Cambridge University Press, British Institute of International and Comparative Law The International and Comparative Law Quarterly

British Institute of International and Comparative Law
International Business and Choice of Law

Author(s): Ian F. G. Baxter
Source: The International and Comparative Law Quarterly, Vol. 36, No. 1 (Jan., 1987), pp.
92-115
Published by: Cambridge University Press on behalf of the British Institute of
International and Comparative Law
Stable URL: http://www.jstor.org/stable/760461
Accessed: 15-07-2016 05:44 UTC
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
http://about.jstor.org/terms
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted
digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about
JSTOR, please contact support@jstor.org.
Cambridge University Press, British Institute of International and Comparative Law

are collaborating with JSTOR to digitize, preserve and extend access to The International and
Comparative Law Quarterly
This content downloaded from 128.42.202.150 on Fri, 15 Jul 2016 05:44:37 UTC
All use subject to http://about.jstor.org/terms
INTERNATIONAL BUSINESS AND CHOICE OF LAW
IAN F. G. BAXTER*
THIS article will argue that new theoretical bases are required for inter-
national commercial conflict of laws, and will make proposals as to what
they should be. This places some important limitations on the scope of
the article. It is not concerned with non-commercial conflict of laws,
such as family law or succession, or with non-business issues in areas
such as torts and property. Neither is it concerned with interstate or
interprovincial conflict of laws.
It is traditional in modern conflict of laws to develop theories for the
allocation of issues to the rules of one legal system or another. This
method has usually not distinguished between (i) the applicability of
choice of law theories or rules to interstate or interprovincial conflicts,
and (ii) the applicability of the same to international problems. It has
been assumed too readily that a theory devised for (i) is also suitable for
(ii). But modern international business may involve countries all over
the world. A choice of law question in interstate litigation involves legal
sub-systems of the same country, often having much the same legal
groundwork, language, concepts and judicial system. This can be very
different in the international dimension. Parties to an international dis-
pute may come from opposite ends of the world; their respective coun-
tries may have radical differences in political or legal system, language
and customs, and in various other respects. The extension of theories
developed in an interstate context to international conflicts, has, for
example, been typical in the United States, and according to Ehren-
zweig, an "interstate law in international garb" has "produced the
image of a unitary American conflicts law applicable to both types of
conflict".l
This article develops themes introduced in previous articles.2 An
earlier article discussed inter alia a theoretical model where a court is
required to select the most appropriate system of law from all the sys-
* Professor, Faculty of Law, University of Toronto.
1. Ehrenzweig, Private International Law, General Part (1972), p.20.

2. E.g. "Choice of Law" (1964) 42 Can.Bar Rev. 46-77, which was substantially
reproduced in Essays on Private Law, Foreign Law and Foreign Judgments (1966) Univ. of
Toronto Press; "International Conflict of Laws and International Business" (1985) 34
I.C.L.Q. 538-562 (referred to in this article as "International Conflicts"). A third article is
contemplated by the writer, to follow "International Conflicts" and the present article,
and it will deal mainly with the relationship between conflict litigation and arbitration in
international business.
92 (1987) 36 I.C.L.Q.
JAN. 1987] International Business and Choice of Law 93
tems available, internal or foreign.3 In that model, assuming that there

are N available systems, the function of choice of law rules of the forum
was described as "shunting" the issue into the rules of one, and one
only, of the N systems, to provide the rule of decision. The body of law
of a country, other than its conflict rules, was called its "standard" law.
The model was criticised as not providing a satisfactory theory, and an
alternative foundation principle was suggested, namely that the forum
should modify its standard law, if there is a good reason for so doing
based on the existence of foreign elements connected with the issue. A
recent article suggested that current choice of law techniques are, in
general, not well designed for the many problems that arise in the
rapidly changing and geographically widespread field of international
trade and investment.4
I. SOME THEORIES ABOUT CHOICE OF LAW
A great deal of present-day choice of law theory derives its intellectual

parentage from the idea of Savigny (1779-1861) that for every legal rela-
tionship there is a system of law to which it belongs, i.e. the natural or
proper seat of the obligation.5 More particularly, the idea was to ascer-
tain for every legal relationship the area of law to which, in view of that
relationship's particular nature, it belongs, or by which it is controlled.
Suppose, for example, that there is litigation in England about a legal
relationship connected with an international sale agreement involving a
seller in England and a buyer in Iran. Then, according to Savigny's
ideas, the English court must determine whether, in view of that rela-
tionship's particular nature, it belongs, or is controlled by the legal sys-
tem of England or Iran. The rule of decision must then be found in
whichever of the two legal systems is determined to be the governing
one. It was argued in the same article that Savigny's theory is not a satis-
factory one to apply to international business disputes. A better intellec-
tual groundwork would be provided by constructing within a legal
system principles designed specially for business transactions involving
foreign parties. As far back as the Middle Ages, in Western Europe
3. Essays on Private Law, supra n.2, at pp.21-22.

4. Baxter, "International Conflicts", supra n.2, at pp.544-545.
5. As regards the influence and persistence of some ideas and their intellectual pro-
geny, the following comment by Keynes might also apply to theories in conflict of laws.
"The ideas of economists and political philosophers, both when they are right and when
they are wrong, are more powerful than is commonly understood ... I am sure that the
power of vested interests is vastly exaggerated compared with the gradual encroachment
of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic
and political philosophy there are not many who are influenced by new theories after they
are twenty-five or thirty years of age, so that the ideas which civil servants and politicians
and even agitators apply to current events are not likely to be the newest." Quoted in
Streeten, "A Problem to Every Solution" (1985) 22, No.2, Finance and Development 14.
94 International and Comparative Law Quarterly [VOL. 36
there were some customary legal rules designed for commercial dealings
involving foreigners, and these rules did not require a choice of legal
system reference by which an issue might or might not be referred to a
foreign legal system.6 However, this initiative has been obscured under
a wave of theories in the modern era, derived, in general, from the fic-
tion that an obligation, or other legal element, can possess a natural seat
in an ascertainable legal system, or that an ascertainable legal system is
proper (or belonging) to it, and that the rule of decision is best obtained
from the rules of such system, whether or not that system happens to be
the lex fori.
Should "choice of legal system" be a fundamental cornerstone of an
operative set of rules of conflict of laws? Is there a satisfying theoretical
basis for "choice of legal system"? Reasons why "choice of legal sys-
tem" fails to provide such a basis include: (i) that choice of system rules
do not themselves provide a rule of decision, they merely retain the
question in the lex fori, or shunt it into the ambit of a foreign legal sys-
tem; and (ii) that it is only a fiction that an abstract legal concept has a
natural seat, or belongs to or is proper to a particular legal system. A
result of (i) is that in applying choice of legal system, the court is not
directly involved with its fundamental duty of arriving at a fair and just
rule of decision. According to the late Professor Brainerd Currie:
A choice of law rule is an empty and bloodless thing. Actually, instead of

declaring an overriding public policy, it proclaims the state's indifference
to the result of the litigation. Let there be a domestic case of tort or con-
tract, and the law of the state points to the result which alone can advance
the social and economic policy embodied in that law. Let a conventionally
suitable foreign factor be injected and the state immediately loses inter-
est . . . The imperative conception of the choice of law rule leads to a
quite unacceptable paradox: the highest priority is to be given to that
rather general and diffident policy which requires that specific, carefully
formulated social and economic policies be subordinated to the contrary
policies of a foreign state.7
Currie considered that the policy behind choice of legal system theory
was a rather vague internationalism.
Viewed in its most favorable light, the policy is that the state, as a member
of the community of states, will join in a fairly general movement that
6. Baxter, "International Conflicts", supra n.2, at p.546.

