INTERNATIONAL CONFLICT OF LAWS AND

INTERNATIONAL BUSINESS

IAN F. G. BAXTER*

I. INTRODUCTION

THE purpose of this article is to argue that, whether or not they have a
desirable role to play in some areas of law or with regard to some legal
issues, current choice-of-law techniques are in general not well designed
for application to problems that arise in the complex and rapidly devel-
oping field of international trade and investment. International business
today is of such importance and volume that it needs laws and theory
that are designed for it. It will be argued that it is not adequate to treat
international conflict of laws in the area of international business as
"interstate law in international garb", 1 as is typical in the United States,
or to apply to that area of business choice-of-law theories or formulas
whose intellectual roots lie in the concepts of Savigny, as in various com-
mon law and civil law systems.2
It is important, therefore, to mark the boundaries of this article's con-
cern. It deals only with "international" problems. So interstate and
interprovincial conflict of laws is excluded, which is a large exclusion
with regard to the United States where conflict of laws is dominated by
interstate case law and where modern theories seem chiefly to have
interstate litigation as their focus. The restriction to "international busi-
ness" excludes conflict of laws in relation to domestic business and in
relation to non-business issues (including topics such as family law, wills
and succession and administration of estates, domestic-commercial and
non-commercial property questions). In addition, being a criticism of
choice-of-legal-system techniques as applied to international business
issues, the article is only incidentally concerned with topics such as juris-
diction of the courts in personam and in rent, or recognition and
enforcement of foreign judgments. The fundamental question remain-

• Professor Emeritus, University of Toronto.

1. Ehrenzweig, Private International Law, General Part (1972), p.20: "To be sure,
after the Civil War, with the increasing impact of the Constitution and the growing diver-
sity among the statutory and no longer 'common' laws of the several states, new problems
in interstate relations began to require a new approach. Indeed, these problems grew so
quickly in number and importance that to this day American doctrine, despite its continu-
ing internationalist ambition, has in effect been limited to interstate law". See also idem,
pp.64 and 66.
2. Kahn-Freund, General Problems of Private International Law (1976), pp.139-142.
Friedrich Karl von Savigny, 1779-1861.

538 (1985) 34 LCX.Q.

JULY 1985] Conflict of Laws and International Business 539
ing (after these exclusions) is how to devise appropriate rules of law to
be applied by the courts of a sovereign State to a commercial issue
where the essential facts are spread over more than one sovereign State.
The topics of major concern will be contracts, property and torts.
The author wrote an earlier article examining the logical structure of
choice-of-legal-systems and criticising them as problem-solving tech-
niques.3 The traditional logical structure of a choice-of-law rule, as pre-
sented by authors such as Falconbridge,4 is a procedure for obtaining a
unique solution consisting of (i) classification of a legal question, and (ii)
a connecting factor (with a geographical location) as a "switching-gear"
intended to direct the question tcone and only one legal system. The
opinion stated in the prevous article was that the foundation principle
should be that the forum should not apply its rules of law for domestic
cases if there is a reason for creating an exception to these rules because
foreign elements are involved. This would mean a process of creating
and justifying rules in the forum's legal system as exceptions to the rules
for domestic cases in order to,deal with issues involving foreign
elements. Such a process does not involve the use of choice-of-law rules
designed either to leave a legal question subject to the domestic law of
the forum or else to "shunt" it into the domain of a foreign legal system,
i.e. it is not a choice-of-legal-system method. According to the previous
article, there will be situations involving foreign elements where the
forum may not think it appropriate to apply its ordinary domestic legal
rules. By this approach, choice of law becomes a study of special prin-
ciples and of the reasons (based on convenience, common sense and
fairness) which justify the court in modifying the domestic rules or cre-
ating exceptions to them.

O. MODERN BUSINESS PATTERNS A N D TRADITIONAL CONFLICTS

RULES

IN the last few decades there has been a dramatic rise in the volume,
range and complexity of international business, both trade and invest-
ment, and including both manufacturing and services. This rise appears
very likely to continue and probably to increase. Some examples of
commercial areas of fast development since the Second World War are:
transnational sales; transfers of technology; trade financing and letters
of credit; transportation by land, sea and air; government procurement;
government involvement in international business; regulation of compe-
tition; international banking and financial transactions (including

3. "Choice of Law" (1964) 42 Can. Bar Rev. 46; see also Baxter, in Essays on Private
Law: Foreign Law and Foreign Judgments (1966), Chap.2.
4. Essays on the Conflict of Laws (2nd ed., 1954), pp.37-49.
540 International and Comparative Law Quarterly [VOL. 34
foreign currency transactions, Eurocurrency transactions, and syndi-
cated loans); joint ventures; projects and project financing; resource
development by transnational enterprises; and insurance transactions.
Quite a number of these areas, or forms of business, have given rise to
new dimensions and new commercial and financial techniques that were
not within the thinking of the jurists who moulded the foundations of
private international law in the common law or the civil law. The world
of international commerce today is a different world from what it was a
few decades ago, and certainly from what it was before the Second
World War.
Another element involving changes in recent decades lies in the roles
and relative importance of countries in relation to international com-
merce and the transnational activities of major corporations. Obvious
examples are the dramatic rise of Japan; the development of business
with the People's Republic of China and other countries of that region;
the emergence of Hong Kong and Singapore as major financial and ship-
ping centres; the regional structure of the European Communities; busi-
ness with the socialist countries of Eastern Europe; the direct
investment initiatives of US and to a lesser extent European and Japan-
ese corporations in many parts of the world; and the increasing import-
ance and volume of business in services in recent years.3
Important disputes involving large sums can arise between parties in
countries having radically different legal systems, and different ideas
about the function and interpretation of agreements, about the role and
structure of a business enterprise, as to methods of dispute settlement,
and so on. Should choice-of-legal-system rules created in the context of
interstate litigation in the US be applied to a commercial dispute
between a US company and a South Korean company? To adjudicate a
dispute between a US corporation and a Hungarian business enterprise,
will it be satisfactory to refer the issue either to a legal system in the
United States or to the Hungarian legal system (for the rule of decision)
based on a comparison of the relevant policies and interests of each legal
system? To adjudicate a commercial dispute between a UK corporation
and a Japanese corporation, will it seem satisfactory to the businessmen
concerned to obtain the rule of decision either from a UK legal system
or from the legal system of Japan, depending on whether the facts of the
transaction (which may be varied and complex) seem to have the closest
connection with the UK system of law or with the Japanese system of
law?
Surely the time has come for the legal systems of the leading commer-
cial countries of the world to develop legal rules that are custom-made

5. See generally R. K. Shelp, Beyond Industrialization (1981).

JULY 1985] Conflict of Laws and International Business 541
for international commerce and for adjudication of disputes involving
foreign elements. International business has now grown too big and too
important to have to make do with choice-of-legal-system rules created
essentially for interstate (and not international) litigation or developed
from nineteenth century European conceptualism (such as Savigny's
"natural seat" of an obligation). It is time for the great legal systems to
cease applying choice-of-legal-system "shunting" techniques, and
instead to permit variations and exceptions to their domestic commer-
cial rules, appropriate to issues with foreign elements. As this article will
attempt to show, there has been a former tradition along such lines, as
old as the Roman law.

