"Globalization is unstoppable. Even though it may be only in its early stages, it is already intrinsic to the world economy. We have to live with it, recognize its advantages and learn to manage it.
That imperative applies to governments, who would be unwise to attempt to stem the tide for reasons of political expediency. It also goes for companies of all sizes, who must now compete on global markets and learn to adjust their strategies accordingly, seizing the opportunities that globalization offers."
At a national level, jurists as lawmakers over time magically create their own reality, that is, the world in which they work, and are certified as oracles.
The autonomous contract is a concept based on three ideas, that provide lenses or perspectives with which to view the needs of the international business community as they affect and are affected by a polymorphous set of interrelated issues and areas of law: (i) The “autonomous contract” as an expression of the will that “governs” international commerce . The extensive freedom of contract granted the parties in international commerce, ensures that the contract determines the nature of the business relationship and most matters that govern it, including the “law” selected (subject to the mandatory provisions of applicable governing law), and the means of dispute resolution. In a real sense the contract is at the top of the hierarchy of legal instruments that govern the parties' relationship. This ensures that the selection of “law” and means of dispute resolution is a market driven affair that will be based on their ability to provide the parties with the greatest utility. Contractual autonomy as a function of freedom of choice in the global economy . (ii) The “autonomous contract” as seeking the means to transcend national boundaries . Economic activities have become increasingly global and the “law” that provides for them should do so in the same dimension. The quest is to find or achieve a uniform legal order that is preferably delocalised, transcends state boundaries, provides cross-border transparency and world-wide effect.
The practicability and utility of an “autonomous contract” (e.g. one founded in a-national law) is dependent on its ability to serve the international business community as a suitable risk management tool and to result in improved transaction costs. Much discussion is focused on the underlying supportive structure for contracting and how a predictable and efficient means of contracting world-wide might be achieved. There is a relationship (sometimes co-operative at others competitive) between the efforts of interested international organisations and governments to provide services to the international business community on which they can choose to base the substance of their contracts and the resolution of disputes arising thereunder. Given the scope of the subject matter of the paper, only a broad outline and general framework can be developed. The discussion though occasioned by and made more current by the nature and growth of electronic-commerce, is a broader one that holds true for all contracts that have a transnational aspiration and as such is of general relevance to international commerce. The wider frame is adopted under the assumption that solutions should, as far as possible, be technology neutral. Section 2 of this paper looks at the various means available to the international business community to cope with the multitude of states in which they conduct business. It suggests a correlation between the search to establish reliable internationally uniform business methods and having greater autonomy from state law. The autonomous contract in the second sense, seeking the means through greater autonomy of individual state to reflect a desired borderless transnational environment in contracting. Section 3 looks at the difficulty in achieving predictability in international disputes, which is a requisite for commercial contract planning, and which all legal orders, especially those that are autonomous of state, must satisfactorily cope with if they are to succeed. Section 4 looks at possible alternative ways of improving uniform predictability and/or efficiency of dispute resolution, that would result in greater autonomy or lead to the further transcending of state law.
The business community engaged in international commerce has had to find ways to cope with the high degree of legal uncertainty brought about by the crossing of numerous legal systems whose rules are expressed in a multitude of languages. This section discusses the business community's search to reduce the relevance of borders and attain greater uniformity for their contracts by various means, including basing their contracts on a-national law and reliance upon international commercial arbitration for the resolution of disputes that may arise. Methods employed to reduce the legal relevance of borders include inter alia :
(1.a) Use of standard contracts. (1.b) Reference to uniform principles and rules. (2.a) Choice of law of an acceptable state.
The contract is a formal tool used by the business community to structure their relations, for which business practice and economics suggest the importance of a predictable and efficient underlying legal framework. However, any kind of legal regulation is a potential source of unpredictability. The transnational nature of international business provides an additional dimension to the difficulty of securing these requirements. The predictability of business relations is dependent on such aspects of “law” as the predictable interpretation and construction of legal texts, and the global recognition and enforcement of the dispute resolution judgement or award. Predictability and efficiency, which may be roughly equated to risk management and transaction costs, can be enhanced through the establishment and use of uniform “laws”, rules and principles, insofar as they result in reduced complexity. The “autonomous contract” in the three senses of the concept, if directed towards these ends by the business community suggests various means to secure these collective ends for the international business community. A more autonomous basis for contract is already given support by relevant international institutions (and states competing for international business) that take into account the needs of the business community, signalled by their choices (of law and legal framework).
