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 Floating Proper Law: Adaptation Of
Established Principles To New Issues

INTRODUCTION

The term "floating proper law"' is generally used to describe the variation
of the proper law of a contract after its formation either at the option of a party2
or upon the happening of a specified event. Despite English judicial considera-
tion on the concept of late, no consistent legal principle has been developed in
respect of three important issues:

1 Which law determines the validity ot the floating proper law?

2 What is the effect in English law on this concept?

3 What are the limitations to it?

The approach to these issues should cause no great difficulty if it is remem-

bered that a floating proper law is merely a particular species of a choice of law
by the parties and, thus, the ordinary principles established in relation to the
choice of law can be adapted to meet the problems of a floating proper law.

VALIDITY OF THE FLOATING PROPER LAW

The issues of which law determines the validity of a floating proper law is
to be distinguished from the effect in English law of a floating proper law. It may
be resolved by:

1 The putative proper law;

2 The chosen law; or

3 The lexfori.

1 The term appears to owe its origins to Mustill, J's first instance judgment in Armar Shipping
Co Ltd v Caisse Allge rienne dAssurance et de Reassurance ( The Armar) [1981] All ER
498.
2 Eg El Du Pont de Nemours & Co v Agnew [1987] 2 Lloyd's Rep 585; Dubai Electricity &
Ors v Islamic Republic ofIran Shipping Lines ( The Iran Vojdan ) [1984] 2 Lloyd's Rep 380.
3 Astro Venturoso Compania Naviera v Hellenic Shipyards SA ( The Mariannina) [1983] 1
Lloyd's Rep 12.
11 Sing LR Singapore Law Review Essay Competition 99

1 The Putative Proper Law

This is the applicable law in the absence of a choice and its use to determine
the validity of a floating proper law clause has received approval in The Iran
Vojdan 4

There was an application to stay the action because of a combined exclusive

jurisdiction and choice of law clause providing that all disputes shall at the
carrier's option be governed by Iranian, German or English law with the exclusive
jurisdiction of the Tehran, Hamburg or London courts respectively.5

Bingham, J held that the putative proper law determined the validity of the
clause and found German law or, alternatively, Iranian law to be the proper law.
Under German law, the clause as a whole was not in principle objectionable but
it was invalid nonetheless because ofthe indecipherable print ofthe clause. Under
Iranian law,sa the clause was invalid as it envisaged a floating proper law. This
point, however, appears to have been conceded by the parties.

The decision is unsatisfactory on several points. First, the reference to

German and Iranian law at the jurisdictional stage to resolve the issue of validity
is inappropriate as issues at this stage should be "determined by English law and
English law alone". 6

Secondly, the "proper law" of a contract is the substantive law of that

country but excluding any renvoi7 The reference to Iranian (English) private
international law is clearly an impermissible use of renvoi.

Thirdly, the decision is a good illustration that the validity of the floating
proper law can be tested at two levels: first, by the conflictual rules ofthe putative
proper law (as for Iranian law); or, secondly, by the substantive law (as for
German law). Only the first approach would involve renvot

Using the conflictual rules of the putative proper law to determine the
validity of the floating proper law is thus unacceptable as it involves a use of
renvoi.

4 Supra n 2.
5 Ibid at p 381.
5a Assumed to be the same as English law since there was no evidence of Iranian law.
6 Amin Rasheed Shipping Corp v Kuwait Insurance Co [1984] AC 50 at p 60 (Lord Diplock).
7 Ibid at p 61.
8 In The Frank Pais [1986] 1 Lioyd's Rep 529. Sheen, J also applied the conflict rules of the
putative proper law to determine the validity of the combined exclusive jurisdiction and
floating proper law clause. The jurisdiction part was held to be severable from the invalid
floating law part.
 Singapore Law Review (1990)

Testing validity by the substantive rules ofthe putative proper law has been
justified as the choice of law is only effective if the contract is valid. Validity is
to be determined by the putative proper law, since it is a logical absurdity to refer
to the chosen law.

Thus the validity of the choice of law is also tested by the putative proper
law. 9 The argument above is predicated on the assumption that the putative proper
law governs all matters of validity whereas it is only "subject to very wide ex-
ecptions [that] the material validity of the contract is determined by the proper law
of the contract".' Further, the proper law that governs the material validity may
be the chosen law if the parties had made such a choice.

