Knowledge Highlights 18 January 2023
Singapore Court of Appeal holds that there is no fall-back role for lex fori when determining which law governs a contract where the contract’s existence is in dispute
Knowledge Highlights 16 March 2021
In Solomon Lew v Kaikhushru Shiavax Nargolwala & Ors and another appeal  SGCA(I) 1, the main issue before the Singapore Court of Appeal was whether or not an oral contract for the sale of shares in a BVI Company was concluded. The plaintiff, who alleged the existence of the oral contract, was unsuccessful in his action before the Singapore International Commercial Court (“SICC”). On appeal, the plaintiff sought to persuade the Court of Appeal that the oral contract was in fact concluded, and asked the Court of Appeal to grant the reliefs he was seeking on the basis of the oral contract.
In dismissing the plaintiff’s appeal against the several defendants / respondents (five in total), the Court of Appeal made a few observations that lend themselves to general application. Probably the most important observation was that there is no fall-back role for the lex fori (i.e. the law of the forum, which would be Singapore law insofar as proceedings in Singapore are concerned) when determining which law governs a contract where the contract’s existence is in dispute.
This issue concerning the role of the lex fori came up for discussion because, for the purposes of the 1st and 2nd Defendants’ cross-appeal against the SICC’s adverse costs order against them for leading evidence on Thai law (which they contended was the proper law to govern the alleged oral contract), it was necessary for there to be some consideration of how the proper law of the alleged oral contract (the existence of which was disputed) should be determined.
Allen & Gledhill Partner Ramesh Kumar represented the first and second defendants, who successfully resisted the plaintiff’s appeal and also succeeded in their cross-appeal.
The plaintiff wanted to acquire a villa in a resort in Phuket. This led the plaintiff to enlist the help of the resort’s general manager (“GM”) to contact the first and second defendants, who owned the villa through their shareholding in a BVI company (“Holding Company”), and enquire if they would be willing to part with the villa for a specified price. When contacted by the GM, the first and second defendants told him they were not interested in selling at the price that was being offered.
The plaintiff then increased his offer price, and the GM communicated this increased offer to the second defendant over a telephone call. The second defendant said to the GM that she wanted an “offer letter in writing” before she discussed the offer with her husband, the first defendant. However, immediately after the telephone call, the GM met the plaintiff (who was staying at the resort) and told him that the first and second defendants had accepted his latest offer.
The plaintiff’s case was that, when the GM told him that the first and second defendants had accepted his increased offer, there came into being a contract for the sale and purchase of the shares in the Holding Company. The first and second defendants denied this, and maintained that the GM had no authority to bind them to any contract.
The plaintiff commenced proceedings in Singapore against the first and second defendants and, amongst others, the new owner of the shares in the Holding Company (who had come to own the shares after they had been transferred over pursuant to a written share sale agreement).
The SICC dismissed the plaintiff’s action in its entirety, finding that the GM did not possess authority to conclude any binding contract for and on behalf of the first and second defendants.
Although the first and second defendants were successful in resisting the claims against them, the SICC ordered them to pay the plaintiff’s costs in respect of the Thai law issues that they had raised as part of their defence. This was because the SICC took the view that it was incorrect and unreasonable for them to have contended that Thai law (under which the alleged oral contract would in any event be unenforceable) was the proper law of the alleged oral contract, as the evidence suggested that they wanted their Singapore lawyers to prepare the contractual documentation for any sale of their shared in the Holding Company.
The plaintiff appealed the SICC’s dismissal of all his claims, while the first and second defendant cross-appealed the abovementioned adverse costs order.
Court of Appeal decision
The Court of Appeal affirmed the SICC’s finding that the GM did not possess authority to enter (on behalf of the first and second) into the oral contract alleged by the plaintiff, and held that:
- the GM acted as a mere messenger with no actual authority to conclude any contract; and
- the GM’s miscommunication to the plaintiff (about the contents of his telephone conversation with the second defendant) could not bind the first and second defendants , as there was no representation to the plaintiff by either the first and second defendants to the effect that the GM was authorised to conclude a contract for and on their behalf.
The Court of Appeal’s holding that the GM did not possess authority was sufficient to dispose of the plaintiff’s appeal in its entirety. Given the manner in which the parties framed their arguments in the appeal, there was strictly no need for there to be a determination as regards the proper law of the alleged oral contract.
However, for the purposes of the first and second defendants’ cross-appeal, it was necessary for the Court of Appeal to engage in some consideration of the merits of the first and second defendants’ contention that Thai law (as opposed to Singapore law) governed the issue of whether the alleged oral contract was concluded.
The Court of Appeal confirmed that the traditional test for determining the proper law of a contract (which seeks to ascertain whether there was any consensus between the parties on the governing law of the contract, failing which one settles on the law that is most closely connected to the contract) applied even where the contract’s existence was disputed. The Court of Appeal then went on to hold that, while the SICC was “right to regard the question of which law the parties’ interchange and putative agreement had the closest connection with as a difficult one in this case”, the SICC was “wrong to suggest that this meant that [the Court] could fall back on the lex fori”. In so holding, the Court of Appeal declined to adopt the views of some academic commentators, who have advocated one role or another for the lex fori in this context.
Applying the abovementioned test for determining the proper law of a contract, the Court of Appeal held that it was “highly arguable… on [a] proper analysis” that Thai law governed the issue of whether the alleged oral contract was concluded. This holding, which was based on an appraisal of the evidence on record, was sufficient reason to allow the first and second defendants’ cross-appeal and overturn the SICC’s decision on costs relating to the Thai law issues.
The rejection of a fall-back role for the lex fori exemplifies the Singapore courts’ approach of adopting a properly international outlook when dealing with commercial disputes with cross-border elements.
Where a dispute has cross-border elements, depending on the circumstances of the case, it may well be useful to obtain some understanding of the position under relevant foreign laws when formulating the claim or defence (as the case may be). In allowing the first and second defendants’ cross-appeal, the Court of Appeal observed that: “[the SICC’s] view that the case advanced on Thai law was unreasonable and merely ’opportunistic’ was unjustified. It went to a point – the unenforceability under Thai law of any oral agreement – which [the SICC] actually accepted. That point would, by itself, have been fatal to [the Plaintiff’s] whole case.”
Knowledge Highlights 19 January 2023