Contract Interpretation in Singapore: A Detailed Guide for Businesses
Contracts play a crucial role in business transactions. They help establish terms and agreements between parties while outlining the responsibilities and obligations of each party involved. However, interpreting contracts can sometimes be tricky, especially when dealing with legal jargons and complex clauses.
In Singapore, contract interpretation is governed by the common law principles of interpretation. The court`s primary objective is to ascertain the parties` intentions by looking at the plain and ordinary meaning of the provisions in the contract. In this article, we will take a closer look at contract interpretation in Singapore and the factors to consider when drafting and interpreting contracts.
Clear and Unambiguous Language is Key
The most important factor in contract interpretation is the clarity and unambiguous language. Ambiguity in contract language can lead to disputes, misunderstandings, and even litigation. Therefore, it is vital to ensure that the contract language is clear and precise.
In Singapore, the courts have held that the meaning of a contract must be ascertained from the language used in the contract. The court will interpret the language used in the contract in its ordinary and natural meaning, taking into account the context, subject matter, and purpose of the contract.
The Objective Intention of the Parties
When interpreting contracts, the court will consider the objective intention of the parties. The objective intention refers to what a reasonable person would have understood the parties` intentions to be, based on the language of the contract.
The court will look at the contract as a whole and consider its commercial purpose, the relationships between the parties, and the surrounding circumstances. The court will also consider any prior negotiations or agreements between the parties if they are relevant to ascertaining the objective intention.
Contra Proferentem Rule
The contra proferentem rule is a legal principle that applies when interpreting ambiguous contract terms. It states that where there is ambiguity in a contract, the term should be interpreted against the party who drafted the contract.
In Singapore, the courts have adopted a modified form of the contra proferentem rule. The court will only apply the rule if the language of the contract is genuinely ambiguous and cannot be resolved by other means. The court will also consider the relative bargaining power of the parties to the contract.
Implied Terms
Implied terms are terms that are not expressed in the contract but are necessary to give effect to the parties` intentions. Implied terms may be necessary to prevent injustice or to make the contract workable.
In Singapore, implied terms can be divided into two categories: terms implied by law and terms implied by fact. Terms implied by law are terms that are implied by statute or common law principles. Terms implied by fact are terms that are necessary to give effect to the parties` intentions.
Conclusion
In conclusion, contract interpretation is crucial in ensuring that parties to a contract understand their rights and obligations. Businesses should ensure that their contracts are clear and unambiguous, taking into consideration the context, subject matter, and purpose of the contract. When interpreting contracts, the objective intention of the parties is essential. The courts will also consider implied terms and the contra proferentem rule when interpreting contracts. By following these principles, businesses can avoid costly disputes and litigation.
