Part Two

Application of Conflict of law in

Specific Areas of Law
By: Sultan Kassim
Haramaya University
College of Law,
Haramaya,2011
 Introduction
•
In this part we will be dealing with rules and principles
of conflict of laws as applied on specific area of laws.
•
This part deals mainly with conflict of law rules and
principles governing transactions in Contracts, non
contractual obligations, property including succession,
status including marriage and children, and finally we
will be dealing with rules governing Agency ,Companies
and Partnerships.
•
We will make cross reference to the general principles
you learned in part one. Therefore, you should try to
relate what you learned in the general part to each of
the topics under discussion here under.
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Chapter Five
Contractual Obligations
5.1. Choice of Applicable Law in Contract
•
A contract in which foreign elements are involved is one of the
most complicated areas in private international law.
•
This complexity results in part from the wide uses of contracts,
the lawyer's universal tool in business and personal affairs.
•
Realizing the problem different attempts are made to harmonize
the governing laws in contract on international level
•
Significant stapes is the 1980 Rome convention on Law
applicable to Contractual obligations which has mandatory
application in EU member states.

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 Choice of Applicable Law in Contract
•
No internationally accepted rules governing
contractual relations containing a foreign
element judges face problem.
•
In Ethiopia, the problem is far worse than any
country because of absence of any formally
adopted conflict of law rules to resolve such
disputes.

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5.2. Doctrine of the proper law of Contract

•
Defined as “that law which … a court is to apply in
determining the obligations under the contract”.
•
Not all the matters affecting the contract are governed
by one system of law.
•
But in all cases there is a primary system of law called
the ‘proper law’ which usually governs most matters
affecting the formation and substance of the contract.
•
The problem of ascertaining the lex causae is more
complicated in the case of contract than in almost any
other legal topic. b/c of multifarious connection.

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•
Multiplicity of connecting factors in contract :
•
the place where it is made; the place of
performance; the domicile; nationality or
business center of the parties; the situation of
the subject matter and so on.
•
So which one is determinant of the proper
law?

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 5.2.1. Ascertainment of the Proper Law
1. The US Approach Under Second Restatement
•
Contractual obligations in principle shall be governed
by the law of the state chosen by the parties unless
this law is contrary to the public policy of the forum
court.
•
Parties can agree on issues in contract law that are
included in permissive provisions in exclusion of
mandatory provisions which cannot be agreed
otherwise by the parties.
•
For instance the parties are free to determine the place
time and mode of performance.

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•
Parties could not agree on mandatory
provisions of contract law, they are not free to
agree in a way they want.
•
Examples of such questions are those involving
capacity, formalities and substantial validity.
•
When do we say parties made choice?
–
When they expressly stated or
–
when they used provisions of that law in
their contract.

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•
Limitation:
•
The parties cannot arbitrarily choose the law of
a state they like. They must have a reasonable
basis to select the law of a certain state.
•
When the state of the chosen law has some
substantial relationship to the parties or the
contract, the parties will be held to have had a
reasonable basis for their choice.
•
E.g. Place of performance, place of domicile of
one of the parties, place of business, place of
making contract( unless it was fortuitous).

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•
What if the parties did not choose applicable law?
•
In the absence of effectively chosen law by the parties
the governing law shall be the law which has the most
significant relationship to the transaction and the
parties taking in to consideration various points of
contact like:
–
Place of contracting, place of negotiation of the
contract, place of performance,
–
the location of the subject matter of the contract
and
–
the domicile, nationality, place of incorporation and
place of business of the parties.

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 2.The English Approach
•
Under English law determination of the proper law of
contract depends up on whether the parties have
expressly chosen the proper law or not.

Where There is Express Choice of the Proper Law
•
The parties may declare their common intention
–
either by simple statement that the contract shall be
governed by the law of country X, or
–
by a provision that any question arising between
them shall be settled by a judge or an arbitration in
that country.
•
Principle: qui elegit judicem elegit jus, which means ‘an
express choice of a tribunal is an implied choice of the
proper law’.
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•
May they choose any law in the world
however alien it may be to the factual
character of the contract?
•
No. Unless, of course, it is also the proper
law according to the objective standard.

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•
Where There is no Express Choice of the Proper Law
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We infer from the terms and circumstances of the
contract what their common intention would have been
had they considered the matter at the time when the
contract was made.
•
Here the court imputes to the parties an intention to
stand by the legal system which, having regard to the
incidence of the connecting factors and of the
circumstances generally, the contract appears most
properly belong.
•
In short the proper law is the legal system with which
the contract has the most substantial connection.

