UNIDROIT Principles

UNIDROIT Principles

The UNIDROIT Principles of International Commercial Contracts, first published in 1994, with a second edition in 2004 and a third edition edition in 2010, represent a non-binding codification or “restatement” of the general part of international contract law.

UNIDROIT Principles and Harmonization of International Commercial Law: Chapter Seven

Chapter 7 of the UNIDROIT Principles of International Commercial Contracts is significant on at least two levels. In practical terms, it is the substantive heart of the whole Principles. It is where the Principles’ solutions to a large proportion of real world disputes in commercial transactions are to be found. It is here that the remedial consequences of serious failures of performance are defined: orders of performance, damages, contract termination by rescission, and restitution. These are difficult and central substantive issues. Indeed, Chapter 7 is probably the most imaginative synthesis to emerge in this generation of some of the most difficult practical questions of contract law. It will be a powerful support for the harmonization of actual outcomes and improve the reliability of the often unpredictable results of disputes. The substantive content of Chapter 7 is important as an illustration of the creative power of the UNIDROIT Principles.

Chapter 7 is also important as an example of how the Principles work and of their usefulness in the emerging pattern of harmonized international commercial law. Chapter 7 brings closer together the substantive outcomes in courts, arbitral tribunals, and institutions of alternative dispute resolution in different legal systems, thus providing a prime example of how harmonization of international commercial law can improve the law. I have pointed out elsewhere that harmonization is not always the equivalent of substantive reform that improves the operation of the law.1A unified law is not always a better law, nor need it produce better results in application. The challenge is to use the opportunity of legal change for harmonization to produce better law.

This brief presentation seeks to combine these two levels of significance, although the description of the major substantive provisions of Chapter 7 will have to be limited to a bare outline. In so doing, it attempts to demonstrate that the UNIDROIT Principles represent an important step forward that should be promoted to the fullest extent and used in commercial law practice.

I will also try to demonstrate the importance of the UNIDROIT Principles in relation to the other major projects that are now successfully harmonizing international commercial law in most nations of the world. The process of harmonization has turned out to be somewhat different than many of us had expected a decade ago. Those who have an ongoing interest in commercial law must deal with the rapidity of change in commercial law on both a domestic and an international level. The motivating cause of this change is not hard to find. It lies in the changing structures of commercial markets and business practice as increased trade and rapid communication have created large regional and global markets. Change in commercial law is inevitable because it is driven by powerful economic forces visible throughout the world. New legal regimes are a response to the changes in transactions and relationships that mark the new economic and social situation.

This change is proceeding on several levels and is providing a unique opportunity to reconcile and harmonize the content and concepts of global commercial law. The only choice that does not appear open is to let the past rule the future. If the law is permitted to stand still and fail to respond to the needs of the business people who engage in trade transactions, these business “consumers” of the law will certainly find other, non-legal, ways to structure their commercial lives and the law as administered in the national courts will become increasingly irrelevant to their concerns.

The process of legal harmonization in global economic markets has taken divergent forms, yet to our great benefit, a remarkable degree of coherence and agreement can be found in the underlying ideas, and most importantly, the outcomes of similar disputes through the use of these divergent forms. In order fully to understand the usefulness of the UNIDROIT Principles, we must appreciate how they fit into this emerging multi-layered structure that is becoming dominant. In the following paragraphs I will describe seven salient examples of these different forms or vehicles. One might expect, as I did until recently, that these vehicles would be competitive and exclusive of each other. Were that the case, our task would be to pick and choose among them, settling on the one solution we thought overall provided the best advantages and the most acceptable costs. But that is not how the development of the law has worked out. Instead, as each vehicle has been constructed and presented to the legal consumers, each has been applauded and adopted by most legal cultures. Most of the world has adopted a number of these vehicles and nobody seems overly concerned by the apparent divergences in their approaches to common problems. This is possible because, while they may incorporate different approaches, they nevertheless largely share a common sense of the best outcome to practical problems that arise frequently. That is why lawyers, judges, arbitrators and other consumers of law would do well to view these different vehicles and techniques not as competitive, but as mutually supportive and supplementary to each other. The question is not which technique to choose, but rather how to use all of them productively. Used wisely, they work together and support each other.