The paradigmatic concept of law and model of legal order is still that of the sovereign state.
Selection of the law of a municipal system that applies uniform law is one important step that can be taken within the framework of municipal law, to make the contract more autonomous. The comments in this paper will be restricted to uniform substantive law, in the form of conventions that are to be adopted and applied in a uniform manner at an international level.
The CISG as a uniform law example
“Can clear, predictable international law be made from the divergent rules of dozens of domestic legal systems, rules built with local idioms for which there are no equivalent terms in other languages? The answer, unhappily, is no, but that is not the end of the story.”
The greatest success for the unification of substantive commercial contract law to date, has been by UNCITRAL
The development and formulation of uniform law takes time, as does the formulation of uniform principles and rules. Unlike principles and rules, however, for uniform law to come into force and to be applicable, must go through a long process of ratification and accession by states. Even where states implement uniform law they frequently do so with various reservations. Success that is by no means guaranteed, takes time. For every uniform law that is a success, there are more failures. Even where there is widespread use of a uniform law, there are usually as many or more states that are exceptions. The implementation of uniform law is however, not the end of the story, as immediately the question of its uniform application arises. This is a fascinating subject that is of central importance to the development of autonomy, both within and outside the framework of municipal law.
“If UNCITRAL manages to become accepted by the whole world in any domain of the law or a set of rules, one believes that the problem of conflict of laws will be eliminated in this field, but this is not the case. A counter-effect enters into the picture. The uniform law from the very moment of its coming into operation starts to differ from itself. Every judge in every country is a sovereign interpreter of the text, and the judge became a judge by learning the system of law of his own country. And as the speediest bird is unable to fly out of itself, so the judge is unable to forget the law that he has learned. Divergent or contradictory interpretations, like the application of rules of different countries, lead to different judgements”
We shall return to the problem of uniform application, under that heading and in the context of seeking means of achieving solutions to the problem of predictability. It should be noted here however, that uniform law does not cover all aspects of the relationship between the contracting parties, its scope is defined.
We include in this category, rules and principles governing specific aspects of the contractual relationship,
Standard contracts may attempt to be autonomous in themselves, but seldom are, having a limited scope of regulation and depending for their ultimate interpretation and gap filling on the applicable “law”. This type of standard contract is more often than not drafted unilaterally by a single firm that represents a particular contractual interest. These are too diverse for much of a general nature to be extracted for our current purposes, being specific to the business that prepares them and to the type of goods or services for which they provide.
Within the traditional municipal order a limited degree of autonomy is available in contract. Autonomy is here used in the sense of reducing the relevance of specific national laws. This is achieved as discussed through: the selection of the law of a state that applies uniform law; the use of uniform rules and principles; and/or the use of negotiated standard contracts. There are problems however, with state's judiciaries' limited ability to disengage themselves from their traditional legal process, methods of legal reasoning, use of sources, and interpretation of uniform law, principles, rules and contracts. In addition to these there are problems associated with the enforcement of claims in other states world-wide as required for international commerce. These constraints have long represented a hindrance to the business community that has sought and found a preferable solution in international commercial arbitration. This may be further enhanced through the selection of a-national law as the governing law of the contract under arbitration, such as lex mercatoria . This a-national regulatory order is made possible by: (a) States' acceptance of freedom of contract ( odre public or public policy excepted). (b) Sanctity of contract embodied in the principle pacta sunt servanda . (c) Written contractual selection of dispute resolution by international commercial arbitration - ad hoc or institutional, usually under internationally accepted arbitration rules. (d) Enforcement: arbitration where necessary borrowing the state apparatus for law enforcement through the New York Convention on Recognition and Enforcement of Arbitral Awards 1958 . (e) Greater transnational effect is achieved through the exclusion of state law as governing the contract. Usually substituting the choice of general principles of law or lex mercatoria as governing the contract, or calling upon the arbitrators to act as amiable compositeur or ex aequo et bono . For increased predictability preferably through application of the UNIDROIT Principles .
It appears accepted that ICA has become the most prevalent means of dispute resolution in international commerce.
