of Contract (2nd Singapore and Malaysian Ed, 1998). He classifies mistake in the following manner:

“In unilateral mistake, only one of the parties is mistaken. The other knows, or must be taken to know, of his mistake…Where either mutual or unilateral mistake is pleaded, the very existence of agreement is denied. The argument is that, despite appearances, there is no real correspondence of offer and acceptance and that therefore the transaction must necessarily be void.”

For a unilateral mistake to be operative, it must relate to the terms in the contract whereby one party has knowledge of the mistake in the terms and takes advantage of the other party’s error and such mistake could render a contract void. In Hartog v Colin & Shields (1939), the contract was held to be void because there was no consensus on the terms due to a unilateral mistake on the contract terms.

In addition to it, it would be reasonable for us to assume that Betty’s “snapping up” behavior to conclude a contract has suggested her knowledge of the mistake. Fulfilling all the criteria of a unilateral mistake, the court might hold the case as a unilateral mistake. Mimi could possibly rescind a contract affected by unilateral mistake or refuse to fulfill her obligations in the contract as remedies for unilateral mistakes.

Conclusion

With reference to the above, we summarize our arguments hereinafter:

Betty cannot bind Mimi to a contract which she claimed to exist due to her actual knowledge of the typographical error based on the quote from Lord Phillips in Shogun Finance v Hudson;

Mimi’s online advertisement was merely an invitation to treat made to the world at large, instead of a unilateral contract with reference to the Digilandmall case, where it mentioned above that advertisements for goods for sale are generally invitation to treat;

There is no intention to create legal relations in the online advertisement as advertisements are generally considered as declaration of intention;

The auto-generated reply cannot be regarded as an acceptance to Betty’s offer to buy the Duperman Figurine Model because the automated generated email only indicated that Betty’s email has been received, not acceptance of Betty’s offer.

In our opinion, a court would be most likely to hold that there is no binding contract between Betty and Mimi, and if so, Mimi will have no obligations to fulfill any contract which Betty claimed to exist. In the event that the court holds the existence of a contract, we could argue for an operative unilateral mistake based on similar precedents: Chwee Kin Keong & Others v Digilandmall.com Pte Ltd (2004) and Hartog v Colin & Shields (1939) to render the contract ineffective.

Question 2

The key clause mentioned in the case study is known as the limitation of liability clause. Similar to an exemption clause, it is generally inserted in a contract which purports to limit one party’s liability for breach of contract, misrepresentation or negligence.

In order to rely on an exemption clause, the party should first establish the following points: Incorporation, Construction, Unusual Factors and Unfair Contract Terms Act (UCTA). In the event whereby one party attempts to invalidate the contract, an exemption clause will become effective in protecting the party relying on the exemption clause by excluding or limiting his liabilities.

Incorporation by Signature

When a party signs a document purporting to have contractual effect containing an exemption clause, he or she is bound by its terms including any exemption clause it might contained, whether the party has read it or not. Only with exception to misrepresentation or fraud, then a signed document can be rendered wholly or partially ineffective (per Scrutton LJ in L’Estrange v Graucob [1934] 2 KB 394, SBL, ¶5-405).

“When a document containing contractual terms is signed, then in absence of fraud… or … misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not”

Here, the limitation of liability clause has been incorporated into the contract, on which Elle signed before leaving the cloak-room counter. Further to it, Marine Parade Casino & Resort World (“MPCRW”) took reasonable steps to bring the exemption clause incorporated in the contract to the notice of Elle by directing Elle to look at the back of the ticket where key clauses were printed on as well as having the attendant at the cloak-room counter to highlight the key clauses, including the exemption clause to Elle. In our opinion, these steps acted as a cautionary prevention for misrepresentation in the situation.

It is apparent that the exclusion clause has been incorporated as a part of the contract and it was immaterial that Elle had not read the clause or was not aware of its existence. The fact that she signed it meant that she was bound by it and was deemed to have read and agreed to the terms of the contract before signing the contract. Analyzing the situation, we would advise Elle that there would be no positive argument on the incorporation of the exemption clause that could render the contract void.