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To determine the existence of substantial connection
•

between a certain law and the contract, the following

objective factors are relevant:
–
the domicile and even the residence of the parties;
–
the national character of the corporation and the
place where its principal place of business is
situated;
–
the place where the contract is made and the place
where it is to be performed;
–
the style in which the contract is drafted, as for
instance ,whether, the language is appropriate to
one system of law ,but inappropriate to another;
–
the fact that a certain stipulation is valid under one
law but void under another; etc…
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3. The Approach in The Rome Convention 1980
\
•
The proper law is determined in accordance with the
rules laid down by Articles 3 and 4. These refer,
•
Primarily, to a choice of law expressly agreed on by the
parties to the contract;
•
secondarily, to a choice of law impliedly, but clearly,
agreed on by the parties; and
•
Finally, in default of any such choice, to the law of the
country which is most closely connected with the
contract, (Art.5)
•
i.e. the law of the country where the party who is to
effect the performance which is characteristic of the
contract has his habitual residence.
•
Incase of immovable property, the law of the situs of
the property.
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 5.2.2 The Proper Law of the Contract in the
Ethiopian Conflict of Law
•
The general rules governing choice of laws in
contract cases in the Federal Draft conflict of
laws Proclamation are stated in Art.73-75.
•
Under Art.73 (1) where the contract involves a
foreign element, the parties are given the right
to choose the law applicable to their contract.
•
Rationale is to respect legitimate expectation of
the contracting parties.

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•
The parties however, are not free to choose
arbitrarily any law of their liking.
•
The law chosen by the parties must be :(Art.73)
–
The law of nationality or domicile of one or all
of the parties.
–
The law of the place where the transaction is
made
–
the law of the palace where the performance
is intended.

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•
How can we ascertain whether the parties
have made a choice of law for their contract?
•
Art73(2)
–
By express selection of the law of a certain
country or
–
By express selection of a tribunal of certain
country.
–
Their intention to be subject to the law of a
certain state from the terms of the contract
may be identified by interpretation.

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•
what if the parties choose a law which is not
the law mentioned by art 73?
•
The provision does not clearly state the solution
to this question.
•
How ever under the other jurisdictions, the
courts will declare the agreement invalid and it
will be the default rules that would be
applicable.
•
So the default rules are the rules that the court
would apply if the parties did not any choice.
•
But it is better to expressly indicate this in the
draft.
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 The governing law in default of choice by the parties
( Art.74)
•
The court will apply the law with which the contract is
most closely connected.
•
What maters should be taken in to account in
determining the law of the place to which the contract
is most closely connected. No indication in the Draft.
•
The expression “most closely connected” in the
provision is closer in meaning to the American Second
Restatement expression, “most significant relationship”
and that of art 4 of Rome convention "most closely
connected”. So use the understanding in these laws.
•
Exception: if the contract relates to the establishment
or transfer of right in rem in immovable or movable
property the law that has the closest connection is the
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law of the place where the property is situated.
 5.2.3. Rules governing Particular Aspects
of the Contract
Important specific elements of the contract are:
•

–
Capacity of the contracting parties,
–
Consent,
–
Object and Form of the Contract.

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•
1. Capacity to contract
•
In United States the question is governed by the law chosen by
the parties, if they have made an effective choice.
•
Otherwise, this question is determined by the law that has the
most significant relation ship .
•
In England earlier lex domicili or lex loci actus. ( Both have
defects)
•
Currently: that capacity is regulated by proper law of the
contract, provided that this expression is taken to mean the law
of the country with which the contract is most substantially
connected.
•
Intention cannot here be allowed free play. A person cannot
confer capacity up on himself by deliberately submitting himself
to a law which factually the contract is unrelated.
•
The capacity of both individuals and companies to contract is
excluded from the scope of the Rome Convention. ( forum law
applies)
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•
Capacity Under the Federal Draft Conflict of Laws
•
Capacity governed by law governing the legal relationship
•
Under Art.45 it states that the general capacity of a natural person of
exercising rights shall be governed by the law applicable to the matter to
which such matter relates.
•
The idea here is that, if the subject under discussion for instance, is contract,
the law governing other substantive matters of the contract shall also govern
the issue of capacity.
•
Exception. As stated under Art.46 (1), an act performed by a person who
would not have had the capacity to perform that act under his personal law
shall be valid if he has capacity under the law of the country in which the act
is performed.
•
Exception to the Exception ( Art.46(3): In maters relating to family law,
succession and donation intervivos capacity is not negotiable.
•
Critics: this gives persons a chance to artificially create a connection with a
certain foreign law in order to escape restrictions under their personal law.
•
Unlike entering to contract, these are areas of law where the parties are not
free to create a capacity for themselves by acting under different law other
than their personal law.

