PIL and Contracts in

PIL and Contracts
10/08/23 11/08/23 14/08/23 (absent) 17/08/23

ATTENDANCE
8/08/23
Introduction
Requirements for a valid contract - Essentially the same in all jurisdictions. -

some essentials may differ across jurisdictions but those will be limited—-One
party makes an offer, the other party accepts the terms of the offer,
consideration is exchanged and the contract documents are executed and
delivered with the intent that it be
mutual and binding
contract involving foreign elements —- fall under purview of PIL
foreign element —- one of the parties is foreigner, subject matter in foreign

territory, contract confers jurisdiction on a forum in a foreign territory
law governing contracts means the proper law that is applicable
EU countries —- Rome Convention
US —- party autonomy —Most real connection
UK —-party autonomy —Most real connection
contracts gives rights in personam
Three stages in a contract — formation in accordance with the essentials of

contract ; Performance of contract; Termination/Expiry of Contract;
Applicable law ——Material and formal validity
E - Contracts and PIL
UNCITRAL
Lex loci contractus —-law of the place where the contract is made
Lex loci solutionis —law of the place of performance”
Contracts and Conflict of Laws Issues
PIL and Contracts 1

1. Choice of Laws/Governing Laws
💡 Doctrine of the proper law of Contract is considered an answer to

the problem of choice of law in International contract
The proper law of the contract is a convenient and succinct

expression to describe the law that governs many of the matters
affecting a contract.
It has been defined as “that law which … a court is to apply in

determining the obligations under the contract”.
Party Autonomy —- To avoid uncertainty and to make business

dealings predictable (and products, services and financing available
at a lower cost), Courts
have enforced the “party autonomy rule”, which is a contract
principle that allows parties to specify what jurisdiction’s law will apply
and allows contracting parties to protect their expectations under the
agreement ——principle of ‘autonomy of will’
US Approach to determine Proper Law of Contract ——
In US —— previously in the first restatement —— preference of

jurisdiction was given to the place where the contract was formed and
place of performance —— rigid and inflexible test as these
considerations might not have bearing on the subject matter of the
contract —no material determining affect on the contract ——however
even now when there is no jurisdiction clause the place of performance
is imp in determining implied jurisdiction—- place of formation can be a
mere formality thus it has lost its essence unless it is shown that place
of formation have bearing on the subject matter
[Note —restatements in US are a series of legal treatises that set out basic
U.S. law on a variety of subjects]
PIL and Contracts 2

Example —- Contract formed at Singapore —- performance in dubai —
both parties in India—— one of the parties wants to file suit in India —-
no jurisdiction clause——substantial connection test /significant
connection test will be applied —- see where negotiations, notice,
whether place of formation have bearing, lex loci contracti.
The rigid test modified to the Presumed intention theory —-did not
become popular
1952 —-Uniform Commercial Code of New York - US —- attempt to

harmonize the law pertaining to contractual disputes having a foreign
element —— codified the concept of party autonomy—-renounced
forum non conviniens doctrine
The US approach under the Second Restatement —
Ascertainment of the Proper Law —- In the second restatement it is

stated that the contractual obligations in principle shall be governed
by the law of the state chosen by the parties to govern their
contractual relations unless this law is contrary to the public policy
of the forum court.
The following are the exceptions to party autonomy ——

(A) The Chosen Law is contrary to the Public Policy of Law of
Forum.
(B) The chosen state has no substantial relationship to the
parties or the transaction and there is no other reasonable basis
for the parties choice,
(C) application of the law of the chosen state would be contrary to
a
fundamental policy of a state which has a materially greater
interest
than the chosen state in the determination of the particular issue
and
which, would be the state of the applicable law in the absence of an
effective choice of law by the parties
PIL and Contracts 3

💡 Summary —US approach
Doctrine of Proper Law ——- Current doctrine that governs many

matters affecting the contract.
Parties in the usual course are allowed to choose the applicable

law —-contract can definitively confer jurisdiction on a court ——
in most cases this jurisdiction clause will be considered ——
however in some cases the jurisdiction clause may not be held to
its word:
a. where the clause is contrary to public policy (ex. agreement in

restrain of trade, agreement giving jurisdiction to religious bodies,
b. When fundamental interest of a country is involved —-Contrary

to a fundamental policy of a state which has materially greater
interest in contract.
c. agreement in restrain of legal proceedings), or restricts the

scope of legal proceedings (worded to prevent one of the parties
from initiating legal proceedings);
d. contracts wherein the parties have unequal bargaining power

and the jurisdiction clause provides for a forum that is outside the
purview of one of the parties;
e. when the chosen state has no substantial relation to the

parties or the transaction —- No substantial relationship to the
parties or the transaction and there is no other reasonable basis
for the parties——-jurisdiction conferred on place having no
connection to parties/subject/dispute matter will be considered to
lack party autonomy—-parties cannot arbitrarily choose the law of
a state they like—- must have a reasonable basis to select the
law of a certain state.
PIL and Contracts 4

f. where the disputed property in country Y has outstanding
public debts —— jurisdiction given to X court ——- interest of Y
involved whereas X does not ——- fundamental interests of Y will
be defeated—Example Sahara
Thus, the US position currently ——-Governing law/proper law

—-most significant relation test —-permitting the parties in usual
case to choose the applicable law —does not tantamount to
complete freedom to contract as they will —- cannot arbitrarily
choose the law of the state they like —— must have reasonable
basis to select the law of certain state ——
in the absence of effectively chosen law the law which has the
most significant relationship to the transaction and the
parties will be the law governing the contract, i.e. the PROPER
LAW—— consideration of factors such as place of contracting,
place of negotiation, place of performance, location of subject
matter of contract and domicile, nationality, place of
incorporation/place of business of the parties —-deciding case
based on the facts and nature of the disputes —- example in a
contract dealing with specific physical things such as the land
then the location of the land will become significant rather than
the domicile of the property —-the most significant connecting
factor will determine jurisdiction based on the most substantive
question involved——Ex. when the contract affords protection
against a localized risk, such as the dishonesty of an employee in
a fixed place of employment, the location of the thing or of the
risk is significant.
Public Policy [S. 34 A&C Act]
PIL and Contracts 5

The varying interpretation of “public policy” under section 34 of the
Act and the consequent impact on the interference of the Court has
remained a contentious issue.
The term is not defined in the A&C Act or any other law, thereby
leaving it open to judicial scrutiny and various interpretations.
In the pre-amendment era, the term ‘public policy’ was first

described by the Apex Court in Renusagar Power Co. Ltd. v.
General Electric Co. It was held that the enforcement of a foreign
award could be refused only on the grounds of contravention of the
fundamental policy of Indian law, or interests of India, or justice or
morality. Later, in ONGC Ltd. v. Saw Pipes Ltd., the Court adopted
the aforementioned three grounds into domestic arbitration and
further broadened the scope to include ‘patent illegality’. This
judgment was viewed as problematic as few cases extended the
application of “patent illegality” to the foreign awards as well.
The Supreme Court elaborated on this issue again in Associate

Builders v. DDA, wherein the court laid down the concept of the
fundamental policy of Indian law to include judicial approach,
natural justice, and absence of perversity or irrationality.
The 246th Law Commission Report suggested amendments in

section 34 observing that the patent illegality test is retained but
construed more narrowly than under the Saw Pipes case. The
Explanations I and II inserted in section 34, post-2015 Amendment
provide a guiding description of the public policy of India.
Post the amendment of 2015, this issue was again brought before
the Supreme Court in Ssangyong Engg. & Construction Co. Ltd.
v. NHAI, wherein the court elaborately dealt with the issue of “public
policy” and also the applicability of the Amendment.
PIL and Contracts 6

👉 POLICY (VVIMP)
CASES ON PUBLIC
1. Renusagar Power Ltd. v. General Electric

company, 1994
[In the pre-amendment era, the term ‘public policy’ was
first described by the Apex Court in Renusagar Case. It
was held that the enforcement of a foreign award could
be refused only on the grounds of contravention of the
fundamental policy of Indian law, or interests of India, or
justice or morality. In this case the SC laid down that the
arbitral award can be said aside if it is contrary to —FP of
Indian law, interest of India, justice or morality] [This
case took a narrower interpretation to the term public
policy by confining the scope of judicial intervention on
the above-mentioned three grounds]
2. ONGC v. SAW PIPES

[Patent illegality —- on the face of it there is a illegality
in the award] [The SC held that an award which is on the
face of it patently in violation of statutory provisions
cannot be said to be in public interest and such decision
is likely to affect the administration of justice]
3. ONGC v. Western Geco , 2014 9 SCC 623

[The fundamental policy of Indian law would include all
such fundamental principles that provide the basis for
admin of justice and enforcement of law]
4. Associate Builders v. DDA, (2015) 3 SCC 49.

