Determining The Proper Law Of Contract Under Private international Law





Business men and women, the world over, are continually entering into agreements.  It is therefore necessary to know which law should be applied to govern these agreements, because every international contract must be governed by a particular law, if not it is no longer a contract which the court must enforce.  Generally, the law of contract has uniqueness of its own, in that it is the only branch of the law in which broadly speaking parties are free to make their own choice of law.  The court will apply this law if it passes the objective test.  The courts follow a procedure in conducting this test; it is the result that constitutes determining the proper law of contract. At first the choice of law was fixed, rigid and arbitrary but as times went on, the law became flexible, more reasonable and universally acceptable.

The Proper Law of Contract was defined in Coast Lines Ltd. v. Hudig and Veder Chartering N.V.1 “as the system of law (e.g. Nigerian Law, English Law, German Law or Italian Law) by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection.”

The proper law of contract was also defined by Lord Wright in Mount Albert Borough Council V. Australasian Temperance & General Mutual Life Assurance Society2 as “that law which the English court is to apply in determining the obligations under the contract. English law in deciding these matters has refused to treat as conclusive, rigid or arbitrary criteria such as lex loci contractus or lex loci solutionis, and has treated the matter as depending on the intentions of the parties to be ascertained in each case on a consideration of the terms of the contract, the situation of the parties, and generally on all surrounding facts.  It may be that the parties have, in their agreement expressed what law they intend to govern, and in that case prima facie their intention will be effectuated by the court.  But in most cases they do not do so.  The parties  may  not  have  thought  of  the  matter at all.

Then the court has to impute an intention or to determine for the parties what is 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.”

It can be deduced from the above definitions that what constitutes the proper law of contract is not very easy to determine, because of its complex nature.  One cannot at a glance pick a particular law as the proper law of contract.

The difficulty arises from the fact that businessmen and women representing their companies from different parts of the world, enter into various kinds of contracts; such as contracts of sale of goods, hire purchase contracts, contracts of employment, equipment leasing agreements, consolidation contracts, etc.  In Nigeria, commercial banks for example, are required to raise their minimum share capital from N2 billion to N25 billion.  To meet this target, banks enter into merger agreements with other banks both local and international.  Therefore the proper law to govern contract of sale of goods is not the same as contract of hire purchase or contract of employment or equipment leasing contract or a share acquisition contract.

These contracts contain terms, conditions and multiplicity of connecting factors.  These terms and conditions form the constitution of the contract of which the breach of any clause will lead to action for claims. At first and in relation to the determining of the proper law of contract, there may be no problem among the parties to the contract, where each respects or carries out his obligation under the contract.  But problem arises where one party to the contract breaches or fails to perform his own obligation under the contract

Where the contract is a domestic one, the issue in dispute before the court may not pose much problem, because the domestic law i.e. Nigerian Law of Contract, which is based on common law principles as well as on legislation, shall apply. However, where a Nigerian company enters into a contract with an Italian company and the issue before the court involves a foreign element, problem arises as to which country’s proper law, Nigerian Law or Italian Law is the applicable law in resolving the matter.

Leave a Reply