UNIDROIT's
purpose is to identify the needs and methods for harmonization and
modernization of commercial law as applied between parties of different states
and to promote coordination of commercial law between states by formulating
uniform law instruments, principles, and guidelines to achieve these
objectives.[9]
One
of UNIDROIT's most notable and widely recognized accomplishments is the
creation of the UNIDROIT Principles of International Commercial Contracts,
which will be the focus of this project. In 1994, the first draft of the
UNIDRIOT Principles of International Contracts was published. The draft
reflected many years of research and debate in the area of comparative and
international law. These principles were negotiated and drafted by a working
group composed of representatives from different regions of the world with
diverse legal systems and backgrounds.[10]
The UNIDROIT Principles are a codification of the main
tenants of contract law, covering areas such as formation, validity,
interpretation, performance, non-performance, termination, and remedies and
were created with a view of establishing a model code of international contract
law.[11] Furthermore, each provision has commentary and illustrations that
demonstrate how the provisions are intended to apply.[12]
National laws, arbitral case law, comparative law, and
international instruments, such as the CISG, all inspired the UNIDROIT
Principles.[13] The UNIDROIT Principles have been commonly referred to as an
"International Restatement of Contracts," but it is important to note
that the goal of the Principles was not to simply codify contract principles
that prevailed in the majority of states, but rather to select solutions that
have the most utility for the international commercial community.[14] As a
consequence of using this approach, there are some provisions that stray from
the general rules or practices in the international commercial community. For
example, the provisions on fairness under Article 3.2.7 of the third edition of
the UNIDROIT Principles, which is the rule governing gross disparity, allow a
party to avoid a contract or individual terms of a contract when, at the time
of concluding the contract, one party had an unjustifiable excessive
disadvantage over the other. While the idea that a contract may be avoided in
the case of excessive advantage is one that has legal roots in many legal
systems, this provision's applicability is much more expansive than similar
provisions seen in most domestic laws. [15]
Thus, the UNIDROIT Principles, in large part, reflect
accepted international trade practices but cannot be regarded simply as a
codification of generally recognized tenants of international commercial
transactions because some of the provisions adopt a minority view.[16]
Following the first publication of the UNIDROIT
Principles, the worldwide recognition and success prompted UNIDROIT to continue
work on the Principles as early as 1997 with a view of creating a more
comprehensive and expansive second edition. [17] A new working group was
selected, which included seventeen members who represented all major legal
systems around the world, as well as representatives from influential
international and arbitration organizations, such as UNCITRAL, the
International Court of Arbitration, the Milan Chamber of National and
International Arbitration, and the Swiss Arbitration Association.[18] The
second edition was published in 2004 and included additional provisions in the
area of agency, assignment of rights, obligations, set-off, and limitation
periods. [19]When approving the second edition of UNIDROIT Principles, the
Governing Council determined that these principles should be a long-term
project and that a new working party shall be appointed to prepare the third
edition. Work on the third edition was commenced in 2005 and was formally
approved in May of 2011.[20] Additional provisions include restitution,
illegality, plurality of obligors and of obligees, conditions, and termination
of long-term contracts for just cause.
Harmonizing International Contract Law
One of the main objectives of UNIDROIT is to harmonize
private international law, but what does harmonization mean? The harmonization
of law refers to a process of legal integration, which aims to encourage legal
cooperation between countries and reduce differences between national laws or
provide supranational legal instruments that can be used to govern specific
areas of law.[21] The process of harmonization can take many different forms
and as such, many different methods have been used to harmonize laws at the
domestic, international, and multilateral level. For example, harmonization has
been accomplished by the reformation of national laws, which correspond with
international legal trends, the establishment of binding international codes,
such as the CISG, the creation of non-binding international legal instruments,
such as the UNIDROIT Principles, the ratification of regional choice of law
Conventions, such as the Rome Convention on the Law Applicable to Contractual
Obligations, or the creation of Uniform Acts, such as the U.S. Model Penal
Code, which states can adopt as national law or simply use as inspiration in
reforming national law.
The argument in favor of harmonizing international
contract law
In the modern course of business, corporations
frequently engage in international commercial transactions. For example, a Canadian
manufacturer contracts with a Chinese corporation for the supply of labeling
materials; a German Corporation retains an Indian Consultancy firm to assist
with the integration of a complex IT system; an Australian Company purchases
trucks from a New Zealand Company for use in Australia; or a U.S. investor
funds a start-up company in Brazil. Various risks are attached when engaging in
these types of cross-border transactions that are not generally problematic
with domestic transactions.[22]
Fabio Bortolotti, a lawyer and an Italian Professor of
International Commercial Law, eloquently explains some of the challenges
lawyers are faced with when representing a client who is engaged in an
international transaction:
Domestic rules on contracts, and particularly those
rules dealing with the general aspects of contract law, are, in most countries,
the fruit of a long evolution. Such rules are often complicated, not only
because the matters covered are complex but also because they reflect long
years (if not centuries) of legal thinking, which sometimes complicates even
simple things. It is very difficult therefore for a lawyer negotiating an
international contract (or who must make up his mind about a dispute relating
to such a contract) really to understand a foreign country's rules on
contracts: he may, of course, be able to locate the text of these rules (if
codified, which is not always the case, and if available in an accessible
language), but in most cases he will not be able to assess their actual content
with any certainty. [23]
Professor Bortolotti goes on to explain that these
problems can be addressed by retaining a foreign attorney, but in many cases,
particularly during contract negotiation, there is no time to obtain legal
advice and as stated, “There are usually considerable problems of
communication between lawyers from different countries (probably because most
of them are used to reasoning within the confines of their domestic law), so
that often the local lawyer will fail to grasp the substance of the problem he
is required to answer, while the requesting lawyer will have trouble
understanding ... advice base on legal reasoning unfamiliar to him.” [24]
As such, even simple legal questions for a local lawyer
will be difficult for a foreign lawyer to resolve or even communicate to a
lawyer from a different country, and hiring foreign council is not always an
option due to tight time frames inherent in contract negotiation. Another risk
that parties to international contracts must bear is the uncertainty of the
outcome in the face of a legal dispute. In an ideal world, a contract should
eliminate surprises by setting forth the parties obligations and laying out the
course of action and the remedies available if one of the parties fails to
perform. The need for such predictability is even more essential to
international traders, in light of the fact that parties are usually not
dealing at arms length and have a higher frequency of misunderstanding due to
communication barriers. Unfortunately, it can be very difficult to predict the
outcome of a dispute for your client involved in a cross-border transaction. A
contract interpreted by a California court under California law may have a very
different outcome than the very same contract interpreted by a Bavarian court
in accordance with German law. This could happen for a number of different
reasons: the laws governing contract interpretation from
jurisdiction-to-jurisdiction are not universal, the law applied when there is
no choice of law clause could vary, a jurisdiction may not recognize a choice
of law clause choosing another country's laws or the law applied in the case of
a gap in the chosen body of law may be different. What is more, a company may
be forced to absorb unexpected costs for things such as travel and retaining
foreign counsel. Thus, a reliable and predictable contract between two or more
parties engaged in an international business transaction is essential to the
success of the deal.