[The court held that patent illegality ground consists of
three sub-heads----first contravention with substantive
laws of India, second contravention with A&C Act itself,
third contravention with 28(3) of A&C Act]
PIL and Contracts 7

Read
https://ibclaw.in/seat-v-venue-an-endless-pursuit-in-domestic-
arbitrations/#:~:text=While “venue” limits itself
to,11)%3B%20setting%20aside%20the
https://www.mondaq.com/india/arbitration--dispute-
resolution/1275268/choosing-the-right-arbitral-seat#:~:text=(2021)
7 SCC 1 (,Ltd.
https://www.scconline.com/blog/post/2023/03/31/conflict-of-laws-
vis-vis-foreign-seat-of-arbitration/
https://www.scconline.com/blog/post/2022/10/20/party-autonomy-
or-the-choice-of-seat-the-essence-of-arbitration/
approaching wrong jurisdiction will not have adverse consequence —-

will be returned back
UK Approach to determine Proper Law of Contract ——
PIL and Contracts 8

💡 UK Approach
Common law judges faced questions about governing law for

contracts with foreign elements since the late 18th century.
Focus was on determining the law to govern specific

contractual issues in court, not just the entire contract.
Possibility of selecting lex loci contractus (law of the place of

formation), but issues existed, such as lack of substance or
difficulty in pre-contract determination.
Lex loci solutionis (law of the place of performance) faced

limitations, especially for bilateral contracts involving
performance in different countries.
English law aimed for flexibility, avoiding rigid criteria like lex
loci celebrationis or lex loci solutionis.
Lord Wright's perspective in Mount Albert Borough Council v

Australasian Temperance and General Assurance Society
emphasized ascertaining intention from contract terms, party
situations, and surrounding facts.
Starting from the mid-19th century, English judges sought the

proper law of the contract to govern most questions arising
from contracts with foreign elements.
Cases often involved explicit choice of law or inferred choice,

along with selection of proper law based on the closest and
most significant connection to the transaction.
Three main situations emerged: (a) explicit choice of law, (b)

inferred choice of law, and (c) selection of proper law based
on the closest and most real connection with the transaction.
The historical context of contract law reveals that until the mid-
19th century, the lex loci contractus, or law of the place where the
contract was made, was used to determine the validity of a
PIL and Contracts 9

contract. However, this approach caused problems, especially
when parties had obligations in different countries. Consequently,
English common law introduced the Doctrine of Proper Law,
which determined the applicable private law for contract
interpretation. This evolved into the "proper law of contract" rule,
allowing parties to select the law governing their contract.
The concept of party autonomy emerged, where parties could
choose the governing law, either expressly or impliedly. In cases
with substantive differences between relevant laws, the choice of
law influenced the outcome. Rules were established to guide the
choice of law, with one significant rule being the "proper law,"
which had the closest connection to the case's facts.
Four areas of law were affected by conflicting rules from different
jurisdictions: capacity, remedy availability and nature, formal
validity, and substantive validity. Determining contract validity was
addressed through the lex loci contractus, lex loci solutionis, and
party autonomy. The validity was often determined by the law
where the contract was made, with the lex loci contractus being a
rule where the contract's presumed content aligned with local law.
The doctrine of lex loci contractus was eventually qualified and
replaced, especially after cases like Chatenay and Lloyd. The
proper law of the contract, which initially considered the
presumed intentions of parties, evolved into a focus on the
system of law most closely connected to the transaction. The
objective notion of intention gained prominence, determining
what a reasonable observer would infer from the parties'
behavior.
Two views emerged regarding the proper law of a contract: the

subjectivist and objectivist views. Lord Diplock's subjectivist view
emphasized parties' liberty to choose the governing law, while
Lord Wilberforce's objectivist view focused on the law closest and
most substantially connected to the contract.
Express choices of law were upheld, and implied choices were
inferred from actions like jurisdiction clauses. When no express
PIL and Contracts 10

or implied choice existed, the proper law was determined
objectively based on the closest and most real connection to the
transaction. Factors considered included the place of contract,
performance, incorporation, security, and associated contracts.
In conclusion, the Doctrine of Proper Law provided parties with
the autonomy to select the law governing their contract. Express
and implied choices were valid, and in the absence of these, the
proper law was ascertained through an objective evaluation of
the closest connection. This concept harmonized subjective and
objective considerations in contract law.
💡 Robinson v. Bond —- first major decision on party autonomy in

England—-law of the place can never be the rule —in cases
where the transaction is entered into with an express view of the
governing law of another country, as the rule by which it is to be
governed.
Origin of the theory of free choice—-1865——- the law of the place of

contracting was finally abandoned in favour of the proper law——case
which shows the transition is:-
The first country in which reliance on the intention of the parties was
clearly established as the governing principle was England. Two
decisions to this effect
were rendered in 1865, Peninsular and Oriental Steam Navigation Co.
v. Shand and Lloyd v. Guibert.
The reasoning in the first decision seems to have been influenced by

the American writer Story—- explained the choice of the lex loci
contractus by reference to the intention of the parties—- “The ground of
this doctrine (respecting formalities) is that every person, contracting in

a country, is understood to submit himself to the law of the place, and
silently to assent to its action upon his contract.”—-“It would, perhaps,
be more correct to say that the law of the place of contract acts upon it,
independently of any volition of the parties, in virtue of the general
sovereignty,
possessed by every nation, to regulate all persons and property and
transactions within its own territory.”
In P. & O. v. Shand the same dual reasoning occurs—- The point at

issue was the validity of a clause in a passenger ticket exempting the
carrier from liability for the negligence of the crew. The stipulation was
valid in English law, which was the law of the place of contracting, but
invalid by the law of the place of performance, the
island of Mauritius. Turner, L.J., began in the same vein in which Story
had ended:
“The general rule is that the law of the country where a contract is made
governs . . . The parties to a contract are either the subjects of the
Power there ruling or as temporary residents owe it a temporary
allegiance.”
Then he added: “In either case equally they must be understood to

submit to the law there prevailing, and to agree to its actions upon their
contract” This seems to have been his main point, for he went on
carefully to show that it must have been the intention of the parties to
submit their contract to the law of England, the main argument being
that the carrier would never have accepted the law of Mauritius.

💡 P & O steam Navigation Co Case —- Laid the foundation of
applicability of other laws in the UK —— for the first time tried to
look at the intention of the contracting parties —the traditional
approach was that the UK law would only apply —- place of
contracting was abandoned in favor of the proper law--in
every case english law will not apply —the proper law/governing
law will have to be ascertained
[Facts —— plaintiff (CJ of mauritius)— bought ticket in england

for passage from southhampton to Alexandra and from Suez to
mauritius on board the defendant’s steam ships (mauritius)—-
exemption clause excluded the defendant’s liability for
loss/damage to passenger’s luggage —- plaintiff’s luggage lost in
Egypt ——- SC of Mauritius held the contract was governed by
French law which was prevailing in mauritius and by that law
defendant’s were liable inspite of exemption as clause was held
to be contrary to public policy——defendant approached UK
courts —- the decision of the SC of Mauritius was reversed by
the Privy Council——held that the general rule was that contracts
were governed by the LEX LOCI CONTRACTUS (place were
contract was formed)—- court held the clause to be valid —-
intended applicable law was held to not be the law of mauritius
——-—-held that application of english law intended by both the
parties —-the fact that the greater part of the performance was to
be on board two English ships ——emphasis was put on parties
intention—- point was made that the carrier would never have
accepted the law of Mauritius]
P. & O. v. Shand and Lloyd v. Guibert seem to have established

the principle of party autonomy in English law. It may be objected
that these cases do not provide the proof that autonomy now
reigned in England. In P. & O. v. Shand the court applied the law
of the place of contracting, as had been done in previous cases.
It was the reasoning and the reasoning only that was new

[Note — non compete for reasonable period is not against public policy —-
differs from country to country]
Determining the Proper Law —UK approach—-
1. Where There is Express Choice of the Proper Law/Governing Law-

Party Autonomy ——-The parties to the contract may expressly select
the law by which it is to be governed.
[Example —- parties may declare their common intention either by simple

statement that the contract shall be governed by the law of country X, or by
a provision that any question arising between them shall be settled by a
judge or an arbitration in that country.]
The choice must be “bona fide and legal". - In modern times the extent to
which the law chosen by the parties may govern their contract has been a
moot point both in practice and in theory. It was tested in the famous case
Vita Food Products, Inc. v. Unus Shipping Co. Ltd——

💡 VITA Food Products Case
[Contract
Goods wereofshipped
transport of Cargo
from of herring under
Newfoundland from Newfoundland
a bill of ladingtowhich
contained
newyork for a newyork corp(plaintiff) —— shipmasters of the carrier.
an exemption for loss caused by the servants
This exemption was void by the law of Newfoundland, whose
negligence —- damage to goods —plaintiff sued —- plaintiff
legislature had enacted the Hague Rules, but the action was brought in
contended
Nova Scotia that language
where the courtsin billshad
of lading exculpating
to apply the law of the
the proper
defendant
contract from liability
contained in its due
bill toof shipmasters
lading – Englishnegligence
law –was by not
which the
exemption clause was valid. Lord Wright: ‘But whatever
valid as the bills of lading did not include required statement that view a
Newfoundland Court might take, whether they would hold that the
the contract was governed by the newfoundland carriage of
contracts contained in the bills of lading must be taken to have
goods by sea
incorporated the act ——bills
Hague Rulesoforlading expressly
whether statedhold
they would thatthem
english
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the result the newfound
would be the same landinlawtheprovided
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defendant contended that the bills of lading isScotian
not in a Newfoundland but in a Nova
Court. It may be that, if suit were brought on these bills of lading in a
itself not a valid contract as it did not contain the clause as
Newfoundland Court, and the Court held they were illegal, the Court
mandated
would refuse by to the
giveenglish
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(newfound
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obey the laws of itswere ownwhether
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. . But it
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incorporate the required statement and which law should governsame
not follow that any other Court could properly act in the
way. If it has before it a contract good by its own law or by the proper
this determination — —- held no liability as the bills of lading
law of the contract, it will in proper cases give effect to the contract and
werethe
ignore notforeign
valid——In
law.’ dealing with the argument 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—-... where the English rule that
intention is the test applies, and 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 and legal, and
provided there is no reason for avoiding the choice on the
ground of public policy]
[As to the contention that the choice, in this case, should be

disregarded because the shipping contract had no connection
with its proper law, the Council found that "[c]onnections with
English law [are] not as a matter of principle necessary.“]
[When the intention of the parties to a contract, as to the law

governing the contract, is expressed in words, this expressed
intention in general determines the proper law of the contract.]
[Shipping contracts —— if governing law clause in the contract

then intention of parties has to be given priority]
A bill of lading issued in respect of a shipment from
Newfoundland to New York in a vessel registered in Nova Scotia
contained a choice-of-law clause referring to English law. The
Privy Council upheld the clause even though the contract had no
local contact with England. Consequently, English common law
applied, since the provisions of the Hague Rules, which were
incorporated into English law by the Carriage of Goods by Sea
Act 1924 applied only in respect of shipments out of a country.
The defendants could thus rely on an exemption clause which
was expressly declared illegal and void by the Hague Rules as
enacted in Newfoundland and in all the other countries connected
with the contract. It seems to have been very doubtful whether
the Hague Rules and similar statutes in the countries which had a
local connection with the bill of lading would have deprived the
defendant shipowner of the benefit of the exemption clause but
this question was not treated by the Privy Council.
Lord Wright maintained that the reference to English law by the
parties should be respected because it was “bona fide and legal”.
In his words: “Connection with English law is not as a matter of
principle essential” (p. 290). Arbitration in London and the
application of English law are very often provided for in
international contracts.
“... [T]hose familiar with international business are aware how
frequent such a provision is even where the parties are not
English and the transactions are carried out completely outside
England."
These words of Lord Wright may contain the explanation of the

position of the Privy Council. The English court intended to
establish that in international commerce those who want to adopt