THE EMERGING MULTI-LAYERED STRUCTURE OF HARMONIZATION

Which, then, are the major choices available in designing the new legal structures?

National Code Revision

First and probably most important, the national legal systems of the world are currently embarked on the reconciliation and revision of national commercial law codes. Mexico started several years ago to modernize and harmonize the Código Comercial and related statutes. A number of European nations are in the midst of comparable code revisions or have recently completed their projects. In the United States, the National Commissioners on Uniform State Laws and the American Law Institute are bringing to fruition a revision of all twelve parts of the Uniform Commercial Code (UCC), particularly Article Two dealing with Sales. It is difficult to revise a code that has been a monumental success and has been incorporated in the laws of each of the fifty states. As the new drafts are approved by the editorial committees, the real battle begins to gain adoption in fifty independent state legislatures. Certainly this is not a process that will be completed overnight, but we can predict with a high level of confidence that it will happen.

This confidence is grounded on admiration for the quality of the revision that is emerging, and also on the simple recognition of the irresistible power of the economic and social changes that are impelling change in the codes. New formulations of the law are required to serve the purposes of that new order. A consequence of the new reality is that each of these national revisions must take account of the global realities of trade and thus incorporate a harmonized approach to transactions. The great families of the law live on and their children retain their pride in their Roman, Common Law, or Napoleonic forebears. Ancient family traits can still be observed, but the new codes increasingly resemble each other than their ancestors.

A new draft of Article Two of the UCC was circulated recently which refers with striking frequency to provisions of the United Nations Convention on Contracts for the International Sale of Goods (CISG), the UNIDROIT Principles, INCOTERMS and other international sources. There are more than 50 references to the international provisions (The Draft referred to is: American Law Institute, Uniform Commercial Code Revised Article 2. Sales, Council Draft No. 2. November 1, 1996. It should be noted that the comments and notes do not take final form under the practice of the American Law Institute until there is agreement on the text and the Reporter has had an opportunity to exercise his or her discretion to revise the notes.). The UNIDROIT Principles, in particular, are frequently used as a source for clear and workable definitions of concepts. This reflects the obvious truth that, in economic terms, the lines between domestic and international transactions are being eroded within global markets. In legal terms, the code revisions indicate how quickly these boundaries between domestic and international rules of commercial practice are fading. The inevitable result will be a harmonized legal approach to all similar commercial transactions.

Creation of International Codes

We now have almost a decade of experience with the CISG. Over forty nations have acceded to the Convention and collections of jurisprudence drawn from courts around the world are providing guidance on its interpretation and application. The CISG pursues the strategy of harmonization by seeking a single worldwide formal statement of contract rules, which become the law applicable in transactions between parties from Contracting States. The Convention starts this process by seeking agreement on a formal statement of the rules. It provides a rather neutral framework for decision, although as Alejandro Garro has pointed out, it contains lacunae that require completion and explanation. Moreover, the UNCITRAL process, out of which the CISG developed, is largely episodic, with only limited ongoing opportunities for revision of the Convention in the light of experience with some of its less successful provisions. In this respect, the CISG shares some of the problems described earlier with reference to the Uniform Commercial Code revision in the United States. An arduous process of national legislation or an equally complex process of ratification of treaty amendments will be needed to repair less-than-satisfactory provisions in the original Convention. In fact, these difficulties are more troubling with respect to the CISG, since it lacks the ongoing editorial process built into the UCC. The process of revision of the CISG will require ratification by every nation in the world, a prospect even more formidable than that of securing adoption of UCC revisions by the fifty state legislatures.

