Vol 11 (2014) - Issue 3

Article preview

Common Law Rules as to Choice of Law in Contract Still Relevant Offshore

While the law of England and Wales as to the governing law of contractual obligations is now to be found in the Rome I Regulation, many other jurisdictions (including those in the British offshore world) continue to apply the common law rules as to choice of law. The recent Bermuda case of Stiftung Salle Modulable & Rutli Stiftung v Butterfield Trust (Bermuda) Limited represents an application of these common law rules. The lengthy judgment in this case largely turned on a close analysis of the factual evidence and ultimately on the application of Swiss law. However, the ruling does contain important points relevant both to practitioners of private international law and trusts.
The case concerned a plan to construct an Opera House in Lucerne, Switzerland and the question of whether the Defendant, the trustee of a Bermuda trust (known as the Art I Trust) had a contractual (or other binding) obligation to provide funding of up to CHF 120 million for its construction. The Plaintiffs were a Swiss charitable foundation established for the express purpose of planning, constructing and maintaining the Opera House and a Swiss philanthropic foundation. The Trustee decided in 2010 to withdraw funding from the project having discharged feasibility study and other costs that had been incurred to the end of 2010.
Perhaps the fundamental legal point in the decision was whether the Trustee’s putative contractual obligations were governed by Swiss or Bermuda law. It was not disputed that this question fell to be determined by the Bermuda Court applying Bermuda conflict of law rules. In the earlier Bermuda decision of Essex Insurance Company v Posner, the Supreme Court of Bermuda held that Bermuda’s conflicts of law rules as to choice of law in contract were the same as the English common law rules. In that case, the Judge quoted with approval from the decision of Bingham L.J. (as he then was) in Du Pont v Agnew that:
'In English law the proper law is … the law which the parties intend to apply. The intention will be ascertained by the intention expressed in the contract if any, which will be conclusive. If no intention be expressed the intention will be presumed by the Court from the terms of the contract and the relevant surrounding circumstances. This is not inconsistent with Lord Simond’s familiar definition of the proper law of the contract as: … the system of law by reference to which the contact was made or that with which the transaction has its closest and most real connection'.

In Stiftung Salle Modulable & Rutli Stiftung v Butterfield Trust (Bermuda) Limited, the Chief Justice following this line of authority held that the Court, in the absence of an express choice of law by the parties, will seek to identify either (a) an implied or inferred choice discerned from the surrounding circumstances; or (b) the system of law with which the alleged contract has its closest connection. The Chief Justice quoted with approval from Dicey and Morris on the Conflicts of Law that 'the tests of inferred intention and close connection merge into each other'.