By LONGBOW Law Corporation
In the case of R Manokaran v Chua Ah Leng  SGHC 39, the Singapore Court considered the application of the Unfair Contract Terms Act of Singapore (“UCTA”) to clauses that seek to limit or exclude liability for breach of contractual obligations.
Background: Claimants had booked two-way bus trips from Singapore to Genting Highlands with Grassland Express, commonly known for its “running horse” logo. On their trip back from Genting to Singapore, Claimants sustained injuries when the bus was involved in a road traffic accident. Against Grassland, Claimants sued for breach of contract arising from the negligent driving of the bus.
One of the arguments raised by Grassland was that it was merely a booking agent for Claimants, i.e., tasked to only arrange for bus services to be provided by a third-party service supplier, hence Grassland owed no duty to take reasonable care to transport Claimants from Genting to Singapore. Grassland relied on Clause 19 of its Booking Forms, which stated:
“The Company and/or its associated agents act only in the capacity of agent for passengers in making all arrangements for transportation and accommodation. All receipts and tickets issued by the Company are subject to the terms and conditions stipulated by the supplier.”
Issue: Claimants argued, amongst other things, that Grassland’s contractual obligation was to provide transport to the Claimants (and not merely to connect them with a third-party transport provider). Further, Clause 19 was unenforceable under Section 3(2) of the UCTA, which applies between contracting parties where one of them deals as consumer or on the other’s written standard terms of business.
Section 3(2) of the UCTA reads as follows:
“As against that party, the other cannot by reference to any contract term:
- when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or
- claim to be entitled:
- to render a contractual performance substantially different from that which was reasonably expected of him; or
- in respect of the whole or any part of his contractual obligation, to render no performance at all,
except in so far as (in any of the cases mentioned in this subsection) the contract term satisfies the requirement of reasonableness.”
For a term to be unenforceable under Section 3(2) of the UCTA, the party relying on the term must fail to establish reasonableness under Section 11 of the UCTA, which prescribes that “the requirement of reasonableness … is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made”.
Decision: The key question for the Court’s determination was whether Grassland’s attempt to clothe itself as an agent of the Claimants (pursuant to Clause 19) was an attempt to render its contractual performance which was substantially different from that which was reasonably expected of it (or to render no performance at all).
According to the Court, this requires the following 3 questions to be considered:
- what contractual performance did Claimants reasonably expect of Grassland under the contracts;
- what contractual performance did Grassland, by reference to Clause 19, claim to be entitled to render; and
- whether that contractual performance was substantially different from that which was reasonably expected by Claimants.
The Court held that the answer to the 1st question cannot depend on the proper construction of the contract, for if this was so, the reasonable expectations of an aggrieved party would be circumscribed by the impugned term itself: Zockoll Group v Mercury Communications  (“Zockoll”). Additionally, the reasonable expectations referred to in Section 3(2)(b)(i) of the UCTA are those which would have been formed at the time the contract was made: Shearson Lehman Hutton Inc. v Maclaine Watson, J.H. Rayner (Mincing Lane) . In considering this question, the courts have not been confined to the four corners of the contract.
The Court held that it was within the Claimants’ reasonable expectation that Grassland would be providing the transportation service, for the following reasons:
(a) the Booking Form objectively gave the impression that Grassland was the provider of the bus transportation service, taking into account Grassland’s running horse logo was featured, and the information conveyed, on the front page of the Booking Form, and the Booking Form Terms and Conditions were consistent with Grassland being the transport provider.
(b) The statement that Grassland was only an “agent for passengers in making all arrangements for transportation …” was inconclusive. A lay person could construe “agent” as a short-hand for travel agency. The word “arrangements” could also mean Grassland was the transport supplier.
- although Clause 19 made reference to “third party transport provider”, this did not preclude Grassland being the transport provider: Emma Moore v Hotelplan Limited t/a Inghams Travel . A possible reading is that Grassland sub-contracted the provision of transport to a third-party (who could be an independent contractor) but remained the transport provider (vis-à-vis its own customer): Wong Mee Wan v Kwan Kin Travel Services Ltd .
Under the 3rd question, the Court held that whether the discrepancy between:
(i) the reasonably expected performance; and
(ii) the contractual performance which Grassland claims to be entitled to render,
is substantial is a matter of degree, and such discrepancy must be “significant in a practical sense”: Zockoll.
The Court was satisfied on the facts that the performance which Grassland claims to be obliged to render substantially differs from the Claimants’ expectation because:
- Grassland claimed that it was merely an intermediary to connect the Claimants with a third-party transport supplier (for whose performance Grassland is not liable); whereas
- Claimants’ reasonable expectation was that Grassland would be the transport provider and there was nothing on the facts to dispel Claimants’ expectation.
Accordingly, Clause 19 fell within the ambit of Section 3(2)(b)(i) of the UCTA. For Clause 19 to be enforceable against the Claimants, Grassland had to prove that it was fair and reasonable to include Clause 19, having regard to the circumstances, which were or ought reasonably to have been, known to, or in the contemplation of the parties when the contract was made (Section 11 of the UCTA).
On the facts, the Court found that Grassland failed to prove that it was fair and reasonable for Clause 19 to be included in the contracts between Claimants and Grassland, as:
- there was a “vast disparity” in the bargaining positions of the parties, where:
- Grassland was dealing in the course of its business and experienced in commercial matters;
- whilst Claimants were lay persons not in a position to negotiate the terms and conditions of the Booking Forms.
The Court noted that Grassland did not suggest that it was willing to amend or omit Clause 19 if requested by a customer. There was nothing to displace the finding that Claimants were in a weaker bargaining position.
- while the Court took the view that Claimants ought to have known of the existence of Clause 19, the Court was not convinced that the Claimants ought to have appreciated the full extent of Clause 19 (i.e., it was intended to limit Grassland’s role to a mere agent or intermediary of the Claimants). Even if a party knew of the existence of the term, he may not know, and could have reasonably lacked knowledge of, its content: Overseas Medical Supplies Ltd v Orient Transport Services Ltd . In particular, the Court was not convinced that Claimants’ signatures on the Booking Form ought to represent Claimants’ consent in fact to Clause 19 qualifying the nature of Grassland’s contractual undertaking;
- Claimants had no opportunity to seek legal advice, and it would be wholly unrealistic to expect customers of tour operators (in the Claimants’ position) to seek legal advice before completing their purchase.
In light of the foregoing, the Court held that Clause 19 was unenforceable under the UCTA.
Takeaway: Commercial entities dealing with others as consumers, or on their own standard terms of business, should always exercise due care in drafting its standard form contracts, as clauses purporting to exclude or limit its liability for breach of contract may be subject to challenge under the UCTA.
This article was prepared with the assistance of Ms Ng Wei Lin (Legal Associate) and Mr Zou Haiwen (Intern) at LONGBOW Law Corporation (www.LongbowLawCorp.com).
If you require any further information, please do not hesitate to contact Mr David TEO Shih Yee (Managing Director) at david.teo@LongbowLawCorp.com
DISCLAIMER: The views expressed herein are the author’s and do not necessarily represent the views of LONGBOW Law Corporation (“LONGBOW”) or any of its lawyers. LONGBOW did not represent any of the parties in the case discussed. This article is a summary for general information and discussion only and should not be construed as providing legal advice concerning the laws of Singapore or of any other jurisdiction. It is not a full analysis of the matters presented, may not be relied upon as legal advice. Readers should consult with counsel for legal advice on the matters addressed herein.