Construction

Generally, for older cases, an exemption clause shall be deemed ineffective when there is a fundamental breach, known as the main purpose rule or the repugnance rule. Assuming that “rooms where coats and bags can be stored securely under surveillance of a staff” is accepted as the natural meaning of a cloak-room with an attendant, we would have reasons to believe that MPCRW had failed to deliver the fundamental service which the cloak-room is intended to provide. However, the modern approach is to view the main purpose rule as the rule of construction, instead of the rule of law. Where there is a fundamental breach and a party seeks to reply on an exemption clause, it is a matter of construction of the contract as to whether such reliance is allowed. In other words, in the event that the words used in the exemption clause are clear and unambiguous, it can be effective even in the case of fundamental breach.

A fundamental breach might entitle Elle to put an end to the contract, depending on the construction of the exemption clause in her situation. From the case study, the limitation of liability clause incorporated in the contract has apparently been constructed wide enough to cover this fundamental breach, limiting MPCRW’s financial liability for any package loss to a maximum of $50. Therefore, due to the exceeding amount of the value of Elle’s bag, she would not be able to make MPCRW liable for the loss of $1,000 cash in her bag.

However, the construction of the exemption clause has not protected anyone except MPCRW the company itself from the liabilities for the loss of Elle’s $1,000 cash. The privity of contract rules generally does not allow third parties, one who is not a contractual party, to be protected by the exemption clause in the contract. However, third parties may take the benefits of the exemption clause in the contract subject to the fulfillment of the following conditions:

the contract must make clear that the third party is intended to be protected by the exemption clause;

the third party is contracting on the behalf of both himself or herself as well as MPCRW;

the third party has to authorize MPCRW to construct the contract in this way; and

the third party has to provide consideration for the promise to exclude their liabilities

(per Lord Reid in Scruttons Ltd v Midland Silicones Ltd [1962]).

In Adler v Dickson (1955), the passenger Mrs Adler has sued against the owner of the ship and the boatswain for her injuries occasioned by the negligence of the company’s employees, when she fell from the ship’s gangplank, which had been left unsecured. Once again, this case has shown that under the privity of contract, the exemption clause could only protect the contracting party, which is the company itself, and not the employees or the owner of the ship.

Based on our arguments above, we would advise Elle that although the exemption clause has protected MPCRW, there is still a high possibility of suing the employee on duty at the period of time when her bag was deposited in the cloak-room, or even the owner of MPCRW for the loss of $1,000, for negligence as the exemption clause was not intended to exclude or limit them from any liabilities.

Unusual Factors

An exemption clause may be rendered wholly or partially ineffective if there is any misrepresentation on the spot when the contract is formed. Before signing and acknowledgment of the contractual terms, if there are any unusual factors that may impair Elle’s understanding of the terms, the exemption clause may deem void. In Curtis v Chemical Cleaning & Dyeing Co (1951), misrepresentation occurred when the company’s employee explained to Ms Curtis on the cleaner’s liability in certain ways and in particular to the risk of damage to the beads and sequins on the wedding dress, and in the end, the court held that the defendant could not rely on the exemption clause as the employee has misinterpreted the true scope of the exemption clause to Ms Curtis.

However, in Elle’s situation, she did not question the key clauses which were highlighted to her by the attendant at the cloak-room counter before signing on the ticket. The issue of the ticket signed by Elle can be regarded as offer. Unlike in Thorton v Show Lane Parking (1971), although the exemption clause was printed on a paper ticket instead of a contractual document, Elle signed and retained the ticket without any objection after the attendant has highlighted the key clauses to her, her act can be regarded as an acceptance of offer. The contract was then concluded at that point of time.

There is no positive argument we could advise Elle as no unusual factors occurred in order to render the exemption invalid based on our analysis stated above.

Unfair Contract Terms Act (“UCTA”)

The basic objective of the Unfair Contract Terms Act (UK) passed in 1977 is to regulate exemption clauses in contracts in situations of the breach of contract and or negligence and can either render the exemption clause effective or ineffective subject to the test of reasonableness. Majority of the UCTA provisions protect the parties who are the consumers in business transactions, although UCTA may still apply in some non-consumer situations.