7. Currie, Selected Essays on the Conflict of Laws (1963), pp.52-53. According to
Juenger, "Conflict of Laws: A Critique of Interest Analysis" (1984) 32 Am.J.Comp.L.
1-50, the main proponent of governmental analysis "was the late Brainerd Currie, whose
influence on existing doctrine in the past half-century may well be unrivaled in any field of
law and whose contribution has been called the cornerstone of modern conflicts scholar-
ship".
imposes a degree of restraint upon its sovereignty and upon the pursuit of
its selfish interests, to the end that the result of a case will not depend
capriciously upon where it happens to be brought and that expectations
founded upon one system of law will not be frustrated by the application
of another. But this is a mild, tentative, and self-denying policy.8
Clearly, he would have preferred that a State should itself determine

"specific, carefully formulated social and economic policies", to gener-
ate rules of decision directly, and to be just and appropriate for cases
involving foreign parties or other foreign elements.
There are avenues of escape from Savignyism. The following con-
siderably antedate the nineteenth century as regards their intellectual
ancestry.
(1) The first is a choice of legal system clause agreed to by the par-
ties to an international commercial contract. This is commonly
referred to, especially by European writers, as "party auton-
omy", "autonomie de la volont6". The concept is related to
freedom of contract. Its origin is attributed to Dumoulin
(1500-1566). It has been strongly revived in this century as a
popular clause in international contracts of many varieties.9
But it requires that the parties agree on the applicable legal
system, and usually this means that one party agrees to a legal
system foreign to that party. Choice of jurisdiction clauses are
also popular in international commercial contracts and, of
8. Ibid.
9. Party autonomy in contracts (as to choice of legal system) is a basic principle in
West German private international law. If autonomy is not exercised, then the favoured
solution, apparently, is that the applicable legal system "is that of the State with which the
contract (or, in this case exceptionally, a part thereof) has the closest connections (die eng-
sten Verbindungen). The idea of 'the closest connection' corresponds to the existing Ger-
man notion of the 'centre of gravity' (der Schwerpunkt) of a contract". Dickson, "The
Reform of Private International Law in the Federal Republic of Germany" (1985) 34
I.C.L.Q. 231, 262-266. The EEC Convention on the Law Applicable to Contractual Obli-
gations has a generally similar approach. See Williams, "The EEC Convention on the Law
Applicable to Contractual Obligations" (1986) 35 I.C.L.Q. 1-31. In the conclusion of his
article Mr Williams comments: "The author dislikes the concept of closest connection
(and similar concepts) since it results in uncertainty. The proper law can only be finally
determined by taking the matter through the courts (or arbitration), which is expensive in
time and money", and he adds that, if it can be said "that where there is no express choice
the proper law is the place of performance, then the matter can generally be decided with-
out any need for litigation" subject to an occasional difficulty in determining the place of
performance: idem, p.30. Closest connection is an example of a "softening" of Savigny's
view that a fundamental task of private international law is to ascertain for every legal
relationship the legal system to which, in view of that relationship's particular nature, it
belongs, or by which it is controlled. See Kahn-Freund, General Problems of Private Inter-
national Law (1976), p.263. Party autonomy has spread beyond Western countries, e.g.
the Yugoslav Act concerning the Resolution of Conflicts of Laws of other Countries in cer-
tain Matters, which came into effect in 1983, emphasises the parties' choice of law. Sarce-
vic, "New Yugoslav Choice of Law Rules for International Contracts" (1985) West's
International Bulletin 33-35.
course, these also depend on agreement by the parties, and

are likely to involve one of the parties being potentially sub-
ject to the courts of a foreign country. So important bargaining
questions can be involved in regard to such clauses.
(2) International commercial arbitration was used extensively in
settling disputes between merchants since at least the Middle
Ages. It provided domestic and foreign merchants doing busi-
ness at organised markets with ready settlement of their dis-
putes according to the accepted customs of the market. No
doubt a merchant who did not abide by such a decision and its
related customs would gain an undesirable reputation among
the community of merchants (and possibly in his trade guild if
he belonged to one), to the detriment of his business and per-
haps his credit standing. The customary rules of the market
were not necessarily the same as the domestic laws of the
country in which the fair or market had its locus. They could
be adapted to the kinds of foreign trade being conducted.
In modern times international commercial arbitration has become
very common, especially in major centres such as London, New York
and Paris. There are said to be over 7,000 new international commercial
arbitrations yearly in London, and a clause for arbitration in London is
to be found in a great many shipping and transnational contracts.10
National arbitration commissions have been established in some coun-
tries, for example by Eastern European countries and the People's
Republic of China." Such commissions do not necessarily apply the
domestic commercial law of the country. In addition there are a number
of international arbitration facilities, such as those provided by the
World Bank and the International Chamber of Commerce. Mention
should also be made of international treaties on arbitration, such as the
New York Convention.12
II. DO WE NEED CHOICE OF LEGAL SYSTEM?
Is it now time to get rid of choice of legal system as a key element in

relation to international commerce? The late Professor Currie made a
head-on attack on traditional choice of legal system rules and went so

11. On China: Doty, "An Evaluation of the People's Republic of China's Participation
in International Commercial Arbitration: Pragmatic Prospectus" (1982) 12 Calif. Western
Intl.L.J. 128; Baxter, Brown, Solomon, Foreign Investment in China: the Legal Context
(1983), ch.8.
12. Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(1958).
far as to contend that we would be better off without choice of law
rules.13 He proposed instead that it would be better if the US Congress
were to give some attention to problems of private law, and were to legis-
late concerning the choice between conflicting state interests in some of
the specific areas in which the need for solutions is serious. In the mean-
time, we would be better off if we would admit the teachings of sociologi-
cal jurisprudence into the conceptual precincts of conflict of laws.14
He considered that this would imply a basic method along the following
lines.
(1) Normally, even in the presence of foreign elements, the court

should apply the lex fori rule of decision.
(2) "When it is suggested that the law of a foreign state should fur-
nish the rule of decision, the court should, first of all, deter-
mine the governmental policy expressed in the law of the
forum. It should then inquire whether the relation of the
forum to the case is such as to provide a legitimate basis for
the assertion of an interest in the application of that policy.
This process is essentially the familiar one of construction or
interpretation."15
(3) Similarly, if necessary, the court should determine the policy
expressed by the foreign law and the interest of the foreign
State in applying that policy.
(4) If the forum has no interest and the foreign State has, then the
court should apply the foreign law.
(5) If the forum has an interest it should apply its own law whether
or not the foreign State has an interest.
According to Juenger:16 "Currie's ideas have found their way into

countless judicial opinions . . . However, a disciple of Currie's who
13. Currie, op. cit. supra n.7, at pp.183-184.