English arbitration and English law are free to do so. They were
not to be prejudiced by mandatory provisions of the lex loci
contractus or of other laws even though the contract had no
contact with England. English courts thus invited foreigners to
stipulate for arbitration in England in accordance with English law.
It will be interesting to see whether the English courts, like the
French courts, will grant the parties the same liberty to select a
foreign law as they have to select English law.
Though the Vita Food case has not yet been “distinguished
away,” there have later been dicta in the English courts which
seem to imply that parties may not choose a law which has no
local contact with the contract. These dicta may have been
delivered under the influence of Cheshire and Morris, who
opposed party autonomy with almost the same arguments as did
Continental jurists of the preceding generation, and who wanted
to replace it with what they called “objective criteria.” As Westlake
had said, that law should always apply with which the contract
has “its most real connection.” As far as the express choice of
law is concerned, however, this theory does not yet seem to have
been followed in any English case.
Canadian Perspective - Party Autonomy — requirements of “Bona

Fide and Legal”

💡 Viktor Overseas v. Deiulemar Compagnia Di Navigazione
(1998)
[Viktor Overseas contracted to repair the Deiulemar ship

——Contract concluded in Croatia —but choice of jurisdiction
clause in contract stipulated governing law as English Law
—- Deiulemar failed to pay for repairs as a result of which the
ship was arrested by Viktor in Newfoundland (Canada) —
contract clause had given right to detain ship until payment of
balance + monthly interest of 6% of the balance—-high rate
of interest ——section 347 of Canadian criminal code
criminalized higher rate of interest beyond the given
threshold —- The Federal Court of Canada, Trial Division,
held that English and not Canadian law applied to the
contract because the alleged crime took place in Croatia; the
governing law of the contract was English law; and the rate of
interest was governed by the law of the contract.]
[if the crime had happened in canada or the contract was in
canada then canadian law would apply —-but in this case
though the clause was against public policy or not bonafide
and legal acc. to the canadian law the governing clause
would be valid because the crime was not committed in
canada —-crime is territorially committed ]
[Exceptions to autonomy ——- bona fide and legal
requirement would invalidate an express choice of law
provision where the parties motive was to evade the adverse
consequences of a provision which would have otherwise
been part of proper law of the contract——- as long as
governing law clause is bona fide and not intended to evade
from the applicable law of the country, not having adverse
impact to the interests of one state— it would be held valid—-
The courts may also disregard a choice of law clause where
the choice is "meaningless—-foreign law would not be
applied if it contravened the public policy of the forum or the
mandatory provisions]

Problems with the requirement of bona fide ——it does not provide
sufficient protection for the weaker party to an adhesion contract in
standard contract ——wherein one of the parties has no bargaining
power the clause might be bona fide but not be reflective of party
autonomy —in such contracts (ex. employment and consumer
contract) —ex. there is an american company with indian subsidiary
—- hires A —employment contract for this Indian stipulates
governing law as the US law ——dispute comes to Indian court
—— unequal bargaining power —- would be held that US law
would not be the proper law in given case
It has been suggested that where bargaining power is likely to be

equal, for example in international commercial sales, leasing,
agency and distribution contracts, the parties' choice should be
presumed to be valid and determinative. This presumption could
only be rebutted by proving that the choice was made mala fide-
that the parties had "morally impeachable or anomalous and
unreasonable intentions. For contracts where unequal bargaining
power is likely to be involved, it is suggested that the parties' choice
be restricted to a set of presumed proper laws designed to fit the
particular type of contract.
The parties would, however, be permitted to deviate from the

presumed proper law if the law selected has considerable
connection with the contract, so that the protection that would have
been afforded under the presumed proper law will be assured
Rome convention not applicable to Canada
2. Where there is no express choice of proper law —- Ex. clause

indicating the forum rather than the express choice of proper law ——
The rule here, as laid down in a multitude of cases, it is that the
intention of the parties prevails—- then intention of the parties has to be
ascertained —-by reviewing other terms of the contract —-most
significant connection test / most real connection —-place of formation

is not significant but place of performance traditional approach of UK
courts is to assume jurisdiction ——-Closest and most real
connection test
[Note —-the earlier approach was —-English courts had generally held that
if the parties had agreed that arbitration should take place in a given
country then the law of that country was intended to be the proper law of
the contract.]
[Note — the modern criteria —-is what ought to have been intended—— in
the case of “The Assunzione” ——court has to determine for the parties
what is the proper law which, as just and reasonable persons they ought to
have intended if they had thought about the
question when they made the contract—— to determine the question we
must have regard to the terms of the contract ,the situation of the parties
,and generally all the surrounding facts.‟]
[Note—the distinction between seat and venue in Indian regime has been
negated]

💡 Closest and most real connection test
Assunzione —
[harmonization of International law with domestic laws ——

question before the english court as to which law should apply
—- french or italian —-the court propounded the closest and most
real connection test —-matters favoring french law and matters
favoring application of italian law will have to be ascertained first
—— the manner of performance of contract is significant in
contractual relations —- english court applied the Italian law as
the procedural parts concluded in france but substantial parts
including the place of performance where delivery was to be
made was Italy]
FACTS- Contract made for the carriage of wheat from Dunkirk to

Venice onboard an Italian ship. The charterers were an
organisation of French grain merchants. The wheat was shipped
under an exchange agreement between the French and Italian
Governments(but the Italian ship owners did not know this.) The
contract was negotiated by correspondence between brokers in
France and brokers in Italy. It was formally concluded in Paris in
the English language and on an English standard form. Freight
and demurrage was payable in Italian currency in Italy
Matters favouring French law

• The contract was made in France.
• It was written in English but had a French supplement.
• The Bills of Lading were in French Standard form.
• The Charterers were a French firm acting for the French
Government
(although the Italians did not know this.)
Matters favouring the application of Italian law -
• The ship was Italian flying an Italian flag.

• Italy was the place of performance where delivery was to be
made.
• The bills of Lading were assigned to Italian Consignees.
• The freight expenses were payable in Naples in Italian currency.
The English Court of Appeal had to use "a very delicate and
applied Italian Law

💡 Canada (A.G) v. Nalleweg
[student residing and attending university in British columbia

contracted student loan with british columbia bank guaranteed by
govt of canada —— default on loan —- federal govt. commenced
action in Alberta ——issue was whether the british columbia or
alberta time limitation applied —-in B.C the govt claim had
elapsed (time-barred debt) while in Alberta had not——-both
have jurisdiction (forum conviniens) —— choice of law — to
ascertain proper law is the sophisticated approach——appeal
was allowed —- B.C. law would apply —closest and most real
connection test]
[Facts —- Nalleweg, a student residing and attending university

in British Columbia,
contracted a student loan with a British Columbia bank
guaranteed by the
Government of Canada. After Nalleweg defaulted on his loan, the
federal
government commenced action in Alberta, where Nalleweg had
moved. At issue
was whether the B.C. or Alberta time limitation applied. In B.C.
the Government's claim had elapsed, while in Alberta it had not.
The Alberta Court of Queen's Bench held Alberta law applicable.
The student’s appeal was allowed. The Alberta Court of Appeal
held that British Columbia law applied because it was most
closely connected to the contract.
The relevant contacts were the lex loci contractus, the place of
performance, the
residence or place of business of the parties, and the subject
matter of the
contract. The Government of Canada's claim that the law of
Canada should apply
was rejected, in particular because there was no appropriate

Canadian law on time
limitations.
In the absence of an express selection, English courts will first attempt

to infer the parties' intent from the circumstances of the case and the
terms and nature of the contract in light of sound business
considerations.
“Closest and most Real connection.-The courts use this "closest

connection" or localization theory to determine what law "ordinary,
reasonable, and sensible businessmen would have been likely to have
had if their minds had been directed to the question. Morris suggests –
1. The place of contracting or performance;
2. The residence or place of business of the parties; and
3. The nature and subject matter of the contract
Conflict rules applied in absence of an express choice of law may be

classified as either flexible or rigid.
The rule that the parties' implied intent controls is an example

of a flexible rule.
secondary rule-that if the parties' intent cannot be discerned, the

law of the country that is the most "closely connected" with the
contract is the proper law-may also be classified as a flexible rule
If the parties' intent cannot be discerned, the law of the place of

contracting governs-is a rigid rule.
In the absence of express selection —- english courts will first attempt

to infer the parties intent ——- closest and most real connection ——-
localization theory
E-Contracts —types —click wrap contract and shrink wrap contracts
Diff. B/w US and UK choice of law approach —— US requires

connection between chosen law and contract but the english law does
not require such connection —

• Main difference between United States choice of laws and English
choice of laws is that United States law requires some connection
between the chosen law and the contract, but English law does not
require such a connection.
While this required connection may make sense, it impinges on the

freedom and autonomy of the parties. Judicial interpretation may also
be required before parties can be assured that their connection is
substantial or reasonable enough to be upheld. Even when parties do
have a reasonable basis for choosing a governing law, courts
sometimes disregard such choices in favor of applying a law that has
more substantial Connection
Rome Convention on the law applicable to contractual obligations , 1980
The Contracts (Applicable Law) Act 1990 gives effect in the UK to the Rome
Convention on the Law Applicable to Contractual Obligations. The Rome
Convention is a further move towards the harmonisation of the laws of the
Member States of the European Union
harmonization of laws of member states of EU Rome Convention —-brings a

uniformity in the EU vis-a-vis commercial disputes —uniform mechanism
if litigation arising from the contract is instituted in a contracting state —- ex.

