According to Singapore’s Department of Statistics, in year 2025, Singapore’s total merchandise trade value with China has reached a shocking sum of SGD $162.85b [1]; whilst China recorded a bilateral trade valued at USD191.66 billion with Malaysia. [2]

 

This growing commercial interactions between businesses in China, Singapore and Malaysia has led to a growing need for cross-border contractual understanding. This article herein aims to provide a brief overview of the formation of a contract in different jurisdictions, the interpretation of contracts should any ambiguity arise, and some comments / takeaways.

 

1. SOURCES OF CONTRACT LAW & REQUIREMENTS FOR THE FORMATION OF A CONTRACT

 a. Singapore

It is no secret that Singapore does not have one codified law of contract as Singapore’s law of contract takes after the requirements found under the English common law. Hence, should doubts arise on a certain legal position or interpretation of terms, legal professionals tend to turn to  case precedents or judges’ obiter dicta for guidance.

Following the English common law approach, it would be of no surprise that the few essential requirements to create a valid and binding contract in Singapore are: –

• Offer
• Acceptance
• Intention to create legal relations
• Consideration
• Certainty of the terms of contract
• Parties’ legal capacity.

 

b. Malaysia

Malaysia, on the other hand, has a codified law of contract, i.e. the Contracts Act 1950 [3](“CA 1950”), to which Section 10(1) CA 1950 specifically lays down what amounts to a contract:

 

“What agreements are contracts

10.(1) All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. “

 

The CA 1950 is a comprehensive legislation, setting out not only the requirements to form a valid and binding contract, but it also goes further to list down what contracts are void or voidable in law.

 

c. China

In China, contracts are governed by the Civil Code of the People’s Republic of China (中华人民共和国民法典) (“PRC Civil Code”), which took effect on 1 January 2021. The PRC Civil Code comprises seven Books. Book One contains the general rules applicable to civil activities, while Book Three governs contracts.

Good faith is a foundational principle under Article 7 of the PRC Civil Code. For the purposes of this article, its most relevant statutory expressions are Articles 500 and 501, which regulate conduct during negotiations, and Articles 142 and 466, which govern the interpretation of declarations of intention and contractual terms.

 

2. KEY DIFFERENCES OF CONTRACT LAW BETWEEN EACH JURISDICTIONS

Albeit Malaysia has codified legislation on contract law and Singapore has none, the position and interpretation of contract law taken in these two jurisdictions are quite similar. As both Singapore and Malaysia adopt a common law approach to contractual interpretation; whilst China adopts civil law approach.

To illustrate, when interpreting the intention of parties before entering a contract, Singapore and Malaysia generally takes a contextual interpretation of the terms of the contract, i.e. the purposive interpretation[4]. In contrast, Articles 142 and 466 of China’s PRC Civil Code expressly require good faith to be considered when construing a disputed term, together with the words used, the relevant clauses, the nature and purpose of the contract, custom, and other relevant circumstances.[5]

 

Assessing the legality and method of interpretation of contracts is a vast subject beyond this article. Hence, this article shall only explore the aspect of the requirement of duty of good faith in the formation and interpretation of contract.

Save where expressly stated in the contract, Singapore and Malaysian common law traditionally rejects a subjective general duty of good faith in contracts; whilst China welcomes it. This distinction often creates confusion for Chinese businesses entering contracts governed by Singapore or Malaysian law, and vice versa.  

 

a. Singapore

In Singapore, the formation of contracts is commonly made in consensus between parties, where the law expect parties to be able to guard their own interests by crafting and including all relevant terms expressly in the contract. Inevitably, the above is not always the case, and issues would arise as to the legality or interpretation of the contract entered.

The general position is that courts will not endorse an implied duty of good faith in contracts, The leading authority on the above position is found in the landmark Court of Appeal case of Ng Giap Hon v Westcomb Securities Pte Ltd [2009] SGCA 19 [6], where Singapore’s apex court expressed significant reservations about recognizing a general doctrine of good faith in Singapore contract law

 

“47        The doctrine of good faith is very much a fledgling doctrine in English and (most certainly) Singapore contract law…

…

60        Much clarification is required, even on a theoretical level. Needless to say, until the theoretical foundations as well as the structure of this doctrine are settled, it would be inadvisable (to say the least) to even attempt to apply it in the practical sphere … In the context of the present appeal, this is, in our view, the strongest reason as to why we cannot accede to the appellant’s argument that this court should endorse an implied duty of good faith in the Singapore context.”

