In a contract between parties situated in different countries, whose law applies? The answer is usually straightforward where the parties have signed a contract which states which law is to apply. In such cases, or where it can be implied that they have chosen a particular country’s law, the chosen law applies. However, in cases where the parties have not chosen a law at the time of making the contract, there are certain rules on which law should apply.

Very basically, the applicable law is the law of the country ‘most closely connected’ with the contract. It is generally presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has its relevant place of business. First, the performance which is ‘characteristic of the contract’ should be identified. Secondly, the rules on which is the relevant place of business need to be looked at, as they are quite complex. If the party who is to perform the obligations characteristic of the contract is an individual, then his habitual residence is the relevant place. If that party is a company, however, then the relevant place of business is, depending on the circumstances, (a) its central administration, or (b) its principal place of business, or (c) its place of business where the contract is to be performed. For further information, see the Convention on the Law Applicable to Contractual Obligations, OJ 1980 L 266, p.1, and the Contracts (Applicable Law) Act 1990.

The rules described above, as set out in the Convention mentioned above, do not apply as regards intellectual property rights, or other property rights, dealt with in the contract: they only apply to ‘contractual obligations’ within the contract. It is possible for two or more countries’ laws to apply to one contract.

As regards contracts for the carriage of goods, and charter-party contracts, a recent case (Intercontainer Interfrigo (ICF) v Balkenende Oosthuizen BV & Mic Operations BV) has clarified the position. Carriage of goods contracts are usually governed by the law of the country in which the carrier has its principal place of business, provided that the carrier’s country is also one of the following: (a) the place of loading, (b) the place of discharge, or (c) the principal place of business of the consignor. The case clarified that, in charter-party contracts where the carriage of goods is not the only purpose of the contract, as the contract also concerns the making available of a means of transport, the rules laid down under the Convention for carriage of goods contracts, as briefly described above, will apply if the main purpose of the contract is the actual carriage of goods, not the making available of a means of transport. The case also confirmed that a contract may be split into different parts, with one law applying to one part, and another applying to another. Finally, the case confirmed that the court may disregard the rules, and apply the law of the country which it appears to it is ‘most closely connected’ with the contract.

Posted: October 7th, 2009 under Business Advisory Services, Contract.
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