Practice does not make perfect: Rethinking the doctrine of ‘the proper law of the contract’ – a case for the Indian courts

Dr. Saloni Khanderia
O.P. Jindal Global University, Haryana

Thursday, 12 September – 2:00 pm
Room V 002, Faculty of Law – Professor-Huber-Platz 2, 80539 Munich

Every contract with a transnational element calls for the determination of the law that would govern the transaction in the event of a dispute on the matter between the parties. In most civil law jurisdictions, and the United Kingdom, which is a common law system, the rules to identify the governing law has been codified – contributing to much certainty and predictability. At the same time, jurisdictions like India have continued to embrace the traditional precepts of the English common law even after the United Kingdom’s ratification to the Rome I Regulation on the Law Applicable to Contractual Obligations, 2008 (Rome I). Under the Indian private international law, the assessment of the legal system that governs an international commercial agreement is via the doctrine of ‘the proper law of the contract’, which in the absence of any codification, has been left to the courts. Although the common law tripartite hierarchy, viz., the ‘express choice’, ‘implied intention’ and ‘the closest and most real connection’ test have also been adopted in India, the prevailing judicial dicta demonstrate the diverse interpretations given to each of these factors in the jurisdiction, in the post-colonial era.

The paper will, accordingly, examine the manner in which, the blind adoption of the decisions of the English courts has considerably hindered the development of the Indian private international law. Of particular relevance has been the Supreme Court’s dictum in National Thermal Power Corporation, which has been acclaimed for introducing principles concerning the express choice of the proper law that are compatible with the international standards on the subject. At the same time, the set of vague and convoluted rules that have been prescribed to identify the proper law in the absence of an express choice, have continued to haunt India. For most, the factors employed to reveal the parties’ implied choice and the system, which is closely linked to the contract, have been critiqued for being identical. Further contributing to these incongruities have been the convoluted structure of principles prescribed in the name of flexibility by the judiciary to ascertain the system, which has ‘the closest and most real connection’ with the contract. The courts have, accordingly, been empowered to determine the proper law either via the vague theory of ‘localisation’ by searching for ‘the centre of gravity’ of the contract; or through equally ill-defined presumptions such as the lex loci contractus, lex loci solutionis or the lex fori.

In this regard, the author will suggest some plausible solutions to render the jurisdiction more amenable to international trade and commerce – such as the adoption of mechanisms similar to those formulated by its continental counterpart. The effort by the Supreme People’s Court of China in drawing a new blueprint for the conflict of law rules via the 2007 Interpretation could further serve as an inspiration to the Indian judiciary to postulate new guidelines for improvising the legal discourse on the subject.

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