Dr.

SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY

Lucknow

Faculty of

Law

ASSIGNMENT ON

DOCTRINE OF PROPER LAW

For

COURSE ON ‘PRIVATE INTERNATIONAL LAW’

CLASS: B.Com. LL.B (Hons.) 8TH Semester

Submitted by

SHUBHAM PATHAK

ROLL NO. 174140046

Academic Session: 2020-21

Under the Supervision of

Shambhavi Upadhyay Ma’am

Faculty of Law
Dr. Shakuntala Misra National Rehabilitation University
 ACKNOWLEDGEMENT

I would like to convey my special thanks of gratitude to my teacher Shambhavi

Upadhyay Ma’am who gave me the golden opportunity to do this wonderful project

on which guided me in doing lot of research and I came to know about so many new

thing. I am really thankful to him. Secondly I would also like to thank my parents and

friends who helped me a lot in finishing this project within the limited time.
INTRODUCTION -

The expression ‘proper law’ denotes the system of uncodified laws and is
peculiar to laws of England and Commonwealth Countries. To be particular,
this doctrine of proper law refers to the selection of appropriate legal system. As
per John Morris, proper law doctrine mentions the legal system with which the
matter in issue is closely or, perhaps, most closely connected.
The whole of the conflict of laws is concerned with the question: which, in a
given situation, is the legal system closely or most closely connected with the
matter in issue? The real problem of the conflict of laws is whether that system
can be more closely defined, or whether general phrases could be eliminated
and specific formula could be reached. Status is governed, not by the proper law
or by the law indicating the closest connection, but by the law of the domicile.
The title to property is governed, not by the proper law of the situation, but by
the lex situs.1
By 1950, it was firmly established in England by decisions of the House of
Lords as well as on the Continent, particularly in France, Germany and
Switzerland, and in numerous other countries, that an express choice of law by
parties was valid and Conclusive. The same applied to an implied choice,
frequently effected through a jurisdiction or arbitration clause. The problem was
whether in the absence of an express or implied choice the presumed intention
of the parties had to be ascertained by construing the contract, i.e. by objective
means as opposed to evidence about the subjective intentions of the parties, or
whether it was for the court to ascertain the country with which the contract was
most closely connected. It is safe to say that the practice had followed the
former course, but in 1949 Lord Denning, admittedly influenced by Cheshire,
said:
“the question whether the contract to repay is valid … depends on the proper
law of the contract, and that depends not so much on the place where it was
made or on the intention of the parties as on the place with which it has the most
substantial connection.”

DOCTRINE OF PROPER LAW OF CONTRACT -

A dispute related to contract which comes before any court may

have foreign elements: one or both of the parties may be foreign, or the making
or performance of the contract, or its terms, may be connected with one or more
foreign countries, e.g., a contract is entered into between the two countries by
telex; an Indian businessman sells goods to a French businessman, the goods to

1
Kurt LipsteinJean S. BrunschvigFredrick Jerie, “The Proper law of Contract” ,12, JLS, 01(2014)
be delivered and the price to be paid in England. In an action for breach of
contract brought by the French buyer in the Indian court, a question arises
which country’s law should be the governing law because the laws in India,
France and England are different. Which law should the court be applied?
The general principle is that every international contract (i.e. a contract
containing one or more foreign elements) has a governing law, called the proper
law of the contract, by reference to which issues arising out of it are mainly,
though not exclusively, decided. Subject to certain limitations, the parties have
the power to choose this proper law of the country with which the contract has
its closest and most real connection.2

Thus, whenever there arises any dispute, the problem which is generally faced
is: which law, or the law of which place, is to be applied in a particular case. 3
This problem is solved by the “proper law of contract”, because the parties are
to be governed by the “proper law of contract”, in such a situation. The proper
law has been defined as: “The law which is applied by the English or other
courts in determining the obligations under a contract.”
The law of a single country may not be adequate to deal with the whole of the
contract; some of the aspect of the contract may be subjected to allow one
country, while the other aspect may be subjected to some other country. Thus in
such a situation it is very difficult to decide which country’s law should be
considered as the proper law, as the law of both the countries are equally
competent to deal with the conflict but not wholly.

CHOICE OF THE PROPER LAW -

Under the Indian and English private international law the autonomy
of the parties in this matter has been recognized and the parties are deemed to
be free to choose any law which can govern their contract. 4 This freedom of
choice is also subject to certain restrictions, because sometimes such choice
may mean the exclusion of the operation of some law, which could be otherwise
applicable. It means this choice makes that applicable law, inapplicable in
particular circumstances. Subject to certain limitations, the court will give effect
to a choice of law by the parties. Such a choice may be express or implied.