A. Party Autonomy in Contract

It is not surprising that other methods have developed for dealing with
transnational disputes besides the application of choice-of-legal-system
rules and theories. Indeed, within the conflict of laws, there is the prin-
ciple of party autonomy in contracts by which the parties may select by
agreement the legal system from which the rule of decision is to be
obtained. This principle is as old as the fifteenth and sixteenth centuries.
According to Professor Batiffol6 the rule locus regit actum was explained
by Rochus Curtius in the fifteenth century as implied voluntary sub-
mission to the locus, and in the sixteenth century Dumoulin extended
this idea by affirming the freedom of the parties to choose another law.
The autonomy doctrine in contracts is nowfirmlyentrenched in Western
legal systems and in most jurisdictions it is, to all intents and purposes,
an unrestricted choice.7 The autonomy principle has been freely used in
international agreements by parties wishing to avoid a court selection of
a "proper" legal system by "closest connection", "centre of gravity",
"governmental interests", "disinterested forum", or some other
rubric.8 There is a considerable limitation in the number of cases in
which these rubrics are actually applied. Moreover, the host country of
a transnational enterprise or joint venture sometimes requires appli-

6. Aspects Philosophiques du Droit International Privi (1956), p.64. " . . . R o c h u s

Curtius explique la regie [locus regit actum] par l'idee que les parties, contractant en un
lieu donne, se sont volontairement soumises a la loi de ce lieu. Dumoulin franchit le pas
qu'appelait cette explication en affirmant la liberte des parties de se soumettre a une autre
loi."
7. "Even where lip service is still paid to the requirement of an 'inteiet legitime', that
requirement has been so broadly interpreted that it has become little more than one of
legal esthetics": Ehrenzweig, op. at. supra n.l, at p.181 (footnote omitted).
8. Examples will be given later in this article of shipping cases that illustrate the practi-
cal difficulties of applying "closest connection" to facts spread over different countries,
which is not unusual in modern international commerce.
542 International and Comparative Law Quarterly [VOL. 34
cation of its own law.9 In situations where the parties select their appli-
cable law under an autonomy principle, however, or where a selection is
imposed by the law of a host country, the reference is normally to a sys-
tem of law (within which the rule of decision is to be discovered) and not
simply to a particular legal rule, i.e. what is involved (at least in theory
and form) is choice-of-legal-system and not choice-of-rule.10
This article is concerned with a critical examination of private inter-
national law techniques for the adjudication of commercial disputes
with transnational elements. But there are other methods in current use
to regulate international business issues and to resolve disputes in that
domain—for example, treaties, arbitration, international or regional
courts, and diplomatic initiatives.

B. Arbitration
Many countries have national arbitration machinery with a capacity for
dealing with transnational references,11 and arbitration facilities are also
provided by various international organisations, such as the Inter-
national Chamber of Commerce (ICC).
The United Kingdom and France have recently introduced new legis-
lation designed to improve the law and procedure for transnational arbi-
trations (especially in regard to judicial review of awards in the case of
the UK statute) and intended to enable London and Paris to maintain
their prominence as centres for international arbitration. The UK stat-
ute is the Arbitration Act 197912 and the French statute is Decree
No.81-500 of 12 May 1981.13 London is a very busy centre for inter-
national arbitration.

9. The Regulations for the Implementation of the Law of the People's Republic of
China on Joint Ventures using Chinese and Foreign Investment of 20 Sept. 1983 provide
that joint ventures under that Law are "Chinese legal persons and are subject to the juris-
diction and protection of Chinese law" (Art.2). They also provide that, if there is no writ-
ten arbitration agreement between the parties to a joint venture, each side can file a suit
with the Chinese People's Court (Art.3). Latin American host countries may require the
insertion of "Calvo" clauses in agreements with foreign direct investors, confining disputes
to resolution in the host country.
10. In this connection, there can be differences between theory and litigation practice,
where counsel and the court are aware of alternative rules of decision, and what is in the-
ory a choice-of-system is (in underlying reality) more like a choice-of-rule.
11. Arbitration commissions are quite common in socialist countries. For example, the
Joint Venture Regulations of the People's Republic of China {supra n. 9) provide for the
submission of disputes to the Foreign Economic and Trade Arbitration Commission of
the China Council for the Promotion of International Trade (Art.110).
12. See Shenton and Toland, "London as a Venue for International Arbitration"
(1980) 12 Law & Pol. Int. Bus. 643-676; Park, "Judicial Supervision of Transnational
Commercial Arbitration: The English Arbitration Act of 1979" (1980) 21 Harv.L.J. 87.
13. The Decree adds (new) Title V and Title VI, being Arts. 1492-1507 of the Code of
Civil Procedure. See Craig, Park, Paulsson, "French Codification of a Legal Framework
for International Commercial Arbitration" (1981) 13 Law & Pol. Int. Bus. 727-746.
JULY 1985] . Conflict of Laws and International Business 543
Since 1900, the English system, as it existed prior to the 1979 Act, had
established London as the leading centre for international arbitration.
The major arbitral bodies in London—including the London Court of
Arbitration, the London Maritime Arbitration Association (which the
London Court services)—handle over 7,000 new international commercial
arbitrations each year.14
In a speech in the House of Lords on the 1979 legislation, Lord Denning
said: "Commercial contracts of shipping, or for commodities, and the
like, all contain the clause 'Arbitration in London'." 1 5 Lord Wright
stated in Vita Food Products v. Units Shipping:16
The provision in a contract (e.g. of sale) for English arbitration imports
English law as the law governing the transaction, and those familiar with
international business are aware how frequent such a provision is even
where the parties are not English and the transactions are carried on com-
pletely outside England.
The foregoing data and comments indicate the considerable popular-
ity of London and other major commercial cities as centres for inter-
national arbitration, and, of course, impliedly also the popularity of this
method of adjudicating transnational disputes and confidence in the
arbitrators who operate the systems and the reasonableness and flex-
ibility with which they carry out their functions. The willingness of those
involved in international trade and investment disputes to avoid litiga-
tion involving conflict of laws in preference to the freer and less concep-
tualistic approach of arbitrators is also indicated. Further, if one takes
into account the autonomy theory in contracts, as mentioned above,
there can be relatively very few international business agreements of
importance which do not contain an arbitration clause or a choice-of-law
or jurisdiction clause. Therefore the anxiety of businessmen and their
advisers, in the case of an international dispute, to avoid submitting
themselves to the choice-of-legal-system doctrine of the "closest and
most real connection" seems to be very frequent indeed and very deter-
mined. This suggests that the time has come to put aside this doctrine
and to reconsider the whole approach of choice-of-legal-system with
respect to international business disputes.
But arbitration has disadvantages for international business questions
in some circumstances. For example, arbitration requires the agreement
of the parties to arbitrate (and, of course, choice-of-law and choice-of-
jurisdiction clauses in contracts also require mutual consent to their
inclusion). There can also be difficulties about the enforcement of an

14. Shenton and Toland, op. at. supra n.12, at p.648 (footnotes omitted).
15. Idem, at n.34, which also states that the ICC "handled 270 new arbitrations in 1979
and the American Arbitration Association had 100 international arbitration cases in
1977".
16. [1939] A.C. 277.
544 International and Comparative Law Quarterly [VOL. 34
arbitration award, and in particular recognition and enforcement of an
award in a country other than the country of arbitration. A court judg-
ment is not problem-free in regard to its foreign recognition and
enforcement, and there may be inadequate assets in the forum country
available for execution under the judgment, but a judgment's chances
are better than an arbitration award without a judgment.17 Another dis-
advantage of arbitration may be that the arbitrator may be too little con-
fined by rules, and be not much influenced by precedent, so that
flexibility and an aequo et bono approach is carried too far.18 The 1981
French legislation, mentioned above,19 provides that the arbitrator shall
decide the dispute according to the rules of law chosen by the parties
and in the absence of such a choice he shall decide according to rules he
deems appropriate, but he must take into account trade usages.

