A DIFFERENT APPROACH TO CHOICE OF LAW IN CONTRACT
| DOI | http://doi.org/10.1111/j.1468-2230.1980.tb01613.x |
| Author | A. Thomson |
| Published date | 01 November 1980 |
| Date | 01 November 1980 |
A DIFFERENT APPROACH
TO
CHOICE
OF
LAW
IN
CONTRACT
THE
choice
of
law rules
in
contract are well settled. Parties are free
to choose the governing law of their contract and this intention
may be inferred from the factors surrounding their transaction.*
Where they have failed expressly or impliedly to choose a proper law,
the contract is governed by the system of law with which the
transaction has its closest and most real connection.s Although these
rules are well settled, there are problems in their application. It will
be suggested in this article that we might reconsider the use of an
objectively determined proper law
as
the only choice of law rule. In
order to accommodate the principle of freedom of contract, it will
be suggested in addition that a choice of law
by
the parties should
take effect in all cases as incorporation by reference.
I
It
is well acknowledged that the present rules derive from the
principle of freedom of contract.‘ This raises several points. Given
inevitable inequality in bargaining strengths and the growth in the
use of standard form contracts,6 it could be argued that there is
no
meaningful notion of freedom of contract.e In any event, freedom
of
contract is restricted on all sides by positive rules of law, including
conflicts rules. In finding out what choice
of
law rules are,
or
should
be,
there is a danger in pinning their formulation too squarely on
freedom of contract. Even the most emphatic statements
of
the
1
See Dicey and Moms,
The Conflict
of
Laws
(9th
ed.,
1973),
r.
146,
sub-rule
1,
at p.
728,
and the authorities cited in note
41.
The rule is the same
in
Scotland
(Anton,
Private International Law
(1967),
pp.
185-187),
Canada (Falconbridge,
Essays
on the Conflict
of
Laws
(2nd ed.,
1954),
p.
378),
Australia (Sykes,
Australian Conflict
of
Laws
(1972),
pp.
302-304),
New Zealand
(Webb and Davis,
A
Casebook on the
Conpict
of
Laws
of
New
Zealand
(19701,
p.
337),
South
Africa (Spiro,
The Conflict
of
Laws
(1973),
p.
150),
United States jurisdictions (The American Law Institute,
The
American Restatement (Second) Conflict
of
Lows
(1971),
6
187 (2))
and most
EEC
countries (Giuliano and others,
Report on the
Draft
Convention
on
the Law Appli-
cable
to
Contractual and Non-contractual Obligations
(Commission
of
the European
Communities),
XIV/408/72-E,
pp.
18-20).
2
See Dicey and
Morns,
op.
cir.
r.
146,
sub-rule
2,
p.
735.
3
Diccy and Morris,
op.
cit.
r.
146,
sub-rule
3,
p.
742;
Graveson,
Conflict
of Laws
(7th
ed.,
1974),
pp.
405413;
North,
Cheshire and North Private International Law
(10th ed.,
1979),
pp.
206-212;
The American Restatement
(2d),
op.
cit.
6
188;
Prebble,
“
Choice
of
Law to Determine the Validity and Effect
of
Contrp
:
A
Comparison of
English
and American Approaches
to
the Conflict
of
Laws
(1973)
58
Cornell L.Rev.
433; 635, 641-644.
4
Savigny,
Treatise on the Conflict
of
Laws
(2nd
ed.,
1880)
(trans. Guthrie),
85
369-370;
Morris,
The Confict
of
Laws
(2nd
ed.,
1980),
pp.
212-213;
Cheshirc and
North,
op.
cit.
p.
199;
Graveson,
op.
cit.
p.
400;
Mann
(1950)
3
I.L.Q.
60, 61.
6
On the special problems raised by such contracts see Ehrenzweig, “Adhesion
Contracts
in
the Conflict
of
Laws
*’
(1953)
53
Co1.L.R.
1072.
8
For
a helpful discussion see Funnston,
Cheshire and
Fifoor’s
Law
of
Contract
(9th ed.,
1976),
pp.
22-26.
650
Nov.
19801
CHOICE
OF
LAW
IN
CONTRACT
65
1
concept accept that there are limits to its scope.’ While they point
to the direction in which emphasis is intended, they tend, as
a
matter
of logic, to beg the question
of
whether and what limits are
permitted.8
So,
although the concept is an important factor to be
taken into account, it cannot, of itself, yield an answer to what the
choice of law rule should be.
