| Peh Teck Quee v Bayerische Landesbank Girozentrale [2000] 1 SLR 148; [1999] SGCA 79 |
| CA 47/1999 | |
| 03 Nov 1999 | |
| Court of Appeal | |
| Chao Hick Tin JA, L P Thean JA, Yong Pung How CJ | |
| Low Tiang Hock (Chor Pee & Partners) for the appellant, K Shanmugam SC and Christopher Anand Daniel (Allen & Gledhill) for the respondent |
Judgment
[Please note that this case has not been edited in accordance with the current Singapore Law Reports house style.] Yong Pung How CJ (delivering the grounds of judgment of the court): Introduction 1 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 2 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. 3 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. 4 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. 5 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. 6 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 7 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. 8 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. 9 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. 10 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 11 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 12 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 13 Lord Atkin had in the earlier case of R v International Trustee for the Protection of Bondholders AG 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 v Neptune Orient Lines Ltd (Toko Kaiun Kaisha Ltd, third party and Prima Shipping Sdn Bhd, fourth party) 14 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. 15 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 of bona fides and of any intention to comply with Malaysian law. 16 Further, the appellant submitted that, as a matter of public policy, the Singapore court should not uphold a choice of law that clearly had the effect of avoiding Malaysian regulatory statutes which carry penal consequences. 17 Unfortunately for the appellant, it is clear that, where an express choice of law has been made by the parties, it is virtually conclusive of the proper law governing the contract. JG Collier in his book Conflict of Laws (2nd Ed) commented that Lord Wright’s statement in Vita Food Products Inc v Unus Shipping Co Ltd provides very few qualifications to the doctrine that the express choice of law will be upheld. Accordingly, this 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; Golden Acres Ltd v Queensland Estates Pty Ltd [1969] QD R 378. This is not the case here as the respondents had good reason to choose Singapore law as the governing law of the facility agreement. The respondents were operating out of Singapore, the credit facility was booked in Singapore, all accounts relating to it were kept in Singapore and the respondents had duly declared and paid taxes on the credit facility in Singapore. The appellant’s argument that the respondents had attempted to circumvent the laws of Malaysia and had deliberately chosen Singapore law as the governing law of the facility agreement for the sole purpose of evading the workings of Malaysian law could therefore not be sustained. 18 Even if the argument that the facility agreement had very little connection with Singapore were true, which we do not accept, the point has already been made by Lord Wright in Vita Food Products Inc v Unus Shipping Co Ltd that, “Connection with English law is not as a matter of principle essential.” Thus, even if there were very few connecting factors with Singapore, this would not displace the express intentions of the parties, subject to the qualification mentioned in the paragraph above. The fact is that what was expressed in the facility agreement must be treated as the objective choice of law of the parties. The appellant’s other arguments relating to his subjective intention were thus dismissed outright. The governing law of the facility agreement was thus Singapore law. Performance of the obligation under the facility agreement 19 The appellant raised the argument that, even where a choice of law governing a contract was bona fide and legal, the courts would not enforce an obligation, if part of that obligation would be illegal at the place of performance. In support, he submitted a plethora of cases including Ralli Bros v Compania Naviera Sota y Aznar 20 We were of the opinion that a proper analysis of this case must begin with the fact that the cause of action brought by the respondents was to enforce the appellant’s obligation under the facility agreement to repay the moneys he had borrowed from the respondents. The question which then arose was where this particular obligation was to be performed. 21 According to the Encyclopaedia of Banking Law (1998 Ed), the key obligation in a loan contract is generally the obligation to make payments, and the place where those payments must be made is accordingly the place of performance. Hence, if payments are required under, for example, an English contract, to be made in a state whose exchange control regulations or other laws prohibit such payment, the English courts will refuse to enforce the contract to that extent. 