C. The Need for a New Regime

What is needed is for international conflict of laws to follow new paths
(especially for major centres of international commerce with well-
developed legal systems and tribunals that are not subject to political
pressure) and to try to combine the advantages of international arbi-
tration (especially those that are attractive to parties to international
business disputes) with the advantages of a court judgment, likely to be
recognised and enforced in other countries. Moreover, a court judg-
ment would not depend on the consent of the parties for its initiation,
like an arbitration award, but could be obtained against a non-consent-
ing litigant who is subject to the court's jurisdiction. There is no reason
why such a remodelled system of international conflicts could not co-
exist with arbitration facilities, so that a party could resort to one or the
other as might be possible and seem effective. Court adjudication and
arbitration would come closer together in methods and objectives,
would complement each other, and would provide an attractive modern
system, designed specially for dealing with international business dis-

17. For example: "Courts abroad, when faced with a request to enforce an award ren-
dered in France, might less readily grant enforcement if it appeared that international
arbitration in France was conducted with little or no judicial control. In fact, the foreign
court might feel it necessary to supply its own control mechanism and the ensuing, more
exacting, enforcement procedure might harm the system of transnational arbitration as
embodied in the New York Convention": Craig, Park, Paulsson, op. dt. supra n.13, at
p.734, referring to the Convention on the Recognition and Enforcement of Foreign Arbi-
tral Awards 1958 as the "New York Convention".
18. It has been stated that: "An arbitration award may be more capricious than a
judicial award because under many legal systems—notably that of the United States—an
arbitrator need not have, much less explain, legal support for his decision and may take
the simple approach of merely dividing the pie in half': Ehrenhaft, "Effective Inter-
national Commercial Arbitration" (1977) 9 Law & Pol. Int. Bus. 1191,1194.
19. Supra n.13.
JULY 1985] Conflict of Laws and International Business 545
putes. Such a result would indeed be desirable. Business operating
transnationally is now of such volume and importance, and so endowed
with its own complexity and range of problems, that at least major coun-
tries should be developing variations, extensions and adaptations of
their domestic commercial law to form a basis for flexible, just and
equitable adjudication of international business issues, so that their
courts will be regarded world-wide as desirable and as politically impar-
tial tribunals for international commercial disputes.
In order to develop the above ideas further, a short historical over-
view is required in order to see in perspective the traditional approaches
to private international law, and also other non-current approaches,
which are of interest.

III. A HISTORICAL CONSPECTUS

THE Roman Empire had subject to its administration many non-Roman

persons, who lived or may have lived under different customary sys-
tems, and the application of the Jus Civile to all was considered imprac-
tical and undesirable. So the Jus Civile was made to apply only to
Roman citizens, and it became supplemented by legal principles of a
more general nature, designed for issues involving non-Romans. These
supplementary principles, however, were part of the whole body of
Roman law as applied by Roman magistrates, and the Romans did not
use choice-of-legal-system techniques in the settlement of disputes
involving non-Romans.
The ancient idea of citizenship made it impossible to apply Roman civil
law to foreigners. Nor could Roman magistrates apply foreign laws as
such. But they could take, from the material supplied by foreign laws and
customs, those which appeared capable of general application, such as
maritime and other commercial usages, greatly developed among the sea-
faring people on the Mediterranean, and they could mould them into
general legal principles. These general principles of justice and reason
Roman magistrates developed empirically from case to case, not by
deduction from any general idea.20
There grew up through the edicts of the praetor peregrinus (the magis-
trate concerned with foreigners) and the provincial governors a system
of rules "governing relations between free men as such, without refer-
ence to their nationality", and the law applied was Roman law "stripped
to a great extent of its formal elements, and influenced by other,
especially Greek, ideas".21

20. Friedmann, Legal Theory (2nd ed., 1949), p.20.

21. Jolowicz, Historical Introduction to Roman Law, pp. 101-102.
 546 International and Comparative Law Quarterly [VOL. 34
These were useful ideas for the development of legal-political theory
for dealing juridically with questions involving foreign elements, and
they were not entirely submerged under the proliferation of customary
laws in medieval Italy and other parts of Western Europe and the great
revival of Roman law which stemmed from the universities.
Customary laws prevailed in Italy, France and other parts of Western
Europe during the Middle Ages, and these created problems as to their
range of application. If a citizen of Bologna was sued in Modena, should
he be judged by the customary law of Modena? But these intercustom-
ary conflicts were mainly related to questions concerning (a) land-
ownership, inheritance, feudal rights and duties, and (b) family rela-
tions. So these conflicts did not involve international commercial ques-
tions. Interest in questions of land helped to establish the dominance of
the law of the situs in relation to ownership of land, and situs ultimately
became a major rule in questions of ownership of property generally.
The situs appears to be the oldest conflicts rule in Western Europe
(except, of course, the law of the forum).
Essentially, the medieval approach to intercustomary conflicts was to
construct interpretative theories about the implied scope of the custom-
ary rules and whether they were intended to apply to questions such as
those in issue. Jurists such as Bartolus22 were concerned with (i) the
application of statutes to non-subjects, and (ii) the effect to be given to
statutes outside the territory of the enacting State. The local law of the
forum was not always applied to foreigners, and this topic was con-
sidered in the light of the maxim statutum non ligat nisi subditos. There
is a record of Netherlands customs which included special rules for deal-
ing with foreigners.23 These were special rules of the customary lexfori,
and did not involve a reference of the issue to a foreign legal system.
There are those who appear to dismiss the legal scene during the
medieval period as one of glossators and post-glossators poring over
ancient legal texts and producing arid conceptualistic doctrines. But this
would be a simplistic attitude to centuries of legal history and develop-
ment, and to the attempts of medieval jurists to create rules for issues

