CONFLICT 2.1 CONFLICT OF LAWS IN CONTRACT
Here, the course is concerned with which law would (most appropriately) apply to a contract which is amenable to more than one law. This usually happens where there is a foreign element. Take for example; Mr Chike (a Nigerian) entered into an agreement with Mr Vincent (a Briton) in Paris and the contract/agreement is to be carried out in Nigeria. Which law would apply? From the scenario, you can see Britain, Paris, Nigeria…
NOTE ONE: This question may be answered by selecting the proper law which (according to the court in Bonython V Commonwealth of Australia) is the law that parties intended the contract to be governed by. This “intention” of the parties may be – express, – implied (from the agreement) or – imputed based on the facts and circumstances.
- Express Choice: parties can expressly choose the law that would govern their agreement (P and Q Steamship Navigation Co V Shand) and/or choose the place where the dispute would be heard (Capital Oil and Access Bank V Coscharis, Bonython V Common Wealth of Australia 1951 AC page 201). This is usually done by inserting a choice of law clause and/or Choice of Jurisdiction/venue clause (respectively) in the agreement. Provided that (as noted by Lord Wright in Vital Foods V Unus Shipping Company) the express choice of the parties is bona fide, legal and not contrary to public policy. Peer international cooperation V Termider Publishers ltd, Kendal V Kendal, Rhaman V
- Implied Choice: where parties did not expressly choose the applicable law, the court would decipher it by looking at their agreement. E.g. in Re Tunisiene, the court held that where parties chose a jurisdiction but did not choose a law, the law of the jurisdiction chosen could also govern the transaction.
- Imputed Choice: Where there is neither an express choice nor can any be implied from the agreement, the court would choose the law of the place with the closest and most real connection based on the facts of the case. This is often referred to as the Centre of Gravity Test. The courts look at the place of contracting or performance, place of residence of the parties, place of breach, etc… In The Assuzione, wheat was to be carried from Paris to Venice, payable in Italian currency. The court held that Italian law was the applicable law because both parties had contractual obligations to perform in Italy and the payment was in Italian currency. Therefore it had the most substantial connection with the agreement.
THE PROPER LAW OF CONTRACT WOULD NOT GOVERN THE FOLLOWING ISSUES:
The proper law of contract is the law subjectively determined by the parties (i.e. chosen by the parties/deciphered from their intention (discussed above)). While the “putative proper law” is the law objectively determined (devoid of the parties’ intention and applied by the court).
The courts would not allow PLSubjectively determined to govern certain contractual matters because the parties cannot agree outside the law. In this sense, putative proper law looks at the reality and validity of the contract before there is any talk of PLSubjectively determined.
Look at this situation: A agrees to re-stock B’s brothel (at Ikoyi Lagos) with sex toys to be used in homosexual acts. A and B then agree that U.S Law would govern the agreement rather than Nigeria’s law because the latter prohibits homosexual acts. PL objectively determined (i.e PutativePL) would kick in to invalidate the agreement for being illegal.
In essence; the PLsubjectively determined would NOT govern the following:
- Questions relating to the existence of the contract and its validity: Professor Olaniyan has noted that it would amount to putting the cart before the horse if the proper law of a contract were to govern the question whether there was ever a contract.
- Questions relating to whether the contract is illegal:
- If the contract is illegal under the law chosen by the parties, then it is a nullity.
- If the contract is contrary to public policy under the law of the choice of jurisdiction it can also be nullified.
- If it is illegal under the law of the place of performance (lex solutionis) it can be nullified (Although it can be performed in another place that permits it).
- If it is illegal under the law of the place of contracting, the agreement can be nullified (although mere procedural irregularity can be pardoned-Re Missouri Steam Ship Company.
- Questions of Formal Validity: various legal systems prescribe various procedures for the creation of certain contracts and agreement. If the contract deals with (lets say) a land in Lagos, the parties cannot circumvent the requirement of writing, governor’s consent, stamping and other formalities by providing that another law (which does not require these) would govern. This is because in contracts relating to land, the law of the place where the land is situated would apply notwithstanding that the parties expressly chose another law to apply.
- Questions relating to the Fact of Agreement: like whether there has been valid acceptance, offer, and so on. In Adams V Lindsel, the court noted that acceptance in relation to post occurs where the letter has been put in the post while some other civil legal systems hold that there can be no acceptance until the letter is received by the offeror. In determining the fact of agreement:
- If the parties are in the same territory when the agreement is communicated, then the law of that place (where the parties are) would govern (lex loci contractus).
- Where they are not in the same legal district, the putative proper law would govern-Albeko Schulmaschinan V The Kamboria Shoe Machine Company.
- Questions relating to reality of Agreement: whether there has been duress, mistake, undue influence, misrepresentation and other factors capable of vitiating the agreement, the court would objectively determine questions like these. There must be consensus ad idem. Because the express choice may have been forced on the other party.
- Questions relating to Capacity: e.g. in some legal systems, the age of majority is 18, while in some others it is 21. In Sotomio V Debaros, lex domicili (domicile) was used to determine whether the parties were capable of marrying. In Male V Roberts, the court applied the lex loci contractus (i.e. law of the place where the contract was transacted/agreed upon). As was noted in Charon V Montreal Trust; the courts may not allow parties to circumvent their contractual incapacity by selecting another law.
- Whether consideration has been furnished: In some legal systems, consideration extends to love, affection, and other non-monetary considerations. This is not the case in some other legal systems. Here, the putative proper law would govern-Re Bonacina.
- In cases of insurance, it is interpreted by the law of the place of incorporation of the insurance company.
After going through the above discussion, one may ask: so what does proper law subjectively determined govern?
The PLSubjectively determined may govern:
- Performance of the contract.
- Whether the breach is fundamental and whether the innocent party is entitled to repudiate the contract.
- Whether the agreement is in restraint of trade.
- Interpretation of the terms of the contract,
- Discharge of the contract.
Contract and Tort: Unlike under Tort, it is not so easy to determine the applicable law under contract. Furthermore, under contract the parties can select the law that would govern their transaction while under tort, the parties cannot.
We move on to the next topic: