THE IMPORTANCE OF THE RULE OF LAW TO INTERNATIONAL BUSINESS

This morning, I am honoured by the invitation of IBA to address this gathering of

lawyers from all over the world who, from Monday of this week, are engaged in
deliberating on various legal issues, including developments in the legal profession.

What I propose to do this morning is to share with you some of my thoughts on

the relationship between the rule of law and economic development, with particular
reference to the experience of Singapore. At the outset, what I can confidently state is
that where economic opportunities and political stability exist, a legal system that has a
high respect for the rule of law draws foreign investment and international business.
We believe that the economic development of Singapore exemplifies that statement.
Singapores attractiveness as a top business destination for investment and locating
major operations, is affirmed by various international surveys. Those surveys have
also given Singapore high ratings for its efficiency, rule of law and lack of corruption.

In the words of Nobel laureate Professor Douglass C North, long-term

economic growth entails the development of the rule of law. More recently, Mr Francis
Neate, immediate past president of IBA observed that the rule of law increasingly has
a new and eminently powerful advocate in big business, which is realising that in a
country without it, doing deals can be very difficult indeed.

The political leadership of Singapore has always placed great emphasis on the

rule of law and also appreciated the necessity to nurture and protect it as a condition
precedent to continued economic growth and the flow of foreign investments into the

country. In this regard, the following words of Minister Mentor Lee Kuan Yew uttered
more than a decade ago, are apposite:

Our reputation for the rule of law has been and is a valuable economic asset, part of
our capital, although an intangible one. It has brought to Singapore good returns from
the MNCs, the OHQs, the banks, the financial institutions, and the flood of capital to
buy up properties in Singapore. A country that has no rule of law, where the
government acts capriciously is not a country wealthy men from other countries would
sink money in real estate.

Singapores reputation for a sound government rooted in the rule of law did not

come about overnight. It was the result of determined efforts. We took long-term
measures to build up and enforce the rule of law, The enactment in 1960 of the
Prevention of Corruption Act was a prime example. Since then, this Act has been
updated on various occasions to plug gaps and vigourously enforced. In 1999, the
Courts were empowered to confiscate the ill-gotten benefits derived from corruption
and other serious crimes through the Corruption, Drug Trafficking and Other Serious
Crimes (Confiscation of Benefits) Act (Cap 65A). This same Act also introduced
extensive legislative powers to combat the global evils of money laundering.

What then are the characteristics of the rule of law?

According to the

Declaration of the G8 Foreign Ministers on the Rule of Law, the rule of law is
characterized by the principles of supremacy of the law, equality before the law,
accountability to the law, legal certainty, procedural and legal transparency, equal and
open access to justice for all, irrespective of gender, race, religion, age, class, creed or
other status, avoidance of arbitrary application of the law and eradication of corruption.

I should, however, hasten to add that the existence of the rule of law will not per

se enable a country to achieve economic prosperity. The existence of rule of law is

only one of the prerequisites, although an essential prerequisite, to creating an
environment that supports economic growth and draws foreign investments. The law is
a necessary foundation for the promotion of business because the legal rules of a
country create the marketplace. The establishment and implementation of a fair and
predictable set of legal rules is vital to business formation as well as the acquisition
and protection of property rights.

Pro-business laws and regulatory framework

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From the days of internal self-government in 1959, i.e., even before Singapore

attained independence, it has always been the policy of the Singapore government to
create the proper environment for businesses to flourish. It does this by regulating
business behaviour in a way that protects the public interest without unnecessarily
stifling innovation and entrepreneurship. Added to this was the realization that
regulatory laws should be business-friendly, simple and facilitative. Guided by these
cardinal principles, Singapore had enacted a corpus of laws to stimulate business
activities and encourage foreign manufacturers to locate their factories in Singapore
during the early stages of our economic development. Besides the Prevention of
Corruption Act, some of the early laws enacted in this regard were, the Economic
Expansion Incentives (Relief from Income Tax) Act, the Companies Act, the Securities
Industry Act, and the Business Registration Act. The Trade Unions Act and the
Industrial Relations Act were also amended to assure businesses of an environment
that would not be disruptive to the conduct of business.