In The Hollandia, Lord Diplock suggested, obiter, that an express choice

of law would be null and void if it were so by the lex loci contractus or the
putative proper law. No authority was cited nor were any reasons given. His
Lordship appears from the context of the passage to be considering only the
substantive rules of these two laws.

Insofar as voidness by the lex loci contractus is concerned, the proposition

that it would render the contract void was disapproved of in Vita FoodProducts
Inc. v. Unus Shipping Co Ltd. 2 Testing validity by the putative proper law has the
disadvantage of causing unfairness to parties where they have already chosen a
law and may not have contracted with the putative proper law in mind, assuming
no law evasion was intended.
2 The Chosen Law
This is the law stipulated by the parties as governing the contract. Determin-
ing validity by this law has been depreciatingly termed the "bootstrap rule" and
criticised as impractical and offending logic, 3 since the chosen law can only
claim a role in the contract if the choice of law is valid.

The use of the conflictual rules of the chosen law to test validity does not
appear to have received serious support and rightly so since this would again
utilise renvoi.

9 Thomson "A Different Approach to Choice of Law in Contract" (1980) 43 MLR 650 at p
651. The use of the putative proper law is also endorsed by Cheshire and North Private
InternationalLaw (10th edn) London, Butterworths at p 216.
10 Dicey and Morris The Conflict ofLaws (11th edn) 1987 London, Stevens & Sons at
p 1214.
11 [1983] 1 AC 565 atp 576.
12 [1939] AC 277. It has been criticised by Wolff PrivateInternationalLaw (2nd edn) Oxford,
Clarendoh Press at p 443 and Mann (1937) 18 BYIL at pp 103-107.
13 Morse "The EEC Convention on the Law Applicable to Contractual Obligations" (1982)
2 YEL 107 atp 119.
I1I Sing LR Singapore Law Review Essay Competition

As regards to the substantive rules, Lord Wright in the Vita Foodcase14 held
that the very validity of a clause in the contract should be decided under the rules
of the law stipulated by the parties. This use of the chosen law to determine the
validity of a choice of law has beenjustified as giving effect to the intention of the
parties rule, which is preferable for its general and clear-cut application i" and
logical consistency. It would be absurd to say that the chosen law governs the par-
ties' mutual rights and obligations ifit had by its own rules disqualified itself from
the contract.

In relation to floating proper law, there is another complication, namely,

which of the parties' chosen law is to be used, the original or the substituted
choice?

Mann' 6 and Wolff" favour the original chosen law while Kahn-Freund i"
proclaimed himself puzzled by their view.

Diamond's 9 argument is that the original law governs the parties' mutual
rights, including the discharge of the contract. The variation of the proper law
involves the discharge of the old contract governed by the original law and a new
contract when the changed proper law is created. This analysis grants the substi-
tuted chosen law the limited role of determining whether the new contract is
validly entered into.

There is an element of artificiality as the entire transaction is actually gov-

erned by one contract only. A clause in the contract usually provides for a vari-
ation of the law upon a certain event happening. It is very strained to construe the
selection of a new law as creating a new contract. Such would involve an
unnecessary scission of the contract and would prevent the new governing law
from having retrospective effect.

The new chosen law, however, would have a legitimate role in testing the
validity ofthe choice of the law. 9a As pointed out above, it can play no part in the

14 Supra n 12.
15 Rheinstein (1948) University of Chicago LR 478 at p 485.
16 "The Time Element in the Conflict of Laws" (1954) 31 BYIL 217 at p 222.
17 Supra n 11 at p 426.
18 GeneralProblems ofPrivate InternationalLaw (1976) (Leyden Sijthoff) at p 256.
19 "Conflict of Laws in the EEC" (1979) CLP 155 at p 162. Wolff appears to share the same
view: supra n 11 at p 426. Graveson, on the issue of which law governs the validity of a
change of domicile, prefers the law of the old domicile for the analogous reason that it gov-
erns existing personal rights: "Capacity to Acquire a Domicile" (1950) 3 ILQ 149 at p 162.
It is impossible to draw an analogy between a change in the proper law of the contract with
a change in the domicile as the latter involves a similar change in the governing law of
matters of personal status.
19a This law is used in Art 3(4) of the EC Convention on the Law Applicable to Contractual
Obligations and the Restatement of the Law, Second Conflict of the Laws s 186 (1971).
 Singapore Law Review (1990)