Note: Arbitration under the World Bank supported ICSID Rules
“The lex mercatoria has sufficient intellectual credentials to merit serious study, and yet is not so generally accepted as to escape the sceptical eye.”
“Let me just note that in Europe the lex mercatoria is a fact. Arbitrators apply it and those courts which have faced awards applying it have accepted its application.”
“Arbitrators entrusted with the task of settling a dispute in accordance with the intention of the parties and without recourse to any national legal system usually find themselves in a rather challenging situation. However, it is widely recognised as a matter of fact that arbitrators are not so reluctant to apply a-national and less definite systems of rules agreed upon by the parties as their colleagues from a state judiciary, who are more concerned with legal technicalities than with the desire to find a solution in a way contemplated by the parties at the time of conclusion of the contract.
The concept of lex mercatoria : of an autonomous set of rules and practices accepted by the international business community as regulating their transactions, has been actively promoted by a number of eminent authorities, mainly in continental Europe, and has continued to gain in stature over the years.
Some reservation must be expressed to their unconsidered use based on the uncertainty they represent. Amongst the items of which the lex mercatoria has grown to be comprised of,
“Distilled from a vast literature, these general principles have been enumerated by Lord Justice Mustill as (in abridged form):
(d) In the absence of the above the arbitrators will apply or establish the rule which appears to them to be best suited to the situation. (e) In ICA also relevant is the public policy of the country in which the award is likely to be requested.
“The unification of law has ceased to be the prerogative of State legislators.... The hope of all of us who believe in the necessity of a flexible and pluralistic approach to the international unification of law, is that this equilibrium will be maintained in future.”
“In offering the UNIDROIT Principles to the international legal and business communities, the Governing Council is fully conscious of the fact that the Principles , which do not involve the endorsement of governments, are not a binding instrument and that in consequence their acceptance will depend on their persuasive authority.”
“The objective of the UNIDROIT Principles is to establish a balanced set of rules designated for use throughout the world irrespective of the legal traditions and the economic and political conditions of the countries in which they are to be applied. This goal is reflected both in their formal presentation and in the general policy underlying them.”
The precise contents of “the general principles of law” and of lex mercatoria have always been vague and obscure, and presented the arbitrator who was to apply them with something of a challenge.
The arrival of the UNIDROIT International Contract Principles was particularly timely. It coincided with the successful attempt at reducing trade barriers represented by the World Trade Agreement , and the start of the general use of the Internet,
“It is not up to the Principles to advance themselves as general principles of law or as lex mercatoria . As general principles of law the UNIDROIT text will only be accepted when the legal community and not merely the some twenty drafters of the UNIDROIT text, no matter how skilled and reputed these lawyers may be, has recognised that the UNIDROIT document states principles which underlie most legal systems and are generally accepted. In fact some UNIDROIT rules are certainly too specific to be perceived as such. The UNIDROIT standards will only be part of the lex mercatoria if they are recognised as such by the business community and its arbitrators. Since the UNIDROIT Principles have just been launched, it is too early to assess this possibility.”
Or again that:
“No one doubts of course that the principles are the brainchild of learned lawyers who laboured independently. All the same is it not somewhat pretentious to claim that the principles represent the generally accepted principles of law?” ... “For the time being, the UNIDROIT Principles remain no more than a learned codification.”
And it has been suggested that an indication of the traditional lex mercatoria is only firmly established by these codified principles where the three new systems represented by the CISG the UNIDROIT Principles and EU Principles converge.
There are those within the business community who point out that “any pretension to interfere from the outside, through the imposition of uniform legislation, would be inopportune and in any case doomed to failure.”
The UNIDROIT Principles require study and understanding for their effective use in contracting. (a) The UNIDROIT Principles are broad in scope covering most aspects of contract and as such create a largely autonomous uniform legal environment for contracting. Exceptions are mandatory law, and some validity issues including capacity. These occur in a minority of disputes.
As to the suitability of The UNIDROIT Principles for complex international contracts, there are differing views. As pointed out forcefully by Vivian Gaymer:
“In relation to the complex type of contracts, I have to say that if the parties are content that the contract would be governed by a well-developed existing law which has been found to be satisfactory in relation to similar contracts in the past they would be unlikely even to consider using the Principles . The reasons are obvious. Parties like to know where they stand. They like to have access to an existing body of expert advice. The Principles , for the time being at least, suffer from the disadvantage of novelty. The lawyers seem to be resistant to change.”
