Conflict of Law: Proper Law of Contract

HISTORY

Until the middle of the 19^th century, the courts applied the lex loci contractus or the law of the place where the contract was made, to decide whether the give contact was valid. The apparent advantage of this approach was that the rule was easy to apply with certain and predictable outcomes. Unfortunately, it was also open to abuse, e.g. the place could be selected fraudulently to validate an otherwise invalid contract; it might lead to application of laws with no real connection with the transaction itself, say, because the parties signed the agreement while on a holiday; or it might have been difficult to decide where the contract was made, e.g. because it was negotiated and signed on a railway journey through several states.

To avoid these difficulties, some courts proposed applying the lex loci solutionis or the law of the place of performance of the contract. This produced difficulties in cases where the contract required each party to perform its obligations in a different country, or where the place of performance was dictated by later circumstances.

These shortcomings probably informed Lord Wright’s position in Mount Albert Borough Council v Australasian Temperance and General Assurance Society[1] that:

“English law in deciding these matters, has refused to treat as conclusive rigid or arbitrary criteria such as lex loci celebrationis or lex loci solutionis and has treated the matter as depending on the intention of the parties to be ascertained in each case as a consideration of the terms of the contract, the situation of the parties and generally on all the surrounding facts”