Express Choice -

The choice is considered express when the contract

contains a provision that specifies the law, by which it is to be governed, in the

2
G. C. Chehire,“The Proper Law of Contract in the Conflict of Laws” 56 L.Q.R. 320 (1940)
3
F.A. Mann, “the Proper Law of Contract in Conflict of Laws” 46 L. Q. 437 (1987)
4
The proper Law in Conflict of Laws, available at, http://uniset.ca/other/art/46ICLQ437.htm
situation of conflict if arises in future. It will be better for the parties to an
international contract to include such a clause in their agreement, to avoid the
uncertainty which may otherwise arise in ascertaining the proper law. However,
normally, they neglect to do so, or are unable to agree on which law shall be the
governing law in case of dispute, if there arises any, in future.

Implied Choice -
When the contract contains no express choice of proper
law then, according to the leading formulation by Lord Simonds in a case, the
proper law is “the system of law by reference to which the contract was made or
that with which the transaction has its closest and most real connection.” The
first part of this Bonython Formula refers to an implied choice by the parties,
which is what we are concerned with now. The second part comes into
operation when there is no choice by the parties, express or implied. The system
of law by reference to which the contract was made, i.e. an implied or tacit
choice of law, may be inferred by the court from the terms or form of the
contract or the surrounding circumstances. The most important example of an
implied choice of a governing law is a choice of forum clause i.e. a clause by
which the parties agree that the courts of a particular country shall have
jurisdiction, or a clause providing that any dispute arising from the contract
shall be decided by arbitration in a particular country. In commercial contracts,
arbitration clauses are common and where the contract is an international one, it
may stipulate the country in which arbitration is to take place. An arbitration
clause or a choice of forum raises a strong presumption that the parties intended
the law of the country in question to govern, on the basis that they are most
likely to have had in mind that the court or arbitrators would apply their own
law.
Common example of an implied choice is the use of terminology or concepts
peculiar to a particular law, often contained in a standard form drafted against
the background of that law. In such a case the inference may be drawn that the
parties intended the law in question to govern.

RESTRICTIONS ON THE POWER TO CHOOSE THE PROPER LAW –

Although the parties are free to choose the proper law but there are certain
limitations on this power of the parties.
These limitations can be explained as:-

I. Mandatory rules of domestic law -

One of the limitations on the power of the parties to choose the proper law is the
mandatory rules of domestic law. The intricacy is that some domestic contract
rules are not optional, but mandatory, i.e. applicable irrespective of any
agreement of the parties to the contrary. These rules can be in any form like:
The rules which render contracts void on grounds of public policy, or;
Invalidate provisions, such as exemption clauses, in order to protect a weaker
party.

Here, arises a question, whether a mandatory domestic rule will be applicable to

a particular international contract which is dependent on whether the law in
question, or some other law, is chosen by the parties, seems contradictory.
Moreover, it seems inconsistent with the nature of a mandatory rule that the
applicability of these rules should depend upon the choice of the parties.
In a leading case5, it has been held by the court that the only general limitation
on the choice of the parties regarding the governing law is that it must be made
with Bona fide intention and it must be legal.

The basic requirement regarding the choice of law is that it must be bona fide.
Broadly, it is believed that it will not be so if the sole reason for choosing the
law in question was to avoid invalidity under the law which would govern in the
absence of a choice.6

II. The law of the country with which the contract is most closely connected

In this regard, the court considers some important elements like:-

The place or places of making the contract;

The place or places of performance of the contract;

The connection of the parties with the countries;

The situs of any immovable property which is the subject matter of the
contract;

The country where the ship is registered, on which the goods are to be
carried; and

The currency in which money due under the contract, has been paid.

5
Vita Foods Products Inc. v. Unus Shipping Co. Ltd. (1939) AC 277, (1939) I AII ER 513
6
Golden Acres Ltd. v. Queens land Estates Pty Ltd. (1969) QDLR 378
Here arise a few questions which the courts have to reply. These questions are
as follows:-

What should be the parameter to decide with which country or law the
contract has the closest connection?

Why that governing law is appropriate to apply?

Any law can be considered as appropriate only for two reasons:-

1. If it is in the interest of the parties to the contract7, or

2. If it is in the interest of the country whose law is to be applied.

III. Centre of Gravity -

The elements which connect the contract with two or more countries are
considered the basis of the proper law, whenever the interest of the country i.e.,
to ensure that its policy is applied when appropriate, is emphasised. These
elements expediently are called its localising elements. These are found in the
country in which they are most closely grouped that constitutes the centre of the
contract and furnishes the governing law. This theory is sometime called “hub
of gravity” or “centre of gravity” and it can be justified on the ground that it is
the country in which the elements of the contract are most closely grouped
whose interests and policy are most likely to be affected by the contract. 8 This
theory generally involves the record of relationship of the contract with the
different countries, but where there is no clear sign of connection with one
country, the weight or eminence of the different elements are to be assessed.
Therefore, sometimes “the place of performance” is considered as the most
important element and it is clear that whenever any single factor carries more
weight than others in these matters; it is known as lex loci solutionis.

IV. Convenience and Business Efficiency -

When the interest of the parties is emphasised, rather than the

countries, then close connection of the contract is evaluated in the terms of
business efficiency and convenience. This is the criterion which also shows the
implied choice of the parties. Although these factors are very much talked
about, yet the courts have not adopted the approach to provide for any general
guidance regarding the question: what connections with the countries are most

7
The Theory of Proper law of contract, available at: https://www.lawteacher.net
8
Contractual liability and Conflict of Laws, available at: http://shodhganga.inflibnet.ac.in
significant in this respect? Thus, factors like: the place of making the contract or
the place of performance of the contract have less importance than the
relationship of the parties with the countries like: where they carry on business
or where they reside are given much more importance than the other elements
because generally it is most convenient for a party that the governing law
should be his own law. Moreover, in relation to the interest of the parties, the
law of that country with whom the party belongs will usually be the accurate
law.
When the connection of contract with one country is clear, there arises no
difficulty, but the difficulty is faced by the judges when they are evenly
balanced. In such situations a question arises that whether it is a search for the
country or for the system of law with which the contract is most closely
connected. While the reference in the cases is found in respect of the system of
law, but actually both are considered relevant.
Therefore, after taking into consideration the connections of the individual, the
closeness is with the country or the system of law perhaps depends on whether
the court prefers a centre of gravity approach (country) or convenience and
efficiency approach (system of law).

MATTERS AFFECTING CONTRACTUAL OBLIGATIONS -

With respect to the contractual obligations, it is considered that

if a contract has been lawfully entered into, then the law of a particular place is
the proper law, but there are certain problems in this regard. One of them is:
what should be considered as the proper performance of the contract so that the
promisor can be discharged from his contractual obligations by such
performance. There can be all the possibilities that in the matter of performance
of any particular contract lex loci solutionis and the proper law may not be the
same. In such situation, which law will be applicable is to be determined by the
courts. In the same way, in the matter of discharge of contract also an identical
problem can arise such as: discharge by impossibility, illegality, novation,
outbreak of war and insolvency etc.
There is another matter of grave concern here i.e. the lex loci contractus, or lex
loci solutionis, or the proper law may not be the same, and in such a situation
the question may arise regarding the legality of the contract, it means according
to which law the legality of a contract can be tested. Thus, the courts while
deciding a case, has to take into account various matters connected with a
contract, and in that situation in order to make out as to what exactly was
intended by the parties when they entered into the contract, should be
interpreted by the contract itself. That is why; it becomes essential, firstly to
decide as to which law should be applied for such interpretation and then the
interpretations to be made on that basis.9 Most importantly, in case of breach of
contract, there arises always a question of determination of damages.

In such cases, two other questions also arise which the court has to decide:-

I. Whether the consequences of breach of contract are remote or not?

II. To what extent or how much compensation should be paid for the same?

III. Which law should be the governing law for the above questions?

All the above matters, which are relevant in the context of contractual
obligations, can be discussed as under:-
Interpretation of contract.

Illegality.

Performance of contract.

Discharge of contract.

Determination of damages.

INDIAN RULES IN THE CONTEXT –

In case of India, situation is more complicated because in India

the applicable law is the personal law relating to these matters is determined by
the religion of the individuals concerned, most of countries in which there is
substantial presence of Indian nationals do not recognise personal laws based on
religion and have a unified civil code which applies to all persons residing there.
Now, India is also a member of the Hague Conference on Private International
Law. In International trade and commerce, every commercial activity is
generally preceded by a contract fixing the obligations of the parties to avoid
legal disputes. But in this ever-changing world of trade and commerce, disputes
between parties are inevitable. No matter how carefully a contract is drafted, a
party to the contract may understand his right and obligations in a different way.