contract if it had disqualified itself. Its use also enhances certainty and prevents a
distortion of the chosen law that is inherent in resolving the issue by any of the
other competing laws.20
3 The Lex Fori
As the case law on floating proper law concerns jurisdiction, the fact that
the majority of the decisions apply the lexfori to test the validity is of no weight.

A common argument of the lexfori put forward is that the change in the
proper law is part of the process in determining the governing law and this is a
question of the choice of law which "must surely be answered by the lexfori."'

This justification involves a fallacy. No doubt all rules as to determination

of connecting factors and choice of law are ultimately governed by the lexfori,
but it is competent for the lexfori to stipulate a rule that validity of changes is
resolved by (say) the putative proper law. The reference to another legal system
2
does not make the rule any less one of the lexfort's.

The use of the lexfori has been inveighed against,2 3 first, because the
identity of the lexfori is determined only with the commencement of proceedings
and, even thereafter, the choice of the law rule cannot precede the decision in
which it is embodied; and, secondly, the lexfori is non-existent until such
decision, assuming English law to be the lexfori.

This criticism is predicated upon the same fallacy as that discussed above.
Whether the original law governs the change will depend on the lexfori. It is
impossible to escape from it; at most, its role is pushed back when it recognises
the role of another law.

The third criticism is that the lexfori may have no relation to the law of
either the old or the new law. This is directed at the use of the substantive rules
of the forum determine validity. It is an argument that has force and which
requires the substantive law of the lexfori to take a very limited role in the
contract, acting only when some strong public policy of the forum24 or a manda-
tory statute is infringed."

20 Supra n 13.
21 Supran 18.
22 This fallacy is analogous to that of the objectivists who argued that granting the parties the
freedom to choose the proper law would be equivalent to granting them legislative powers:
Anton Private InternationalLaw (1967) (Edinburgh, published under the auspices of the
Scottish Universities Law Institute) at p 188.
23 Supra n 19, Graveson.
24 Rousillon vRousillon (1880) 14 Ch D 351 at p 369.
25 Supran 11.
I1I Sing LR Singapore Law Review Essay Competition

4 The Proposed Test

Which law determines the validity of a floating proper law depends on
which of the two following theories are accepted.

The first theory is that propounded by Diamond, 2Ia which treats a variation
of the proper law as an ordinary contractual variation to be governed by substan-
tive rather than conflictual rules.26

The alternative theory is that the applicability of a particular legal system is

a matter of private international law to be decided by the lex fori27 .This is
undoubtedly correct. Questions as to governing law transend ordinary contract
law and enter the realm of private international law and it must surely follow from
this that the issue cannot be resolved solely by the substantive law of contract.

The latter theory has the advantage of simplicity and avoids any difficulty
of renvoi. It merely requires the forum to apply its own conflict rules and discover
whether the floating proper law has been validly changed into a new law. The
former theory, however, would require the court first to decide on the original
proper law before applying the substantive rules of that law to determine if an
effective change in the law has taken place.

The proposed test would then require the validity of a floating proper law to
be determined by the conflict rules of the forum, as reference to a competing for-
eign law would be an impermissible use of renvoi. To what extent the substantive
rules of a potentially applicable law will affect the validity would again depend on
the lexfori. If English law is the lexfori, any invalidity be the chosen law will
nullify the choice of law27" but a defect arising from the putative proper law or the
lexfori will have effect only if it is found that the choice of law was intended to
evade the putative proper law or a mandatory statute of the forum, thereby
rendering the choice not bona fide or legal.

THE EFFECT IN ENGLISH LAW OF A FLOATING PROPER

LAW

The inquiry now is as to what are the conflictual rules when English law is
the lexfori.

25a Supra n 19.