Paradoxically, where governments are involved (in complex agreements), they not infrequently find it necessary to resort to an a-national order to govern the contract. Kazuaki Sono before the promulgation of the UNIDROIT Principles writes:
“For complex transactions which were seldom heard of in the past, there is a tendency to have resort to ”the general principle of law“, lex mercatoria , or ”the principle of good faith and fair dealing“ particularly through arbitration clauses. During the Congress, I have been told personally from a reliable source that 5 to 10 per cent of the disputes which are submitted to arbitration now contain such clauses. The person who provided me with this information said ”only 5 to 10 per cent“, but to me it is an extremely significant percentage. Yet, the contents of these principles are still far from certain.”
In such situations selection of the UNIDROIT Principles should provide a welcome increase in clarity.
The virtues of freedom of contract are stressed in this paper in that they allow the international business community to structure their business relationships to suit their needs. The protective principles of good faith and fair dealing are of particular interest as in the UNIDROIT Principles they are mandatory and place an encumbrance on this freedom. Other protective principles such as loyalty also absent from some traditional contract systems are of similar interest. It has been pointed out however, that it is necessary to be mindful of the limitations of the benefits of absolute freedom of contract. The mandatory protective principles may be justified in that they (on the balance) reflect the collective needs of the international business community. It may be further and more positively argued that they are in fact beneficial and facilitate trade. (a) The protective principles help bring about confidence and foster relations between parties. They provide an assurance in the international arena where parties are less likely to know each other and may have more difficulty in finding out about each other. (b) They better reflect the focus of the international business community on a business relationship from which both sides seek to gain. (c) They result in wider acceptability of the principles within both governments and the business community in the pluralistic international community. These protective principles may be regarded as enabling the Principles to better represent the needs of “ the Commonwealth ” (here used to mean the world as a whole). (d) Good faith and fair dealing are fundamental underlying principles of international commercial relations. More generally, freedom of contract benefits from these protective priciples that need mandatory protection from contractual freedom to effectively serve their function. One might suggest that for most types of international contract based on a-national law, this is the minimum price of freedom of contract that should be insisted upon by mandatory international law, as the limitation which hinders the misuse by one party of unlimited contractual freedom. They appear to be an essential basis for acceptability of the autonomous contract (a-national contract, based on agreed rules and principles). As mandatory principles they become the default standard for the conduct of international business and as such may be looked upon as “common property.” Unless mandatory they suffer a fate somewhat analogous to that of “the tragedy of the commons.”
Modern contract “law” models lay greater emphasis on the contract as an expression of co-operation between the parties.
Conversely, it is instructive to question the role in international commerce of the traditional contract represented by English contract reasoning and inherited by the British Commonwealth. Based on freedom of contract, pacta sunt servanda and caveat subscriptor . Although claimed to be neutral in making no judgement as to the contents of a contract, this claim is misleading. It is based on free market arguments that parties best understand their interests, and the contract arrived at will be an optimum compromise between their competing interests. It not being for an outsider to regulate or evaluate what a party of its own free will and volition has gained from electing to contract on those terms. This approach to contract is adversarial, based on the conflicting wills of the parties, achieving a meeting of minds. It imposes no duty of good faith and fair dealing or of loyalty (including the disclosure of material facts) upon the contracting parties to one another, who are to protect their own interests. The traditional model's failings are known in the domestic and international arena, frequently producing contractual relations that take advantage of the weaker, and less informed party.
The area represented by protective provisions generally, placing a limitation on freedom of contract, is a large and complicated one, which beyond these comments is outside the scope of this paper.
Caveat: Contract law is not built on one model, but on several competing ones.
The autonomous contract, in the sense of one based on an a-national, autonomous order, is possible both in form and substance where based on ICA and lex mercatoria , with the mandatory law of states excepted. The mandatory law exception referring principally to the laws of states in which performance is to be made or awards are to be enforced. This arrangement can be provided with greater predictability through application of the UNIDROIT Principles . This model provides the potential to reduce transaction cost through the possibility of adherence to a uniform acceptable standard that can be applied across borders with minimal concern as to the underlying municipal legal structure.