Under Indian Law, certain rules related to conflict of laws are mentioned
specifically in Civil Procedure Code, 1908. The rules relating to Jurisdiction in
9
The Theory of Proper law of contract, available at: https://www.lawteacher.net
action inter parties are laid down in sections 19, 20 of the code. Section 19 is
confined to suit for compensation for wrongs to person or movables. Under this
section, it is mentioned as: “Suits for compensation for wrongs to person or
movable: Where a suit is for compensation for wrong done to the person or to
movable property, if the wrong was done within the local limits of the
jurisdiction of one court and the defendant resides, or carries on business, or
personally works for gain, within the local limits of the jurisdiction of another
court, the suit may be instituted at the option of the plaintiff in either of the said
courts.” But this section is confined to torts committed in India and to
defendants residing in India. It does not include within its ambit the suits in
respect of foreign torts. Such cases are covered by section 20, which overlaps
this section. This section deals with inter parties suits.

This section can be read as follows:

Subject to the limitations aforesaid, every suit shall be instituted in court within
the local limits of whose jurisdiction:

a. The defendant, or each of the defendants where there are more than one, at
the time of the commencement of the suit, actually and voluntarily resides, or
carries on business, or personally works for gain; or
b. Any of the defendants, where there are more than one, at the time of the
commencement of the suit actually and voluntarily resides, or carries on
business, or personally works for gain, provided that in such case either the
leave of the court is given, or the defendants who do not reside, or carry on
business, or personally work for gain, as aforesaid, acquiesce in such institution;
or
c. The cause of action, wholly or in part, arises.

The explanation to this section says that a corporation shall be deemed to carry
on business at its sole or principal office in India or, in respect of any cause of
action arising at any place where it has also a subordinate office, at such place.
Actually, the Indian rules of Private International Law are identical to the rules
of English Private International Law. Thus, it is submitted that Indian Courts
should not construe strictly the requirement of residence in private international
law cases, nor should it exercise jurisdiction over persons on whom process has
not been served just because cause of action arises within jurisdiction. If a
person to the court submits to the jurisdiction then the court gets the jurisdiction
to try the action and a decree or an order is passed in such action will be valid
internationally. Mere appearance in the court is considered to be the submission.
A person may submit to the court either impliedly or by way of express
stipulation in the contract. If a person is outside the jurisdiction, the court will
have the jurisdiction on him only if he submits to the jurisdiction of the court. In
case, the foreign defendant does not submit to the jurisdiction of the court, then
the judgment delivered in his absence would be null and void.10

CHOICE OF LAW RULES FOR CONTRACTS -

Most of the issues related to contracts are governed by the proper law of the
contract. In this regard three important points are needed to be discussed here:-

I. AGREEMENT -

In a case it was held that “the role of intention is crucial and if the parties have
agreed on the applicable “proper law of the contract”, then the courts must give
effect to that agreement so long as the agreement is bona fide and legal, and not
against public policy.”

II. NO AGREEMENT -

If there is no agreement between the parties regarding the proper law of the
contract, then the court applies the law that has the “closest and most real
connection” to the contract.11

III. INFERENCE -

In a case12, it has been held by the court that if the contract allows the court to
infer what the intention of the parties in their agreement regarding the proper
law of the contract, then the courts must give effect to that agreement. 15
The court cannot hold someone liable for simply obeying the local law, even if
it results in the breach of contract. Certain important point have been analysed
by the court in a case13, in this regard.

These are as follows:-

1. Even if contract is valid by its proper law, it will not be enforced to the extent
that it causes crimes to be committed under local law of the place of
performance

10
Jayant Bhatt & Tanvi Kapoor, “The Rules To Be Followed By A Court In Applying Appropriate Law In
Cases Having A Foreign Party” (2000-2013), ISBN No: 978-93-82417-01-9
11
Imperial Life Assurance Co. of Canada v. Colmenares, SCC 1967
12
In re The Star Texas, C.A. 1993
13
Gillespie Management Corp. v. Terrace Properties, B.C.C.A. 1989
2. Choice of law system must respect the fact that states can regulate
conduct.
3. Courts will not hold someone liable for obeying local law.

Doctrine of Restitution also needs a brief mention in context of conflict of laws

here. Restitutionary claims are governed by the law with the closest and most
real connection to the place of unjust enrichment.
For Instance, if a party is a foreign party, then the party initially, has to submit
to the jurisdiction to the court regarding any matter, whether it is related to
breach of contract or for the restitution. And the matter of jurisdiction is decided
with the help of certain rules of Private International Law or conflict of laws,
which are the connecting rules which help the courts in deciding what law
should be applied to decide the case. Pursuant to, the foreign party is required to
submit to that court which has jurisdiction, which means that the party will
accept the decision of that court. Once a decision is given by a court, its
enforcement is necessary in the foreign country by the foreign court, then the
foreign court need to recognize it and only then it can be enforced. For
Recognition and enforcement of foreign decrees and orders every country has
its own rules/laws. In this way, it can be concluded that the Indian rules of
Private International Law are the similar to the rules of English Private
International Law.