26 Diamond "Harmonisation of Private International Law Relating to Contractual Obliga-
tions" (1986) Recueil des Cours IV 233 at p 264.
27 North "Varying the Proper Law" in Multum non Multa. Fests chrift fur Kurt Lipstein
(1980) at p 205. This is the theory adopted in the EC Convention on the Law Applicable
to Contractual Obligations.
27a Supra n 12, Vita Food case
 Singapore Law Review (1990)

1 TheArmar2 8
This case has been cited as an authority against a variation in the proper
law29 because Megaw, U 3 held:
As a matter of legal logic, I find insuperable difficulty in seeing by what system of law
you are to decide what, if any, is the legal effect of an event which occurs when a
contract is already in existence with no proper law, but, instead, with a "floating" proper
law...

It cannot be that the contract has to be treated as being anarchic, as having no governing
law which the court, taking jurisdiction in respect of such dispute under the contract,
would apply in deciding the dispute. There must be a governing law from the outset, not
a floating absence of law, continuing to float until the carrier, unilaterally, makes a de-
cision.

The governing law cannot fail to be decided, retrospectively, by reference to an event

which was an uncertain event in the future at the time when obligations under the
contract had already been undertaken, had fallen to be performed. Nor is it, I think, an
attractive or a possible concept of English provate private international law that the
governing law initially being, say, the law of Algeria, should thereafter change into the
law of England."

The decision does not place a blanket proposition on all floating proper
laws. The actual legal principles laid down in The Armar are not new but are
merely a reiteration of established rules.

First, it is indisputable that a contract must have a governing law, it cannot

exist in a legal vacuum but must be made by reference to some system of private
32
law.

Secondly, the principle that the governing law cannot be determined by ref-
erence to events after the formation of the contract was already established - 33
Whitworth Street Estates (Manchester) Ltd v. James Miller and PartnersLtd.
Both these principles are not decisive against the use of a floating proper law.

Thirdly, Megaw, U's statement that it is not "attractive or possible" that the

28 Armar Shipping Co Ltd v Caisse Algerienne d'Assurance et de Reassurance [1981] 1 All

ER 498.

29 Eg Briggs "The Validity of 'Floating' Choice of Law and Jurisdiction Clauses" (1986)
LMCLQ 508 at p 513.

30 The Court Appeal was constituted entirely of equity judges: Megaw, Oliver and Eveleigh,
LJJ.

31 Supra n 28 at p 504.

32 Supra 6 at p 65.

33 [1970] AC 583.
I1I Sing LR Singapore Law Review Essay Competition

governing law of a contract should change is contrary to case law. It has been
accepted that parties can by agreement change the proper of the contract.33 a Lord
Reid in Whitworth Estates v. Miller34 considered the parties free to vary the proper
law by changing a different legal system to govern their contract.

The defendants here had executed a Lloyd's average bond which contained
no provision as to the place of adjustment and the law applicable. A clause in the
bill of lading, to which the defendants were not a party granted the plantiffs the
right of selection of the place for adjustment and the law of that place would apply
but it was held that the defendants could not be treated as having constructive
notice of it.35 There was thus no express provision allowing for a change in the
proper law and such a provision cannot be implied into the contract for to do so
would clearly be determining the proper law by a subsequent unilateral event, to
which the other party had not agreed.

Pierce36 has criticised The Armar's holding that there was no governing law
prior at the outset. It could have been concluded that the parties impliedly in-
tended that the governing law be changed from the objective proper law by the
carrier's selection of a place for adjustment.

This finding of an intention that the objective proper law governs at the ini-
tial stage is difficult

If it is apparent from the terms of the contract itself that the parties intended
it to be interpreted by reference to a particular system of law, their intention will
prevail and the latter question as to the system of law with which, in the view of
the court, the transaction to which the contract relates would, but for such inten-
tion of the parties have had the closest and most real connection, does not arise."

It would, thus, be a contradiction in terms to speak of parties intending their

contract to be governed by the law with which it has its closest connection, for the
latter is an objective finding whereas intention is necessarily a subjective matter.
Further it is not legitimate to read in such an intention when it is not implicit37a on
the face of the contract. There intentions of the parties is to be discovered from
what parties say in their contract, not what they had in their minds.

