Conflict Of Law_ Proper Law Of Contract

INTRODUCTION Conflict of laws is a body of rules whose purpose is to assist an English court in deciding a case which contains a foreign element. Conflict of Laws which is also referred to as Private International Law consists of three main topics, viz: I.

The jurisdiction of a court, in the sense of its competence to hear and determine cases

II.

The selection of the appropriate rules of a system of law, local or foreign, which it would apply in deciding a case over which it has jurisdiction (the rules governing this selection are known as ‘choice of law’ rules; and

III.

The recognition and enforcement of foreign judgements rendered by foreign courts or awards of foreign arbitrators.1 Issues that may evoke conflict of laws are varied, of interest to us in this discuss is contract- and from the focal point of the proper law of contract. Sagay defines contract as “an agreement which the law will enforce or recognise as

affecting the legal rights and duties of the parties”2. The idea of contract essentially adopted by the Nigerian Courts from England has its history in the Common Law. The design at common law was aptly expressed by Jessel MR in Printing and Numerical Registering Co v Sampson3, when he observed: “... if there is one thing more than another which public policy requires, it is that men of full age and competent understanding shall have the utmost liberty in contracting, and that their contracts, when entered into freely and voluntarily, shall be held sacred and shall be enforced by Courts of Justice.” The key essentials of contract include: offer, acceptance and exchange of consideration. In contracting, parties are free to draw up terms and conditions, and except in exceptional cases, the courts are bound to interpret and apply the wills of the parties as expressed in terms of the contract should the court be invited to intervene in issues that may arise. With respect to contracts involving international parties or element, one of such elements which the parties

1

Collier J.G. 2001. Conflict of Laws. Oxford, 3rd edition. UK: Cambridge University Press. 3 Nigerian Law of Contract, 2nd Ed., p 1 3 (1875)LR 19 Eq 462, p.465 2

ought to include in the terms of their contract is the specific laws that will govern the contract should issues arise. This is so because in a conflict of laws situation, once a court has ascertained its competence as to jurisdiction, it proceeds to determine the law governing the dispute, and where parties already made provisions for the laws that will govern their contract, the court’s duty is made easier and keeping to the intent of the parties is almost guaranteed. Where a contract containing one or more foreign elements is the subject matter of proceedings before a court and the parties have not stated the system of laws that will govern the contract, the complicated question of ascertaining the proper/applicable law arises. Such difficulty stems from the multiplicity and diversity of connecting factors which can be raised from the facts of the case. For instance, each of the following factors may have arisen in a different jurisdiction; the place where the contract was made; the place of performance; the place of business of the parties; the place of payments; the domicile or nationality of the parties; and so on. Consequently, the problem as to which of these connecting factors should be deemed the decisive one with respect to the subject matter of the case becomes an issue for determination. Basically, the weight attached to each of them will depend greatly on the type of contract in question. For example, contract of sale, carriage of goods by sea, contracts of employment, agency or insurance, etc. And on the nature of dispute, for example, validity, illegality, non-performance, or capacity, etc. In the conflict of laws, the validity of a contract with one or more foreign law elements will be decided by reference to the so-called “proper law” of the contract.

HISTORY Until the middle of the 19th century, the courts applied the lex loci contractus or the law of the place where the contract was made, to decide whether the give contact was valid. The apparent advantage of this approach was that the rule was easy to apply with certain and predictable outcomes. Unfortunately, it was also open to abuse, e.g. the place could be selected fraudulently to validate an otherwise invalid contract; it might lead to application of laws with no real connection with the transaction itself, say, because the parties signed the

agreement while on a holiday; or it might have been difficult to decide where the contract was made, e.g. because it was negotiated and signed on a railway journey through several states. To avoid these difficulties, some courts proposed applying the lex loci solutionis or the law of the place of performance of the contract. This produced difficulties in cases where the contract required each party to perform its obligations in a different country, or where the place of performance was dictated by later circumstances. These shortcomings probably informed Lord Wright’s position in Mount Albert Borough Council v Australasian Temperance and General Assurance Society4 that: “English law in deciding these matters, has refused to treat as conclusive rigid or arbitrary criteria such as lex loci celebrationis or lex loci solutionis and has treated the matter as depending on the intention of the parties to be ascertained in each case as a consideration of the terms of the contract, the situation of the parties and generally on all the surrounding facts” However, as the public policies driven by the theory of freedom of contract evolved, the Doctrine of Proper Law emerged.

PROPER LAW OF CONTRACT Proper law simply refers to the substantive law applicable where conflict of laws occurs, or which determine under which jurisdiction or system of law a case should be heard. For example, in international sale of goods agreements, the law of the seller’s country is normally the proper law in case of a dispute with a foreign buyer. Proper Law of the Contract is the main system of law applied to decide the validity of most aspects to the contract including its formation, validity, interpretation, and performance. This does not deny the power of the parties to agree that different aspects of the contract shall be governed by different systems of law. But in the absence of such express terms, the court will not divide the proper law unless there are unusually compelling circumstances. And note the

4

(1938) AC 224,p 240

general rule of the lex fori which applies the provision of the proper law as it is when the contract is to be performed and not as it is when the contract was made. Per Lord Wright in Mount Albert Borough Council v. Australian Temperance Estate Society5 had this to say: “The proper law of the contract means that law which the English court is to apply in determining the obligations under the contract. English law in deciding these matters has refused to treat as conclusive, rigid or arbitrary criteria such as lex loci contractus or lex loci solutionis and has treated the matter as depending on the institution of parties to be ascertained in each case on a consideration of the terms of the contract, the situation of the parties, and generally on all the surrounding facts” The parties to a contract are bound to do what they have promised. So, to be consistent, the Doctrine of Proper Law examines the parties’ intention as to which law is to govern the contract. The claimed advantage of this approach is that it satisfies more abstract consideration of justice if the parties are bound by the law they have chosen. But it raises the question of whether the test is to be subjective, i.e. the law actually intended by the parties, or objective i.e. the law will impute the intention which reasonable men in their position would probably have had. It cannot safely be assumed that the parties did actually consider which of the several possible laws might be applied when they were negotiating the contract. Hence, although the courts would prefer the subjective approach because this gives effect to the parties’ own wishes, the objective test has gained in importance.