22 The facility letter and its attendant documents which formed the contract on which the respondents’ claim was based did not state whether the place of performance of the facility agreement was Singapore or Malaysia. The clauses that dealt with the amount that was to be loaned, the requirement to repay the advance on each maturity date and the method of disbursement of the loan, were silent as to the question of where these transactions were to take place. It was true that the moneys had been released to the appellant in Malaysia. However, since there was no requirement in the facility agreement as to a particular place of performance, repayment did not have to take place in Malaysia and performance of the facility agreement would thus not be illegal there. Was performance of the facility agreement illegal under the laws of Malaysia? 23 Although the place of performance of the obligation sought to be enforced by the respondents was Singapore, the arguments relating to the question of whether the facility agreement was illegal under Malaysian law will nonetheless be dealt with for completeness, as the issue was argued strenuously by counsel. 24 In Malaysia, the ECA requires permission to be obtained from the Controller of Foreign Exchange under certain circumstances. Failure to obtain this permission results in Malaysia in liability for having committed an offence pursuant to para 7 of the Fifth Schedule to the ECA, and is subject to penal consequences. 25 The appellant contended, based on his expert’s evidence, that the facility agreement was in contravention of ss 4 and 8 of the ECA. In connection with this, the appellant also submitted that ECM-10, which is a form of subsidiary legislation to the ECA, had not been complied with. The respondents on the other hand contended that ss 4 and 8 and ECM-10 did not really apply to the facility agreement based on their expert’s evidence. This would mean that nothing in the ECA had been breached and that no penal consequences flowed. At any rate, even if failure to obtain the necessary permission resulted in penal consequences, the performance of the facility agreement itself might not actually be illegal. In such a case, the facility agreement would still be valid and enforceable. 26 The relevant portion of s 4 of the ECA reads as follows: 4 Dealings in gold and foreign currency. (1) Except with the permission of the Controller, no person, other than an authorised dealer, shall, in Malaysia, buy or borrow any gold or foreign currency from, or sell or lend any gold or foreign currency to, any person other than an authorised dealer. (2) Except with the permission of the Controller, no person resident in the scheduled territories, other than an authorised dealer, shall, in Malaysia, do any act which involves, is in association with, or is preparatory to, buying or borrowing any gold or foreign currency from, or selling or lending any gold or foreign currency to, any person outside Malaysia… 27 Under s 2 of the ECA, the term “foreign currency” is defined as follows: ‘foreign currency’ does not include local currency or any currency or notes issued under the law of any part of the scheduled territories but, save as aforesaid, includes any currency and any notes of a class which are or have at any time been legal tender in any territory outside Malaysia, and any reference to foreign currency, except so far as the context otherwise requires, includes a reference to any right to receive foreign currency in respect of any credit or balance at a Bank 28 In the court below, the judicial commissioner was of the opinion that the facility agreement amounted to a loan of foreign currency as it conferred the right to receive foreign currency from a bank. This was so despite the respondents’ arguments that the facility agreement only gave the appellant an option to choose whether the advances of credit were to be in Malaysian ringgit or in other currencies. Although the facts indicated that, in the end, the loan was disbursed entirely in Malaysian ringgit, the judicial commissioner took the view that, while the option could be curtailed by unavailability, the choice of currency remained at the appellant’s option, not the respondents. The proposition put forward by both parties’ expert witnesses that the right under s 4(1) of the ECA had to be an accrued or unconditional one was therefore not entirely accepted by the judicial commissioner for the above reasons. The only restriction that affected this right of the appellant was the availability of the types of foreign currencies on the part of the respondents. 