33a Duke of Marlborough v AG [1945] Ch 78 at p 85; Ivaagh v IRC [1954] Ch 364 at p 370. The
whole contract could also be discharged and replaced by another contract governed by a
different law: Kramesi v Ridgway [1949] 1 All ER 662.
34 Supra n 33 at p 603.
35 Supra n 28 at p 503.
36 "Post-Formation Choice of Law at Contract" (1987) 50 MLR 176 at p 191.
37 Supra n 6 at p 61.
37a Where there is no express choice of law, the intentions of the parties that a specific law
governs must be implicit and not inferred or implied: supra n 26 at pp 256-259.
 Singapore Law Review (1990)

If the parties had already expressed their intention in a floating law clause,
the court is prevented from inquiring into the law with which the contract had its
closest connection. Such a search is only undertaken when no intention can be
found and the presumption then arises that the parties intended the contract the
contract to be governed by some legal system but there is no agreement on what
this is. If, however, the clause is struck down for want of a governing law in the
initial stage, the clause is now nihil ad rem and, in the absence of any indication
as to the parties' intention, the court can now embark upon a search for the proper
law.

In The Armar itself, there was no choice of law, let alone a choice of
floating proper law and an implied floating proper law is unacceptable. 7 b

Mustill, J also suggested the implication of a provisional proper law in

Black Clausen InternationalLtd v. Papierwerke Waldholf-Aschaffenburg AG.38
A clause provided for arbitration in Zurich, with English law or German law
applying in reference were made by the purchasers or the sellers respectively. The
approach may have been workable on the facts of this case as the inclusion of
Zurich as an invariable locus for arbitration indicated a sufficient intention that
the law ofZurich should be the provisional proper law liable to change retrospec-
tively when a claim is made.
39
2 The Iran Vojdan
In The Iran Vojdan, the floating law clause was also struck down as it could
not be construed as having a provisional proper law, merely providing baldly that
a governing was to come into effect as and when the carrier made an option. Prior
to such an option, the contract was "anarchic". 40

That the clause was invalid was common ground, however, as between the
parties, which tends to reduce the authority of the statement. Clearly, though,
Bingham, J did not interpret The Armar as putting a blanket disapproval on all
floating proper laws but merely prohibiting contracts which envisage a stage
during which no proper law govern.

In El Du Pont Nemours & Co v. Agnew,41 Bingham LJ, delivering the

judgment of the unamimous Court of Appeal, considered it "theoretically impos-
sible for a proper law to be retrospectively varied on the exercise of a contractual
option, but that does not dispense with the need for a pre-existing proper law".42

37b Supra text at n 35. Also infra text at n 62.

38 [1981] 2 Lloyd's Rep 446 at p 456.
39 Supra n 2.
40 Ibid at p 385. Also supra text at n 4.
41 Supra n 2.
42 Ibid at p 592.
I1I Sing LR Singapore Law Review Essay Competition

A service of suit clause granted the insured an option to sue in any court of
competent jurisdiction within the United States with all matters determined in
accordance with the law and the practice of such court. Bingham, LJ considered
the drafting to " contemplate that the proper law of contract may float until the
exercise of an option by the insured. But this is not a concept an English court
would give effect to... '

It would have been thought otherwise, however. Although there was no

express mention of a provisional proper law, there were many indications that
such a law was to govern in the initial stage. Bingham, LJ found an implicit choice
of English law from the relevant circumstances of the contract, in particular, the
policy being a Lloyd's policy." This could act as a provisional law until changed
at the insured's option.
45
The StoltMarmaro had a similar New York suable clause which conferred
on the assured an option to have all matters decided in accordance with American
law and practice, Goff, LJ observed that "[t]he clause appears to contemplate that,
the policy having been issued and delivered in London, it will (unless the option
is exercised) be governed by English law".' Since there was a provisional
English proper law by implication, his Lordship's subsequent comment that the
clause "may not in fact be effective, by English law, to achieve" its object does
not seem to be supported by The Armar, which he cited as the authority, as there
was a proper law at the outset.47 Goff, LJ appears to give an unjustifiably wide
meaning to The Armar has prohibiting all options conferred on one party to vary
the law.
4
3 The Mariannina1
The pertinent clause in the bill of lading provided for arbitration in London
pursuant to English arbitration law but if this provision were unenforceable, the
governing law would be Greek law with the Piraeus courts having exclusive
jurisdiction.49