THE THEORIES There are two competing theories upon which the proper law of a contract is chosen by the English courts. They are; 1. The “most real connection” theory of Westlake and; 2. The “intention” theory of Dicey 5

supra

Westlake expressed his opinion in these words6: “In these circumstance it may be said that the law by which to determine the intrinsic validity and effects of a contact will be selected in England on substantial considerations, the preference being given to the country with which the transaction has the most real connection, and not to the law of the place of the contract as such” Despite the generality admitted to this statement, when taken in its context it does little more than express in favour of the lex loci solutionis an exception from the general rule of governing intrinsic validity by the lex loci contractus. In reaching his conclusion, Westlake was accurately rationalising English decisions since 1600, under which the law had developed from the strict application of English law in English courts in the rigid forms of procedure to the factual position in Robinson v, Bland7, in which Lord Mansfield had given a subjective interpretation to an objective connection: “The general rule established ex comitae, and Jure Gentium is, that the Place where the Contract is made and not where Action is brought, is to be considered, in expounding and enforcing the Contract. But this Rule admits of an exception, where the parties (at the time of making the contract) had a view to a different kingdom.”8 In this sense Westlake’s theory of “the most real connection” save on the single ground, on which had not arisen in any case while he was writing, of a express choice by parties of a law unconnected with the realities of the contract. Dicey’s theory of the proper law, usually contrasted with that of Westlake, emphasises the intention of parties rather than the points of real connection of the contract with the territory of the proper law. His expression of the principle runs as follows: “the term “proper law of a contract”, means the law or laws by which the parties intended to, or may fairly be presumed to have intended, the contract to be governed : or (in other words) the law or laws to which the parties intended or may fairly be presumed to have intended to submit themselves.”9

6

Private International Law, 7th ed., 1925, p. 302. (1760) 2 Burr. 1077; 1 W,Bl 234 at p. 256 8 1 W.Bl. 234, 257 at pp.258-259. 9 Dicey, op, cit., 9th ed., Rule 148 7

That this alleged diverse of views between the objective theory of Westlake and the subjective view of Dicey is less marked than has sometimes been supposed is apparent from the qualifications in favour of objective ascertainment of the proper law which Dicey expressed as operating in absence of a direct or indirect choice of proper law by the parties10 Both the subjective (intention of the parties) and the objective (factors of real connection) views of the proper law have been employed by the courts. How alive this difference of views remains may be judged by the comparison of the judgements of two members of the Court of Appeal in Whitworth Street Estates (Manchester) Ltd. V. James Miller & Partners Ltd11. In that case Lord Denning M.R. expressed the test of the proper law as “what is the system of law with which the transaction has the closest and most real connection”. Widgery L.J explained “the proper law of the contract is the law which the parties intend should govern its operation”. Most of the nineteenth century cases contained frequent references to the intention of the parties, but identified the proper law with that of one of the countries to which some aspect of the contract relates. It would seem that the objective and subjective views coincide in the results of these decisions. A closer examination of the court’s decision in Amin Rasheed’s Case12 will show that the approach for determining a proper law of contract could be subjective or objective. In that case, P, a Liberian resident in Dubai, insured a ship with D, the Kuwait Insurance Company. When a claim made by P under this policy was rejected by D, P sought an order to serve a writ on D under RSC 0.11 which could be granted, provided the contract ‘by its items, or by implication, (was) governed by English law.’ There was no express choice of English law, nor was it clear as to what was the implied law: both Kuwait law and English law, nor was it clear as to what was the implied law: both Kuwait law and English law had claims to being the proper law of the contract in the sense that while the insurance policy was issued in Kuwait and payment of claims was to be made in Kuwait; English language was used in the contract; Premiums to be made in Sterling and the contract was made in English form. However, the surrounding circumstances as well as the terms of the contract itself “point[ed] ineluctably to the conclusion that the intention of the parties was their mutual rights and obligations under ( the policy) should be determined in accordance with the English Law of marine insurance” as submitted by per Lord Diplock. A significant factor in reaching this 10

Op,cit.,5th ed.,pp.671-672 (1969) 1 W.L.R. 377 at pp. 380, 383 12 (1984) AC 50 HL 11

conclusion was that at the time of making the contract, Kuwait had no law of marine insurance.

THE SUBJECTIVE APPROACH This approach is consistent with the theory that contractual obligations were founded upon agreement and that the courts should recognise the intention of the parties as manifested by the terms of the contract. Lord Diplock’s captures the subjective approach in Amin Rasheed’s Case13 in his definition of the proper law of a contract when he described it as: ‘...the substantive law of the country which the parties have chosen as that by which their mutually legally enforceable rights are to be ascertained.’ He states further that with respect to a contract contained in an insurance policy: “English conflict rules accord to the parties to a contract a wide liberty to choose the law by which their contract is to be governed. So the first step is to examine the policy in order to see whether the parties have, by its express terms, or by necessary implication from the language used, evinced a common intention as to the system of law by reference to which their mutual rights and obligations under it are to be ascertained.” Thus, from the above, it appears that where the parties have expressly chosen the law to govern their agreement, or, at least, where the proper law can be inferred or implied, a subjective approach shall be adopted. Hence; 1. Where the Parties have Expressly Chosen a Law to Govern Their Agreement When the parties express a clear intention in a choice-of-law clause, there is a rebuttable presumption that this is the proper law because it reflects the parties’ freedom of contract and it produces certainty of outcome. It can only be rebutted when the choice of law is not bona fide, it produces illegality, or it breaches public policy. For example, the parties may have

13

supra

selected the particular law to evade the operation of otherwise mandatory provisions of the law which has the closest connection with the contract. In Vita Food Products Inc. v Unus Shipping Co. Ltd.14(1939)AC 227 PC, Lord Wright said that: “ provided that the intention expressed is bona fide and legal, and provided there is no reason for avoiding the choice on grounds of public policy, the intention of the parties as to the choice of law prevails” Thus, the parties are not free to put themselves above the law and, in such cases, it will be for the parties to prove that there is a valid reason for selecting that law other than evasion. In that case, by Newfoundland law, all bills of lading were required expressly to incorporate the Hagues Rules. A cargo of herrings was sent from Nova Scotia to New York. The bill of lading did not incorporate the local law but merely stated that the bill was to be governed by English law. Both the Rules and the bills of lading provided for exclusion clauses in favour of the ship owner. The ship and its cargo were damaged off Scotia. The consignees of the herrings brought an action against the ship owners. The Privy Council held that the action of the consignees failed by virtue of the exclusions under the Hague Rules, but by reason of the terms of the bill of lading. In dealing with the arguments that there were limits upon parties to select the governing law, Lord Wright began by noting that the proper law of the contract is ‘the law which the parties intended to apply.’ Even where the parties choice of law has no obvious connection with the contract, such evidence are bona fide and legal, provided that the choice was not made for the “specific purpose of avoiding the consequence of the illegality” in which case, the choice will never be bona fide nor legal. 2. Where the Parties have impliedly chosen the Proper Law. When the parties have not used expressed words, their intention may be inferred from the terms and nature of the contract, and from the general circumstances of the case. For example, a term granting the courts a particular state exclusive jurisdiction over the contract would imply the lex fori is to be the proper law.

