Court of Appeal · Decided 27 June 2008

Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd

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[2008] SGCA 27Case no. CA 48/2007

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Evidence Act 1893

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[1] This appeal concerns the scope of a contractors’ all-risks (“CAR”) insurance policy. Such a beguilingly simple description will often understate the intricacy and complexity of the task confronting the court each time it approaches a contractual document, which is to give effect to the parties’ intentions objectively in the face of conflicting subjective interpretations advanced by ingenious counsel. It is a task further complicated by the inherent richness and nuances of the English language and, unfortunately, sometimes by deficient drafting.
[2] A central question in the inquiry is the admissibility of extrinsic evidence which may affect the meaning and effect of the words and expressions used in a document – a particularly difficult branch of law which has vexed many an esteemed jurist (see, inter alia, John Pitt Taylor, A Treatise on the Law of Evidence (A Maxwell & Son, 1848) (“Taylor”) at § 810 and Sripada Venkata Joga Rao, Sir John Woodroffe & Syed Amir Ali’s Law of Evidence (LexisNexis Butterworths, 17th Ed, 2002) (“Woodroffe”) at p 3225). Contracts do not exist in a vacuum. Contracts are constituted by words, and, as Oliver Wendell Holmes J famously said in Towne v Eisner 38 S Ct 158 (1918) at 159:
[3] The surrounding circumstances or context of a contract, therefore, are integral to our understanding of its words. However, in more recent times, where legal transactions are not merely proved but also constituted by documents, the courts have evinced considerable anxiety about being overwhelmed by extrinsic evidence of such circumstances, which may sometimes lead them astray from the path of objective inquiry. At this juncture, it is helpful to go back very briefly to the historical origins of this mistrust of context. Centuries ago, in the nascent European legal systems in place prior to the vogue of the seal, the tradition of formal oral transactions (in which documents were purely symbolic rather than constitutive) meant that judicial mistrust was attached not to the oral evidence, but, ironically, to the written document itself. Thereafter, until the 1400s, the written document was, in England, regarded merely as a mode of proof and had none of the pre-eminence that it is presently accorded (for an arresting account of the historical evolution of the legal roles of written and oral evidence, see John H Wigmore, “A Brief History of the Parol Evidence Rule” (1904) 4 Colum L Rev 338). However, in the more recent past, given the pervasiveness of the written word as the preferred form of record-keeping, all sorts of artificial legal barriers in the form of restrictive rules have been erected to impede the admissibility of extrinsic evidence that might affect a written contract. Yet, often, despite rejecting such evidence, the consciousness of the court is affected by that very evidence; this in turn may actually affect the ultimate interpretation of the document at hand. In maintaining otherwise, the law is often perceived as obfuscated, obscure and opaque.
[4] Clarity in this area of the law will enable lawyers to advise their clients with far greater confidence. It would clearly be in the wider public interest if parties, especially those engaged in commerce, are able to predict securely how the courts will resolve a particular dispute. Indeed, this is a hallmark of every mature system of commercial law. Parties must know where they stand, and the law would do them a great disservice if the advance from literalism to pragmatic rationalism in the interpretation of contracts becomes, in practice, an unintended retreat to uncertainty. The present appeal provides this court with an opportunity to clarify the position under Singapore law in this fundamentally important area of legal and commercial practice.
[5] But, first, a brief overview of the background of this case. The respondent, B-Gold Interior Design & Construction Pte Ltd (“B-Gold”), was engaged by Mediacorp Pte Ltd (“MediaCorp”) under a contract dated 27 September 2002 (“the Contract”) as a term contractor to carry out maintenance, repair as well as addition and alteration works (“the Works”) at Caldecott Broadcast Centre. Pursuant (allegedly) to its obligations under the Contract, B-Gold obtained a CAR policy (No 02 ZS-CAR-1129958) (“the Policy”) from the appellant, Zurich Insurance (Singapore) Pte Ltd (“Zurich Insurance”). On 21 March 2003, a fire caused by the negligence of one of B-Gold’s subcontractors, Regius Engineering Pte Ltd (“Regius”), broke out at MediaCorp’s premises (“the Fire”). MediaCorp sued both B-Gold and Regius via District Court Suit No 2126 of 2004 (“DC 2126/2004”) for the damage caused by the Fire. After MediaCorp successfully obtained judgment as far as its claim against B-Gold (“the Main Action”) was concerned (see Media Corp of Singapore Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2006] SGDC 132 (“MediaCorp (No 1)”); see also [24]–[25] below), B-Gold commenced third-party proceedings (also under DC 2126/2004) against Zurich Insurance based on the Policy (“the Third-Party Action”). The Third-Party Action was heard by the same district judge who had heard the Main Action (“the District Judge”). The District Judge dismissed B-Gold’s claim against Zurich Insurance (see Media Corporation of Singapore Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2007] SGDC 7 (“MediaCorp (No 2)”). On appeal, the High Court judge (“the Judge”) set aside the District Judge’s decision (see B-Gold Interior Design & Construction Pte Ltd v Zurich Insurance (Singapore) Pte Ltd [2007] 4 SLR 82 (“B-Gold Interior Design”)). Zurich Insurance in turn brought the present appeal against the Judge’s decision.
[6] We have decided to allow the appeal on the ground that the damage caused to MediaCorp’s property by the Fire is not covered by the Policy. We now explain the reasons for our decision. To facilitate the understanding of this judgment, we set out below the schematic layout of our reasoning:
INTRODUCTION......................................................................................
1
THE FACTS...............................................................................................
5
The Contract......................................................................................
5
The events leading up to the Policy......................................................
7
The terms of the Policy.......................................................................
10
The Fire and the Main Action.............................................................
14
The Third-Party Action.......................................................................
16
The parties’ arguments..............................................................
16
The District Judge’s decision.....................................................
18
The appeal to the High Court....................................................
19
OUR ANALYSIS OF THE JUDGE’S DECISION....................................
22
The use of extrinsic evidence to affect written contracts.......................
22
The law in England....................................................................
22
(1) The common law rule against parol evidence..............
22
(2) The thin definition of the parol evidence rule...............
23
(3) The English courts’ use of extrinsic evidence in aid of interpretation..................................................................
26
(a) The concept of “Interpretation”........................
26
(b) The traditional approach..................................
30
(c) The shift to the contextual approach.................
33
(d) The impact of the Investors Compensation Scheme restatement..............................................
38
The law in Singapore................................................................
43
(1) The statutory framework...........................................
43
(a) Overview........................................................
43
(b) Sections 93–94 of the Evidence Act................
43
(c) Sections 95–100 of the Evidence Act..............
48
(2) The case law.............................................................
53
(3) Summary of the applicable principles in Singapore......
73
(a) Attributes of the document in question..............
74
(b) The parol evidence rule...................................
75
(c) Admitting extrinsic evidence in aid of interpretation........................................................
76
(d) The approach under proviso (f) to section 94...
83
(e) Continuing relevance of canons of interpretation.......................................................
86
(f) Synopsis........................................................
88
The Judge’s reliance on extrinsic evidence in the present case....
91
Arguments based on justice and fairness..............................................
101
OUR INTERPRETATION OF THE POLICY............................................
110
Whether B Gold’s claim falls under Section II......................................
110
Whether Special Exclusion 2 applies....................................................
111
Whether Special Exclusion 4(b) applies...............................................
113
CONCLUSION..........................................................................................