Adoption of Regional Choice-of-Law Conventions

The revision of national commercial codes and the creation of a global code for commercial sales both emphasize the degree to which the rules that govern transactions are made by the nation-state. A third general approach to harmonization is typified by the CIDIP Convention on the Law Applicable to International Contracts and by the European Convention upon which it is based. Organization of American States, Inter-American Convention on the Law Applicable to International Contracts, approved March 17, 1994 at the Fifty Inter-American Specialized Conference on Private International Law (The “Mexico City Convention”). The Mexico City Convention follows closely the European Convention on the Law Applicable to Contractual Obligations (1980) (The “Rome Convention”

This approach seeks harmony, not in the promulgation of uniform substantive rules, but in the creation of a process for choosing among competing national and international rules, leaving the substance of each domestic system largely untouched. This approach would seem particularly useful in the many international transactions between sophisticated commercial parties, who can be expected to look after their own interests and do not require the protection of governmental regulation. Such parties will take care of themselves and produce a more rational allocation of interests than can be expected from the state. It is more doubtful, however, whether this approach will harmonize and approximate the rules applicable in more common situations. National systems of law no longer present an insuperable barrier to trade under this approach, but harmonization is no longer a prime value.

Adoption of Uniform Private Rules

The UCC, the CISG and the Choice of Law Conventions recognize that party autonomy is central to commercial transactions and permit the parties in most instances to derogate by contract from the provisions of the law. Emphasis on private rather than state rules is likewise the core of a fourth approach to harmonization of international commercial rules. In a great many industries, trade practices, uniform contract forms, trade association rules and the like provide a secure foundation for common transactions and harmonize outcomes for these transactions throughout the world. The work of the International Chamber of Commerce in this connection is particularly noteworthy. The Uniform Customs and Practices on Documentary Credits (UCP) has provided a frequently updated, workable set of rules for letters of credit and similar documents. Billions of dollars’ worth of transactions are made under these rules every day, with few problems. World law on the subject has effectively been unified because almost every bank in the world incorporates these rules in its letter of credit documents. Intervention by government-made rules has been peripheral at best. The recent revision of Article Five of the Uniform Commercial Code on this subject indicates how few and how minor are the problems left for legislation to address. (The Revised Article Five was promulgated by the Commissioners on Uniform State Laws in 1995 and has been promptly adopted by the legislatures of a number of states. It became the law in California, for example, on January 1, 1996)

One reason for the success of the UCP has been the enthusiastic involvement of a small, well-defined group of participants in these transactions, namely, the banks. A more general project to define trade contract terms (INCOTERMS) lacks this simplifying virtue, yet the ability of the International Chamber of Commerce group that produces and regularly revises these definitions is impressive to say the least. They have anticipated and moved promptly to solve trade transaction problems very effectively. These transactions have ancient foundations in maritime practice, but they have been completely transformed by the growth of modern intermodal and containerized forms of maritime transport, computerized systems for the generation of trade documents, and the growth of air cargo services. While the use of INCOTERMS is not as universal as the adoption of UCP, it has proved an important source of harmonizing impetus.

The Universal Adoption of Arbitral Regimes in Commercial Disputes

A fifth vehicle in the movement to harmonize international commercial law has been the well-nigh universal adoption of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Harmonization is supported by dispute resolution processes that avoid the idiosyncrasies in outcome that mark all national court systems. These arbitration regimes typically are embodied in rules such as the UNCITRAL Arbitration Rules or the International Chamber of Commerce rules that afford the parties a great deal of control over the selection of arbitrators. The parties are in a position to be sure that the arbitrators selected understand and will apply international commercial practice in a sensible manner.

Re-emerging emphasis on Customary Commercial Practice

A sixth factor supporting harmonization has been increasingly sympathetic attention to commercial usage and trade practice in defining the controlling rules. I hesitate even to mention those mysterious Latin words, Iex mercatoria, lest I unwittingly summon the Genie out of its bottle and then be unable to coax it back again so that I may finish what is intended to be a short list. Suffice it to say that I am not always sure what is being described by this term, lex mercatoria, nor what degree of historical imagination is involved when it is invoked. Nonetheless, it is usually clear that it implies a reference to some kind of commercial practice and an assertion of its normative legitimacy in the face of some entrenched legal norm, usually found in an obsolescent national code. The claim that there is a custom usually indicates that the custom enjoys broad, if not global acceptance. Its use, therefore, tends to harmonize the rules of commercial contracts.

