Case Note: VOID CONTRACTS AND THE APPLICABILITY OF CHOICE OF LAW CLAUSES TO CONSEQUENTIAL RESTITUTIONARY CLAIMS

Published date01 December 2009
AuthorAdeline CHONG LLB (Birmingham), PhD (Nottingham); Assistant Professor, School of Law, Singapore Management University.
Date01 December 2009
Citation(2009) 21 SAcLJ 545

CIMB Bank Bhd v Dresdner Kleinwort Ltd [2008] 4 SLR 543

This note examines the Singapore Court of Appeal’s judgment in CIMB Bank Bhd v Dresdner Kleinwort Ltd, focusing specifically on what role, if any, should be played by a choice of law clause contained in a void contract in relation to the restitutionary aftermath of voidness.

I. Introduction

1 In CIMB Bank Bhd v Dresdner Kleinwort Ltd, 1 the Singapore Court of Appeal had the opportunity to investigate what role should be played by a choice of law clause contained in a contract which is conceded to be void in relation to the restitutionary aftermath of the voidness. This issue will form the focal point of this note.

2 The case arose out of the sale of promissory notes by CIMB to Dresdner for approximately US$8.2m. The sale had been arranged, on CIMB’s part, by one of its employees at its Inanam branch, George Chau. The contract between CIMB and Dresdner contained an English choice of law clause. It later transpired that the promissory notes had been issued in relation to a non-existent project, the whole thing being a fraud perpetrated by George Chau. Dresdner instituted an action for the return of the US$8.2m on the basis of unjust enrichment. CIMB then applied to have the action stayed on the basis of forum non conveniens,

arguing that England was the more appropriate forum.2 In the course of applying the Spiliada test3 on whether Singapore or some other forum was the more appropriate forum, the Court of Appeal had to consider what the applicable law of the unjust enrichment claim was, this being a factor indicating where the centre of gravity of the case lay.

3 The court was clear that one had to draw a distinction between a case where the parties agree that there is no agreement at all, such as in the present action, and a case where the parties disagree as to whether there is an agreement between them. In the latter situation, the court advocated the putative applicable law approach, ie, application of the law that would govern the contract if it were valid, to determine if the contract is valid. Although this is the generally adopted solution for the classic conflicts conundrum of which law determines if a contract is void,4 there is room for a subtler approach to this issue.5 However, given that Dresdner gave an undertaking that for the purposes of this action, it would not maintain that the agreement was valid, the opportunity to investigate alternative approaches did not arise. Instead, the central issue that the court faced was whether a choice of law clause contained in an admitted void contract could provide the applicable law of the unjust enrichment claim.

4 Before going into the specifics of the judgment, it must be pointed out that Dresdner’s concession that there was no “agreement” is to be equated with a concession that there was no valid contract between the parties. The importance of this point will be apparent later.

II. The judgment

5 In order to determine what the applicable law of the unjust enrichment claim was, the court had to first determine what the choice

of law rule is for unjust enrichment. Here, the court applied r 230 of Dicey, Morris and Collins which sets out that:6

(1) The obligation to restore the benefit of an enrichment obtained at another person’s expense is governed by the proper law of the obligation.

(2) The proper law of the obligation is (semble) determined as follows:

(a) If the obligation arises in connection with a contract, its proper law is the law applicable to the contract;

(b) If it arises in connection with a transaction concerning an immovable (land), its proper law is the law of the country where the immovable is situated (lex situs);

(c) If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs.

6 It was common ground that sub-r 2(b) was inapplicable given that the transaction did not involve any land. The issue was whether sub-r 2(a) or sub-r 2(c) provided the applicable law. CIMB argued that sub-r 2(a) applied and pointed towards English law because of the English choice of law clause, whereas Dresdner relied on sub-r 2(c) to maintain that Singapore law, being the law of the place of enrichment as Dresdner had remitted the money to CIMB Singapore, provided the proper law of the restitutionary obligation.

7 CIMB’s argument that the English choice of law clause in the void contract should be given effect to govern the restitutionary consequences was thought by the court to be somewhat mischievous, given that CIMB had asserted that George Chau did not have the authority to enter into the agreement on its behalf and hence CIMB did not intend to enter into any contract. CIMB argued, however, that on Dresdner’s part, there was such an intention. The court observed: “[T]he entire situation smacked of CIMB wanting to have its cake and eat it too.”7

8 Central to the court’s reasoning was the assessment of whether there had been a “meeting of minds” between the parties. So, if the parties had intended to enter into a contract, but some factor renders the contract ineffective or a failure, a choice of law clause contained in the ineffective or failed contract should be given effect to govern the

consequential restitutionary obligation.8 If there was no “meeting of minds” to enter into the contract at all and in effect there was no contract, then the choice of law clause has no further application.9

9 Furthermore, the court held that one needed to examine whether the factor which rendered the contract void also rendered the choice of law clause void.10 The court noted that the defence of non est factum would strike down all the terms of a contract, including any express choice of law clause, whereas vitiating factors such as fraud, duress or common mistake as to the subject matter of the contract needed to be scrutinised further to see if they directly impugned any express choice of law clause. If the clause is not impugned, then there are grounds for contending that the law stipulated in the clause should govern the restitutionary consequences.

10 Applying these principles to the present case, the court held that there was no “meeting of minds” between the parties since it was common ground that there was no contract. Alternatively, the fraud perpetrated by George Chau infected the entire “agreement”.11 Thus, the English choice of law clause did not bind the parties. Sub-r 2(a) was inapplicable and the present action instead fell within sub-r 2(c). Given that Dresdner had transferred the money to CIMB Singapore and Singapore was also the place where CIMB allegedly changed its position by remitting the money to HSBC Hong Kong,12 the court had no hesitation in holding that Singapore was the place of enrichment.13 Hence, Singapore law was the applicable law of the unjust enrichment claim.14

11 Upon considering other additional factors, such as the possibility of related third party actions by CIMB and the availability of relevant witnesses, the court concluded that it was not established that

England was the more appropriate forum for trial of the action. Accordingly, CIMB’s application for a stay of the Singapore proceedings was denied.

III. Analysis

12 The court’s exposition of the principles as to when an express choice of law clause could be said to survive contractual invalidity was careful and precise. The recognition that the important factor was whether there was a “meeting of minds” between the parties and needing to assess whether the grounds of the contractual failure directly impugned the choice of law clause demonstrated a clarity of judicial reasoning in this fraught area that should be applauded.

13 That said, it may be questioned whether the court accurately applied those principles to the case at hand. The court stressed several times that they were not dealing with a situation where...

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