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    07:32 PM Goh Yihan (Associate Professor, Singapore Management University)

    Siemens Industry Software Pte Ltd v Lion Global Offshore Pte Ltd [2014] SGHC 251: Further Issues in Contractual Formation and Duress

        

    For a second time in a month, the High Court decision of Siemens Industry Software Pte Ltd v Lion Global Offshore Pte Ltd [2014] SGHC 251 (“Siemens Industry Software”) gives us valuable guidance on the application of trite principles of contractual formation to a practical fact pattern. The case also discussed whether enforcing one’s legal right can ever amount to duress. 

    Siemens Industry Software was the appeal by the defendant, Lion Global Offshore Pte Ltd, against the Assistant Registrar’s decision to enter summary judgment in favour of the plaintiff, Siemens Industry Software Pte Ltd. Owing to a copyright dispute over the use of the plaintiff’s software by the defendant, the parties entered into a settlement arrangement. This arrangement essentially involved a full and final settlement of the copyright dispute on a no-fault basis, conditional upon the defendant paying $267,500 (including taxes) under a licensed software designation agreement (“LSDA”) for six software licences. Accordingly, two documents were concluded: a settlement agreement (“SA”), and the LSDA. When the defendant refused to pay the $267,500, the plaintiff considered that refusal to be a repudiatory breach of the LSDA. The plaintiff thereafter elected to continue with the LSDA and delivered six software licences to the defendant. It then issued a letter of demand to the defendant for the $267,500. When the defendant still refused to pay, the plaintiff commenced the present action for summary judgment in its favour. 

    The defendant argued on appeal that it should be given leave to defend, as there were several triable issues. 

    Contractual formation issue (1): Whether the LSDA was dependent on the SA

    First, whether the plaintiff was precluded from proceeding with its claim based only on the LSDA; essentially, the defendant’s argument was that since the SA was made conditional upon the completion of the LSDA, the SA needed to be considered as well. Put another way: was the LSDA alone sufficient to establish an agreement between the parties?

    Whether this was a triable issue requires the consideration of basic contractual formation principles. As was discussed in a recent entry on this blog, the Court of Appeal held in R1 International Pte Ltd v Lonstroff AG [2014] SGCA 56 that the law adopts an objective approach towards ascertaining contractual formation. Thus, whether a contract is formed (and its constituent terms) depend not on the parties’ subjective assertions, but on how a reasonable person would understand the situation. It is important to emphasise the correct perspective from the reasonable person is to understand what the parties intended. One approach is to consider what a reasonable person in the place of the promisee might have understood the promisor to mean; thus, “[w]ords are to be interpreted as they were reasonably understood by the man to whom they were spoken, not as they were understood by the man who spoke them”; this is the “promisee objectivity” approach. It is clear that the promisee objectivity approach applies in Singapore. As Yong Pung How CJ said in Tribune Investment Trust Inc v Soosan Trading Co Ltd [2000] 3 SLR 405:

    The principles of law relating to the formation of contracts are clear. Indeed the task of inferring an assent and of extracting the precise moment, if at all there was one, at which a meeting of the minds between the parties may be said to have been reached is one of obvious difficulty, particularly in a case where there has been protracted negotiations and a considerable exchange of written correspondence between the parties. Nevertheless, the function of the court is to try as far as practical experience allows, to ensure that the reasonable expectations of honest men are not disappointed. To this end, it is also trite law that the test of agreement or of inferring consensus ad idem is objective. Thus, the language used by one party, whatever his real intention may be, is to be construed in the sense in which it would be reasonably understood by the other. [emphasis added]

    Although not expressly stated by the court in Siemens Industry Software, it is clear that it applied these principles. It held that, objectively considered, the SA being conditional on the sale of the six software licences pursuant to the LSDA did not mean that the LSDA was conditional on the SA. The defendant’s own subjective assertions on a contrary effect of the SA and the LSDA was irrelevant; in any case, the evidence contradicted this assertion as the defendant had stated in an email that it understood that an agreement had been concluded. As such, there was no need for the plaintiff to plead the SA, and this first alleged triable issue was not in fact one. 

    Contractual formation issue (2): Whether the LSDA was sufficiently complete and certain 

    The second alleged triable issue actually consisted related issues, but they all had to do with whether the LSDA was sufficiently complete and certain to be enforceable. The defendant argued that the LSDA could not be enforced as there was, first, no agreed terms for payment, and secondly, vagueness relating to the words “valid through: June 30, 2014”.

    The court first found that uncertainty as to the time of payment may render an agreement unenforceable when it is determined to be vital to the agreement. Indeed, such was the case in T2 Networks Pte Ltd v Nasioncom Sdn Bhd [2008] 2 SLR(R) 1 (“T2 Networks”), where the High Court found that a settlement agreement was not legally binding because the payment terms were not certain. However, in Siemens Industry Software, the court found that there was no evidence that time of payment was vital to the transaction. Thus, the court appeared to have accepted that there was indeed an uncertainty as to the time of payment. However, this did not render the contract unenforceable because the time of payment terms were not vital to the transaction. Indeed, the court further went on to say that there was no basis to imply a term providing for payment within a reasonable time, therefore fortifying the earlier suggestion that the court did, in fact, regard the time of payment terms to be uncertain. As such, the court did not consider this to be a triable issue.

