Determining if a Contract has been Formed – Appellate Court Confirms Relevance of Subsequent Conduct and Considers Relevance of Commercial Plausibility of Contract

Introduction

In the course of a commercial relationship, dealings may at times be carried out informally rather than through formal contracts. In such circumstances, if the relationship breaks down, disputes may arise over the existence and terms of alleged oral contracts. This was the case in Kok Kuan Hwa v Yap Wing Sang and another appeal [2025] SGHC(A) 16, where the Appellate Division of the Singapore High Court (“Court“) was faced with competing accounts of an alleged agreement between two former business partners. In arriving at its decision, the Court set out the law on the relevance of subsequent conduct and the commercial plausibility of an alleged contract in determining if a contract was formed.

The Appellant and the Respondent were businessmen who had collaborated to form a successful food and beverage business. Subsequently, the relationship between the parties broke down and they decided to part ways. It was common ground that the parties had entered into an oral contract to facilitate the unravelling of their collaboration. However, the parties gave differing accounts of the terms of the agreement. 

On appeal, the Court reversed the decision below by finding that a contract had in fact been formed and by accepting the Appellant’s version of the contract, based on the evidence on the subsequent conduct of the parties. The Court also rejected the Respondent’s case that the parties had entered into a separate oral agreement.

This decision demonstrates how the court will determine whether an oral contract has been formed. In particular, it highlights the approach that may be adopted by the court in assessing the subsequent conduct of the parties and the commercial plausibility of the alleged contract.

The Appellant was successfully represented by Lee Eng Beng, SC, Mark Cheng, Tan Ee Kuan and Naomi Lim Bao Bao of Rajah & Tann Singapore LLP.

Brief Facts

The Appellant and the Respondent had collaborated to start a successful food and beverage enterprise (“CC Group“). Their collaboration involved three categories of entities:

1. Entities which operated coffeeshops, food courts and stalls (“Operating Entities“);

2. Entities which held real property (“Real Property Holding Entities“); and

3. A company which was the commercial and administrative headquarters of the CC Group and which had owned both Operating Entities and a real property (“CCGPL“).

Throughout the years, the parties dealt with each other on an informal basis. It was undisputed that from 2011, the parties had agreed that the Appellant held a 50% interest, the Respondent held a 25% interest, and the Appellant’s wife held a 25% interest, in the CC Group.

By 2018, the parties’ relationship had broken down. They then entered into negotiations to disentangle their shared ownership and management of the entities in the CC Group. It was common ground that the parties entered into an oral agreement in late 2018. However, the Appellant and the Respondent offered competing versions of this alleged agreement:

1. The Appellant claimed that the parties agreed for the Respondent to relinquish his interests and resign from his appointments in the Operating Entities of the CC Group, and in return, the Respondent’s interests in the Real Property Holding Entities and CCGPL would be fixed in accordance with his registered shareholding in those entities (“First Agreement“); and

2. The Respondent claimed that the parties agreed for the Respondent to transfer his shares in ten Operating Entities to the Appellant and for the Respondent to resign from his positions in them, and in return, the Appellant would fully and fairly compensate the Respondent for his 25% share in the CC Group (“Share Sale Contract“).

The parties later reached another agreement involving various transfers of shares in certain Real Property Holding Entities, with the result that the Appellant and the Respondent no longer held interests in the same companies (“Second Agreement“). The Second Agreement was duly performed by the parties.

Additionally, it was disputed whether the Real Property Holding Entities were part of the CC Group, and therefore subject to the above agreements. The Respondent claimed that there was an oral agreement in 2005 for the Appellant and the Respondent to own the Real Property Holding Entities legally and beneficially in accordance with their respective registered shareholdings in the same (“2005 Agreement“).

The High Court Judge (“Judge“) rejected both the First Agreement and the Share Sale Contract, finding that the parties had failed to prove the existence of either of the alleged agreements. The Judge also held that the Respondent had failed to prove the existence of the 2005 Agreement.

The parties appealed against the Judge’s decision.

Decision of the Appellate Division

The Court found in favour of the Appellant, finding that the parties had in fact entered into the First Agreement. The Court rejected the Respondent’s case that the parties had entered into the Share Sale Contract and the 2005 Agreement.

Legal Principles Relating to Contract Formation

The Court set out the following principles relating to the formation of contracts:

1. Subsequent conduct is relevant in determining if a contract has been formed; and

2. The court can look to the commercial plausibility of a contract if it assists in weighing the inherent probabilities of the existence of the contract. However, the court will not weigh the value of the proffered consideration in deciding whether it was likely that a party might have accepted an offer. 

Existence of the First Agreement

The Court found that the First Agreement had been proved by the Appellant, based on the following pieces of evidence relating to the subsequent conduct of the parties:

1. First, the nature of the Respondent’s exit from the Operating Entities – in particular, his retention of his shares in CCGPL and the restructuring of CCGPL so that it held only real property and not the Operating Entities – was probative of the First Agreement;

2. Second, the Respondent had failed to demand payment after giving up his shares in the Operating Entities until more than two and a half years later. This was consistent with the First Agreement, under which he was not to receive payment but would instead receive interests equal to his registered shareholding in the Real Property Holding Entities; and

3. Third, the Second Agreement was probative of the terms of the First Agreement.

Further, the Court was of the view that the terms of the First Agreement were neither so absurd nor illogical from the perspective of commercial parties that it could not be believed that the Respondent would have entered into the agreement.

Rejection of the Share Sale Contract

As for the Share Sale Contract, the Court upheld the Judge’s rejection of its existence.

1. There was insufficient evidence of the Share Sale Contract being entered into; and

2. The terms of the alleged Share Sale Contract were too uncertain to be enforceable. In particular, the Share Sale Contract failed to specify how the Respondent’s alleged compensation for the transfers of his shares was to be quantified.

Rejection of the 2005 Agreement

The Court upheld the Judge’s findings that the 2005 Agreement had not been entered into and that the Real Property Holding Entities were part of the CC Group.

1. The Respondent did not provide any contemporaneous or objective evidence of the 2005 Agreement; and

2. The Real Estate Holding Properties were part of the CC Group as they were incorporated for the benefit of the Operating Entities, were funded by profits from the CC Group, and were operationally and administratively integrated into the CC Group.

Concluding Words

In commercial relationships, particularly those of a long-running nature, there may be a tendency to favour informal agreements. However, this case demonstrates the difficulties that may arise if such an approach is adopted. Parties looking to prove the existence of oral contracts or the terms thereof may face challenges in establishing their claims. Parties should thus ensure that their agreements are, as far as possible, recorded in a written contract.

The decision also demonstrates the factors that a court will consider in determining the existence of an oral contract, including the parties’ subsequent conduct. The court may also consider the commercial plausibility of a contract in weighing the inherent probabilities of the existence of the contract.

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