Singapore's recent enactment of the Choice of Court Agreements Act 2016 (No. 14 of 2016) (the "CCAA") has given effect to the Hague Convention on Choice of Court Agreements 2005 (the "Convention"), introducing more enforcement options for banks in cross border transactions.
This note discusses the benefits and practical implications of the CCAA on banking transactions.
Choice of Court Clauses
In loan and security documents, a choice of court or jurisdiction clause allows contracting parties to decide the forum (e.g. the Courts of Singapore or the Courts of France) in which disputes should be adjudicated. Jurisdiction clauses should not be confused with governing law clauses – the latter stipulates the substantive law that will be applied in interpreting party obligations (e.g. Singapore law or French law) and in determining the outcome of disputes.
Under the new CCAA, the chosen court in a country that has signed up to the Convention ("Contracting State") should not decline jurisdiction, and a non-chosen court in a Contracting State should not take jurisdiction unless the clause is invalid or exceptional circumstances exist. Judgments from the chosen court can be recognised and enforced in another Contracting State.
Over the years, banks in Singapore have come to enjoy the flexibility of non-exclusive "asymmetric" jurisdiction clauses, as seen in standard APLMA-style loan documentation1. This means that while borrowers/obligors can only take proceedings in Singapore on the financing documents, the bank is entitled to take proceedings in Singapore and/or elsewhere. With reciprocal enforcement legislation in place (Reciprocal Enforcement of Commonwealth Judgments Act ("RECJA") and Reciprocal Enforcement of Foreign Judgments Act ("REFJA")), these jurisdiction clauses have worked seamlessly for cross-border deals in which borrowers/obligors are situated, incorporated or have assets in a scheduled Commonwealth country or in Hong Kong. Parties can obtain a monetary judgment in Singapore and thereafter enforce it in foreign courts through an expedited registration process, without the need to sue again on the debt. In any other jurisdiction which does not have a reciprocal enforcement process with Singapore, the judgment obtained in Singapore court will still need to be sued on as an unsatisfied debt, in that jurisdiction.
Benefits of the CCAA
With the CCAA in force, reciprocal treatment of foreign judgments is now available vis a vis most European borrowers/obligors, and any party incorporated in a Contracting State. Current Contracting States are the European Union (excluding Denmark) and Mexico. Parties who opt in for this regime may rely on CCAA's provisions for international civil and commercial matters where there is a valid exclusive choice of court clause and where the matter is not excluded.
While the RECJA and the REFJA are limited to enforcing only monetary judgments from superior foreign courts, the CCAA is comparatively far-reaching as it applies to any final judgment, whether monetary or non-monetary and from any foreign court. Consent and default judgments also fall within the purview of the CCAA. Judgments awarding specific performance can potentially be enforced under the CCAA, making it useful for lenders desiring to enforce certain non-monetary obligations, such as putting certain assets to borrowers under option documents. Further, unlike the RECJA and REFJA's provision of limitation periods, there is no time limit for enforcement under the CCAA, provided the foreign judgment remains enforceable from its originating jurisdiction.
Application to Banking Transactions
To fall within the ambit of the CCAA, choice of court clauses in facility agreements and security documents must be "exclusive choice of court agreements" as defined in the Act. Significantly, there must be consensual agreement, whether in writing or otherwise, between the parties identifying one Contracting State as the exclusive venue for adjudication and prohibiting the use of other venues. This implies that banks can no longer rely on standard APLMA-type of unilateral jurisdiction clauses – both the bank and the borrower/obligor have to contractually agree that the relevant document be locked into the exclusive jurisdiction of the courts of Singapore or one Contracting State.