Ackner, LJ delivered the judgment of the Court of Appeal which held that
The Armar was of no assistance here, it having merely decided that it is not
satisfactory or acceptable to seek to determine the proper law by reference to a
subsequent unilateral event. This unilateral event does not refer to an option in the
contract conferring on one party the right to vary the proper law by a unilateral act

43 Ibid.
44 Ibid
45 CantieriNavali Riunili SpA v NV Omne Justitia & Ors [1985] 2 Lloyd's Rep 428.
46 Ibid at p 434.
47 Ibid at p 435.
48 Supra n 3.
49 Ibid at p 14.
 Singapore Law Review (1990)

but to a party purporting to do so when there was no pre-existing agreement

granting such a right as in The Armar.

It had been argued that the effect of The Armar was that the court would
lean against the implication of two possible proper laws. This submission was
rejected by the court:
I accept that it is unusual for a clause to provide expressly or by implication for two
proper laws - one to be applied in one event and another to be applied if that event is
negatived, but I cannot see why there cannot be sound commercial50 sense in a fall-back
provision of the kind which this clause seems to me to represent.

At all relevant times here, there was a law governing the contract. Although
there was no express choice of law for the stage prior to any change, the choice
of English arbitration law and London as the arbitration forum were important
indicia
l
of the parties' intention that English law would be the provisional proper
law.
4 A Valid Floating Proper Law
From the case law, it appears that the court is willing to give effect to a
floating proper law under certain conditions. Much of the confusion surrounding
this concept could be attributed to the usage of the term "floating proper law". The
Armar uses it in the sense of a contract having no proper law at the outset but a
"floating non-law" instead that crystallises upon a subsequent unilateral event.5 "'
This term has been extended to use in the context of changes in the proper law
irregardless of whether a provisional proper law exists at the outset or not. This
extension has led to a misapprehension that all clauses envisaging a change of law
are "floating" and therefore invalid. 51b

In English law, a variation of the proper law would be valid if there is a

provisional governing law from the outset, which may be express or implicit.

LIMITATIONS ON FLOATING PROPER LAW

1 Desirabillity Of A Floating Proper Law

Having concluded that there are no objections by the case law to varying the
governing law, the inquiry now turns first to whether such a concept is desirable
from a policy perspective.5' c

50 Ibid atp 15.

51 Ibid.
51a Supra n 28 at p 504.
5 lb Eg The Stolt Marmaro, supra text at n 45.
51c Article 3(2) of the EC Convention on the Law Applicable to Contractual Obligations and
Art 7(2) of the Hague Convention on the Law Applicable to Contracts for the Sale of
Goods 1985 allow a floating proper law.
11 Sing LR Singapore Law Review Essay Competition

a Commercial Convenience
The primary justification for allowing a change in the proper law is com-
mercial convenience 2 and logical consistency. If the principle of freedom of
contract is accepted - and it has been, as evinced by the liberality English law
grants to parties making a choice of law - then it follows that the power of the
parties should not be limited solely to the time at the conclusion of the contract,
especially having regard to the fact that the requirement of a choice of law may
arise after this time. 3 Since the concept of depecage has been accepted in English
law 4 and different clauses in a contract may be governed by different laws, it
requires no great leap of imagination to have a contract governed by different
governing laws at different times.
b Stabilisation
A floating proper law also protects against contingencies that may arise,
such as an invalidation of the arbitration clause in The Mariannina. Further,
although the proper law must be determined as at the making of the contract, the
court will give effect to changes in the substantive proper law which arise after the
making of the contract.55 The ability to nominate another law would enable the
parties to escape from a situation which may alter significantly the economy of
the relationship. 6 There is little else that the parties can do to insulate themselves
against adverse legislative changes and to hold parties to a bargain they did not
agree to, owing to the changed circumstances, is harsh.

The nomination of a new proper law may also allow an avoidance of the
difficulties and uncertainties that may be present in the original law. This is
particularly in the case of supervening events interfering or preventing the per-
formance of the contract. 5 a Although one party may be discharged from his
obligations by frustration owing supervening events beyond the parties' control,
it may be that the parties wish to continue with their contract.

