- GENERAL PRINCIPLES
(a) law of
nationality (lex patriae)
(b) law of the forum
(lex fori)
(c) law of domicile (lex domicilii)
(d)
law of the state in which land is situated (lex
situs)
(e) law
of the occurrence (lex loci actus)
(f) place most closely connected (lex loci solutionis)
(g) Where
the contract was made (lex loci
contractus)
(h) lex loci arbitri)
(1) where parties are located in the same area.
If all the parties and the
relevant factual elements affecting formation, validity, and performance are
geographically located in the same state, it will be obvious that, if the
contract is silent on the point, the local municipal law (usually called the lex loci contractus, i.e.
the law of the place where the contract was made) will be applied as the law
governing substantive issues. The lex fori, i.e. the law of the local
forum court, will be applied to procedural matters (such as evidentiary rules,
etc).
(2) Different locations- same laws
(3) Different locations- different laws
But, as people and transactions
now more frequently cross state lines both physically and electronically, it
becomes necessary to consider which law will be applied in the event of a
dispute. Should the laws be the same,
the question will be academic. But, if the laws are sufficiently different that
the judgment will change depending on which law
the court applies, the issue of choice of law becomes highly significant.
(4) Party autonomy
As an application of the public policy
of freedom of contract,
the parties have autonomy to make
whatever bargain they want. Thus, in principle, the parties are free to
nominate any law as the proper law of their
contract even though there may be no
other connection between the substance of the obligations and the law
selected.
However, such clauses could be used as a device to evade
the application of a mandatory provision of law within a relevant legal system.
Consequently, most states will not honor choice of law clauses unless they are
seen to have been included on a bona fide
basis. If the clause is recognized as a good faith term, the 'forum
state' must apply the nominated proper law to resolve the dispute.
Choice should be
-need not have connection with
the chosen country
- bona fide
-should not be used to evade
mandatory law.
(5) Proper law of the contract
-
Substantive law used to determine rights and obligations of parties
The law that
creates and governs the contract is usually termed the proper law of the
contract.
It was described
by Lord Diplock in Amin Rasheed Shipping Corp –v- Kuwait Insurance Co (1983) 2
All ER 884 as the substantive law of the country which the parties have
chosen as that which their mutually legally enforceable rights are to be
ascertained.
(6) How is proper law ascertained?
It’s not always
easy to tell the proper law. Reasons-
-contracts are many and varied.
All kinds of
agreements fall within the description contract. It’s thus impossible to have a
single choice of law rule governing all kinds of contracts.
(i) Common law approach-
-Lex loci solutionis
-Lex loci contractus
Attempts have
been made to put forward such choice of law rule eg. Contracts are governed by
the lex loci solutionis (place of
performance) or contracts are governed by the lex loci contractus (the law of the place of contracting).
But neither of these suggestions is
satisfactory.
- The lex loci
contractus may, after all be entirely
fortuitous. E.g. Where a Japanese
businessman and an American businessman agree in London to the sale of goods
situated in France, English law really has nothing to do with their
transaction.
Many
international contracts are negotiated by telephone
or telex and whether what turns out to be the final offer is accepted in
the country where one telex is situated or in the country where the other telex
is installed is often a matter of mere chance. In these circumstances the lex loci contractus has little claim to
the proper law.
- Lex loci solutionis is unsuitable coz
parties respective obligations may take place in different places e.g. where
the seller agrees to deliver certain goods in France in return for the buyers
promise to pay the price in London. It seems quiet unreasonable that their
respective obligations should be governed by different laws. Lex
loci solutionis is uncertain, the reason being that parties frequently
enter into agreements in which the place of performance is unspecified or in
which one of the parties may choose the place of performance. E.g. carriage of
goods by sea.
(ii)
Where the
parties have expressly chosen a law to govern their agreement.
- Statutes and the express choice of law
- The incorporation of foreign law in a
contract
(iii)
Where
parties impliedly choose the proper law
(iv)
Where
parties do not choose, either expressly or impliedly a law to govern their
contract.
Where the parties have expressly
chosen a law to govern their agreement.
A choice of law is express when
the contract contains a provision, which specifies the law, which it is to be
governed. Privy Council in Vita Food
Product Inc. v Unus Shipping Co. Ltd. held that the parties were free to
select any governing law they wished, irrespective of any connection with the
contract, provided that the choice was bona fide, legal and not contrary to
English public policy.
Where the parties have
identified the applicable law there is no difficulty in giving effect to the
choice of the party. But where the parties select the applicable law indirectly
the effectiveness of the alleged choice depends on interpretation of the clause
in question. Vita Food Product Inc v
Unus Shipping Co.Ltd.
Facts
Vita Food Products Inc. v.
Unus Shipping Co. Ltd., [1939] A.C. 277 (P.C.) is a leading conflict of laws decision of the Judicial
Committee of the Privy Council on appeal from Nova Scotia. The case stands for the
proposition that an express choice of law clause in a contract should be honored
as long as the agreement was bona fide and
not against public policy.
