In the absence of a governing law clause, what should be taken into consideration when deciding what law will govern a contract?

GOVERNING LAW DEPENDS ON ‘REAL CONNECTION’ TO JURISDICTION IF THE CONTRACT DOES NOT CONTAIN A CHOICE OF LAW CLAUSE

New Holland (Canada) Credit Company v. MacPherson 2003 CanLII 23201 (ON SC)

In determining what law should apply to a contract when the contract does not specifically state the applicable law, the courts will conduct an inquiry to ascertain the implied intention of the parties. This requires an objective analysis of all the facts and circumstances surrounding the entire transaction to determine the jurisdiction with which the transaction has its closest and most real connection.

Drafters should ensure that agreements contain a clear governing law or choice of law clause, to avoid disputes and increased potential litigation costs.

In New Holland (Canada) Credit Company v. MacPherson, the issue was whether the law of Ontario or Quebec applied to a contract that had no express governing law clause. The court found that Quebec law was the proper law of the contract for the following reasons: the plaintiff drafted the contract entitled “Retail Installment Contract (Quebec)”; the seller was located in Quebec; clauses pursuant to the Quebec Consumer Protection Act were inserted into the contract; no provision was inserted into the contract that indicated the plaintiff’s desire to have the contract and its interpretation to be governed by a law other than Quebec law (although a box at the top of the contract where the seller could have identified the place of the contract was left blank); the dealership that sold equipment to the defendant was in Quebec; and the equipment was returned to the dealership in Quebec. As well, the court found that the applicability of Quebec law lead to consistency and predictability with regard to similar retail sales contracts. As a result of this finding, pursuant to the law of Quebec the defendant was released from any further obligations under the contract.

To read the full case on CanLII, click here.