The perennial fear that a floating law would introduce uncertainty 7 is quite
unfounded. An option granting the choice of, say, three legal systems would still

52 Morse, supra n 13 at p 120.

53 Giuliano & Lagarde "Report on the Convention on the Law Applicable to Contractual
Obligations" reproduced in North (ed) Contract Conflicts (1982) Appendix B.
54 ForsikringsaktieselskapetVesta v Butcher [1989] 1 All ER 409.
55 Kahler v MidlandBank Ltd [1950] AC 24; Zivnostenska Banka v Frankman [1950] 1 AC
57.
56 Delaume Transnational Contracts: Applicable Law and Settlement ofDisputes (1982)
s206.
56a Instances of supervening events include revolutionary changes (Carvalho v Hull, Blyth
(Angola) Ltd [1979] 1 WLR 1228); exchange control regulations (Toprak Mahsulleri Ofisi
v FinagrainCie CommercialeAgricole et FinanciereSA [1979] 2 Lloyd's Rep 98); gar-
nishee orders (Rossano v Manufacturers' Life Insurance Co Ltd [1963] 2 QB 352),
57 Eg A Beck "Floating Choice of Law Clauses" [1987] LMCLQ 523.
 Singapore Law Review (1990)

be more certain than a contract with no express choice of law. Variation of a

proper law has always been possible in substance in English law. Although a
contract may be expressed to be governed by Iranian law, the lack of evidence of
this law would lead to the presumption that there is no difference between it and
English law, thus in effect changing the governing law to English law. 8
2 Public Policy
The public policy supporting such a change of proper law is party autonomy
but this has to be balanced against the countervailing policies. It was once thought
that public policy would be best served by granting maximum party autonomy 9
but it is now clear that such a proposition cannot be seriously defended.

a Unconscionability
Underlying the courts' disapproval of an option conferred on one party to
change the proper law appears to be the unarticulated fear that this would lead to
unconscionable bargains. The equitable doctrine of unconscionable bargains is
very restricted even in ordinary local contracts.60 Courts are even more reluctant
to interfere in contracts among commercial men in a transnational setting, unless
there is some strong contravention of the forum's public policy, as in fraud or
duress. There does not seem to be a case in which a transnational contract has
been set aside for abuse of bargaining power. 6'

Because ofthe lack ofany principle to prevent unconscionable bargains, the

ability to change governing law must be express and not implied. There is no
reason to give the parties a freedom of choice which they did not have when the
contract was made.62 Otherwise this would be allowing a change of law by way
of a subsequent unilateral event. Thus, an event such as a change in the forum
cannot be construed as an implied change of the governing law, notwithstanding
that ordinarily the selection of a particular is a strong indication that the law of
that forum is to apply.63

b Forum Shopping
For reasons not readily apparent from the cases, the choice of a forum is of
utmost importance to the parties, which accounts for why all cases on floating
proper law arise in the context of jurisdiction. The device of floating proper law

58 Diamond, supra n 26 at p 261, for reasons behind such an presumption.

59 Anton, supra n 22. Pierce gives a detailed treatment of party autonomy: supra n 36.
60 GH Trietel The Law of Contract (7th edn) at p 318. There is no concept of unequal
bargaining power in English law: National Westminster Bank PLC v Morgan [1985] AC 686
at p 708.
61 Pierce supra n 36 at p 200.
62 F Vischer "The Antagonism Between Legal Security and the Search for Justice in the Field
of Contracts" (1974) 142 Recueil des Cours I 38 at p 49.
63 Cheshire and North PrivateInternationalLaw (1 th edn) 457.
I1I Sing LR Singapore Law Review Essay Competition

enables parties to indirectly change the forum since the doctrine offorum non
conveniens usually requires parties to litigate in the country of the proper law.64

It has been shown by a sophisticated analysis that the preference of a

particular forum because of the belief that the law of that forum favours one party
in the dispute is unsound.65 It ignores the private international law aspect of a
transnational contract. That particular forum may apply its own conflict rules and
discover that the proper law of the contract is in fact that of a third country or it
may decline to take jurisdiction. There is the additional problem of enforcement
of a foreign judgment.