14. Ibid.
15. Ibid. According to Yntema, "The Historical Basis of Private International Law"
(1953) 2 Am.J. of Comp.L. 303: the medieval Italian and French academic lawyers, the
statutists, assumed that the solution of problems in conflict of laws was essentially a matter
of statutory interpretation. Their object was to define the respective spheres of application
of the Roman law of Justinian and of the special local law or statuta of the autonomous
municipalities and seignories within the feudal structure. The existence of many local cus-
tomary rules of law in the Middle Ages created problems as to their range of application.
The customary laws applied mainly to land law, inheritance and family relations, and it
was to these areas of law that the statutists applied their theories. The medieval statutists
were concerned with intercustomary conflict of laws. The medieval approach to intercus-
tomary problems was to create theories of interpretation as to the implied range of cus-
tomary rules. Bartolus, for example, discussed what effect should be given to a statute
outside the territory of the legislative authority. Some writers have referred to Professor
Currie and his followers as neo-statutists.
16. Juenger, op. cit. supra n.7, at p.14.
analysed what courts say rather than what they do concluded that only
two states apply interest analysis, and that both deviate in major aspects
from Currie's teachings.""17 He adds that these views "paint two radi-
cally different pictures, and such divergence suggests that it may be far
from easy to evaluate the influence of Currie's methods on American
conflicts practice. This conclusion is confirmed by even a cursory review
of the case law developments in the two most highly populated and liti-
gious states." The states referred to are New York and California.
Although Currie's method has been described as neo-statutist
because it is concerned with analysis of the intended scope and appli-
cation of laws, that analogy is really rather remote. Currie's view
appears to be that States possess an "interest" (ascertainable by a court
of law) in carrying out the policies of their laws, and these interests can
be applied to non-domestic issues (by the principles mentioned above).
Juenger states that:
In almost all instances he [Currie] deduces the legitimacy of an interest

from the fact that one of the parties is domiciled in the forum state, a con-
clusion he derived from the consideration that governments are primarily
concerned with the welfare of their citizens and residents. Although Cur-
rie attributed some significance to territorial contacts a transaction has
with a state (e.g. in-state tortious conduct or injury), he supported this
conclusion by showing an effect on local parties (such as the tort victim's
medical creditors) in whom the state has an interest. In other words, Cur-
rie resuscitated the medieval notion of a personal law, and his approach
accords the domiciliary nexus a much more pervasive scope than it had
ever enjoyed in Anglo-American jurisprudence.s8
Currie's disenchantment with traditional choice of legal system rules

as techniques for solving conflict problems has no doubt, in general
terms, a good many sympathisers. But, on the other hand, there have
been important and strong criticisms of the methods which he proposed.
For example:
Currie purported to ascertain the scope of substantive rules from their

underlying policies. This assumes that it is possible to ascribe a specific
purpose to each rule of law. However, a rule may be the product of legis-
lative compromise among competing policies or, as Currie recognised, it
may lack a discernible policy. Moreover, identical provisions may have
been enacted by different legislatures for different reasons. Thus, rules
imposing tort liability can be rationalised as serving either a compensatory
or a deterrent purpose. Should it matter which of the two was uppermost
in the legislative or judicial mind when the rule was adopted? Or should
17. There is a reference to Kay, "Theory into Practice: Choice of Law in the Courts"
(1983) 34 Mercer L.Rev. 521, 542.
18. Juenger, op. cit. supra n.7, at pp.9-10.
all plausible policies be imputed, including those no one ever considered
until an interest analyst supplied them after the fact?19
There is, of course, the further point that it is very rarely that a statute
expresses its policy and also expresses whether it has an interest in
applying that policy to a situation with foreign elements.
According to Professor Cavers,20 the difference between his views
and those of Currie
go chiefly to the degree to which each of us expects those "ordinary pro-

cesses of construction and interpretation" to resolve choice of law prob-
lems, a difference which reflects my own scepticism that those processes
can be expected regularly to yield a relevant policy for each law subjected
to them, a policy which will point reliably the direction in which the state's
interest lies.
He also states:
Though the court may cast its decision in terms of interpretation, the
questions it must nonetheless answer are which law is to be preferred and
on what grounds? In other words, the questions appear to be basically the
same as the questions with which the significant relationship test of
Restatement Second would confront the court. And Professor Currie's
method would provide no more clues to the answers to the questions than
does Restatement Second.21
Whatever may be said for or against the application of Currie's theo-

ries to interstate (or interprovincial) conflict of laws, they are, in
general, unsuited to problems in transnational business. Consider, for
example, a dispute between a Canadian company and a Japanese com-
pany brought in an Ontario court, where the Japanese company "sug-
gests that the law of a foreign State [Japan] should furnish the rule of
decision". To apply Currie, the court would then have to: (a) determine
the governmental policy expressed in the law of Ontario; and (b) if the
court finds that the forum State (Ontario) has no interest in the appli-
cation of its policy, then the Ontario court should "determine the policy
expressed by the foreign law, and whether the foreign State [Japan] has
an interest in the application of its policy".22 An Ontario court could
19. Idem, p.33. Ehrenzweig, op. cit. supra n.1, at pp.62-65. Kahn-Freund, op. cit.
supra n.9, at pp.267-269.
20. Cavers, The Choice of Law Process (1965), p.74.
21. Idem, p.75.
22. Currie, op. cit. supra n.7, at pp.183-184. Currie may never have intended his theo-
ries to apply to transnational problems. "Currie's theory was not devised for international
conflicts cases. Its very ancestor, the 'governmental interests' language of the United
States Supreme Court, was merely used in interstate cases to deny a constitutional compul-
sion to apply the lex contractus or delicti of a sister state. Never was a 'governmental inter-
est' held or said to be capable of constitutionally compelling or excluding application of
any law, let alone an extranational law." Ehrenzweig op. cit. supra n. 1, at p.65 (footnotes
omitted).
easily have difficulties in determining the governmental policy expressed

in the law of Ontario with relation to foreigners and foreign facts. The
same Ontario court could not reasonably be expected also to make a
similar determination about the governmental policy expressed in the
law of Japan.
III. SHOULD WE PREFER A CHOICE OF RULE OR DECISION?
THERE has been some discussion in connection with the theory of con-
flict of laws as to whether choice of law rules are, or should be, related
to (a) choice of system, or (b) choice of rule. If (a), then the reference is
to a legal system and the rule of decision is what that legal system pro-
vides. If (b), then the reference is to a specific rule within a legal system.
In other words, in (a) the function of the choice of law rules of the forum
is merely to select a legal system, and to accept whatever rule of decision
is provided by that legal system. In (b), the function of the choice of law
rules is to select the rule of decision (which may be a rule within the
forum legal system or within a foreign legal system).23
In litigation about the "proper law", "choice of legal system" may
tend to reduce in actual practice to something like "choice of rule". The
reason is that both sides will have already researched the rules of
decision that are likely to result from an application of this or that legal
system. So, in essence, the court debate will revolve around preferences
for one rule of decision or another. Also, in the case of international
commercial agreements, as already mentioned, one must take into
account the very important effects of "party autonomy" theory and of
international arbitration. Of course, party autonomy clauses and arbi-
tration clauses require the prior agreement of the parties. Conse-
quently, in the case of international transactions, "choice of law" has
become largely a matter for pre-contract negotiation and bargaining, at
least in the case of carefully prepared international agreements.
Mention has already been made of Karl von Savigny as an important
23. After discussing this distinction against its historical background, Ehrenzweig
reaches the conclusion that "in the solution of individual issues, it is always individual
rules, rather than legal systems, to which we are referred, although these rules must of
course be understood against the background of the legal system to which they belong".
Ehrenzweig, op. cit. supra n.1, at pp.75-76 (footnotes omitted). He also stated: "Current
American doctrine, following Walter Wheeler Cook, postulates that choice of law rules
are designed to refer to foreign rules rather than 'jurisdictions'. Almost equally uniformly,
though less clearly, civil law doctrine seems to think in terms of a choice of foreign law in
the sense of legal systems, although at least the Roman phrase 'conflit de lois' (legge)
seems to point to individual norms (Gesetz, Rechtssatz) rather than legal systems (Recht,
droit, diritto)."
source for theories on the kind of choice of law rules that are designed
for "switching" or "shunting" a legal issue into a particular legal system
within the rules of which the forum court is to find the "rule of
decision".24 Normally, the choice will be between the lex fori and a
foreign legal system.25 It is important to consider at least the essentials
of Savigny's concepts. When they were made, in the middle of the nine-
teenth century, his theory was innovative and has even been called a
"Copernican Revolution".26
His view was that "in deciding cases involving legal relations which
are connected with different independent states, the judge is to apply
the local law to which the contested legal relation belongs, regardless of
whether this local law is the law of the judge's own country or that of a
foreign state".27 He considered that the task, in such cases, is to ascer-
tain the law jurisdiction or district to which the given legal relationship
belongs, or by which it is controlled.28
How does this method affect questions of national sovereignty?
Savigny considered that his system implied a friendly concession among
sovereign States, in that the forum court could accept "foreign stat-
utes".29 This seems to be an extension of the "comity" concept of the
seventeenth-century jurist Ulrik Huber, which included the recognition
of foreign laws in other jurisdictions, in the interests of commerce and
social convenience, based on the voluntary consent of the sovereign
States involved.
Savigny concluded that "in deciding cases involving legal relations
which are connected with different independent states, the judge is to
apply the local law to which the contested legal relation belongs, regard-
less of whether this local law is the law of the judge's own country or
that of a foreign state".30 He did recognise, however, that obligations
24. See supra n.5.