22. Bartolus of Saxo Ferrato, 1314-1357, a post-glossator who wrote a commentary on

Justinian's Code. The objective of the glossators was "to make the Roman law available
for legal practice, as though the codification of Justinian had never ceased to be in force"
and "the glossators of Bologna, like the later medieval jurists, looked upon the Roman
law as an immediate valid authority": Franklin, Jean Bodin and the 16th Century Revol-
ution in the Methodology of Law and History, pp.7-9 (footnotes omitted). The post-glos-
sators generally dealt with legal concepts derived from Justinian, rather than narrow
analytical interpretations of passages (as was characteristic of the glossators).
23. M e i j e r s , Etudes d'Histoire du Droit International Privi ( 1 9 6 7 ) , p . 5 7 : " . . . l a p r o -
cedure est souvent plus favorable pour les Strangers que pour les ritoyens, mais cela est
alors la consequence de dispositions speciales itablies en faveur des Strangers par le droit
local et non la consequence de l'application de dispositions d'un droit Stranger" (footnote
omitted).
JULY 1985] Conflict of Laws and International Business 547
involving foreign elements. Not only were there efforts to create rules
with special application to foreigners, as the Romans had done earlier,
but it was the era of great and interrelated legal developments of major
importance to international business, namely, the law merchant relating
to sale of goods; customary laws of the sea for maritime transport of
goods; and customary banking laws and practice suitable for trans-
national business. These developments, as they occurred in the Middle
Ages, did not involve choice-of-legal-system rules.
The major elements in medieval inter-country and inter-regional
trade were (i) trade fairs where local and foreign merchants would come
to do business; (ii) maritime transport of goods; and (iii) bankers pro-
viding services in regard to foreign exchange, bills of exchange, financ-
ing, and so on. Modern counterparts of these are still important
elements in international trade. A substantial amount of business is still
done at trade fairs and, as was so in the case of the medieval fairs, some
of the modern fairs are held at regular intervals in the same locations.24
The law merchant developed as a mix of Roman law principles and
customary commercial rules and practices. Each important fair had its
local version of the law merchant, being a set of commercial rules to be
observed by merchants attending that fair, and applied to transactions
made there. For example, in Champagne, in France, the customary
rules of the fair were applied to (i) contracts made at the fair; (ii) sale
contracts stipulating for delivery at the fair; and (iii) transportation con-
tracts with a fair of Champagne as destination.25 Decisions of the judges
of the fairs of Champagne were recognised and enforced outside the
area of the fair.26 So the customary laws of a fair, such as in Champagne,
had the following characteristics: (a) disputes were decided by a judge
who had exclusive jurisdiction over the three classes of contract dispute
mentioned above;27 (b) the judgment of the court of the fair was recog-
nised and able to be enforced in other jurisdictions; and (c) the judge
did not apply the ordinary law but a special body of rules being "a mix of
Roman law principles and customary commercial rules and practices"
(described above) designed for merchants and their transactions. The
approach was to construct, within a general body of the law, rules and

24. An interesting recent example fe the Chinese Export Commodities Fair at Canton
(Guang-zhou), usually called (in the West) the Canton Fair, which was established in 1957
and is held in April and October. See Baxter, "Business with the People's Republic of
China" (1981) 59 Can. Bar Rev. 337, 342.
25. Meijers, op. cit. supra n.23, at pp.54-55. Only the judge of the fair had jurisdiction
in regard to contract disputes arising there.
26. Ibid. "Ainsi les decisions des juges des foires de Champagne furent reconnues et
executdes dans toute la France et mime ailleurs; bien plus, le juge itranger 6tait obligf de
faire cette execution d'apres la coutume des foires de Champagne qui la riglait jusqu'en
ses details."
27. See supra at n.25.
548 International and Comparative Law Quarterly [VOL. 34
judicial processes of greater flexibility, based mainly on general ideas of
commercial equity and suitable to govern the contractual dealings of all
those who did business at the fair irrespective of whether they were local
or foreign merchants. This approach did not involve choice-of-legal-sys-
tem rules. It followed the tradition of the Roman law of the Empire by
taking, from the material supplied by the Roman law of Justinian and
customary commercial rules and practices, that which appeared suitable
to make special laws for the transactions of local and foreign merchants
doing business at trade fairs.
Maritime law also developed as a general customary law of the sea,
although it could be given different interpretations by admiralty courts
in different maritime centres.
When American courts in conflicts cases apply their own law in admiralty
today, they do this more often than not in the conviction of thus applying
a "seasoned body" of "general maritime law", or a foreign law "compar-
able to" American law, or a law agreed upon by the parties either by vir-
tue of a general presumption or because of a failure of pleading or proof.
American admiralty courts thus merely follow the general tradition of Ita-
lian courts which in the middle ages applied a Roman common law, of
English courts which in the eighteenth century applied a universal "com-
mon law", and of the American courts of Story's time which applied a
general commercial law of nations.28

In the area of banking related to international business, the rules of

law on bills of exchange have certain basic concepts and principles of a
universal character, although some differences in detail now exist
between the common law and the civil law groups of countries. For
example, simplified transfer procedures for bills of exchange, as con-
trasted with ordinary transfers of moveables for instance by assignment,
and the idea of rights and obligations embedded in and carried by the
paper, are universal characteristics of modern bills of exchange that ori-
ginated in the Middle Ages primarily to facilitate international business
and to free some of the important financing and payment operations of
transnational commerce from being restricted to the ordinary principles
of property in the common law and in the civil law jurisdictions.
Certain writers have discussed what they label as a "new law mer-
chant" in the hope of eliminating "international conflicts law by the
creation of an 'autonomous legal system', 'through standardization of

28. Ehrenzweig, op. dt. supra n.l, at p. 198. See also Cronlund v. Hansen (1969) 4
D.L.R. (3d) 435,443; 68 W.W.R. (B.C.C.A.) 329, 338, where Tysoe JA stated: "The law
prevailing on the high seas in so far as this case is concerned is the general maritime law of
all civilized nations as it is administered in Canada," and he referred to the judgment of
Philhmore J in Davidsson v. Hill [1901] 2 K.B. 606, 616.
JULY 1985] Conflict of Laws and International Business 549
arbitration clauses, through the choice of standard contracts, and
through agreement on standard conditions' ". 29 There are now quite a
variety of conventions and guide-lines, intended to produce at least a
measure of transnational uniformity of commercial practice and law.
For example, the "Hamburg Rules are the latest development in a
negotiation which has been going on in various ways and with varying
degrees of intensity for over one hundred years".30 Other examples are
the Incoterms published by the ICC31 and the Uniform Customs and
Practice for Documentary Credits and the Uniform Rules for Collec-
tions, also published by the ICC. The Eurocurrency and Eurobond mar-
kets have largely developed on the basis of the internationally accepted
practices of bankers and dealers in different countries, and so have
transnational foreign exchange dealings, with virtually no recourse to
conflicts law; loan syndications likewise appear to be tending towards
some standardisation of agreements and practices. The concept of a new
law merchant would have interested Lord Mansfield, of whom it has
been said that he "pioneered the reception into English law of an inter-
national law merchant, based on the practices of the merchants of both
the Continent and Britain. He recognized the commercial-legal inter-
face that is inherent in international trade. He acknowledged that, of
necessity, the common law had to recognize the dynamics of inter-
national business."32 According to Trakman, the law merchant "sought
to promote a standard of equity which merchant courts everywhere
would accept as the primary source of law. And it was this desire to give
'justice' in terms of commercial standards to merchants that commercial
usage acquired its universal appeal within merchant tribunals," and also
the "merchant was entitled to rely upon standards of fairness which
evolved in the light of commercial practice. He had to be free to rely
confidently upon the existence of uniform rules of conduct, irrespective
of the particular locality of the transaction or tribunal."33

29. Ehrenzweig, op. at. supra n.l, at p.60, referring to Kegel, "Crisis of Conflicts of
Laws" (1964-11) 112 Hague Recueil 93, 260; Trakman, "Evolution of the Law Merchant:
Our Commercial Heritage" (1980) 12 J. Mar. L. & Com. 1-24 and (1981) 12 J. Mar. L. &
Com. 153-182,173-181, discusses the growth of a new or revitalised law merchant, and (at
p. 173) states: "The movement towards a universal law of international trade has a solid
rationale in the conventional community of merchants. A uniform law governing inter-
national trade remains, as in medieval times, a means through which merchants" can
avoid the varieties of legal, political and economic systems in the world.
30. Moore, "Hamburg Rules" (1978) 10 J. Mar. L. & Com. 1. United Nations Conven-
tion on the Carriage of Goods by Sea 1978 (known as the "Hamburg Rules") (text at
(1979) 10 J. of Mar. L. & Com. 147-163).
31. Since 1936 the ICC has published Incoterms to provide a set of international rules
for the interpretation of the chief terms used in foreign trade contracts, for the optional
use of businessmen who prefer the certainty of uniform international rules to the uncer-
tainties of the varied interpretations of the same terms in different countries.
32. Trakman, op. ch. supra n.29, at p. 159.
33. Idem, p. 10 (footnote omitted).
550 International and Comparative Law Quarterly [VOL. 34
IV. SAV1GNY AND THE COPERNICAN REVOLUTION