We refer to the guidelines for reasonableness in the Second Schedule of the UCTA to evaluate if the exemption clause in MPCRW’s contract has shown to satisfy the requirement of reasonableness for it to be valid. UCTA states the following factors to be considered for reasonableness:

The bargaining position of the parties;

In Elle’s situation, a contract is made between MPCRW acting in the course of a business and Elle as a consumer and they contract on MPCRW’s written standard terms of business, where the contract contains an exemption clause and it shall only be effective if it satisfies the test of reasonableness. Elle, as the protected party contracting on MPCRW’s standard terms, is given the protections as a consumer under Section 3 in UCTA and therefore there exists an inequality of the bargaining positions of both parties.

The customer’s knowledge and understanding on the exemption clause in the contract;

Under Section 2 in UCTA it holds that negligence cannot be excluded in respect to personal injury and/or death. In relation to other loss/damage liability, it cannot be excluded unless there is reasonable notice. Elle was given sufficient notice of the exemption clause and therefore it is most likely that the exemption clause will be upheld.

Practical compliance with the exemption clause.

Under UCTA, the reasonableness test is based upon the bystander test where it has to be so reasonable that the bystander would agree to its terms. This basically holds that there are implied terms such that a reasonable quality of services should be provided by the cloak-room of MPCRW. Based on the assumption that attended cloakrooms are intended to provide secured storage for cloaks and bags, the exclusion of liability for negligence which resulted in Elle’s economic loss cannot be excluded. It will not be fair and reasonable for MPCRW, as the party in breach, to rely on an exclusion clause for failing to meet the specifications of Elle as a customer.

However, this again will subject to the reasonableness test where the test applied to the whole term or to the particular reliance on it. Therefore if MPCRW was to exclude its full liability from the loss of any item stored in the cloak-room, it is very unlikely liability can be fully excluded under this practical compliance factor. It is clear from the limitation of liability clause stated in the contract that, MPCRW does not exclude its liability wholly but instead, seeks only to limit its liability on lost items valued up to a maximum of $50 in the cloak-room. From our point of view, this will most likely be held reasonable.

As for last 2 factors: the presence of inducement when the customer is accepting the exemption clause and whether the goods are manufactured accordingly to the customer’s specifications, we do not think that they are applicable in Elle’s situation.

Conclusion

There are different ways of viewing the objectives of exemption clauses. On the one side it could be argued that exemption clauses are simply a term for defining the exact obligations of the contracting party, however on the other side it could also be argued as a shield against any breach of contract. Whatever is its purpose, as long as they are constructed and incorporated properly into the contract in accordance with UCTA, they shall be deemed valid.

Gathering what we have analyzed so far, Elle is not in a favoring position in the situation. From the start, the contract was formed upon Elle’s acknowledgment to the key clauses stated within. It is regrettable that she was in a rush and neglected the importance of reading and understanding each key clause. Though an unusual factor, such contractual terms printed on a paper ticket, was present at the moment, but it was barely sufficient to render the exemption clause invalid, unless further evidence such as misrepresentation by the attendant can be proven. In the scenario, the attendant has specifically highlighted the key clauses to Elle.

We would say that it is not advisable for Elle to sue MPCRW, but however she can consider the possibility of suing the owner of MPCRW or the attendant on duty for negligence based on the privity of contract. In the event of MPCRW might have a good security system, like close-circuit television (CCTV) installed in their cloakroom, they could possibly assist in finding the culprit responsible for the lost of Elle’s money.

Question 3

Madison sold his private dental practice at Jurong Central to Jane after convincing her of the good profitability of the business and the reasons for selling the dental practice. However after the purchase of the business, Jane had found out several deficiencies and possibly even fraud by Madison, she had felt cheated and wanted to sue Madison for misrepresentation. As such, we are advising Jane and the available remedies to rectify the situations.

The main purpose is to advice what courses of action and remedies against Madison Jane could take. We must first need to consider several important issues:

Which are the statement of fact and which are the statements of opinion?

