SOME ISSUES RELATING TO THE IMPACT OF THE ECONOMIC AND MONETARY UNION ON THE CONTINUITY OF CONTRACTS Annex 1 Annex 2

• Citation: (1998) 10 SAcLJ 391
• Published date: 01 December 1998
• Date: 01 December 1998

INTRODUCTION

This paper sets out the approach of the laws of Singapore towards contract law in general. Thereafter, it discusses the specific questions raised by the FLP questionnaire.

APPLICATION OF ENGLISH COMMON LAW IN SINGAPORE

Much like the law of England and Wales, the law of contract in Singapore is largely uncodified and relies on the application of the common law. The Application of English Law Act1 which was enacted in 1993 states the position in section 3 as follows:

“Application of common law and equity

3.—(1) The common law of England (including the principles and rules of equity), so far as it was part of the law of Singapore immediately before 12th November 1993, shall continue to be part of the law of Singapore.

(2) The common law shall continue to be in force in Singapore, as provided in subsection (1), so far as it is applicable to the circumstances of Singapore and its inhabitants and subject to such modifications as those circumstances may require.”

It is clear from this statement that the position as regards the continuity of contracts in Singapore will be the same as that in England, except when:—

1. (a) modified by a Singapore statute; or

2. (b) if a particular English statute has not been re-enacted in Singapore or an European Council Regulation or Directive is inapplicable in Singapore; or

3. (c) if the Singapore courts decide that local circumstances require departure from the principles laid down in English cases.

MODIFICATION BY UN SALES CONVENTION

As regards (a) above, one statute which modifies the Common Law at least in the area of formation of contracts for the international sale of

goods, is the Sale of Goods (UN Convention) Act2. This Act gives legislative force to the UN Convention on Contracts for the International Sale of Goods, Vienna (1980). It is commonly known in Europe as the Vienna Sales Convention to which UK is significantly not yet a party to. On the other hand, the UK Sale of Goods Act 1979 as amended by the 1996 Act has been re-enacted in Singapore for domestic sales contracts3.

FRUSTRATED CONTRACTS ACT (CAP 115)

The UK Law Reform (Frustrated Contracts) Act 1945 was re-enacted in 1959 in Singapore by the Frustrated Contracts Act4. The provisions of the Singapore Act are in pari materia with those in the UK Act. However, while the UK statute expressly confines the scope of its application to contracts governed by UK law, the Singapore statute has no such express restriction. But it is a principle of statutory interpretation that legislation will not be given extra-territorial effect unless there is clear Parliamentary intention to do so. Hence, while the issue remains untested in Singapore law, it is likely that the courts will interpret the Frustrated Contracts Act to apply only to contracts governed by Singapore law. Other English statutes which deal with the general position for contracts under Singapore Law are also currently law in Singapore e.g. the Unfair Contract Terms Act5 and the Misrepresentation Act6.

A. Questions Relevant to all Contracts

Assume that the contract requires payment by one or more parties after the start of the Transitional Period of a sum to be made in the named “old” currency of a participating member State. Assume further that the governing law of the contract is the law of Singapore.

Question:

1. (1) Does the law of Singapore recognise the principle of lex monetae (whether or not it is given that name)? Under this doctrine, the law would follow the terms of the law which applied in the state whose currency was involved. In the present context the payment obligations would be converted into an obligation to pay Euros at the rate fixed according to the law of the member State whose “old” currency is involved (i.e. Fixed by an EU Regulation which formed part of the law of the state concerned).

Answer:

In Singapore law, the principle of nominalism is understood to mean that the lex monetae (the law of the currency) applies to the question of what is legal tender and what nominal value is attached to the legal tender at the time when a foreign currency obligation is to be discharged. By lex monetae is meant the law that exists from time to time in that country of the currency. For example, what 100 French francs are is exclusively defined by French law as there is no other law in the world which would explain the meaning of the denomination.

It appears from the decision of the Singapore High Court in Indo Commercial Society v Ibrahim7 that the principles of lex monetae and nominalism are recognised in Singapore8. The contract must be determined by lex monetae and nominalism respectively. This is an inference drawn from the case which followed the decision of the House of Lords in Miliangos v George Frank9.

