proper law of the contract

Every contract must be governed by a system of law. In the absence of any express or implied choice of law to be applied to interpret an agreement between contracting parties, English common law developed a test to determine which system of private law would be used to construe the contract. This test determines what is known the proper law of the contract.

In the case that the contract does not contain an express selection of law to be applied to the contract, the court may take into consideration the text within the four corners of the contract to determine whether the parties may be said to impliedly agreed the system of private law that would apply to disputes.

In the absence express or implied agreements, English common law will determine the proper law of the contract to be the system of private law which “the transaction has the closest and most real connection”. Amongst the factors that a court will consider in determining the system of law that has the closest and most real connection are:

1. where the contract was made,
2. the place of performance of the obligations arising under the contract.

Integration with the European Union has encroached upon these traditional rules where the contract has some nexus between England and another state of the European Union. English common law has been superseded since 1991 by the Contracts (Applicable Law) Act 1990 to determine the proper law of the contract. These traditional rules were reformulated after the passage of the Contracts (Applicable Law) Act 1990, which implemented the Rome (EC) Convention on the Law Applicable to Contractual Obligations 1990 (the “Rome Convention”). The Rome Convention is due to be replaced by Regulation (EC) 593/2008 (the “Rome I Regulation”).

The Rome Convention applies to contracts entered into after 1 April 1991 and before 17 December 2009. Thereafter, Rome I Regulation applies to resolve choice of law issues in contracts to which it applies.

Usage: The proper law of the contract to ruled to be the laws of England.

Related Words: choice of law clause; jurisdiction clause; lex fori.