114
The facts
[7] Pursuant to the Contract, B-Gold was engaged by MediaCorp as a term contractor to carry out the Works at Caldecott Broadcast Centre from 1 October 2002 to 30 September 2004. Clause 1 of the Contract stipulated that the Works were to be carried out by B-Gold as and when ordered by MediaCorp pursuant to a signed works order.
[8] B-Gold’s liability to MediaCorp in respect of injury or damage to property was provided for in cl 19.2 of the conditions annexed to the Contract (“the Conditions of Contract”) as follows:[note: 1]
[9] Clause 18 of the Conditions of Contract stipulated B-Gold’s obligation to procure certain insurance policies before commencement of the Works. It stated:[note: 2]
[10] The Conditions of Contract did not specify the particular type of insurance policy which B-Gold should obtain in order to indemnify itself, MediaCorp and all subcontractors against “damage to persons and property” as required by cl 18 thereof. Certainly, no reference was made to a CAR policy. In contrast, cll 20 and 21 of the Conditions of Contract expressly set out the requirements relating to insurance for workmen’s compensation and for loss or damage by fire as follows:[note: 3]
[11] The events leading up to B-Gold taking out the Policy with Zurich Insurance are crucial. Before elaborating on them, it is pertinent to note that, for the purposes of the Third-Party Action, the parties had agreed before the District Judge to admit in evidence the affidavits of evidence-in-chief (“AEICs”) of their respective witnesses without cross-examination on the basis that B-Gold would not rely on any arguments based on misrepresentation or breach of duty against Zurich Insurance. The implications of this are discussed at [28] and [150] below. As a result of such agreement, the following facts are now not in dispute.
[12] The person attending to the financial and insurance requirements of B-Gold at the material time was Yeo Hong Seng (“Yeo”), a director of the company. In late August 2002, Yeo contacted Willy Lee (“Lee”), a general insurance agent with American International Group (“AIG”), who had been attending to the insurance requirements of B-Gold since 1985. Lee was requested to arrange for the necessary insurance cover in accordance with the requirements under the Contract. This request was effected through Lee’s wife (“Jacqueline”), who would normally liaise with Yeo on Lee’s behalf. On 28 August 2002, Yeo faxed a copy of all the documents relating to the Contract to Lee, together with a cover note which read:[note: 4]
[13] After checking with Lee, Jacqueline informed Yeo that the type of insurance cover required under the Contract was not available through AIG and suggested that Yeo approach other insurance companies to inquire about the insurance cover needed. Yeo, citing her lack of familiarity with the insurance industry, requested that Lee assist her in this regard. Lee (through Jacqueline) told Yeo that he would look into the matter and get back to her.[note: 5]
[14] Lee later contacted Manfred Long (“Long”), a former colleague from AIG who had since joined Zurich Insurance, and inquired whether Zurich Insurance “could provide the kind of insurance coverage required by [B-Gold]”.[note: 6]Long replied in the affirmative. On 3 September 2002, Zurich Insurance received initial instructions via a fax (which was dated 30 August 2002) from Lee addressed to Long (“the 3 September 2002 Note”), which read:[note: 7]
Lee also faxed to Long all the documents relating to the Contract which he (Lee) had earlier received from Yeo (see [12] above).
[15] Subsequently, Lee faxed a further undated note to Long (“the Undated Note”), which read:[note: 8]
The “Type of risk” section of this note also included the handwritten words “& Workmen [sic] Compensation” next to the words “Contractor All Risks”, as well as the handwritten remarks “(All policies excess: $3500)” next to the words “Public Liability – 1,000,000”.
[16] It is pertinent to emphasise that it was Lee who required Long to obtain a CAR policy for B-Gold, as evinced by the Undated Note. However, it is far from clear why this request was made, given that there was no specific reference to a CAR policy in the Contract (see [10] above). Long subsequently called Lee to inform him that Zurich Insurance was able to offer insurance cover to B-Gold. The Policy was eventually issued by Zurich Insurance on 23 September 2002. A few days later, on 27 September 2002, MediaCorp and B-Gold executed the Contract (see [5] above).
[17] Turning to the terms of the Policy, Section I thereof (“Section I”) read as follows:[note: 9]
[18] After a series of special exclusions to Section I (none of which are relevant for the purposes of this appeal), the Policy set out, under the heading “PROVISION APPLYING TO SECTION I”, the following memorandum (“Memo 1”):[note: 10]
[19] Next came Section II of the Policy (“Section II”), which provided, inter alia:[note: 11]
[20] Section II had its own set of special exclusions, as follows:[note: 12]
[21] The schedule to the Policy (“the Schedule”) contained the following clauses:[note: 13]
It bears mention that it was only on 18 August 2003 that the name of the insured under the Policy was amended to include B-Gold’s subcontractors by an endorsement having effect from 22 August 2003.
[22] In the course of this appeal, counsel for Zurich Insurance clarified that the words “ELB – Engineering Liability” in the Schedule were meant to cover engineering works and should be read together with the words “[p]ermanent & temporary work [etc]” to fall within that category. Thus, the Schedule essentially covered (a) “[p]ermanent [and] temporary work including all materials to be incorporated therein” and (b) third party liability (or, to use the terminology of the Schedule, “[p]ublic [l]iability”), with the scope of the insurance cover for these two items delineated by Section I and Section II respectively.
[23] In March 2003, MediaCorp instructed B-Gold to carry out, as part of the Works, spalling concrete repair works (“the Repair Works”) on the ceiling of an air-handling unit (“AHU”) room located on the fourth floor of MediaCorp’s television building (“the Television Block”). On 19 March 2003, B-Gold engaged Regius as its subcontractor for the Repair Works.
[24] On 21 March 2003, the very date on which the Repair Works were scheduled to commence, the Fire broke out in the AHU room where the repairs were to be carried out (“the AHU Room”). As a result, one of the AHUs (“AHU No 17”) was damaged. Furthermore, water used to put out the Fire cascaded down through the air supply ducting and through the porous ceiling tiles to the first, second and third floors of the Television Block, causing serious damage to MediaCorp’s production equipment, studios and electrical control cabinets (these damaged items, together with the AHU room and AHU No 17, will be referred to collectively as “the Damaged Property”). A report subsequently prepared by Dr J H Burgoyne & Partners (International) Ltd (a company of consulting scientists and engineers instructed on behalf of MediaCorp) concluded that the Fire had been caused by “smokers’ materials discarded by the subcontractors Regius … who were working to repair spalled concrete at the ceiling of the AHU [R]oom”.[note: 14]On 10 May 2004, MediaCorp commenced the Main Action against B-Gold and Regius claiming a sum of $177,330.55, which consisted of:[note: 15]
(a) $34,000 for the repair of AHU No 17;
(b) $5,877 for the repair and/or replacement of various items and/or equipment;
(c) $113,136, being payment to Disaster Restoration Pte Ltd for “drying, testing, and carrying out repairs to water-affected broadcasting equipment”;[note: 16]
(d) $11,087 for MediaCorp’s “staff hours for cleaning”;[note: 17] and
(e) $13,230.55 for survey fees and expenses.
It was common ground in the appeal before us that the Damaged Property did not form part of the Repair Works.
[25] Interlocutory judgment was entered against Regius in default of its entering an appearance in the Main Action, but, thereafter, MediaCorp took no steps against it. The case between MediaCorp and B-Gold proceeded to trial, and, on 1 March 2006, the District Judge found B-Gold to be in breach of both the Contract and its common law duty to take reasonable care for the safety of MediaCorp’s property (see MediaCorp (No 1) ([5] supra)). The District Judge entered interlocutory judgment in favour of MediaCorp against B-Gold with damages to be assessed. Damages have been assessed on 7 March 2008 at $177,330.55 with interest thereon. B-Gold has not appealed against either the decision on liability or that on quantum in the Main Action.