25. In the Anglo-Canadian systems the lex fori applies if a foreign legal system is not
pleaded.
26. Kahn-Freund, op. cit. supra n.9, at p.98.
27. The quotations in the text referring to Savigny's book, System des Heutigen Romis-
chen Rechts, Vol.8, are taken from Von Mehren and Trautman, The Law of Multistate
Problems, Cases and Materials on Conflict of Laws (1965), pp.42-46 (section on Savigny).
28. The German word "Rechtsgebiet" is translated in the text as "law jurisdiction or dis-
trict".
29. Von Mehren and Trautman, op. cit. supra n.27, at p.42.
30. Ibid. The concept of "the local law to which the contested legal relation belongs"
seems close to the modern concept of the "proper law". It has been said that Savigny "was
the founder of modern private international law" both with respect to the civil law and the
common law and that his work is the most eminent example in modern times of "migration
of ideas" from country to country. Kahn-Freund, op. cit. supra n.9, at p.142. See also
Baxter, "International Conflicts", supra n.2, at p.550.
presented a special problem, in that (i) "the obligation has as its object
something intangible in comparison with the object of a real right, which
relates to a thing, a tangible object", and (ii) an obligation relates to
more than one party in more than one country.31 In international com-
merce, which is the focus of this article, conflict of laws is largely con-
cerned with obligations, and at the present time, the area of obligations
is still a major source of difficulty and uncertainty.
In his approach to these problems about obligations, Savigny seems to
take "debtor" and "creditor" as a general description of the concept
"obligation". His jurisprudential analysis is that from the point of view
of the "creditor", an obligation "appears as an enlargement of liberty,
as dominion over another's will", and that from the point of view of the
"debtor", it "appears as a restriction of liberty, as dependence on
another's will".32 From this position, he goes immediately to a general
solution of the problem.33
(1) He deals with obligations where the fulfilment of the obli-

gation chiefly consists in an activity of the debtor, and where
the creditor only acts, at most, "in a subordinate and co-
operating manner".34 In this case the solution appears to be
that the natural seat of the obligation is the locus of the court
having jurisdiction over the debtor in the civil law sense, i.e.
the residence or domicile, and the applicable legal system is
the local law of that jurisdiction.35
(2) He was then faced with the situation where the fulfilment of
the obligation requires substantial activity by both parties.
This situation could not be solved by the same reasoning.
Savigny's solution is simplistic. "But, in every reciprocal obli-
32. Ibid.
33. Kahn-Freund, op. cit. supra n.9, at p.98 states that what is sometimes called the
"Copernican Revolution" was "brought about by Savigny in 1849 when he published the
eighth volume of his System of Modern Roman Law".
35. Ibid. There are considerable differences between the typical rules on jurisdiction
over persons in civil law and common law systems. West German courts have international
jurisdiction if, and only if, under the Code of Civil Procedure any German court has juris-
diction. In general, this means that a foreign national can be sued in West Germany if he
resides there, or for a delict committed there, or in an action involving a contract to be
performed there or, in the case of a monetary claim, if either he has an asset within the
jurisdiction of the court or if the object of the claim is within the jurisdiction of the court.
In French law, in addition to the rules of the Code of Procedure, arts. 14 and 15 of the Civil
Code govern the jurisdiction of the French courts in regard to French nationals, either as a
plaintiff in relation to a non-resident foreigner (art.14) or as a defendant for obligations
contracted in a foreign country, even with a foreign national (art.15). The traditional
grounds in Scotland are: residence; a contract to be performed in Scotland together with
personal citation (Sinclair v. Smith (1860) 22 D. 1475); an action for a delict committed in
Scotland together with personal citation (Corporation of Glasgow v. Johnston (1915) S.C.
555); and in certain situations arrestment of property to found jurisdiction.
gation, each of the two debts can always be dealt with separ-
ately; so that even here nothing hinders us from fixing, accord-
ing to the person of the debtor, the jurisdiction and the local
law for each half of the obligation. Indeed, this conception of
two separate obligations is to be regarded as the original and
natural approach; the merging of the two obligations under
one head and joint handling is a derivative and artificial result,
which is, to be sure, justified by the intimate connection of the
two obligations. The correctness of this view finds confirma-
tion in the practice that was usual among the Romans, of con-
cluding a contract of sale, etc., through two distinct
stipulations."36 He added his opinion that the reasons for
determining the locus of the forum, in regard to an obligation,
are equally applicable in the determination of the natural seat
of an obligation, and thus also the applicable law. He con-
cludes that every obligation arises out of "visible facts" and is
fulfilled by "visible facts" and, therefore, where it originates
and where it is performed are both geographical locations that
can always be obtained from the "visible facts".37
So the locus actus and the locus solutionis are deduced to be the two
connecting factors for all obligations. But he recognised that the first of
these could be accidental, whereas the second, in his view, represents
the essence of an obligation. So, in general, the locus solutionis has pre-
ference.38 For a modern lawyer, it is an anticlimax that a rather gran-
diose scheme for solving conflict problems by ascertaining "for every
36. Idem, pp.43-44.