FRIEDRICH Karl von Savigny published the eighth volume of his System
des heutigen rdmischen Rechts in 1849 and it has been described as a
book on private international law destined to become the most influen-
tial European work on the subject in modern times.34 Savigny has been
referred to as the founder of modern private international law,35 and the
book has had a basic, indirect influence on much of conflicts case law
and theory in Anglo-American law. It was Savigny "who laid the foun-
dation of the modern method of choosing a rule applicable to an issue
connected with two or more legal systems, i.e. the method of finding for
each legal relation the legal system to which it belongs according to the
nature of its type. This theory of the sedes of the relationship has been
much modified and refined in the last 130 years, but whether we belong
to the civil law or the common-law world, it still is the basis of our think-
ing."36
The Savigny revolution made "choice-of-legal-system" a core
element in private international law, with the rule of decision to be
found in the chosen legal system (by expert evidence on foreign law, if
necessary). This was an approach radically different from that used by
the Romans in dealing with foreigners or that of the law merchant in
dealing with transactions with foreign elements.
Savigny stated that the essential task of private international law is to
ascertain for every legal relation the area of law to which, in view of that
relation's particular nature, it belongs, or by which it is controlled.37 But
how is one to find the area of law to which a legal relation belongs?
Savigny gives particular attention to the law of obligations, e.g. con-
tracts and torts.
In the law of obligations, as in real rights, the person emerges from his
abstract personality and comes under the localized legal scope of a single
legal relationship. Here, again, we must answer the ever-recurring ques-
tion: Where is the true seat of this obligation; at what place is its home?
For knowing the obligation's seat, its home, we discover at the same time
the particular jurisdiction, as well as the local law, by which the obligation
is to be judged.38
However, he appreciated the difficulty of applying this theory to obli-

34. Kahn-Freund, op. at. supra n.2, at p. 139. At p.98, Kahn-Frcund refers to Savigny
as having brought about a "Copernican Revolution".
35. Idem, p. 142 (footnote omitted).
36. Ibid.
37. Von Mehren and Trautman, Law ofMultistate Problems (1965), p.42. Savigny, Sys-
tem des heutigen rdmischen Rechts, Vol.8, secs.348, 349.
38. Von Mehren and Trautman, idem, p.43; Savigny, idem, secs.345, 360, 366.
JULY 1985] Conflict of Laws and International Business 551
gations, because an obligation, in his view, has as its object something
intangible, so that it becomes necessary to assign a physical position to
the invisible aspect of the obligation, and also because every obligation
relates to at least two persons who may be associated with different
countries. He argues that the essence of an obligation "is the necessity
of acting that rests on the person of the debtor".39
The approach of Savigny is to ascertain for every legal relation the
system of law to which it naturally belongs and to apply whatever is the
rule of decision given by that legal system. This theory reflected his
general conception of law as a historical and customary development—
something to be discovered rather than created by a legislator.40 He
considered that all law is originally formed by being first developed by
custom and popular faith, and next by jurisprudence, everywhere by
internal, silently operating powers, not by the arbitrary will of a law-
giver. So, in the application to private international law, legal relations
are allocated to legal systems by internal, silently operating forces, pro-
ducing justice by some magic buried in natural-seat-discovering
elements such as locus solutionis, or in modern, softened modifications
of the theory, in phrases such as "closest and most real connection". It
has been said that the closest and most real connection "is a form of
words which merely substitutes for a connecting concept the motivation
for defining it. The raison d'itre of any choice of law is to find the legal
system with which a given issue is considered to be most closely con-
nected."41 The concept of the natural seat of an obligation seems to
have some overtones with more general philosophical theories (such as

39. Von Mehren and Trautman, ibid. It was apparently common in the eighteenth and
nineteenth centuries to read into a reference to the law of the place of contracting the
maxim contraxisse unusquisque in eo loco intellegitur in quo ut solvent se obligavix (DM,
7, 21). A modern European theory, also tending to emphasise the lex loci solutionis, is the
doctrine of charakteristische Leistung, which is explained by Ehrenzweig and Jayme as fol-
lows: "Where the parties to a contract have their habitual residence or principal places of
business in different countries, the law of that party prevails whose role in the transaction
'characterizes' or 'specifies' the contract. It is the seller's rather than the purchaser's per-
formance that characterizes the sale which, therefore, is subject to the lex venditoris. This
result has been rationalized on the ground that the obligations of the vendor are more
complex than those of the buyer": Private International Law, Special Part (1977), Vol.3,
pp.36-37. In regard to tort laws (delict), they considered that such laws should be "reck-
oned among the coercive, strictly positive statutes", and in handling them "we must
always have regard to the law of the forum, not to the law of the place where the delict was
committed": Von Mehren and Trautman, op. cit. supra n.37, at p.45. They may have had
in mind what Ehrenzweig and Jayme call "admonitory" torts, commenting (at p.61) that
these "continue primarily to serve quasi-criminal policies of the lexfori, and are, for that
matter, in many countries (including Austria, France and Italy) enforced by the victim's
'adhesion' to the criminal process".
40. For a criticism of historirism e.g. as developed by Hegel, see generally Popper, 77K
Open Society and its Enemies, Vol.2.
41. Kahn-Freund, op. cit. supra n.2, at p.263.
552 International and Comparative Law Quarterly [VOL. 34
the discussions by Plato, Aristotle, and many others, on the essence of a
concept).42

V. FORMULAS FOR THE PROPER LEGAL SYSTEM

THE practical application of Savigny's theory of connecting a legal rela-

tipn with its "proper" legal system (from which to extract the rule of
decision) has promoted a search for formulas by means of which the
connection can be made. Where the parties have not chosen an appli-
cable law, current formulas in regard to contracts include the closest and
most real connection, the most significant relationship, and the centre of
gravity. A variation is the most significant relationship to the transaction
and the parties, with "contacts" provided as guidance for the appli-
cation of the formula.43 None of these formulas, with or without guide-
lines, provide adequate instructions as to how they are to be applied,
and may leave a substantial area of uncertainty to the court's discretion,
for example: (i) as to which elements are to be regarded as relevant, sig-
nificant, real, and so on; and (ii) what weighting is to be given to the
chosen elements inter se.
The relevant facts (including documentation) of an international busi-
ness transaction can often be widely spread geographically, for example,
in relation to: a sale agreement; transportation; banking and financing
arrangements; insurance; transfer of technology arrangements; and sub-
contracts (for resale). As a result, the kind of formula mentioned can be
very uncertain in application. The following two transnational shipping
cases illustrate the kind of problems that can arise.
In Coast Lines v. Hudig & Veder Chartering,** an English company,
Coast lines, owned a ship, the Grangefield, and chartered her on a
voyage charter to go to Rotterdam for cargo and carry it to Drogheda in
the Republic of Ireland. Between Rotterdam and Drogheda, the
Grangefield ran into very bad weather and took on water due to a
broken bilge pipe, so that the cargo was badly damaged. The bilge pipe
was found to have been extremely rusted, corroded and wasted, and the
vessel could not have been in a seaworthy condition when she started on