The principle of nominalism has been part of the English common law since the early seventeenth century10, and therefore received into Singapore common law upon the general reception of English law in 1826. If any confirmation is needed that the principle continues to apply in Singapore, it is to be found in the Singapore Court of Appeal case of Tengku Aishah v Wardley Ltd11. In that case the Court specifically approved and applied the statement of principle12. This is the same principle stated in §204 of Dicey and Morris, The Conflict of Laws (12th ed), which is generally considered to be of highly persuasive authority in Singapore. In the case, the Court held that the obligation to repay a loan denominated in Swiss francs as the currency of the obligation had to be measured by whatever was legal tender by Swiss law at the date of payment, irrespective of any currency fluctuations. The principle of nominalism also underlies the High Court case of Indo Commercial Society (Pte) Ltd v Ibrahim13 which held that a Singapore court could give judgment in foreign currency, and that if the relevant currency of loss is a foreign currency, it is not open to the plaintiff to elect for judgment to be calculated in local currency. In accordance with the principle of

nominalism, this holding puts the risk of the foreign currency appreciation on the debtor and the risk of depreciation on the creditor14.

As in the English common law, the principle of nominalism as adopted in Singapore is a principle based on the presumed intentions of the contracting parties, and so it is possible for the parties to come to their own arrangements in derogation of the general applicable principles15. Further, although the principle is one of domestic law, it is so widely accepted throughout the world that practically speaking, the court will apply the principle as of course even when the foreign currency obligation is governed by foreign law16.

No local case is known to have dealt with the problem of a complete change of foreign currency, but it follows from the principle of nominalism that currency changes in the lex monetae will be followed. Moreover, cases from other jurisdictions applying the principle of nominalism to such situations17 are likely to be very persuasive authorities in Singapore.

Hence, when the lex monetae changes its currency to the Euro, it follows that Singapore law would treat the obligation in the old currency as converted to the new Euro currency. During the transition period, since both the Euro and old currency (as units of the Euro) would be legal tender by the lex monetae, it follows that the court would have to determine if the parties intended, as a matter of construction of contract, to use one or the other exclusively, otherwise, either denominations can be used.

Question:

1. (2) Would the answer be affected by the existence of, or terms of, a Regulation providing for continuity?

Answer:

It is assumed that the Regulation referred to here is the European Council Regulation No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the Euro. It provides for the principle of continuity in relation to obligations expressed in a currency which is replaced by the Euro (an “old currency”) or expressed in terms of the ECU (European Currency Unit as defined in Council Regulation No 3320/94).

Article 2 of Regulation 1103/97 states:

“Every reference in a legal instrument to the ECU, as referred to in Article 1098 of the Treaty and as defined in Council Regulation (EC) No 3320/94, is replaced by a reference to the Euro (at the rate of one Euro to one ECU… Council Regulation (EC) No 23320/94 is repealed.”

Article 3 of Regulation 235 states that “the introduction of the Euro shall not have the effect of altering any term of a legal instrument or of discharging or excusing performance under any legal instrument, nor give a party the right unilaterally to alter or terminate a legal instrument.”

The recognition of continuity by Singapore courts in the application of the principle of lex monetae will be assisted by the terms of Regulation 1103/97 and Article 3 of Regulation 235 in so far as it constitutes the law of the currency concerned, thereby determining what constitutes legal tender in the currency of that country. However, insofar as the regulations modify substantive obligations (eg, changing the currency of the obligation, or the non-discharge and non-excuse clause), they only apply if they are part of the proper law of the contract as determined by the conflict rules of Singapore, or alternatively, as part of the proper law of the foreign currency obligation by way of depecage.

Question:

1. (3) During the Transitional Period would the law of Singapore require that any claim before its courts for enforcement of the payment obligations be stated in terms of the “old” currency, or could the claimant express his claim in Euros? Is the answer different if under the domestic law of the Member State of the “old” currency

   1. (a) debts expressed in that currency are capable of discharge in Euros, even if they are not required to be discharged in...