37. Idem, p.44.
38. The Roman law had a fiction that a person is deemed to have contracted in the place
where he is bound to perform. Contraxisse unusquisque in eo loco intellegitur in quo ut sol-
veret se obligavit (D.44,7,21). A dictum of Huber, that had great influence upon the origin
of the proper law doctrine in the common law, is that the lex loci contractus should prevail,
but si partes alium in contrahendo locum conspexerint it should not prevail. However, this
dictum is confusing by being associated with the aforementioned fiction that a person is
deemed to have contracted in the place where he is bound to perform. See also Lord
Mansfield's judgment in Robinson v. Bland (1760) 2 Burr. 1077, which quotes Huber's dic-
tum including the reference to the fiction. Legal fictions play an important and confusing
role in the historical origins of the proper law doctrine. Dicey's 6th ed. (1949) states at
Rule 136: "In this Digest the term 'proper law of a contract' means the law, or laws, by
which the parties intended, or may fairly be presumed to have intended, the contract to be
governed; or (in other words) the law or laws to which the parties intended or may fairly
be presumed to have intended, to submit themselves." In the common law, the usual
implication as to the settlement of a debt is that, unless there is an agreement to the con-
trary, the debtor is required to tender payment at the creditor's residence or place of busi-
ness. The repayment of bank deposits is an exception, and these are repayable at the
branch where the account is kept and during banking hours. Baxter, Law of Banking (3rd
ed., 1981), pp.2-3.
legal relation the area of law to which, in view of that relation's particu-
lar nature, it belongs, or by which it is controlled", and thereafter to
apply "the local law to which the contested legal relation belongs",
should end up with a general rule that the proper law of an obligation
should be either the lex loci contractus or the lex loci solutionis, with a
preference for the latter. It is strange that a "Copernican Revolution"
should be founded on such a beginning and then on such reasoning.
Savigny's view of delict is that the laws relating to delicts " are always
to be reckoned among the coercive, strictly positive laws". Therefore,
he concludes, "we must always have regard to the law of the forum, not
to the law of the place where the delict was committed".39 Such a des-
cription of tort law is, of course, out of line with modern tort theories,
and particularly so in regard to international commercial transactions.
In regard to the influence of Savigny's ideas on modern German
private international law, one writer states that the influence of Man-
cini:
has succeeded in introducing into German law the principle of nationality

as the principal point of contact on all questions of status and on a number
of other questions. It has left many other traces of its strong, and often
unfortunate, influence on numerous individual rules of German law.
There is little of Savigny's work which could be taken to represent con-
temporary German learning on private international law.40
But, for example, in regard to contracts, the same writer points out that
in modern German private international law:
(1) The parties are free to agree on the proper law (parteiautono-
mie) and this may be express or implied.
(2) If there is no express or implied choice, there is a doctrine of
"hypothetical intention"-and this "has been held to mean
that the court has to consider objectively-i.e. without having
regard to the actual intentions of the parties-which legal sys-
tem the parties would have chosen, if they would reasonably
and fairly have considered the question".41
39. But Savigny would have been thinking of civil law rules of forum jurisdiction in
delict.
40. Cohn, Manual of German Law (1971), Vol.2, p.94.
41. "The task is believed to be facilitated by metaphors such as where the 'centre of gra-
vity' of the contract is located, see B.G.H.Z. 17,92; 19,113." Idem, p.129. Cohn considers
that, in regard to contracts, "on the whole the results obtained by the German courts do
not differ very much from those arrived at by the English courts and courts in other com-
mon law countries". Idem, p.130.
(3) According to the same writer, failing (1) and (2) the German
courts will apply the lex loci solutionis.42
A European development of the place of performance as a connecting

factor is described by Ehrenzweig and Jayme as follows:
Where the parties to a contract have their habitual residence or principal

place of business in different countries, the law of that party prevails
whose role in the transaction "characterises" or "specifies" the contract.
It is the seller's rather than the purchaser's performance that characterises
the sale which, therefore, is subject to the lex venditoris. This result has
been rationalised on the ground that the obligations of the vendor are
more complex than those of the buyer.43
Such emphasis on the place of performance as a connecting factor is

consistent, intellectually, with Savigny's approach, for example, his
view that the place of performance
coincides with the very essence of the obligation. For the obligation con-
sists in just this, that something that was previously in the free choice of a
person, is now changed into something necessary, that which was hitherto
uncertain, into a certainty, and this necessary and certain thing is precisely
performance. To this, therefore, the whole expectation of the parties is
directed: and it is therefore part of the essence of the obligation that the
place of performance is conceived as the seat of the obligation.44
42. Idem, pp.128-131. "Notwithstanding the latitude which the doctrine of the hypo-
thetical intention leaves to the courts, a number of cases remain in which the search for a
point of gravity does not lead to any clear result on the ground that the contract either has
none or has several, none of which is sufficiently important to gain preference over the
others, and that it cannot be assumed that the parties would fairly and reasonably have
intended that different parts of the contract should be determined by the different legal
systems to which the various points of gravity refer. In these particularly difficult, but in
practice surprisingly numerous, cases the German courts will apply to the contract the law
of the place of performance, R.G. in (1932) J.W. 586; B.G.H. in (1960) N.J.W. 1720.
This, however, leads unfortunately not infrequently to the application of different legal
systems to the obligations of the different parties to the contract, because each party has to
perform its side of the bargain at a different place, the latter being determined in accord-
ance with German law as the lex fori." Idem, pp.130-131.
43. Ehrenzweig and Jayme, Private International Law, Special Part (1977), Vol.3,
pp.36-37. This is the so-called doctrine of "charakteristische leistung" or "prestation speci-
fique". Article 4 of the EEC Convention on the Law Applicable to Contractual Obli-
gations (opened for signature June 1980) provides that, in default of an express or implied
choice by the parties, "the governing law will be that by reference to which the contract
was made or that with which the transaction has its closest and most real connection". The
article also gives presumptions, which apply unless it appears from the circumstances that
the contract is more closely connected with another country. One of these presumptions is
"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, at the time of the conclu-
sion of the contract his habitual residence or, in the case of a body corporate or unincor-
porate, its central administration". Williams, op. cit. supra n.9, at p.15.
44. Von Mehren and Trautman, op. cit. supra n.27, at pp.44-45.
Savigny merits the title of being the chief intellectual ancestor of the
traditional theory of problem-solving by rules for choice of legal system,
in both the common law and the civil law. The concept of a forum choice
of legal system rule, to determine whether the rule of decision comes
(a) from the lex fori, or (b) from a foreign legal system, depending on
whether (a) or (b) is the "proper law", still dominates many courts in
deciding conflict of laws cases on obligations.
But Savigny's method of problem-solving, based on a dogmatic and
pseudo-international model of reality, is unsuitable as a theoretical basis
for settling disputes in the enormous and complex field of modern inter-
national business. This great and dynamic field of international business
is surely entitled to "custom-made" realistic theories of settlement of
disputes, specially devised to produce fair and just solutions, in a direct
and pragmatic way.
IV. THEORETICAL CRITICISMS OF CHOICE OF LEGAL SYSTEM
AN attempt will now be made to sum up the theoretical criticisms that