14

(1939)AC 227 PC

This approach was adopted in Amin Rasheed Shipping Corp. V Kuwait Insurance Co.15 where the court applied English law to an insurance contract between a Liberian company and a Kuwait company because at the time of making the contract, Kuwait had no law of marine insurance. In Tzortsis v Monark Line16, the court applied English law as the proper law of contract because the parties included in the contract an arbitration clause subjecting the parties to arbitration in London. While in Compagnie Tunisienne de Navigation SA v Compagnie d’Armement Maritime SA17, a contract contained in a charter-party which had no connection with England other than an English arbitration clause (clause 18), provided (in clause 13) that it should be ‘governed by the law of the flag of the vessel carrying the goods’. It further provided (clause 28) that shipments were to be made in ‘tonnage owned or controlled or chartered by French ship-owners’ it seems therefore, that it was envisage that vessels flying the French flag should primarily be employed. In fact, the shipments were made in French, Norwegian, Swiss, Bulgarian and two Liberian ships. The majority of the House held that clauses 13 and 28 together sufficiently pointed to a choice of French law. It can be safely submitted that therefore that in resolving what the impliedly chosen power law is, the court will take into account ‘the rest of the contract and relevant surrounding facts’

The Objective Approach This is also known as “the closest and most real connection test”. In Amin Rasheed’s case, Lord Wilberforce captured the objective approach thus: in the absence of a choice of law; “...it is necessary to seek the system of law with which the contract has its closest and most real connection.” The objective approach in effect means, as per Lord Wright puts it in Mount Albert Borough Council v Australasian Assurance Society, “the court has to impute an intention or to determine for the parties the proper law which, as just and reasonable persons, they ought to or would have intended if they had thought about the question when they made the contract.”

15 16 17

supra A/B (1968)

In Tzorizis v Monark Line A/B18 Lord Denning M.R. remarked: “it is clear that, if there is an express clause in a contract providing what the proper law is to be, that is conclusive in the absence of some public policy to the contrary. But when there is no express clause, it is a matter of inference from the circumstances of the case”. In any event, the search will be not for the country but for the legal system, with which the contract has the closest links. In The Torni’s Case19: this was an action by English merchants in respect of short delivery of a cargo of fruit shipped from Palestine to England under bills of lading which contained the clause, “this bill of lading wherever signed is to be construed in accordance with English law”. The clause offended against the provisions of the Palestine Carriage of Goods by Sea Ordinance 1926, incorporating the Hague Rules. The court held that the parties could not exclude the operation of the Palestinian provision, the bill of lading having being made in Palestine for a shipment from that country. In this respect the proper law was connected with the place of making the contract. But in the sense that the contract was construed according to the rules of English law in its wider sense, effect was given to the expressed intention of the parties, though with a result different from their real intention.”20 In Bonython v Commonwealth of Australia

21

per Lord Simonds noted that the factors

which help the court determine the proper law of the contract are those with which the transaction had its ‘closest and most real connection’. In Rossano v Manufacturers’ Life Insurance Co.22, an Egyptian national in Egypt took out insurance policies with the local branch of a company having its head office in Ontario. McNair J. contrasted the country of closest connection (Egypt) with the legal system of closest connection (Ontario) in the sense of the system with reference to which the contracts were made. The Ontario Courts of Appeal and the Supreme Court of Canada reached a similar result in Colmenares v Imperial Life Assurance Co. of Canada23 though on lines of a search of the subjective proper law. In that case a domiciled Cuban had taken out a policy of life assurance in Cuba through the Cuban agent of a Canadian company having its head office in Ontario, and it was held that the law of Ontario should govern a question of legality of payment arising from the contract.

18

(1968) 1 W.L.R. 406 (1932) p. 78 20 Graveson, op. cit., pp.20-23 21 (1951) AC 201 22 (1963) 2 Q.B. 352 23 (1966) 54 D.L.R (2d) 386. (1967) 55 D.L.B (2d) 138 19

According to Lord Denning, the proper law of contract in this respect “is not dependent on the intention of the parties. They never thought about it. They had no intentions upon it. We have to study every circumstance connected with the contract and come to a conclusion”24 Coast Lines Ltd v Hudig and Veder Chartering25 The facts of The Assunzione26 provides a ready authority and example of this approach. In that case: an Italian vessel had been chartered by French ship owners for the carriage of wheat. The charter party was concluded in Paris, but written in both French and English. The bills of lading were written in French. Freight and demurrage were payable in Italian currency in Italy. The ship flew the Italian flag and the bills of lading were endorsed to consignees in Italy. In an action by the charterers against the ship owners for damage to the cargo, the Court of Appeal was required to determine whether French or Italian law was to be applied. The court found no particular to be decisive, but concluded that the payment of freight and demurrage in Italian titled the balance in favour of Italian law. Singleton L.J. expressed the principle thus: “one must look at all the circumstances and seek to find what just and reasonable persons ought to have intended if they had thought about the matter at the time when they made the contract”. It must be noted that the ‘closest and most real connection’ of the ‘transaction’ is then determined by a ‘system of law’ and not by ‘the country’ with which the contract is most closely connected if both are not the same. In Amin Rasheed Shipping Corporation v Kuwait Insurance Co. (supra) the contract had little connection with England, but was redolent by law. The majority of the Court of Appeal and Lord Wilberforce and selected English law as the system with which the contract was most closely and really connected. In arriving at its decisions, the courts use a list of factors, which include the following: 

The habitual residence/domicile/nationality of the parties



The parties’ main places of business and incorporation



The place nominated for any arbitration proceedings in the event of a dispute(the lex loci arbitri)



24

The language in which the contract documents is written

Coast Ltd v. Hudig and Veder Chatering NV (1972) 2 QB 34 NV(1972) 2 QB 34 26 (1954) P 150, CA 25



The formats of the documents, e.g. if a form is only found in one relevant country, this suggests that the parties intended the law of that country to be the proper law



The currency in which any payment is to be made



The flag of any ship involved



The place where the contract is made( which may not be obvious where negotiations were concluded by letter, fax or e-mail)



The place(s) where performance is to occur



Any pattern of dealing established in previous trans



actions involving the same parties; and



Where the insurance companies or relevant third parties are relevant

FACTORS OR INFERENCES INDICATING THE POPER LAW In Jacobs’s v Credit Lynnoias27, Bowen L.J affirmed the principle that the first duty of the court was to try to ascertain from the contract itself the intention of the parties, read by the light of the matter and the surrounding circumstances. Where the parties fail to express their choice of law to govern the contract, the court must try to develop the proper law for them. A century ago, judges in such circumstances were searching for the intentions of the parties on the basis of presumptions raised by the facts of their agreements. In more recent times the process has been expressed in traditional common law terms of reasonableness- what law would reasonable business men have chosen in the circumstances?- and the emphasis has moved to some extent away from particular presumption in favour of one law or another towards a general consideration of reasonableness on the basis of all the facts. The latest formulation in the absence of expression of intention by the parties is, with which system of law did the transaction have its closest and most real connection?28

