The “proper law” of a contract generally governs most issues pertaining to its validity, interpretation, performance, and breach in the context of the Anglo-Canadian conflict of laws. The “proper law” rule is based on the principle that parties to a contract are free to choose the governing law. The rule has been in place since at least the late 18th century, except that the place of contracting is to be considered when the parties have no agreed-upon law.
Over the past century and a half, the principles expressed by Lord Mansfield, which focused on territoriality and the place of contracting, have undergone significant changes. The emphasis on territoriality has largely disappeared as communication methods have evolved. With more and more contracts being made remotely, the idea of presumptively attaching importance to where the contract was made has become increasingly arbitrary. The place of contracting is often determined by rules as to whether the contract is made in the jurisdiction where the acceptance is dispatched or transmitted or the jurisdiction where it is received. Thus, the place of contracting is now only one factor to be considered when the parties have not agreed on a proper law.
The courts now recognize explicitly that where the parties have not agreed on a governing law, the role of intention is spent. The inquiry is no longer about what the parties intended the governing law to be, but rather which country’s law ought to apply under the circumstances. The law with which the contract has its “closest and most real” or “closest and most substantial connection” is now the formulation on which the English and Canadian courts have settled. However, the change in the formulation of the test has not fundamentally changed its substance, as the proper law is still a matter that depends on assessing the contract and its surrounding circumstances as a whole.
Determining the proper law of the contract is, therefore, a two-stage inquiry. First, did the parties agree on the law to govern the contract? If so, the agreed-upon law governs the contract. Second, if not, what law has the closest and most real connection to the contract? In determining the proper law, the court must assess the contract and its surrounding circumstances as a whole. The proper law, however, may not resolve all issues relating to the contract. Issues that clearly or arguably are determined according to some other choice of law rule will be considered after the sections dealing with the proper law.
In conclusion, the choice of law principles expressed by Lord Mansfield has altered in significant ways over the past century and a half. The proper law rule continues to give parties the freedom to choose the governing law of their contract. As communication methods have evolved, the emphasis on territoriality has disappeared, and the law has recognized that where the parties have not agreed on a governing law, the inquiry is about which law should apply under the circumstances. While the proper law is still a matter that depends on assessing the contract and its surrounding circumstances as a whole, the change in the formulation of the test has not fundamentally changed its substance.
