Landmark SG High Court Decision: Implied Duty of Mutual Trust & Confidence Affirmed in Employment Law

Introduction

In a landmark ruling, the High Court in Prashant Mudgal v SAP Asia Pte Ltd [2026] SGHC 15 has definitively affirmed that the implied duty of mutual trust and confidence exists in employment contracts under Singapore law, despite recent decisions where the High Court ruled to the contrary. 

The High Court also notably held that placing an employee on a performance improvement plan without a genuine opportunity to improve would be a clear breach of the implied duty.

Facts

Mr. Mudgal was employed by SAP Asia Pte Ltd (“SAP”) as the Head of Service Sales for SAP’s Ariba line of business. Mr. Mudgal was placed on a 45-day performance improvement plan ("PIP") on 21 March 2019. On 21 November 2019, SAP served its notice of termination on Mr. Mudgal.

Mr. Mudgal commenced proceedings in the Singapore High Court, claiming damages on the basis that, inter alia, SAP breached the implied term of mutual trust and confidence, and the implied term not to engage in a termination process that is arbitrary, capricious, perverse, irrational and/or in bad faith.

Key Holdings

The court answered the question of whether the implied term of mutual trust and confidence exists under Singapore law in the affirmative, and held that the implied term was breached by SAP. This is significant as the Court of Appeal had previously left the question open, and two recent High Court decisions had answered the question in the negative.

In Kallivalap Praveen Nair v Glaxosmithkline Consumer Healthcare Pte Ltd [2023] 3 SLR 922, the High Court rejected the existence of the implied term of mutual trust and confidence insofar as it required employers to comply with all company policies. In Dabbs, Matthew Edward v AAM Advisory Pte Ltd [2024] SGHC 260, the High Court expressly held that there was no general implied duty of mutual trust and confidence. 

Nevertheless, the court, in considering the whole corpus of authorities in Singapore, held that there was overwhelming support for the existence of the implied term in employment contracts under Singapore law. Together with its view that the implied term is justified on principle and policy, the court definitively pronounced the existence of the implied term in Singapore.

The court also confirmed that parties are free to modify or exclude the implied duty by express words in their contract. This is consistent with how implied terms in law are generally treated – they must not contradict express terms, and can be contracted out of through clear language.

The court then held that SAP had breached its implied duty not to behave intolerably or wholly unacceptably, which is a sub-facet of the broader implied duty of mutual trust and confidence. 

Despite being placed on the PIP, it was clear that Mr. Mudgal was not given a genuine opportunity to improve and rectify his previous behavioural deficiencies. First, Mr. Mudgal was pre-judged in the sense that his senior leaders had already decided that his employment would be terminated even before he was placed on the PIP. Second, the PIP was handled in a lacklustre manner and with “abject shoddiness” in its lack of proper documentation and failure to inform Mr. Mudgal of the outcome. 

Ultimately, SAP’s decision to put Mr. Mudgal on a PIP without the genuine opportunity to improve amounted to dishonest conduct which had no reasonable and proper cause and would, on an objective view, be calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.

While Mr. Mudgal also argued that the duty not to reprimand without merit in a humiliating circumstance was breached, the court declined to make any finding of such breach. The court also did not decide whether the duty to conduct fair investigations was within the scope of the implied duty of mutual trust and confidence.

In respect of whether SAP had breached the implied term not to engage in a termination process that is arbitrary, capricious, perverse, irrational and/or in bad faith, the court held that such an implied term should not be read into employment contracts on the basis that parties should be free to enter into and exit contracts. 

Despite the finding that SAP breached the implied duty of mutual trust and confidence, Mr. Mudgal failed to prove any losses flowing from the breach and was awarded nominal damages of $1,000.

Practical Implications

1. When placing an employee on a PIP, the employee must be given a chance to improve his or her performance with a view to retaining that employee, or at least with that in contemplation as a possible outcome. The PIP process should therefore be taken seriously with the appropriate documentation, and the employee should be informed of the outcome.
2. In any situation, employers are entitled to terminate an employment contract in accordance with the contract itself. The court pointed out that SAP could have simply invoked the express termination provision provided in Mr. Mudgal’s employment agreement, instead of resorting to a farcical PIP process.
3. While Court of Appeal confirmation remains pending, this decision represents the strongest judicial endorsement of the implied duty of mutual trust and confidence in Singapore to date. Employers should take note: the courts are increasingly willing to scrutinise employment practices that undermine the trust and confidence essential to the employment relationship.

If you have questions about how this decision may affect your organisation, feel free to reach out to our team.

This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute legal advice and is intended to provide general information only. Information in this article is accurate as of 29 January 2026.