Implied Term Of Mutual Trust And Confidence Exists In Employment Contracts Under Singapore Law – For Now

In Prashant Mudgal v SAP Asia Pte Ltd [2026] SGHC 15 (Prashant Mudgal), the General Division of the High Court of Singapore (High Court) held that the implied term of mutual trust and confidence exists in employment contracts under Singapore law, and will continue to so exist unless and until the High Court's earlier decision in Cheah Peng Hock v Luzhou Bio-Chem Technology Ltd [2013] 2 SLR 577 (Cheah Peng Hock) is expressly overruled. The High Court’s decision here is notable as previous decisions of the Court of Appeal and Appellate Division of the High Court (Appellate Division) have expressed uncertainty as to the existence of such an implied term under Singapore law. In addition, there is another recent High Court decision where the judge was not minded to conclude that such an implied term exists under Singapore law.

Decision

The claimant (Employee), the former head of the services sales team of the defendant company (Employer), was placed on a performance improvement plan (PIP) following concerns regarding his alleged unprofessional conduct as team leader. When this purportedly failed to resolve the Employer’s concerns, the Employer terminated the Employee’s employment with notice in accordance with the termination clause in the employment contract. The Employee brought legal proceedings against the Employer alleging, among other things, breach of the implied term of mutual trust and confidence. He claimed that the PIP was a charade which never gave him a chance for long-term correction as its outcome was pre-ordained, given the Employer’s “end-game” of terminating his employment.

The High Court held that the implied term of mutual trust and confidence exists in employment contracts under Singapore law, and found that the term had been breached.

Background to the implied term of mutual trust and confidence

The implied term of mutual trust and confidence has its genesis in Malik v Bank of Credit and Commerce International SA (in compulsory liquidation) [1998] AC 20 (Malik), where the UK House of Lords held that an employer is obliged not to carry out a dishonest or corrupt business, and that this obligation flows from the implied term of mutual trust and confidence which requires the employer to not “without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee”.

The High Court noted that this implied term has “strongly taken root” in Singapore jurisprudence. In 2013, the High Court in Cheah Peng Hock pronounced definitively for the first time that “unless there are express terms to the contrary or the context implies otherwise, an implied term of mutual trust and confidence, and fidelity, is implied by law into a contract of employment under Singapore law”.

Since Cheah Peng Hock, both the Court of Appeal in The One Suites Pte Ltd v Pacific Motor Credit (Pte) Ltd [2015] 3 SLR 695 and the Appellate Division in Dong Wei v Shell Eastern Trading (Pte) Ltd [2022] 1 SLR 1318 (Dong Wei) have stated that the question whether the implied term exists under Singapore law is an open one. Our update on the Appellate Division’s remarks in Dong Wei is available here. Additionally, in another recent decision of the High Court in Dabbs, Matthew Edward v AAM Advisory Pte Ltd [2024] SGHC 260 (in which we successfully acted for the defendant in defending the claim), the judge stated that he was not minded to conclude that such an implied term exists under Singapore law.

Implied term exists in employment contracts under Singapore law

The High Court in Prashant Mudgal held that the implied term exists in employment contracts under Singapore law, reaching its conclusion on the basis of precedent, principle and policy:

1. There is “ample precedent” at the High Court level which “overwhelmingly” supports the existence of the implied term in employment contracts under Singapore law since Cheah Peng Hock. The fact that the Court of Appeal and the Appellate Division have on two occasions stated that the question whether the implied term exists under Singapore law remains open does not in and of itself “cause the pendulum to swing to other end”. The implied term exists and will continue to exist unless and until Cheah Peng Hock is expressly overruled.
2. Both principle and policy favour the existence of the implied term. The Appellate Division in Dong Wei did not regard the historical origin of the implied term (which was developed by the UK courts in the context of the UK’s unfair dismissal legislation) as a fundamental and insurmountable objection to its acceptance in Singapore law and noted that such a term could exist independently of that legislative backdrop so long as its scope can be clearly delineated.
3. Considerations of fairness and policy are central to the implication of terms in law. The modern employment contract is a “relational contract” with a power imbalance making employees especially vulnerable vis-à-vis their employers. Courts must retain the flexibility to step in and rectify such wrongs in an appropriate case.
4. The potential for the implied term to be a Trojan horse due to its supposed potential to retroactively import a wide range of obligations into employment contracts is overstated. An implied term cannot contradict an express contractual term and parties are free to modify or exclude its operation in their contract by express words to that effect. It is also not meant to fetter an employer's right to terminate an employment contract in accordance with its terms. Further, the court would in every case have to consider if the extent to which the implied term, as pleaded, is consistent with its traditional formulation in Malik. The High Court took a more cautious approach to defining sub-duties under the broader umbrella of the implied term of mutual trust and confidence (such as those listed at [56] of Cheah Peng Hock), urging restraint in importing positive obligations into the implied term and noting that the implied term does not necessarily extend to a positive obligation to take all steps necessary to achieve the purposes of the employment relationship.
5. The test in Malik is not as “open-textured” as its critics claim: (i) the threshold which the employer's conduct must cross for the test to be satisfied is a high one; (ii) whether the employer's conduct destroys or seriously damages trust and confidence is a question that must be assessed objectively; and (iii) even if an employer's actions are calculated and likely to destroy or seriously damage trust and confidence, there is no breach of the implied term if there is reasonable and proper cause for the employer to so act.

Here, the High Court found that the Employer had breached the implied term not to behave intolerably or wholly unacceptably; the Employee had been pre-judged in that he had not been given a genuine opportunity to improve and rectify his previous behavioural deficiencies.

However, as the Employee failed to demonstrate that his loss of future earnings or ensuing major depressive disorder were causally connected to the Employer’s breach, and that the breach was the dominant or effective cause of his failure to subsequently secure gainful employment, the High Court awarded him only S$1,000 in nominal damages.

Key Takeaways

Although the Court of Appeal and Appellate Division’s position on the status of the implied term of mutual trust and confidence in employment contracts under Singapore law remains open, and there is a competing High Court decision, it will be prudent for employers to take the implied term into consideration in its employment practices until there is a definitive Court of Appeal or Appellate Division ruling on this point. In this regard, the decision highlights several practical points that both employers and employees should heed:

1. Importance of proper processes and documentation: In handling employment matters, supervisors and human resources (HR) teams should ensure that proper processes are followed, decisions are based on valid reasons and clear documentation is kept. In Prashant Mudgal, the Employer’s failure to implement and undertake proper procedures (such as to inform the Employee of the outcome of his PIP) and lack of documentation of the said process were central to the High Court’s finding that the Employee had been pre-judged and that the Employer had therefore breached the implied term of mutual trust and confidence. Clear documentation, robust internal processes, and reasoned decisionmaking can reduce an employer’s exposure.
2. Employer’s contractual right to terminate with notice: An employment relationship can be terminated with notice in accordance with the employment contract; doing so does not, of itself, give rise to a claim for unfair or wrongful dismissal. The implied term of mutual trust and confidence in employment contracts does not fetter an employer’s contractual right to terminate the employment relationship and the law does not generally oblige parties to remain in a contractual relationship indefinitely.
3. Damages subject to rules of causation and remoteness: Even if liability is established, damages may be nominal if there is no causal link between the breach and the losses claimed, or if the losses are too remote. In Prashant Mudgal, only nominal damages of S$1,000 were awarded as the Employee’s claims (including for loss of future earnings and psychiatric injury) were not proved or were, in any event, too remote.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.