Delhi Cloth and General Mills Co. v. Harnam Singh

Every textbook says the proper law is found by ascertaining the parties' intention. This is the Indian case that admits, from the Bench, that in the no-choice case there is no intention, and that what the courts really do is apply an objective test while appearing to reason subjectively.

That admission is the single most quotable sentence in the Indian material on this module, and it is the right way to close any essay on the proper law.

The plaintiffs were cloth dealers at Lyallpur. They had a credit balance with the defendant company, whose head office was at Delhi and which also traded at Lyallpur. Partition intervened.

The dispute became one about the situs of a debt and the law governing its assignment.

Bose J. refused to impute an intention where there was none:

"But, to us, it seems unnecessarily artificial to impute an intention when we know there was none, especially in a type of case where the parties would never have contracted at all if they had contemplated the possibility of events turning out as they did. In our opinion, what the Courts really do, when there is no express provision, is to apply an objective test, though they appear to regard the intention subjectively"

And on the debt: questions relating to a debt are referred to the proper law of the original transaction out of which the chose in action arose.

Step one: notice that a debt has no place. An actionable claim is intangible "and so cannot have location except notionally and in order to give it notional position rules have to be framed along arbitrary lines." That candour matters, because it warns against arguing situs as though it were a fact.

Step two: refer the debt to its source. Through Cheshire, the Court adopted the proposition that the appropriate law is "not the 'proper law' (using that expression in its contractual sense) of the assignment, but the proper law of the original transaction out of which the chose in action arose. It is reasonable and logical to refer most questions relating to a debt to the transaction in which it has its source and to the legal system which governs that transaction One undeniable merit of this is that, where there have been assignments in different countries, no confusion can arise from a conflict of laws, since all questions are referred to a single legal system".

The merit named there is the reusable argument: one source, one legal system, no conflict between successive assignments.

Step three: set out the classical definitions. Lord Wright in Mount Albert Borough Council — proper law is "that law which the English or other Court is to apply in determining the obligations under the contract"; Lord Simonds in Bonython — "the system of law by reference to which the contract was made or that with which the transaction has its closest and most real connexion". And Cheshire's localisation formula: "It is submitted that, at any rate with regard to the question of valid creation, the proper law is the law of the country in which the contract is localized. Its localization will be indicated by what may be called the grouping of its elements as reflected in its formation and in its terms. The country in which its elements are most densely grouped will represent its natural seat the country with which the contract is in fact most substantially associated and in which lies its natural seat or centre of gravity".

Step four: refuse the fiction. The usual technique where the contract is silent is imputation — Lord Wright again in Mount Albert: "The parties may not have thought of the matter at all. 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 or would have intended if they had thought about the question when they made the contract". Bose J. declined it. Where the parties would never have contracted at all had they foreseen the events, an imputed intention is not a finding but an invention. Cheshire agrees that the judges, "though emphasizing in unrestricted terms the omnipotence of intention, in fact do nothing more than impute to the parties an intention".

It opens: the third tier of the ladder — the law imputed by closest and most intimate connection — and any essay asking whether the proper law is subjective or objective.

The line to close on: the subjective theory survives as the language of the cases, and the objective theory does the work. State the two theories as answers to different questions — the subjective theory answers who chooses the governing law, the parties; the objective theory answers what makes a law the governing law, connection — and then say that the courts give the parties the first word and the court the last.

Use it on a silent-contract problem by applying the localisation method: group the elements — place of contracting, place of performance, currency, residence or seat of the parties, the form of the documents — and identify the country in which they are most densely grouped. Then confirm the ladder with NTPC v. Singer Company.

The practical moral, worth one sentence: certainty is bought only where the parties buy it by an express clause. Draft the clause.

It does not decide: anything about express or implied choice, where the intention is real and is given effect — Vita Food, Tzortzis; nor about capacity, illegality or form, which the ladder does not reach. And note that its situs reasoning is about debts and assignments, not about tangible property.