An International Restatement: The UNIDROIT Principles

Joachim Bonell refers to the UNIDROIT Principles as an International Restatement of Contract Law, by which he implies that they seek to capture the essence of the governing rule on a subject without attempting a formal codification. The UNIDROIT Principles provide a somewhat looser-textured statement of guiding principles than can always be captured by a positive statement of controlling law. The UNIDROIT Principles place less emphasis on the conceptual rules or on the choice of law, and more on the spirit and supporting purposes that should determine the outcomes of particular kinds of commercial disputes. This approach focuses on the undeniable reality that the parties to these disputes are less interested in theory than they are in outcome, that they have less of an investment in systematic rules than they have in the vindication of expectations that arise in all commercial transactions. When a principle is implicated, it suggests the appropriate outcome. The job of the judicial or arbitral decision-maker then is to vindicate that interest in the outcome, and the path to that result may differ in different situations. The rightness of the decision is measured by its outcome. Practical answers are good answers. Theory and doctrine are useful primarily insofar as they point us toward good solutions in particular cases. Grand theory is avoided where it leads us to insist on dogmatics and conceptual structures at the expense of outcome.

This is not to say that the UNIDROIT Principles, standing alone, provide all the answers to the puzzle of harmonization of commercial law. On the contrary, in my view the UNIDROIT Principles may be regarded as drawing upon, explaining, and being explained by the CISG, by national law and by private rules, and indeed as providing a choice-of-law alternative for the parties who may select them under the Mexico City Convention, and for courts and arbitrators who may select them as the appropriate law under that Convention. The UNIDROIT Principles provide an orientation that promotes consciousness of outcome and consistency with party expectation. In doing so, they promote harmonization of result in fact and a higher level of consistency between legal outcomes and the expectations of business persons.

The UNIDROIT Principles offer an approach to solving common problems in commercial law that indeed does suggest a coherent set of principles. These under-lying principles provide an excellent foundation for a coherent system of commercial law to develop, grow and operate. The central virtue of the UNIDROIT Principles is that they give practical guidance to judges and arbitrators who must decide disputes and to all those who must interpret all legal texts.

A BRIEF INTRODUCTION TO CHAPTER 7

Chapter 7 is divided into four sections made up of 31 articles. Section 1 defines non-performance and then outlines the obligations of cooperation, cure, nachfrist9, and assurances, all of which are devices designed to bring about performance rather than contract failure after difficulties have been encountered by the parties during performance. The section ends with articles on force majeure and exemption clauses, situations in which the normal expectations of performance have been disturbed by supervening events. In short, the focus is on bringing about performance of the contract and avoiding termination. At the same time, non-performance is defined in terms that include all failures and defects in performance, including those that are excused, and avoids terminology emphasizing breach or fault. The provisions on cure11 and nachfrist 12 are similarly broad. The idea behind these articles seems clear; the contract should be supported and preserved whenever possible. In only a limited number of cases is the existence or validity of the contract to be questioned or is the contract to be terminated before performance is complete. When difficulties arise during performance, the rules are structured to encourage parties to cure their defects, to extend the time for performance, to allow it to be completed. Exemption and penalty clauses are to be read as serving the legitimate purposes of the contract and to avoid being “grossly unfair”. When supervening events produce impediments to performance that cannot be overcome or avoided, the Principles favor temporary suspension of obligations rather than immediate termination of the contract.15 A burden of communication with the other side is imposed on the party unable to perform and liability for damages is imposed for failure to communicate, even in circumstances when the ultimate liability to perform will be excused because of force majeure.

These examples can be multiplied, but the same basic point remains, i.e. that the provisions of Chapter 7 are systematically structured to favor the existence and performance of the contract and to minimize the instances in which the contract is terminated before performance is complete. The UNIDROIT Principles indeed are girded by underlying “basic ideas” that are reflected in the text of the specific articles.