Whether there was indeed a false statement of fact or misrepresentation by Madison?

Which statement by Madison induced Jane to enter into contract to buy the dental practice?

Which statement actually resulted in losses to Jane?

What are the courses of action and remedies available to Jane?

What to consider amount to sue for damages, whether monetary or non-monetary, if there was indeed a fraudulent misrepresentation?

Existence of Misrepresentation

A representation is a statement made before a contract is made concerning some matter relating to the contract. Representations are the statements made related to the contract but do not form part of the contract (Behn v Burness [1863]). A misrepresentation arises when a person makes a false statement of fact to another which induces the other party to enter into a contract, resulting in his loss.

A statement of fact which is a representation must be distinguished from a statement of law, from a statement of opinion or intention, or from a “mere puff”. A false statement amounts to a misrepresentation only if it is a statement of fact. When a statement of law (e.g. legal principle) is wrongly stated, it is not considered as a misrepresentation.

Likewise, when the misstatement is a statement of opinion and not of fact, it is not a misrepresentation. It is important to take note that, when a statement of opinion is made by someone who should know the facts, it may amount to a statement of fact because it may be implied that he knows of facts which justify his opinion. According to the court, “a misrepresentation is considered to be harmless if, amongst other things, a plaintiff did not allow it to affect his judgment. (Tan Kim San v Land & Lim Cher Kia [2004]).

A person can sue for misrepresentation even if he is given the opportunity to verify the truth but did not do so. To qualify as a misrepresentation, the statement must induce the innocent party into entering into the contract. The statement need not be the sole inducing factor, as long as it did play a part in the inducement. In Panatron Pte Ltd v Lee Cheow Lee & Another [2001], the trial judge had concluded that the defendant did make alleged representations to the respondents and defendants knew that these representations were false, which had induced the respondents to enter into contract this legal ruling had been further upheld by the Court of Appeal in Singapore. The plaintiffs could have made use of the opportunity to examine the statements but did not do so. If they had examined the statements he would have discovered the truth. It was held that the misstatement was a misrepresentation. It does not matter if the person did not verify what was spoken or whether he did not make use of any opportunity to verify the statement (also similar scenario also shown in Redgrave v Hurd [1881]).

Madison made Jane a representation that the flow of business at the dental clinic “is good” and attempted to quantify it by showing his accounts which reflect an annual profit of $120,000. Whether Jane did or did not check if Madison’s statements on the dental clinic show an income of $120,000 do not affect the fact that Madison might have made an operative misrepresentation. In fact, the above mentioned cases suggests a similar fraudulent misrepresentation on Madison’s part as it is unlikely that as the owner of his own dental practice, Madison is not aware of the actual income that the dental practice is generating in the past years.

Fraudulent misrepresentation arises when a false statement is made, despite knowing it to be untrue. In short, there is a “lie”. We must now consider and identify which fraudulent misrepresentation was made by Madison in order to have a strong case when suing Madison. Otherwise, the court will not be convinced. Take Raiffeisen Zentralbank Osterreich AG v Archer Daniels Midland Co (2007), if there is no evidence to prove any dishonesty, there will be no fraud even if the statement may be exaggerating and negligent.

In Edgington v Fitzmaurice (1885), the company directors sent shareholders a prospectus inviting subscriptions for debenture bonds. It said money would go to alter their buildings, and expand the business but the purpose was to pay off company’s liabilities, because the company was in trouble. Their statement of intention was mistakenly believed as a statement of fact. The Court of Appeal upheld Denman J at first instance, saying that the directors were liable for deceit. Cotton LJ held that the statement of intention was a fraudulent misrepresentation. This case law holds that a statement of present intentions can count as an actionable misrepresentation and that a misrepresentation need not be the sole cause of entering a contract so long as it is an influence.

A false representation may also give rise to an induced cause of action due to the misrepresentation. Fraudulent misrepresentation requires a false representation of fact which is made knowingly, or without belief in its truth, or in a reckless and careless way. Misrepresentation can be a vitiating factor, a factor which undermines a contract to some extent.