27 28

(1884)12 Q.B.D. 589 Coast Lines Ltd v Hudig and Veder Chartering N.V. (1972) 2 Q.B.34

No judge has yet descended expressis verbis from Lord Atkin’s statement of the principles that should guide a court in the absence of an express choice of proper law by the parties. In R v International Trustee for the Property of Bondholders A.G.29 he said: “ in coming to kits conclusion the court will be guided by rules which indicate that particular facts or conditions lead to a prima facie inference, in some cases an almost conclusive inference, as to the intention of the parties to apply a particular law: e.g. the country where the contract is made, the country where the contract is to be performed, if the contract relates to immovable, the country where they are situate, the country under whose flag ship sails in which goods are contracted to be carried.” I.

The lex loci contractus: the traditional initial presumption based on the normal character of a contract containing no foreign element, is in favour of the law of the place where the contract is made. Originally, this presumption was a rule of law in many Continental systems, based on the Statutist maxim locus regit actum, but in England it had already been ceased, by the eighteenth century to be more than a presumption of intention. “The general rule”, affirmed Lord Mansfield in 176030, “established ex comitae et jure gentium, is that the place where the contract is made, and not where the action is brought, is to be considered in expounding and enforcing the contract. But this rule admits of an exception where the parties at the time of making the contract had a view to a different kingdom”. The strength of this presumption in favour of the lex actus was affirmed by the court of Appeal in Jacobs v Credit Lynnoias31 Two London merchant had contracted in London for the carriage of cargo of exparto from Algeria. In consequence of the outbreak of rebellion in Algeria certain deliveries could not be made. By French law in force there the rising constituted force majeure which would have been a defence to an action for non-delivery if French law applied to the contract. The court held that English law applied, and the defendants were liable in damages for non- delivery.

What is now reduced to an interference in favour of the lex loci contractus may be rebutted by other factual circumstances in the performance of the contract, as has been held in decisions both before the one of Bowen L.J., but the factor remains formidable, “the general 29

(1937) A.C. 500 at p.529 Robinson v. Bland (1760) 2 Burr. 1077 31 (1884) 12 Q.B.D 589. See also Lloyd v. Guibert (1865) L.R. 1 Q.B. 115 30

rule being that the law of the place where the contract is made prevails”. In the words of Stamp L.J., “the force to be attached to the place where the contract is made must...depend on the circumstances in which it came to be made in that place”32 II.

The lex loci solutionis: an even stronger factor than the inference in favour of the law of the place of contracting is that in favour of the law of performance. “if any single factor carries more weight in these matters than others” affirmed by Lord Wilberforce, “It is the lex loci solutionis, and this factor must be particularly important where the whole contract is so visibly localized in one place”33

Although, one school of historical thought developed the theory of governing contract by the law of the place of performance through treating that law as a fictitious law of the place of the making of the contract, each court achieved the same result without resorting to this fiction, and often determined the validity of a contract by the law of the place of performance where that law differed from the law of the lex loci contractus. e.g Chatenay v Brazilian Telegraph Co.34. Where the court is faced with a situation in which each party to a contract must perform his part under a different legal system, it should resolve the difficult by the application of the of the test of closest connection which may either involve a choice of one of the two laws of the place of performance or a rejection of both of them in favour of some other law, such as that of the case of contracting. The from and place of payment are aspects of the performance of a contract, which in the opinion of Singleton L.J., are “matters of very considerable importance”35 III.

The lex situs of immovables: where immovables are the subject matter of a contract, an inference exists that the proper law of the contract is the lex situs of the immovables. However, if the subject matter of the contract is not so much foreign land in itself as some service to be performed upon it, the inference in favour of the lex situs almost ceases to apply. In James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd36. The contract related to the work of making alterations to buildings in Scotland. It would have been legalistic to treat this as a contract relating to Scottish land. The subject matter of the contract was not immovables but services;

32

Sayers v. International Drilling Co.(1971) 1 W.L.R. 1176 at p. 1187 James Miller & Partners Ltd. V. Whitworth Street Estates (Manchester) Ltd (1970) A.C. 583 p.615. 34 (1891) 1 Q.B 35 The Assunzione (1954) P. 150 at pp. 178-179 36 (1970) A.C. 583 33

and although members of the House of Lords adverted to the lex situs occasionally, clearly the circumstance that work under the contract was to be done on Scottish land carried little weight. The relevance of Scotland was that performance of the contract was to take place there and the importance of the place of performance in indicating the proper law was strongly upheld37, per Lord Wilberforce. And although Lord Hodson in Miller’s Case38, specifically mentioned that the contract concerned land in Scotland owned by one party, Lord Reid39 focused the real issue in his observation: “In the present case the form of the contract may be said to have its closest connection with the system of law in England but the place of performance was in Scotland and one must weigh the relative importance of these two. No other factor has any real weight in this case.” The law governing a contract a contract relating to immovables should be distinguished from the law which governs the conveyance of immovables, which is always the lex situs IV.

Agency Contracts: a presumption exists in favour of the law of the principal’s country, which is stronger than a presumption in favour of the law of the place of performance of the agent.40

V.

Disputes or Arbitration Clause: an important consideration in ascertaining the proper law is whether the contract includes provision for submission of disputes to the courts of a particular country, or to arbitration by nominees of a particular country. In Hamlyn v. Talisker Distillery41 the House of Lords upheld the validity of an arbitration clause providing for the appointment of English arbitration in a contract made in Scotland where such a clause would have been void had the proper law been Scots. This former presumption brings us back to the eighteenth-century sequence of choice of the tribunal which administers that law.

It is in contracts containing such arbitration or jurisdiction clauses that exponents of the objective theory of the proper law hitherto found one of the weakest links in their chain of argument. For English courts have generally treated the choice of arbitrators 37

Ibid. at p. 615 Ibid. at p. 606 39 ibid. at p. 604 40 Mauroux v. Soc. Com. Abel Pereira da Fonseca (1972) 1 W.L.R.962 41 (1894) A.C. 202. See also N.V. Kwik Hoo Tong Handel Maatshappij v. James 38

as an automatic choice of their law; and the choice of arbitrators is clearly one of substantive intention. It may be noted here that the arbitration constitute a factual connection with the law applied; that all cases before English courts have involved purely English arbitration; and that the same principle would not necessarily apply to the selection of foreign arbitrators, though doubtless it should do so. By the simple expedient of inserting an arbitration clause, parties could apparently have chosen any law they wished to govern their contract.