29 The next question we considered was whether, in spite of the fact that prima facie the facility agreement fell within the purview of s 4(1) of the ECA, the section is nonetheless inapplicable, due to the fact that the term “Bank” in the definition of “foreign currency” covers only banks licensed in Malaysia. Section 2 of the ECA states: ‘Bank’ or ‘banker’ in so far as it refers to a Bank or banker in Malaysia means any bank licensed under the Banking Ordinance, 1958 The appellant argued that the word “bank” in s 2 means any bank regardless of whether it is foreign or local. This is because there would be no need to regulate Malaysian banks which are already under the supervision of Bank Negara in their conduct of transactions under s 4(1) of the ECA. It would therefore make no sense to say that the restrictions in s 4(1) are intended to apply to Malaysian banks. In support of this argument, the appellant also pointed out that, in s 24 of the ECA, the word “bank” must be interpreted as including foreign banks as it deals with, inter alia, the import of foreign currency notes and treasury bills. While we agreed that, in the context of the subject matter of s 24, this is the correct interpretation as any other reading of “bank” would be absurd, we were not convinced that the same could be said of s 4(1) read with s 2. 30 If one were to look carefully at s 4(1) of the ECA, it is apparent that the provision is intended to regulate dealings in gold and foreign currency between unlicensed dealers. This includes individuals in Malaysia as the only transaction permissible without the requisite approval is that between two authorised dealers. The appellant’s argument that “bank” had to be read to include foreign banks in order for the provision to have any useful purpose therefore became less compelling in this light. 31 In our view, the definition of “bank” in s 2 read with s 4 of the ECA only covers licensed Malaysian banks. There is no suggestion anywhere else in the ECA that indicates that ‘bank’ should be interpreted as including foreign banks. Section 24 is an exception for the reasons given above. This interpretation would be in accordance with the evidence given by the respondents’ expert witness, Mr Cecil Abraham (“Abraham”). The judicial commissioner chose to accept this interpretation in favour of the interpretation given by the appellant’s expert witness, Mr Stephen Quah (“Quah”). Mr Quah’s interpretation appeared to require a larger stretch of the imagination in the context of this case and made less sense. Section 4(1) of the ECA therefore does not apply to this particular transaction as the respondents are not a “bank” from whom the appellant had a right to receive foreign currency. 32 This would mean that s 4(2) does not apply to this particular transaction as well, as the same interpretation of “bank” in relation to the term “foreign currency” would be used. No penal consequences would flow on either party. 33 The appellant also argued that this transaction required the carrying out of acts that contravened s 8 of the ECA. This section reads: 8 Payments in Malaysia Except with the permission of the Controller, no person shall do any of the following things in Malaysia, that is to say — (a) make any payment to or for the credit of a person resident outside the scheduled territories; (b) make any payment to or for the credit of a person resident in the scheduled territories by order or on behalf of a person resident outside the scheduled territories; or (c) place any sum to the credit of any person resident outside the scheduled territories: Provided that where a person resident outside the scheduled territories has paid a sum in or towards the satisfaction of a debt due from him, paragraph (c) of this section shall not prohibit the acknowledgement or recording of the payment. The appellant asserted that the mechanics of the loan would require him to flout s 8 of the ECA as repayment would have to be made to the respondents through Multi-Purpose Bank Berhad. This would be the result as Multi-Purpose Bank Berhad would be considered an agent of the respondents and by virtue of para 9 of the Fifth Schedule to the ECA, the respondents would be guilty of an offence under the ECA. 34 The first point we noted about this submission was the fact that absolutely no attempt at repayment had been made by the appellant. Given his awareness of the full import of s 8, the onus would surely be upon him to apply for the relevant permission from the Controller before making the repayment in Malaysia. It could not stand to reason for him to say that he would end up breaching s 8 and become liable to penal consequences, which would in turn cause the performance of the facility agreement to allegedly become illegal, simply because he was not going to apply for permission before making the repayment. This particular argument was, in our opinion, ill-conceived and unmeritorious. 35 The second and more important thing to note about s 8 of the ECA is that the appellant was entitled to make repayment to the respondents anywhere in the world, be it Singapore or Malaysia. As stated above, the facility agreement was silent on the issue of where repayment of the loan had to be made. As no attempt at repayment had taken place and the appellant had never been constrained in any way to make repayment only from moneys in a bank account in Malaysia, his argument could not be sustained. Accordingly there could be no question of s 8 having any effect on the alleged legality of the facility agreement as it did not only prescribe one possible mode of performance under the facility agreement. 