Now let us take a moment to think about the various
solutions that are available to minimize these impacts for clients. Of course,
the contract could be drafted to include a choice of law provision selecting
one party's domestic law in the event of a dispute. On a basic level, it may be
difficult for the parties to agree on the application of one party's domestic
law over the other's, because a party that is not familiar with the other
party's domestic contract law is not likely to be comfortable agreeing to be
bound by an unfamiliar foreign legal system to resolve potential disputes. If
one party is willing to agree to apply another party's domestic law, it will be
difficult to predict the outcome of the dispute for the party whose domestic
law does not apply because a foreign lawyer will not have an intimate
understanding of the other nation's laws. Moreover, assuming there is time for
the lawyer to retain a foreign lawyer during contract negotiations, there could
be communication barriers amongst the two lawyers due to language or
differences in legal reasoning. These factors will make it difficult for a
lawyer to understand how a contract will be interpreted by a foreign court or
arbitration panel applying foreign law and will make it difficult for a lawyer
to draft a contract giving the client maximum legal protection and sound legal
advice. To clearly illustrate the risk associated with international
transactions and the potential for uncertain outcomes, let us consider a
potential scenario. Two companies from different countries contract for the
sale of widgets and choose Florida law as the governing law and Miami as the
forum. The first thing to consider is that in choosing Florida law, the parties
would have to have been aware that there is no such thing as American contract
law. Parties must choose the law of a specific state, a concept that is not
often recognized by non-American lawyers. Additionally, if both parties were
signatories of the CISG-where the contract is for the sale of goods-and the contract
provided that Florida law would apply, the applicable law would be the CISG and
only the procedural law of Florida would apply. However, if the contract stated
that Florida contract law is to apply and specifically excluded the application
of the CISG, then Florida contract law would apply and the CISG would not. To
complicate matters even more, if the contract had no connection to the State of
Florida, then a Florida court may hold that jurisdiction is not appropriate in
the state based on forum non conveniens, in which case the contract would be
subject to some other law in America or elsewhere.[25]
In this case, the result of the dispute would be
anyone's guess. For the purpose of this example, let us assume that the parties
choose Florida law, to the exclusion of the CISG, and the contract was signed
in Florida and there were sufficient contacts in the state for the court to
accept jurisdiction. The foreign lawyer would then have to determine what
Florida state contract law is and how those laws affect the rights and
obligations of the parties to the contract. This is not a simple task, even for
American-trained lawyers. The legal teams will need to determine if the state
in question has adopted the Restatement of Contracts in full or in part, and if
so, which provisions of which edition of the Restatement of Contracts it has
adopted. The lawyers will also be required to read through endless cases, which
requires paying top dollar for access to such information on legal databases,
such as Westlaw or LexisNexis. The foreign lawyer will need to Shepardize the
relevant case law to ensure the holdings coming out of the cases are good law,
a concept that is not generally understood by lawyers coming from civil law
jurisdictions. The time spent researching unfamiliar law is not only extremely
costly, but could also result in ethical violations for lack of competency.
Most importantly, crucial mistakes are more likely to occur which will
disadvantage the client. Alternatively, paying to retain a foreign lawyer will
also be a costly endeavor. So what is the alternative? The logical alternative
is to create a legal framework that is neutral and does not put one party at an
unfair advantage. International legal instruments, such as the UNIDROIT
Principles, have made great progress in establishing a neutral legal framework
to provide international business actors with a viable legal alternative.
Another point worth noting is that international legal instruments, such as the
CISG or the UNIDROIT Principles, are not only translated in many different
languages, but they also are written simply to be easily understood by foreign
actors.[26]
Furthermore, with regard to the UNIDROIT Principles,
each provision has comprehensive commentary as well as illustrations that show
how the provisions were intended to operate.[27] International case law and
arbitrary decisions are also provided free of charge on UNIDROIT's website,
substantially reducing the cost of research.[28]
Harmonizing international contract law can also promote
economic growth in third world countries or countries with underdeveloped legal
systems.. The availability of a trusted transnational legal system helps to
promote investment in foreign markets, particularly third world countries,
where investors often do not have the confidence in the protection provided by
a third world legal system.[29] An international legal system in the field of
private international law gives investors a sense of security, helping
underdeveloped countries attract investment and build their economies.
Following a single set of international rules encourages economic activity in
all parts of the world because it is more predictable and reduces transaction
costs. Rather than having to apply a set of law coming from various nations, a transnational
system allows for the application of one set of neutral rules. On the other
hand, one major criticism of uniform sources of international law is that they
increase the amount of sources that a court will apply.[30] Thus, two distinct
legal regimes would exist side by side: one for domestic obligations that would
reflect the national system and one for the international system that would
reflect the international nature of the contract." This could be confusing
for lawyers and judges alike, forced to apply two independent sets of rules
depending on the nature of the contract.
In a federal system, where courts are often required to
apply another state's law, this does not seem so far-fetched, but in a
jurisdiction where the law is uniform throughout, this multilayered system may
seem to cause more confusion than is necessary. Another risk, in some
jurisdictions more than others, is a country's willingness to apply an
international set of laws over domestic laws. [31]
Some jurisdictions have been adverse to the application
of international instruments, such as the UNIDROIT Principles, and have refused
to apply these principles in favor of applying their own national laws. The
consequence of this is severe because the parties likely believed to have put
themselves in a situation of neutrality and probably did not account for the
additional expense of retaining foreign counsel. Now the parties are subject to
the laws of whatever jurisdiction the court decides to apply.
