Rajah & Tann LLP 30 May 2011 Professor Yeo Tiong Min, SMU School of Law
Effectiveness of Choice of Law Clause 1. Effectiveness depends on forum: choice of forum as essential 2. Effect of parties choice in the common law and the exceptions 3. International mandatory rules of the forum 4. Fundamental public policy of the forum 5. Procedural rules of the forum 6. Contractual and other issues which may not be governed by proper law of contract 7. Choice of law as agreement
1. Choice of forum and Choice of law Effect of choice of law clause depends on the principles applied by the adjudicating forum Choice of forum: Eg, arbitration v. court: choice of lex mercatoria, religious law Eg, differences between courts: EU law v common law on choosing law to govern non contractual claims Effectiveness of choice of forum clauses: Common law Hague Convention on Choice of Court Agreements 2005 (not in effect and Singapore not a signatory)
2. Common law approach to choice of law Express choice of law Eg, This contract shall be governed by Kuwaiti law Implied/inferred choice of law Eg, This contract shall be interpreted according to Kuwaiti law Objective proper law Country or system of law with the closest connection with the transaction and the parties, sometimes: law which h reasonable contracting ti parties would have chosen to govern the contract Emphasis on objective connections not intentions of Emphasis on objective connections, not intentions of parties
Exception to parties choice of law Common law: where there is an express statement by the parties of their intention to select the law of the contract, it is difficult to see what qualifications are possible, provided the intention expressed is bona fide and legal, and provided there is no reason for avoiding the choice on the ground of public policy (Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277 (PC) Singapore law: choice of parties will be given effect to unless choice is not legal or bona fide or application of chosen law will be against public policy (Peh Teck Quee v Bayerische Landesbank Girozentrale [2000] 1 SLR 148 (CA)): Vita Food precludes the existence of any general doctrine limiting the parties autonomy even if one of the reasons for the choice was to avoid the application of the laws of another legal system. The only rider to this is the principle that if the only purpose for choosing Singapore law was to evade the operation of Malaysian law, the court would be likely to hold that the choice of law was not bona fide on the basis of the evidence before it
Bona fide choice and evasion Golden Acres Ltd v Queensland Estates Pty Ltd (1969) Qd R 378 (SC): selection of Hong Kong law for no other purpose than to avoid the operation of the law of Queensland: not bona fide choice Re Nield (1990) JLR N 12 (1983 Jersey decision): not bona fide choice if made in order to validate an agreement which would not be valid under the law of the jurisdiction with which it has its closest connection Greenshields Inc v Johnston (1981) 3 WWR 313 (Alta QB) (choice of law is bona fide where it is not evasive) Compare: US: Restatement on Conflict of Laws position: choice will be given effect to provided chosen law bears reasonable relation to the transaction (but note liberal l use of public policy) EU: Rome I Regulation on the law applicable to contractual obligations: chosen law will be given effect to subject to (a) public policy of the forum and the EU; (b) application of the mandatory rules of the country where all other elements relevant to the situation are located; and (c) discretionary effect given to mandatory provisions of the law of the place of performance
3. International mandatory rules of the forum Rules of law of the forum that must be applied by the court irrespective of any foreign applicable law indicated by the forum s choice of law rules Eg: Unfair Contract Terms Act, s 27 (2) This Act has effect notwithstanding any contract term which applies or purports to apply the law of some country outside Singapore, where (either or both) (a) the term appears to the court, or arbitrator or arbiter to have been imposed wholly or mainly for the purpose of enabling the party imposing it to evade the operation of this Act; or (b) in the making of the contract one of the parties dealt as consumer, and he was then habitually resident in Singapore, and the essential steps necessary for the making of the contract were taken there, whether by him or by others on his behalf.