Singapores policy is such that, even up to today, we continue to enact laws that

are deemed necessary to promote business as well as update the existing laws to
make them even more investor-friendly. Currently, among others, Singapores
economic development focus is on the services sector. Accordingly, appropriate
legislation facilitating trade in services has been enacted. For example, to facilitate the
development of Islamic banking in Singapore, amendments to the Banking
Regulations were made to allow all banks in Singapore to offer an important and
common form of Islamic banking known as Murabaha. The Murabaha form of
financing requires the bank to purchase goods on behalf of a customer and to sell the
goods to the customer at a mark-up. The Banking Regulations had to be amended to
allow this form of financing as otherwise banks in Singapore are precluded from
engaging in non-financial activities. Today, Islamic banking is very much a part of the
financial landscape in Singapore.

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Like Islamic banking, Singapore has also established business-friendly

regulatory frameworks in other areas in order to spur investments in those areas.

Broadcasting is one such area.

Another is telecommunications and the Internet,

where the Governments light touch regulatory framework has led to rapid
development in that area.

Adoption of standardized commercial and trade laws

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world.

I now turn to the question of uniform laws. We are now living in a globalised
The existence of standardized and harmonized commercial laws provides

certainty and predictability for international business. Thus, the work of the World
Trade Organisation (WTO), the United Nations Commission on International Trade
Law (UNCITRAL), the International Institute for the Unification of Private Law
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(UNIDROIT) and the Hague Conference on Private International Law cannot be overemphasized.

They are important in developing uniform rules for the international

marketplace. Singapore has always been actively engaged in the work of the WTO
and UNCITRAL. Singapore also participates, from time to time, as an observer in the
work of the UNIDROIT and the Hague Conference on Private International Law.

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Given the economic advantages flowing from the adoption of standardized

trade laws which have gained worldwide acceptance, Singapore has implemented the
United Nations Convention on Contracts for the International Sale of Goods, the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the
New York Convention), the UNCITRAL Model Law on International Commercial
Arbitration and the UNCITRAL Model Law on Electronic Commerce. Singapore has
also signed the United Nations Convention on the Use of Electronic Communications
in International Contracts.

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Countries desiring to have a share of international business must be prepared

to adopt conventions and model laws that the major trading nations have already
implemented as part of their law. The adoption of such uniform law can create an
enabling environment to facilitate international trade and investment. At this juncture, I
should also mention that to demonstrate Singapores commitment towards protecting
foreign investments, Singapore has concluded some 30 Investment Guarantee
Agreements.

Moreover, we have also concluded some 13 bilateral Free Trade

Agreements (FTAs). Quite a handful of FTAs are still being negotiated. This is
another way in which Singapore operates to promote foreign investment generally.

Rule of law mindsets for public administrators

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To inculcate and foster a culture of respect for the rule of law in the regulatory

environment, public administrators in Singapore are sensitized to the legal principles

that apply in administrative decision-making. In this connection, the Attorney-Generals
Chambers play a vital role by acquainting public administrators in Singapore with the
relevant principles associated with the rule of law. My Chambers have taken on this
role for more than a decade and this has indeed resulted in a keen awareness on the
part of public administrators in Singapore that they are to act within the limits of their
statutory powers.

Such mindset allows for efficient and fair implementation of public

policies without stultifying the conduct of business.

Independent and Impartial judiciary

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Having an effective legal framework alone is insufficient for the rule of law. The

key to making the rule of law a living reality and not simply empty rhetoric is access to
justice through an independent and impartial judicial system. The "rule of law" rings
hollow unless the courts have the capacity and autonomy to enforce it. This is
particularly important from the point of view of foreign investors wishing to have the
security that the courts will impartially enforce "the law" rather than protect the
interests of the State, or the domestic party, in any dispute.

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An equally important aspect of justice is that the Judiciary should dispose of

cases before it expeditiously. The phenomenon of backlog of cases still prevails in

many countries around the world.

