Tzortzis v. Monark Line ([1968] 1 All ER 949)

Facts of the Case

The case involved a dispute over the sale of a steamship between a Swedish seller and a Greek buyer, highlighting a conflict over the governing law.

• Parties: Swedish sellers (Monark Line A/B) and Greek buyers (Mr. Tzortzis and Mr. Sykias).

• Contract: Sale of the steamship "Montrose" for £38,000.

• Connections to Sweden: The seller was Swedish, the contract was made in Sweden, the deposit was paid to a Stockholm bank, payment was converted into Swedish kroner, and the vessel was delivered in a Swedish port.

• Arbitration Clause: The contract stipulated that all disputes should be submitted to arbitration in London.

• Procedural History: Arbitrators and the Commercial Judge (Mr. Justice Donaldson) held that the choice of London arbitration implied an intention to apply English law. The sellers appealed.

Issue

What is the proper law of the contract: Swedish law, which governed most of the transactional elements, or English law, which was implied by the choice of London as the seat of arbitration?

Rule

When parties do not expressly choose the governing law of a contract, the law is inferred based on the system of law with which the transaction has its closest and most real connection. The selection of a particular country as the seat of arbitration is often considered a strong, and sometimes decisive, factor implying an intention to choose the law of that country as the proper law of the contract.

Held

The English Court of Appeal dismissed the appeal, upholding the decision that English law was the proper law of the contract.

• Inference from Arbitration: The Court held that the choice of London as the venue for arbitration strongly suggested the parties' implied intention to apply English law.

• Commercial Practicality: It was deemed improbable that the Swedish and Greek parties, dealing with a Swedish transaction, would select English arbitrators in London if they intended those arbitrators to conduct the proceedings and decide the substance of the dispute based on Swedish or Greek law.

• Precedent and Authority: Cited established legal authorities (e.g., Hamlyn & Co. v. Talisker Distillery) and legal commentary (Dicey and Morris, Professor Cheshire) supporting the view that the arbitration clause location implies the proper law.

• Closest Connection: While the majority of the transactional performance factors pointed to Sweden, the arbitration clause was the single most weighty factor in determining the contractual intention, linking the contract to the English legal system.

Commentary

The Conflict of Laws Trilogy in Arbitration

This case highlights the difficulty in separating three potentially different laws that can govern an international contract:

1. The Proper Law of the Substantive Contract: Governs the rights and obligations of the parties (the focus of Tzortzis).

2. The Law Governing the Arbitration Agreement: Governs the validity and scope of the arbitration clause itself.

3. The Law of the Place of Arbitration (Lex Fori): Governs the procedure of the arbitration.

The Post-Tzortzis Shift

While Tzortzis establishes a strong prima facie presumption that the arbitration seat implies the proper law, this rigid view was subsequently softened by the House of Lords in $Cie\ d’\ Armament\ maritime\ SA\ v.\ Cie\ Tunisienne\ de\ Navigation\ SA$.

In that later case, the House of Lords emphasized that the inquiry must always be to find the law with the closest and most real connection. It ruled that a French contract of affreightment remained governed by French law, even with a London arbitration clause. This acknowledged that parties might choose London for its neutrality, legal expertise, or procedural benefits, without intending to apply English substantive law to the contract itself.

Thus, Tzortzis represents the strong presumption rule, while the later Cie d'Armament case represents the contextual and flexible approach now favored in English law.