Singapore

Commentary: The Governing Law of Bond Instruments

There are many astute observations made by the authors in this article published in the Business Times on 11 September 2019.

However, I believe that portions of the article (reproduced below) are incorrect or bear closer scrutiny.

Singapore is a popular venue for capital raising. Latest statistics show that the Singapore Exchange attracted 733 new bond listings to-date in 2019 with amount issued totalling just over S$336 billion. A significant portion of these listings were by Asian issuers comprising sovereigns, financial institutions and corporates from the Asean countries, China and India, among others. This is in line with the Singapore government’s objective of attracting Asian issuers to raise international capital in Singapore.

As more Asian issuers look to Singapore as a platform for bond issuance and listing, it is timely for such issuers to also consider the use of Singapore law to govern such issuances.

For Asian bond issuances, parties in financing transactions following market practice would likely choose English law as the governing law of the issuance. Issuers and investors may probably be unaware that by choosing the laws of a certain country, they are often also submitting to the jurisdiction of the courts of that country. What that effectively means is that in cases where a bond issuance is governed by English law, any legal dispute arising out of or in connection with the bond issuance will often be litigated in the English courts. For Asian issuers and investors alike, they may be doing themselves a disservice if they do not consider very carefully why it is justifiable to submit to and litigate under the English system when in fact their “comfort zone” should be in Asia.

For Singapore-based issuers, the natural choice would be to rely on Singapore law and the courts in Singapore. For issuers based in the region, they may already be familiar with Singapore law if they had engaged in other cross-border transactions using Singapore law. Also, given Singapore law’s roots in English law, any commercial party used to English law would find Singapore law to be reassuringly familiar. Specifically, bond documentation governed by English and Singapore law is largely similar and there is a high degree of convergence in the areas of contract and trust laws.

In summary:

A. First, the choice of English law as the governing law of an agreement does not automatically mean that disputes are more likely to be litigated in England: see (C).

B. Second, c.f. (C), a Singapore court is competent to hear and determine such a dispute. The Singapore courts are more than qualified to apply English law to a dispute. In fact, it is commonplace for a court of one jurisdiction to apply the laws of another to the substantive dispute between parties.

C. Third, the worry of “which jurisdiction” is not as severe as the article suggests. The appropriate forum for a dispute to be heard is the one which is most convenient. The governing law of an agreement is only one factor taken into consideration in determining the appropriate forum and, in an increasingly interconnected world, this factor generally has less weight.

D. Finally, the main “difficulty” with English law as a choice of law – as far as Brexit is concerned – has far less to do with the forum than with the potential uncertainty as to what “English law” means looking forward. Depending on the terms of Brexit, how EC law will affect or inform present and future English law (if at all) remains to be seen.

Categories: Singapore

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