June 30, 2021

Mai Chen: The Supreme Court, Confucianism and Western values and the impact on the law

Published by the New Zealand Law Society on 25 June 2021

 

The Supreme Court recently granted leave to appeal the Court of Appeal’s decision in Zheng v Deng (Donglin Deng v Lu Zheng [2021] NZSC 43 [14 May 2021] (“Deng v Zheng (SC)”), granting leave to appeal against Zheng v Deng [2020] NZCA 614 (“Zheng v Deng (CA)”). The Supreme Court stated that the appeal raises potential issues about the interpretation of documents translated from Mandarin and the cultural setting in an arrangement between two Chinese parties whose business relationship appears to have been conducted in Mandarin (Deng v Zheng (SC) at [1]).

The approved question is whether the Court of Appeal was correct to make a declaration that there was a partnership between the parties in which they were equal partners and to make orders that were consequential on that finding (Deng v Zheng (SC) at 1). The Court of Appeal had acknowledged that:

“language is used in a broader linguistic and cultural setting, by reference to background assumptions about personal and business relationships and the ways in which dealings are normally structured, that the parties will have shared but that the Court may not be aware of or understand” (Zheng v Deng (CA) at [88] [emphasis added]).

The Court of Appeal was conscious of the need to be:

“sensitive to the importance of social and cultural context and, in particular, to be cautious about drawing inferences based on our preconceptions about ‘normal’ or ‘appropriate’ ways of structuring and recording business dealings” (Zheng v Deng (CA) at [89]).

The Supreme Court said it may be necessary to explore these issues in order to resolve the appeal, and invited the New Zealand Law Society to consider intervening in the appeal after consultation with NZ Asian Lawyers (Deng v Zheng (SC) at [2]).

The Supreme Court’s move is emblematic of the growing awareness that in an increasingly culturally and linguistically diverse New Zealand an understanding of the intersection between law and culture is essential for judges and practitioners (see Mai Chen “Latest cases on CALD parties in litigation and lessons from the Court of Appeal in Zheng” (April 2021) Employment Law Bulletin).

It is therefore timely to share reflections on Confucianism and Western values and the impact on the law by Professor Mindy Chen, who recently presented at the New Zealand Asian Leaders’ Virtual Speaker Series 2021. Professor Chen-Wishart is the Dean of Law at Oxford University and an expert in contract, unjust enrichment and comparative contract law, and is leading a six-book project on the contract laws of Asian jurisdictions.

Professor Chen-Wishart identified the common “law on the books” but divergent “law in action”, in undue influence cases decided in England and Singapore (see also Mindy Chen­Wishart (2013), Legal Transplant and Undue Influence: Lost in Translation or a Working Misunderstanding? International and Comparative Law Quarterly). She outlined three key differences between Confucianism and Western values that may contribute to our understanding of the divergence in application.

Undue Influence cases

The exemplar cases cited by Professor Chen-Wishart relate to the scenario where a primary debtor who is in financial trouble (“the debtor”) gets a family member (“the guarantor”) to guarantee a loan from the bank (“the lender”). When the debtor defaults on the loan, can the lender enforce the guarantee where it is tainted by the debtor’s undue influence?

According to “clear, simple and practically operable” requirements laid down by the House of Lords in Royal Bank of Scotland v Etridge (“Etridge”) [2001] UKHL 44, [2002] AC 773, a guarantee is unenforceable if:

  • some vitiating factor affects the dealing between the guarantor and debtor, most commonly undue influence;
  • the lender knows that the guarantor is not acting commercially (i.e. for consideration) and knows that the transaction is for the benefit of the debtor or his or her company; and
  • the lender has not taken reasonable steps to ensure that the guarantor was properly advised.

In usual situations without any special features (such as evidence that the lender knows of point 1 above, or the heightened risk of point 1), the lender is protected if it ensures that a legal advisor certifies that the guarantor understands what he or she is doing.

There are two categories of undue influence developed in Allcard v Skinner (1887) LR 36 Ch D 145:

  • Where the guarantor can prove that the debtor’s positive application of pressure induced his or her consent to the contract.
  • Where undue influence is presumed from the guarantor’s proof that he or she was in “relationship of trust and confidence” with the debtor and the resulting transaction is manifestly disadvantageous to the guarantor. It is then up to the debtor to rebut the presumption by proof that the guarantor nevertheless entered the transaction freely (usually by evidence of the presence of independent advice).

