Cross-border contracts between Singapore and foreign companies have become increasingly common, especially with ASEAN countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, and Vietnam). These cross-border transactions offer opportunities but also risks that need careful drafting.
Governing Law in Cross-Border Agreements
Singapore contract law offers flexibility, allowing parties to define the terms and clauses of their agreements, including the choice of governing law. This is particularly important in cross-border transactions, where clear jurisdiction and dispute resolution methods can prevent issues later.
Choosing the Governing Law
In a cross-border contract, it is fairly easy to include the choice of governing law in your commercial agreement. You only need to include a simple clause like the following: “This Contract shall be governed by and construed in accordance with Singapore law.” If you want to designate the Singapore court as the court to hear potential disputes you can use the following: “The courts of Singapore have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement).”
Governing law when a choice is not made
If the parties do not specify the governing law, the court will apply the law most closely related to the contract. For example, a contract for services in Malaysia may be governed by Malaysian law, even if a Singapore company is the provider. Some mandatory regulations, like the Singapore Unfair Contract Terms Act, might override the agreed-upon law.
Party Autonomy
Singapore law respects party autonomy, meaning the parties can freely choose the jurisdiction and governing law. This is a key advantage in cross-border contracts, offering clarity on where disputes will be resolved.
Dispute Resolution and SICC
Singapore’s courts and the Singapore International Commercial Court (SICC) handle cross-border disputes, making it a popular jurisdiction. The SICC’s judgments are enforceable in major commercial jurisdictions, offering security to parties. Additionally, arbitration can be used, ensuring flexibility in dispute resolution.
Model Clauses for Clarity
For simplicity and enforceability, parties can use model clauses for jurisdiction and governing law. An example clause might be: “Each party submits to the exclusive jurisdiction of the SICC for disputes related to this contract.” These clauses ensure that disputes are resolved efficiently.
Mediation and Global Enforcement
Mediation is also an option. The Singapore Convention on Mediation, with 55 signatories, helps enforce international mediated agreements, offering a flexible and effective way to resolve cross-border disputes.
Forming a Contract in Singapore
Singapore contract law is based on common law principles. A contract is formed through offer and acceptance, and digital contracts are also valid. Parties must ensure they meet the legal requirements for consideration to make an agreement enforceable.
Consideration and Risk Mitigation
Consideration is another important aspect of Singapore contract law. A consideration is something of value that is to be exchanged between the parties under the contract. A promise contained in an agreement is not enforceable unless it is supported by consideration or it is recorded in a written document executed as a deed.
Parties should ensure consideration is included in the contract to make it legally binding. In cross-border transactions, it’s also important to address potential risks and include clauses on dispute resolution and force majeure.
Form of the agreement
Although advisable, it is not necessary to formulate the contract as a single document. It can be concluded even without being explicitly written down and physically signed by the parties. Digital contracts are also fully enforceable under Singapore law.