Section 2 of Chapter 7 presents, at least to this North American lawyer, an example of yet another virtue of the UNIDROIT Principles. The articles are drafted with an elegance and craft that enable them to reconcile long-standing conflicts in the practice of different legal systems and they do so in a way that produces a sensible and attractive reading of the law. The subject under discussion in Section 2 is the order of performance, what we Common-Lawyers call specific performance. An order of performance is, of course, the basic preferred remedy in many legal systems of the world. It is designed to give the disappointed party precisely what was promised but not performed. Yet there have always been limits on the circumstances in which a court will give an order of performance. The Common Law has historically taken a different approach. Damages are seen as the basic universal remedy for breach of contract. Specific performance is an extraordinary remedy available only when the preferred remedy is inadequate. When the CISG was adopted, it was apparently not possible to reach a consensus on such matters. Instead an Article 28 was inserted to provide in general terms that a court is not bound to enter a judgment for specific performance “unless the court would do so under its own law in respect of similar contracts of sale…”

Section 2 of Chapter 7 of the UNIDROIT Principles takes a superior and more harmonious path. It states the general preference for orders to perform, but in the same article notes exceptions to this general rule. The remedy is not discretionary, but is simply unavailable if

a) performance is impossible in law or fact; b) performance or enforcement are unreasonably burdensome or expensive; c) performance is available to the injured party through a covering transaction with another person in the market; d) performance is of an exclusively personal character; or e) the party seeking performance is dilatory and does not act promptly.

European sources indicate that this approach does not substantially distort the existing law in Civil Law countries. The beauty of it is that the outcomes of cases are very close to the preexisting law in Common Law jurisdictions as well. The result is true harmonization made possible simply by placing less emphasis on familiar historic doctrine and stressing the practical outcome of cases instead.

CONCLUSION

Practical answers are good answers. The test of successful law harmonization is the quality of the results to which it leads in specific cases. Successful harmonization enhances economic efficiency and vindicates the reasonable expectations of the parties to transactions. Theory and doctrine are useful primarily insofar as they point toward good solutions in real situations. Theory is tested by outcome. This position is in contrast to that which insists on the primacy of grand theory at the expense of outcome. By offering practical solutions, the UNIDROIT Principles free us from the conceptual straitjackets that interfere with the harmonization of outcomes. It is likely to prove a substantial advantage over time that the UNIDROIT Principles are not a convention. They benefit from the primary role played by practical lawyers and scholars rather than diplomats in shaping it.

The way in which the UNIDROIT Principles are stated and their non-legislative status should make it easier to keep them attuned to a changing commercial setting. It will not be necessary to convene a great diplomatic Conference to consider changes when the need for revision becomes clear. The Principles need not imitate the potentially stifling verbal forms of a code. They are open-textured and can incorporate comments, illustrations and clarifying hypothetical examples. Often they fill gaps and cure incompleteness in the CISG and national law.

Chapter 7 of the UNIDROIT Principles illustrates how the process of international commercial law harmonization is likely to be more complex than we might have anticipated only a few years ago. Instead of one format or document in which the new, harmonious order is articulated, we may anticipate a range of documents taking diverse approaches to the problems at hand. Nevertheless, in a way the path to harmony and reform may be simplified by the availability of such a rich palette of legal forms from which the most appropriate form for a particular problem can be chosen. Over time, the legal community around the world may come to see this variety as providing an ample supply of flexible tools to support imaginative solutions to the challenges of a more tightly integrated global economic system.

Source: A. Rosett (A)

Preamble (Purpose of the Principles): Official Comments

The Principles set forth general rules which are basically conceived for “international commercial contracts”. See “International” contracts, and “Commercial Contracts“.

The Principles and domestic contracts between private persons

Notwithstanding the fact that the Principles are conceived for international commercial contracts, there is nothing to prevent private persons from agreeing to apply the Principles to a purely domestic contract. Any such agreement would however be subject to the mandatory rules of the domestic law governing the contract.

The Principles as rules of law governing the contract

Express choice by the parties

As the Principles represent a system of principles and rules of contract law which are common to existing national legal systems or best adapted to the special requirements of international commercial transactions, there might be good reasons for the parties to choose them expressly as the rules of law governing their contract. In so doing the parties may refer to the Principles exclusively or in conjunction with a particular domestic law which should apply to issues not covered by the Principles (see the reference to the Model Clauses in the footnote to the second paragraph of the Preamble).

Parties who wish to choose the Principles as the rules of law governing their contract are well advised to combine such a choice of law clause with an arbitration agreement.