Banks may refer to the model clause promulgated by the Singapore International Commercial Court2 to ensure that the jurisdiction clause is an exclusive choice of court agreement for the purposes of the CCAA:
Each party irrevocably submits to the exclusive jurisdiction of the [Singapore Court / Contracting State court] any dispute, controversy or claim arising in any way out of or in connection with this Agreement (including, without limitation as to: (1) any contractual, pre-contractual or non-contractual rights, obligations or liabilities; or (2) the existence, validity, enforceability or termination of this Agreement, this sub-clause, sub-clauses (a) and/or (c)) ("the Dispute")."
Banks should still consult with lawyers in each relevant jurisdiction to confirm whether the choice of law and jurisdiction clause in a finance document is valid and enforceable and is a qualifying exclusive choice of court agreement under the CCAA and its counterpart legislation in each relevant jurisdiction.
Recognition of Foreign Judgments and Limitations
Under the CCAA, generally where a final foreign judgment (including, as highlighted above, a consent judgment or judgment given by default) is valid and enforceable in the contracting state in which the judgment originated, it will be recognised and enforced by the Singapore courts. Recognition and enforcement is subject to certain exceptions. Clause 14 of the CCAA sets out the situations, such as fraud or public policy grounds, whereby the Singapore court must refuse recognition or enforcement of a foreign judgment. Clause 15 provides for discretionary grounds where the Singapore court has the discretion to refuse or enforce a foreign judgment. The counterpart legislation to the CCAA in a Contracting State (which would apply where a bank intends to enforce a final judgment obtained against a party in the Singapore courts in a Contracting State) should provide similar rules for the recognition of Singapore judgments.
The CCAA cannot be used to enforce interim protection measures, such as injunctions to freeze assets; but the CCAA is not meant to prevent a party from applying for, and the Singapore courts from granting, such protection measures where there is an exclusive choice of court agreement designating another court as the court for settling disputes.
The CCAA excludes matters dealing with rights in rem in any immovable property, possibly limiting its effectiveness in the context of loans secured by real property. This should not be of material concern, given that banks would in any case be advised to take and enforce mortgage over real property in accordance with the laws where the property is situated.
The CCAA also excludes enforcement of matters dealing with bankruptcy, insolvency, composition or any analogous matter pursuant to section 9(2) of the CCAA. Again, this is unlikely to be an issue as banks would be advised that insolvency or restructuring arrangements be documented in accordance with the laws of the jurisdiction where the affected party is incorporated, in order to ensure that it is recognised by the insolvency officials, creditors and courts of that jurisdiction.
The introduction of the CCAA allows Singapore banks to enter into Singapore law documents with persons and corporates from Contracting States, and to enforce judgments obtained in the Singapore courts in the courts of those Contracting States. This is a welcome development particularly considering that the laws of the European Union in relation to credit and security tend to be fairly complex, technical and borrower-centric, and legal and enforcement costs tend to be significantly higher than in Singapore. The CCAA will also be useful for foreign lenders in Contracting States entering into loan and security documents governed by their local laws with Singapore borrowers/obligors. Foreign judgments obtained in those Contracting States will likewise be directly enforceable in Singapore, so long as the requirements of the CCAA are met.
As countries increasingly adopt the Hague Convention, banks will be equipped to enforce judgments and security across a wide range of jurisdictions. The CCAA fortifies the efficacy of jurisdiction clauses in favour of banks and facilitates enforcement in cross-border transactions. Lenders will, however, have to give up the benefit of one-sided choice of court clauses, and will have to determine upfront their preferred enforcement forum, in order to enjoy the benefit of the CCAA.
1. An asymmetric jurisdiction clause is typically drafted as such: (a) The Borrower submits to the non-exclusive jurisdiction of the courts of X in respect of any dispute arising out of or in connection with the Finance Documents; (b) The Borrower agrees that the courts of X are the most appropriate and convenient forum and will not argue to the contrary. (c) Nothing in this Clause shall limit the right of the Bank to take proceedings against the Borrower in any other court nor shall the taking of proceedings in one or more jurisdictions preclude the Bank from taking proceedings in any other jurisdiction, whether concurrently or not.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.