“However, if the UNIDROIT Principles were to be modified, corrected or improved they might also finally be rejected. This is because, even if one believes in the merits of ”soft law“ which is often more effective than written law, it remains that any law must be known and accepted. There must be sufficient time to get used to it. In other words it must be reasonably stable, and not be a 'changing law'”.
The commentaries could be updated with greater frequency (than the black letter text of the UNIDROIT Principles ) in the light of experience. So doing should allow for adjustments in the text that assist in ensuring the more uniform application of the principles. The question however remains as to how such predictability might be improved for an a-national legal order.
However parties contractually structure their relations there is always the question of the interpretation of their contract and any “law” on which it is based whether municipal, uniform law, or rules and principles. The question is how to achieve the uniform application of uniform “law” and legal texts. It is necessary to understand the nature of the problem in order to discuss the viability of and to seek ways of achieving: uniform international contract law; an autonomous contract order; and the autonomous contract (in the third sense used in this paper) as a possible solution. Note that much in this section is an overview related to problems regarding the unification of international law.
"I believe that in many arbitrators, as in many lawyers, there are two conflicting attitudes. One wishes the law to be a perfect and stringent system of rules under which the good lawyer can always find the true and only solution. To apply the law is the same as to apply the theorems of mathematics. This will produce certainty and predictability for the citizen.
The other attitude tells the arbitrator that absolute predictability is not attainable. Each legal system has many gaps and the most provident legislator cannot close them all. Nor can he prevent new gaps from arising when social conditions change. No legal system provides certain solutions to all problems. Even the best lawyer in the most highly-developed country is often in doubt. Besides, predictability is only one of several legal values. Rules which create certainty also tend to bring about rigidity. They do not consider special circumstances and changing conditions. The legal process is not and can never be a mere syllogism. It is above all an effort to reach the most fair and appropriate decision. In this process which is often inventive the arbitrator will weigh the possible solutions against each other and make his choice."
Uniform “law” has the potential to reduce transaction costs and increase world-wide predictability in international commerce. However, the success of an autonomous uniform international regulatory order is tied to its ability to provide for the risk management needs of the business community and has proved to be one of the most challenging, fascinating, and enduring problems. The selection of uniform laws and uniform rules is not enough, as this does not ensure their uniform application, without which the purpose of establishing uniform law is largely defeated. Pragmatically the issue of predictability may be regarded as one of degree. “Uniformity of application” is closely related to the “predictability” of a legal text and although not identical, their use has at times been interchanged in this writing. What degree of uniformity is necessary or acceptable in the ordering of relations, and what trade-offs are there in achieving or attaining this predictability? There is clearly a tension between certainty and flexibility - “rules which create certainty also tend to bring about rigidity.”
Some comments may be made on the decision-making process and discretion in relation to rules and principles. An attempt to base a legal system on rules alone would create gaps. Discretion is required, which is applied through principles of law, which are more holistic constraining legal standards. Ronald Dworkin
Complete predictability in a legal or regulatory regime is not attainable - this is a charge that can be levelled against all legal systems including those of sovereign states. At a national level the nature of legal reasoning and application of particular rules of law and principles is understood by its practitioners, and certified by supreme authority. Consider the comment of John Honnold:
“Perfect clarity and predictability in law, as most of you know all too well, is not for this world ... Nevertheless, within a single domestic system it usually has been possible to keep uncertainty within tolerable limits so that nearly everyone prefers law to anarchy.”
This issue is important enough to merit special consideration. (i) Ignoring evidentiary problems, total predictability is unattainable even at a domestic level where we are confined to the workings of legal reasoning, without admitting the possibility of extraneous influences. The nature of the decision-making process, in this case, in the application of rules and principles with various sources of law for appropriate guidance
Absolute predictability does not exist at a purely domestic level. These problems are compounded in the context of the application of a uniform law by different judiciaries.
“Even within a common set of rules and concepts, the habits of mind of lawyers in different legal systems, no doubt reinforced by rules of civil procedure, are too deeply ingrained to achieve practical uniformity in approach ... the instinct of civil lawyers is to turn to rules contained in the code, whereas English lawyers turn principally to the terms of the contract. The difference between legal systems about what constitutes a good argument, what has intellectual strength and integrity, will prove hard to abolish...”