Japanese and california resident parties to contract —file case in Germany
(member of EU) —-thus here rome convention would applu
determination of proper law —- proper law with the most connection will apply
unless there is a express clause (not contrary to the exceptions)
if there is an expressly agreed clause —-first preference to this clause unless it

falls under the exceptions —-if no express clause but can be implied from the
terms of the contract the court shall construe the applicable law accordingly—-if
no clause then most closely connected with the contract
jurisdictional issues are not conflicting because the access to civil justice cannot
be denied ——the applicable law/governing law of contract is complicated —
there is a diff. between the jurisdiction clause (which court has jurisdiction) and
governing law (can be express clause/court will construe)

matters excluded from rome convention —— obligations relating to a natural
persons status/legal capacity , family relations, matrimonial property regimes,
NI such as bills of exchange, cheques, promissory notes, arbitration and choice
of court , law of companies and other corporate or unincorporated bodies ,
binding of principal or company to a third party , trusts , dealings that occur
before a contract is concluded ——for the mentioned obligations they have
specific laws of the country that are applicable and they will have to be given
preference over the choice of law clause —-different countries have diff. laws
applicable to such obligations and harmonization of the same becomes diff.
[Natural status/legal capacity —-ex. declaration stating that X is the legal heir of
certain person ——- here even if you write a governing law clause that would not
apply ——the choice of law clause cannot be inserted in such declarations——even
if clause is inserted it will not be given preference over the law that is applicable to
such cases]
[In case of NI —-in such cases even if the choice of law clause is inserted
preference to be given to the laws applicable to NI under the law of the country]
[arbitration —-UNCITRAL—-countries having special arbitration statutes that are
made in acc. with the UNCITRAL—- as per the rome convention if there is express
choice then that has to be given preference —but in case of arbitration the clause
should be legal within the contours of the national law as well —hence this matter is
excluded from the rome conventions]
[law of companies —-national law of the country will be applicable]
[dealings that occur before contract is concluded —-pre-contractual arrangements ,
negotiations—only a concluded contract is governed by the rome convention]
Art. 3 —— express choice in writing —— restriction of express choice - Art.

3(3)
See Sections 19 and 20 CPC.
Sharia law —cannot be an express clause —-refer to sharia principles —-it

has to be interms of a sovereign state

ROME CONVENTION ON THE LAW APPLICABLE TO
CONTRACTUAL OBLIGATIONS, 1980
• Harmonisation of laws of member states of EU, wit h the aim of
encouraging single market and to minimise advantage of forum
shopping, so that, irrespective of wherever the action is brought
same governing law shall apply.
• Rome Convention not only applies to contracts with Contracting
states but will also apply to contracts having no connection with EU
community save that, the litigation arising from the Contract is
instituted in Contracting state.
• For Eg: Contractual dispute between Japanese Resident and
Californian Resident filed at UK court.
- Advocate Riya M. Jariwala

Rome convention, 1980
• Universal Convention and establishes the following uniform rules-

A. Parties are free to choose the law governing their contracts.
(Art.3)
B. In default of choice by parties, contract should be governed by
legal system which is most closely connected. (Art.4)
C. Some contracts, characterised by such imbalances of Power that,
weaker party is in need of special protection & hence, special
provision is made for certain consumer contracts (Art. 5) &
individual employment contracts. (Art.6)

Determination of the Proper Law : The Approach in
The Rome Convention of 1980(Europe) and
Regulation
• Determination of the Proper Law : The Approach in The Rome

Convention of 1980 (The material is Taken from Peter Stone, EU
Private International Law: Harmonization of Laws,2006,p263-287)
• It has been modified by Rome I Regulation (Regulation (EC) No
593/2008 of the European Parliament and of the Council of 17 June
2008
• Features
• Most issues relating to a contract are governed by a single law,
which the Convention refers to as the law governing or Proper Law
applicable to the contract

The Rome Convention of 1980(Europe)
• The proper law is determined in accordance with the rules laid down
by Articles 3 and 4.
• These refer, primarily, to a choice of law expressly agreed on by the
parties to the contract; secondarily, to a choice of law impliedly, but
clearly, agreed on by the parties; and finally, in default of any such
choice, to the law of the country which is most closely connected
with the contract, with in most cases a rebuttable presumption in
favor of the residence of the characteristic performance.
The place of the characteristic performance is then revealed to be either (1) the place of
habitual residence or central administration, or (2) the principal place of business of the
debtor owing the particular characteristic performance. ----concept of "characteristic
performance, " used in conflicts law to determine which country's law applies in the
absence of an express or implied choice of law

Determination
SUMMARY of the
OF ROME Proper LawAPPROACH
CONVENTION : The Approach in
expressly agreed on by the parties to the contract
impliedly, but clearly, agreed on by the parties
most closely connected with the contract, with a a

rebuttable presumption in favor of the residence of
the characteristic performance at the time of
conclusion of the contract,

MATTERS EXCLUDED FROM THE ROME
CONVENTION OF 1980(EUROPE)
Regulation Does not apply to the obligations relating to the following:

• a natural person’s status or legal capacity;
• family relationships;
• matrimonial property regimes;
• negotiable instruments such as bills of exchange, cheques and
promissory notes;
• arbitration and choice of court;
• law of companies and other corporate or unincorporated bodies;
• the binding of a principal or a company to a third party;
• trusts;
• dealings that occur before a contract is concluded

ARTICLE 3 --ROME CONVENTION (WHEN THERE IS AN
EXPRESS CHOICE)
• The Proper Law : Express Choice

• Under the Rome Convention, the proper law of a contract is determined
primarily by reference to any express agreement on the point concluded by
the parties to the contract.
• Thus Article 3(1) of the Rome Convention specifies that a contract is
governed by the law chosen by the parties, and that the choice may be
expressed by the terms of the contract. Since no requirement of writing or
other formality is required for an express choice of law, an oral agreement
on the applicable law, concluded in the negotiations leading to the
conclusion of a substantive contract in writing, will be effective.
• A very minor restriction on the effect of an express choice is imposed by
Article 3(3), which specifies that the fact that the parties have chosen a
foreign law, shall not, where all the other elements relevant to the situation
at the time of the choice are connected with one country only, prejudice the
application of mandatory rules of the law of that country.

Determination of the Proper Law : The
Approach in The Rome Convention of
1980(Europe)
• Mandatory Rules are defined as rules which cannot be derogated
from by contract. Thus where parties resident in France negotiate
and contract in France for performance exclusively in France, but
include a clause providing for English jurisdiction and English law, the
English court will have to give effect to all the mandatory rules
contained in French internal law; but, subject to that, the choice of
English law will be effective.
• Examples include Foreign exchange Controls ,Price regulations,
Building Safety codes, Environmental protection, rules Rules on
cartels, Embargo etc.
• Rome regulation says effect may be given to the overriding
mandatory provisions of the law of the country where the
obligations arising out of the contract have to be or have been
performed,

Mandatory Rules and Choice of Law
• Initially Limitations of Mandatory rules only applied to Law of the forum.But there is a growing
tendency to extend it to all other possible connecting legal systems
• Ian Fletcher, noted that the increasingly common judicial practice of according effect to [mandatory]
rules even in cases where they belong neither to the lex fori nor to the lex contractus is a remarkable
example of the extent to which in recent times the previously sacrosanct principle of party autonomy in
matters of contract has been eroded in response to a more activist view of the “appropriate” function
of the Court, which may be summarised as being to ensure the prevalence of an idealised concept of
“justice”, if necessary by dirigiste means rather than by adhering to the traditional role of “neutral
umpire”. Recently-elaborated theories regarding the necessity for accommodating provisions of
mandatory rules of law which, if more traditional conflicts approaches were adhered to, would play
nopart in regulating the parties’ relationship, may thus be seen as a logicalcounterpart of the increasing
trend towards interventionism within the domesticlegal sphere for the purpose of redressing social and
economic imbalances bymeans of rules inhibiting freedom of contract. (IAN F. FLETCHER, CONFLICT OF
LAWS AND EUROPEAN COMMUNITY LAW 169-70 (1982))

Determination of the Proper Law : The
Approach in The Rome Convention of
1980(Europe)
• Thus the Convention requires an express choice to be respected even
if the chosen law has no other connection with the contract, and
even if the choice was made for the purpose of avoiding mandatory
rules contained in the law of the country which is most closely
connected with the contract.
• The rationale for the freedom to choose an unconnected law is
commercial convenience
• In the absence of any, or any valid, express choice is reference made,
secondarily, to implied choice or closest connection.

