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    04:08 PM Justin Chan (Associate, Shook Lin & Bok LLP)

    Conflict of Laws Issues: The Republic of the Philippines v Maler Foundation [2013] SGCA 66

        

    Introduction

    The Court of Appeal decision in the Republic of the Philippines v Maler Foundation and others and other appeals [2013] SGCA 66 (“Maler”) provided yet another twist in The Republic of the Philippines’ (“The Republic”) three-decade long attempt at recovering the vast ill-gotten wealth accumulated by its former President Ferdinand Marcos prior to his removal from power in 1986. 

    Legally, Maler “presented the court with a novel factual scenario which did not appear to be readily susceptible to the mechanistic application of established conflict of law rules” (Maler at [2]). In particular, Maler provided the Court of Appeal with an opportunity to consider the legal effect in Singapore of a foreign judgment which was obtained as a product and culmination of a foreign sovereign’s efforts in prosecuting errant public officials. Further, the Court of Appeal also had to consider the legal effect of an involuntary judicial assignment purporting to transfer title to a contractual chose in action.  

    For the sake of brevity, this commentary will only be considering the particular conflicts of law questions that were before the Court of Appeal.

    Facts

    Maler essentially concerned the entitlement to the sums of US$16.8m and £4.2m (“the Funds”) that were held in an account with the Singapore branch of WestLB AG; the manner by which the Funds came to be in Singapore requires some detailing. 

    Following Ferdinand Marcos’ removal from office, The Republic sought formal assistance from the Swiss authorities in respect of assets belonging to Mr and Mrs Marcos that had been deposited in Switzerland and to take the necessary measures to freeze such assets. The Swiss authorities duly obliged and freezing orders were obtained and issued against various bank accounts held in the names of several Swiss foundations (“the Foundations”) (“the Swiss Deposits”). The Republic filed a petition with the Sandiganbayan – the nation’s anti-graft court – seeking forfeiture of the assets held by Mrs Marcos and the Marcos Estate (following Ferdinand Marcos’ death), including the Swiss Deposits. The Republic subsequently made a second request for assistance from the Swiss authorities, this time for the immediate transfer of the Swiss Deposits into escrow accounts held by the Philippine National Bank (“PNB”). The Swiss Federal Court affirmed the Second Request and a number of escrow agreements were entered into, with a further investment policy imposed on the Swiss Deposits. Accordingly, the Swiss Deposits were released to PNB to be held in escrow and PNB placed part of the Swiss Deposits into fixed deposit accounts with the Singapore branch of WestLB AG in accordance with the investment requirements of the Swiss authorities and escrow agreements. Eventually, the Supreme Court of the Philippines issued an en banc decision which ordered the forfeiture of the Swiss deposits in favour of the Republic (“the Forfeiture Judgment”). On the other side of the earth, soon after Ferdinand Marcos’ removal from power, a human rights class action suit on behalf of over 10,000 putative class members (“the Human Rights Victims”) was initiated against Ferdinand Marcos in District Court of Hawaii. Judgment for the sum of more than US$1billion was entered against the Marcos Estate, together with a preliminary injunction enjoining, inter alia, any transfer, conveyance or disposal of the Swiss Deposits. A subsequent order was also issued against the Marcos Estate for the execution of an assignment of the Swiss Deposits in favour of the Human Rights Victims. Following the failure of the Marcos Estate to execute the aforementioned assignment, a deed of assignment was executed by a Clerk of the District Court of Hawaii to similar effect (“the Chinn Assignment”)

    Following the competing claims to the Funds by PNB, the Human Rights Victims and the Foundations, interpleader proceedings were consequently entered into by WestLB AG to determine entitlement to the Funds and are the subject of the appeals in Maler.

    The Republic’s Case

    In advancing its case for its entitlement to the Funds, the Republic advanced in particular the argument that under the act of state doctrine, the Singapore court should accept the validity of the Forfeiture Judgment in determining the entitlement of the Funds: i.e. the Singapore courts are required to give effect to the acts of state adopted by the Republic and the Swiss authorities that culminated in the Forfeiture Judgment or that the Forfeiture Judgment itself constituted an act of state, or in the alternative that the Forfeiture Judgment constituted an act of state whose validity cannot be subject to the judicial scrutiny of the Courts.