[26] In the meantime, on 12 October 2004, B-Gold commenced the Third-Party Action, seeking, inter alia, a declaration that Zurich Insurance was liable under the Policy to indemnify it against all sums which it would become liable and/or be ordered to pay to MediaCorp. It submitted that, on a proper construction of the Policy, the Damaged Property formed part of the property of MediaCorp which was listed in the Schedule and hence fell within the ambit of Section I. Alternatively, the Damaged Property constituted third-party property which was covered under Section II. Furthermore, the damage occasioned by the Fire was “unforeseen”, “sudden” and clearly “necessitate[ed] repair or replacement” within the meaning of Section I; the damage was also “accidental” within the meaning of Section II.
[27] Zurich Insurance, on the other hand, submitted that it was not liable to indemnify B-Gold because:
(a) the Policy did not cover Regius and/or its servants and agents;
(b) Section I had not been extended to cover the Television Block or the contents therein;
(c) the Fire had been caused by the negligent act of Regius and/or its workers and B-Gold was not liable for the same;
(d) the Damaged Property belonged to MediaCorp and could not be regarded as property belonging to a third party, and hence fell outside the scope of Section II; and
(e) the smoking and discarding of cigarette butts (which had been found to be the cause of the Fire (see [24] above)) could not be considered as “occurring in direct connection with the construction or erection of the items insured under Section I” within the meaning of Section II.
[28] As mentioned earlier (at [11] above), for the purposes of the Third-Party Action, the parties agreed to dispense with the cross-examination of all the witnesses who had filed AEICs. B-Gold agreed to do so on the basis of Zurich Insurance’s acceptance that, at the time B-Gold took out the Policy, it was not told specifically by Zurich Insurance that it had the option of extending the scope of the CAR insurance cover set out therein. In turn, B-Gold agreed not to rely on its arguments of misrepresentation or breach of duty by Zurich Insurance (see B-Gold Interior Design ([5] supra) at [21]). Thus, the parties effectively agreed that they would approach the construction of the Policy on the basis that its terms represented the true agreement between them.
[29] On 13 November 2006, the District Judge dismissed B-Gold’s claim in the Third-Party Action (see MediaCorp (No 2) ([5] supra)). She gave the following reasons for her decision:
(a) Section I covered “the items or any part thereof entered in the Schedule”. The “items … entered in the Schedule” were “[p]ermanent [and] temporary work including all materials to be incorporated therein”. This description was clear and left no doubt as to its scope. It did not include the physical premises on which the Works might take place or other items within those premises which were not part of the Works (id at [12]).
(b) A CAR insurance policy did not literally cover all risks. The precise ambit of such a policy depended on the construction of its terms and conditions. It had been open to B-Gold to require the insurance cover under Section I to be extended to the physical premises on which the Works might take place and/or to other items within those premises which were not part of the Works. Neither B-Gold nor Lee, however, had asked for such an extension (id at [16]–[18]).
(c) The natural and ordinary meaning of the words in Section II, “occurring in direct connection with the construction or erection of [the permanent and temporary works referred to in the Schedule]”, must surely be “in the course of” [emphasis in original] (id at [21]) those works. In the District Judge’s view, the negligent disposal of cigarette butts fell within this description.
(d) The second special exclusion to Section II (“Special Exclusion 2”), which stated that Zurich Insurance was not liable to indemnify B-Gold for any loss or damage “covered or coverable under Section I” (see [20] above), precluded B-Gold from making a claim under Section II. The Fire had damaged, inter alia, the physical premises where the Repair Works were to take place (ie, the AHU Room) and other items within those premises. Although those premises and items were not covered under Section I, the parties could have contracted for such cover. Thus, the Damaged Property, being “coverable under Section I”, fell within Special Exclusion 2 (see MediaCorp (No 2) at [25]).
(e) Item (b) of the fourth special exclusion to Section II (“Special Exclusion 4(b)”) also precluded B-Gold from relying on Section II. In the District Judge’s view (id at [26]):
The Damaged Property belonged to MediaCorp, and thus fell squarely within the ambit of Special Exclusion 4(b) (ibid).
(a) B-Gold’s claim in respect of the Damaged Property was not covered under Section I. The Schedule was clear. The words therein “[p]ermanent [and] temporary work” referred to “work to be erected pursuant to the Contract” (id at [30]), while the words “materials to be incorporated therein” referred to “all materials brought onto the contract site for incorporation into the [W]orks” (ibid).
(b) B-Gold’s claim was, however, covered under Section II, which dealt with third-party liability or public liability, ie, liability which might be incurred by B-Gold in the course of its operations (see B-Gold Interior Design at [31]). The question was whether B-Gold’s claim under this section was excluded by Special Exclusion 2 and/or Special Exclusion 4(b).
(c) Special Exclusion 2 did not apply. The Damaged Property was clearly not covered under Section I; nor was it “coverable” under that section as the Schedule (which defined the items covered by Section I) had to be read in the light of Memo 1 (reproduced at [18] above). In the Judge’s view, what Zurich Insurance contemplated as being insurable under the Policy was limited to the three items mentioned in Memo 1.
(d) Special Exclusion 4(b) was prima facie applicable as the words therein, “which or part of which is insured under Section I”, described “the project (ie, the … [W]orks) as opposed to the property” [emphasis in original] (see B-Gold Interior Design at [42]). B-Gold’s argument that those words qualified the word “property” in Special Exclusion 4(b) instead, such that liability under Section II was excluded only if the damage was to items covered under Section I, was rejected.
(e) However, taking into account the genesis of the Policy, ie, B-Gold had taken out the Policy in order to fulfil its obligations under cll 18 and 19 of the Conditions of Contract (reproduced earlier at [8]–[9] above), Special Exclusion 4(b) was inoperable (see B-Gold Interior Design at [55]–[56]). The Judge held that where the insured had relied upon the insurer to provide cover for a specific purpose which was made known to the latter prior to the issue of the policy, but a standard printed exclusion clause in the policy nevertheless purported to take away precisely such cover, the court would be failing in its duty if it did not intervene to deny that exclusion clause efficacy (id at [59]). We shall examine this reasoning in greater detail at [134] et seq below.
[31] In our view, the Judge’s reliance on the Contract (including the Conditions of Contract) and the genesis of the Policy in construing the Policy was not legally permissible; nor did arguments based on justice and fairness compel or justify the court’s intervention. If not for the Judge’s impermissible reference to and reliance on these extrinsic materials, Zurich Insurance would not have been liable to indemnify B-Gold in respect of the damage caused by the Fire. We shall now elaborate on each of these conclusions, beginning with the Judge’s reliance on the extrinsic materials in question to interpret the Policy. This in turn entails a consideration of the legal principles governing the use of extrinsic materials in contractual interpretation.
