All laws, to a greater or lesser extent, are reflections of the public policies of the state that enacted them. The more important the policy to the society, the greater the claim of the relevant law to be applied. Thus, if laws exist to protect citizens, the law of the place where loss or damage is sustained might have a strong claim to apply: e.g. in a traffic accident, two cars collide because of faulty maintenance and both drivers are injured the local laws exist to provide some degree of protection for all those who use the roads in that state, setting minimum standards for the design and maintenance of vehicles, specifying what levels of insurance should be carried, setting the minimum age and qualifications for the right to drive, etc.
But the problem with accepting the claim of any one state to have its law apply is that the result may be somewhat arbitrary. So, in the example given, if neither driver had a residence in the state, and the cars were both maintained outside the state, the laws of other states may have an equal or better claim to apply. The advantage of the proper law approach is that it builds in flexibility rather than offering a mechanical rule. Suppose that there is a contract between an Italian company and an English partnership for the sale of goods made in Greece to be shipped from Belgium on a ship flying the flag of Panama to a Swedish port. Adopting a rule such as the lex loci contractus, i.e. apply the law of the place where the contract was made, might actually select a law having no other connection with the substance of the bargain made by the parties. Similarly, picking the lex loci solutionis, i.e. the law of the place where the contract is to be performed, may prove to be equally irrelevant, assuming that there is only one place where performance is to occur: in the example, there is manufacture in Greece, delivery to Belgium, loading in Belgium, carriage on the high seas, and unloading in Sweden. So, if the contract does not make an express selection of the law to apply (see choice of law clause), the parties are deemed to have chosen to be bound by the law with which the contract has the closest and most real connection.
Thursday Law Report: Proper Law of Contract between Parties Was English and Not Scottish Law ; Ennstone Building Products Ltd V Stanger Ltd ( EWCA Civ 916) Court of Appeal, Civil Division (Lord Justice Potter and Lord Justice Keene) 28 June 2002
Jul 04, 2002; WHERE A contract was entered into in the course of the relevant party's trade or profession, the presumption under article 4(2)...