CHAPTER ONE

1.0 GENERAL INTRODUCTION

1.1 INTRODUCTION

Business men and women, the world over, are continually entering into agreements. It is therefore necessary to know which law should be applied to govern these agreements, because every international contract must be governed by a particular law, if not it is no longer a contract which the court must enforce. Generally, the law of contract has uniqueness of its own, in that it is the only branch of the law in which broadly speaking parties are free to make their own choice of law. The court will apply this law if it passes the objective test. The courts follow a procedure in conducting this test; it is the result that constitutes determining the proper law of contract. At first the choice of law was fixed, rigid and arbitrary but as times went on, the law became flexible, more reasonable and universally acceptable.

The Proper Law of Contract was defined in Coast Lines Ltd. v. Hudig and Veder Chartering N.V.1 “as the system of law (e.g. Nigerian Law,

English Law, German Law or Italian Law) by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real

connection.”

The proper law of contract was also defined by Lord Wright in Mount

Albert Borough Council V. Australasian Temperance & General Mutual Life Assurance Society2 as “that law which the English court is to apply in determining the obligations under the contract. English law in deciding these matters has refused to treat as conclusive, rigid or arbitrary criteria such as lex loci contractus or lex loci solutionis, and has treated the matter as depending on the intentions of the parties to be ascertained in each case on a consideration of the terms of the contract, the situation of the parties, and generally on all surrounding facts. It may be that the parties have, in their agreement expressed what law they intend to govern, and in that case prima facie their intention will be effectuated by the court. But in most cases they do not do so. The parties may not have thought of the matter at all.

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1. (1972) 2 Q.B. 34 (C.A.)

2. (1938) A.C. 224, 240

Then the court has to impute an intention or to determine for the parties what is the proper law which as just and reasonable persons they ought to or would have intended if they had thought about the question when they made the contract.”

It can be deduced from the above definitions that what constitutes the proper law of contract is not very easy to determine, because of its complex nature. One cannot at a glance pick a particular law as the proper law of contract.

The difficulty arises from the fact that businessmen and women representing their companies from different parts of the world, enter into various kinds of contracts; such as contracts of sale of goods, hire purchase contracts, contracts of employment, equipment leasing agreements, consolidation contracts, etc. In Nigeria, commercial banks for example, are required to raise their minimum share capital from N2 billion to N25 billion. To meet this target, banks enter into merger agreements with other banks both local and international. Therefore the proper law to govern contract of sale of goods is not the same as contract of hire purchase or contract of employment or equipment leasing contract or a share acquisition contract.

These contracts contain terms, conditions and multiplicity of connecting factors. These terms and conditions form the constitution of the contract of which the breach of any clause will lead to action for claims.

At first and in relation to the determining of the proper law of contract, there may be no problem among the parties to the contract, where each respects or carries out his obligation under the contract. But problem arises where one party to the contract breaches or fails to perform his own obligation under the contract.

Where the contract is a domestic one, the issue in dispute before the court may not pose much problem, because the domestic law i.e. Nigerian Law of Contract, which is based on common law principles as well as on legislation, shall apply. However, where a Nigerian company enters into a contract with an Italian company and the issue before the court involves a foreign element, problem arises as to which country’s proper law, Nigerian Law or Italian Law is the applicable law in resolving the matter.

Where the matter is brought before a Nigerian Court and the parties file their pleadings and tender various documents including a copy of the contract which binds them, the court will of course study the parties’ pleadings including the agreement. In the course of the study, the court may discover that the Agreement provides that foreign law governs the contract.

The court can determine the applicable law by looking at the place where the contract was made. It can also look at the place where the contract is to be performed, from the intention of the parties, the domicil, nationality or business centre of the parties; the situation of the subject matter, the nationality of the ship in the case of a charter party etc. The place of contracting, place of performance and intention of parties represent the old and classical theories, which were relevant for some time before they were discarded and replaced by more flexible rules.3

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3 The examples of the recent principles are:

(a) where there is an express choice of the proper law

(b) where there is an implied choice of the proper law

(c) where there is no choice of the proper law express or implied

The proper law applies either because the parties have chosen it and the choice has been objectively tested by the court, or because it is the law most closely connected with the contract. In the absence of strong evidence to the contrary, the parties must be deemed to have intended to refer to the domestic rules and not to the conflict rules of their chosen law, and the connection with a given legal system is a connection with substantive legal principles and not with conflict of laws rules.4

The development of this area of private international law is still at its infancy in Nigeria. This is because industrial growth in the country has been at its lowest ebb, with few local companies having international connections and associates. Therefore foreign elements in contracts between Nigerian companies and their foreign counterparts are not so rampant and hence, our courts are not so burdened with such cases for determination.

There are also very limited local legal materials on the subject matter. For instance there are few Nigerian text books on the subject with heavy reliance on foreign cases and legislation. Also there is yet

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1. Dicey and Morris, Conflict of Laws (Stevens & Sons Ltd., London 1973), p. 724.

no local legislation on proper law of contract as we have in Europe. These problems have made reliance on opinions of foreign writers and decided cases inevitable in this research.

1.2 AIMS AND OBJECTIVES OF THE RESEARCH

This work aims at highlighting the various rules which courts follow in determining the proper law to apply in resolving disputes arising from international contracts. It is also the aim of the work to examine and determine the various problems encountered by the courts in choosing the proper law. In trying to do this, the researcher will look into the various theories and solutions postulated in resolving the problems.

1.3 SCOPE OF THE RESEARCH

This research work focuses attention on various rules for determining the proper law of contract entered into between parties from different countries, such as between a corporate organization in

Nigeria and another corporate organization doing business in Germany.

Also attention shall be focused on some essential requirements such as offer and acceptance, consideration, capacity, performance of the contract, illegality and interpretation of the contract.

1.4 STATEMENT OF THE PROBLEM

International contracts entered into between parties from different countries for the execution of their various obligations is a document of extreme importance. Once parties endorse the agreement, they are bound by its terms and conditions.

The area that is very crucial in realizing their dreams is that which deals with determining the proper law that governs their rights and obligations in the contract should any dispute arise.

In the event of such dispute, the court is normally saddled with the onerous task of determining the proper law to apply in order to resolve the dispute. If the parties have expressly chosen a law of a particular country, say English law as the law to govern the contract, the problem is not over till the parties can prove that their choice is bona fide and legal.5