(1) The common law rule against parol evidence
[32] We shall use as the starting point of our discussion the much-discussed and oft-maligned parol evidence rule at common law. Although long relied on by the English courts as a bulwark against admitting extrinsic evidence for the purposes of interpreting written contracts, the exact formulation of this common law rule is a matter of some disagreement. In United Kingdom, Law Commission, Law of Contract: The Parol Evidence Rule (Law Com No 154, 1986) (Chairman: Beldam J) (“Law Com No 154”) at para 1.2, the Law Commission of England and Wales (“the Law Commission”) endorsed an earlier definition of the rule as set out in a working paper issued in 1976 (viz, Working Paper No 70), which was as follows:
[33] We shall refer to the Law Commission’s multi-pronged formulation as the “thick” definition of the parol evidence rule. The leading textbooks, however, usually focus on the second limb of the thick definition, which is stated in Chitty on Contracts (H G Beale gen ed) (Sweet & Maxwell, 29th Ed, 2004) vol 1 (“Chitty”) at para 12-096 as follows:
Similarly, Edwin Peel, Treitel: The Law of Contract (Sweet & Maxwell, 12th Ed, 2007) (“Treitel”) states at para 6-012 that:
We shall refer to this formulation of the parol evidence rule as the “thin” definition.
(2) The thin definition of the parol evidence rule
[34] The thick definition of the parol evidence rule, especially its third prong pertaining to the interpretation of documents, is clearly no longer strictly adhered to in England (see [53]–[65] below). Even the thin definition of the rule is beleaguered. The Law Commission expressed the opinion in Law Com No 154 ([32] supra) at para 2.7 that this version of the rule:
Thus, the Law Commission concluded (at para 2.17) that:
[35] Law Com No 154 was referred to with approval by the English Court of Appeal in Wild v Civil Aviation Authority (25 September 1987) (unreported) (see also Yani Haryanto v E D & F Man (Sugar) Ltd [1986] 2 Lloyd’s Rep 44 at 46, and Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 140). It has also been endorsed by Chitty ([33] supra) at para 12-099.
[36] However, there have also been recent pronouncements by the English courts affirming the survival and importance of the thin definition of the parol evidence rule. In the House of Lords decision of Shogun Finance Ltd v Hudson [2004] 1 AC 919, Lord Hobhouse of Woodborough said at [49]:
[37] There is also continued academic support for it. In Treitel ([33] supra) at para 6-013, it is explained that:
[38] It has been argued that, in deciding whether a document is meant to be a complete contract, the law goes beyond the normal objective test (see [126]–[127] below). As stated in Treitel (at para 6-013):
[39] In a similar vein, Robert Stevens has wryly noted in “Objectivity, Mistake and the Parol Evidence Rule” in Contract Terms (Andrew Burrows & Edwin Peels eds) (Oxford University Press, 2007) ch 6 (“Stevens’ article”) that “[t]he parol evidence rule [according to the thin definition] is not dead, or even ill, but merely misunderstood” (at p 107). He argues (at p 109) that:
[40] Ultimately, the academic disagreements over the status of the thin definition of the parol evidence rule may be unwarranted. The commentators are united in the view that it operates only when it is proved that the document was intended by the parties to contain all the terms of the contract. They also agree that, in determining whether the parties so intended, the court 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 Treitel ([33] supra) at para 6-013; Chitty ([33] supra) at para 12-098; and Stevens’ article at pp 107 and 109). At the heart of the various views articulated at [33]–[39] above, therefore, the proposition undeniably remains: Where a contract has been determined by the court to contain all the terms of the parties’ agreement, no extrinsic evidence is admissible to vary the terms of that document. Whether or not this proposition should be given the appellation of a rule, a principle or an application of an existing rule or principle is to a large extent a pointless debate.
(3) The English courts’ use of extrinsic evidence in aid of interpretation
[41] “Interpretation”, as Neil MacCormick, Rhetoric and the Rule of Law (Oxford University Press, 2005) succinctly states (at pp 121–122), usually denotes the process of uncovering meaning in and seeking to understand a text where there is some doubt or room for a difference of opinion. In the context of contractual interpretation, the text sought to be understood is the written contract, which constitutes prima facie proof of the parties’ intentions where the contract is complete on its face (see [132] below). In this regard, Prof Ronald Dworkin’s comments in his seminal work, Law’s Empire (Hart Publishing, 1998), at p 52 should be borne in mind: Interpretation is an activity undertaken in relation to an object or a practice already existing, and the shape of that object or practice will be a constraint upon the interpretation that can be applied to it. It should also be noted that the term “construction” is often used interchangeably with “interpretation”, although some commentators regard these as qualitatively different processes (for examples of the latter view, see Catherine Mitchell, Interpretation of Contracts: Current controversies in law (Routledge-Cavendish, 2007) (“Mitchell”) at p 26; and Phipson on Evidence (Hodge M Malek gen ed) (Sweet & Maxwell, 16th Ed, 2005) (“Phipson”) at para 43-02).
[42] Although the third limb of the thick definition of the parol evidence rule deals with the admissibility of extrinsic evidence to aid in the interpretation of contracts (see [32] above), the preponderant academic opinion appears to be that the use of extrinsic evidence in that manner is separate and distinct from the second limb of this definition (ie, the thick definition) of the parol evidence rule (which provides further authority for the thin definition of the rule). For example, in MacGillivray on Insurance Law (Nicholas Legh-Jones gen ed) (Sweet & Maxwell, 10th Ed, 2003) (“MacGillivray”) at paras 11-37–11-38, the differences between these two aspects of the thick definition of the parol evidence rule are summarised as follows:
[43] Similarly, Stevens’ article ([39] supra) emphasises (at pp 108–109) that:
And, in Treitel ([33] supra), the use of extrinsic material as an “[a]id to interpretation” (at para 6-020) is listed as one of the situations which “fall outside the scope of the [thin definition of the parol evidence] rule” (at para 6-012).
[44] What, then, is the difference between interpreting a contract and contradicting, varying, adding to or subtracting from its terms? In Chitty ([33] supra), greater elucidation can be found at para 12-117:
[45] Arthur L Corbin’s explanation in “The Interpretation of Words and the Parol Evidence Rule” (1965) 50 Cornell LQ 161 at 171 is also illuminating:
The above observations are consistent with Dworkin’s view (see [41] above) of the interpretive process as being constrained by the form of the object sought to be interpreted, ie, the written contract.
[46] The concept of “interpretation” set out in Chitty at para 12-117 (reproduced at [44] above) – namely, “assigning a definite meaning to terms capable of such explanation or … pointing out and connecting them with the proper subject-matter” – reflects the traditional approach to interpretation, under which ambiguity (or absurdity, or the existence of an alternative technical meaning) is a prerequisite for the admissibility of extrinsic evidence (see further [52] below). This requirement also draws the line between interpreting and varying the terms of a contract. In the former scenario, the court is explaining the equivocal language of a contract by assigning one of a range of possible meanings to its terms. The shift towards what is often called the “contextual” approach to contractual interpretation, however, appears to have removed this prerequisite of establishing (inter alia) ambiguity before extrinsic evidence may be considered when interpreting contracts. This has created further pressure on the raison d’etre of the thin definition of the parol evidence rule since, in “interpreting” language that is clear on its face, the court sometimes veers dangerously close towards varying, adding to or subtracting from the contract (see [64], [104] and [122]–[123] below). Indeed, it has recently been affirmed in Gerard McMeel, The Construction of Contracts: Interpretation, Implication, and Rectification (Oxford University Press, 2007) (“McMeel”) at para 1.65 that “the parol evidence rule [in its thin definition] ... is dead” [emphasis in original]. We now turn to examine these differing approaches to the interpretation of contracts.