The reason for this is that the freedom of choice of the parties in designating the law governing their contract is traditionally limited to national laws (but see now Article 3 of the 2015 Hague Conference on Private International Law’s Principles on Choice of Law in International Commercial Contracts, subject to certain limitations). Therefore, a reference by the parties to the Principles will normally be considered to be a mere agreement to incorporate them in the contract, while the law governing the contract will still have to be determined on the basis of the private international law rules of the forum. As a result, the Principles will bind the parties only to the extent that they do not affect the rules of the applicable law from which the parties may not derogate (see Comment 3 on Article 1.4).
The situation is different if the parties agree to submit disputes arising from their contract to arbitration.

Arbitrators are not necessarily bound by a particular domestic law. This is self-evident if they are authorised by the parties to act as amiable compositeurs or ex aequo et bono. But even in the absence of such an authorisation parties are generally permitted to choose “rules of law” other than national laws on which the arbitrators are to base their decisions (see in particular Article 28(1) of the 1985 UNCITRAL Model Law on International Commercial Arbitration; see also Article 42(1) of the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention)).

In line with this approach, the parties would be free to choose the Principles as the “rules of law” according to which the arbitrators would decide the dispute, with the result that the Principles would apply to the exclusion of any particular national law, subject only to the application of those rules of domestic law which are mandatory irrespective of which law governs the contract (see Comment 4 on Article 1.4).
In disputes falling under the ICSID Convention, the Principles might even be applicable to the exclusion of any domestic rule of law.

The Principles applied as a manifestation of “general principles of law”, the “lex mercatoria” or the like referred to in the contract

Parties to international commercial contracts who cannot agree on the choice of a particular domestic law as the law applicable to their contract sometimes provide that it shall be governed by the “general principles of law”, by the “usages and customs of international trade”, by the lex mercatoria, etc.

Hitherto, such reference by the parties to not better identified principles and rules of a supranational or transnational character has been criticised, among other grounds, because of the extreme vagueness of such concepts. In order to avoid, or at least to reduce considerably, the uncertainty accompanying the use of such rather vague concepts, it might be advisable, in order to determine their content, to have recourse to a systematic and well-defined set of rules such as the Principles.

The Principles applied in the absence of any choice of law by the parties

The Principles may however be applied even if the contract is silent as to the applicable law. If the parties have not chosen the law governing their contract, it has to be determined on the basis of the relevant rules of private international law. In the context of international commercial arbitration such rules are very flexible, permitting arbitral tribunals to apply “the rules of law which they determine to be appropriate” (see, e.g., Article 21(1) of the 2012 Rules of Arbitration of the International Chamber of Commerce; Article 24(1) of the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce). Normally arbitral tribunals will apply a particular domestic law as the proper law of the contract, yet exceptionally they may resort to a-national or supra-national rules such as the Principles. This may occur when it can be inferred from the circumstances that the parties intended to exclude the application of any domestic law (e.g. where one of the parties is a State or a government agency and both parties have made it clear that neither would accept the application of the other’s domestic law or that of a third country), or when the contract presents connecting factors with many countries none of which is predominant enough to justify the application of one domestic law to the exclusion of all the others.

The Principles as a means of interpreting and supplementing international uniform law instruments

International uniform law instruments may give rise to questions concerning the precise meaning of their individual provisions and may present gaps.

Traditionally international uniform law has been interpreted on the basis of, and supplemented by, principles and criteria of domestic law, be it the law of the forum or that which would, according to the relevant rules of private international law, be applicable in the absence of an international uniform law.

Recently, both courts and arbitral tribunals have increasingly abandoned such a “conflictual” approach, seeking instead to interpret and supplement international uniform law by reference to autonomous and internationally uniform principles and criteria. This approach, expressly sanctioned, for instance in Article 7 of the 1980 UN Convention on Contracts for the International Sale of Goods (CISG), is based on the assumption that international uniform law, even after its incorporation into the various national legal systems, only formally becomes an integrated part of the latter, whereas from a substantive point of view it does not lose its original character of a special body of law autonomously developed at international level and intended to be applied in a uniform manner throughout the world.
Until now, such autonomous principles and criteria for the interpretation and supplementing of international uniform law instruments have had to be found in each single case by the judges and arbitrators themselves on the basis of a comparative survey of the solutions adopted in the different national legal systems. The Principles could considerably facilitate their task in this respect.

