When your Contract becomes “legal nonsense”

July 24, 2014

The Singapore Court of Appeal in the recent case of Teo Chong Nghee Patrick v Han Cheng Fong [2014] SGCA 29 recently held that a contract between shareholders of company to be “a piece of legal nonsense devoid of any legal effect”.

What perhaps raised eyebrows was the fact that the contract pertains to a large property development and the parties to the contract are very experienced businessmen. In fact, one of the parties is Dr. Han  Cheng Fong who was the Chief Executive Officer of Frasers Centrepoint Ltd a subsidiary of Fraser and Neave Ltd., since May 2001. Dr. Han has also been Project Consultant of Centrepoint Properties Ltd. since November 6, 2000 and served as Group Chief Executive Officer of DBS Land Limited.

As is often the case, the contract’s enforceability was tested when parties fell out with each other and disputes between them occurred. In reviewing the contract, the Court of Appeal found that the provisions were not drafted with legal advice and included provisions which were vague and omitted others which were necessary. The overall effect, said the Court, was to render the contract unworkable and unenforceable.

This case reminds us that contractual failures of the magnitude experienced by Dr Han can happen to the most experienced businessman if we are not careful.

The decision of the Court serves as a wake-up call to all business-owners who often assume that doing business based on trust (i.e. no written contract) or based on a flimsy one page self-prepared agreement is good enough. That may have worked in the past but it just takes one soured relationship or one unpaid invoice to reveal that their contract is in fact “a piece of legal nonsense devoid of any legal effect”.

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