Unfair Contract t Terms Act Significance for choice of law: Singapore s UCTA may be applied by the Singapore court to a limitation/exclusion clause in a contract governed by foreign law, even if the clause is valid under foreign law The choice of foreign law clause may be regarded as a limitation/exclusion clause if the effect of the choice of law clause is that the defendant is under a lower liability to the plaintiff under Singapore law Conversely, however, a choice of Singapore law clause cannot be a limitation/exclusion clause if it results in lower liability than under the objective proper law, because the Singapore court is not obliged to apply the mandatory rules of a foreign country
4. Fundamental Public Policy of the Forum Exception construed narrowly Distinction between domestic public policy and international public policy Examples (Even if contract is valid under the proper law of the contract): Non enforcement of a contract which contravenes some fundamental or essential moral or public interest of the forum which is of general application Non enforcement of a contract where the parties had a common intention (or the party seeking to enforce the contract had the unilateral intention) at the outset to commit an act in a friendly foreign country which is illegal by that law
5. Procedure of the forum Forum always applies its own procedural rules Forum never applies foreign procedural rules Characterisation: Traditional approach: does the rule in question extinguish the right (substantive) or bar the remedy (procedure)? Star City Pty Ltd v Tan Hong Woon [2002] 2 SLR 22 (CA) Modern approach: procedural rules are those directed at governing or regulating the mode or conduct of court proceedings dictum in Goh Suan Hee v Teo Cher Teck [2010] 1 SLR 367 (CA). Australian and Canadian judicial approach: procedural only if it affects the workings of the machinery of enforcement of justice Examples: Limitation period: no action shall be brought after 6 years Writing formatlities: No action shall be brought upon a contract not in writing
6. Issues beyond parties choice Capacity to contract Capacity of company to contract proper law of contract and law of the place of incorporation Capacity of individual d to contract common law has no clear answer Formation of contract putative proper law or law of the forum? Property law issues Non contractual obligations (eg, tort, restitution, equity)
Outflanking Contract t Claims in torts (even for concurrent tortious/contractual actions): Coupland v Arabian Gulf Oil Co [1983] 1 WLR 1136, followed in Rickshaw Investments Ltd v Nicolai Baron von Uexkull [2007] 1 SLR 377 (CA): proper law of the contract between the parties not relevant to the determination of the law governing gthe tort unless contractual defence is raised Trafigura Beheer BV v Kookmin Bank Co [2006] EWHC 1450 (Comm) [2006] 2 Lloyd s Rep 455: bizarre not to apply the proper law of the contract between the parties to a tort allegedly committed in the performance of the contract Claims in restitution: where the restitutionary obligation arises in connection with a contract, the law governing gthe restitutionary obligation is the proper law of the contract. Claims in equity: where the equitable obligation arises from a legal relationship recognised at law (eg, contract t or tort), t) the applicable law to the equitable obligation is the law of the underlying legal relationship: Rickshaw Investments Ltd v Nicolai Baron von Uexkull [2007] 1 SLR 377 (CA)
Preventing the outflanking of contract EU: Rome II Regulation commercial parties given broad autonomy to choose law to govern non contractual obligations Courts in some US states give effect to parties choice of law to govern non contractual t obligations arising ii from their contractual t obligation International arbitration Singapore law: traditional position (previous slide). Unclear how courts will respond to argument that parties can choose law to govern noncontractual obligations: The Effective Reach of Choice of Law Agreements (2008) 20 SAcLJ 723
7. Breach of choice of law clause Juridical nature of choice of law clause An indication to the court of the parties wish to have the contract governed by the chosen law consequence: application of chosen law to contractual issues A mutually binding contractual warranty that the chosen law should applied to settle their dispute consequences: contractual remedies follow damages, injunction, etc. Ace Insurance Ltd v Moose Enterprise Pty Ltd [2009] NSWSC 724 (Brereton J) In theory, parties can intend a choice of law clause to have promissory effect, and where this is the case, the clause will have contractual force. In practice, generally choice of law clauses do not have this promissory effect, because parties know that their choice is always subject to overriding rules of the forum anyway Clear words needed to express parties promissory intention
Implications i of Ace v Moose for Drafting What can it be used for? Prevent parties from going to jurisdiction where choice of law to govern contract will not be given effect to (cf jurisdiction clause) (remedies: injunction, damages) Bring non contractual issues within choice of law? Eg, The parties agree and warrant that any tortious disputes arising from this contract and between themselves shall be determined in accordance with Kuwaiti law, except for the application of such rules of the adjudicating forum which override its own choice of law rules (eg, fundamental public policy, international mandatory rules and rules of procedure) Eg, tort committed in Sg, liability under Kuwaiti tort law = $60,000; liability under Singapore law = $50,000. There has been a breach of warranty, and D is liable to P for $10,000 Eg, tort committed in Sg, liability under Kuwaiti tort law = $50,000; liability under Singapore law = $60,000. There has been a breach of warranty, and P is liable to D for $10,000 Complication: could be construed to be a limitation of liability clause
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