36 ECM-10 was the final provision contended by the appellant to have rendered the performance of the facility agreement illegal. This is one of many directives issued pursuant to s 39 of the ECA to aid in the administration of the ECA. The preamble to ECM-10 states that it applies to all transactions falling within the purview of ss 4, 5, 8 and 9 of the ECA relating to credit facilities in foreign currency obtained by residents and credit facilities in RM obtained from non-residents. The appellant argued that the facility agreement was affected by para 4 of ECM-10 which makes the prior permission of the Controller a requirement where a Malaysian resident wishes to obtain a loan in excess of RM 50,000 from any non-resident individual. The short answer to this submission is that, if ECM-10 is indeed intended to apply to ss 4 and 8 of the ECA, the fact is that the present transaction did not fall within the purview of ss 4 and 8 for the reasons given above. Furthermore, ECM-10 applies to the situation where the loan is obtained from a non-resident individual. The respondents are not an individual, but a bank. ECM-10 thus had no effect on the present transaction. 37 Even if ss 4 and 8 and ECM-10 applied to the transaction, our attention was drawn to s 36 of the ECA and para 4 of the Fourth Schedule of the same Act. The material portions of these read: 36 Contracts, legal proceedings, etc (1) It shall be an implied condition in any contract that, where, by virtue of this Ordinance, the permission or consent of the Controller is at the time of the contract required for the performance of any term thereof, that term shall not be performed except in so far as the permission or consent is given or is not required: Provided that this sub-section shall not apply in so far as it is shown to be inconsistent with the intention of the parties that it should apply, whether by reason of their having contemplated the performance of that term in despite of the provisions of this Ordinance or for any other reason. … (3) The provisions of the Fourth Schedule to this Ordinance shall have effect with respect to legal proceedings, arbitrations, bankruptcy proceedings, the administration of the estates of deceased persons, the winding-up of companies, and proceedings under deeds of arrangement or trust deeds for behoof of creditors.… Fourth Schedule 4 (1) In any proceedings in a prescribed court and in any arbitration proceedings, a claim for the recovery of any debt shall not be defeated by reason only of the debt not being payable without the permission of the Controller and of that permission not having been given or having been revoked.… 38 The effect of these provisions was considered by Shankar J in the Malaysian case of BBMB Finance (Hong Kong) Ltd v Datuk Syed Kechik bin Syed Mohamed (Civil Suit No C 23-1988-86, unreported) which concerned a guarantee given by the defendants in that case for a loan contracted in Hong Kong. The defendants had argued that the guarantee was given in breach of the provisions of the ECA. The judge dismissed this argument on the basis that the borrower was not a Malaysian resident and s 4 of the ECA therefore did not even apply. However, he went on to say that, even if s 4 applied, it did not make the borrowing illegal. This was because, by providing that such borrowing should not be done without the permission of the Controller, the illegality became encompassed in the omission to obtain the Controller’s permission. In this context, s 36 and consequently para 4 of the Fourth Schedule would come into play as well. In his discussion of the matter, he said: The test as to whether a contract is void for illegality is whether upon a true construction of the Act Parliament had intended that the plaintiff should be precluded from enforcing the contract altogether. In such cases it will be necessary to consider whether the statutory requirement (in this case the Consent of the Controller) was an essential part of the cause of action or merely collateral to the contract and also whether the act contracted to be done was itself illegal or whether the illegality arose merely because some particular mode had been chosen to perform it which the statute had prohibited and for which the statute had provided a specific penalty. The learned judge subsequently summed up by saying that: As to the absence of the Controller’s permission at the time, the Act does not by its scheme make the guarantee illegal and unenforceable. Indeed it is saved from such a contention by the express words of s 36 and art 4 of the Fourth Schedule. 