EFFECT OF CHOICE OF PROPER LAW –

In order to ascertain the proper law, first we need to take the

subjectivist approach, where the parties have expressly chosen a law to govern
their agreement. In Vita Food Products Inc. v Unus Shipping Co. Ltd. 14, Lord
Wright said that provided the intention expressed is bona fide and legal, and
provided there is no reason for avoiding the choice on grounds of public policy'
the intention of the parties as to the choice of law prevails. Three points with
respect to the parties’ choice of law are. First, they can choose a law which has
no obvious connection with the contract and still be bona fide and legal.
Second, if the choice of law was made for the specific purpose of avoiding the
consequence of the illegality then it is not bona fide and legal. Thirdly, there is
no reported English case in which a choice of law clause has been struck down
by the courts.
However, when there is no express nor implied choice of law then the court has
to impute an intention or to determine for the parties the proper law which, as
just and reasonable persons, they ought to or would have intended if they had
thought about the question when they made the contract. The factors which help
14
Christopher v. Zimmerman, B.C.C.A. 2000
the court determine the proper laws of the contract are those with which the
transaction had its closest and most real connection.
In the situation where the contract does not contain an express selection of law
to be applied to the contract, the court may take into consideration some other
factors in order to determine whether the parties have impliedly agreed the
system of private law that would apply to disputes. There are some situations
which show implied choice by the parties. Those can be the selection of
jurisdiction of court of which proceedings would be brought, arbitration clauses,
references to regulations of a particular country, the currency in which sums are
to be paid under the contract or the form of the documents. Also, the language
used in a contractual document give guidance as to whether the parties have
impliedly agreed to a system of law to govern the contract.15

In the absence such express or implied agreements, English common law will
determine the proper law of the contract to be the system of private law which
the transaction has the closest and most real connection. This is an objective test
to be ascertained by all the circumstances of the case. Amongst the factors that a
court will consider in determining the system of law that has the closest and
most real connection are the place of the contract was made, the place of
performance of the obligations arising under the contract, the place of
incorporation of the incorporated entities to the contract, place where any
security to taken, and whether the contract is associated with another contract
that does contain a choice of law.

That system of law is known as the lex contractus, namely the law used to
resolve substantive disputes between the parties in respect to the particular
contract, and will apply from the time that the contract was formed. In rare
cases, it may be appropriate for a court to order that more than one system of
law applies to a contract, where the nature and type of obligations are distinct
and severable from the remainder of the obligations.

CONCLUSION -

At the emergence of the doctrine of the proper law of contract it became

apparent that there was recognition of party autonomy and a selection of proper
law. However, it is important to say that neither Dicey’s subjective position nor
Westlake’s objective position prevailed absolutely. Thus, it is appropriate to
mention that the law dealing with determination of proper law of contract has
borrowed from both positions. The situations where the parties to a contract
have expressly stipulated that a particular law is to govern the contract that law
15
B.A.Wortley, “The interaction of Public and Private International Law today”, The Hague, Academy
of International Law,.239-342 (1954)
is considered to be the proper law of the contract. In Vita this was reaffirmed by
the Privy Council. After an express choice of law by the parties the extent to
which the courts can give effect to this choice must be determined. Basically, it
must be in good faith and legal. Further, a situation may arise where the parties
have not expressly indicated a choice of law, In this situation it is highly
possible for the parties to have made an implied selection of law. However, in
the event that the parties’ intention, express or implied cannot be ascertained,
the close and real connection test must be determined in order to identify the
proper law of the contract.

To conclude, it can be stated that the stability and fairness of international legal
undertakings seem to depend upon the strengthening of this renewed attempt to
supranationalize the conflict of laws. Due to the increasing interdependence of
human activity, the need for predictable outcomes in the legal disputes is also
growing. These outcomes should have a more substantial pace than the national
affiliation of the forum. Given the diversity of contemporary international
society, it is not realistic to see this and by reconciling national policies so as to
create a single substantive law. There is more reason for hope if the ancient
quest for order amid diversity is pursued through a uniform approach to the
allocation of legal competence among the national units that compose the global
system. One illuminating context within which this allocation can be studied
and realised is the application of choice of law rules by domestic courts.