42. E.g. Ross, Aristotle, p.172 etseq.; Randall, Aristotle, p.175. Bertrand Russell states
that the essence of a thing "appears to have meant 'those of its properties which it cannot
change without losing its identity' ", and comments: "The notion of essence is an intimate
part of every philosophy subsequent to Aristotle, until we come to modern times. It is, in
my opinion, a hopelessly muddle-headed notion, but its historical importance requires us
to say something about it": History of Western Philosophy, pp.211-212.
43. According to Ehrenzweig and Jayme, op. at. supra n.39, at p.35 (footnotes omit-
ted), this formula, "which goes back to Westlake, fails to indicate which connection is to
be considered 'real' ".
44. [1972] 1 Q.B. 34.
JULY 1985] Conflict of Laws and International Business 553
the voyage. The shipowners admitted liability to the cargo owners, but
then claimed to be indemnified by the charterers, Hudig & Veder Char-
tering.
The charterparty was executed at Rotterdam, on a standard form of
document used for European shipping business, and the preceding
negotiations were conducted by telephone and telex between the
Netherlands and England. The charterparty contained a standard
exemption clause for the shipowners, and it was permissible in English
law for the shipowners to stipulate in the charterparty for such an
exemption.
The bill of lading was issued in Rotterdam and was in English, and
imposed a greater liability on the shipowners than did the charterparty.
The effect of English law was that the charterers must indemnify the
shipowners in respect of the greater liability. But the position under
Netherlands law was different, because it applied the Hague Rules to
charterparties (as well as to bills of lading) in respect of outward car-
riage from the Netherlands. English law applied the Hague Rules to
bills of lading but not to charterparties. So the exemption clause in the
charterparty had no effect in Netherlands law, and by that law the ship-
owners would be liable to the full extent set out in the Hague Rules, and
could not claim indemnity from the charterers.
The court considered that it must determine the proper law of the
contract by answering the question: what is the system of law with which
the transaction has the closest and most real connection? The court con-
sidered that: (i) the answer was not dependent on the intention of the
parties because they had formed no intention on the matter; and (ii) the
circumstances pointed equally to two countries. In the face of this
dilemma, the court, as a last resort, applied the law of the flag, which
was English law.
Instead of seeking the closest and most real connection, would it not
have been more satisfactory for an English court to have upheld the
exemption clause on the ground that it was consensual between the par-
ties, being a clause in the charterparty which they had both signed? This
would have made better commercial sense than the conceptualistic
manoeuvring by which the court applied the law of the flag.
Compagnie d'Armement Maritime v. Compagnie Tunisienne de Navi-
gation (which will be referred to for brevity as CA and CT) was about
a tonnage contract for the carriage by sea of a quantity of light crude oil
between two ports in Tunisia in shipments between March and
December 1967. CA was a French company, registered in French
Somaliland, and CT was a Tunisian company. The parties negotiated a

45. [1971] A.C. 572.

554 International and Comparative Law Quarterly [VOL. 34
contract in Paris and a firm of brokers in Paris prepared the written con-
tract. The brokers adopted an English printed form for a tanker voyage
charterparty, a form widely used on the Baltic Exchange in London and
in other chartering centres. This printed form was intended for a single
voyage charter in a named vessel flying a national flag and was not
intended for the kind of tonnage contract involved, which could require
numerous voyages using different ships. CA did not in fact use their own
vessels (or the vessels of their subsidiary) on the first six voyages (as had
been contemplated when the contract was made). They chartered other
vessels which flew a number of different flags. After the sixth voyage the
Arab-Israeli war broke out and CA ceased to perform the contract,
which gave rise to the dispute between the parties. French law and Tuni-
sian law were taken to be the same in regard to the dispute, and it was
considered by the English courts that their task was to determine
whether the rule of decision should be extracted from the French legal
system or from the English legal system.
The contract provided that it was to be governed by the law of the flag
of the ship carrying the goods, a provision which was clearly not directly
applicable to the circumstances. The contract also contained a clause
providing for arbitration in England.
Out of this confusing set of transnational facts: (a) arbitrators con-
sidered the proper legal system to be French law, and were upheld by a
judge; (b) the Court of Appeal considered that English law was the
proper legal system (because of the arbitration clause); (c) the House of
Lords considered that French law was the proper legal system (as being
the system of law having the closest and most real connection). So it
took four levels of adjudication—arbitrators, judge, Court of Appeal,
and House of Lords—to determine (as between a French company and
a Tunisian company) whether the rule of decision should be obtained
from the French legal system or from the English legal system, by apply-
ing the choice-of-legal-system principles that (a) the parties may select
the proper legal system in their contract, but if they do not then (b) the
court selects the system of law with which the transaction has its closest
and most real connection.
The essence of the dispute was that CT claimed that CA had repu-
diated the contract, and CT claimed damages in French francs, whereas
CA denied repudiation and pleaded frustration or prevention by force
majeure (the Arab-Israeli war). Surely a fair and reasonable adjudi-
cation of such a dispute could have been made without four layers of
adjudication (in England) to find the "proper" legal system. It would
have made commercial sense to have determined the dispute simply on
the basis of interpretation of the contract and the parties' intentions,
taking into account that the parties were French and Tunisian and might
both have been thinking in terms of French law when negotiating.
JULY 1985] Conflict of Laws and International Business 555
VI. TORTS WITH INTERNATIONAL ELEMENTS

