In a judgment of 8 July 2024, the Singapore High Court commented on some exciting questions regarding the interpretation, validity and amendment of international commercial contracts with regard to choice of law and written form clauses.
The facts of the case
A Canadian mining company and a Singapore-based financial advisor had a type of financial brokerage agreement, which the parties referred to as a “mandate letter”. The purpose of this agreement was the financial advisor’s support in concluding loan agreements for gold mining in Mongolia between the mining company and potential investors. The mandate letter was governed by Singapore law, while a subsequent extension agreement was governed by English law.
When the Mongolian government granted the mining company a loan of USD 65 million, the financial advisor demanded a success fee of 2.5 % of the loan amount granted on the basis of the mandate letter. The company argued, among other things, that it had received the loan from the government without any assistance from the financial advisor and that the financial advisor could therefore not be entitled to the success fee. It also argued that this transaction had been excluded from the scope of the underlying mandate letter by verbal agreement at the same time as the extension agreement was concluded.
The decision
The court first dealt with the question of the applicability of “effective cause”. According to this, the financial advisor’s actions must have been the cause of the loan agreement being concluded. However, the court found that the mandate letter was not a commission-based brokerage agreement. As the contractual relationship was not based on the brokerage activity, but on the financial advisor’s advisory function and the (hedging of) transactions, there was no typical commercial agency agreement to which the doctrine of “effective cause” would apply.
The court also clarified the question of whether the USD 65 million transaction at issue could have been excluded from the scope of the mandate letter by a verbal agreement, so that a claim to the success fee would no longer apply. The plaintiff financial advisor based his argument against the validity of the verbal agreement on a written form clause in the mandate letter, according to which amendments to the contract were only possible in writing. The court pointed out that – similar to German law – it is perfectly possible under Singaporean law to cancel a written form clause by means of a subsequent verbal agreement. However, the prerequisite for this is that the parties can prove the conclusion of the verbal agreement. The competent judge saw this evidence in the email correspondence between the parties, in which the agreement made by telephone and its content were reproduced. On the other hand, he also considered the behaviour of the parties following the agreement to be admissible evidence, especially as the financial advisor had not initially charged the mining company the success fee for concluding the transaction.
The case would probably have been judged differently if English law had been applied to the contract. Under English law, a written form clause cannot generally be waived. As none of the parties invoked the application of English law despite the choice of law in the amendment agreement, the Singapore court applied Singapore law. This is why, at least with regard to the success fee claim, the judgement was unfavourable for the plaintiff financial advisor.
Conclusion
Not only is good and well thought-out contract drafting essential in (international) commercial transactions, but also the enforcement of such sometimes very complex contracts requires a high degree of precision and foresight — especially in individual clauses and the language used.
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