[47] We begin with what is now described as the “traditional” approach to the interpretation of contracts (see McMeel at paras 1.28–1.30). McMeel neatly outlines the scope of the traditional approach with the following propositions:
[48] Similarly, Chitty ([33] supra) states (at para 12-118) that:
[49] In Malcolm A Clarke, The Law of Insurance Contracts (Informa, 5th Ed, 2006) (“Clarke”), the author provides (at para 15-3B1) a helpful summary of the circumstances (in relation to a contract of insurance specifically) in which a court may look beyond the strict confines of the contract:
[50] A word or statement is ambiguous “when it has two (or more) primary meanings, each of [which may] be adopted without distortion of the language” (see Sir Kim Lewison, The Interpretation of Contracts (Sweet & Maxwell, 4th Ed, 2007) (“Lewison”) at para 8.01). Older English authorities classify ambiguity into two categories: (a) patent ambiguity, ie, ambiguity which appears from the language of the instrument; and (b) latent ambiguity, ie, ambiguity which becomes apparent only when the language is applied to the factual situation (id at para 8.02; see also Phipson ([41] supra) at paras 43-15–43-16, and Great Western Railway and Midland Railway v Bristol Corporation (1918) 87 LJ Ch 414 at 429 (per Lord Wrenbury)). In the former case, extrinsic evidence is inadmissible to resolve the ambiguity, whereas, in the latter case, any relevant evidence, even direct evidence of the intention of the parties and evidence of their prior negotiations, is admissible (see Lewison at paras 3.08 and 8.05, but cf Phipson at para 43-16).
[51] In England, the distinction between patent and latent ambiguity has been criticised. Lord Simon of Glaisdale in L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 remarked (at 268):
However, the distinctions remain relevant in Singapore in view of the Evidence Act (Cap 97, 1997 Rev Ed) (see [75]–[80] below).
[52] It is important to note that, under the traditional approach to contractual interpretation, ambiguity, absurdity or the existence of an alternative technical meaning is ostensibly a prerequisite for the court’s journey outside the contract towards its external context (see [46] above). This, on considered reflection, seems odd. Ambiguity under the traditional approach encompasses latent ambiguity (see McMeel ([46] supra) at para 1.86). Yet, in order to establish whether or not there is latent ambiguity in a contract, the court would first have to be cognisant of its external context. Then, if latent ambiguity indeed arises, extrinsic evidence would be used to resolve that ambiguity. Furthermore, it is difficult to see how the traditional approach would work in the context of what Clarke ([49] supra) refers to as “the technical route” (at para 15-3B1) since, on the plain language of the contract, it may not be apparent at all that the particular word has an alternative technical meaning. The court would have to refer to extrinsic material first in order to detect the existence of the alternative technical meaning. Thus, in denying the role of extrinsic evidence in the interpretation of contracts, proponents of the traditional approach are only creating frustration, conflict and inconsistency (see also [114]–[120] below).
[53] Over the past few decades, the traditional approach has increasingly been sidelined in favour of an approach which has been variously described as the “purposive” approach, the “commercial” approach, the “common sense” school and the “contextual” approach (see McMeel at para 1.31). For present purposes, we prefer to use the expression “contextual approach” to describe this newer approach simply because the “context” of a contract is wide enough to encompass include its commercial object and purpose as well. A useful image is provided in Clarke of the context of a contract (at para 15-3) as follows:
From this, it is apparent that the word “context” has at least two possible meanings: first, the document as a whole, which includes the provisions other than those sought to be interpreted and the organisation of the document (“internal context”); and, second, the circumstances surrounding the formation of the contract, including the object or purpose for which it was entered into (“external context”). In this judgment, it is the external context of a contract (and not its internal context) that we refer to when we use the word “context”.
[54] In England, the seeds of the paradigm shift to the contextual approach were arguably first sown by the House of Lords in Prenn v Simmonds [1971] 1 WLR 1381, where Lord Wilberforce said (at 1383–1384):
[55] Lord Wilberforce reiterated this principle in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 (“Reardon Smith Line”) at 995–996, as follows:
[56] The high watermark of the contextual approach was reached in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (“Investors Compensation Scheme”). In what has become regarded as the most lucid modern restatement of this approach, Lord Hoffmann stated (at 912–913):
[57] The second of Lord Hoffmann’s propositions in Investors Compensation Scheme (as set out in the preceding paragraph) must now be qualified and read in the light of Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 (“BCCI v Ali”), in which Lord Hoffmann clarified (at [39]) his reference to “absolutely anything” (in Investors Compensation Scheme at 913) as follows:
We shall refer to Lord Hoffmann’s propositions in Investors Compensation Scheme, as qualified by the above extract from BCCI v Ali, as “the Investors Compensation Scheme restatement”.
[58] Despite this qualification, serious disquiet has periodically been expressed about the Investors Compensation Scheme restatement. For example, in The “Tychy” (No 2) [2001] 2 Lloyd’s Rep 403 at [29], Lord Phillips of Worth Matravers MR said:
Several other judges have expressed concerns regarding the likelihood of an increase in legal costs and the length of commercial litigation, as well as uncertainty concerning what might be embraced by the “matrix of facts” (per Lord Wilberforce in Prenn v Simmonds ([54] supra) at 1384) in any particular matter (see, for example, the comments by Lightman J in Wire TV Ltd v CableTel (UK) Ltd [1998] CLC 244 at 257 that “a very large part of the flood of evidence in [that] case on the factual matrix … was legally inadmissible and the greater part of the remainder was totally unhelpful”). Further, it has been noted that the position of third parties (in terms of whether they may rely on the written agreement alone where the words in question have only one meaning which is not evidently nonsensical, or whether they must construe the relevant words in view of all the surrounding circumstances of the agreement) does not seem to have been considered at all (see the observations of Saville LJ in the English Court of Appeal’s decision in National Bank of Sharjah v Dellborg (9 July 1997) (unreported)). There is also an inarticulate anxiety that some judges may seek refuge under the generous shade of the umbrella of “matrix of facts” in order to rewrite commercial bargains, especially since counsel are now employing considerable ingenuity in discovering intricate “ambiguities” against the backdrop of a broader “matrix”.
[59] By and large, however, the Investors Compensation Scheme restatement has been unreservedly adopted by the English courts and has yielded more principled decisions. It has been applied in a myriad of cases (see, for instance, the cases cited in Lewison ([50] supra) at para 1.02, fn 19). Thus, in the recent English Court of Appeal case of Phillips v Rafiq [2007] 1 WLR 1351, Ward LJ was able to state (at [8]):
[60] Views about the impact of the Investors Compensation Scheme restatement have been mixed. Some commentators have expressed concerns that it goes too far; others, on the other hand, are of the view that it merely covers old ground (for an example of the latter view, see NLA Group Ltd v Bowers [1999] 1 Lloyd’s Rep 109, where Timothy Walker J stated (at 112) that “Lord Hoffmann was simply overruling old and outdated cases by reference to an approach to construction which has been followed in the Commercial Court for many years”).
[61] In our view, the significance and impact of the Investors Compensation Scheme restatement is aptly summarised in Mitchell ([41] supra) at p 60 as follows:
Whether or not, by the Investors Compensation Scheme restatement, Lord Hoffmann was in fact making new law or merely declaring the existing state of the law, there is no gainsaying that “[t]he Investors Compensation Scheme restatement certainly represented a watershed, representing a decisive endorsement of the modern approach” (see McMeel ([46] supra) at para 1.101). Two features of this pragmatic approach are significant.