• Meaning Of Proper Law-
In Shamil Bank of Bahrain v Beximco Pharmaceuticals, that the

proper law, whether chosen by the parties or determined by reference
to closest connection, must be the law of a country, in the sense of a
territory having its own legal rules on contracts. Thus it cannot be the
general principles of law recognized by civilized nations, or the
UNIDROIT Principles of International Commercial Contracts, or
European Community law, or public international law, or Islamic law
(as a generic religious law, independent of its adoption and
interpretation in any particular territory).
common law traditions are also hostile to dépeçage as evident from Shamil whereby the Court of Appeal noted that two different
laws cannot viably govern the whole contract.

• Meaning Of Proper Law
• Parties are limited, in choosing the proper law, to the laws of

countries which exist at the time of the choice. On the other hand
they cannot limit their choice to the content of a law as it exists at
the time of contracting or on some other specified date, but must
accept subsequent changes in its substantive rules which the chosen
law makes applicable to existing contracts, except insofar as such
retroactive effects may infringe a stringent public policy of the
forum.
• Thus parties cannot validly choose ancient Roman law. Nor can they
effectively choose proper Law as it stands at the date of contracting.
Probably in the last mentioned case the reference to the date will be
disregarded, and the clause will then operate as a normal choice of
Proper law.


Article 3 refers to a choice by the parties, it seems probable that the
parties cannot confer on one of them a unilateral power subsequently
to designate the proper law.


• Article 3(1) specifies that by their choice the parties can select the
law applicable to the whole or a part only of the contract. Thus,
perhaps regrettably, the Convention permits the parties to choose
different proper laws for different parts of a contract. (the concept of
depecage, or the application of different governing laws to
severable parts of a contract. )
• But the parts must be logically severable, as where the contract

provides both for a sale of goods and for the supply of technical
assistance.

• That severance is usually inadvisable is apparent from the decision of the English
Court of Appeal in Centrax v Citibank, which involved a contract for electronic
payment services.
• The clause read: „This Agreement and all documents, agreements and
instruments related to this Agreement shall be governed by and interpreted
according to the laws of the State of New York, United States of America,
provided that any action or dispute between the parties regarding any Payment
Instrument shall be governed by and interpreted according to the laws of the
country or state in which the Drawee of such Payment Instrument is located.‟
• The customer sued the bank, complaining that the bank had wrongfully debited
the customer‟s account in respect of cheques forged by an employee of the
customer. The bank was based in New York, but the cheques were drawn on its
London branch, and the customer sought to invoke the (English) Unfair Contract
Terms Act 1977, so as to invalidate terms of the contract on which the bank was
relying in defense.
• The Court of Appeal applied English principles of construction to the choice of
law clause, and by a majority concluded that where, as in the present action, the
dispute raised the interpretation or effect of the contract and went beyond the
validity and effect of the payment instrument, the law of New York was to be
applied.
The Court of Appeal in Centrax expressed an agreement with the proposition that severance of the applicable law is inconvenient in
cases of frustration, termination or breach of contract

Determination of the
ROME CONVENTION Proper----(IMPLIED
APPROACH Law : TheCHOICE)
Approach in
• The Proper Law : Implied Choice

• The Convention agrees with the traditional English law in its post-war phase
in adopting a fairly restrictive approach to the discovery of an implied
choice. Some factor which supplies a clear indication in favour of a particular
law, as being evidently much more suitable to achieve the purposes of the
parties in entering into the contract, is necessary. Otherwise the court
should accept that no choice, express or The factors which may amount to a
clear indication, warranting the recognition of an implied choice, cannot be
definitively listed, but it is in principle unlikely that a sufficiently strong
indication will have escaped attention up to the present date. English case-
law prior to the Convention indicates that the clearest possible indication
arises where, as matters stand at the time of contracting, one connected law
upholds the validity of the contract and all its terms, while another
connected law would have total or partial invalidating effect. In such
circumstances a choice of the validating law is necessary to give effect to the
contract as concluded.

Determination
ROME of APPROACH
CONVENTION the ProperWHEN
Law :NO
The Approach
EXPRESS OR in
IMPLIED CHOICE OF LAW --CLOSEST CONNECTION (ARTICLE
4)
• The Proper Law: Closest Connection

• In the absence of any valid express or implied choice by the parties,
the proper law is determined in accordance with the default rules
laid down by Article 4, which provides:
• To the extent that the law applicable to the contract has not been
chosen in accordance with Article 3, the contract shall be governed
by the law of the country with which it is most closely connected.
• Nevertheless, a severable part of the contract which has a closer
connection with another country may by way of exception be
governed by the law of that other country.

• The Proper Law: Closest Connection
• It shall be presumed that the contract is most closely connected with the
country where the party who is to effect the performance which is
characteristic of the contract has, at the time of conclusion of the contract,
his habitual residence, or, in the case of a body corporate or
unincorporated, its central administration.
• If the characteristic performance cannot be determined, and the
presumptions shall be disregarded if it appears from the circumstances as a
whole that the contract is more closely connected with another country.
• However, if the contract is entered into in the course of that party‟s trade or
profession, that country shall be the country in which the principal place of
business is situated or, where under the terms of the contract the
performance is to be effected through a place of business other than the
principal place of business, the country in which that other place of business
is situated.

Art. 4(4)
• The subject matter of the contract is a right in immovable property or a right to
use immovable property it shall be presumed that the contract is most closely
connected with the country where the immovable property is situated.
• A contract for the carriage of goods shall not be subject to the presumption In
such a contract
If the contract if the
is about country in
transporting which,
goods, andatthethe time main
carrier's the contract is concluded,
business place is the sametheas
carrier
where the has his are
goods principal
loaded,place of business
unloaded, or where the is also theis country
shipper in the
based when which the isplace
contract made,
of loading or the place of discharge or the principal place of business of
then it's assumed that the contract is most closely linked to that country. This applies to contracts the
consignor is situated,
primarily for moving goods, it shall
even be presumed
if they're that the-----ARTICLE
for a single journey. contract is4(4)
most closely
connected with that country. In applying this paragraph single voyage charter
parties and other contracts the main purpose of which is the carriage of goods
shall be treated as contracts for the carriage of goods.
• It is clear from the Giuliano and Lagarde Report (though not from the text of the
Convention itself) that it is the supply of goods or services, rather than the
receipt of or payment for them, which constitutes the characteristic
performance referred to by Article 4(2). Thus the presumption amounts to a
preference for the law of the seller or other supplier's country.

• Closest Connection and the Main Presumption

• The application of Article 4 involves essentially a two-stage process:
• first, under Article 4(2), to identify the characteristic performance of
the contract and the country of the party who is to effect it,
• and then to ascertain what factors, if any, might lead the court to
disregard the presumption under Article 4(5).
Art. 4(5) --- Paragraph 2 shall not apply if the characteristic performance cannot be determined,
and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the
circumstances as a whole that the contract is more closely connected with another country

• Bank of Baroda v. Vysya Bank:

• Indian
Both the parties to the action were banks incorporated in India. Vysya had no branch in the UK. Bank of Baroda had a
number buyers
of UK branches instructed
including one in the CityV of bank,
London. an Indian bank, to issue a letter of
credit in favour of Irish sellers with an office in London. The credit
The case revolved around a letter of credit issued by "Vysya" for an Indian company ("Aditya") to an Irish company with a
Londonprovided it should
office ("the beneficiary") for thebe advised
purchase of goodsto thefrom
shipped seller
Latvia through
to India under B bank,Disputes
a contract. also arose,
an
Indian bank, at its London branch. B bank confirmed the credit and
leading to actions in both England and India. In this action Bank of Baroda claimed damages in respect of the withdrawal
of authority to claim reimbursement from the beneficiary for anticipatory or actual breach of the contract between Vysya as
issuing paid
bank andtheBanksellers
of Barodaunder it. V
as confirming bank
bank. Vysyawithdrew itstoauthorisation
applied for the writ to B that
be struck out on the ground bankthe
contract was subject to Indian law.
to claim reimbursement from V bank before the due date, whereon B
The mainbank soughtwere
legal questions permission
whether Englishto lawserve
governedVthe
bank
contractout of the
between jurisdiction
"Vysya" on the
and "Bank of Baroda," if the
contract was made within the UK, and whether English court jurisdiction was appropriate. Questions arose whether,
applyingground, interConventionon
art. 4 of the Rome alia, that the
the law contract
applicable between
to contractual obligations the
the lawtwo banks
governing was
the contract
between governed
Vysya and Bank byof Baroda
English law. Whether
was English law; whether theitcontract
was was so made
governed depended
within the UK on in
to found jurisdiction
the English court; and, if so, whether the general discretion of the court to give leave to issue a writ should be exercised.
the application of Article 4

The Rome Convention of 1980(Europe) Meaning of
Characteristic performance
• Mance J. held that this contract, between the issuing and confirming
bank, was governed by English law. The contract was one of agency;
the characteristic performance was that of the confirming bank (B
bank). Since that was to be effected through its London branch (a
‘place of business other than its principal place’ of business), by
article 4(2) English law was the applicable law.
Held, dismissing Vysya's summons:
1. For purposes of art. 4(2) of the Rome Convention the “characteristic performance” of the contract between Vysya and Bank
of Baroda was the honouring by Bank of Baroda of its confirmation of the credit in favour of the beneficiary through its London
office. The basic principle under art. 4(1) was that the governing law was that of the country with which the contract was most
closely connected. Under art. 4(5) the presumptions in art. 4(2) were to be disregarded if it appeared from the circumstances as
a whole that the contract was more closely connected with another country. The letter of credit was governed by English law as
between the beneficiary and the two banks, and on that basis it would be anomalous if English law did not also govern the
contract between Vysya and Bank of Baroda.
2. If the action proceeded in the UK it would represent a short action with little scope for oral evidence. The fact that Vysya had
no place of business in the UK would not involve it in any real inconvenience or unwarranted cost. Moreover, the action in India,
which had not been pursued, was no bar to the exercise of the English jurisdiction.
3. It followed that the English court had jurisdiction in the matter and, in the discretion of the court, England was the more
appropriate forum. - Advocate Riya M. Jariwala
• Rebutting the Presumption

• Perhaps the most problematic issue in determining the proper law
under the Rome Convention concerns the strength of the
presumption.
• after some confusion, a consensus has now emerged that for the
presumption in favour of the characteristic performer's residence to
be displaced, it must be clearly shown that the contract has a closer
connection with some other country.

