Peh Teck Quee v Bayerische Landesbank Girozentrale

JudgeChao Hick Tin JA
Judgment Date03 November 1999
Neutral Citation[1999] SGCA 79
Citation[1999] SGCA 79
Defendant CounselK Shanmugam SC and Christopher Anand Daniel (Allen & Gledhill)
Published date19 September 2003
Plaintiff CounselLow Tiang Hock (Chor Pee & Partners)
Date03 November 1999
Docket NumberCivil Appeal No 47 of 1999
CourtCourt of Appeal (Singapore)
Subject MatterContract,Whether choice effective,Express choice in facility agreement,Malaysian Moneylenders Act 1951,Malaysian Exchange Control Act 1953,Facility agreement,Place of performance of obligations,Illegality and public policy,Choice of law,Conflict of Laws,Whether respondents were moneylending in Malaysia,Relevance of connecting factors with the country of the proper law,Whether respondents' choice bona fide,Whether performance of facility agreement in Malaysia illegal

(delivering the grounds of judgment of the court): Introduction

This was an appeal against the decision of Tay Yong Kwang JC ordering the appellant to repay the respondents the sum of RM13,055,737.09 and costs on an indemnity basis pursuant to a credit facility extended by the respondents to the appellant on 16 October 1996.
We dismissed the appeal and now give our reasons for doing so.

Background facts

The respondents are a branch of a German bank operating in Singapore. The appellant, who resides in Malaysia, was a customer of the respondents at the material time. The appellant and the respondents entered into a `Multi-Currency Revolving Facility` (`the facility agreement`) pursuant to which the respondents extended lending facilities to the appellant up to a limit of RM16m. Under the facility agreement, the appellant was entitled to receive funds in all types of foreign currency except Singapore dollars. As matters turned out, the loan was disbursed solely in Malaysian ringgit.

On 16 October 1996, the appellant signed the facility letter brought to him in Malaysia by one Richard Yong, who was then the respondents` Head of Private Banking (Asia Pacific).
The facility letter stated that the terms of the facility agreement were found in:

(1) the facility letter dated 26 September 1996;

(2) the respondents` standard terms and conditions governing banking facilities;

(3) the memorandum of deposit of securities (first part);

(4) the respondents` private banking services agreement;

(5) the respondents` charge over cash deposits and credit balances; and

(6) the letter of set-off.

The terms of the facility agreement were fairly standard.
The governing law and jurisdiction clause, which was cl 20 of the respondents` standard terms and conditions provided as follows:

20 Governing Law

This agreement shall be construed and have effect in all respects in accordance with the laws of Singapore, and the borrower hereby submits to the jurisdiction of the Singapore courts, but such submission shall not be construed so as to limit the right of the bank to commence proceedings in the courts of any other country.


Prima facie therefore, the governing law of the facility agreement chosen by the parties was Singapore law.

The facility was granted to the appellant for the purpose of purchasing certain Malaysian shares.
These shares were held by the respondents as security for the loan in a custodian account at Multi-Purpose Bank Berhad, a bank in Malaysia who were the respondents` agents there. It was the usual practice to use a Malaysian bank as a custodian for Malaysian shares purchased by a customer. Multi-Purpose Bank Berhad was also used by the respondents as its clearing house for Malaysian ringgit.

The appellant`s outstandings under the facility grew steadily with time.
In September 1997, it exceeded the agreed amount which was equivalent to 60% of the value of the shares kept in the custodian account at Multi-Purpose Bank Berhad. Some of the shares in the custodian account were thus sold by the respondents to regularise the excess position. By 20 February 1998, the respondents decided to cancel the facility pursuant to their rights under the facility agreement and thereafter demanded payment of all outstanding advances and interest. Despite several reminders from the respondents, the appellant did not pay any part of the debt. As such, the respondents sold off more of the shares in the custodian account. As at 4 June 1998, the total amount due and owing under the facility agreement was RM13,055,737.09. There are also presently 1,039,000 Mercury Industries Shares in the custodian account to the credit of the appellant.

The decision below

There were three issues for the judicial commissioner to decide, namely, the governing law of the facility agreement, whether the facility agreement was illegal under ss 4 and 8 and ECM-10 of the Malaysian Exchange Control Act (`the ECA`) and whether the respondents had breached s 8 of the Malaysian Moneylenders Act 1951 (`the MLA`). The appellant had claimed in his defence that the proper law governing the facility agreement was Malaysian law. He also asserted that the facility agreement contravened the ECA, which regulates dealings in gold and foreign currency and payments of this nature in Malaysia. The appellant added that the MLA, which requires that the lending of money must be licensed in order for such transactions to be legal, had also been breached. Both these factors rendered the facility agreement void for illegality.