Adjudicators (especially within national courts) are faced with formidable compounded complexity where attempting to apply a uniform law in a uniform manner, that will frequently prove difficult to satisfactorily overcome, even where assuming that there is no problem of access to information. These are a consequence of their different legal traditions, which have different technical rules of procedure, rely on different sources for authority and respect different reasoning as legally sound. (There are also additional extraneous influences resulting from their different cultures and ideologies).
Where dealing with uniform law, the way of discovering the rights and duties of contracting parties is by its interpretation, and that of the parties' contract. Herbert Briggs in The Law of Nations; Cases, Documents and Notes
“Practically all treatises on international law have sections on the so-called 'canons of interpretation' of treaties. Analysis reveals that the canons consist largely of the application of the principles of logic, equity, and common sense to the text of a treaty in an endeavour to discover its 'clear' or 'natural' meaning.”
The UN Convention on the Law of Treaties 1969 (in force 1980) is considered to be a codification of existing public international law with regard to the interpretation of treaties.
The relevant articles on interpretation are Article 31 and 32. Article 31 instructs that a “treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” Article 32 instructing that reference be made to its travaux préparatoires and circumstances of its conclusion to confirm the meaning resulting through application of Article 31, and resolve any ambiguity, or that which is manifestly absurd or unreasonable. Article 31(2) takes into account agreements made by the parties as to its interpretation on the conclusion of the treaty. Article 31(3)(a) and (b) instruct the taking into account of any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions, including that which is evidenced by a practice in its application by the parties; Article 31(3)(c) makes any relevant rules of international law applicable in the relations between the parties; Article 31(4) states that the application of a special meaning shall be given to a term if it is established that the parties so intended.
“The more successful the activities of UNCITRAL ,
Modern uniform laws and principles increasingly contain their own interpretation clauses, which increasingly provide for the taking into account of their international character, and the need to promote uniformity in their application.
(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.
(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.
The UNIDROIT Principles provision on the “interpretation and supplementation of the Principles” - Article 1.6:
(1) In the interpretation of these Principles, regard is to be had to their international character and to their purposes including the need to promote uniformity in their application.
(2) Issues within the scope of these Principles but not expressly settled by them are as far as possible to be settled in accordance with their underlying general principles.
Most scholarly writing to date has centred on the CISG , though much of the discussion there holds true generally for all uniform law. It is instructive to read Honnold's text Uniform Words and Uniform Application ,
Among the solutions levelled at the problem is the greater dissemination of information, including making use of information technology to ensure that writings are commonly known world-wide. Efforts have been started by UNCITRAL , UNIDROIT and some academic institutions.
Whoever is able to provide the business community with the solutions it is seeking, in an acceptable way, has a reasonable chance of being subscribed to. Keep in mind: (i) the business community's interest in greater efficiency and predictability in the uniform and if possible transnational application of “law” and uniform texts; (ii) the business community's lack of focus on national law as a goal per se , increased autonomy from state law being acceptable and in fact desirable if successfully able to further the mentioned goals, and; (iii) the business community's ability through freedom of contract to take advantage of what is made available to them.
However a question does arise as to whether the ability to create alternative solutions and even an independent lex is or should be without limits. The present author is of the opinion that the duties of good faith and fair dealing and loyalty (or an acceptable equivalent) should be a necessary part of any attempt at the self-legislation or institutional legislation of any contract regime that is based on “rules and principles” (rather than a national legal order). If absent a requirement for them should be imposed by mandatory international law. As discussed in section 2.3.4 such protective provisions are to be found within the UNIDROIT and EU Contract Principles on good faith and fair dealing, and loyalty.
A radical approach has been proposed,
“[O]nly a fundamental methodological change would have a chance to reduce the gap between the slow pace of international legislation and the requirements of the modern world, especially in the field of international trade. He suggested that States should agree, by way of a general Convention, to accept rules established by the Commission, or under its auspices as a body of common law ( droit commune ).”
This suggestion was advanced on more than one occasion at early sessions of UNCITRAL where it drew respectful attention but little enthusiastic support.
“As Professor Don King also indicated, a need may soon be felt for the establishment of a global court of commerce initially for those cases where resort has been made in arbitration to a national lex mercatoria or to general principles of contract law. At this Congress, we already heard a suggestion of Professor Sohn for the establishment of an international tribunal to interpret uniform texts.”
To date the political will backed by the financing for either such organ has not been forthcoming. In 1992 the UNCITRAL Secretariat's conclusion was that “probably the time still has not yet come”.