    With respect, it may be unclear why time of payment is not vital in the present case. Similar to T2 Networks, Siemens Industry Software concerned a settlement agreement; it ought to a valid consideration to all parties when the settlement is to be effected. Indeed, contrary to the court’s conclusion that time of payment was a minor term compared to the quantity of products to be purchased, the method of delivery and the price of sale, it is respectfully submitted that without agreement of the time of payment, the LSDA would be an essentially “empty” agreement that does not have a time of performance stipulated on the part of the defendant. Furthermore, given that the SA is dependent on the completion of the LSDA, surely when the LSDA was in fact completed, itself dependent on the time of payment, must be considered vital by the parties. 

    However, the court was, with respect, correct that the words “valid through: June 30, 2014” simply meant that the LSDA was open for acceptance until that date. This therefore did not render the LSDA uncertain and unenforceable, and did not give rise to a triable issue.

    Duress: Whether the LSDA was procured by duress

    Although the court in Siemens Industry Software need not have considered duress because it was not pleaded by the defendant but only raised orally at the appeal, the court nonetheless considered it for completeness. According to the defendant, the defendant claimed that the plaintiff’s representative acted in a threatening manner when the parties met to resolve the copyright dispute. The defendant alleged that the plaintiff’s representative stated that copyright infringement was a serious offence that could land the defendant’s representatives in jail, and that the plaintiff could sue the defendant for damages of over US$800,000.

    The court rightly found that even if the plaintiff’s representative had threatened legal action against the defendant and its representatives, this did not amount to duress since a threat to enforce one’s legal right does not generally amount to duress. There was therefore no triable issue as to whether the LSDA was procured by duress.

    Indeed, generally speaking, a threat of a lawful action – that is, actions which the person making the threat is legally entitled to do – coupled with a reasonable demand does not amount to illegitimate pressure. Thus, in Lee Kuan Yew v Chee Soon Juan [2003] 3 SLR(R) 8, Rubin J held that even if the plaintiff had threatened to commence legal proceedings against the defendant, “such a threat did not amount in law to duress”.  Similarly, the High Court more recently in Real Estate Consortium Pte Ltd v East Coast Properties Pte Ltd [2010] SGHC 373 reiterated the view that the threat of legal action to enforce one’s legal right (in that case, taking legal action to enforce payment of a sum agreed) is not a wrongful threat. The proposition that threat of a lawful action does not amount to illegitimate pressure is the view generally espoused in the case law, a prominent illustration of which is the English Court of Appeal decision of CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714.

    However, the proposition that a threat to enforce one’s legal right does not amount to duress is only true if the threat is made bone fide, and is not manifestly frivolous or vexatious. In Lee Kuan Yew v Chee Soon Juan, Rubin J appeared to agree with counsel’s argument that a threat to enforce one’s legal rights by way of legal proceedings could constitute duress if “it was used as an instrument to extort money from others”. This suggests that there could be a point (especially in egregious cases) when the threat of a lawful act could nevertheless constitute duress. 

    Where that point might lie was not considered in Siemens Industry Software, presumably because the court did not regard the plaintiff’s threat to be made mala fides. Indeed, the court placed some emphasis on the fact that the plaintiff’s threat was not without basis since the defendant had admitted beforehand that there had been unauthorised installations and use of the plaintiff’s software. Moreover, the sum of US$800,000 mentioned in the plaintiff’s threat was also arrived at a pricing mechanism that was disclosed to the defendant before the parties met. 

    Although the court in Siemens Industry Software did not consider explicitly the point at which a threat to enforce one’s legal right might amount to duress, its findings, considered in light of other Singapore cases (see, eg, Tam Tak Chuen v Khairul bin Abdul Rahman [2009] 2 SLR(R) 240), make it clear that the local courts have adopted the four general factors identified by Professor Enonchong in ascertaining when duress might be found in such a situation. These four factors are:

        (a)    The threat involves an abuse of the legal process.

        (b)    The demand is not made bona fide.

        (c)    The demand is unreasonable.

        (d)    The threat is considered unconscionable in the circumstances.

    Quite clearly, the court in Siemens Industry Software considered that the plaintiff’s threat was made bona fides as it was not without basis. In a related vein, the threat was not unreasonable. However, notwithstanding the Singapore courts’ general acceptance of Professor Enonchong’s four factors, it might be useful to take note of the High Court’s warning in E C Investment Holding Pte Ltd v Ridout Residence Pte Ltd [2011] 2 SLR 232 (“E C Investment Holding”) about Professor Enonchong’s proposal that a lawful threat could amount to duress if the terms secured “are so ‘manifestly disadvantageous’ as to make it unconscionable for the defendant to retain the benefit of it”. The court in E C Investment Holding warned that this proposal should not be adopted “without a degree of caution” as this might come too close to re-writing disadvantageous contracts.

    * This blog entry may be cited as Goh Yihan, "Siemens Industry Software Pte Ltd v Lion Global Offshore Pte Ltd [2014] SGHC 251: Further Issues in Contractual Formation and Duress", Singapore Law Blog (11 December 2014) (http://www.singaporelawblog.sg/blog/article/67)

    ** A PDF version of this entry may be downloaded here

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