The historical confusion between questions of jurisdiction and applicable law has been largely removed by two notable decisions of the House of Lords James Miller & Partnrs Ltd. v Whitworth Sreet Estates (Manchester) Ltd. 42; Compagnie d’Armement Maritime S.A. v Compagnie Tunisiennne de Navigation S.A. 43 but the story started in Sweden. In Tzortzis v Monark Line AB44. A Swedish shipowner, by a contract made in Stockholm, agreed to sell a ship to Greek purchasers. Delivery of the ship was to be made in Sweden and payment in Sterling, but transferable to Swedish kronor, was to be made in Stockholm, where a bank deposit had already taken place. All roads, it might reasonably be thought, led to Stockholm. However, the contract a clause providing that any dispute arising from its interpretation and execution should be decided by arbitration in the City of London. A dispute arose and the arbitration took place in London. The arbitrators held that the substantive applicable law was English, a decision upheld by the English High Courts and the Court of Appeal. Unfortunately, the parties had failed to state expressly what the proper law of the contract should be, and both the arbitrators and the courts which considered the matter followed the inference that a choice of arbitration in England signified a choice of English law as the proper law of contract, and decided accordingly. In affirming this principle the court was consciously or unconsciously paying respect to a traditional view of English law in favour of the function of the common law judge. He it is who has not simply applied the law in his court, but when necessary has made it. This identification of law and courts is not only a decisive factor in the history of English domestic law, but 42

(1970) A.C. 583 (1971) A.C. 572 44 (1968) 1 W.R.L. 406 (C.A.) 43

has in many ways governed the development of thinking in the solution of problems of private international law. The English tendency has always been to emphasize questions of jurisdiction as against questions of applicable law. It is hardly less than axiomatic, therefore, that a choice of arbitration in England should be regarded as automatically carrying a choice of English law as the applicable law.

The problem, however, in the Tzortzis Case was more subtle than a simple application of traditional principle. In the earlier cases which the court considered as governing its decision45 arbitration had been chosen in the country of one of the parties. In the present case, the Swedish sellers and Greek buyers had chosen arbitration in England; and although Lord Denning M.R. in the Court of Appeal had considered that this difference was not material to the choice of the proper law. His colleague in the court, Lord Justice Salmon, envisaged circumstances in which the fact that the parties to the contract were of different nationalities might well be a ground for arbitration in a third and neutral country with a neutral legal system46. The Tzortzis Case is also the starting point for two other developments of interest in the proper law of contracts: the time factor, or the chronology of circumstances which can properly be taken into account in ascertaining the proper law; and a new distinction between the substantive proper law of a contract and the curial law governing the procedure under the arbitration clause in the contract.

In 1970, two cases dealing with these aspects of the proper law of contracts in commercial matters reached the House of Lords and resulted in developments of law of far more than purely local interest. The first of them was James Miller & Partners v Whitworth Street Estates (Manchester) Ltd. The second was Compagnie d’ Armement Maritime S.A. v. Compagnie Tunisienne de Navigation S.A... Both of these cases render the decision of the Court of Appeal in Tzortzis v. Monark Line AB obsolete in important respects and it may therefore be convenient to discuss them together. The facts of James Miller & Partners Ltd. .v. Whitworth Street Estates (Manchester) Ltd. were as follows:

45 46

Hamlyn v. Talisker Distillery (1894) A.C. 202; Spurrier v. La Cloche (1902) A.C. 446 Ibid. at p. 414

The appellants, Millers, were building contractors registered in Scotland while the respondents, Whitworth Street Estates, were an English firm owing a warehouse in Scotland. Whitworth agreed with Miller for the conversion by Miller of the Whitworth warehouse in Scotland. The contract was finally contracted in Scotland and embodied in a standard from published by the Royal Institute of British Architects, containing the usual arbitration clause for the appointment of an arbitrator by the parties or, failing their agreement, by the President of the Royal Institute of British Architects. No provision existed in the clause as to the place of arbitration or the law governing its procedure. A dispute having arisen, the President of the Association appointed as arbitrator a Scottish architect who conducted an arbitration in Scotland in accordance with Scottish procedure. Points of law arose and Whitworth asked the Scottish arbitrator to state a special case for the decision of the English High Court. This is a normal procedure where an English arbitration is concerned, but it is not permissible under the procedure of Scottish arbitration. The arbitrator refused and thus, began the line of bearings which culminated in the decision of the House of Lords under review. The second of these two decisions, Compagnie d’ Armement Maritime S.A. v. Compagnie Tunisienne de Navigation S.A. Arose out of the following circumstances. In 1967, the Compagnie d’ Armement Maritime, the appellants, agreed to furnish the respondent, the Compagnie Tunisienne de Navigation, with tonnage either controlled by or chartered by them of 16,000 to 25,000 tons to carry a quantity of light crude oil from La Skhirra to Bizerta, both ports if Tunisia. The contract was negotiated and made in Paris through brokers, but an English printed form was selected for the written contract. It was a voyage charter form which required a certain adaptation to fit the circumstances of the case. Clause 13 of the form of contract provided that “this contract shall be governed by the laws of the flag of the vessel carrying the goods...”; Clause 28 that “ shipments to be effected in tonnage owned, controlled or chartered by the Compagnie d’ Armement Maritime...” while Clause 18 provided that disputes would be settled by arbitrators in London. Following a dispute between the parties, the matter was referred in accordance with the contract to arbitration in London and the arbitrators were first asked to consider the preliminary point of the proper law of the contract. Contrary to the accepted view of authority, the arbitrators found that the proper law was French law, and in reaching this view took

account (inter alia) of the facts that, although the French ship owners owned five ships registered under the French flag, none were large enough to carry as much as 25, 000 tons and that in the first four months of the execution of the contract one Swedish, one Norwegian, two Liberian, one Bulgarian and one French ship had been chartered. Arbitrators also concluded that the fleet of the French ship owners would be used “at least primarily” in the performance of the contract. In accordance with English law, the arbitrators, as in Miller’s Case, were required to state a special case for the judgement of the High Court. This was done and Megaw J., as he then was, upheld their view that the proper law of the contract was French. His decision was reversed by the Court of Appeal and restored by the House of Lords. In Miller’s Case, Lord Reid explained the concept of the proper law in words cited above47 Lord Wilberforce found the authority of R v. International Trustee for the Protection of Bondholders A.G.48 a satisfactory, consistent and clear statement of the proper law, as did Viscount Dilhorne, subject to the time qualification referred to below

In the Tunisienne Case the House of Lords was greatly concerned with whether the terms of the charter contract and particularly Clause 13, could be said to embody the intentions of the parties. Lord Reid thought it had failed to do so, so that the primary test of the proper law, the legal system chosen by the parties, was ineffective. What then? Lord Diplock’s analysis of the proper law went a little further in the Tunisienne Case49. The starting point was the agreed basis in the freedom of parties to a contract to choose the law they wished to govern it.