appear valid against "choice of legal system" as a fundamental element
in the adjudication of international business disputes, i.e. rules by which
the forum court decides whether to adjudicate by its own domestic law
or by the ascertained law of a foreign legal system.
But to avoid the risk of any confusion, it is again emphasised that this
article is concerned only with international business and this excludes
consideration of interstate and interprovincial conflicts, and also a
variety of non-business areas, such as family law. This does not mean
that current theories and rules of conflict of laws in these excluded topics
are perfect. It just means that conflict of laws and international business
is the selected target for the present set of articles, and so the criticisms
and proposals in this article are directed solely to the area of inter-
national business.45
One of the most obvious features of "choice of legal system" is that
the application of a "choice of law rule" does not finally solve the prob-
lem, i.e. it does not give the "rule of decision", it merely determines
from which legal system the rule of decision is to be obtained, the forum
legal system or a foreign legal system. If the choice of law rule "shunts"
the issue into a foreign legal system, the rules of that system are
expected to be proved to the forum court by expert testimony, and
applied. Then the issue will come under the control of a legal system
foreign to the court trying the case. This could be a relatively minor dis-
tinction in an issue involving interprovincial or interstate conflicts where
45. The first one was "International Conflict of Laws and International Business", see
supra n.2.
the relevant systems are closely related versions of the common law, but
it can be a very serious distinction in international conflicts. Suppose,
for example, that the issue is between a Canadian and Korean party, in
a Canadian court, and the question is whether the court ought to apply
the lex fori or Korean law.
One important result of having choice of law rules in international
business disputes, employed to determine the national legal system from
which the rule of decision is to be obtained, is that it is very difficult to
see any way of testing or criticising the justness or otherwise of a choice
of law rule-in relation to the final adjudication of the parties' dispute.
Since a choice of law rule does not provide a rule of decision (but only
identifies the country that is to provide it), it tends to be negative in
regard to criteria such as justice and fairness between the parties.46
In selecting the choice of law rule, it is not the practice of courts to
compare the lex fori and foreign rules of decision, and to prefer the one
which appears to the court to be the fairer and better rule for the issue
involved.47 The reason for this is apparently so that judges will not be
exposed to an "invitation to parochialism", and to create an aura of
impartiality between the lex fori and foreign legal system, e.g. in the
example above, between the law in Canada and in Korea.48 Generally,
it seems to be argued that courts would not manage properly the task of
examining the end solutions of different systems of law and then choos-
ing the one that seems to meet best the forum criteria of fairness
between the parties, one of whom is a foreigner.49
Typically, a choice of legal system rule contains a "connecting factor"
as an essential element, either explicitly or implicitly. The purpose of a
connecting factor is to "connect" the legal issue with a geographical
location and thereby, in international business problems, with the legal
46. Professor Cavers discussed at some length what he calls "principles of preference"
in his book. See Cavers, op. cit. supra n.20, chs.5-8. Indeed, to find a satisfying "principle
of preference" is a fundamental difficulty in any attempt to give a theoretical basis for
choice of legal system rules.
47. Professor Cavers rejected the idea of a "result-selective" principle of preference,
and quoted Professor Hancock's use of this term as meaning a choice of the legal system
with the domestic rule "that best accords with present-day ideas of justice and conve-
nience". But he goes on to state that although "one cannot expect judges in choice of law
cases always to close their minds to a conviction that one of the competing domestic rules
is intrinsically superior to the other, avoidance of that ground of preference, with its con-
stant invitation to parochialism, should constitute one of the chief claims to recognition of
principles of preference". Cavers, op. cit. supra n.20, at pp.122-123. But, at least with
reference to international business disputes, such a mental conviction by a judge indicates
a desire to seek justice between the litigants in a more direct way than current choice of
country rules are supposed to permit.
48. Ibid.
49. Also discussed in Essays on Private Law, Foreign Law and Foreign Judgments,
supra n.2, at pp.27-28.
system of one country, and only one country.50 It is, therefore, a device
to link two elements, namely: (i) a legal question, i.e. an abstraction
derived from the minds of parties in more than one country; and (ii) one
of the countries (not necessarily the forum), and to apply whatever rule
of decision is given by the legal system of that country. By some myster-
ious logic it seems to have become implied dogma in most conflict litera-
ture and case law that such "linking" or "shunting" under the dictation
of a choice of legal system rule of the forum (such as "closest connec-
tion") is the high road to justice in private international disputes and,
for example, is better than the courts of a common law country applying
their own sense of justice to the resolution of such disputes, taking into
account also that one or more of the parties is a foreigner, and any other
foreign elements. This preference has reached its (generally) dominant
position with a surprising lack of fundamental critical analysis. It is also
a preference for which the international business community (and its
legal advisers in drawing contracts) has shown a lack of enthusiasm.
In most current theory a court is not expected to examine the compar-
ative justness or fairness (at least explicitly) of the possible end results
by different legal systems, and the justification for this, according to
Professor Cavers, is so that judges will avoid "that ground of prefer-
ence, with its constant invitation to parochialism".5 In consequence,
the theory of choice of legal system leads to the conclusion that the just-
ness or fairness of such rules per se, in relation to the particular dispute
or issue, cannot be evaluated. This is because the theory requires the
forum court to obey the rule, to go to the selected legal system and to
accept the rule of decision presented by that legal system.52
The article on Conflict of Laws in the Encyclopcedia Britannica states:
The notion that the courts of a country should ever have to decide prob-
lems under foreign law rather than invariably deciding all problems com-
ing before them under the law of their own country is by no means self-
evident. It has its rationale mainly in the thought that it would be unjust to
the parties concerned if a problem were decided under a law that they did
not know might cover their situation when they began the transaction that
led to the subsequent litigation.53
Various arguments have been made that choice of legal system rules
50. Falconbridge stated that the subject of the conflict rule is a legal question or prob-
lem arising from the factual situation or from some element or elements of that situation.
It includes the connecting factor, which is the particular local element in the factual situ-
ation, e.g. domicile of a person at a particular time, the place of doing an act, the situs of a
thing, or as the case may be. Falconbridge, Conflict of Laws (2nd ed., 1954), pp.39-40.
51. See supra n.47.
52. Currie referred to a choice of law rule as an "empty and bloodless thing" which
"proclaims the State's indifference to the result of the litigation". See supra n.7.
53. Macropaedia (1974), Vol.4, p.1088 (the article was written by the late Professor
Max Rheinstein).
promote an "international" or "neutral" or "non-nationalistic" or

"non-parochial" approach to settling disputes in conflict of laws cases.
But does this normally happen?
Let us examine the effect of the alternatives given by a choice of legal
system rule. Consider the litigation of an issue between X in the forum
state and Y in a foreign state, where the court applies a choice of legal
system rule of the forum.
(1) Let us assume that the rule requires that the rule of decision be
found from the domestic rules of the lex fori.54 In this event,
party Y is made subject to the same rule as would have been
applied in a domestic litigation in the forum State.
(2) Let us next assume that the rule requires that the rule of
decision be found from the domestic rules of the foreign State.
In this event, party X is made subject to the same rule as
would have been applied in a domestic litigation in the foreign
state.
Consequently, in either event, one party is subject to a domestic rule