Parties wishing to ensure that the applicable international uniform law instruments will be interpreted and supplemented by the UNIDROIT Principles may use one of the Model Clauses proposed by UNIDROIT: see MODEL CLAUSES FOR THE USE OF THE UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS.

The Principles as a means of interpreting and supplementing domestic law

The Principles may also be used to interpret and supplement domestic law. In applying a particular domestic law, courts and arbitral tribunals may be faced with doubts as to the proper solution to be adopted under that law, either because different alternatives are available or because there seem to be no specific solutions at all. Especially where the dispute relates to an international commercial contract, it may be advisable to resort to the Principles as a source of inspiration. By so doing the domestic law in question would be interpreted and supplemented in accordance with internationally accepted standards and/or the special needs of cross-border trade relationships.

Parties wishing to ensure that the applicable domestic law will be interpreted and supplemented by the UNIDROIT Principles may use one of the Model Clauses proposed by UNIDROIT: see the UNIDROIT Model Clauses.

The Principles as a model for national and international legislators

In view of their intrinsic merits the Principles may in addition serve as a model to national and international law-makers for the drafting of legislation in the field of general contract law or with respect to special types of transaction. At a national level, the Principles may be particularly useful to those countries which lack a developed body of legal rules relating to contracts and which intend to update their law, at least with respect to foreign economic relationships, to current international standards. Not too different is the situation of those countries with a well-defined legal system, but which after the recent dramatic changes in their socio-political structure have an urgent need to rewrite their laws, in particular those relating to economic and business activities.

At an international level the Principles could become an important term of reference for the drafting of conventions and model laws.

So far the terminology used to express the same concept differs considerably from one instrument to another, with the obvious risk of misunderstandings and misinterpretations. Such inconsistencies could be avoided if the terminology of the Principles were to be adopted as an international uniform glossary.

Other possible uses of the Principles

The list set out in the Preamble of the different ways in which the Principles may be used is not exhaustive.

Thus, the Principles may also serve as a guide for drafting contracts. In particular the Principles facilitate the identification of the issues to be addressed in the contract and provide a neutral legal terminology equally understandable by all the parties involved. Such a use of the Principles is enhanced by the fact that they are available in a large number of languages.

The Principles may also be used as a substitute for the domestic law otherwise applicable. This is the case whenever it proves impossible or extremely difficult to establish the relevant rule of that particular domestic law with respect to a specific issue, i.e. it would entail disproportionate efforts and/or costs. The reasons for this generally lie in the special character of the legal sources of the domestic law in question and/or the cost of accessing them.

Furthermore, the Principles may be used as course material in universities and law schools, thereby promoting the teaching of contract law on a truly comparative basis.

The Relevance of the UNIDROIT Principles in International Commercial Arbitration

The Preamble of the Principles lists the circumstances in which the Principles may apply (or, at least, be taken into account) in the context of international commerce. Specifically, the Principles:

  • apply where the parties expressly provided so in the agreement;
  • may apply where the parties subject the contract to unspecified principles of international trade, or the agreement is silent as to the applicable law; and
  • may be taken into account as a means of interpreting or supplementing either “international uniform law instruments” or domestic law.

International arbitration practice shows that, although the parties seldom select the Principles as the law governing the contract, arbitrators have applied them in a number of different instances. For example, the Principles have been used to:

  • give substance to the parties’ choice to subject the contract to “general rules and principles enjoying wide international consensus”;
  • determine the law applicable to the contract absent a choice-of-law clause;
  • supplement international law instruments and, in particular, the United Nations Convention on Contracts for the International Sale of Goods; and
  • support the findings made in application of the domestic law chosen by the parties as applicable to the contract, especially where such law refers to trade usages.

Source: Bonell M., Meyer O. (eds) The Impact of Corruption on International Commercial Contracts. Ius Comparatum – Global Studies in Comparative Law, vol 11. Springer, 2015

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