IN recent years, the private international law of torts has been a major
battleground of theories producing an extensive literature, and various
"revolutions" have been claimed in conflicts thinking. The main focus of
case-law interest, in this connection, has been in relation to damages in
automobile accident cases, and limitations, restrictions, exemptions and
so on, which exist in one jurisdiction but not in another. In the United
States, the concern has been almost exclusively with interstate differ-
ences in tort laws, rather than with international commerce. It certainly
does not follow automatically that a private international law tort theory
considered suitable for the assessment of damages in a motor accident in
Nevada between a driver from California and a driver from New York is
equally suitable for a case concerned with an accident to a Korean
employee of a US multinational on a construction site in Saudi Arabia.
The Restatement Second proposes rules for "wrongs" analogous to
those proposed for contracts,46 namely, a general rule with a list of
"contact" guidelines. The general rule47 again uses the "most significant
relationship" formula, and provides that the rights and liabilities of par-
ties should be determined by the local law of the State which, with
respect to that issue, has the most significant relationship to the occur-
rence and the parties.48
The New York case of Babcock v. Jackson49 is frequently regarded as
a landmark decision in tort conflicts. William Jackson drove his wife and
Georgia Babcock in his car from Rochester, New York, for a weekend
trip in Canada. In Ontario, Jackson lost control of his car and went off
the highway, and Miss Babcock was seriously injured. At that time
there was a guest-passenger law in Ontario, which, if applied, would
have exempted Jackson from liability. There was no such law in New
York. All the parties were residents of Rochester, and the car was regis-
tered and insured in New York.
The majority judgment was given by Fuld J, and was based on a prin-
ciple that controlling effect should be given to the legal system which,
because of its relationship or contact with the occurrence of the parties,
has the greatest concern with the specific issue raised in the litigation,
i.e. New York. He considered the merit of such a principle to be that it
gave to the place having most interest in the problem paramount control
over the legal issues arising out of a particular factual context, so allow-
ing the forum to apply the policy of the jurisdiction most intimately con-
46. Supra aln.43.
47. Sec.l45(l).
48. There are four contacts: (a) place of injury, (b) place of conduct causing the injury,
(c) domicile, residence, nationality, place of incorporation and place of business of the
parties, and (d) place where the relationship, if any, between the parties is centred.
49. (1963) 191 N.E. 2d 279.
556 International and Comparative Law Quarterly [VOL. 34
cerned with the outcome of the litigation.50 The ancestry of this thinking
is discernible as a developed, softened version of Savigny's "true seat"
of an obligation.
Boys v. Chaplin51 was another "landmark" case where two individ-
uals resident in the forum country were involved in a road accident in
another country. Boys was seriously injured in a road accident in Malta,
caused by the admitted negligence of Chaplin. Both Boys and Chaplin
were normally resident in England, but at the time of the accident were
stationed in Malta with the British military forces. The English courts
considered that the issue was whether damages fell to be determined
according to the legal system of Malta or according to the legal system of
England. This issue went from a single judge to the Court of Appeal,
and then to the House of Lords, which decided, by a variety of reason-
ing patterns, that damages should be determined according to the legal
system of England.
In both Babcock and Boys, it would surely have been a bizarre result
if the assessment of road accident damages, as between individuals both
ordinarily resident in the forum country, had not been assessed accord-
ing to the legal system of the forum country (where they would both
normally be resident after the accident), but instead according to the
legal system of a country other than the country of common residence.
In the Roman law of the Empire, non-Romans belonging to the same
State were generally allowed to settle their disputes according to the law
of that State, so that applying the rules of the parties' common residence
was thought to be common sense as far back as Roman times.
In international business, most disputes are between corporations or
between a corporation and a governmental body, except, for example,
in regard to employer/employee disputes or product liability issues (such
as those involving pharmaceutical preparations). In the case of an inter-
national business dispute between two parties, both of which are ordi-
narily resident or have a permanent business establishment in the forum
country, can there be a justification for extracting the rule of decision
from the legal system of a country other than the forum? There may, of
course, be foreign elements in the transaction related to the dispute, for
example, the place of contracting, the place of delivery of goods, the
location of an accident, the place of payment, or the currency of pay-
ment. But any such element should be taken into account by the forum
court as a local datum, and not as a choice-of-legal-system connecting
factor, or a contact factor in a guide-line. To take a simple example, the
rules of the road may be different in the country of an accident from

50. The language was taken from the contract case of Auttn v. Auien (1954) 124 N.E.
2d 99, which applied "centre of gravity" theory.
51. [1971] A.C. 356.
JULY 1985] Conflict of Laws and International Business 557
those in the forum country, and the court should take this into account
as a local datum, but not in regard to whether the rule of decision should
be taken from the lex delicti and not from the lex fori. The point is dis-
cussed in Ehrenzweig and Jayme52 as follows: "In the field of obli-
gations, the acceptance of the datum concept may often avoid
misunderstanding and hopeless weighing of interests. It is now recog-
nized everywhere that the rules of the road in force at the place of the
accident are applied in tort cases and there is no need to retain, gener-
ally, the lex loci rule for that purpose." Also, for example, the circum-
stances, customs and law pertaining to the locus solutionis can be taken
into account by the forum court as local data without involving the court
in a choice-of-legal-system exercise.

VII. FOREIGN EXCHANGE

QUESTIONS involving foreign exchange, such as, for example, the cur-
rency in which a debt should be paid, or damages assessed, are of con-
siderable importance in international commerce, and, in times of
fluctuating currencies, substantial sums of money can be involved in the
issue of whether currency A or currency B is the appropriate one. Cur-
rency disputes can arise out of international sales agreements, inter-
national loans and bond issues, joint ventures, syndications,
liquidations, taxation and a variety of other transnational situations.
International finance is, of course, intimately concerned with currency
matters. The major causes of problems are currency fluctuations and
exchange controls. Kahler v. Midland Bank53 was a case where the
House of Lords applied choice-of-legal-system on the basis of closest
and most real connection in relation to the effect of foreign currency
legislation. The plaintiff made an agreement with the Zivnostenka Bank
in Czechoslovakia for a safe custody bailment of bearer securities, and
the Zivnostenka Bank wrote to the Midland Bank in London asking
them to accept custody of the securities, and did not mention the plain-
tiffs title. The bearer securities were throughout located in England. To
facilitate his departure from Czechoslovakia at the beginning of the
Second World War, the plaintiff signed documents placing the securities
under the control of the Bohemian Bank (which succeeded to the rights
of the Zivnostenka Bank), so that the Midland Bank now had custody of
the bearer securities on behalf of the Bohemian Bank. By Czechoslo-
vakian foreign exchange legislation the plaintiff was now a "currency
foreigner", and the effect was that, by the Czechoslovak law, it was
unlawful for the Bohemian Bank to deliver the securities to the plaintiff.

52. Op. cit. supra n.39, at p. 10 (footnotes omitted).

53. [1950] A.C. 24.
558 International and Comparative Law Quarterly [VOL. 34
The Midland Bank argued that, as bailee of the Bohemian Bank, it
ought not to be compelled by the English courts to deliver the securities
to the plaintiff. The decision of the House of Lords was to the effect that
the Midland Bank was entitled to withhold the securities from the plain-
tiff, although, of course, it was admitted that the securities were the
plaintiffs property. The decision was based on a reference to the legal
system having the closest and most real connection with the original
bailment transaction, which was found to be the Czechoslovak legal sys-
tem, which contained the restrictive foreign exchange legislation men-
tioned above. But does it seem sensible that a question whether an
English court should or should not permit a plaintiff to collect his own
securities from a British bank in London should turn on whether a bail-
ment had its "true seat" in the legal system of England or in the legal
system of Czechoslovakia by applying the formula "closest and most
real connection"? Surely the better method would have been—not to
have used a choice-of-legal-system technique—but to have taken into
account the Czech restrictive foreign exchange legislation as "local
datum", and to have considered whether the domestic English rules
should be modified because of that local datum.54
Miliangos v. Frank (George) (Textiles)55 concerned a sale of goods
contract between a Swiss seller and an English buyer written in Swiss
francs. The House of Lords changed a very long-standing rule that Eng-
lish courts could only express their judgments in sterling, to which the
foreign currency must be converted as at the date when the debt became
due, and gave a judgment in Swiss francs.
The goods had been delivered, but the price was not paid, and bills of
exchange drawn in Switzerland and accepted by the buyer were dis-
honoured on the due dates. The sum due was 416,144 Swiss francs. The
maturity date conversion was £42,038, but a judgment in Swiss francs
would have given a conversion, at the date of the court hearing, of about
£60,000. The measure of damages for non-payment of a debt is the prin-
cipal amount plus interest, and it was held that the Swiss interest rate
should apply on the ground that, if a party opts for a judgment in a
foreign currency, that party is committed to whatever is the rate of inter-
est in the context of that currency.
Miliangos has been regarded as an important step in the right direc-
tion vis-a-vis international business and finance. However, in the case,
Lord Wilberforce confined his approval of the new rule to obligations of
a money character to pay foreign currency arising from a contract whose