UNIDROIT Principles In Action
Of course the creation of uniform law serves no purpose
if it is not applied in practice. The end goal in creating uniform legal
instruments is not for them to remain dead letter law, but for them to be
applied in practice and to be used as a harmonization tool. The UNIDROIT
Principles have made steady progress since their initial publication in 1994,
but how has this come to be? After all, the Principles are simply non-binding
rules placed at the parties' disposal. While the UNIDROIT Principles do not have
binding force, as do many Conventions, the Principles have become an important
source of non-binding soft law, and their application has been used in a
variety of different ways. The following section will explain the principal
ways in which the UNIDROIT Principles have been applied in practice and how
they have affected the harmonization of international contract law. The most
obvious way in which the UNIDROIT Principles may be used is as the sole law
governing a contract through their incorporation into the contract by the
parties. Here, the parties must intend for the UNIDROIT Principles to apply,
rather than having a set of national laws apply. The Preamble provides that the
Principles "shall be applied when the parties have agreed that their contract
be governed by them. They may be applied when the parties have agreed that
their contract be governed by general principles of law, the lex mercatoria or
the like.”
Furthermore, when the Principles are applied as the
governing law and there are gaps left by the Principles, a solution should, to
the extent possible, be found within the Principles themselves. Additionally,
the parties may opt to have the Principles apply as the applicable law, but
refer to a national legal system that shall act as a supplement to matters that
are not covered by the Principles. For example, lack of capacity is not dealt
with by the Principles, thus, if a conflict were to arise dealing with a
question of validity due to a lack of capacity, the national law selected as a
gap-filler would apply. A second manner in which the Principles may be applied
to a contract is through incorporation of the Principles into the contract as a
contractual provision. This option is exercised when the parties choose a
national legal system or the CISG as their choice of law, and also when they
make reference to the Principles, showing that the parties intend for the
Principles to apply within the body of law that they have selected to govern
the contract." What this means is that if there seem to be conflicts
within the contract itself, the contract will be construed in accordance with
the Principles.
Pursuant to Section 5 of the Preamble, the UNIDROIT
Principles can be applied as a gap-filler to "interpret or supplement
international uniform law instruments."[32]
In fact, the parties do not necessarily have to refer
to the UNIDROIT Principles for them to be used as a gap-filler. In a recent
case before the Supreme Court of Belgium, the Court rejected the use of
domestic law as a gap-filler, in favor of the UNIDROIT Principles in a
contractual dispute governed by the CISG.[33]
The Court held that with regard to a contract governed
by the CISG that has an international character, gaps should be filled
uniformly and thus not through the application of domestic law.[34]
As such, the Court applied the UNIDROIT Principles,
over domestic law, in order to interpret a gap left by the CISG. Pursuant to
Section 6 of the Preamble, the UNIDROIT Principles may also be used as a means
"to interpret or supplement domestic law."' The official commentary
describes that "where the dispute relates to an international commercial
contract, it may be advisable to resort to the Principles as a source of
inspiration" where there is a lack of authority on the issue. Reference to
the Principles under these circumstances would not have binding effect, but may
be used to provide persuasive support. Many courts have used the UNIDROIT
Principles to bolster their arguments as to issues that are unclear under the
national law. The UNIDROIT Principles have arguably made the largest impact in
conflicts that have been resolved through means of Alternative Dispute
Resolution. To illustrate their impact, the UNILEX database contains cases and
arbitral awards from jurisdictions across the world that have applied the
UNIDROIT Principles or the CISG. The database also contains 156 arbitral awards
that either generally cite to the UNIDROIT Principles as persuasive support,
use the Principles to interpret uniform or domestic law, or apply the Principles
as the applicable law governing the contract. One common way in which the
Principles are applied during arbitration is when the parties choose to have
the Principles govern the contract after the contract has been concluded. For
example, when parties have agreed to resolve a dispute through arbitration and
the contract at issue is silent as to the choice of law, the parties may agree
to have the contract interpreted in accordance with the Principles. This option
is viewed as neutral because it does not favor one party over the other. An
arbitration panel may also choose to apply the UNIDROIT Principles when hearing
a dispute over an international contract, regardless of whether the parties
have included a choice of law provision in the 66 contract. To cite an example,
in an arbitration before the International Chamber of Commerce which involved a
contract that did not explicitly contain a choice of law clause, but provided
that the contract should be guided by “natural justice,” the panel held that the
parties intended for the contract to be governed by “general legal rules and
principles.”[35]
In so holding, the panel determined that the general
legal rules and principles were largely reflected in the UNIDROIT Principles
and relied on them to resolve the dispute. In another case resolved before an
arbitral panel involving a dispute between an English company and an Iranian
governmental agency, the arbitrators applied the Principles even though the
contract did not call for their use. The arbitrators reasoned, General legal
rules and principles enjoying wide international consensus, applicable to
international contractual obligations and relevant to Contracts are primarily
reflected by the Principles of International Commercial Contracts adopted by UNIDROIT.
.. .[36] In consequence, without prejudice to taking into account the
provisions of the Contract and relevant trade usages, this Tribunal finds that the
Contracts are governed by, and shall be interpreted in accordance to, the
UNIDROIT Principles with respect to all matters falling within the scope of
such Principles. Due to the availability of the Principles in many languages of
the world, they can be used to help parties draft contracts when negotiating
international deals.n While it is difficult to quantify the extent to which the
Principles have been utilized as a guide for negotiating contracts, some
studies have shown the increase in utilization in this area.
UNIDROIT conducted a questionnaire in 1996, and out of
those who responded, two-thirds claimed that they used the Principles when
negotiating and drafting cross-border commercial contracts. In 1999, a study
was conducted by the Center for Transnational Law, targeting 1000 business
professionals, lawyers, in-house counsel, and arbitrators from all over the
world on the use of Transnational Law in International Contract Law and
Arbitration. One of the questions asked was if they had used the Principles as
guidelines in contract negotiations, and 59% responded that they had. The
drafters of the Principles also contemplated the idea that the Principles could
apply on their own, without the parties selecting them as the choice of
governing law, by way of becoming part of lex mercatoria. In order for the
Principles to be deemed part of lex mercatoria, the relevant principles would
have to be consistent with the prevailing standards of international trade.