 

The Courts maintains the position that one should consider the objective intentions rather than their subjective intentions or the notions of good faith when entering into the contract. In other words, instead of seeking to understand what a party might have thought or he himself he was acting in good faith when entering or interpreting the contract, the court approach would be to analysis the words objectively, and ask “what would a reasonable person in the same position or situation understand or expect the specific term to mean”.

Subsequent academicians[7] and commentators[8] have also generally treated Ng Giap Hon (Supra)’s decision as authority against the existence of a general implied duty of good faith in commercial contracts.

 

The primary reasons against applying a general implied duty of good faith remains that it would open up to the uncertainty and unpredictability in contractual dealings, especially in commercial transactions where certainty and predictability are essential.

Nevertheless, Singapore law does, to a certain extent, recognize the duty of good faith if such duty had been expressly incorporated in the contract. As upheld in the Court of Appeal case of HSBC Institutional Trust Services Ltd v Toshin Development Singapore Pte Ltd [2012] SGCA 48[9], the Court of Appeal held that an express contractual clause in the lease agreement requiring parties to “in good faith endeavor to agree” is valid, enforceable, and not void for uncertainty whereby parties could not ‘simply walk away from the negotiating table for no rhyme or reason’.

 

As such, although Singapore law still has its reservations towards the implied duty of good faith, parties are however free to pursue their own commercial interests, provided they act within the express terms of the contract.

 

b. Malaysia

Likewise, Malaysia adopts a position similar to Singapore due to its shared English common law “heritage”. Malaysia courts have also been cautious to recognize a general duty of good faith, giving priority to the express wordings of the contract.

However, over the years, there seems to be a shift towards a more liberal approach by judges. In the recent Federal Court case of Lai Fee & Anor v Wong Yu Vee & Ors [2023] 3 MLJ 503[10], the apex court indirectly affirmed an implied duty of good faith during the negotiation of commercial contracts:

 

“[67] The fact that the Contracts Act starts on the footing that a contract is valid and enforceable underscores the premise that parties to a contract are not expected to arrange their affairs on the basis that other people may commit fraud. Indeed, parties who are engaged in negotiations for the purposes of entering into a commercial contract conduct themselves on the expectation of honesty, good faith and fair dealing. That expectation is essential to commerce which depends critically on trust. Absent such an assumption we do not think that there would be any agreement…”

 

The takeaway from Lai Fee (Supra) is that good faith is not confined solely to the performance of contractual obligations but may also extend to the pre-contractual negotiation and formation of a contract, and such position was taken by commentators when analysing this decision.[11]

Lai Fee’s (Supra) decision demonstrates Malaysia’s court readiness to recognise the duty of good faith consideration in contractual relationships. This represents a significant departure from the traditionally restrictive common law approach of the interpretation of contracts.  

 

Despite the above, the Federal Court, however, did not expressly adjudge that every commercial contract is subject to an implied duty of good faith. Hence, unless and until affirmed by future authoritative cases, Lai Fee remains a standalone case itself.

Nevertheless, businesses contracting under Malaysian law should be aware that the duty of good faith may play a significant role in the formation and interpretation of contracts, even though a comprehensive doctrine of good faith has yet to be established.

 

c. China

Chinese counterparties may use comparatively short contracts. One possible structural explanation is that PRC law supplies extensive default rules and the principle of good faith may give rise to ancillary duties, reducing the perceived need to state every obligation expressly. Reliance on that assumption can itself generate disputes. The detailed treatment of good faith in the PRC Civil Code nevertheless demonstrates the principle’s importance in Chinese contract law.

 

Article 7 of the PRC Civil Code establishes good faith as a general statutory principle governing civil activities. Unlike in Singapore and Malaysia, its application does not depend on the parties expressly incorporating a good-faith obligation into their contract. For present purposes, the most direct comparison with Singapore and Malaysian law concerns the statutory rules governing pre-contractual conduct and contractual interpretation.[xii]

 

At the pre-contractual stage, Article 500 provides that a party must compensate the other party for loss caused by: (i) conducting negotiations in bad faith under the pretext of concluding a contract; (ii) deliberately concealing material facts relating to the proposed contract or providing false information; or (iii) otherwise acting contrary to good faith. Article 500 does not state a general duty to disclose every fact relevant to a transaction. It specifically addresses deliberate concealment of material facts. Article 501 separately protects trade secrets and other confidential information obtained during negotiations. That information must not be disclosed or improperly used, whether or not a contract is ultimately concluded, and a party that causes loss by breaching this obligation is liable in damages.