On the first issue, the judicial commissioner was of the opinion that the principle of contractual freedom of choice meant that the express choice of law should stand in the absence of mala fides or illegality, so as to give effect to the intention expressed.
The governing law of the facility agreement was thus Singapore law by virtue of cl 20 of the respondents` standard terms and conditions.

As regards the second issue, the judicial commissioner held that ss 4 and 8 and ECM-10 did not apply to the circumstances surrounding the manner in which this claim arose.
These sections required that permission of the Controller of Foreign Exchange had to be obtained in certain situations listed in those sections of which the present case was one. The judicial commissioner said that it was up to the appellant to make the necessary applications under these sections. At any rate, the judicial commissioner was of the opinion that s 36 of the ECA read with the Fourth Schedule made it evident that, even if the necessary applications for permission were not sought, the contract would not be rendered void and unenforceable.

Turning to the final issue of whether the respondents had breached s 8 of the MLA by lending money in Malaysia without a licence, the judicial commissioner expressed his view that there had to be some degree of system and continuity in the transactions concerned.
As the respondents were a branch of a recognised financial institution, the provisions of the MLA were not meant to catch transactions such as the one in this case. He thus held that this defence failed as well.

The appeal

On appeal, the appellant restated the arguments tendered in the court below. He asserted that the judicial commissioner erred in holding that the proper law of the contract was Singapore law. The appellant argued that even if Singapore law was the proper law of the facility agreement, it would be against Singapore`s public policy, out of respect for the comity of nations, to enforce a contract which is illegal and void under the laws of a friendly country, in this case Malaysia. The facility agreement was clearly illegal under the provisions of the ECA. The appellant contended that in any event the facility agreement was also an illegal moneylending contract which was rendered unenforceable by s 15 of the MLA.

The governing law of the facility agreement

The main point to note about the present case is that the parties had expressly chosen Singapore as the governing law of the facility agreement by virtue of the choice of law clause in the respondents` standard terms and conditions and the other contractual documents forming the facility agreement. According to Lord Wright in Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277, when parties have expressed their intention as to the law governing the contract, their expressed intention, in general, determines the proper law of the contract. The only qualifications to the parties` autonomy are that the application of foreign law should not be contrary to public policy and that the choice should be bona fide and legal.

Lord Atkin had in the earlier case of R v International Trustee for the Protection of Bondholders AG [1937] AC 500 confirmed this principle of party autonomy by saying:

The legal principles which are to guide an English court on the question of the proper law of a contract are now well settled. It is the law which the parties intended to apply. Their intention will be ascertained by the intention expressed in the contract, if any, which will be conclusive. If no intention be expressed the intention will be presumed by the court from the terms of the contract and the relevant surrounding circumstances.

As pointed out by the respondents, this principle has been accepted and applied in Singapore in the case of Pacific Electric Wire & Cable Co Ltd & Anor v Neptune Orient Lines Ltd (Toko Kaiun Kaisha Ltd, third party and Prima Shipping Sdn Bhd, fourth party) [1993] 3 SLR 60 .

The appellant accepted the existence of the principle in Vita Food Products Inc v Unus Shipping Co Ltd.
However, he contended that the choice of law made here was not bona fide and legal as there was no common intention to select the expressed choice as the governing law. The choice of law should also be avoided on the ground of public policy.

The appellant submitted that, at the time the facility letter was signed, the standard terms and conditions which contained the choice of law clause had not been delivered to him.
Therefore, at the time of contracting, the appellant had no knowledge of what the governing law was to be and could not be said to have consciously chosen Singapore law as the governing law. The appellant contended further that the choice of law appeared to have been a mere accident as no real thought had gone into how the loan documents should be drafted and no legal advice had been sought. There was also absolutely no connection between the facility agreement and Singapore apart from the fact that the respondents operated their business from Singapore. The respondents had been aware of the workings of the ECA and the ECMs but did nothing whatsoever to achieve compliance with the necessary requirements. The appellant claimed that this was tantamount to a reckless disregard by the respondents for the laws of Malaysia and thus showed both a lack...

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