    Having reviewed the jurisprudential origins of the act of state doctrine (including that in the United States and England), the Court of Appeal concluded that there is a distinction between legislative acts and judicial acts. There is hitherto no English or local authority that recognises the application of the act of state doctrine such that it mandates an adjudicating court to accept the legal validity of foreign judgments that flow from governmental or legislative acts (Maler at [52]). The Court of Appeal also similarly concluded that there is no conceptual basis under the common law to characterise the Forfeiture Judgment as an act of state.  

    Further, and as will also be significant when applying the common law rules of recognition of foreign judgments (see below), the locus of the Funds was significant in debunking the application of the act of state of doctrine, which as the Court of Appeal affirmed, is territorial in its application. The Court of Appeal affirmed the long-established rule that a governmental act in respect of any private proprietary right is only valid and effective insofar as the act was valid and effective in respect of persons and things within the territory of the state. That there may be underlying governmental interest is not an exception to the general rule.

    As such, the Court of Appeal held that while it will not question the validity of the measures taken by the Philippine and the Swiss governments in respect of the Swiss Deposits, it remains within the jurisdiction of the Singapore courts to determine the legal effect of the foreign judgment, to which the common law rules of recognition of foreign judgments would apply (Maler at [63]).

    To that end, the Court of Appeal held that the Forfeiture Judgment was not enforceable because: (a) The Forfeiture Judgment was a judgment in rem in respect of a res (the Funds) which was not situated in the foreign country (the Philippines) at the time of the judgment (Maler at [67]); (b) In any event, the Forfeiture Judgment cannot be recognised as it would be tantamount to the indirect enforcement of a penal law, insofar as the proceedings leading to the Forfeiture Judgment were directed towards the forfeiture of the property of public officials in favour of the State (Maler at [69]).

    The Human Rights Victims’ Case

    The Human Rights Victim’s claim hinges essentially on whether the Chinn Assignment had effectively passed title in the Swiss Deposits (and thereby the Funds) to the Human Rights Victims. As the Court of Appeal observed, the question is answered by the law that governs the validity and effectiveness of an involuntary judicial assignment purporting to transfer title to a contractual chose in action. 

    To that end, the Court of Appeal reiterated the broad three-stage common law methodology for resolving a legal question which involves a foreign law element (Maler at [81]): (1) The characterisation of the relevant issue; (2) The selection of the appropriate choice of law rule in the context of the relevant connecting factors; and (3) The identification of a system of law by the application of those connecting factors.

    The Human Rights Victims’ contended that the only relevant question before the court only concerned the “first-tier” relationship between the assignor and assignee. The Court of Appeal was not persuaded and reiterated the necessity to identify the question at issue as opposed to merely characterising the nature of the claim. The Court of Appeal considered the defining question before it was the question of title to property – the correct characterisation was therefore the effect of the Chinn Assignment on the title to the Swiss Deposits (Maler at [84]).

    However, the Court of Appeal recognised that there is hitherto no common law authority on the appropriate connecting factor when the proprietary effect of a judicial assignment of a contractual chose in action in the form of a debt is in issue. The Court of Appeal considered that there are four different analogies that may be of assistance in ascertaining the relevant connecting factor (Maler at [87]): (a)    with voluntary assignments of contractual choses in action, under which the lex actuslex situs, proper law of the debt and residence of the parties are possible contenders depending on the specific legal question before the court; (b) with the recognition of foreign judgments in rem, under which the applicable connecting factor would appear to be the lex situs; (c) with the rules relating to legislative or executive confiscation of property, under which the connecting factor would either be the lex situs or the proper law of the debt; and, (d)with the judicial garnishment of a debt, under which the appropriate connecting factor is generally the lex situs.