The first stage is therefore to discover whether the parties intended to make a choice and if so to determine their specific choice by the application of the ordinary rules of English law relating to the construction of contracts. If, however, it appears from this 47

(1970) A.C. 583 at p. 603, above, p. 405. (1937) A.C. 500 49 Ibid. at p. 603 48

inquiry that no choice was made, or is identifiable, Lord Diplock’s second stage arises in which the court applies the English rule of conflict of laws relating to the proper law of the contract, namely “that system of law with which the transaction had its closest and most real connection.”- Ibid at p.603, per Lord Diplock, citing Bonython v Commonwealth

VI.

The Curial Law: it may thus appear that the link between the law applicable to the dispute clause and that applicable to the substantive part of a contract is by no means ended. The distinction, nevertheless, is a valuable one and has liberated the choice of the proper law of the substantive part of the contract from the dominance hitherto accorded to the arbitration or dispute clause. Not only is the arbitration clause cut down to the position of one among many important indication of the proper law, it is given an independence from the general proper law of contract so far as concerns the procedural law which shall be applied in carrying out the arbitration. Lord Hodson in Miller’s Case50 observed that whether the proper law of a contract was English or Scottish “the arbitration being a matter of procedure as opposed to being a matter of substantive law is on principle and authority to be governed by lex fori, in this case Scottish law”. Also, parties had plainly submitted to the Scottish arbitration on the footing that Scottish procedure was to govern. In effect, the proper law governing the dispute clause or the arbitration clause itself involves a distinction and one that was recognised in places by the House of Lords in the two decisions under review. The distinction is that the validity of the disputes clause, as part of the general contract, is governed by the proper law of the general contract itself. Whether the clause validly exists and what is its effect is a question of the general substantive law governing the contract of which it forms part. Furthermore, the substantive law to be applied in performance of the dispute clause concerning obligation of the contract is the general substantive proper law of the contract itself. The distinction arises in what has usefully been called the curial law, or the law that shall be applied in the machinery of arbitration or the holding of such other hearing or inquiry as may be relevant to the dispute clause. From the present cases it can be deduced that the curial law is limited to procedural matters and leaves the arbitrator or a tribunal free to apply to the merits of the disputes the substantive proper law of the contract.

50

(1970) A.C. 583 at p. 606

It is possible on this view either to consider that there are in fact two proper laws, the one governing the substance of the contract, including the validity of the arbitration clause itself, and the other determining the curial law by the choice of arbitration in one country or another. This view finds some support in the judgement of Lord Diplock in the Tunisienne Case... On the other hand, one might prefer the view of Lord Guest in Miller’s Case. For Lord Guest the crucial question was what the curial law of the arbitration was. He was unimpressed by the argument that there had been no case in which it had been held that the law of the arbitration differed from the law of contract. Yet, the crucial law was not for Lord Guest a type of proper law despite its being a consequence of the choice of the parties of arbitration in a particular country.

Whether one regards the problems as the splitting of the proper law into two, or the automatic operation by a general rule of private international law of the procedure of the lex fori, is not of first importance; for the dominant theme of these cases is the liberation of the general proper law from the excessive influence of the arbitration clause.

One must recognise a qualification to this general principle of the application of the procedural law of the country in which the arbitration is held. Lord Wilberforce observed in Miller’s Case51 that as a matter of commercial convenience the arbitrator might sit in some country other than his own, and indeed the arbitration might conveniently be held partly in one country and partly in another. This could not in practice be done at the cost of procedural anarchy, and one would look for a single law of procedure in such cases to the arbitration clause itself or to the whole circumstances of the contract. A major consideration must certainly be to avoid any prejudice to the rights of the parties by the choice of the place of arbitration. The recognition of the refinements of this problem by Lord Wilberforce means at least the lex fori is not automatically that of the place where the arbitration is held. It is necessary to follow a single law of procedure for the entire arbitration based on the whole circumstances of the contract and above all the terms of the arbitration clause.

51

ibid. at pp. 616-617

VII.

The inference of Form and Language: in the cases under consideration, a standard form of contract has been used, both in the English language. The choice between English law and the law of the place of performance was not easy for it turned on the legal weight to be given to established facts.

The Tunisienne Case presented a somewhat difficult problem in respect of the English form of the contract. Before reporting to the factors of substantial connection to indicate the proper law in the absence of the express intention of the parties, it is necessary to examine Clauses 13 and 18 of the Charter Contract to examine whether they embody such intention. Clause 18 deals with arbitration in England and raising a separate question of the law applicable to that arbitration, may be put aside at this point. Clause 13, however, clearly stated that the contract should be governed by the laws of the flag of the vessel carrying the goods and the question before the House of Lords was whether this clear statement of intention remains decisive instead of the ambiguity caused by a variety of laws of the flag of the different vessels carrying the goods, or whether this variety was a circumstance to destroy completely the expression of intention as to the proper law which would otherwise be found in Clause 13. In cases of this kind, one often faces the dilemma that a decision on one point presupposes as decision on a latter point and we must consider this question in the light of what he said later on the chronology of the relevant factors. Subject to that, however, it will be recalled that Clause 28 of the Charter contract provided that shipments could be effected in tonnage owned, controlled or chartered by the Compagnie d’Armement Maritime, and it was thus, possible for a variety of laws of the flag to operate even under the terms of the contract. Under this circumstances Lord Reid found the indication of intention too indefinite to determine the proper law.52. Lord Morris of Borth-y-Gest, however, adopted a liberal interpretation for contracts made by business men and considered that by Clause 13 the parties provided that the contract was to be governed by the laws of the flag of the owners’ vessels, which were French. This view is strengthened by the observation of Viscount Dilhorne53 that “it cannot possibly have intended that the law of the contract should vary according to the nationality of the vessel used on each voyage.” The arbitrators had found as a fact that at the time of making the

52 53

Compagnie d’Armement Maritime S.A. v CompagnieTunisienne de Navigation S.A (1971) A.C. 572 at p. 583 ibid at p. 593

contract, the Compagnie d’Armement Maritime intended to use their own ships which were French. In the result three members of the House of Lords54 Lord Morris of Borth-y-Gest, Viscount Dilhorne considered Clause 13 of the Charter Contract to express the intention of the parties that the proper law should be French, while the other two law lords55 Lord Reid and Lord... rejected this view, holding never the less that French Law was the proper law of the contract because it was the system most closely connected with it. Finally, on this point one may note the difference of treatment of English form in the two cases. In Miller’s Case, the fact of the English language was irrelevant being the common language of both legal system considered. What was relevant there was the reference to terms of English in Scottish law. In the Tunisienne Case, the standard form was again in the English language. Three countries were involved as Lord Reid pointed out56 “The contract was negotiated and signed in France and the freight was payable in Paris in French francs. The contract was to be performed in Tunisia. The only connection with England was that any dispute was to be settled by arbitration in London. The contract is in the English language and in English form but it was not argued in my view rightly, that any great importance should be given to this.” The English language has always been extensively used in commerce, and is increasingly becoming a world commercial language. It would be an unjustifiable presumption to regard this wide use of English in commercial transaction as indicating in any important sense an intention of parties that the proper law of their contract should be English. As Salmon L.J. observed in Sayers v International Drilling Co.57 of another international contract, “...although this contract is in the English language and refers to payment in sterling, it is using a language and a currency of convenience for the purpose of dealing with a multiplicity of nationals.” The English language like the British flag, covers a variety of legal systems. The English courts are fortunately aware of this circumstance. VIII.