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•
2. Consent and its vices
•
what law governs whether a valid consent is given or not?
•
The English Judges prefer the theory of the lex loci contractus.
Therefore, the law of the place where the last act constituting
acceptance of the offer is made will be the governing law.
•
Under the US 2nd Restatement section 201, the effect of
misrepresentation, duress, undue influence and mistake upon a
contract are determined by the law chosen by the parties, if
they have made an effective choice.
•
Otherwise, these questions are determined by the law which
has the closest connection to the contract as determined by
application of the rule of section 188.
•
Rome Convention Article 8(1) of the provides that the existence
and validity of a contract, or of any term of a contract, must be
determined by the putative proper law of the contract (the law
which would govern the contract under the Convention if the
contract or term were valid). This applies both to questions of
essential
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•
Under the Draft Federal Conflict of Laws proclamation
( Art.80(1))
–
In case of choice by the parties as to the governing law on
substantial maters, the same law the formal requirements.
–
In the absence of choice of the governing law by the parties,
the law of the place where the contract is concluded will be
the best candidate when it comes to formal requirements.
–
In case contract between absent parties the contract will be
valid if it conforms to the law of any one of the countries
involved. ( Art80(2))
•
Exception ( Art.80(3): For consumer contracts, employment
contacts etc. if special form is provided under the rule governing
them then that special form must be respected.

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•
3. Illegality of the Object of the Contract
•
The second Restatement of conflict of laws in US section
202,effect of illegality shall be governed by the law chosen by
the parties if they have made one.
•
But in the absence of effective choice by the parties the law
that has the most significant relation ship with the contract.
•
under the English conflict of laws, it is not possible exclusively to
refer to the proper law. It is believed to be necessary to take
account of other legal systems.
•
The contract which is illegal by its proper law cannot be
enforced in England.
•
Secondly, no action lies in England upon a contract which
infringes the distinctive public policy of English law.
•
Thirdly, a contract which is valid by its proper law does not
become unenforceable in England merely because it is illegal
according to the lex loci contractus.

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 5.3. Protected Contracts
•
What are protected Contracts?
•
In some contracts no equal bargaining power
between parties and requires some protection
for the weak. Such contracts are called
protected contracts.
•
Eg. Employment, and consumer contracts.

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 •
Consumer Contracts
•
Under Rome Convention protected consumer contract (within
the scope of Article 5), three special choice-of-law rules apply.
–
Firstly, by Article 5(3), in the absence of an express or implied
choice of law by the parties in accordance with Article 3, the
law of the consumer’s habitual residence becomes the
proper law.
–
Secondly, by Article 5(2), if there is an express or implied
choice of law by the parties in accordance with Article 3, the
choice remains effective to designate the proper law, but the
proper law operates subject to the mandatory rules for the
protection of the consumer as a weaker party contained in
the law of his habitual residence.
–
Thirdly, by Article 9(5), the formal validity of a protected
consumer contract is governed exclusively by the law of the
consumer’s habitual residence.

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•
Individual Contracts of Employment
•
Rome convention under Article 6(2) determines the
proper law of an employment contract in the absence
of a choice of law made by the parties in accordance
with Article 3.
•
The primary rule, laid down by Article 6(2)(a), is that
the proper law is that of the country in which the
employee habitually carries out his work in
performance of the contract, even if he is temporarily
employed in another country.
•
But if the employee does not habitually carry out his
work in any one country, Article 6(2)(b) refers instead to
the law of the country in which the place of business
through which he was engaged is situated.
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•
Rules governing protected contracts Under the Federal Draft
Conflict of Laws
•
A. Consumer contracts
•
Definition consumer contracts Art. 76
•
Consumer contracts are contracts for goods and service which
are for the current personal or family consumption or use of a
consumer and which are not connected with the professional or
business activity of the consumer
•
Applicable law, Law of the consumers domicile.
•
The draft proclamation prohibits any agreement that makes a
governing law other than the law of domicile. This is what is
provided under Art.76 (2) of the draft conflict of law
proclamation.

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•
B. employment Contracts , Art.77.
•
In similar way the Rome Convention, the draft
law gives priority to the habitual place of work
of the employee. This provision seems to have
been inspired by the policy of protection to the
weaker party in the contract, i.e, and the
employee.

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