Case Update: Y.E.S. F&B Group Pte Ltd v Soup Restaurant Singapore [2015] – contractual interpretation

Y.E.S. F&B Group Pte Ltd v Soup Restaurant Singapore Pte Ltd (formerly known as Soup Restaurant (Causeway Point) Pte Ltd) [2015] SGCA 55

Significance: principles of contractual interpretation. Court of Appeal allowed appeal on holdings of contractual interpretation based on evidential context.

Contractual interpretation involves both the text as well as the context of the contract: [2].

If the text in a contrast is in fact plain and unambiguous, giving effect to it would usually not (simultaneously) engender an absurd result. Indeed, should an absurd result ensue, this would be a strong indication that the text concerned is probably inconsistent with the relevant context. The question then arises as to whether or not, having regard to the relevant context, the text (on a re-examination) is in fact as plain and unambiguous as was originally thought to be the case. There may be exceptional cases where the text is so clearly plain and unambiguous that the court is compelled to give effect to the meaning contained therein, notwithstanding that an absurd result would ensue. This would be an extremely rare situation because the law ought generally to lead to a just and fair result: [31].

The context cannot be utilised as an excuse by the court to rewrite the terms of the contract according to its (subjective) view of what it thinks the result ought to be in the case at hand. To this end, the court must always base its decision on objective evidence. More specifically, whilst there is a need to avoid an absurd result, this aim cannot be pursued at all costs; it must necessarily give way if the objective evidence clearly bears out a causative connection between the absurd result or consequences on the one hand and the intention of the parties at the time they entered into the contract on the other. If the objective evidence demonstrates that the parties had contemplated the absurd result or consequence, the court is not free to disregard this to reach what may seem to it to be a more commercially sensible interpretation of the contract. Avoiding an absurd result is thus one factor (albeit a not unimportant one) which is considered in the entire process of interpretation by the court. Put simply, the court must ascertain, based on all the relevant objective evidence, the intention of the parties at the time they entered into the contract. In this regard, the court should ordinarily start from the working position that the parties did not intend that the term(s) concerned were to produce an absurd result. However, this is only a starting point – and no more. It might, for example, well be the case that the objective evidence demonstrates that the parties were aware of the absurd result that might ensue from the said term(s), but nevertheless proceeded to enter into the contract in question: [32].

The role of context relates only to the need to place the court in the position of the party which drafted the instrument and not the drafter’s subjective intention as such: [33].

The text concerned might itself be ambiguous (ie, without even considering the relevant context). In such a situation, it is clear that the relevant context will generally be of the first importance: [34].

Much would, in the final analysis, turn on the precise facts of the case (which would, holistically speaking, include not only the text but also the context as well). It is important to observe that the process of contractual interpretation is a dynamic one. It is certainly not an unbridled exercise in raw judicial discretion: hence, the general principles which constitute the legal structure within which the process of contractual interpretation takes place. However, the practical reality is that in the sphere of application of these general principles, the precise facts are of the first importance. There is – and can be – no magic formula or legal silver bullet. Contractual interpretation is (often at least) hard work, centring on a meticulous and nuanced (yet practically-oriented) analysis of the relevant text and context. Put simply, the court is always to pay close attention to both the text and context in every case – noting that both interact with each other: [35].

The Court of Appeal in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 (CA) clearly endorsed the contextual approach to contractual interpretation – interpreting s 94(f) of the Evidence Act in a “permissive” manner “which does not make ambiguity a prerequisite for the admissibility of extrinsic evidence in aid of contractual interpretation”. The contextual approach to contractual interpretation, as accepted by our courts is statutorily embedded in s 94(f).  This approach is wholly consistent with that in relation to the role of context in a situation where the language of the term(s) is clear and unambiguous: [37].

However, the courts must remain ever vigilant to ensure that, in interpreting a contract, extrinsic evidence is only employed to illuminate the contractual language and not as a pretext to contradict or vary it. The courts are allowed to depart from the plain and ordinary meaning of the contract to some extent. The very recognition that surrounding circumstances may create ambiguity about the language used in a contract involves acceptance that words do not have fixed and clearly delineated meanings. Rather, words are sometimes penumbral; the context of the contract breaks down the rigidly-defined boundaries of meaning, introduces hues and shades, and defines the contours and limits of the penumbra: [38].

The Court of Appeal at [39] then endorsed the summary of the principles on extrinsic evidence for contractual interpretation in Zurich Insurance:

“132 To summarise, the approach adopted in Singapore to the admissibility of extrinsic evidence to affect written contracts is a pragmatic and principled one. The main features of this approach are as follows:

(a) A court should take into account the essence and attributes of the document being examined. The court’s treatment of extrinsic evidence at various stages of the analytical process may differ depending on the nature of the document. In general, the court ought to be more reluctant to allow extrinsic evidence to affect standard form contracts and commercial documents (see [110]).