Unless cases are heard and judgments are

delivered expeditiously, and the appeal process is just as efficient, justice may well be
compromised. As the saying goes: justice delayed is justice denied. I am happy to
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say that our Judiciary has successfully eradicated the problem of backlog of cases
more than a decade ago.

Confidentiality between lawyers and clients

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It has been said that an integral aspect of the rule of law for international

business is the legal systems protection for confidentiality of communications between

lawyers and their clients. In this regard, the recent decision of the Singapore Court of
Appeal in Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific
Breweries (Singapore) Pte Ltd goes a long way towards assuring international
investors that Singapore courts jealously guard the confidentiality of communications
between lawyers and their clients. In this case, the Court of Appeal held that draft
reports jointly prepared by the clients legal advisers and accountants were protected
by legal advice privilege and/or litigation privilege. In ruling thus, the Court of Appeal
refused to adopt a narrow meaning of a client for the purposes of legal advice
privilege and distinguished the English case of Three Rivers District Council v
Governor and Company of the Bank of England (No 5). Some of you may be aware of
The Three Rivers No 5 case where the English Court of Appeal held that legal
privilege attached to only those communications between the unit set up to deal with
all matters relating to the inquiry in that case and the banks solicitors.

Availability and strength of ADR processes

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It is also Singapores experience that the availability of alternative dispute

resolution (ADR) processes in the country hosting the investment is viewed positively
by international investors. Some foreign investors feel unease if the only means of
resolving the differences arising between them and nationals of the country of
investment or between them and the national government is through the courts of the
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country hosting the investment even if those courts are known to be independent,
impartial and efficient. Hence ADR processes give to foreign investors an additional
measure of confidence that domestic or local interests will not be preferred over theirs,
especially where the disputes involve foreign investors and domestic entities.

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ADR is very much a part of the Singapore legal system and arbitration and

mediation are the two forms of ADR which are commonly resorted to. Arbitration is
particularly suited when the dispute resolution requires special skills or expertise.
Arbitration also has the advantage of being confidential. Each year, many arbitrations
are conducted in Singapore.

Most of them are held under the auspices of the

Singapore International Arbitration Centre (SIAC). Last year some 80 arbitrations were
conducted under the umbrella of SIAC. Other arbitrations are carried out on an ad hoc
basis. What is important to note is that Singapore has spared no efforts to making
itself an arbitration centre; from enacting legislation to safeguard the autonomy of the
arbitral process to providing tax incentives for foreign arbitrators who conduct
arbitration in Singapore.

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Mediation through the Singapore Mediation Centre (SMC) was launched in

1997. The SMC is a non-profit organisation guaranteed by the Singapore Academy of

Law and receives the support of the Singapore courts. The SMC has successfully
spearheaded the mediation movement in Singapore and is dedicated to the promotion
of amicable and efficient settlement of disputes. It aims to create an environment in
which people can work together to find enduring solutions to conflicts and tensions
created by human interactions.

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As Singapores experience with the rule of law shows, it takes time,

commitment and political will for the rule of law to become a living reality and not just
empty rhetoric to which only lip-service is paid. The development and entrenchment of
the rule of law in Singapore has brought economic gains and foreign investments. The
rule of law is as important to Singapore today as it was more than 180 years ago when
Singapore was a trading post of the East India Company.

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Recently, the IBAs former president referred to the rule of law as a rare and

precious commodity. I applaud the IBA on having for its agenda the promotion and
preservation of this precious commodity [rule of law] worldwide. As the Foreign
Ministers of the G8 noted in their Declaration on the Rule of Law, the advancement of
the rule of law is indispensable for any country that desires to achieve social and
economic progress in a globalizing world. Let me conclude this address with an
observation by Brian Z Tamanaha in his book On the Rule of Law, History, Politics,
Theory who said that there is widespread agreement that the rule of law is good for
everyone. I only wish to add to that observation by saying that the rule of law is also
good for international business.

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On that note, I wish all of you a fruitful time of discussions, deliberations and

networking in the remaining days ahead. Thank you for your kind attention.

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