[62] First, the scope and quantity of extrinsic evidence that can be used in the exercise of interpretation has now increased. It should be noted, however, that the prohibition on evidence of the prior negotiations of the contracting parties and their declarations of subjective intent apparently remains applicable (see Lord Hoffmann’s third proposition in Investors Compensation Scheme ([56] supra)); such evidence may, however, be admitted and used to interpret a contract after the court has determined that it contains a latent ambiguity (see [50] above and [132] below). The restriction on evidence of prior negotiations has been said to arise out of the principle that the parties’ intentions have to be objectively ascertained (see Prenn v Simmonds ([54] supra)). It has come under fire in England (see Gerard McMeel, “Prior Negotiations and Subsequent Conduct – The Next Step Forward for Contractual Interpretation” (2003) 119 LQR 272 (“McMeel’s article”) and Donald Nicholls, “My Kingdom for a Horse: The Meaning of Words” (2005) 121 LQR 577 (“Nicholls’ article”); note also in our local context Art 8(3) of the United Nations Convention on Contracts for the International Sale of Goods, which is applicable in Singapore by virtue of s 3 of the Sale of Goods (UN Convention) Act (Cap 283A, 1996 Rev Ed)). (We will deal with this point in greater detail at [132] below.) The second, and by far more important, impact of the Investors Compensation Scheme restatement is the change in the way in which contractual interpretation is to be carried out. From Lord Hoffmann’s fourth proposition in this restatement (see [56] above), it appears that ambiguity is no longer a prerequisite for the admissibility of extrinsic evidence. Furthermore, the court may conclude that the “wrong words or syntax” (see Investors Compensation Scheme at 913) have been used, ie, the court may substitute what it deems to be the correct language or syntax for that used in the contract. This creates an immediately apparent tension with the thin definition of the parol evidence rule as articulated at [33] above.
[63] Indeed, this tension surfaced in Investors Compensation Scheme itself. In that case, the issue was the meaning of a provision in a claim form (“section 3(b)”) used by Investors Compensation Scheme Ltd (“ICS”), which read as follows (at 900):
If the italicised words in the above passage were interpreted as meaning all possible claims which the investors might have against West Bromwich Building Society (“WBBS”), the benefit of the investors’ claims against WBBS would not have been assigned to ICS and ICS would have lost its case against WBBS (ICS had, as the assignee of the investors’ rights against WBBS, sued the building society). At first instance, Evans-Lombe J’s view was that the broad interpretation of section 3(b) (ie, the provision applied to all possible claims which the investors might have against WBBS) was the more natural meaning of the words in question, but held that such meaning was displaced by a consideration of the surrounding circumstances and, in particular, by the need for an “efficient system” (id at 901) to enable ICS to recover its outlay. As such, he construed section 3(b) as meaning that “the investor should retain any claim for an abatement of his debt which arose out of a claim for rescission, whether for undue influence or otherwise” (id at 912). The English Court of Appeal agreed with Evans-Lombe J’s view that the broad interpretation was the natural meaning of section 3(b), but did not regard the result as commercially ridiculous. It thus adopted the broad interpretation of this provision, rather than Evans-Lombe J’s (narrower) interpretation.
[64] In the House of Lords, Lord Hoffmann, who delivered the judgment of the majority, endorsed Evans-Lombe J’s interpretation of section 3(b) (id at 912). The dissenting opinion of Lord Lloyd of Berwick neatly expressed the concern that, in so doing, the majority might have overstepped the line between interpreting and varying a contract (id at 904):
[65] It seems plain to us that the majority’s approach in Investors Compensation Scheme still fell within the realm of interpretation. If section 3(b) were interpreted in the broad sense – ie, if it meant that the investors retained the benefit of all possible claims which they might have against WBBS, the words in parentheses in that provision would have been otiose. As Lord Hoffmann put it (at 912):
In the light of the above, it may be said that the House of Lords was merely clarifying and explicating section 3(b) in accordance with the interpretive presumption against redundant words (usually called “surplusage” (see Lewison ([50] supra) at para 7.03)). After all, reading section 3(b) as simply covering all claims which the investors might have against WBBS would equally have done violence to the language of this provision by ignoring an entire adjectival phrase (ie, the words in parentheses) that was presumably deliberately inserted by the drafter.
[66] Nevertheless, there is no doubt that the line between interpreting a contract and contradicting, adding to, varying or subtracting from its terms is often difficult to draw. With this in mind, we turn now to discuss the law in Singapore on the use of extrinsic evidence in contractual interpretation. In the light of our discussion of the English position, we will focus on the following issues:
(a) whether the parol evidence rule (as set out in the thin definition at [33] above) is alive and well in Singapore;
(b) if it is, whether and in what circumstances extrinsic evidence is admissible to interpret a written contract; and
(c) where the line between interpreting a contract on the one hand and varying, adding to or subtracting from its terms on the other should be drawn.
(1) The statutory framework
[67] In Singapore, the admissibility of extrinsic evidence is prima facie governed by ss 93–102 of the Evidence Act, which is largely modelled on the Indian Evidence Act of 1872 (Act 1 of 1872) (“the Indian Act”) drafted by Sir James Fitzjames Stephen. Sections 91–100 of the Indian Act are in pari materia with the sections of the Evidence Act relating to extrinsic evidence (namely, ss 93–102 of the Evidence Act).
[68] Section 93 of the Evidence Act provides:
“Secondary evidence” is defined in s 65 of the Evidence Act to include, inter alia, certified, electronic and other types of copies of an original document; it does not pertain to the type of extrinsic material which is in issue in the present appeal.
[69] Section 94 of the Evidence Act provides:
[70] The material words in s 94, “contradicting, varying, adding to, or subtracting from”, are taken almost verbatim from the opening sentence of Taylor ([2] supra) at § 813 (see also Cutts v Brown ILR 1880 Cal 328 at 338). A perceptive explanation of the purpose and intent of s 94 may be found in the same passage from Taylor (ie, § 813), as follows:
[71] Thus, s 94 of the Evidence Act statutorily embodies the thin definition of the parol evidence rule as articulated above at [33]. For this reason, it is the thin definition of the parol evidence rule which applies in Singapore; references hereafter in this judgment to “the parol evidence rule” should be read accordingly. Section 94 complements s 93 by ensuring that where the sole evidence of a contract consists of “the document itself” (per s 93), that contract is not varied, contradicted, added to or subtracted from unless the circumstances described in one or more of the six accompanying provisos (ie, provisos (a)–(f) to s 94) are satisfied. Put another way, it is often said that s 93 makes documentary evidence exclusive while s 94 makes it conclusive (see Woodroffe ([2] supra) at pp 3338–3339; Sudipto Sarkar & V R Manohar, Sarkar’s Law of Evidence (Wadhwa & Co, 16th Ed, 2007) (“Sarkar”) at p 1416; Halsbury’s Laws of Singapore vol 10(2) (LexisNexis, 2006 Reissue) at para 120.329; and Butterworths’ Annotated Statutes of Singapore vol 5 (Butterworths Asia, 1997 Issue) (“Butterworths’ Annotated Statutes”) at p 245).