(b) If the court is satisfied that the parties intended to embody their entire agreement in a written contract, no extrinsic evidence is admissible to contradict, vary, add to, or subtract from its terms (see ss 93–94 of the Evidence Act). In determining whether the parties so intended, our courts may look at extrinsic evidence and apply the normal objective test, subject to a rebuttable presumption that a contract which is complete on its face was intended to contain all the terms of the parties’ agreement (see [40] above). In other words, where a contract is complete on its face, the language of the contract constitutes prima facie proof of the parties’ intentions.

(c) Extrinsic evidence is admissible under proviso (f) to s 94 to aid in the interpretation of the written words. Our courts now adopt, via this proviso, the modern contextual approach to interpretation, in line with the developments in England in this area of the law to date. Crucially, ambiguity is not a prerequisite for the admissibility of extrinsic evidence under proviso (f) to s 94 (see [114]–[120] above).

(d) The extrinsic evidence in question is admissible so long as it is relevant, reasonably available to all the contracting parties and relates to a clear or obvious context (see [125] and [128]–[129] above). However, the principle of objectively ascertaining contractual intention(s) remains paramount. Thus, the extrinsic evidence must always go towards proof of what the parties, from an objective viewpoint, ultimately agreed upon. Further, where extrinsic evidence in the form of prior negotiations and subsequent conduct is concerned, we find the views expressed in McMeel’s article ([62] supra) and Nicholls’ article ([62] supra) persuasive. For this reason, there should be no absolute or rigid prohibition against evidence of previous negotiations or subsequent conduct, although, in the normal case, such evidence is likely to be inadmissible for non-compliance with the requirements set out at [125] and [128]–[129] above. (We should add that the relevance of subsequent conduct remains a controversial and evolving topic that will require more extensive scrutiny by this court at a more appropriate juncture.) Declarations of subjective intent remain inadmissible except for the purpose of giving meaning to terms which have been determined to be latently ambiguous (see [50] above; see also sub-para (e) below).

(e) In some cases, the extrinsic evidence in question leads to possible alternative interpretations of the written words (ie, the court determines that latent ambiguity exists). A court may give effect to these alternative interpretations, always bearing in mind s 94 of the Evidence Act. In arriving at the ultimate interpretation of the words to be construed, the court may take into account subjective declarations of intent (see [50] above). Furthermore, the normal canons of interpretation apply in conjunction with the relevant provisions of the Evidence Act, ie, ss 95–100 (see [75]– [80] and [131] above).

(f) A court should always be careful to ensure that extrinsic evidence is used to explain and illuminate the written words, and not to contradict or vary them. Where the court concludes that the parties have used the wrong words, rectification may be a more appropriate remedy (see [123] above).”

The Court at [40] then affirmed the principles set out in Sembcorp Marine:

54 Lord Penzance rejected this contention. Referring to a principle laid down by Lord Abinger in Doe D Simon Hiscocks v John Hiscocks (1839) 5 M & W 363, Lord Penzance held (at 317– 318):

It is beyond dispute, that evidence as to the circumstances under which the testator wrote his will, as to the different names and circumstances of the people about him, and other surrounding matters, is admissible in such a case. … so that I am at liberty to put myself in the position of the testator in order, from the surrounding circumstances, to judge under what state of things he wrote his will. [emphasis added]

However, Lord Penzance did not stop there, for this principle by Lord Abinger was one of general application rather than one governing the admissibility of the declarations of the testator, which was the real issue in the case. As to that, Lord Penzance held (at 324):

And if there has been a mistake, whether of omission or otherwise, in consequence of which neither of the two sons is distinctly or accurately described, is not an ambiguity created; and is any other course open to the Court, if the rest of the will and the surrounding circumstances do not solve the difficulty, than to admit parol evidence of the testator’s intention?

55 Three points are clear. First, the admissibility of surrounding circumstances to place the court in the position of the party which drafted the instrument (dealt with in the first extract quoted at [54] above) is a separate and distinct question from whether parol evidence of the drafter’s subjective intention (dealt with in the second extract quoted at [54] above) may be admitted. Evidence of surrounding circumstances is admissible without restriction. Second, ambiguity is required before the court would be permitted to admit parol evidence of the drafter’s intentions. Third, if surrounding circumstances are sufficient to resolve the interpretative exercise, there would be no ambiguity and such parol evidence should not be admitted.

64 A lingering question remains: what exactly is extrinsic evidence of surrounding circumstances that is admissible without restriction under s 94(f) of the EA? The short answer, as suggested by the cases referred to by Sir James, would be such extrinsic evidence of “facts and circumstances which were (or ought to have been) in the mind of the [drafter] when he used those words” (see [62] above). Parol evidence of the drafter’s subjective intention does not constitute such surrounding circumstances. Of course, the line between these two types of evidence may not always be clear, but that is an issue that can be developed through case law.
65 Where then does this leave us in relation to the robust approach? The following propositions seem clear:

(a) First, the admissibility of extrinsic evidence generally is governed by the rules of evidence and not by the rules of contractual interpretation (which are governed by the substantive law of contract).

(b) Second, the rules governing the admissibility of extrinsic evidence in Singapore are to be found first in the EA, then in the common law.