Law of The Flag: the inference in favour of the law of the flag operates in the case of all maritime contracts. This factor is particularly strong in the case of contracts made

54

Lord Morris of Borth-y-Gest, Viscount Dihorne and Lord Diplock Lord Reid and Lord Wilberforce 56 (1971) A.C. 572 at p. 583 57 (1971) 1 W.L.R. 1176 at p. 1183. 55

during the course of the voyage such as bottomry bonds. The majority of maritime contracts, however, such as charter parties and bills of Lading, are made on land prior to the sailing of the ship and in such cases, the inference in favour of the flag could be more easily displaced. In one such case, The Industrie58. The Court of Appeal held that English law was the proper law. The fact that the contract had been made in England in the form of English Law and by an English form rebutted the presumption in favour of German law arising from the German legislation of the ship. The judgement of Hodson L.J. in The Assunzione59 is a notable reaffirmation of the importance of the law of the flag.

Apart from other factors, the strength of this factor will depend on whether the flag is merely one of convenience or really represents the nationality of the ship owners.60Per Hodson L.J.

No special presumption formerly existed in favour of the proper law being that of a sovereign party to a contract. In R. v Internationally Trustee for Bondholders61. The British government issued bonds in New York payable and transferrable in New York, and the English Courts held that the proper law of the contract was the law of New York, rejecting the argument that the proper law must be presumed to be that of the sovereign party to the contract62 Ix

The Time Factor: The dimension of time played a notable part in the decision of the

Miller and Tunisienne Cases, both in the Court of Appeal and in the House of Lords. In the Miller case the view was taken that in the absence of an express choice of the proper law the intention of the parties could be deduced from their conduct, including conduct which might follow the making of the contract. In the Court of Appeal, Widgery L.J. had said63

58

(1894) p.58 (1954) P. 150 at pp. 186-194 60 Ibid at p.190 61 (1937) A.C. 500 62 Cf. Bonython v. Commonwealth of Australia (1951) A.C. 201, in which the law of Queensland was held to be the law of debenture insured by the Queensland Government and repayable either in Brisbane, Sydney, Melbourne or London. 63 (1969) 1 W.L.R. 377 at p. 383 59

“if the parties’ conduct shows that they have adopted a particular view with regard to the proper law then it may be inferred that they have agreed that that law shall govern the contract accordingly.” From this possible resort to subsequent conduct the dissented. Lord Reid64 rejected the view that one might take into account subsequent actings of the parties. Lord Wilberforce65 expressed the same view more fully in saying; “Once it was seen that the parties had made no express choice of law, the correct course was to ascertain from all relevant contemporary circumstance including, but not limited to, what the parties said or did at the time, what intention ought to be imputed to them on the formation of the contract.” The temptation to result to subsequent conduct in ascertaining the proper law was far stronger in the Tunisienne Case, where one could point to the use of ships of several nations in performance of contract. Lord Reid66 was accordingly moved to say that Clause 13 “ like any other provision in a contract must be construed in light of the fact known to both parties at the time when it was agreed”67 In the Miller and Tunisienne Cases, the House of Lords made no concession whatever on limiting the circumstances to be considered in the search for the proper law to those existing and presumably in the contemplation of the parties at the date of the contract. But may not the Court of Appeal be forgiven for thinking it useful to take into account such matters as the performance of the contract, as indications of how the parties intended it to be performed? The idea of the proper law itself involves the choice of a changing legal system. Parties may of course incorporate the provisions of a legal system into their contract as that system exists at any time, and it will be fixed at that time if they so wish but in the absence of such an indication the choice of a legal system is the choice of a living being including all its future changes known and unknown. Again, commercial contracts, particularly in an age of inflation, sensibly provides for future events. Changing economic circumstances may be taken into account and often are by making commercial contract on a cost plus a percentage basis rather than one of fixed price including profits or eventually loss. This again is

64

(1970) A.C. 583 at p. 603 Ibid at pp. 614-615 66 (1971) A.C. 572 at p.583 67 see also Ibid at p.593 per Viscount Dilhorne and at p.595, per Lord Wilberforce 65

providing for an unpredictable future. Finally, one may point to the basic freedom of choice in the whole concept of proper law, subject to the requirement of public policy. When there are various circumstances for consideration in ascertaining the proper law, no single factor and no single inference can be decisive.68 “When such a position arises all the relevant circumstances must be borne in mind and the tribunal must find, if it can, how a just and reasonable person would have regarded the problem.”69 Such a person would wish to have any dispute determined “in the most convenient way and in accordance with business efficiency.”70 In Tomkinson v The First Pennsylvanian Banking and Trust Company71 the House of Lords resolved a conflict between the lex situs of land (Cuba) and the law of the place of performance (Pennsylvanian) in favour of the latter by considering the overriding purpose of the complex transactions involved. How, then, in the light of these various considerations shall we describe the proper law? It would seem a fair synthesis of English decisions to say that the proper law depends on the intention of the parties ascertained objectively and judicially. Where the parties expressly state in a term of their contract what law shall govern, the fullest effect would be given to their expressed intention, subject only to overriding considerations of public policy, international comity and legality by the proper law itself, by the lex fori or (as to performance) by the lex loci solutionis, which are, after all, factors that general define the limits of any principle of choice of law. The proper law, however, is that expressed in the contract; and parties will, probably, not be allowed to say that the written word does not represent their true intention. Where the intention is not expressed (possibly because it never existed on the specific point) the court will ascertain from the terms of the contract and relevant surrounding circumstances which will vary according to the type of contract in question, with which legal system the transaction has the most real and substantial connection.

