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
2
Nigerian Law of Contract, 2nd Ed., p 1
3
(1875)LR 19 Eq 462, p.465
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.
7
(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
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
11
(1969) 1 W.L.R. 377 at pp. 380, 383
12
(1984) AC 50 HL
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
supra
16
A/B (1968)
17
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
19
(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
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)
 The language in which the contract documents is written

24
Coast Ltd v. Hudig and Veder Chatering NV (1972) 2 QB 34
25
NV(1972) 2 QB 34
26
(1954) P 150, CA
  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
(1884)12 Q.B.D. 589
28
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
30
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
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
33
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
 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
38
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
 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
43
(1971) A.C. 572
44
(1968) 1 W.R.L. 406 (C.A.)
 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
Hamlyn v. Talisker Distillery (1894) A.C. 202; Spurrier v. La Cloche (1902) A.C. 446
46
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.
48
(1937) A.C. 500
49
Ibid. at p. 603
 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
Compagnie d’Armement Maritime S.A. v CompagnieTunisienne de Navigation S.A (1971) A.C. 572 at p. 583
53
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
55
Lord Reid and Lord Wilberforce
56
(1971) A.C. 572 at p. 583
57
(1971) 1 W.L.R. 1176 at p. 1183.
 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
59
(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
 “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
65
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
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
69
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
 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).
73
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
 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
78
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
 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
(1968) 2 Q.B.545
82
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.