The Rome Convention of 1980(Europe
• Rebutting the Presumption

• In the context of services, preference was ultimately accorded to the
place of performance in Definitely Maybe v Marek Lieberberg,
where an English company had contracted to provide a band to
perform at concerts in Germany organized by a German company. In
concluding that overall the contract had a closer connection with
Germany than with England, Morison J emphasized that Germany
was the place of performance by both parties, where the band were
to perform and the organizer was to make arrangements and provide
facilities for the performance (such as marketing, promotion, security
and equipment).

Scope of proper Law

Proper Law in Particular Issues
• Issues relating to the creation and formation of a contract offer

and acceptance, mistake, misrepresentation, duress, and
consideration-are governed by the "punitive" proper law, that
is, the law that would be the proper law if the contract were
validly created (NORTH,)
• Issues relating to the essential or material validity of the
contract, its terms, or its "effects" are likewise governed by the
proper law.
Material validity" refers to the legal enforceability and legitimacy of the substance or content of a contract or
legal agreement. It deals with whether the terms, conditions, obligations, and rights outlined in the contract
are legally valid and acceptable.

• Issues of interpretation
• law expressly or implicitly chosen by the parties, or the
"objectively ascertained" proper law."" In contrast, some courts
determine the meaning of foreign terminology in a contract by
reference to the law of the country of that language, regardless of
the proper law of the contract.‘
• proper law governs discharge

• remedies for breach of contract

• the proper law governs the remedies for breach of contract.' In
Common law however, the issue
• of which law governs remedies is complicated by the
substantive/procedural distinction found at common law. For
instance, both the nature of the available remedy and the
measure of damages are characterized as procedural, and
therefore governed by English law. Yet, the remoteness of the
damage or "proximate cause" element, the liability for interest,
and the rate payable on a contractual debt are characterized as
substantive, and therefore governed by the proper law.

Scope of Proper law Rome Convention
Lex Cause ---legal system or jurisdiction whose laws will be applied to resolve a
particular legal dispute or issue.
• lex causae will then govern the following:

• “(a) The interpretation of the case and the law;
• (b) Performance, but in regard to the manner of performance and the
steps that must be made in case of ineffective performance, the lex
loci solutions (the law of the place in which performance takes place)
must be taken into consideration;
• (c) Within the limits of the powers given to the forum court by its
procedural law, the consequences of breach, including the
assessment of damages in so far as it is governed by the law;
• (d) The various ways of extinguishing obligations, and the limitation
of actions; and
• (e) The consequences of the nullity of the contract

Scope of Proper law Rome Convention
The Proper law
as per the rome Proper law
convention
govern the
following -----
interpretation
material validity
ways of extinguishing obligations
consequences of the nullity

ROME CONVENTION AND PUBLIC POLICY (ARTICLE 16)
Rome Convention
• “Ordre Public”
• According to Article 16: “The application of a rule of the law of any
country specified by this Convention may be refused only if such
application is manifestly incompatible with the public policy ("ordre
public") of the forum.”
• Sometimes mandatory rules do exist the respect for which is
regarded as crucial by a country for safeguarding its political, social or
economic organisation to such an extent that they are applicable to
any situation falling within their scope, irrespective of the law
otherwise applicable to the contract

Public Policy Guide lines
• Case of India
• The expression 'Public Policy' used in section 48 sub-section2 (Arbitration) refers
to the "Public Policy of India" and does not cover policy of the country, whose
law governs the contract or of country or of place of arbitration. more
contravention of law would not attract bar of Public Policy, but the award must
be contrary to
• Fundamental Policy of Indian law or
• The Interest of India or
• Justice or morality or
• Patently illegal.
Natural Gas Corporation Ltd. v/s Saw Pipes Ltd. 2003 (2) Arb. L.R.5 (SC

Determination of the Particular Aspects of the
CAPACITY TO CONTRACT AS PER THE US APPROACH IS GOVERNED BY -----
PROPER LAW --- LAW CHOSEN BY THE PARTIES OR LAW HAVING MOST
Contract :US Approach
SIGNIFCANT CONNECTION
• Particular Aspects of the Contract

• Capacity to contract
• Under the Restatement of Conflict of law in United States the
question whether the parties have legal capacity to enter in to
contract in principle is governed by the law chosen by the parties, if
they have made an effective choice. Otherwise, this question is
determined by the law that has the most significant relation ship as
indicated by: place of contracting, place of negotiation of the
contract, place of performance.

CAPACITY TO CONTRACT AS PER THE UK APPROACH IS
GOVERNED BY ---- PROPER LAW ---- LAW OF THE COUNTRY WITH
Contract :UK Approach
WHICH THE CONTRACT IS MOST "SUBSTANTIALLY CONNECTED"
• Under the English jurisprudence, what law governs capacity to make

a valid contract is a mater of controversy among authorities.
• Even Cheshire & North admit that the question what law governs the
capacity of parties to a contract is 'a matter of concern.
• Dicey & Morris states that"An individual's capacity to enter into a
contract is governed by the system of law with which the contractis
most closely connected or by the law of his domicile and residence.
• In modern understanding however, it seems both grounds are found
to be wanting It is, however, now generally agreed that capacity is
regulated by proper law of the contract, provided that this
expression is taken to mean the law of the country with which the
contract is most substantially connected. (NORTH,)

• A 17 year old Arcadian at school in England enters into a contract in

England with an English bank to obtain an overdraft. By A:rcadian law
the contract valid;
• by English law it would be void. Morris argues that there is no real
problem. The Arcadian is not entitled to the protection of Arcadian
law, because by that law he is of full age, nor of English law, because
he is not English.
• Morris then attempts to justify the non application of the English
protective legislation to the Arcadian. "The desirable result"
therefore Morris concludes is that the contract should be valid.

CAPACITY TO CONTRACT AS PER THE EU (ROME CONVENTION)
APPROACH ---- EXCLUDED FROM SCOPE OF ROME
Contract :EU Approach
CONVENTION---GOVERNED BY THE CONFLICT RULES OF THE
FORUM COUNTRY
• The capacity of both individuals and companies to contract is

excluded from the scope of the Rome Convention and thus continues
to be governed by the conflict rules of the forum country.
• But an exception specified by Article 11 insists that, in the case of a
contract concluded between persons who are in the same country,
an individual who would have capacity under the law of that
country may invoke his incapacity resulting from another law only if
the other party to the contract was aware of such incapacity at the
time of the conclusion of the contract, or was not aware of it as a
result of negligence.

FORMAL VALIDITY OF CONTRACT --UNDER US APPROACH ---GOVERNED
BY ---- Section 199 --Second Restatement ---- formalities determined by law
Contract
chosen :US Approach
by the parties
• Formal validity of the contract

• The Second Restatement of conflict of laws in US tries to answer this
question under section 199. Under the rule of this Section, the
question whether a contract was executed with the necessary
formalities is determined by the law chosen by the parties, if they
have made an effective choice
• Dicey & Morris state that - the formal validity of a contract is
governed by the law of the country where the contract is made (lex
loci contractus) or by the proper law of the contract
• Cheshire & North like Dicey & Morris say that it is sufficient to
comply with the loci contractus, for formalities.

FORMAL VALIDITY OF CONTRACT --UNDER ROME CONVENTION ---
GOVERNED BY -----
Contract :EUApproach
• As regards formalities, Article 9 of the Rome Convention lays down a
rule of alternative reference, reflecting a policy of validation,
• a contract concluded between persons who are in the same country
is formally valid if it satisfies either the formal requirements of its
proper law, or those of the law of the country where it is concluded.
• By Article 9(2), a contract concluded between persons who are in
different countries is formally valid if it satisfies either the formal
requirements of its proper law, or those of the law of one of those
countries.

EFFECT OF ILLEGALITY OF OBJECT UPON CONTRACT --UNDER US
APPROACH ---DETERMINED BY BY -----
Contract :US Approach
• Illegality of the Object of the Contract
• The second Restatement of conflict of laws in US section 202 states
that, the effect of illegality upon a contract is determined by the law
selected by application of the rules of section 187-188.This means,
effect of illegality shall be governed by the law chosen by the parties
if they have made one

EFFECT OF ILLEGALITY OF OBJECT UPON CONTRACT --UNDER UK
APPROACH ---DETERMINED BY BY -----
• In the matter of illegality under the English conflict of laws, it is not
possible exclusively to refer to the proper law.
• No foreign contract will be enforced which, though valid by its proper
law, is regarded as morally reprehensible by the lex fori.
• Again ,it has been said that a court ought not to enforce a contract
,what ever its proper law may be ,if its performance is illegal by the
lex loci solutions.

EFFECT OF ILLEGALITY OF OBJECT UPON CONTRACT --UNDER
Effect of illegality
COMMON LAW APPROACH ---DETERMINED BY BY -----
• Common Law positions

• First, it is axiomatic that the contract which is illegal by its proper law
can be enforced in other places
• Secondly, no action lies in England upon a contract which infringes
the distinctive public policy of English law.
• Thirdly, a contract which is valid by its proper law does not become
unenforceable in England merely because it is illegal according to the
lex loci contractus.
• The last and rather obvious proposition a contract is not
unenforceable in England merely because performance is illegal by
the law of the country in which the promissory carries on his
business or to which he belongs by nationality or domicile, provided
that the contract is not subject in other respects to the law of that
country.