68

The Assunzione (1954) p. 150 Ibid at p.176 70 iIbid. at p. 179, per Singleton L.J. 71 (1961) A.C. 1007, discussed in (1960) 9 I.C.L.Q. Part 4, 700 at p. 704 69

THE FUNCTION OF PROPER LAW OF CONTRACT Once the proper law has been ascertained and the principles considered above, it enables the court to decide the major question of essential validity, and several important subsidiary matters. Its functions include: a) Whether a contract has ever come into existence: This question may arise as to the validity of an offer and the law which should govern it, and as to the time of acceptance of an offer. The proper law may also determine the effect of such element has misrepresentation, fraud and duress, which may have different effect under foreign law from their effect in English law on the making of the contract and the reality of consent. b) When the court is satisfied that the contract has come into existence, the proper law determines the effect of the provisions of the contract or act which have to be undertaken in the course of its performance. In Spurrier v. La Cloche72: The Privy Council upheld the validity of an arbitration clause in a contract of insurance with an English company of a stamp collection owned by a person in Jersey. Under the law of Jersey the arbitration clause was void, but the Judicial Committee held that the proper law of the contract was English, and accordingly upheld the validity of this clause. The proper law will, moreover, enable the court to determine whether the contract is void by reason of conflicting with the moral conception or public policy of the country of the proper law73 c) The question of whether damages claimed for breach of contract are or are not too remote.74 d) Discharge of contract: Discharge normally occurs through full performance of obligations by the parties and, being the fulfilment of the obligations, is naturally governed by the same law as that which governs them, the proper law. But discharge may result from other causes than performance: force majeure,75 supervening illegality of performance76 or a change in the law77 may modify or 72

(1902) A.C. 446 (P.C). The effect of conflict with the public policy of the forum is considered 74 Livesley v. Horst (1924) S.C.R. 605 (Supreme Court of Canada) 75 Jacobs, Marcus & Co. v. Credit Lyonnais (1884) 12 Q.B.D. 589 76 Kleinwort Sons & Co. v. Ungarische Baumwolle Industrie A.G. (1939)2 K.B. 678 73

extinguish the contractual obligations. Whether such events discharge a contract also depends on a proper law. If by that law the event, e.g a change in the law of the place of performance, operates to discharge the obligation, English law will recognize this effect. If, on the other hand, the proper law does not consider such an as effecting a discharge the neither will English law do so. Notably, this was held to be the case when a retrospective change of foreign law purported to affect the capacity of on party to perform an obligation validly created at the date of its creation. The House of Lords treated the question as one of discharge of contract, governed by its proper law, and considered that on ground of justice and convenience it would be inappropriate to give effect to the retrospective legislation in respect of light already vested.78 e) Interpretation of the contract: We have seen that the proper law governs the essential validity of the contract and the obligations of the parties. It is a corollary that the meaning of the terms of the contract should be governed by the roles of construction established by the proper since otherwise the idea of given effect to the intention of the parties, implicit in the concept of the proper law, would be in danger of frustration. What are the particular rules for construction of proper law is naturally a question for that particular system; but one might expect that where a contract is written in a language other than that of the proper law, the grammatical meaning an d the meaning of the technical terms will be governed by the law from which those terms were derived.

One exception to the principle that the proper law governs construction exist in cases of reference in a contract to currency other than that of the proper law. In such cases the meaning of unit of that currency, e.g. pounds or francs is determined by reference to the law of the country whose money is in question, sometimes called the lex monetae79, Ottoman Bank v. Chakarian80 but the construction by the proper law should be conditioned to the international contract to which it is being applied. Such construction need not necessarily coincide with that for an internal situation. In Teheran-Europe Co Ltd v.

77

National Bank of Greece and Athens S.A. v. Metliss (1958) A.C. 509 Adams v. National Bank of Greece S.A. (1961) A.C. 255 79 Ottoman Bank v. Chakarian (1938) A.C. 260 80 (1938) AC 260 78

S.T.Belton (Tractors) Ltd81. The Court of Appeal construed the implied warranty of fitness on a sale of goods82 for delivery they view to resale abroad in the light of the purchaser’s special knowledge of the foreign market and held the implied warranty inapplicable in the circumstances

PROBLEMS There are many problems affecting this area of law but two of the most interesting are: 1. Incapacity through age State approach the issue of intentionality from two related but distinct, conceptual directions: 

Liability in which the law holds individuals responsible for the consequences of their actions and



Exculpability in which fundamental social policies exclude or diminish the liability that actors would have incurred in different circumstances.

Many states have policies which protect the young and inexperienced

by insulating them

from liability even though they may have voluntarily committed themselves to unwise contracts. The age at which children achieve full contractual capacity varies from state to state but the principle is always the same. Infants are not bound by many otherwise valid contracts, and their intention is irrelevant because of the legal incapacity imposed on them by 81 82

(1968) 2 Q.B.545 Sale of Goods Act 1893, s.14(1)

the state of domicile (the lex domicilii) or nationality (the lex patriae). This recognises a set of social values that requires exculpation even though there is relevant action and consent freely given. Equally, states have an interest in protecting the normal flow of trade within their borders. If business had constantly verify the nationality or domicile of their customers and their ages, this might slow down business and, potentially infringe privacy legislation. Hence, conflicts of public policy can emerge which complicate the choice of law decision and invite the forum shopping, i.e. traders will always seek to sue infants with whom they have contracts in those states which accord priority to commercial interest, while children will seek the avoidance of liability in the courts which protect their interest. This would be achieved during the characterisation stage by classifying the issue as status and its incidents rather than contract because a party’s status and lack of capacity will be in rem

2. Mistake, Misrepresentation, etc. In many states, fundamental mistakes, misrepresentation and similar defects may make a contract void ab initio, i.e. the defect is serious that it prevents an agreement from ever coming into being. If this happens, every term in the contract including the express selection of the proper law would be unenforceable. This raises the question of whether the lex fori should operate a policy of saving the Validity of contract wherever possible. Suppose that a contract would be valid under many potentially relevant laws but not under the putative proper law, and that, until problems arose, the parties have acted in good faith on the assumption that they will be bound by the agreement, some courts might be tempted to ignore the apparent proper law an d choose another that will give effect to the parties general contractual intentions. Conclusion The general rule is that the proper law is the primary system of law which governs most aspects of the factual situation giving rise to the dispute. This does not imply that all the aspects of the factual circumstances are necessarily governed by the same system of law, but there is a strong presumption that this will be the case. So, the process of legal analysis undertaken by the courts in each case identifies all the facts that have a specific geographical connection, e.g. where the parties reside or their

businesses operate, where any agreement was made, where relevant actions were performed, etc. Once all the relevant connecting factors have been identified, the law of the state that has the greatest number of connections will be the proper law. In the event of a tie, the connecting factors which relates to performance will be given a greater than the connecting factors affect form. In most cases, this weighing will produce a clear winner.