    The Court of Appeal effectively ruled out the application of (a) as a judicial assignment involves an involuntary transfer and is by its nature very different from a voluntary assignment (Maler at [88]). The Court of Appeal considered that (b) and (c) drew a close parallel to the present factual novelty that was before it: (b) is concerned with the effect of a judgment on title to property while (c) is concerned with the involuntary divestment of property through legislative expropriation or confiscation – both involved an analysis through a purely proprietary lens and the courts have looked to the lex situs to resolve the question of transfer of title (Maler at [90]). (d) was adopted by the lower trial judge as the starting point as the putative effect of the Chinnn Assignment was to effect a garnishment of the accounts in which the Swiss Deposits were held – to the extent that a garnishee order is an enforcement of the judgment in rem against a debt, the Court of Appeal considered that the effect of the garnishee order may be regarded as a question of title and thus the lex situs would be the appropriate connecting factor (Maler at [89]).

    The Court of Appeal was inclined with the view that as the proper characterisation of the issue before it is a question of transfer of title to a chose in action, the appropriate connecting factor would inevitably be the lex situs. Nonetheless, the Court of Appeal also recognised that there was an alternative connective factor - that of the proper of law of the debt (Maler at [90]). However, the Court of Appeal was disinclined to affirmatively decide upon the issue on the basis that both connecting factors would point towards the same governing law, viz. the law of Switzerland (Maler at [92]).

    To that end, the Court of Appeal found that on an application of Swiss law, the Chinn Assignment did not have the effect of transferring any proprietary right in the Swiss Deposits to the Human Rights Victims (Maler at [95]). Accordingly, the Human Rights Victims’ claim to the Funds was dismissed.

    Observations

    If one were to strictly adhere to the established common law rules on the recognition of foreign judgments, the eventual result which the Court of Appeal arrived at was not a surprising one. It was undisputed that the Funds – at the time of the Forfeiture Judgment – were not in the Philippines. As the situs of the Funds was Singapore, there is no legal platform upon which the Court could confer legal validity on the Forfeiture Judgment under the common law.

    Nonetheless, the Court of Appeal did note that the learned trial judge had alluded to a possibility that recognition of judgments in rem may be extended to cases where the foreign court had “constructive custody” of the subject matter of the judgment (Maler at [67]). Something more may have been said about the fact that the location of the Funds was the engineered result of the combined efforts of the Republic and the Swiss authorities – that for all intents and purposes the Republic had control over the Funds regardless of its location. Bearing in mind the unique factual matrix that was before the Courts, the opportunity was ripe for a movement in the common law. As it is, it remains firmly the position that no foreign judgment in rem has any legal effect in Singapore where the subject-matter for which the judgment is given is not located within the jurisdiction of the foreign court.

    Similarly in respect of the Court of Appeal’s treatment of the Chinn Assignment, the Court of Appeal did not venture to affirmatively conclude as to what the relevant connecting factor is when the proprietary effect of a judicial assignment of a contractual chose in action in the form of a debt is in issue (Maler at [92]). The Court of Appeal satisfied itself that whether it was the proper law of the debt or the lex situs, it would have arrived at the same conclusion. However, it bears highlighting that having characterised the issue before it as one that involved the transfer of title to a chose in action, the Court of Appeal did indicate that it was more in favour of the latter (i.e. the lex situs) (Maler at [89]).

    While to a certain extent the decision in Maler may be significant in what the Court of Appeal chose not to decide, Maler provides and remains an exemplary example of how legal questions involving a foreign law element within the established framework and common law methodology.

    Note: The Foundations’ and the Philippine National Banks’ claims in respect of the Swiss Deposits were also some of the issues to be determined by the Court of Appeal but is not part of this commentary’s consideration.

    * This blog entry may be cited as: Justin Chan, "Conflict of Laws Issues: The Republic of the Philippines v Maler Foundation [2013] SGCA 66" Singapore Law Blog (25 May 2014) (http://www.singaporelawblog.sg/blog/article/29)

    ** A PDF version of this entry may be downloaded here

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