Contract

• Author: Stephen G.A. Pitel/Nicholas S. Rafferty
• Profession: Faculty of Law, University of Western Ontario/Faculty of Law, University of Calgary
• Pages: 269-287

269

CHAP TER 14

CONTR ACT

A. I NTRODUC TION

Policy considerations have played an importa nt role in the development

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

tions are: (i) to respect party autonomy, in terms of giving effect to

party choice; (ii) to honour the reasonable expectations of the parties;

(iii) to achieve uniformity of results, so that the outcome does not de-

pend on the place where the dispute is re solved; and, more recently, (d)

to give effect to laws designed to protect contracting parties, especially

in consumer transactions.

B. THE PROPER LAW RULE

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

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

considerable strength from the vested rights theory explained in Chap-

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

criticism, and likew ise this rule came under attack. One problem was

that it required somewhat art if‌icial rule s to identify the place where

a contract was made in cases involving mail or telegraph. For mail,

1Wilmot v. Shaw (1881), 14 N.S.R. 343 (C.A.).

CONFLICT OF LAWS

270

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 received by the offeror.2 A second problem was that

the rule did not cover certain contr acts, such as those made on boa rd

a ship in international waters. A th ird and more important problem

was that the rule did not give suff‌icient effect to party autonomy. For

parties to choose the applicable 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 re asonable e xpectat ions of the partie s, such as a contract

made by two English residents while on a brief v isit to France.3

As a result, the court s evolved exceptions to the place of contracting

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

parties had in mind a different applicable law, such as the law of the

place where the contract was to be performed, t hen 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 of course

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 abs ence

of any such intention it is the law with which t he transaction ha s its

closest and most real connection.5

Canadian cour ts followed the English courts in adopting the prop-

er law rule, and English decisions in t his area have hi storically had

persuasive 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 t hose

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

216 at 221.

3In Amin Rasheed Shipping Corp. v. Kuwait Insurance Co., [1984] A.C. 50 (H.L.)

[Amin Rasheed], Lord Diplock referred to t he place of contracting as often b eing

“a mere matter of chanc e.” See also Sharn Impor ting Ltd. v. Babchuk (1971), 21

D.L.R. (3d) 349 (B.C.S.C.).

4 (1760), 2 Burr. 1077.

5Bonython v. Commonwealth of Australia, [1951] A.C. 201 at 219 (P.C.); Tomkinson v.

First Pennsylvania Banking and Trust Co., [1961] A.C. 1007 at 1068 and 1081 (H.L.);

Amin Rasheed, above note 3 at 61; Etler v. Kertesz, [1960] O.R. 672 (C.A.) [Etler].

6Contracts (Applicable Law) Act 1990 (U.K.), c. 36, implementing the Convent ion

on the Law Applicable to Contractu al Obligations (1980) [Rome Convention], O.J.

C027 26/01/1998 at 34. See now Rome I, below note 51.