[72] Under s 94 of the Evidence Act, extrinsic evidence can only be admitted in spite of the parol evidence rule if it comes within one or more of the provisos to the section. Proviso (f) to s 94 of the Evidence Act (“proviso (f) to s 94”) is particularly relevant for the purposes of this appeal. The general view of this proviso appears to be that it is not really an exception to s 94, but, rather, a fundamental rule of interpretation, the application of which is dealt with in ss 95–100 of the Evidence Act. For instance, in Sarkar, proviso (6) to s 92 of the Indian Act (“the Indian proviso (6)”), which is in pari materia with proviso (f) to s 94, is described in the following terms (at pp 1538–1539):
[73] It is significant that in Sir Harry Lushington Stephen, A Digest of the Law of Evidence by the late Sir James Fitzjames Stephen (Macmillan & Co Ltd, 12th Ed, 1936) (“Stephen’s Digest”) at pp 115–117, the rule in proviso (f) to s 94 is classified, along with the other rules in ss 95–102 of the Evidence Act, under Art 98, which is headed: “What evidence may be given for the interpretation of documents”. (It is also important to note that, in Stephen’s Digest, Stephen acknowledged a great debt to the work of Vice-Chancellor Wigram, Extrinsic Evidence in Aid of the Interpretation of Wills, stating that Art 98 differed from the six propositions of the Vice-Chancellor only in its arrangement and form of expression and in the fact that it was not restricted to the interpretation of wills (see Stephen’s Digest at p 210)). The rules in provisos (a)–(e) to s 94 of the Evidence Act, on the other hand, are dealt with under Art 97, which is headed: “Evidence of terms of judgments, contracts, grants and other dispositions of property reduced to a documentary form”.
[74] In other words, under the Evidence Act, the admissibility of extrinsic evidence to interpret a contract is governed by proviso (f) to s 94 together with ss 95–100 of this Act. Thus, an important issue in respect of proviso (f) to s 94 is whether ambiguity should be a precondition for its application and, linked to this, its relationship with the common law contextual approach to interpretation (see further [108], [121] and [132] below).
[75] It only remains for us to briefly discuss ss 95–100 of the Evidence Act, which, as noted at [72] and [74] above, embody the scope and limitation of proviso (f) to s 94. Section 95 reads as follows:
[76] Section 95 applies in cases of patent ambiguity (see [50] above). However, the illustrations in s 95 itself and case authorities show that only patent ambiguity which reflects an ambiguity in the contracting parties’ intentions will be fatal to a contract (see, for example, Karuthan Chettiar v Parameswara Iyer [1966] 2 MLJ 151, where the ambiguity arose from the words “[r]ate of interest: 18% per annum/month” (at 152)). As Sarkar ([71] supra) explains at p 1552:
The operation of s 95 is thus extremely narrow. In fact, this section operates as a limit on the scope of proviso (f) to s 94. In other words, when the language of a contract contains a patent ambiguity that reflects ambiguity of intention, extrinsic evidence is not admissible in spite of proviso (f) to s 94 because, as stated in Sarkar at p 1538, “admission of such evidence would not be interpreting a contract, but making a new one” (although we are of the view that it would be more accurate to say that extrinsic evidence which has been admitted under proviso (f) to s 94 cannot be used to cure patent ambiguities in the parties’ intention as expressed in the contract (see [50] above)).
[77] Section 96 of the Evidence Act states:
The somewhat narrow wording of s 96, which refers to the specific situation where the language in a document “applies accurately to existing facts”, is probably attributable to its provenance as a rule of interpretation pertaining to wills (see [73] above). This section should therefore not be read too restrictively. Like s 95 of the Evidence Act, s 96 should be viewed as prescribing a common-sense limit on the use of extrinsic evidence which has been admitted under proviso (f) to s 94. In Butterworths’ Annotated Statutes ([71] supra), it is stated (at p 275) that:
Similarly, in Woodroffe ([2] supra) at p 3510, the explanation of s 94 of the Indian Act (which is in pari materia with s 96 of the Evidence Act) makes clear that:
[78] We turn next to ss 97–99 of the Evidence Act, which are best addressed together as they deal with different species of the genus of latent ambiguity. The provisions are as follows:
[79] Strictly speaking, s 97 does not pertain to latent ambiguity since, after the context is considered, multiple meanings of the words in question do not exist; rather, the original language becomes meaningless in the light of the surrounding circumstances so as to convince the court that such language could not have been used in what s 97 calls its “plain” sense. However, we are aware that certain leading commentators have been content to describe the scenario posited in s 97 as a kind of latent ambiguity (see, for instance, Sarkar ([71] supra) at p 1561 and Butterworths’ Annotated Statutes ([71] supra) at p 276). Section 98 is concerned with a type of latent ambiguity known at common law as “equivocation” (see Sarkar at p 1562). In such cases, even direct declarations of the contracting parties’ intent may be admitted to resolve the ambiguity (id at p 1568). Finally, s 99 is concerned with latent ambiguities which arise because of an inaccurate description or name so that the description or name is partly correct and partly incorrect. For instance, in the illustration in s 99, because neither set of given facts fully corresponds with the contractual provision (viz, A’s agreement to sell to B “[his] land at X in the occupation of Y” [emphasis in original omitted]), the provision itself becomes capable of alternative meanings, ie, it may refer to the sale of A’s land at X or of A’s land in the occupation of Y. Thus, extrinsic evidence is admissible to resolve the ambiguity. Again, it may be noted that ss 97–99 all pertain to ambiguity about facts (usually the identity of persons or the subject matter of an agreement), the reason being that these sections likewise originated as rules of interpretation applying to wills (see [73] above).
[80] As s 100 of the Evidence Act is a straightforward provision, it is not necessary for us to discuss it, but we will set it out for the sake of completeness:
(2) The case law
[81] We turn now to the case law in Singapore, with a particular focus on the movement towards the contextual approach to contractual interpretation and its ramifications for the parol evidence rule as encapsulated in s 94 of the Evidence Act.
[82] In Citicorp Investment Bank (Singapore) Ltd v Wee Ah Kee [1997] 2 SLR 759 (“Citicorp Investment Bank (Singapore)”), the Court of Appeal examined the operation of the parol evidence rule and the admissibility of extrinsic evidence in the interpretation of contracts in Singapore. In that case, the defendant bank (“Citicorp”) had, under a loan agreement (“the original loan agreement”), advanced to the plaintiff borrower (“Wee”) a principal sum of US$4.25m for the purchase of shares in a company (“the Shares”). Pursuant to the original loan agreement, Wee had granted to Citicorp: (a) a charge over the Shares, and (b) an option to purchase, during the option period, 30% of the Shares. Wee subsequently sought an extension of time to repay the principal sum plus interest. The parties thus entered into a fresh agreement (“the fresh loan agreement”), the pertinent portion of which read as follows (at [45]):
Wee eventually repaid Citicorp the loan plus accrued interest, but not the sum of US$800,000. As a result, Citicorp delivered only part of the Shares to Wee and held on to the rest, alleging that it was entitled to retain them as security for the call option fee of US$800,000. In determining whether Citicorp was entitled to retain part of the Shares, the Court of Appeal had to rule on two issues: first, whether the option was invalid as a clog on the equity of redemption; and, second (and more relevantly for our purposes), if the option was found to be valid, whether, by the terms of the fresh loan agreement, Wee still owed Citicorp a further $800,000 for the termination of the option. As the Court of Appeal put it (at [47]):
[83] As Wee’s application was for summary judgment for the return of the Shares, counsel for Citicorp argued that the interpretation of the terms of the fresh loan agreement would warrant a trial. The thrust of counsel’s argument was that extrinsic evidence must be adduced under proviso (f) to s 94 of the Evidence Act (Cap 97, 1990 Ed) (“the 1990 Act”) and the witnesses cross-examined in order to ascertain the true sense of the words as used by the parties (see Citicorp Investment Bank (Singapore) at [48]). The Court of Appeal robustly rejected this argument. Its reasoning is worth setting out at some length, as follows:
Thus, the judgment in Citicorp Investment Bank (Singapore) was a staunch affirmation of the parol evidence rule. The Court of Appeal alluded to the common law contextual approach to contractual interpretation (id at [62]), but firmly restricted its potential application by taking a restrictive view of proviso (f) to s 94 of the 1990 Act, which is identical to (the present) proviso (f) to s 94 (for ease of discussion, the term “proviso (f) to s 94” shall be used hereafter to refer to proviso (f) to s 94 of both the 1990 Act and the present Evidence Act). It appeared to be saying that extrinsic evidence was only admissible under that proviso where the words of a written agreement did not have a clear and fixed meaning, ie, where the language of the document was not “plain and unambiguous” (see Citicorp Investment Bank (Singapore) at [68]). It should be noted that the Court of Appeal appeared to accept that latent ambiguity could also render the language of a contract susceptible of alternative explanation (see the emphasised portion of Tindal CJ’s reasoning in Shore v Wilson (1842] 9 Cl & Fin 354; 8 ER 450, which was relied on by the court at [64] of Citicorp Investment Bank (Singapore)). This seems to contradict the court’s rigid insistence that extrinsic evidence was inadmissible unless the language was ambiguous (see also [52] above).