(c) Third, the general admissibility of extrinsic evidence under s 94(f) of the EA must be read together with the exclusionary provisions of the EA, in particular, ss 95 and 96.

(d) Fourth, extrinsic evidence of surrounding circumstances is generally admissible under s 94(f). However, it was and properly remains the position that extrinsic evidence in the form of parol evidence of the drafter’s intentions is generally inadmissible unless it can in some way be brought within the exceptions in ss 97 to 100

72 From this perspective, a robust approach unaccompanied by sufficient safeguards may be counterproductive. More fog, not less, might ensue. In our judgment, it is time to refine our approach by synchronising our rules of pleading and evidence with the contextual approach to contractual construction laid down in Zurich Insurance ([34] supra). This is necessary because the broad language associated with the contextual approach is susceptible to being misunderstood and misapplied. The utility of the contextual approach is to place the court in the best possible position to ascertain the parties’ objective intentions by interpreting the expressions used by the parties in the relevant instrument in their proper context; it is not a licence to admit all manner of extrinsic evidence. To do otherwise would be to ignore the salutary words of caution in Zurich Insurance (at [127] and [129]):

127 Thus, the extrinsic material sought to be admitted must always go towards proof of what the parties, from an objective viewpoint, ultimately agreed upon. … [T]he focus on the narrow task of ascertaining the parties’ objective intention ought to prevent parties from adducing or trawling through large amounts of allegedly useful background material, often in misguided Micawberian attempts to persuade a court to favour their subjective interpretations of the contract. …

129 We have already emphasised the importance of contractual certainty … In our view, the benefits of adopting … the contextual approach to contractual interpretation (viz, flexibility and accord with commercial common sense) will be maximised and its costs (viz, increased uncertainty and added litigation costs) minimised if, as a threshold requirement for the court’s adoption of a different interpretation from that suggested by the plain language of the contract, the context of the contract should be clear and obvious. … It is necessary and desirable to lay down this threshold requirement in order to achieve the right balance between commercial certainty and the imperative of giving effect to the objective intentions of the contracting parties.

73 We hasten to add that although the contextual approach is most frequently engaged in the context of interpretation, this is not to say that the contextual approach is irrelevant when it comes to other aspects of construction such as implication or rectification. Indeed, it is trite that the court must have regard to the context at the time of contracting when considering the issue of implication. Therefore, to buttress the evidentiary qualifications to the contextual approach to the construction of a contract, the imposition of four requirements of civil procedure are, in our view, timely and essential:

(a) first, parties who contend that the factual matrix is relevant to the construction of the contract must plead with specificity each fact of the factual matrix that they wish to rely on in support of their construction of the contract;

(b) second, the factual circumstances in which the facts in (a) were known to both or all the relevant parties must also be pleaded with sufficient particularity;

(c) third, parties should in their pleadings specify the effect which such facts will have on their contended construction; and

(d) fourth, the obligation of parties to disclose evidence would be limited by the extent to which the evidence are relevant to the facts pleaded in (a) and (b).

74 These four requirements are entirely consonant with the limits prescribed in Zurich Insurance at [132(d)] that for extrinsic evidence to be admissible, it must be “relevant, reasonably available to all the contracting parties and [must relate] to a clear or obvious context”. Further, this would go some way towards ameliorating the practical concerns we have traced above. In general, extrinsic facts that are placed before the court in a manner that is not consistent with the above requirements will not be accorded any weight when a court is construing a contract. Adverse cost consequences may also be imposed, where appropriate. We are mindful that the courts cannot actively police the parties in the documents that they voluntarily disclose. Conversely, we should not be thought, in any way, to be inviting parties or their counsel to withhold relevant documents. The key point is that parties should be
clear about the specific aspects and purpose of the factual matrix which they intend to rely on. These pleading requirements should result in the evidence on the record being aligned accordingly.

75 Before leaving this issue, we make one final observation. Asst Prof Goh has, after a comprehensive survey of the historical literature on the law governing the admissibility of prior negotiations, argued that the seemingly blanket exclusionary rule against the admissibility of prior negotiations was a product of a historical misstep by the courts and is inconsistent with the EA: Goh Yihan, “The Case for Departing From the Exclusionary Rule Against Prior Negotiations in the Interpretation of Contracts in Singapore” (2013) 25 SAcLJ 182. We prefer to leave for another occasion the consideration of whether this argument is to be accepted in principle; and if so, whether evidence of prior negotiations should nonetheless be excluded as irrelevant or unhelpful for the policy reasons set
out by Lord Hoffmann in Chartbrook ([25] supra) at [34]–[36] and [38]; or on the ground that it may amount to parol evidence of subjective intent and not fall within ss 97 to 100 of the EA. Whichever way that may eventually be resolved, any future attempt to rely on such material should be made with full consciousness of the concerns already expressed and in compliance with the pleading requirements we have just prescribed.

The Court added that Zurich Insurance and Sembcorp Marine represent the lodestars in the Singapore legal landscape in so far as contractual interpretation is concerned : [41].


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