39 Quah, who incidentally happened to be counsel for the plaintiff in that case, sought to distinguish the case by arguing that it concerned a guarantee which was a contingent liability and thus executory in nature. Section 36 only applied to executory contracts and could not apply to acts of lending and borrowing that had already been perfected. Furthermore, the guarantee was a completely foreign contract which had nothing at all to do with Malaysian law. The wording of para 4 of the Fourth Schedule also meant that it could only be invoked by a “prescribed court”. The Singapore courts do not fall within this definition and therefore the exception is not applicable in this case. 40 In our view, the fact that the contract that was to be enforced in that case was a guarantee was not central to this particular aspect of the judge’s finding that failure to obtain the Controller’s permission would not render the act of borrowing illegal and the contract void. This view was endorsed by Eusoff Chin J in another Malaysian case, Bank of New Zealand v Wong Kee Tat 41 As for the issue of this court not being a prescribed court, the fact that has to be considered is how the Malaysian courts would treat the facility agreement, not whether the Singapore court would be entitled to make a similar ruling. As it was clear that the Malaysian courts would not view the facility agreement as being void for illegality, the facility agreement would be enforceable in Malaysia. This is in accordance with Abraham’s evidence on the position taken in Malaysia as regards the enforceability of such contracts. Despite his attempts to distinguish the two cases cited, Quah also accepted that they were the best indicators of this area of the law in Malaysia. 42 We thus concluded that performance of the facility agreement was not illegal under the ECA. Relevant case law 43 The appellant’s next contention was that the principle in Ralli Bros v Compania Naviera Sota y Aznar that a contract is, in general, invalid in so far as the performance of it is unlawful by the law of the country where the contract is to be performed (the lex loci solutionis) applied to the present case. Ralli Bros v Compania Naviera Sota y Aznar concerned an agreement governed by English law for the payment in Spain of chartered freight that was beyond the maximum permitted by Spanish law. We were of the opinion that the appellant could not sustain his argument that his obligation to repay the respondents was unenforceable based on this case. The obligation to repay the respondents was not illegal at the place where performance was sought which was Singapore. There is no law prohibiting the appellant from repaying his debt and the case simply does not apply. 44 Furthermore, the facts of the present case were not on all fours with those in Ralli Bros v Compania Naviera Sota y Aznar as the relevant provisions of the ECA were in place before the facility agreement was entered into. On the facts of Ralli Bros v Compania Naviera Sota y Aznar, the Spanish legislation rendering the amount of the payment illegal only came about after the contract had been made. There has been much controversy over whether the case should be interpreted as a rule of the conflict of laws which is applicable to all contracts, whatever their governing law, whose performance would be illegal by the lex loci solutionis or whether it is simply a rule of the English law of contract, specifically, which regards the supervening illegality as a frustrating event. Some commentators are of the view that the case was decided simply on the basis of the fact that what has been termed supervening illegality according to the law of the place of performance is merely an application of the English domestic rules with regard to the discharge or suspension of contractual obligations by supervening illegality. The illegality of performance in the lex loci solutionis is no more than a fact to be taken into account by the English courts in determining whether performance has become impossible. Given the likelihood that Ralli Bros v Compania Naviera Sota y Aznar could be interpreted as an application of the doctrine of frustration based on English contract law, we would not apply it here as no frustrating event had taken place on the facts of the present case, even if the place of performance was Malaysia and performance of the facility agreement was illegal by the laws of Malaysia. 45 The appellant also raised a related argument based on a principle of public policy formulated in the case of Foster v Driscoll. This principle states that the courts will treat a contract governed by its own law as void where the parties’ intention and object contemplated thereby jeopardizes relations between its government and another friendly government. The case concerned a contract, governed by English law, for the supply and sale of whisky that was to be smuggled into the United States of America in contravention of the prohibition laws in force at the time. The actions were brought in relation to various disputes arising out of the contract. The Court of Appeal categorically stated that the courts would not enforce such a contract “made between the