Problem of proper Law
• The inescapable conclusion, having considered the contract law, is that the
proper law doctrine does not enjoy paramount control
• There are very few areas where the concept is thought to apply without
reference to other conflict of laws concepts such as domicile, or other
theories such asthe lex loci contractus or lex loci solutionis
• The criticisms of party autonomy
• 1. Party Autonomy becomes a legislative act.
• 2. Party Autonomy cuts across other theories.
• 3. Party Autonomy may not effect party intention.
• 4. Party Autonomy is difficult to apply.
• 5. Party autonomy could lead to absurdity.
• 6. Party Autonomy is illogical.
• 7. Party Autonomy evades the application of the applicable law.
• 8. Party Autonomy is not required

US Solution of proper Law and party
autonomy
• Currie's Governmental Interest Analysis.
• Cavers' Principles of Preference.
• The Rheinstein Method.
• The Comparative Impairment Approach.
• The Functional Approach.
• The Forum Centred or True Rules Approach.
• Leflar's 'Better Law' Approach.
• The 'Contract' (or 'Centre of Gravity' or Groupingof Contacts
Approach, or Significant Contacts Approach.)

US Solution of proper Law and party
autonomy
• Leflar's 'Better Law
• was a non-weighted list of five “choice-influencing considerations”
for judges to consider in deciding choice-of-law questions. The five
factors were:
• (1) “[p]redictability of results,”
• (2) “[m]aintenance of interstate and international order,”
• (3) “[s]implification of the judicial task,”
• (4) “[a]dvancement of the forum’s governmental interests,” and
• (5) preference for the better rule of law

Sharia law and Islamic Finance
• Financial experts estimate the current worth of Shariah-compliant

assets at almost one trillion U.S. dollars globally.
• Strikingly, business activities in the Islamic financial sector are not
confined to countries whose legal systems are Shariah-based. The
United Kingdom, a common law country, ranks ninth in the world in
holdings of Shariah-compliant assets.

• Shariah as a choice of law for common law courts and arbitrators is not peculiar
to the current era of Islamic finance. Early cases demonstrate that arbitrators
denied that Islamic law was sophisticated enough to utilize in complex
commercial disputes. In the case of Petroleum Development (Trucial Coasts) Ltd.
v. Sheikh of Abu Dhabi,(1953) Lord Asquith acted as an arbitrator in a dispute
arising out of a contract executed in Abu Dhabi.
• He acknowledged that Abu Dhabi’s law, which was based on Islamic law, should
be applied. He subsequently refused to apply the law because, according to him,
“it would be fanciful to suggest that in this very primitive region there is any
settled body of legal principles applicable to the construction of modern
commercial instruments.” He described the ruler of Abu Dhabi as an absolute
monarch who administers a “purely discretionary form of justice with some
assistance from the Koran.”After analyzing the choice of law issue, the
arbitrator relied instead on principles of English law (ALAN SCOTT RAU ET AL.,
ARBITRATION )363
• Had the arbitrators attempted to answer the question before them, they would
have found that there was expansive literature on Islamic contract law.

• The Kuala Lumpur Regional Centre for Arbitration (KLRCA) houses a

specialized department to arbitrate Islamic financial disputes. The
Asian-African Legal Consultative Organisation (AALCO) established
KLRCA in 1978 to facilitate commerce between its 47 member states.
• The United Arab Emirates houses three main arbitration centers that
routinely hear disputes regarding Islamic finance matters

Application of islamic Law
• In State of Saudi Arabia v. Arabian American Oil Co., the arbitrator

subjected the law of Saudi Arabia to the general principles of
jurisprudence as he knew them. In that case, Onassis, a Greek
transport company, was given a quasi-monopoly from Saudi Arabia to
transport oil from out of the country.
• ARAMCO protested, arguing that under its concession agreement it
had the right to choose its own method of transporting oil. The case
went to arbitration in Geneva, and the tribunal recognized the
applicability of Saudi Arabian law. Despite the clear mandate, the
arbitrator decided that the rights of ARAMCO could not be “secured
in an unquestionable manner by the law in force in Saudi Arabia . . .
[and that Saudi laws] must be interpreted or supplemented by the
general principles of law, by the custom and practice in the oil
business and by notions of pure jurisprudence.”

• Shamil Bank of Bahrain v Beximco Pharmaceuticals Ltd and others

(2004),
• Beximco Pharmaceuticals entered into a murabaha agreement with
Shamil Bank of Bahrain, a financial institution holding itself out to be
a bank that conducts its business within the limits of Shariah law. The
agreement was signed by the parties and resulted in the acquisition
of nearly forty-seven million dollars in assets. The agreement
contained a choice of law clause that read,
• “[s]ubject to the principles of the Glorious Sharia’a, this agreement
shall be governed by and construed in accordance with the laws of
England

• Murabaha agreements are contracts for the sale of goods whereby

the seller (here the Bank) agrees to purchase, in its own name, goods
specified by the buyer (here the Borrower) and sells them to the
buyer on a deferred payment basis, payable in instalments. The
difference between the original price and the deferred price is the
Bank's profit.
• When Beximco failed to make payments under the agreement,

Shamil Bank claimed the amount outstanding under the agreement.
Beximco claimed that the agreement was invalid because it
contained a hidden form of riba.
• The Appellate Court acknowledged that if the phrase “[s]ubject to
the principles of the Glorious Sharia’a” was a valid choice of law
clause, then Beximco would succeed under the agreement.

Sharia law and Contracts
• The question before the Court raised by the Borrowers‘ defence was
whether on a true construction of the governing law clause, the
finance agreements were enforceable only if they were valid and
enforceable both in accordance with the principles of Shariah and in
accordance with English law.
• The Borrowers' also argued that the effect of the governing law
clause was to select English law as the governing law but at the same
time stipulating as a condition precedent that the contract would be
enforceable only if consistent with the principles of Shariah.
• According to the court, if the intention of the parties was to
incorporate Shariah law into the contract, then they did not do so
effectively; instead, they would have had to identify a foreign law or
code and, more specifically, to which part of the contract the clause
applied

Sharia law and Contracts
• The High Court and Court of Appeal granted judgment to the Bank on
its claims concluding that the principles of Shariah did not apply to
the Murabaha agreements, principally because that had not been the
parties' intention.
• The Court's reasoning was as follows:
• the reference to the "Glorious Shariah" in the governing law clause
was merely intended to reflect the Islamic religious principles
according to which the Bank held itself out as doing business. It
was not a system of law designed to trump the application of
English law as the governing law.
• the 1980 Rome Convention on the Law Applicable to Contractual
Obligations (Rome Convention) allows only one system of law to
govern a contract and also requires that the chosen law be that of a
particular country

Sharia law and Contracts Findings
• The first is that the English appellate court prohibited the use of a
combined-law clause based on the principle that a contract cannot
be governed by two systems of law and the statement in the Rome
Convention on the Law Applicable to Contractual Obligations that a
“contract shall be governed by the law chosen by the parties.”
• The second important holding of the Shamil Bank court was that the
reference to Shariah in the disputed contract was nothing more
than a non-binding statement of intent. In arriving at this conclusion,
the appellate court argues that
• (1) the Rome Convention does not contemplate the choice of a non-
state legal system such as Shariah;
• 2) even if the parties intended to incorporate some aspects of
Shariah, they should do it relating to a system of law

Sharia law and Contracts Findings
• In determining the obligations of parties, courts should look to the

intentions of parties and their understanding of the meaning of the
contract.
• A court should do its best to give effect to those intentions without
breaching legal principles. In interpreting the intention of the parties,
the appellate court in Shamil Bank did not look to the prior
negotiations between the parties, the common practices of the
Islamic financial industry, or the motives of the parties in choosing to
use Islamic banking procedures.

Judging Under Shariah: The U.S. Experience
• There is concern by U.S. scholars that a choice of law that necessitates

looking into Shariah law will run afoul of the First Amendment prohibition of
state endorsement of a particular religion.
• From an arbitration standpoint, the fear is that the recognition of an
arbitration award will be attacked on public policy grounds in the enforcing
courts.
• Enforcement of an arbitration award is not safe from similar attacks in other

jurisdictions. In Canada, for example, the government of Ontario amended
their Arbitration Act to make family dispute arbitration decisions based on
religious principles unenforceable. This amended legislation, enacted after
decades of Canadian enforcement of the arbitral decisions of the Jewish Beit
Din, was in reaction to a campaign by the Islamic Institute for Civil Justice to
increase the recognition and enforceability of Muslim personal law arbitral
decisions in Ontario.

Indian cases : EARLIER VIEW
Delhi Cloth & General Mills Co. Ltd. Vs. Harnam Singh- (AIR 1955 SC
590) –
Recovery of balance from Plaintiff who resided in Pakistan and was in
business with Defendant in India.
HELD: subjective theory may produce strange results because of the
unconnected law and it is possible that there must be difficulty in
enforcing the law if it is illegal or against the public policy.
Rhodia Ltd. v. Neon Laboratories Ltd., (AIR 2002 Bombay 502)
In this case, an English company and an Indian company entered into
an agreement under which the Indian company had the exclusive
right to market and distribute the English company’s products
manufactured in India and Sri Lanka. The governing law of the
agreement was English law. The agreement also provided that all
disputes between the parties on the interpretation or performance
of the agreement would be settled by English courts.

INDIAN CASES
• British India Steam Navigation Co. Ltd v. Shanmughavilas Cashew

Industries. (1990) 3SCC 481-
“Choice of proper law must be bona fide and legal, and not against
public policy.”
• Rabindra N. Maitra Vs. LIC of India 1963 SCC OnLine Cal 48-
“There would be no justification for a choice of an unconnected law in
the contractual agreement between international parties, unless the
law is also the proper law.”

