Case Update: Hewlett-Packard Singapore (Sales) Pte Ltd v Chin Shu Hwa Corinna [2016] SGCA 19 – construction of contract and contra proferentem

Hewlett-Packard Singapore (Sales) Pte Ltd v Chin Shu Hwa Corinna [2016] SGCA 19

Significance: Singapore Court of Appeal grants appeal to Hewlett-Packard who argued that a new commission remuneration metric was not ambiguous and that the scenario in question did not fall within the said metric entitling its ex-employee a substantially higher commission payment. Court clarifies and explains the principles on contra preferentem, among other things.

In order for the contra proferentem rule to apply, the ambiguity must exist within the very term or terms of the contract itself. The court is not permitted to locate (or, rather, “create”) an ambiguity in the term or terms of the contract where none had existed before: [47].

Difficulties of application cannot be equated (or conflated) with ambiguity of the contractual term itself. This was also underscored by Lord Wilberforce in the House of Lords decision of L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 (“Wickman”) where the learned Law Lord observed thus in relation to latent ambiguities (at 261): “ambiguity … is not to be equated with difficulty of construction, even difficulty to a point where judicial opinion as to meaning has differed”: [50].

At this juncture, it is apposite for us to reiterate that in order for the contra proferentem rule to apply, it is a necessary condition that there be an ambiguity in the contract which cannot be resolved (and not merely that it is difficult to resolve) by interpreting the term in the context of the overall contract. The rule cannot apply to create an ambiguity where one does not exist (see the Singapore High Court decision of LTT Global Consultants v BMC Academy Pte Ltd [2011] 3 SLR 903 at [56]): [51].

Simply because a situation was not contemplated by the drafter (Sandeep) does not mean that the term “new end-user customer” was ambiguous. Neither does it mean that the term therefore did not apply to the present situation. This is also logical and commonsensical otherwise every dispute in the courts with regard to the interpretation of the term(s) of a contract could, ipso facto, be said to involve ambiguity and hence attract the application of the contra proferentem rule – which would be to turn the application of this rule on its head, so to speak. Indeed, it is also clear that when a contract is drafted, the drafter would not be able to foresee every possible factual permutation. Dverything depends on an objective interpretation of the term by the court itself. The exercise of ascertaining what the parties intended is not done in the abstract or in a vacuum but is, instead, to be anchored in the express contractual language, the internal and external contexts of the contract and, more broadly speaking, the contractual purpose (see, for example, Man Yip & Yihan Goh, “Dealing with Unforeseen Circumstances: Contractual Construction and Equitable Adjustment” [2014] 1 JBL 83 at 86). It may be the case that after the court undertakes the objective inquiry as to the meaning of the term in question, it nevertheless comes to the conclusion that the term is ambiguous as to whether it provides for the unforeseen event. In such circumstances, the application of the contra proferentem rule may then be justified: [53].

There is additional difficulty in relying on post-contractual conduct to interpret and determine if there had been ambiguity for the purposes of applying the contra proferentem doctrine. Such conduct must be viewed with the utmost scrutiny as well as concern. Although the Singapore courts have not ruled out such conduct as evidence that might aid them in the ascertainment of the relevant context, there has been no definitive view expressed by way of a positive endorsement (see Zurich Insurance at [132(d)]). This is because consideration of such conduct would tend to lead the court away from the objective exercise of interpretation and, on the contrary, tend to introduce a great deal of subjectivity and uncertainty instead: [54].

Pursuant to the objective principle of interpretation, the court is concerned with the expressed intentions of the parties, and not their subjective intentions. The standpoint adopted is that of a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time the contract was formed. The extrinsic material sought to be admitted must always go towards proof of what the parties, from an objective viewpoint, ultimately agreed upon. The conduct of the parties post-contract, in so far as they reveal the subjective intention of the parties, will generally be irrelevant in this exercise. It is for this reason, amongst others, that the courts have precluded the reference to subsequent conduct of the parties in the construction of contracts: [55].

Indeed, the Court of Appeal (CA) has held in Gay Choon Ing v Loh Sze Ti Terence Peter and another appeal [2009] 2 SLR(R) 332 that subsequent conduct that was in direct contradiction of the terms of the concluded contract could not be admitted to interpret the contract concerned (at [88]). In Lian Hwee Choo Phebe v Maxz Universal Development Group Pte Ltd [2009] 2 SLR(R) 624, the CA also endorsed the principle that a contract must generally be interpreted as at the date it was made and in light of the circumstances prevailing on the date (at [11]). The Court however stated that they are not endorsing a blanket prohibition on the use of subsequent conduct. Like the question of the admissibility of prior negotiations, the question of the admissibility of subsequent conduct remains an open one that should be decided on a more appropriate occasion (see the decision of this court in Xia Zhengyan v Geng Changqing [2015] 3 SLR 732 at [62]). Any such evidence must satisfy the tripartite requirements of relevancy, reasonable availability and clear and obvious context mentioned in Zurich Insurance before it may be admitted to interpret a contract. The requirements of civil procedure established in the decision of this court in Sembcorp Marine Ltd v PPL Holdings Pte Ltd and another appeal [2013] 4 SLR 193 at [73] must also be borne in mind: [56].

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