parties to further an adventure or break the laws of a foreign state.” Sankey LJ added: … an English contract should and will be held invalid on account of illegality if the real object and intention of the parties necessitates them joining in an endeavour to perform in a foreign and friendly country some act which is illegal by the law of such country notwithstanding the fact that there may be, in certain events, alternative modes or places of performing which permit the contract to be performed legally. In other words, an agreement whose object to be attained is a breach of international comity will be regarded by the courts as being against public policy and void. 46 This principle was elaborated on in the case of Regazzoni v KC Sethia (1944) Ltd which concerned a contract for the sale and delivery of jute bags. The parties to the contract contemplated that these bags should be shipped from India to Genoa for resale to South Africa. One party eventually repudiated the contract and the other party brought an action for damages for breach of contract. The proper law of the contract was English law. At the time, there was in force a prohibition on the export of goods to South Africa by the Indian Government. The Law Lords agreed with and applied Foster v Driscoll. Lord Keith said at p 327: … to recognise the contract between the appellant and the respondent as an enforceable contract would give a just cause for complaint by the Government of India and should be regarded as contrary to conceptions of international comity. On grounds of public policy, therefore, this is a contract which our courts ought not to recognize. 47 In the same case, Lord Reid added at p 323 that: The real question is one of public policy in English law: but in considering this question we must have in mind the background of international law and international relationships often referred to as the comity of nations. This is not a case of a contract being made in good faith but one party thereafter finding that he cannot perform his part of the contract without committing a breach of foreign law in the territory of the foreign country. If this contract is held to be unenforceable, it should, in my opinion, be because from the beginning the contract was tainted so that the courts of this country will not assist either party to enforce it. Based on this and the finding that the parties had intended to violate the laws of India, the House of Lords held that the contract was unenforceable since an English court would not enforce a contract or award damages for its breach, if its performance would involve doing an act in a foreign and friendly state which would violate the law of that state. This was based on the principle of public policy and the consequent desire for international comity. 48 Reverting to this case, this particular submission of the appellant failed. The performance of the obligation sought to be enforced did not involve the doing of an act in a foreign state as the repayment was being sought in Singapore. It was not the intention or in the contemplation of the parties when they entered into the facility agreement to carry out an adventure to break the laws of Malaysia. 49 A related concern that arose from this argument of the appellant is whether the principles in Ralli Bros v Compania Naviera Sota y Aznar and Foster v Driscoll set out above are separate or whether they should be or have been conflated by the local courts. The appellant tendered the local decision of Overseas Union Bank Ltd v Chua Kok Kay 50 In allowing the plaintiff’s claim, the learned judge appeared to have considered inter alia the question of whether a contract is invalid when performance of it would be unlawful by the law of the country in which it is to be performed and followed the case of Singapore Finance Ltd v Soetanto 51 In Singapore Finance v Soetanto, the principle in Foster v Driscoll was apparently applied, albeit in a different form. The plaintiffs in this case had advanced the sum of $700,000 to the defendants to purchase certain properties in Singapore. The loan was secured over these properties. There was a default in the payment of the instalments by the defendants and the plaintiffs sued for the amounts due under the loan. GP Selvam JC (as he then was) in deciding the case, commented that defendants in such cases often raise the “unmeritorious but not unfamiliar defence” that such transactions were made illegal by the ECA and the ECMs. A judgment in favour of the lenders who were seeking repayment of the loans in question would thus jeopardize the friendly foreign relations between Singapore and Malaysia. He stated that: The court must be alive to what the implications would be if the defendants’ contentions are right. They could be raised in hundreds of transactions in which foreigners raise loans in Singapore. It will encourage unscrupulous borrowers to raise that as a stock defence. Bankers and others interested in commerce will find it necessary to investigate the intricacies of foreign law before they transact any business with foreigners, or purchase from or sell goods to a foreign country. This is not conducive to fair dealing in business. 