of a legal system other than his own. In each case, one party gets his own
domestic law and the other party gets a domestic law other than his own.
This can hardly be described as an "international" result. The "inter-
national" or "neutral" element is that a foreign party is not always sub-
ject to the domestic rules of the forum court. But choice of legal system
rules are not the only way by which one can avoid the universal appli-
cation, to foreign parties, of the same rules of decision as would be
applied by the forum in purely domestic litigation. This could be done,
and done better, by a country developing legal principles and rules of
decision that take into account the foreign character of a party, and
other relevant foreign facts, and this would not necessarily lead to the
same rules of decision as would be applied in purely domestic litigation.
Let us take a further step, and examine what happens if the forum
court decides to apply foreign law. The usual method in common law
jurisdictions is for the court to be advised as to the foreign law by an
expert or experts on the subject. Judges are not deemed to know the
laws of other countries. "Foreign law must therefore be especially
pleaded and proved, often at considerable inconvenience and
expense.
54. The writer's impression is that this is the most likely outcome in practice in common
law jurisdictions, and that reported cases where there has been an application of a foreign
legal system are comparatively infrequent. There may be a renvoi problem if a reference
to a foreign legal system is to that system including its conflict rules. But the resolution of
such a problem will terminate in some rule of the domestic law of either the lex fori or of
the foreign law.
55. Max Rheinstein. See supra n.53.
The knowledge, skill and experience of such experts can vary con-
siderably. There may be more than one expert, for example, one for
each party, and they may make different pronouncements on the same
point of foreign law. The court then has to discover the rule of decision
from a conflict of testimony. The expert is not necessarily a practising
lawyer or law academic of the foreign country, although this is usually
the case. The point of law involved may be doubtful in the foreign law.
It may be a point about which the courts or legal literature in the foreign
country are uncertain and about which there are different opinions. It
might even be an entirely novel point in the foreign law. Yet the forum
court has to find there the rule of decision.
But the difficulties can go deeper than such weaknesses of expert tes-
timony. There is the problem of a forum court understanding the basic
operational structure of a foreign system of law. There is always a likeli-
hood that a forum judge will examine a foreign legal system through and
under the influence of his own system, and will fail to appreciate the dif-
ferent methods of working of the foreign courts and lawyers. This prob-
lem was described in the following terms, by a distinguished lawyer with
considerable experience in both the common law and the civil law:
Even today, when foreign law has been widely recognised as "law" rather
than a mere fact, American courts quite regularly insist on each party pro-
ducing decisions of foreign courts, however lowly, and even in relation to
civil law countries in which such decisions are quite inconclusive. This
practice strikes the continental lawyer as a travesty of his law, which is the
more contemptible as no qualified court will ever pass on the American
court's conclusions.
But let us also look at the other side. Continental scholars quite freely
render opinions on American "law" without regard to whether any court
in the particular state of the Union would be likely to agree with them.
One glance at a 1970 collection of opinions rendered by certain compara-
tive law institutes confirms this observation. There is much talk there
about a non-existing "Anglo-American law". The primary sources are
such dubious commercial products as Corpus Juris Secundum or American
Jurisprudence which no self-respecting American court would refer to, or
the Restatements of the American Law Institute which have never pre-
tended to state existing "law" in any particular state. And long obsolete
cases are consistently cited without even an indication of their vintage and
obviously without any attempt to ascertain their progeny. Thus an Ameri-
can lawyer will share his colleagues' distaste for the treatment of foreign
rules in the other orbit.56
Evidence about foreign law, and an application of it by the forum

court, can be a hit or miss process. It is not simply the equivalent of a
judgment by the correct level of court of the foreign country.
56. Ehrenzweig, Psychoanalytic Jurisprudence (1971), p.140 (footnotes omitted).
The current popular use of the idea of the closest and most real con-
nection between a transaction and a system of law, particularly in regard
to contracts, has been described as a "substitute for the non-existing,
imputed, hypothetical intention of the parties".57 But, just like its
thought-ancestor, the "natural seat of a legal relation (sedes obligatio-
nis)", its subject matter is an abstract thing, namely a legal relationship.
Why is the subject matter an abstract thing and not, for example, a per-
son or persons? The reason lies in the use of rules for choice of legal sys-
tem. Suppose we have a problem concerning an international business
obligation, for example, where the parties have not made a choice of the
applicable law, and the method of solution according to the forum law
requires that the court must find the rule of decision either: (i) in the lex
fori (the law of party X), or (ii) in the foreign legal system (the law of
party Y), and that it must be (i) or (ii) with no ambiguity as to which
legal system. The personal law simpliciter will not do as the choice of law
rule, because there are two different personal laws. One way to avoid
ambiguity, in the method of solution, would be to prefer either the per-
sonal law of X or, alternatively, the personal law of Y. But this would
undermine the forum's desired posture of neutrality, and would be a
"constant invitation to parochialism".58 A way to avoid this difficulty is
to abandon personal laws, and to centre the choice rule on a common
element, a thing with which both parties are concerned (such as a
mutual agreement or obligation). The point is that, generally, in inter-
national business transactions, where there is no choice by the parties,
the choice rule will be centred on a thing and not a person, and this
result is dictated by the fact that the forum court is required to select
(uniquely) the legal system of one country or another, in order to obtain
the rule of decision. International business litigation is between persons,
usually corporations, and it is what they have done and who and what
they are that matters most, and yet a central determination in the case is
made on the ground of where a thing (real or abstract) is, or is supposed
to be located. This may be the only way that the method can be made to
work.
In a previous article the writer stated that a "new direction is needed

in the legal systems of the world's major commercial centres-to depart
from the choice of legal system techniques and to develop rules within
the forum legal system that are specially designed for situations of
57. Kahn-Freund, op. cit. supra n.9, at p.263, who adds: "It was, however, an open
acceptance of a 'soft' concept, the ultimate recognition that hard concepts would be of
only limited, very limited, assistance in this branch of private international law. Some may
call it a declaration of bankruptcy, a desperate act, an abandonment of tradition. Others-
and I among others--will say that it is an honest recognition of the inevitable, the end of
an illusion."
58. See supra n.47.
modern transnational business and for the practice and expectations of

the parties involved".59 On this basis, a rule of the forum legal system
applied to an issue with one or more foreign elements would not necess-
arily be the same rule as would be applied to a similar issue with only
domestic elements. In regard to international conflict of laws, we are
then concerned with ways in which the law of the forum state should be
modified or supplemented in order to take proper account of foreign cir-
cumstances, such as a foreign party or parties. If this approach were
adopted, there would be no requirement on the forum court to make a
non-ambiguous selection of either the law of the forum or else the law of
a foreign country, to obtain the rule of decision. Consequently, the
court would have no need for connecting factors based on where a thing
(real or abstract) is located. It would be possible to place more emphasis
on the parties and their relevant characteristics..
The idea of selecting a legal system to supply the rule of decision came
into the common law largely by the influence of legal scholars, and by
borrowing from continental European theory and system building in pri-
vate international law. The idea did not originate in the traditional way
of English common law.60 It was not invented by judges applying cus-
tom and reason case by case to litigation with foreign parties that came
before them, and the influence of statute law has been only peripheral.
In the civil law systems, the impact of codes and statutes on private
international law has been comparatively minor. In both common law
and civil law systems the principal architects have been legal scholars, in
the role of "system-builders". In the common law, neither the courts
nor the legislatures have played their proper roles in adapting their own
law, by traditional methods, to deal fairly with cases with foreign
elements, for example, where the parties do not all belong to the forum
country.
V. A NEW SET OF OBJECTIVES TO RESOLVE INTERNATIONAL

BUSINESS LITIGATION
FOR the combination of reasons given, it is argued that the whole theory
of choice of legal system rules, by which a forum is required to find the
rule of decision either in its own law or in the law of a foreign system, is
defective from its foundations, as a method for the resolution of dis-

60. "English common law, or the body of customary law, based on judicial decisions
and embodied in reports of decided cases, originated in the early Middle Ages in decisions
of local courts, which applied custom and reason to everyday disputes with the aid of but
few formal enactments." Macroptedia (1974), Vol.4, p.998 (the article was written by Pro-
fessor A. R. Kiralfy).
putes in international commerce. A new set of fundamental objectives is