Current position under Indian Law:
National Thermal Power Corporation v. Singer Company, (AIR 1993 SC 998)
• (i) Whether contracts with a foreign choice of law clause are valid under Indian
law, and whether foreign law can be relied upon to assess whether an Indian
court has jurisdiction in the matter?
• (ii) Whether an Indian court has jurisdiction to entertain a suit arising out of an
agreement specifying a foreign court as having exclusive jurisdiction, if the
cause of action has arisen in India?
The expressed intention of the parties is generally decisive in determining the
“proper law of the contract.” The only limitation to this rule is that the
intention of the parties must be expressed bona fide and should not be
opposed to public policy. Proper law is, thus, the law which the parties
expressly or impliedly choose or which is imputed to them by reason of its
closest and most intimate connection with the contract.

Current Position under Indian Law
• Modi Entertainment Network v. WSG Cricket Pte. Ltd. (2003) 4 SCC

341-
“Indian private international commercial law permits the choice of any
legal system even if the legal system does not have any connection
with the contractual obligation in question.”
Earlier view as taken in the case of Rabindra N. Maitra Vs. LIC of India 1963
SCC OnLine Cal 48-
“There would be no justification for a choice of an unconnected law in
the contractual agreement between international parties, unless the
law is also the proper law.” --OLD VIEW OF INDIAN LEGAL SYSTEM

Protected Contracts
• Even if contractual relation is a juridical act that would be created

between equal parties playing under equal bargaining power, there
are some contracts in which the law identifies the contracting
parties are not of equal bargaining power due to difference in their
economic power and the negative impact it has on the social
interest if we left such persons on their own. Such contracts are
contracts like consumer contracts and individual contracts of
employment. With a view to protecting weaker parties, special
choices of law rules are laid down for consumer and employment
contracts. Under this section we will be dealing with these special
contracts.

Employment Contracts (Regulation)
ARTICLE 6 OF ROME CONVENTION ---Article 6 Individual
employment contracts.
1. An individual employment contract shall be governed by the law chosen by the

parties in accordance with Article 3. Such a choice of law may not, however, have
the result of depriving the employee of the protection afforded to him by
provisions that cannot be derogated from by agreement under the law that, in
the absence of choice, would have been applicable pursuant to paragraphs 2, 3
and 4 of this Article.
2. To the extent that the law applicable to the individual employment contract has
not been chosen by the parties, the contract shall be governed by the law of the
country in which or, failing that, from which the employee habitually carries out
his work in performance of the contract. The country where the work is
habitually carried out shall not be deemed to have changed if he is temporarily
employed in another country.
3. Where the law applicable cannot be determined pursuant to paragraph 2, the

contract shall be governed by the law of the country where the place of business
through which the employee was engaged is situated.

• Article 6(2) determines the proper law of an employment contract

in the absence of a choice of law made by the parties in accordance
with Article 3.
• The primary rule, laid down by Article 6(2)(a), is that the proper law
is that of the country in which the employee habitually carries out
his work in performance of the contract, even if he is temporarily
employed in another country.
• But if the employee does not habitually carry out his work in any
one country, Article 6(2)(b) refers instead to the law of the country
in which the place of business through which he was engaged is
situated.
• European Court ruled in Mulox v Geels and Rutten v Cross Medical,

in cases where the employee carries out his work in more than one
country, reference must be made to the place where the employee
has established the effective centre of his working activities, at or
from which he performs the essential part of his duties towards
his employer.
For example, a sales manager will habitually work at the office where
he organizes his work, even though he makes frequent business trips
to other countries.

Consumer Contracts ARTICLE 5 ROME CONVENTION
• Requirements – i. Substantial and ii. Territorial

• Substantial requirements: Should be a consumer contract
• As regards territorial elements, the contract must be connected
with the country of the consumer’s habitual residence in one of the
three ways envisaged by Article 5(2).
• The
Art. 5 (2) provides that ------a choice of law made by the parties shall not have the result of depriving the consumer of
the first
protection alternative
afforded is that
to him by the mandatory rules its
of theconclusion
law of the country in waswhich hepreceded
has his habitualby a
residence:
specific invitation addressed to him in that country or by
advertising there, and he had taken in that country all the steps
a. if in that country the conclusion of the contract was preceded by a specific invitation addressed to him or by
necessary
advertising, ontaken
and he had his inpart for the
that country all theconclusion
steps necessaryof the
on his partcontract.
for the conclusion of the contract, or
b.• ifThe
the othersecond is that
party or his agent the
received the supplier
consumer’s or country,
order in that his oragent received the
consumer’s order in that country.
c. if the contract is for the sale of goods and the consumer travelled from that country to another country and there
• The
gave third
his order, is that
provided that the contract
the consumer's journey wasis for the
arranged saleforof
by the seller goodsof inducing
the purpose and the the
consumer to buy.
consumer travelled from that country to another country and gave
his order there,his journey having been arranged by the seller for
the purpose of inducing the- Advocate consumer
Riya M. Jariwala
to buy
Consumer Contracts Problems
• Mobile‟ consumer (who contracts while visiting the supplier‟s

country) can be deprived of all protection by a clause choosing the
law of a non-member country.
• In such cases, the consumer should be given the protection of the
mandatory rules of the supplier‟s country, despite a choice by the
parties of some other law

Consumer Contracts
• Special choice-of-law rules apply.

• Firstly, by Article 5(3), in the absence of an express or implied choice
of law by the parties in accordance with Article 3, the law of the
consumer's habitual residence becomes the proper law.
• The tests of the closest connection and the characteristic
performer's residence, laid down for other cases by Article 4, are
wholly excluded in the case of protected consumer contracts.

Consumer Contracts
• Secondly, by Article 5(2), if there is an express or implied choice of

law by the parties in accordance with Article 3, the choice remains
effective to designate the proper law, but the proper law operates
subject to the mandatory rules for the protection of the consumer
as a weaker party contained in the law of his habitual residence.
The effect is to give the consumer the cumulative benefit of the
protective rules of the chosen law and those of the law of his
habitual residence.
• On any given point, the protective rule which is more favorable to
the consumer prevails. Moreover, in contrast with Article 7, there is
no need for the law of the habitual residence to have asserted an
overriding interest in the application of its protective rule.

Conclusion
• As contract is a law where freedom of the parties is given higher value than any
other area of law, the appropriate system of law to govern the formation and
outcome of contacts containing foreign elements in principle is left for the parties to
choose.
• Therefore primarily, proper law of contract is the law expressly or impliedly chosen
by the parties to govern their case.
• However, the parties are not free to choose any law they like. They have to have
substantial relationship with the parties and the chosen law should not be contrary
to the public policy of the forum.
• But, if the parties fail to make a valid choice, the practice of different countries
shows that the court of the forum applies the law of the state that has the most
significant relationship or the closest connection with the contract.

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PIL and Contracts

10/08/23 11/08/23 14/08/23 (absent) 17/08/23

Requirements for a valid contract - Essentially the same in all jurisdictions. -

contract involving foreign elements —- fall under purview of PIL

foreign element —- one of the parties is foreigner, subject matter in foreign

law governing contracts means the proper law that is applicable

EU countries —- Rome Convention

US —- party autonomy —Most real connection

UK —-party autonomy —Most real connection

contracts gives rights in personam

Three stages in a contract — formation in accordance with the essentials of

Applicable law ——Material and formal validity

E - Contracts and PIL

Lex loci solutionis —law of the place of performance”

Contracts and Conflict of Laws Issues

PIL and Contracts 1

💡 Doctrine of the proper law of Contract is considered an answer to

The proper law of the contract is a convenient and succinct

It has been defined as “that law which … a court is to apply in

Party Autonomy —- To avoid uncertainty and to make business

US Approach to determine Proper Law of Contract ——

In US —— previously in the first restatement —— preference of

PIL and Contracts 2

1952 —-Uniform Commercial Code of New York - US —- attempt to

The US approach under the Second Restatement —

Ascertainment of the Proper Law —- In the second restatement it is

The following are the exceptions to party autonomy ——

PIL and Contracts 3

Doctrine of Proper Law ——- Current doctrine that governs many

Parties in the usual course are allowed to choose the applicable

a. where the clause is contrary to public policy (ex. agreement in

b. When fundamental interest of a country is involved —-Contrary

c. agreement in restrain of legal proceedings), or restricts the

d. contracts wherein the parties have unequal bargaining power

e. when the chosen state has no substantial relation to the

PIL and Contracts 4

Thus, the US position currently ——-Governing law/proper law

Public Policy [S. 34 A&C Act]

PIL and Contracts 5

In the pre-amendment era, the term ‘public policy’ was first

The Supreme Court elaborated on this issue again in Associate

The 246th Law Commission Report suggested amendments in

PIL and Contracts 6

1. Renusagar Power Ltd. v. General Electric

2. ONGC v. SAW PIPES

3. ONGC v. Western Geco , 2014 9 SCC 623

4. Associate Builders v. DDA, (2015) 3 SCC 49.

PIL and Contracts 7

approaching wrong jurisdiction will not have adverse consequence —-

UK Approach to determine Proper Law of Contract ——

PIL and Contracts 8

Common law judges faced questions about governing law for

Focus was on determining the law to govern specific

Possibility of selecting lex loci contractus (law of the place of

Lex loci solutionis (law of the place of performance) faced

Lord Wright's perspective in Mount Albert Borough Council v

Starting from the mid-19th century, English judges sought the

Cases often involved explicit choice of law or inferred choice,

Three main situations emerged: (a) explicit choice of law, (b)

PIL and Contracts 9

Two views emerged regarding the proper law of a contract: the

PIL and Contracts 10

💡 Robinson v. Bond —- first major decision on party autonomy in