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Significance: Court of Appeal partly allows appeal against High Court decision and declines to decide on whether the law in Singapore on penalty clauses should be modified in the light of the new UK Supreme Court test for penalty clauses in Cavendish Square Holding BV v Makdessi [2016] AC 1172 (UKSC) (“Cavendish“) which the High Court below applied.
Significance: Singapore High Court held that contractual discretion in employment contract is subject to an implied term that the discretion is exercised rationally, not arbitrarily or capriciously, in good faith, and consistent with its contractual purpose. Further, the Court applied the new UK Supreme Court test for penalty clauses in Cavendish Square Holding BV v Makdessi [2016] AC 1172 (UKSC) (“Cavendish“), observing that the clause in question is not a straightforward damages clause, hence the usefulness in applying the Cavendish test.