Thus, to the extent that the individual provisions are consistent with the
general practices in international trade, the Principles may be applied as part
of lex mercatoria.[37]
A U.S. Federal court upheld an award issued by a
foreign arbitral tribunal that referenced the UNIDROIT Principle's provisions
on good faith and fair dealing as general principles of international law, or
in other words, as a part of lex mercatoria.78 In that case, the Respondent
moved to vacate a foreign arbitral award on the grounds that it violated
Article V(I)(c) of the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitration Awards.[38] Article V(I)(c) provides that a
Tribunal must not decide an issue based on legal principles that "deals
with a difference not contemplated by or not falling within the terms of the
submission to the arbitration" or "contains decisions beyond the scope
of the submission to the arbitration." [39]The Respondent claimed that the
Tribunal's reference to the Principles as international equitable principles is
in violation of Article V(I)(c) because the application exceeds the scope of
the terms of reference provided for in the contract. The court rejected this
argument, holding that one of the issues before the Tribunal was whether
general principles of international law could be applied. The Tribunal held
that such principles could be applied.
The court reasoned that the Tribunal's reference to the
UNIDROIT Principles does not violate Article V(I)(c) because "the tribunal
applied these principles to differences contemplated by, and falling within the
terms of the submission to arbitration."Lastly, the UNIDROIT Principles
have gained recognition by national lawmakers and have been used as a source of
inspiration when reforming contract law on a domestic level. To this end, the
UNIDROIT Principles have a function similar to the function of the Model Penal
Code in America. The Model Penal Code is a statutory criminal code that was
developed by the American Law Institute with the goal of standardizing criminal
law among states.[40]
Legislators are able to adopt the code in full or in
part or simply use it as a source of inspiration when reforming state criminal
law. Since its inception, the Model Penal Code has had the effect of
harmonizing criminal law among states, as over two-thirds of states have
adopted the code in full or in part. Much like the Model Penal Code, the UNIDROIT
Principles have been used as a model code by legislators, and parts of the
Principles have found their way into domestic provisions on contract law. In
the subsequent section, this article will outline examples of states such as
Russia, China, and Spain that have used the UNIDROIT Principles as a resource
in their national reform of contract law.[41] Bear in mind that the examples
provided are not meant to be an exhaustive list of all the countries that have
relied on the Principles to affect domestic private law reform.
The UNIDROIT Principles as a Model for National
Lawmakers
As stated before, the UNIDROIT Principles have been
characterized as a soft body of law. However, one purpose of creating soft law
is to use it as a means to produce hard law. To this end, one of the purposes
of the UNIDROIT Principles is to develop an instrument that serves “as a model
for national and international legislators.”[42] When national lawmakers use
the Principles to reform domestic laws, this soft law instrument has the effect
of creating hard law on a domestic level. As stated in a letter sent in 1993 by
the Australian Government to the Secretary General of UNIDROIT The Principles
could be a timely additional resource for the authorities of those and other
countries in their efforts in drafting an important and difficult area of
commercial law. In that respect those authorities may derive confidence from
the fact that the Principles [. . .] have been drafted in an atmosphere free
from any particular political or ideological persuasion and by some of the most
eminent world experts in this area of law.[43] It can be confidently confirmed
that the goal of the UNIDROIT Principles to serve as a model body of law has
been realized, as a number of national legislators, Public Organizations, and
Multilateral Organizations have used the Principles as inspiration or as a
model code when reforming or creating domestic law. [44]
The following section will outline some examples of how
the UNIDROIT Principles have been used to affect domestic reform.
The 1995 Civil Code of the Russian Federation
Before the first draft of the UNIDROIT Principles were
even published, they played an important role in harmonizing international
contract law, as the draft of the 1994 UNIDROIT Principles was used by Russian
lawmakers in the drafting of the Russian Civil Code of 1995.[45] While it has
been difficult to quantify the extent to which the Principles influenced the
Russian Civil Code, it has gone undisputed that Russian legislators relied on them
as a point of reference during the drafting stages.[46] As evidence, the
Russian President of the International Commercial Arbitration Court at the
Russian Federation Chamber of Commerce and Industry and member of the UNIDROIT
governing council stated that "in relation to the new Russian Civil Code
the Principles have already played the role indicated for them in the Preamble
... in the sense that they have served as a model for national
legislation."
One provision of the code that was clearly influenced
by the Principles is the rules on change in circumstances and hardship
contained in Article 451 of the Russian Civil Code of 1995. More specifically,
the language of Articles 6.2.1-6.2.3 of the 1994 UNIDROIT Principles along with
their comments, were used in drafting Article 451, which previously had no
precedent in Russian law.[47] The Russian Civil Code of 1995 permits a contract
to be modified, with court approval, in the event of a material change in
circumstances.9s Similarly, Articles 6.2.1-6.2.3 of the 1994 UNIDROIT
Principles impose a duty on the parties to renegotiate the contract in the
event of a change in circumstances. In the event the parties are not able to
reach an agreement the parties are entitled to bring the dispute before a
court.[48]
Estonia Republic
The Minister of Justice for Estonia sent a letter dated
June 8, 1995 to UNIDROIT stating that at the "present time we're
elaborating a new draft law of obligations of the Estonian Republic. The
UNIDROIT Principles of International Commercial Contracts is certainly one of
the most important and authoritative sources for drafters of the new law of
obligations because ... it contains a positive experience of different
States." 9 The new draft law of obligations entered into force in 2001.[49]
The Lithuanian Civil Code
The Lithuanian Civil Code is arguably the national body
of law that most closely reflects the UNIDROIT Principles. This can be largely
attributed to the fact that after the Republic of Lithuania gained their
independence, national lawmakers were faced with the task of formulating an
entirely new body of private law that reflected the new economic and political
state of the country, but they had limited resources at their disposal. [50] To
provide a clearer understanding of how the UNIDROIT Principles were essential
to the creation of the Lithuanian Civil Code, it will be helpful to briefly
explain key historical events and obstacles that Lithuania had to overcome in
creating the Lithuanian Civil Code. The Republic of Lithuania regained its
independence in May of 1990 and was officially recognized as a state upon the
collapse of the former Soviet Union in 1991.[51] Although Lithuania gained its
independence in relatively recent history, it is not a newly independent
nation, as it gained its independence in 1918.[52] However, from 1940-1991, the
country was under Soviet rule, and during this period in Lithuanian history,
the development of its legal system halted because many of the country's elite
legal minds were imprisoned by Soviet leaders, died as a result of Soviet
imprisonment, or managed to flee the country.[53]
Upon regaining independence, one of the main priorities
of the Lithuanian legislators was to modernize the contract law to support the
switch from a programmed economy to a free market economy. In the redrafting of
the Lithuanian Civil Code, the legislators decided to incorporate "as many
provisions of the UNIDROIT Principles of International Commercial Contracts as
possible, taking into account social and economic realities in
Lithuania."[54] As a result of this strict adherence to the UNIDROIT
Principles in the redrafting of the Civil Code, it can be said that Lithuania
is, to date, the clearest example of a nation incorporating the Principles into
its own domestic law, because the majority of the Principles have been
incorporated into the Lithuanian Civil Code. The differences in legal
terminology required the wording of the Lithuanian Code to vary from the
terminology used in the Principles, but the drafters of the Lithuanian code did
not change the underlying content of the Principles. The drafters of the
Lithuanian Civil Code even used the commentary of the UNIDROIT Principles to
develop commentary of the Lithuanian Civil Code, in order to ensure that the
interpretation of the two bodies of law would be in sync with one another.[55]
Law on Obligations in the German Civil Code
A more subtle impact can be traced in the German law on
obligations, which entered into force in 2002.[56] The Final Report of the
Commission for the Revision of the German Law on Obligations within the German
Civil Code-Birgerliches Gesetzbuch, which is abbreviated as BGB-made reference
to individual provisions of the UNIDROIT Principles.[57] While the provisions
may not have been directly modeled after the UNIDROIT Principles, German
lawmakers found support in the Principles.