All of this has been accepted as the law of Singapore, yet a comparison of the reasoning and outcomes of English and Singaporean cases reveals a stark practical divergence.

Exemplar English cases:

  • In Allcard v Skinner, the claimant, a young woman, took a vow of poverty, chastity and obedience and eventually joined a convent as a full member. The rules of the convent forbade the nuns from seeking outside advice without the permission of the Mother Superior and imposed the most absolute submission by the nuns to the Mother Superior who was to be regarded as the ‘voice of God’. The claimant gave her very substantial inheritance to the Mother Superior. Years later, she decided to leave the order and sought the return of what was left of her transfer. The court found presumed undue influence from the relationship of influence and the “transaction calling for an explanation”, which the Mother Superior could not rebut because the nun had not received independent advice before the transfer.
  • In Bank of Scotland v Bennett [2001] UKHL 4, the husband used wounding and insulting language to accuse his wife of disloyalty in contrast to the loyalty of his relatives. He said she would be a “waste of rations” if she did not guarantee his business debt and would be splitting up the family. The judge found actual undue influence in the “moral blackmail amounting to coercion and victimisation” (Etridge at [312]).
  • In Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 953, actual undue influence was found in circumstances where the parties were Iraqi Jews and observed customs according to which business was the husband’s exclusive province; and the wife was confined to the domestic sphere and expected to obey her husband without question.

In contrast are these Singaporean cases:

  • In Overseas-Chinese Banking Corp Ltd v Chng Sock Lee [2001] 4 SLR 370, the father/husband, a property developer, obtained the guarantee of his wife and 23-year-old son for the liabilities of the company he ran, amounting to some S$5.5 million. The court found the father to be a man of “ungovernable temper” and “exceptional harshness”, who was occasionally violent to his wife and verbally abusive to his son. The father “had firmly told [his wife and son] to sign the guarantee without asking too many questions”. Nevertheless, the court found no undue influence because:
    1. the father meant the best for family;
    2. the wife and son were the formal owners of the company;
    3. they knew what they were doing;
    4. the lender did need not advise the wife and son to obtain independent advice because the lender “did not witness any pressure”; “the transaction had no unusual features”; and there was no “manifest disadvantage”.
  • In Bank of East Asia v Mody Sonal M [2004] 4 SLR 113, the daughter signed the guarantee after her father became very angry and told her that, if she did not, “she would be responsible for the loss of everything he had worked for, and it would be her fault”. The court found no undue influence because:
    1. “the father did not appear to be the imperious head of household that he was made out to be. Indeed, . . . he appeared to be more a lamb than a lion”; in any case, it would “be an exaggeration to castigate the father’s conduct as undue influence” because “There must be … some unfair or improper conduct, some coercion or some form of misleading”;
    2. the daughter was a shareholder and so stood to benefit;
    3. the daughter knew what she was doing, she had an MBA from the US and was “no babe in the woods”;
    4. the bank was not “put on inquiry” and need not have taken steps to satisfy itself that the guarantee was properly obtained since the daughter was a shareholder.
  • In Standard Chartered Bank v Uniden Systems(S) Pte Ltd [2003] 2 SLR 385, the guarantee was enforced against the wife because:
    1. she was a director of the company and the husband’s business was the source of the family income – it was in her interest to give the guarantee;
    2. the wife had a university degree and knew she was signing a guarantee; even if she had known that it exposed her to unlimited liability (she did not), she would still have agreed because “she willingly accepted [her husband] Tan’s dominance of her, trusted Tan and had complete faith in him, and did not think that Tan would put her in a risky position”; and
    3. there was nothing out of the ordinary in the couple’s relationship to warrant the Bank conducting further investigations before the signing of the guarantee; “the Bank’s representatives did not perceive any intimidation or overbearing or bullying conduct”.