needed, designed for litigation of disputes in international business.
Because of its great modern importance and huge and growing volume,
and the everyday involvement of foreign parties from many countries in
many complex transactions, international commerce is entitled to its
own methods and objectives for the litigation of disputes, and these
should be based on working out satisfactory principles and guidelines
within the lex fori, and not on choice of legal system rules. In given
cases, these principles and guidelines could differ from those that would
be applied to similar issues involving no foreign elements, because they
would take into consideration the involvement of foreign parties and
transnational facts and relationships. So, for international business liti-
gation, a principal role of the topic of conflict of laws would be to study
and apply the ways in which the ordinary rules of the lex fori (for issues
involving no foreign elements) ought to be modified or supplemented if
there are foreign parties or other foreign elements present.
These proposals certainly represent a change from current choice of
law thinking. But it is a change in basic thinking and approach that is
advocated, to provide a more sensible theoretical foundation, which can
be worked out case by case and legislation by legislation, rather than as
the brainchildren of jurisprudential system builders. It is not suggested
or expected that this need produce immediate or dramatic alterations in
the actual decisions of the courts in this area of law. For example:
(1) Parties should still be free to provide in their contract that the
rule of decision should be found from the legal system of a
designated country, and this designation should be respected
and applied by the forum.
(2) Courts should continue to recognise certain rights, such as title
to property, where these have been obtained in a foreign
country. It is generally accepted, as a matter of common sense
and convenience, that property rights validly acquired in one
country should be respected in another. It would lead to chaos
in international business if titles to goods moving from country
to country were not so recognised. The usual solution is to rec-
ognise a title validly acquired by the lex situs.61
(3) Interpretation of contracts and written obligations is a very
important area of international business law. It is stated fre-
quently, both in legal literature and in court decisions, that the
interpretation of an international contract should be deter-
61. There are statements in English cases that a title to a moveable, validly acquired in
one country should be recognised in another country, and that a valid disposition of a
moveable by the law of its situs at the time should be universally recognised. Cammell v.
Sewell (1860) 5 H. & N. 195 is frequently cited in this connection.
mined by the "proper law" of the contract. This means that

once the proper law has been determined by the "choice of
law" rules of the forum, the court is then expected to interpret
the document as the forum court thinks it would be inter-
preted in the selected legal system, which may be either the lex
fori or the legal system of a foreign country. There may be
cases in which the contract or other document provides that it,
or some clause or expression in it, shall be construed according
to a specified legal system, and, if this is what the parties have
agreed to voluntarily, the court should give effect to it (accord-
ing to the principle in item (1) above). Also, a document may
contain foreign expressions, including foreign legal terms or
concepts, and these may require the court to resort to foreign
expert advice. But apart from special situations such as these,
it is difficult to think of compelling reasons why a choice of
legal system technique should be used to understand the
meaning of a document.62 In the interpretation of an inter-
national business document, the task for the court is to ascer-
tain the meaning of the document and the intentions of the
parties and, of course, the court is entitled to all reasonable
aids in doing this: experts, translations, and so on. So, the
changes in basic thinking suggested in this article should not
create any real changes in what should be the correct approach
of courts to problems of interpreting international business
documents.
No sudden or upsetting "revolution" in court decisions is advocated,

but instead a gradual and orderly infusion into court decisions of the
theoretical and policy bases proposed in this article. This should come
about, hopefully, through the willingness of leading courts in major
commercial centres, of legal scholars and law reform bodies, to examine
the fundamentals of conflict of laws in a critical and innovative way, and
not just accept choice of legal system as the inevitable method for solv-
ing international business disputes. As an example of this kind of inno-
vation, one might suggest the House of Lords decision in Miliangos.63
As an example of lack of innovation, one might suggest the approach of
62. "Court opinions, statutes and texts are replete with statements to the effect that the
interpretation of a contract is 'subject' to the law 'governing' it, i.e. the laws of the place of
making, performance or intention, or the 'proper law'. But it has long become a general
tenet of international and municipal jurisprudence that in interpreting a contract, 'we must
always look for the real and harmonious intention of the parties'. The foreign origin or
operation of a contract is only one of the many factors affecting this interpretation. In this
sense, the problem ceases to be one of conflict of laws." Ehrenzweig, op. cit. supra n. 1, at
p.82 (footnotes omitted).
63. Miliangos v. Frank (George) (Textiles) [1976] A.C. 443, [1975] All E.R. 801.
the House of Lords in Boys v. Chaplin.64 In this well-known case, X was
injured in a road accident in Malta caused by the admitted negligence of
Y. Both X and Y were normally resident in England, but at the time of
the accident they were stationed in Malta with the British military
forces. The courts concerned, including the House of Lords, considered
that the issue was whether damages should be determined by the legal
system of Malta or by the legal system of England, and there was elabor-
ate, non-unanimous, reasoning on the issue, finally resulting in an appli-
cation of the lex fori. Surely, since the parties were two British soldiers
temporarily stationed in Malta, and normally resident in England,
ordinary common sense would dictate that the damages must be deter-
mined by the English rules. The issue ought to have been: should there
be any modification in the domestic English rules by reason of the fact
that the accident happened in Malta? It is suggested that, in the circum-
stances, the answer to that question would have been "No". In many
decided cases, the final outcome (as to which party wins) might not have
been different if the theory and policy proposed in this article had been
employed, but the reasoning would have been different and, as argued
herein, better.
64. Boys v. Chaplin [1971] A.C. 356.

Cambridge University Press, British Institute of International and Comparative Law The International and Comparative Law Quarterly

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Cambridge University Press, British Institute of International and Comparative Law The International and Comparative Law Quarterly

Uploaded by

Copyright:

Available Formats

British Institute of International and Comparative Law

International Business and Choice of Law

Cambridge University Press, British Institute of International and Comparative Law

* Professor, Faculty of Law, University of Toronto.

1. Ehrenzweig, Private International Law, General Part (1972), p.20.

tems available, internal or foreign.3 In that model, assuming that there

I. SOME THEORIES ABOUT CHOICE OF LAW

A great deal of present-day choice of law theory derives its intellectual

3. Essays on Private Law, supra n.2, at pp.21-22.

A choice of law rule is an empty and bloodless thing. Actually, instead of

6. Baxter, "International Conflicts", supra n.2, at p.546.

Clearly, he would have preferred that a State should itself determine

course, these also depend on agreement by the parties, and

II. DO WE NEED CHOICE OF LEGAL SYSTEM?

Is it now time to get rid of choice of legal system as a key element in

10. Baxter, "International Conflicts", supra n.2, at p.543.

(1) Normally, even in the presence of foreign elements, the court

According to Juenger:16 "Currie's ideas have found their way into

13. Currie, op. cit. supra n.7, at pp.183-184.

In almost all instances he [Currie] deduces the legitimacy of an interest

Currie's disenchantment with traditional choice of legal system rules

Currie purported to ascertain the scope of substantive rules from their

go chiefly to the degree to which each of us expects those "ordinary pro-

Whatever may be said for or against the application of Currie's theo-

easily have difficulties in determining the governmental policy expressed

III. SHOULD WE PREFER A CHOICE OF RULE OR DECISION?

24. See supra n.5.

(1) He deals with obligations where the fulfilment of the obli-

36. Idem, pp.43-44.

has succeeded in introducing into German law the principle of nationality

A European development of the place of performance as a connecting

Where the parties to a contract have their habitual residence or principal

Such emphasis on the place of performance as a connecting factor is

IV. THEORETICAL CRITICISMS OF CHOICE OF LEGAL SYSTEM

AN attempt will now be made to sum up the theoretical criticisms that

promote an "international" or "neutral" or "non-nationalistic" or

Consequently, in either event, one party is subject to a domestic rule

Evidence about foreign law, and an application of it by the forum

56. Ehrenzweig, Psychoanalytic Jurisprudence (1971), p.140 (footnotes omitted).

In a previous article the writer stated that a "new direction is needed

modern transnational business and for the practice and expectations of

V. A NEW SET OF OBJECTIVES TO RESOLVE INTERNATIONAL

59. Baxter, "International Conflicts", supra n.2, at p.560.

putes in international commerce. A new set of fundamental objectives is

mined by the "proper law" of the contract. This means that

No sudden or upsetting "revolution" in court decisions is advocated,

64. Boys v. Chaplin [1971] A.C. 356.

You might also like