The New Contract Law of the People's Republic of China
The UNIDROIT Principles largely inspired the 1999
reformation of Chinese Contract Law adopted by the Second Session of the
People's Congress of the People's Republic of China.[58] In developing the new
legislation, Chinese lawmakers heavily referenced the UNIDROIT Principles,
particularly the Chapter laying out the general provisions.[59] In fact, former
head of the Department of Treaty Law of the Chinese Ministry of Commerce,
Professor Zhang Yuqing, stated "the broad scope of application of the UNIDROIT
Principles has no doubt had an impact on the new [Chinese] Contract Law."
[60] Thus, the drafters of Chinese Contract Law relied heavily on the UNIDROIT
Principles and adopted various provisions when reforming their existing
domestic contract law. The following section will provide some, but not all,
examples of how the Chinese Contract Law and the UNIDROIT Principles are
closely related. Prior to China's reformation of its body of contract law,
there was no provision on contract formation.[61]Chinese contract law, as it
currently stands, adopted the offer and acceptance model used by the Principles
and the CISG. Articles 3-7 of the Chinese Contract Law embody basic contractual
principles, such as equality, party autonomy, fairness, good faith, and public
interest. These basic principles are similarly provided for by the UNIDROIT
Principles. Article 1.1 of the UNIDROIT Principles is similar to Article 4 of
the Chinese Contract Law, which protects party autonomy by emphasizing that the
parties are free to contract.
Article 1.7 of the UNIDROIT Principles requires that
the parties must act in good faith, as does Article 6 of the Chinese Contract
Law. There are also similar provisions with regard to the effectiveness of a
contract. Article 8 of the Chinese Contract Law provides
“[A] contract established in accordance with the law
shall be legally binding on the parties. The parties shall perform their
respective obligations in accordance with the terms of the contract. Neither
party may unilaterally modify or rescind the contract. The contract established
according to law shall be under the protection of the law.” [62]
In contrast, Article 1.3 of the UNIDROIT Principles
reads that “a contract validly entered into is binding upon the parties. It can
only be modified or terminated in accordance with its terms or by agreement or
as otherwise provided in these Principles.”[63] Here, the terminology used in
the respective articles is not identical, but the underlying concept is the
same. Prior to the reformation of Chinese Contract Law, contracts generally had
to be in writing. This was contrary to the trend in international commercial
law that allows for greater flexibility in order to accommodate the modem
market, particularly in regards to electronic commerce. Article 10 of the
Chinese Contract Law provides that contracts may be written, oral, or in some
other form. Similarly, the UNIDROIT Principles do not require that a contract
be concluded in a written form. The existence of the contract may be proved by
any means including by witnesses.
Indian Contract Law
The concepts of ‘Offer’ and ‘Acceptance’ are the basics
in the process of making a contract which is universally accepted. To be more
precise, offer is the starting point in the formation of a contract. The person
who makes the offer is called an ‘Offeror’ and the person to whom it is made is
called as ‘Offeree’. In Indian contract law the offer is termed as proposal.
The person who makes the proposal is called the ‘Promisor’ or ‘Offeror’ and the
person to whom it is made is called the ‘Proposee’ or ‘Offeree’ and when he
accepts it he is called a .Promisee.[64]
A proposal for concluding a contract constitutes an
offer if it is sufficiently definite and indicates the intention of the offeror
to be bound in case of acceptance.[65]
In a similar manner, the definition of offer as
rendered by the Indian Contract Act would be necessary in order to facilitate us for an easy
comparison. Section 2(a) defines .Offer. as follows; When one person signifies
to another his willingness to do or abstain from doing anything, with a view to
obtaining the assent of that other to such act or abstinence, he is said to
make a proposal.
The
definition provided by Article 2.2 of UNIDROIT principles points out that an
offer must;
(1) Be sufficiently definite to permit the conclusion
of the contract by mere acceptance and
(2) Indicate the intention of the offeror to be bound
in case of acceptance.[66]
On the other hand, in view of the definition expressed
in the Indian Contract Act, a proposal is in the first place an expression of
the offeror’s willingness to do or abstain from doing something. Secondly, it
should be made with a view to obtaining the assent of the offeree to the
proposed act or abstinence.
The first and foremost essential as stated by UNIDROIT
principle is that an offer to be valid must be definite and certain. To be definite means the
offer must be expressed in detail with full clarity without an ambiguity. It
cannot always be seen from the language used that the offer is indefinite and
uncertain. This is because sometimes an offer may not contain all the terms of
the agreement, but still it can be construed from the practices or usages
established between the parties. The Indian law is also identical in its requirement
of definiteness as the primary essential of an offer.