[84] The Court of Appeal’s view of the impact of proviso (f) to s 94 was roundly criticised in Daniel Seng, “Another Clog on the Construction of Contracts? The Parol Evidence Rule and the Use of Extrinsic Evidence” [1997] SJLS 457 (“Seng’s article”) at 463 as introducing an unjustified qualification to the proviso. Seng’s view (at 481) was that:
Under this view, proviso (f) to s 94 is the statutory analogue of the common law contextual approach to contractual interpretation.
[85] However, the Court of Appeal’s view remained unchanged in Tan Hock Leng v L & M Group Investments Ltd [2002] 2 SLR 213 (“Tan Hock Leng”) (see especially [11] and [13]), although, in that case, the court did not make any explicit reference to Citicorp Investment Bank (Singapore) ([82] supra). On the facts of Tan Hock Leng, the court found that the relevant provision was unclear on its face and, thus, extrinsic evidence was admissible under proviso (f) to s 94.
[86] The next significant case is MAE Engineering Ltd v Fire-Stop Marketing Services Pte Ltd [2005] 1 SLR 379 (“MAE Engineering”). The appellant in that case (“MAE”) had selected the respondent (“Fire-Stop”) to supply and install fire-rated board cladding to the air-conditioning, mechanical and ventilation (“ACMV”) duct of a project. Based on MAE’s estimate that 5,000m of duct required cladding, the parties agreed that Fire-Stop would perform the work at the rate (quoted by Fire-Stop) of $80/m. A document (“T/007”) was signed whereby Fire-Stop would keep its offer open until its appointment was approved by the owners and consultant of the project. The first paragraph of T/007 stated (see MAE Engineering at [4]):
The arrangement was subsequently formalised in a subcontract dated 17 April 2000 (“the subcontract”). The preamble of the subcontract stated (id at [18]):
Clause 1.1 of the subcontract reiterated:
[87] It was common ground that the total area of ACMV duct actually cladded exceeded 5,000m, and MAE did not attempt to hold Fire-Stop to the ostensible lump sum price of $400,000. The issue was whether, on a true and proper construction of the subcontract, payment to Fire-Stop should have been based on the area of cladded or uncladded ACMV duct (MAE would have to pay more in the former case). The trial judge ruled in Fire-Stop’s favour and held that payment should be based on the external surface area of cladded ACMV duct.
[88] The Court of Appeal allowed MAE’s appeal for several reasons. First, the court noted that, on a plain and ordinary reading of the subcontract, the figure of 5,000m² must have referred to the area of uncladded duct since the cladding was to be installed to 5,000m² of ACMV duct (see [86] above). Counsel for MAE took issue with Fire-Stop’s contention that the term was ambiguous and could also refer to the area of cladded duct. It was submitted that if Fire-Stop’s argument were accepted, it would mean that MAE would in effect be asking Fire-Stop to install cladding to an area of ductwork that was already cladded.
[89] In response to Fire-Stop’s contention that, even if the figure of 5,000m² were held to refer to the area of uncladded duct, it did not necessarily indicate that payment should also be based on the area of uncladded duct, the Court of Appeal reasoned as follows:
On the particular facts of MAE Engineering, the reception of extrinsic evidence via the common law contextual approach did not contravene s 94 of the Evidence Act because the evidence in fact bolstered the natural and ordinary meaning of the subcontract. Perhaps for this reason, the Court of Appeal did not discuss proviso (f) to s 94. Furthermore, the court referred to Citicorp Investment Bank (Singapore) ([82] supra) only for the proposition that every contract should be construed as a whole and no words should be ignored (see MAE Engineering at [20]). Thus, although the decision in MAE Engineering is significant for its endorsement of the common law contextual approach, it is unclear how the obstacle in the form of a restrictively-interpreted proviso (f) to s 94 (as advocated in Citicorp Investment Bank (Singapore)) was overcome.
[90] In contrast, two High Court decisions which, coincidentally, were released on the same date (viz, 28 February 2005) – Standard Chartered Bank v Neocorp International Ltd [2005] 2 SLR 345 (“Standard Chartered Bank”) and China Insurance Co (Singapore) Pte Ltd v Liberty Insurance Pte Ltd [2005] 2 SLR 509 (“China Insurance Co”) – did address this issue.
[91] In Standard Chartered Bank, the plaintiff bank had granted banking facilities, comprising a term loan and overdraft facilities, to the defendant’s subsidiary (“the borrower”). The facility letter stated that the purpose of the overdraft facility was to meet the borrower’s working capital requirements. The defendant executed a guarantee for the sum of $1.5m for “all monies, obligations and liabilities” [emphasis in original omitted] (id at [7]) which might become due any time thereafter. A board resolution was also passed stipulating that the defendant was to provide the guarantee in the form and content required by the plaintiff. Subsequently, the borrower defaulted on the loan. Pursuant to the guarantee, the plaintiff demanded from the defendant payment of the principal sum of $1.5m and interest thereon.
[92] The defendant contended, inter alia, that the extent of its liability under the guarantee was limited to overdraft facilities employed by the borrower strictly for the purposes of the latter’s working capital. It sought to rely on the facility letter and the board resolution to prove this. The plaintiff vigorously disputed this on the basis that the material terms of the guarantee, viz, “all moneys, obligations and liabilities”, were unambiguous and, thus, the defendant’s liability was to be determined solely by reference to the guarantee. In rejecting the plaintiff’s submission, the court stated:
[93] Thus, the court recognised that under the contextual approach to contractual interpretation, extrinsic evidence could be admitted even if the terms of the contract were unambiguous, so long as it was not applied for the purpose of contradicting the written terms in contravention of the parol evidence rule. Significantly, the court articulated the view that the common law contextual approach was “in accordance with” (see Standard Chartered Bank at [36]) proviso (f) to s 94, thus implicitly adopting Seng’s thesis (at [84] above). (It should be noted, however, that the court ultimately held that, on the facts, the extrinsic evidence which the defendant sought to rely on to limit the scope of the guarantee was inadmissible and, thus, the plaintiff’s claim did fall within the ambit of the guarantee (see Standard Chartered Bank at [41], [44] and [48]).)

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Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd

Laws this judgment relies on

Grounds of decision

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The facts

(1) The common law rule against parol evidence

(2) The thin definition of the parol evidence rule

(3) The English courts’ use of extrinsic evidence in aid of interpretation

(1) The statutory framework

(2) The case law