In Li Jialin and another v Wingcrown Investment Pte Ltd [2024] SGCA 48, the Singapore Court of Appeal held that a contractually stipulated deposit amounting to about 63% of the purchase price of a property in Singapore was not reasonable as an earnest, and hence could not be forfeited in its entirety or in part.
In doing so, the Court of Appeal took the opportunity to restate the legal principles governing deposits and revise the framework laid down by the Singapore High Court in Hon Chin Kong v Yip Fook Mun and another [2018] 3 SLR 534 (Hon Chin Kong) for determining whether a contractual deposit may be forfeited. Under the revised framework, the law of deposits is distinct from the rule against penalties (penalty rule) as stated in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79. The penalty rule, in broad terms, renders unenforceable the payment of a contractually stipulated sum upon a breach of contract which has the effect of deterring the breach and is therefore penal – as opposed to being a genuine pre-estimate of loss and thus compensatory. The Court of Appeal reiterated that the penalty rule is inapplicable to the court’s determination of the recoverability of a deposit.
This update takes a look at the Court of Appeal’s decision.
If you would like information and/or assistance on the above or any other area of law, you may wish to contact the Partner at WongPartnership whom you normally work with or any of the following Partners:
Cornelia FONG
Partner – Corporate Real Estate
d +65 6416 8216
e cornelia.fong@wongpartnership.com
Click here to view Cornelia's CV.
GOH Wei Wei
Partner – Commercial & Corporate Disputes
d +65 6517 3757
e weiwei.goh@wongpartnership.com
Click here to view Wei Wei's CV.