Further, we see that the UNIDROIT principles insist on
a contractual intention by the offer or while making a proposal. In other words, when there is
no contractual intention on the part of the offeror then he is not bound by the acceptance of
the offeree which will never result in a contract. In contrast, the Indian law is silent with
regard to the fact whether a contractual intention is necessary for a valid offer. Under the
English law, an offer is valid only if it is made with a contractual intention.
A leading authority on this subject is the case of Balfour v. Balfour[67] in
which Lord Atkin commented, There are agreements between parties which do not
result in contract within the meaning of that term in our law. . They are not
contracts because parties did not intend that they shall be attended by legal
consequences.[68] As the Indian law is a derivation of the English law, the
same rule is applied in all cases. The intention of the offeror is normally
ascertained from the terms of the offer and the surrounding circumstances. A
careful analysis of the essential of contractual intention for a valid offer as
put forth shows that a distinction is to be drawn between offer and an
invitation to offer. Invitation to an offer
lacks the intention of the offeror to bind by the contract even after an
acceptance is made by the offeree. It can otherwise be described as offers to
receive or offers to negotiate. A distinction between offer and invitation to
offer is also dealt by the Indian Contract Act in a similar fashion.
The
dividing line between them is very thin and minute. The second comment to
Article 2.2 of the UNIDROIT states that .a proposal addressed to one or more
specific persons is more likely to be intended as an offer than is one made to
the pubic at large. The statement makes it evident that offers made to the
public at large or general offers are valid.
However,
it lays more emphasis on a specific offer which is addressed to one or more specific
persons rather than a general offer. The Indian law recognises the validity of
a general offer.
The
principle is derived from the famous case of Carlill v. Carbolic Smoke Ball
Company[69] where Bowen L. J. remarked, It is an offer to become liable to
anyone who, before it is retracted, performs the conditions and although the
offer is made to the world, the contract is made with that limited portion of
the public who come forward and perform the condition on the faith of the
advertisement.[70] This ruling was followed in a number of Indian cases
upholding the validity of the general offers. Article 2.3(1) of the UNIDROIT
principles deal with the communication of offer. An offer becomes valid only
when it is communicated to the offeree. The Indian law treats this requirement
similarly adducing great importance for communication. Until the offer reaches
or comes to the knowledge of the offeree the communication is incomplete. The
communication of offer can be oral or written. Whatever the mode of communication,
the offer must reach the offeree. Article 2.3(2) of the UNIDROIT, points that
an offer can be withdrawn by the offeror at any time before the communication
of offer reaches the offeree. Withdrawal of offer is the liberty given to the
offeror, to alter the terms of the offer or replace a new one in place of the
old offer, provided before the original offer reaches the offeree. The Indian
contract law generally does not recognise withdrawal except in case of a tender
or standing offer where mere approval or acceptance will not create any binding
contract. Referring to a tender the Supreme Court of India has observed that As
soon as an order was placed a contract arose and until then there was no
contract.[71] Therefore, a person who submits a tender can withdraw his tender
before its final acceptance, as held in the case of Rajendra Kumar v. State of
M.P.[72]
Revocation
of an offer and the exceptional situations in which it can irrevocable are
dealt under Article 2.4 of the UNIDROIT principles. An article 2.4(1) state
that an offeror can revoke the offer before it is accepted by the offeree. In
other words, a revocation of offer is valid only if it is made before a letter
of acceptance is dispatched by the offeree.
Article
2.4(1) focuses on the exceptions to the rule of revocability. When the offeror
makes an indication expressly or impliedly that the offer is revocable then it
cannot be revoked. On the contrary, under the Indian contract law even if there
is an express intention that an offer will not be revoked without the consent
of the offeree, it can be revoked without the offeree.s consent but before the
offer is accepted by the offeree.
According
to Article 2.4(2) when the offeree genuinely believes that the offer is
irrevocable and acts upon the contract, then it cannot be revoked. Otherwise,
if the conduct of the offeror or nature of the offer influences the offeree,
whereby he starts to perform his part of the obligations, thereafter a
revocation is impossible. It is based on the principles of good faith and fair
dealing.
In
contrast, the Indian contract law does not adhere to the rule of irrevocability
of offers as it based on common law, which is against the above mentioned rule.
Article 2.5 of the UNIDROIT principles states that there will be a termination
of offer when the offeree rejects the offer either expressly or impliedly. A
rejection is implied when the offeree instead of accepting the offer
unconditionally desires some modifications or alterations, in the terms of the
offer for its acceptance. This can also be seen as a counter offer which in
turn leads to the rejection of offer resulting in a termination. The Indian
contract law treats the rejection of offer as one of the causes of lapse or
termination similar to the UNIDROIT principles.
When
there is a stipulation of time, then the offeree is expected to make the
acceptance within such time, otherwise the offer will be deemed to be revoked.
It is dealt in Article 2.7 of the UNIDROIT. In case of an oral offer it must be
accepted immediately unless there are other circumstances which indicate for
the survival. With reference to written offers the offeree must make acceptance
within the stipulated time as indicated in the offer. On the other hand, if no
time limit is mentioned in the offer then acceptance must be made within a
reasonable time, which varies depending upon the nature and subject matter of
the contract. The non adherence to the time stipulation for accepting the offer
results in termination, which is the same position in Indian contract law.
Article
2.9(1) of UNIDROIT principles deals with a situation where a late acceptance by
the offeree, in the case of non stipulation of time, will not lead to
revocation of offer if the offeror decides to do so. The power to waive late
acceptance rests on the discretion of the offeror. The only requirement
expected from the offeror is to inform the offeree within a reasonable time of
his desire to treat the acceptance as being effective. The arrangement of
conferring validity to late acceptance does not find room within the provisions
of the Indian contract law.
.Offer.
is the first essential of a binding contract which involves two key distinct
players the .offeror. and .offeree. in the process of contract formation. Every
country in the world has its own law of contract which is either based on the
common law or the civil law. The UNIDROIT in an effort to strike a balance
between the two. It has framed principles that reflect the concepts found in
major legal systems of the world which can provide best solutions, when any
domestic law proves impossible to address a specific issue relating to an
international commercial contract.
The
concept of .offer. as contemplated by the UNIDROIT Principles for International
Contracts and that which is provided in the Indian Contract Act have close
proximity with each other. In other words, they are very similar in nature.