 

The reach of this liability is illustrated by the Supreme People’s Court’s decision in Shenzhen Biaobang Investment Development Co Ltd v Finance Bureau of Anshan. The contract required governmental approval to take effect, and the party responsible for submitting it for approval failed to do so. The Court held that party liable in culpa in contrahendo and confirmed that recoverable loss may extend beyond direct expenditure to the innocent party’s loss of a transaction opportunity (交易机会损失). The assessment of that loss depends on the circumstances, including the degree of fault, the benefit obtained by the party at fault, the innocent party’s expenditure and the expected benefit of the lost opportunity. Although the case was decided under Article 42 of the former Contract Law, Article 500 of the PRC Civil Code substantially carries forward that provision. The contrast with the Malaysian position is marked: the pre-contractual good-faith obligation tentatively recognised in Lai Fee (Supra) is expressly codified in Article 500 under PRC law. [12]

 

Good faith is also an express factor in contractual interpretation, but it is neither the sole nor an overriding criterion. Article 142(1) requires a declaration of intention made to another person to be interpreted by reference to the words used, the relevant terms, the nature and purpose of the civil juristic act, custom and good faith. Article 466 applies that approach to disputed contractual terms. Where a contract is executed in two or more language versions that the parties agree are equally authentic, and the texts are inconsistent, Article 466 further requires interpretation by reference to the relevant terms, the nature and purpose of the contract and good faith.

 

Article 1 of the Supreme People’s Court’s 2023 Interpretation on the General Provisions of the Contract Part confirms that the ordinary meaning of the words is the starting point. The court should then consider the relevant terms, the nature and purpose of the contract, custom and good faith, with reference to the contractual background, negotiations and subsequent performance. If evidence establishes that the parties shared a meaning different from the ordinary meaning, that common understanding prevails. Accordingly, good faith informs a contextual interpretive exercise, but does not authorise a court to disregard the contractual language or rewrite the parties’ agreed allocation of commercial risk. This is especially important in cross-border contracts, where parties should not assume that a broad appeal to fairness will cure unclear drafting. [13]

 

 

3. COMMENTS / TAKEAWAYS

Albeit still at its development stage in Singapore and Malaysia, the incorporation of a duty of good faith is a slow but inevitable shift which businesses should take note of.

Hence, to adapt effectively to Singapore and Malaysian legal systems, Chinese companies are advised to adopt several practical measures / precautions when crafting contracts: -.

 

(i) Chinese businesses should avoid relying solely on assumptions good faith

Under Singapore and Malaysia law, parties are expected to incorporate all relevant terms in the contract. Essential terms such as parties’ obligations, payment terms, termination rights, the governing law, and dispute resolution mechanisms, should therefore be carefully negotiated and expressly incorporated.

 

(ii) Express incorporation of duty of good faith

If parties intend to impose the duty of good faith in the contract, it should be specifically included in the contract, which Singapore and Malaysia courts are more willing to enforce express clauses than a subjective implied duty.

 

(iii) Procuring localized legal advice

Contracts entered into a foreign jurisdiction require parties to appreciate not only the language of the contract, but also the jurisdiction’s underlying legal approach. Hence, the safest course is to take advice from a Singapore/Malaysia qualified counsel.

 

Vice versa, to adapt effectively to the Chinese legal system under the PRC Civil Code, Singapore and Malaysian companies are advisable to adopt several practical measures / precautions: –

 

(i) Good faith does not replace clear drafting

Good faith is a statutory standard under PRC law, but it is not a substitute for clear drafting. Parties should state their principal obligations, conditions, risk allocation and remedies expressly rather than assume that a court will fill gaps by invoking good faith.

 

(ii) The pre-contractual stage is legally significant

The negotiation stage can itself create liability. Parties should not conduct sham negotiations, deliberately conceal material facts or provide false information. They should also establish controls to protect trade secrets and other confidential information obtained during negotiations, including where the proposed transaction does not proceed.

 

(iii) Bilingual drafting and local advice

For bilingual contracts, the parties should identify the authoritative language where appropriate and ensure that both texts are consistent. PRC-qualified counsel should be consulted on the application of Articles 142, 466, 500 and 501 to the particular transaction.

 

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