54. The author has suggested elsewhere that the case might have been decided as a
property issue, with application of the lex situs: Essays on Private Law: Foreign Law and
Foreign Judgments (1966), p.94.
55. [1976] A.C. 443.
JULY 1985] Conflict of Laws and International Business 559
proper law is that of a foreign country and where the money of account
and payment is of that country, or possibly some other country, but not
of the United Kingdom.56
This would have the unfortunate consequence of injecting "true
seat'V'closest and most real connection" thinking into a straightforward
principle that a court should enforce a defaulted money obligation in the
currency of payment in which the contract is written.57
There is a variety of situations, besides debt obligations, in which it is
reasonable to give a judgment or a part of a judgment in a currency
other than that of the forum, particularly in an age of fluctuating foreign
exchange rates. Further, the problem of national exchange controls is
now of considerably less importance than it was in the past, due to the
influence of the International Monetary Fund.58
Clearly, it is very important for the adjudication of international busi-
ness disputes that courts should take into account the foreign currency
aspects of a case in assessing damages—for example, the currency of
account and the currency of payment in a contract; the different
national currencies of the parties; currencies used in payments for sup-
plies, repairs or expenses; the currency in which the loss was suffered,
and so on. This is an essential part of the work of a forum court in mak-
ing a fair assessment of damages in an international commercial dispute,
and the rule structure of the forum should be such as to permit this to be
done. It is not desirable that a forum court should transfer such a ques-
tion into the domain of a foreign legal system and apply whatever rule of
decision turns up in that legal system.

vra. CONCLUSION

IT has been the main theme of this article that the rules and theories of
private international law, applicable in the principal commercial centres
of North America and Western Europe, do not provide a good basis for
the adjudication of international business disputes. In the United States
the rules and theories are designed for interstate conflicts, and inter-
national business is supposed to make do with "interstate law in inter-

56. Idem, p.467.

57. Subject, of course, to that currency being obtainable by the debtor. Also, the judg-
ment would have to be converted into the forum currency if it were intended to effect
execution of the judgment.
58. The English courts have given foreign currency judgments for: damages for breach
of contract (Jean Kraul v. Albany Fabrics [1977] Q.B. 182, The Folios [1979] A.C. 685);
foreign currency outlays and expenses in respect of damage to a ship due to a collision
(The Despina R [1979] A.C. 685); restitution in connection with frustration, due to foreign
expropriation on an oil exploration and development agreement (BP Exploration (Libya)
v. Hunt (No.2) [1979] 1 W.L.R. 783; [1981] 1 W.L.R. 232); a claim for demurrage payable
in US dollars under a charterparty (Federal Commerce and Navigation v. Tradex Export
[1977] 2 All E.R. 41).
560 International and Comparative Law Quarterly [VOL. 34
national garb". 59 More generally, in both the common law and civil law
countries, there is an addiction to choice-of-legal-system techniques
designed either to leave an issue with the domestic law of the forum or
to "shunt" it into a foreign legal system for the rule of decision. The his-
torical influence of Savigny's "true seat" dogma is discernible through
most of the current choice-of-legal-system approaches currently used or
discussed. Whatever merits the Savigny tradition may or may not have
in private international law generally, it was not designed in the context
of modern international business and its conceptual framework is not
appropriate for the variety and complexity and wide extent geographi-
cally, ideologically, commercially and legally of modern transnational
commerce. The development of arbitration in transnational business
disputes through national, regional and international arbitration facili-
ties and institutions, notably at leading centres such as London, Paris or
New York, is an indicator of the drift away from conflict of laws litiga-
tion. The existence of a variety of conventions and treaties affecting
international transport, trade, financial operations and the like also sug-
gests a search for alternatives to litigation employing current techniques
of private international law.
The customs and needs of those engaged in international business
have not been the guiding lights in the construction of choice-of-legal-
system theories from the "revolution" of Savigny to the present day.
The idea that (i) a legal relation has one legal system that is "proper" to
it, (ii) that this quality of being "proper" or "belonging" is ascertainable
by a court applying contact formulas or guide-lines (such as "closest
connection", "centre of gravity", "state interest"), and (iii) that the rule
of decision taken from the "proper" legal system will provide the most
reasonable and just solution of the litigated issue, is a metaphysical kind
of theory on which to base the practical adjudication of international
commercial disputes.
A new direction is needed in the legal systems of the world's major
commercial centres—to depart from the choice-of-legal-system tech-
niques and to develop rules within the forum legal system that are
specially designed for situations of modern transnational business and
for the practice and expectations of the parties involved. Although their
business activities have long been consigned to history, the Romans and
the medieval architects of the law merchant pointed the way. The devel-
opment within the forum legal system of special rules for transnational
business disputes would not, of course, exclude the consideration of a
foreign element related to an issue, but such an element would normally
be taken into account as "local datum" (in the manner suggested in this

59. Ehrcnzweig, op. at. supra n.l, at p.20.

JULY 1985] Conflict of Laws and International Business 561
article).60 A rule of the forum legal system applied to an issue with one
or more foreign elements would not necessarily be the same rule as
would be applied to a similar issue with only domestic elements.
Many international business disputes involve the interpretation of an
agreement in writing, frequently a formal agreement, or perhaps a stan-
dard form agreement or an agreement containing standard clauses.
Unless the parties have clearly provided otherwise in the agreement, it
is surely only common sense that the forum court should derive the
meaning of the agreement by its own construction of the documents, in
the light of the circumstances and business customs and practices, and
the court's views as to the intentions of the parties. It would seem
bizarre to a businessman to talk about deciding whether to refer the
interpretation of a document to the domestic legal system of the forum
or to a foreign legal system, depending on the application of some for-
mula such as centre of gravity. Of course, there may be some foreign
elements to be taken into account by a forum court when interpreting an
agreement, for example, the agreement may be in a foreign language, or
particular terminology may have been employed indicating that the par-
ties had in mind the commercial practice and law of the country of one
of them, or a commercial custom of an international character. Once
again, such a foreign element should correctly be treated as a (foreign)
local datum to be taken into account by the forum court.
There will also be circumstances where a court will find it sensible and
appropriate to recognise a decision made by a foreign court or a legal
right acquired under a foreign legal system. The most obvious example
is that of property ownership rights. In this connection, it has been the
practice for many centuries, in most legal systems, to recognise a prop-
erty title that is valid by the legal system of the acquisition situs.61
According to Trakman:62
The ascent of commercial law into the future must hinge to some degree
upon a descent into its past. In many respects, the Law Merchant is a light
whose vision cannot be ignored if we are to promote productive trade
across national boundaries in modern times. National states depend on a
coherent body of international trade law in order to promote their dom-
estic economies. Merchants engaged in world trade also need an organ-
ized framework upon which to construct their business ventures.
These sentiments are consistent with the tenor of this article. It is of
great importance that major centres of international commerce should
create within their legal systems appropriate principles and rules for the

60. See supra at n.52.

61. Meijere, op. cit. supra n.23, at pp.66-67, cites applications of the customary law of
the sixus in the thirteenth century.
62. Op. cit. supra n.29, at p. 181.
562 International and Comparative Law Quarterly [VOL. 34
regulation of international business and the adjudication of disputes
arising from such business. Arbitrations should remain available, but
they have some shortcomings for international adjudication (as noted in
this article).63 Arbitration should be an alternative to the judgments of
courts that administer law and practice that is based upon the realities of
business, and the usages of merchants engaged in international com-
merce.

63. See supra at nn. 17-19.