However, there are also some minor contrasts. Further, we can see there are
some areas in which either the UNIDROIT Principles or the Indian contract law
is totally silent. To term it otherwise, there is absence of provisions
regarding certain issues that are dealt in UNIDROIT or Indian Contract Act.
Above all, in spite of the differences it is pertinent to say that, the concept
of .offer. dealt by the UNIDROIT Principles for International Commercial
Contracts resembles more of a mirror image to the .offer as expressed under the
Indian Contract Act, 1872
CONCLUSION:
A
major achievement in the area of international harmonization of private law has
been the adoption of the UNIDROIT Principles. The UNIDROIT Principles have made
tremendous progress since their first publication in 1994. Arbitral tribunals
have applied the Principles as the law governing contracts, and national courts
have used the Principles to support interpretation of national laws. They have
been selected by parties as governing law or simply to fill the gaps of
national laws or treaties, such as the CISG. The Principles have been used as a
reference when negotiating international contracts, and they have been used as
a tool to create hard law in many countries around the world that used the
Principles as a model or simply as inspiration in making domestic reforms.
Turning to supranational law reform, the UNIDROIT Principles may make their
most substantial impact in West and Central Africa if and when the OHADA
Uniform Act on Contracts is ratified. UNIDROIT should be recognized for their
contribution to the legal system in the field of private international law, as
the Principles have provided an important solution for international traders
looking for security and neutrality when choosing to trade internationally and
for countries who are looking to bring their contract law up-to-date with the
modern markets and international commercial law trends.
REFERENCE:
1
Salvatore Mancuso, Trends on the
Harmonization of Contract Law in Africa, 13 ANN. SURV. INT'L and COMP. L. 157,
158 (2007).
2
Id.
3
Mancuso, supra note 1, at 158.
4
Franco Ferrari, The Relationship
Between International Uniform Contract Law Conventions 22 J. L. and COM. 57, 58
(2003).
5
The Practice of Transnational Law
1, 14 (Klaus Peter Berger ed. 2001).
6
Mancuso, supra note 1, at 158.
7
UNIDROIT, An Overview, http://www.unidroit.org/dynasite.
cfmn?dsmid+103284 (last accessed on 21st March 2014).
8
Id
9
Id
10
Michael Joachim Bonell, The
UNIDROIT Principles of International Commercial Contracts and the Principles of
European Contract Law: Similar Rules for the Same Purpose?, 1996 UNIF. L. REv.
229, 229 (1996) .
11
International Institute for the
Unification of Private Law UNIDROIT 1994 Principles of International
Commercial Contracts; Michael Joachim Bonell, The UNIDROIT Principles of
International Commercial Contracts and CISG-Alternatives or Complementary Instruments?,
1996 UNIF. L. REv. 26,29 (1996).
12
Id.
13
Supra Note 10.
14
Fabio Bortolotti, The UNIDROIT
Principles and the Arbitral Tribunals, 2000 UNIF. L. Rev. 141, 142-43 (2000).
15
Michael Joachim Bonell, Policing
the International Commercial Contract Against Unfairness Under the UNIDROIT
Principles, 3 TUL. J. INT'L and COMp. L. 73 (1995).
16
Id.
17
Michael Joachim Bonell, UNIDROIT
Principles 2004 - The New Edition of the Principle of International Commercial
Contracts Adopted by the International Institute for the Unifaction of Private
Law, 2004 UNIF. L. REV. 5, 5 (2004) (hereinafter New Edition ofthe Principles
2004).
18
New Edition of the Principles
2004, supra note 22, at 6; Swiss Institute Of Comparative Law, The
Unidroit Principles 2004 Their Impact On Contractual Practice, Jurisprudence,
And Codification 18-19 (Elanor Cashin Ritaine and Eva Lein eds., 2006)
19
Id.
20
International Institute for the
Unification of Private Law UNIDROIT , Working Group for the Preparation of
the Principles of International Commercial Contracts (3rd), Fifth Session (May
26, 2010) available at
http://www.unidroit.org/english/workprogramme/study05O/wg03/wg-2010.htm (last
updated Oct. 31, 2011).
21
Id .
22
Bortolotti, supra note 17, at 141
23
Id.
24
Id
25
Gulf Oil Corp. v. Gilbert, 330 US
501, 506-07 (1947).
26
Similar Rules for the Same Purpose,
supra note 11, at 229.
27
International Institute for the
Unification of Private Law UNIDROIT , Principles of International Commercial
Contracts (2010).
28
See Unilex, http://www.unilex.info/
(last updated Oct. 31, 2011).
29
Id.
30
See generally John F. Coyle,
Rethinking the Commercial Law Treaty, 45 Ga. L. Rev. 343 (2011).
31
Id.
32
Principles of International
Commercial Contracts, supra note 36. See also Elonora Finazzi-Agrb,
L'effettiva, Incidenza dei Principi UNIDROIT nella Risoluzione delle
Controversie Internazionali: Un'indagine Empirica, Diritto del Commerico
Internazionale The Actual Incidence of the UNIDROIT Principles in
International Dispute Resolution: An Empirical Investigation, International
Law of Commerce 577 (2009) (discussing many cases around the world that have
cited the UNIDROIT Principles in order to provide additional support for their
holding); Anna Veneziano, UN1DROIT Principles and CISG: Change of
Circumstances and Duty to Renegotiate According to the Belgian Supreme Court,
2010 Unif. L. Rev. 137, 137 (2010) (citing decisions from the UNILEX database
that use UNIDROIT principles to interpret national laws:
1)
Federal Court of Australia, Oct.
30, 2009, Austl. Medic-Care Co. Ltd. v. Hamilton Pharm. Pty. Ltd.
(interpretation of contracts);
2)
Tribunale di Catania (Italy), Feb.
6, 2009 (restitution);
3)
Audencia Provincial de Valencia
(Spain), Mar. 6, 2009 (fundamental breach);
4)
High Court of Delhi (India), Aug.
20, 2008, Hansalaya Properties and Anr. v. Dalmia Cement (Bharat) Ltd.
(contract interpretation);
5)
Commercial Court of Brest Region
(Belarus), Nov. 8, 2006 (rate of interest); and
6)
Polish Supreme Court, Nov. 6, 2003
(penalty clause).
