Breach of Contract in Singapore

What is a “Breach of Contract”?

Assuming that a valid and legally binding contract exists, a breach of contract occurs when a contracting party (the “defaulting party”) fails to perform, without lawful excuse, a contractual obligation.

Failure to perform takes several forms:

• Late performance;
• Non-performance (i.e. when a defaulting party refuses to perform what he has promised to do);
• Defective performance (i.e. the defaulting party fails to fulfil a promised objective or end-state)
• Doing the very thing the defaulting party has promised not to do; and
• Preventing oneself from fulfilling a contractual obligation.

Types of Breach of Contract

Actual Breach

• Minor breach: Also known as immaterial breach or partial breach. It occurs when a party fails to perform a small or non-essential part of the contract while fulfilling their main obligations. This type of breach usually does not allow the innocent party to terminate the contract, but they may still seek damages.
  • For example, you ordered clothes from Shopee but there was a delay in shipment due to customs. You eventually received the item without any defect, albeit just a month late. Aside from minor inconveniences, there was no financial loss on your side.

• Material breach: Occurs when a party fails to perform their main obligations either completely or significantly, thus depriving the innocent party of the benefits they were supposed to gain from the contract. This type of breach allows the innocent party to claim for damages and terminate the contract.
  • For example, a new homeowner hired an interior designer to renovate his flat. However, rather than the designs and high-end furniture agreed on, the interior designer installed low-grade materials and cheap furniture to cut costs.

Anticipatory breach:

• Unlike actual breach which is the failure to perform a contractual obligation after the deadline, anticipatory breach occurs when one party in the contract admits or implies that they will not be performing their contractual obligations before the deadline. This type of breach allows the innocent party to claim for damages and terminate the contract.
  • For example, a company contracts a performer to appear at a concert in 6 months but the performer informs the company 3 months before the concert that they will not be available.

There is no need to show that the defaulting party intentionally failed to perform. Unless the contract provides otherwise, there is also no need to show that the defaulting party failed to exercise reasonable precaution in performing the promise.

However, not every failure to perform constitutes “breach of contract”. Two other elements must be satisfied for a failure to perform to constitute “breach of contract”:

1. The defaulting party must have failed to perform a contractual obligation

In the vast majority of instances, a contract obligation is written down in the contract documentation, and it is known as an express term.

Before determining if there has been breach of contract, one must first know what the express term required the defaulting party to do or not do. Through contractual interpretation, the court ascertains the meaning of the express term as intended by the contracting parties. Once the meaning of the express term is ascertained, the issue of whether there has been a failure to perform the obligation can then be determined based on the evidence available.

Apart from express terms, there are three other sources of contractual obligations: statute (e.g. Sale of Goods Act), widespread trade usage, and Court-implied terms. Court-implied terms refer to terms that are “read” into the contract by the Court to fill a gap in the contract. It is not easy to have a term implied into the contract; generally speaking, a term may only be implied if the contracting parties did not contemplate the gap in the contract and the term is necessary for the contract to work. You can read more about implied terms here.

2. There must be no lawful excuse for the defaulting party’s failure to perform

Such excuse must be provided for either in the contract, or by law.

For example, a contract for supply of goods may contain a price adjustment clause allowing the supplier to make reasonable adjustments to the contract price if he experiences difficulty obtaining raw material for his goods.

An excuse based on social or commercial considerations falling short of a lawful excuse will not absolve a defaulting party from breach of contract. Thus, using the same example of a contract for supply of goods, the mere fact that another buyer is willing to pay a higher price is not lawful excuse for the supplier’s refusal to supply.

What are the Lawful Excuses for Breach of Contract?

Discharge by Agreement

Where both parties in the contract agree to terminate or release themselves from the obligations of the contract. Such agreement may have been a clause in the original contract which provides that the contract be terminated by giving notice of termination, or upon lapse of a specified period of time. The parties can also free themselves from the obligations by entering into a subsequent contract of release. 

If both parties still owe obligations, no formalities or consideration are needed. However, if only one party owes obligations, consideration or execution under seal is required for a valid release.

Discharge by Frustration

Where unforeseen events outside the control of the parties in a contract occur, making it either impossible to fulfil their obligations or radically different from what was agreed on, the contract is treated as ‘frustrated’.

Examples of such events include, but not limited to:

• Destruction of the subject matter (e.g. a venue burn down before the event)
• Amendments of the law that make performance of contractual obligations illegal (e.g. B was supposed to import chewing gum into Singapore for A but the ban on chewing gum was implemented)
• Death or incapacity of a person required to perform a service (e.g. B hired a band to perform in his event but the lead singer died)
• Natural disasters
• Outbreak of war
• Pandemic

What are the Remedies Available for Breach of Contract?

The law provides an innocent party with four remedies for breach of contract:

1. The principal remedy for breach of contract is monetary compensation, also known as damages in legal parlance. By default, every breach of contract entitles the innocent party to damages for losses suffered by the innocent party stemming from the breach of contract. The innocent party must, however, take reasonable steps to minimise his losses.
2. A breach of contract may entitle the innocent party to terminate the contract. If the innocent party chooses to terminate the contract, the contracting parties are discharged from all contractual obligations as at the point of termination onwards. Unlike damages, not every breach of contract entitles the innocent party to terminate the contract. Whether or not the right of termination is available depends on how the term is classified in law.
   • Material breach and anticipatory breach may allow the innocent party to terminate the contract.
3. An order of specific performance may be available to compel the defaulting party to perform his contractual obligation. However, specific performance is only awarded in exceptional cases, typically where damages are an inadequate remedy should the contractual obligation not be performed. For example, specific performance is more likely to be available in contracts involving the delivery of unique property, such as land. We have more information on specific performance in another article.
   • Material breach and anticipatory breach may allow the innocent party to claim specific performance if damages are an inadequate remedy.
4. A prohibitory injunction may be available to ensure that the defaulting party honours his promise not to do something. Like specific performance, prohibitory injunctions are only awarded in exceptional cases, typically where damages are inadequate to remedy the breach of contract. Read more about the different types of injunctions in our other article.
   • Material breach and anticipatory breach may allow the innocent party to claim prohibitory injunction if damages are an inadequate remedy.

Where Can I Go to Resolve a Breach of Contract Dispute?

There are several avenues for resolution of a breach of contract dispute:

• If a more formal mode of dispute resolution is preferred, court proceedings or arbitration may be considered. Because of the level of formality involved, these tend to be more expensive and lengthy.
• The Small Claims Tribunals, dealing with claims up to $20,000 (or up to $30,000 with the parties’ consent), is a relatively quicker, cheaper and less formal forum for dispute resolution. Parties may not be represented by lawyers at the Small Claims Tribunals.
• For employees who fall under the Employment Act, the Ministry of Manpower is a possible choice to resolve disputes for employment matters.
• An alternative mode of dispute resolution is private mediation. Unlike the aforementioned modes of dispute resolution, private mediation is less adversarial in nature because it focuses on arriving at an outcome that is most favourable to the interests of all parties concerned.

If there are any doubts, you should consult a lawyer for specific advice on (1) the likelihood of success of your claim for breach of contract, and (2) the most ideal way of resolving the dispute.

You may also wish to check out our carefully drafted contract templates which you can easily amend/add to, any terms, as you deem suitable. Currently, they’re going at 10% OFF:

The post Breach of Contract in Singapore appeared first on SingaporeLegalAdvice.com.