The cases demonstrate that Singaporean courts are very reluctant to find undue influence in the family business context:

  • Singaporean courts insist on a wrongdoing, requiring proof of bad conduct and bad faith. In English law, neither is necessary.
  • Singapore law says there is no undue influence if the complainant knows what they are doing. English law recognises that undue influence is not about knowing what you are doing.
  • Singaporean law says there is no undue influence if the complainant is a shareholder / director. English law recognises that these factors are inconclusive; they may be purely “on paper” for tax purposes, and the complainant may not even know about it.

So, what accounts for the difference in approach? Professor Chen-Wishart outlined three key and overlapping differences between Confucianism and Western values that may help to explain why the doctrine of undue influence manifests as it does in Singapore.

 

Three key differences

Professor Chen-Wishart explained that Confucianism is an integral part of Chinese culture and social organisation and synonymous with Chinese civilisation – “it’s part of the DNA”. Confucianism is a guide to proper behaviour – but more than that, it is all embracing, being built into the heritage of language, ritual and tradition. Some aspects like ancestor worship, and the strong preference for sons is declining. Some aspects of Confucianism are remarkably persistent, chiefly the core value of filial piety / submission.

Equality v hierarchy

In the West, social order and harmony is achieved by a system of rights that can be agreed by equals, and this is protected by law.

In the East, social order is achieved by observing a very comprehensive code of conduct based on a rigid hierarchy according to generational sequence, gender and age. Where you are in the hierarchy (and what this requires) is expressed in an elaborate terminology of titles.

The core relationship is between father and son – fathers having almost absolute power over the child. The father-son relationship is generalised into all other relationships in the family, the community, country and universe. Violations are seen as ethically or morally evil.

Persons v roles

The West places primary importance on the person and his or her uniqueness. The person is the subject of its most significant ideas – such as freedom, salvation, reason, contract, and love.

Meanwhile, Confucianism puts primary importance on conformity to roles. Ritualised conduct is given an aesthetic dimension in the cultivation of the good life.

This reduces the importance and legitimacy of individual differences, and individual choice. The concept of an individual right is alien in the Chinese tradition.

In the West, love is the prescribed emotion between family members. However, in Chinese societies it is respect, which requires no personal involvement. Submission in the latter analysis is not to persons, but to a pattern of personal relationships that is held to have ultimate validity.

Individualism v collectivism

In the West, emphasis is on the moral worth and rights of the individual. Key concepts are freedom and autonomy.

Confucianism emphasises kinship relationships, and mutual dependence. Maintaining collective security and wellbeing is prioritised over individual interests. The individual is seen as insignificant without the family and the wider community. So the family, not the individual, is the basic unit of society.

This collectivism expresses itself in a call for self-sacrifice, self-restraint, self-effacement and the avoidance of conflict. Transgressions dishonour the whole family. The imperative to conform makes shame the effective control technique, rather than guilt, a more personal and Western concept.

These differences may explain how the equitable doctrine of undue influence has developed differently in England and Singapore. The Western worldview sees the parties as individuals rather than as part of the collective, and regards unquestioning obedience, trust and self-sacrifice not as virtues, but as conditions that may demand equity’s protection. In contrast, finding undue influence in the family business context in Singapore runs against the informal legal order. It amounts to saying that a father does something wrong in getting his wife or children to support the family business. It impliedly supports patriarchal ‘loss of face’ by countenancing the disobedience of his wife or child. It would support conduct which is shameful and disgraceful.

The value of understanding cultural context

The issue is not which is better – East or West. Rather it is the importance of understanding the underlying assumptions of different cultures and legal systems, and the impact it may have on what the judge expects to see, how they interpret what certain behaviours mean about intention and the credibility of witnesses.

Both East and West recognise and value different aspects of an ethical flourishing life: the good of belonging to the community and social responsibility (East), versus respect for the individual (West). Both East and West hold their dangers: failing to protect the individual’s interests against the community’s demands (East), versus an excessively ‘atomistic’ or ‘individualistic’ conception of human beings and ignoring their social nature (West).

To understand culture, and thus its impact on law, we have to step outside our own world and enter the world of the other. Even if we recognise differences, we may not be able to appreciate their appeal, share their beliefs, or place the same importance on them relative to other values that we hold. But, says Professor Chen-Wishart, we should try.

 

Author: Mai Chen, Managing Partner of Chen Palmer, Chair of the Superdiversity Institute for Law, Policy and Business (which includes NZ Asian Lawyers) |

Top