33
Anna Veneziano, UNIDROIT Principles
and CISG: Change of Circumstances and Duty to Renegotiate According to the
Belgian Supreme Court, 2010 UNIF. L. Rev. 137, 137 (2010).
34
Id.
35
UNIDROIT, UNILEX database
(International Principles of International Conunercial Contracts)
http://www.unilex.info/dynasite.cfm?dsside=2377anddsmid=14311 (last updated
Oct. 31, 2011).
36
Similar Rules for the Same Purpose,
supra note 11 at 242. 70. Id.
37
See Ministry of Def. and Support
for Armed Forces of Islamic Republic of Iran v. Cubic Def. Sys. Inc., 29 F.
Supp. 1168 (S.D. Cal. 1998); see also Similar Rules for the Same Purpose, supra
note 11 at 242.
38
Id.
39
Id.
40
Markus Dirk Dubber, Penal
Panoticon: The Idea of a Modern Penal Code, 4 Buff. Crim. L. Rev. 53, 53
(2000).
41
New Edition of the Principles 2004,
supra note 22, at 8 (discussing how the UNIDROIT Principles have been used as a
Model in the reform of national laws in Lithuanian, Estonia, Hungary, China,
Germany and in the Middle East by the Economic Cooperation Organization set up
by Pakistan, Iran, and Turkey; see also Similar Rules for the Same Purpose,
supra note 11 at 242 (noting the UNIDROIT Principles have played a role in
reforming domestic laws in New Zealand, Spain, Russia, Israel, and Argentina).
42
Principles on International
Commercial Contracts, supra note 35.
43
Similar Rules for the Same Purpose,
supra note 11 at 242
44
Pierre Meyer, The Harmonization of
Contract Law within OHADA General Report on Ouagadougou Colloquium 15-17
November 2007, 2008 UNIF. L. REV. 393, 401 (2008)
45
Alexander S. Komarov, The
UNIDROIT Principles of International Commercial Contracts: A Russian View, 1996
UNIF. L. REv. 247, 249 (1996) hereinafter Komarov
46
Id.
47
Komarov, supra note 89, at 249; see
also Joseph Skala, The UNIDROIT Principles of International Commercial
Contracts: A Russian Perspective found in Swiss INSTITUTE OF COMPARATIVE
LAW, supra note 24, at 119-33.
48
Christoph Brunner, Force Majeure
And Hardship Under General Contract Principles: Exemption For Non-Performance
In International Arbitration (Kluwerlaw International, The Hague, 2009) 490.
49
Michael Joachim Bonell, The CISG,
European Contract Law and the Development of a World Contract Law, 56 AM. J.
COMP. L. 1, 19 (2008) (citing information sent by the Estonian Minister of
Justice to the Secretary General of UNIDROIT on June 8, 1995) hereinafter
Development of a World Contract Law
50
See SWISS INSTITUTE OF COMPARATIVE
LAW, supra note 24, at 231-32
51
Valentinas Mikelenas, Unification
and Harmonization of Law at the Turn of the Millenium: The Lithuanian
Experience, 2000 UNIF. L. REV. 243, 244 (2000) hereinafter Mikelenas
52
Id.
53
Id.
54
Id.
55
Tadas Zukas in his article entitled
Reception of the UNIDROIT Principles of International Commercial Contracts and
the Principles of European Contract Law in Lithuania found in the SWISS
INSTITUTE OF COMPARATIVE LAW, supra note 24, at 231-43 provides an in depth
analysis of the impact of the UNIDROIT Principles on the Lithuanian Civil Code.
Art. 6.156 of the Lithuanian Civil Code Corresponds to Art. 1.1 of the
UNIDROIT Principles. Art. 6.157 par. I of the Civil Code mimics Art. 1.4 of
the Principles. The UNIDROIT Principles are referenced in the comments of
Art. 6.158, 6.162 par. 1, 6.153, 6.164, 6.166, 6.167 par. 1, 6.168,
6.169,6.170, 6.173, 6.174, 6.175, 6.176, 6.153, 6.164, 6.166, 6.167 par. 1,
6.168, 6.169, 6.170, 6.173, 6.174, 6.175, 6.176, 6.177, 6.178, 6.179, 6.180,
6.181 par. 3, 6.182, 6.185 par. 1, 6.186, 6.187, 6.193, 6.194, 6.195, 6.196,
6.197, 6.198, 6.199, 6.202, 6.203, 6.204, 6.205, 6.206, 6.207, 6.208, 6.209,
6.211, 6.212, 6.213 of the Lithuanian Commercial Code.
56
Development of a World Contract
Law, supra note 94, at 19; see also Blirgerliches Gesetzbuch BGB Civil
Code Jan. 2, 2002, Bundesgesetzblatt BGBI 43, § 280; see also
Bcrgerliches Gesetzbuch BGB Civil Code Jan. 2, 2002, Bundesgesetzblatt
BGBI 64, § 346
57
Id.
58
Development of a World Contract
Law, supra note 94, at 19; see also Huang Danhan, The UNIDROIT Principles and
their Influence in the Modernisation of Contract Law in the People's Republic
of China, 2003 UNIF. L. REv. 107 (2003); Zhang Yuqing and Huang Danhan, The New
Contract Law in the People's Republic of China and the UNIDROIT Principles of
International Commercial Contracts: A Brief Comparison, 2000 UNIF. L. REv. 429,
430 (2000) hereinafter Yuqing and Danhan . 128.
59
Yuqing and Danhan, supra note 122,
at 430.
60
Chi Manjiao, Application of the
UNIDROIT Principles in China: Successes, Shortcomings, and Implications, 2010
UNIF. L. REv. 5, 14 (2010).
61
Id. at 13.
62
Yuqing and Danhan, supra note 122,
at 431; Swiss Institute of Comparative Law, supra note 24, at 114.
63
Id.
64
Indian Contract Act, 1872.
65
UNIDROIT Principles Article 2.2
66
UNIDROIT, Principles of
International Commercial Contracts, International Institute for Unification of
Private Law (1994), Chapter 2, Page 27.
67
(1919) 2 KB Kings. Bench 571.
68
Id.
69
(1893) 1 QB Queens. Bench 256,
70
Id.
71
Avatar Singh, Law of Contract and
Specific Relief, 39(8th ed. 2002).
72
AIR (1972) MP 131.