Much debate has centred around
a
deceptively simple question.
What law governs the choice of law? Also,
if
the issue
is
whether
there
is
a contract, is it possible to refer to the chosen law to
determine the matter? One argument suggests that if the choice
of proper law is contained in a contract it can only be effective if
the contract is valid.
A
question as to the existence of the contract
necessarily places
in
issue also the effectiveness of the choice. In
deciding whether there is a valid contract, there is therefore a logical
absurdity in referring to the chosen proper law.’O The court should
apply to such cases the objectively determined proper law.ll
Against this it is argued that effect is given to the choice by the
operation
of
the
“
autonomy
”
principle.la The essence of this
argument is that the parties are permitted to choose the governing
law (and this will be recognised) not because they have an auton-
omous
legislative ability, but because this is exactly what the conflicts
nile
of
the
forum
permits them to do.’$
As
Kahn-Freund points out,
7 Such as that
of
Sir George Jesse1 M.R. in
Printfng
and
Numerical Regisferirrg
Co.
V.
Sampson
(1875)
L.R.
19
Eq.
462, 465.
*
Corbin
on
Contracts
(1962), Vol.
6A,
8
1376,
note
16.
9
Inter
alfa,
Beale, “What LB;~ Governs the Validity of
a
Contract”
(1910) 23
HarvLRev.
1; 79;
260;
Mann,
Proper Law and Illegality in Private International
Law”
(1937)
18
B.Y.B.I.L.
97;
WOE, “The Choice of
Law
by the Parties
in
International Contracts
”
(1937) 49
Jur.Rev.
110;
Kahn-Freund
(1939)
3
M.L.R.
61;
Morris and Cheshire
(1940) 56
L.Q.R.
320;
Wolff
(1949)
Tr.Grot.Soc.
143:
Mann
(1950)
3
I.L.Q.
60
and
597;
Morris
(1950)
3
I.L.Q.
197;
Libling
(1979) 42
M.L.R.
169.
A useful
survey
is undertaken by Prebble,
58
Cornell L.Rev. at pp.
10
Beale,
supra,
Morris and Cheshire,
supra.
Cheshire and North,
op.
cit. pp.
2:2-215.
See also the illuminating passages in the judgments
of
Dixon J.
in
McCleIland
v.
Trusrees
Executors
&
Agency
Co.
(1936)
55
C.L.R.
483, 491-492
and Learned Hand J.
in
GerN
&
Co.
v.
Cunard
SS.
Co.
(C.C.A. 2d.
1931) 48
F.
(2d.)
115,
117,
(cited
in
Anton,
op.
clt.
p.
189).
11 The battle between the objectivists and subjectivists may be logomachy (Kahn-
Freund,
General Problems
of
Private Infernational Law
(1976),
p.
197,
note
50)
if
the English rules are merely a different way
of
expressing
the
“
localisation
’’
theory developed by BatSol
(‘‘La
lot
applicable
au
confrat
est
dbterrninde par le
jug!,
mais en raison
de la
volonth des parties quant
d
la
localisation
du
contrat.”)
Batiffol and Lagarde,
Droft Znfernational Prlvl
(6th
ed.,
1976), Vol.
11,
para.
571,
p,
236.
Also
para.
570,
p.
233
and para.
573,
p.
241).
But there remains a funda-
mental cleavage between the subjective and the objective approaches because
h
the former the parties’ wishes localise the agreement finally (subject only to legality,
bona fides and public policy) whereas in the latter their intention
is
only
one
factor to be taken into account in loCalising the agreement under
a
system
of
law.
12
Cook,
The Logical and Legal Bases
of
the Conflict
of
Laws
(1942),
pp.
389-
432.
13 Mann
(1950)
3
I.L.Q.
597, 598,
citing a passage from Rheinsteh,
15
U.Chi.L.
Rev.
478, 485 (1948).
See also Wolff
(1937) 49
Jur.Rev.
110,
115-116
and
Private
Internarional Law
(2nd ed.,
1950),
S.
395;
Nygh,
Conflict
of
Laws
In
Australia
(3rd
ed.,
1976),
pp.
213-214;
Report on the European
Drafr
Convention, supra,
note
1,
p.
26;
American Restatement
(2d), comment
on
8
187,
p.
565.
491-536.
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