52 In relation to the question of deciding the question of enforcement of an agreement involving breach of foreign law, GP Selvam JC expressed the applicable test, which appeared to have been based on Foster v Driscoll, as follows: …Firstly, whether it would be unlawful under the law of the place of performance, and secondly, whether the person seeking the enforcement had, at the time of making the contract, knowledge that foreign law would be breached by performance of the contract. It is not very clear whether the learned judge intended to conflate the principles in Ralli Bros v Compania Naviera Sota y Aznar and Foster v Driscoll into an independent conflict of laws principle, as the formula above appears to be a combination of the two. From the tone of his judgment, this was unlikely as Ralli Bros v Compania Naviera Sota y Aznar was not cited before him. 53 At this juncture, the comments of Mr Toh Kian Sing in relation to the local cases cited above are relevant. In his article, ‘Illegal Contracts in the Conflict of Laws: Some Recent Developments in Singapore’ 54 Furthermore, it was also unclear whether the underlying basis of the test formulated by GP Selvam JC was an independent conflict of laws principle or the public policy of the lex fori. Ralli Bros v Compania Naviera Sota y Aznar clearly had nothing to do with the application of public policy. There was no attempt to evade Spanish mandatory rules in that case. The parties there had no intention to break the laws of Spain at the time of contracting. Foster v Driscoll on the other hand was clearly based on the public policy of the lex fori. Without further consideration of the exact scope of Ralli Bros v Compania Naviera Sota y Aznar, we agreed that there should not be an unequivocal merger of this principle with that of Foster v Driscoll. 55 Additionally, the author pointed out that the parameters of the principle of illegality by the lex loci solutionis set out in Ralli Bros v Compania Naviera Sota y Aznar has by no means been further considered by the English courts as a similar fact situation has not arisen. It is either an independent conflict of laws rule or a manifestation of the doctrine of frustration in our law of contract. It has not been fully determined whether the principle of the illegality by lex loci solutionis, if there is indeed such a rule of private international law, is applicable even to cases where the illegality was initial rather than a supervening event. Given the views of the academics, the matter has in our view not been and will not be resolved until a similar factual situation as that in Ralli Bros v Compania Naviera Sota y Aznar arises. Until then, this principle and the principle in Foster v Driscoll should be regarded as being separate ones. Malaysian Moneylenders Act 1951 56 The appellant’s final argument was that the facility agreement was an illegal money lending contract as the respondents had lent money in Malaysia contrary to the provisions of the MLA. The appellant submitted that the respondents were carrying on the business of money lending based on the presumption in s 3 of the MLA which reads: 3 Certain persons and firms presumed to be moneylenders Save as excepted in paragraphs (a), (b), (c), (d), and (e) of the definition of ‘moneylender’ in section 2 of this Ordinance, any person who lends a sum of money in consideration of a larger sum being repaid shall be presumed until the contrary be proved to be a moneylender. This was an offence under s 8 of the same Act as the respondents did not possess a licence to do so. By virtue of s 15 of the MLA, the contract was unenforceable as the respondents were unlicensed moneylenders. 57 We were of the view that there is little merit in this defence. There was direct evidence by both expert witnesses on this issue. Mr Quah’s opinion was that the MLA applied to this transaction as the facility agreement was a Malaysian transaction. Mr Abraham on the other hand concluded simply that the respondents did not fall within the purview of the definition of a moneylender in Malaysia as the facility was extended to the appellant in Singapore. The definition of “moneylender” is found in s 2 of the MLA and reads: 2 Interpretation …‘moneylender’ includes every person whose business is that of moneylending or who carries on or advertises or announces himself or holds himself out in any way as carrying on that business whether or not that person also possesses or earns property or money derived from sources other than the lending of money and whether or not that person carries on the business as a principal or as an agent… 58 Counsel for the appellant also referred us to the local decision of Lorrain Esme Osman v Elders Finance Asia Ltd Conclusion 59 For the foregoing reasons, we dismissed the appeal with costs. Appeal dismissed. Reported by Sharon Lim