The case was a landmark point for contract law as it greatly expanded the
ability of parties to choose the jurisdiction of their contacts.
Background
A shipment of herring
was sent from Newfoundland (separate from Canada at the time) to New York, and
ran aground in Nova Scotia. The bill of lading did not, however, conform to
the Newfoundland Carriage of Goods by Sea Act 1932 which required that
it "contain an express statement that it is to have effect subject to the
provisions of the Hague
Rules as expressed in this Act." The bill contained a clause
exempting the carrier from liability for the master's
negligence. Under the Hague Rules such clauses were considered void. The bills
stated that it was subject to the Canadian Water Carriage of Goods Act 1910 and
stated that "This contract shall be governed by English law."
During the voyage, the ship sank
off Nova Scotia due to negligence. The issue was which law applied to the bills
of lading.
Decision of the Privy Council
Lord Wright,
writing for the Council, held that the proper law of the contract was England
and so the Newfoundland Act did not apply and the contract was upheld. He
stated the test for determining the choice of law in such circumstances.
Test/limitation-
Where there is
an express statement by the parties of their intention to select the law of the
contract, it is difficult to see what qualifications are possible, provided the
intention expressed is-
bona
fide-
- even if the
choice is not connected with the transaction
- (Choice not
bonafide) golden acres ltd –v-
Queensland Estates Ltd (1969). A choice of Japanese law to govern a matter
which was entirely Queensland to avoid illegality which would have followed had
Queensland law applied.
-legal
-provided there is no reason for avoiding
the choice on the grounds of public policy.
Advantage of party autonomy-
-Certainty
-Cheap and easy
Limitation of express choice of law-
- Statutes
Mandatory statutes
-Overriding statute
-Employment protection statutes
The mandatory statutes apply
irrespective of choice of law.
-if the law chosen requires the
performance of an act which is unlawful under
the law of the place where the contract is to be performed.
-Unfair contractual terms (consumer contracts).
-Consumer and employment contracts
The third and fourth limitation
relates to the consumer and employment contract. A choice of law made by the
parties does not have the effect of depriving an employee or consumer of the
protection of certain mandatory rules, in case of consumer under the law of
their habitual residence, and in the case of employees under the law which
would be applicable in the absence of choice of law.
Public policy
A choice of foreign law will not
prevent the court from disregarding it if the application of rule of foreign
law would be manifestly incompatible with public policy.
The incorporation of foreign law in a contract-
- Parties may which that a
particular aspect of the contract will be governed by the rules of some foreign
legal system. E.g. If the proper law of the contract is Kenya, parties may
decide that certain aspects will be governed by sale of good Act (UK). English
law will not be the proper law, but only that certain aspects of it will be
used to determine the rights of parties.
WHERE PARTIES IMPLIEDLY CHOOSE THE PROPER LAW-
-omit to write expressly their
choice of law
-intention will be evident from
examination of the terms of the contract and the surrounding circumstances
-e.g if there is an arbitration
clause
-tzortis –v- monarch line A/B
(1968) 1 WLR 406. The proper law of the contract was held to be
English law because their was an arbitration agreement for London.(contract had
no other connection with England.
Compagnie Tunisienne de
Navigation SA –v- compagnie d’armement maritime SA (1971) AC 572
-Arbitration clause for London
- The arbitration clause should
not be conclusive, it should be considered together with other provisions of
the contract
- French law was held to be
proper law even though the contract was subject to arbitration in London.
Amin Rasheed shipping Corp. –v
– Kuwait Insurance Co. (1983) 2 ALL ER 884
A Liberian Company resident in Dubai
Insured ship with the defendants
Plaintiff made a claim on the insurance policy.
It was rejected by the def
Plf sued in London.
Writ to serve outside jurisdiction
No express choice of proper law
Question- was their an implied choice of law?
Factors
connecting contract to Kuwait
- policy issued in Kuwait
-insurer Kuwait
-the payment was to be made in Kuwait
Factors
connecting contract to English law
- use of English language in the contract
-premuims were to be paid in sterling pounds
-contract was made in an English form
Crucial surrounding circumstance
-at the time when the contract was entered into,
Kuwait had no law on marine insurance.
-this suggested that parties did not intent to
apply Kuwait law.
- English law was applied
-the judges have to look for the intention of the
parties and the surrounding circumstances to determine the applicable law.
WHERE
PARTIES DO NOT CHOOSE, EITHER EXPRESSLY OR IMPLIEDLY, A LAW TO GOVERN THEIR
CONTRACT.
- Where parties did not choose at all the
applicable law
-the court has to assign the proper law
-the court has to impute an intention
-what a reasonable person would have considered
as the proper law
-that which the contract is closest or has most
real connection.
Amin
Rasheed shipping –v- Kuwaiti insurance
Factors to
be considered-
-place
of contracting
-place/s of performance
-place of residence or business of the parties
-nature of the subject matter of the contract
-other
factors.
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