CHAPTER 14 Contract

• Date: 07 April 2025

332

CH AP TER 14

CONTR ACT

A. INTRODUCTION

Policy considerations have played an important role in the development

of choice of law rules for contract. Four of the more central considera-

tions are: (1) to respect party autonomy, in terms of giving eect to party

choice; (2) to honour the reasonable expectations of the parties; (3) to

achieve uniformity of results, so that the outcome does not depend on

the place where the dispute is resolved; and, more recently, (4) to give

eect to laws designed to protect contracting parties, especially in con-

sumer transactions.

B. THE PROPER LAW RULE

The early English and American choice of law rule for contract was the

lex loci contractus — the law of the place of contracting.1 This rule drew

considerable strength from the vested rights theory, explained in Chapter

10. However, as we have seen, that theory is open to considerable criti-

cism, and likewise this rule came under attack. One problem was that it

required somewhat artif‌icial rules to identify the place where a contract

was made in cases involving mail or telegraph. For mail, courts used the

postal acceptance rule, under which the contract was made at the place

where the acceptance was mailed rather than the place where it was

1 Wilmot v Shaw (1881), 14 NSR 343 (CA).

Contract 333

received by the oeror. 2 A second problem was that the rule did not cover

certain contracts, such as those made on board a ship in international

waters. A third and more important problem was that the rule did not

give sucient eect to party autonomy. For parties to choose the applic-

able law of their contract under this rule, they would have to arrange to

make the contract in the country of their choice. This would often be

inconvenient or impractical. Further, the place of the contracting rule

could lead to fortuitous results that do not ref‌lect the reasonable expect-

ations of the parties, such as a contract made by two English residents

while on a brief visit to France.3

As a result, the courts evolved exceptions to the place of contracting

rule. As far back as Robinson v Bland, Lord Mansf‌ield held that if the par-

ties had in mind a dierent applicable law, such as the law of the place

where the contract was to be performed, then that law and not the law of

the place of contracting would be applied.4 Over time, these exceptions

came to displace the rigid rule. The modern common law rule is that a

contract is governed by its “proper law.” This is a vague concept, and the

courts have accordingly f‌leshed out what is meant by a contract’s proper

law. It is the law that the parties intended, either expressly or implicitly,

to govern the contract, and in the absence of any such intention it is the

law with which the transaction has its closest and most real connection.5

Canadian courts followed the English courts in adopting the proper

law rule, and English decisions in this area have historically had per-

suasive value in Canada. However, as part of its membership in the

European Union, England has, since 1990, rejected the proper law rule

and instead adopted the rules formulated for use across Europe.6 The

new rules apply in all cases before the English courts, not just those

involving other member states of the European Union. As a result,

2 Household Fire & Carriage Accident Insurance Company v Grant (1879), 4 Ex D

216 at 221.

3 In Amin Rasheed Shipping Corp v Kuwait Insurance Co, [1984] AC 50 (HL) [Amin

Rasheed], Lord Diplock referred to the place of contracting as often being “a mere

matter of chance.” See also Sharn Importing Ltd v Babchuk (1971), 21 DLR (3d)

349 (BCSC).

4 (1760), 2 Burr 1077.

5 Bonython v Commonwealth of Australia, [1951] AC 201 at 219 (PC); Tomkinson v

First Pennsylvania Banking and Trust Co, [1961] AC 1007 at 1068 and 1081 (HL);

Amin Rasheed, above note 3 at 61; Etler v Kertesz, [1960] OR 672 (CA) [Etler];

Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb, [2020] UKSC 38 at

para 27 [Enka].

6 Contracts (Applicable Law) Act 1990 (UK), c 36, implementing the Convention on

the Law Applicable to Contractual Obligations (1980), OJ C027 26/01/1998 at 34.

See now Rome I, below note 63.