Instead, legitimate grounds can exist for forum shopping. These include the
language in which litigation is to be conducted to avoid the difficulties and
inaccuracies of translation; the experience of the judges in the type of claim in
issue or the expedience with which the suit may be heard. Forum shopping, thus,
is a fairly neutral factor that should not affect a floating proper law.
3 Illegality
Limitations are of vital importance to prevent law evasion by the device of
a floating proper law, although in most instances the illegality is at the lex loci
solutionis and will not be affected by a change in the proper law. No special rules
need be formulated here for in Lord Wright's test' that a choice of law must be
bonafide, legal and not contrary to public policy is a test well-tailored to meet the
challenges posed by a floating proper law. Illegality in an ordinary choice of law
setting is already fraught with difficulties and uncertainty. It is not proposed to
embark upon a lengthy examination of these principles but rather to consider the
special difficulties posed by a floating proper law.

a Illegality By The OriginalProperLaw

If the illegality exists at the outset of the contract, a subsequent change of
law to avoid this would in most cases not be bonafide.66a But when the illegality
is of a supervening nature, to prevent a change of law would defeat the parties'
expectations and the whole purpose of the floating proper law provision.

But even if the change were legitimate, and no question of malafides arises,
there may be a conceptual difficulty67 in treating the contract as still valid and

64 Spiliada Maritime Corp v Cansulex Ltd (The Spiliada) [1986] 3 All ER 843.

65 Diamond, supra n 26 at p 243.

66 Vita Food case, supra n 12.

66a Much would depend on the type of illegality and the parties' intention: Dicey and Morris,
supra n 10 at pp 1216, 1228-1230.
67 Kahn-Freund recognises this when he queries whether the parties can validate an invalid
contract and vice versa: supra n 18.
 Singapore Law Review (1990)

afoot under the new proper law. If the illegality renders the contract void ab initio,
no nomination of a new law can occur under a clause in a void contract. This
would follow from the theory that a change in the governing law is merely a
variation of a contractual term to be governed by the substantive law of contract.

However, approaching from a private international law perspective, the

court should merely examine whether this new choice of law clears the hurdle of
being bonafide, legal and not contrary to public policy. If it does, the next
question would be the effect of the new chosen law on the contract. If the effect
is to validate it, the voidness of the contract under the old law is irrelevant as the
new law's effect is retrospective.

b liegality By The New ProperLaw

In the unlikely event that a law rendering the contract illegal is selected, the
contract would be void and it would not be possible to treat the contract as still
existing under the original governing law.

Assuming the choice of law clause is valid, if the effect of the new law on
the contract renders it illegal, then the contract will be void and there is no
possibility of returning to the original governing law.
4 Retrospectivity
The new chosen law is to have retrospective effect if an unnecessary
scission67a of the contract and a consequent artificial and problematic severance of
the rights and obligations are to be avoided. This, however, presents special
problems of accrued third party rights and formal validity.

These could be avoided by the adoption of rules similar to those in the EC

Convention on the Law Applicable to Contractual Obligations,68 viz. that third
party rights and the formal validity of the contract should not be prejudiced by the
selection of a new proper law.

67a See Wolff's criticism of this, although he is against any retrospective effect: supra n 11 at
p 453.

68 Art 3(2).
 11 Sing LR Singapore Law Review Essay Competition

CONCLUSION

The validity of a floating proper law is to be determined by the conflictual

rules of the lex fori. Where English law if the lex fori, any invalidity by the
substantive rules of the chosen law would defeat the choice of law. Invalidity by
the putative proper law is relevant only if the choice of law was intended to evade
the effect of this invalidity. Invalidity by the lexfori is relevant only if a forum
mandatory statute is infringed or if the choice of law is contrary to the public
policy of the forum.

Under English law, a floating choice of law is valid so long as there is a

provisional proper law governing from the outset and if the choice of law is bona
fide, legal and not contrary to public policy.
These principles have actually been established by cases on choice of law
in contract and the utilisation of them for a floating proper law is merely an
adaptation of these principles.

Lim Mei*

* Fourth Year Law Student (Academic Year 1989-90).

2nd Prize Winner, Singapore Law Review Essay Competition 1990.