We also noted that Madison’s statement that “everything is wonderful… I would not have sold the practice if I am not retiring” could also be deemed to be a fraudulent misrepresentation given that his actions in setting another private dental practice in town and contacting his former patient.

The fact that the dental practice that Madison sold was at Jurong Central while the new one he is setting up in town does not affect the misrepresentation unless it is an accepted industry norm that “retiring” means closing shop in one location and setting up again in another location.

Remedies for fraudulent misrepresentations

Legally, as the misled party, Jane may sue for damages for the tort of deceit. Fraud is a tort called deceit in this context and therefore Jane shall be suing in tort and not in contract. For fraudulent misrepresentation, the damages are calculated by putting both parties into the position before the tort was committed and not after the contract has been concluded. Jane may rescind the contract (e.g. reclaiming the $100,000) with or without claiming damages for deceit. Jane may also affirm the contract and still claim damages for deceit (e.g. the 6 months of work where she earned very little or making a loss since taking over the dental practice compared to what she would have earned elsewhere).

Other Considerations

Although very low, we should still consider that there might be a slight possibility of Madison being absolutely honest about the $120,000 income he earned annually. The dental practice may have really made a profit of $120,000 the previous years due to excellent marketing techniques or Madison’s good customer service which resulted in good business revenue and profit. As for Madison who has been contacting his former regular customers, we believe the court will unlikely hold it as a legal issue, but more of an ethical issue.

Jane should also consider that, assuming that she sued Madison for the return of the full sum of money and other damages and won the lawsuit, it might end up being “a waste of time and money” because Madison would probably be unable to pay, considering if he had spend all his money in setting up another private dental practice in town and paid for other expenses such as purchase of dental equipments, renovations and other general expenses. What are the chances that he will be able to pay anything?

Winning the lawsuit against Madison and getting back the cash are really two very different things. It depends on whether Madison has the capability to pay Jane back. If not, Jane would have to take legal actions by hiring her lawyer (which might incur additional litigation costs) to liquidate Madison’s assets in order to get the money back.

Alternatively Jane can also opt for a private settlement in the present of their lawyers or opt for arbitration in Singapore, where its arbitration-friendly laws is increasingly gaining reputation for settling commercial/business disputes. Unlike the court system, arbitration matters are confidential and both parties are bound by the arbitrator’s decision. Other advantages of arbitration settlements are that it’s faster, cheaper and more flexible than litigation in courts. Furthermore, Singapore is acclaimed all over the world for its integrity, predictability and acute appreciation of the need for the law to keep pace with changes in the world. Maxwell Chambers, Singapore’s world-class, customized, high-tech seat for arbitration cases, handled 120 cases in Year 2010, as compared to only 46 cases in Year 2009. Arbitration, in view of the very high quality of the dispute resolution process in Singapore, could be a more amicable solution to settle the dispute between Madison and Jane.

Conclusion

We conclude that the court might most likely hold it as a fraudulent misrepresentation which Madison made during the negotiation for the sale of the dental practice and Jane might stand a good chance in court if she sues Madison. Our advice to Jane is that if she sues against Madison for fraudulent misrepresentation and wins, she could possibly either rescind contract or affirm the contract while claim for damages thereafter. But in the event that Jane wins the lawsuit, there would be other considerations as to how she can get her money back as well if Madison is unable to pay up.

Jane could also consider having a private settlement or arbitration as other alternatives to suing against Madison in the court as there are also possibilities that the court might dismiss Jane’s accusation of misrepresentation because Madison could have possibly made an honest representation of his sales revenue and this could result in Jane incurring heavy litigation costs.

References and Citations

Catherine Tay Swee Kian/ Tang See Chim (1991), Contract Law: Layman’s Guide, Times Editions, Singapore

Claude D. Rohwer/Anthony M. Skroki (1991), Contracts in a Nutshell (5th Edition), West Group Publishing

Benny S Tabalujan/Valerie Du Toit-Low (2009), Singapore Business Law (5th Edition), BusinessLaw@Asia