A less radical possibility is that there might be some body charged with (or that charges itself with) the task of reviewing important developments in relation to uniform texts over the course of time, and giving their authoritative, or persuasive opinion on the issue as to the right course to be taken in future. This might be an international body of scholars formed by the institution concerned, or in some other manner acceptable to legal counsel of the international business community, that reviews the decisions and writings made over the year and makes recommendations as to the future course that should be taken by others in the interpretation of the text. This could alternatively be pursued as an international interdisciplinary research effort (involving legal academics and practitioners, economists, business schools, and representatives of the business community) that is co-ordinated by a central institution.
If pursued through the original formulating agency, this could be done as a periodic update to a relevant commentary such as that of the UNIDROIT Principles , which could be updated in light of the experience that has been gained from the application of the text. Again this would be able to take advantage of the opportunities offered by information technology. Alternatively an independent authoritative guide on uniform application could be published annually (as a complete text). However organised, and whether by integral commentary update, or independent guide, provided the publication is reputable and acceptable to the business community it has a number of attractive features. The parties in their contract could specifically refer to the commentary or guide, together with the black letter text, as the primary source of regulation and means of interpretation of the uniform “law” in dispute resolution.
This suggests the possibility of another approach to the problem of unpredictability of uniform application. Given the mentioned problems, serious consideration should be given to the fact that improved predictability and efficiency may be better achieved by limiting of sources to be applied for the purpose of interpretation. What might such an alternative solution be? In attempting to achieve the uniform transnational application of a uniform text it is most efficient to look for answers as far as possible within the text itself, and if there is one, in the commentary or guide. An argument may be made for leaving the rest largely to the discretion of arbitrators. Part of the appeal of the UNIDROIT Principles is that they may be regarded (at the parties' election) as largely self-contained and that they allow for the arrival at efficient reasonable resolutions of disputes. The parties may wish to rely on the substantive text and accompanying commentary or guide to the greatest possible extent, and to restrict external sources for their interpretation in the interests of efficiency - achieving this “at the stroke of a pen”. This to the common law lawyer is unfamiliar territory.
Robert Hillman writing on Article 7 of the CISG (contemporaneously with the writing and presentation of this paper) makes the following observations, that are of general relevance to harmonisation efforts, and with which the present author is in full agreement as suggesting the sensible approach and way forward:
“Professor Honnold suggests that decisions construing the Convention and secondary analysis will also clarify the significance of focusing on the ”international character“ of the Convention. In fact, most authorities have called for the publication of cases construing the Convention to increase the potential for its uniform application. The problem with this approach is that a high reliance on cases may create the impression that they are the primary source of international sales law and that the Convention's principles are inadequate. Such an environment may encourage tribunals not only to take their eyes off the principles but to engage in distinguishing, overruling, and even manipulating precedent. Lawyers from common-law states may feel comfortable with these activities, but they do not offer much promise if the goal is to achieve uniformity and certainty in the international sales law. Perhaps most worrisome, de-emphasizing principles may encourage tribunals facilely to turn to domestic cases, expressly or implicitly, when interpreting and gap-filling under Article 7. Analysts should therefore urge tribunals to try to find answers within the four corners of the Convention and to look to cases only in the unusual case where the Convention does not supply adequate guidance.”
In addition to original texts, international supra-national bodies or acceptable third parties might produce works on interpretation which, if not overly voluminous, and if they become generally known and recognised, could provide a particularly efficient way of reducing transaction costs and achieving sufficient predictability. Relying upon the reasonable resolution of the dispute by an arbitrator directed to use these specific sources as authority for reaching the decision.
There can be no doubt that the information potential of information technology will play a vital role in this process. As a tool what is most valuable is its potential to make instantly available large volumes of information if required (from anywhere on the globe). At the most basic level tremendous potential is provided for comparative study of developments around the world with regard to uniform law texts - academic writings, court decisions. However, its most exciting potential is realised when designed for transnational harmonisation. There is every possibility to adopt the approaches discussed in section 4.1-4.3 combined with an educational aspect (section 4.6). One possibility is the development of specialist sites dedicated to particular uniform law texts, that attempt to catalogue and manage information regarding international developments, and in so doing implicitly or explicitly recommend and provide a guiding hand as to how it should be interpreted and applied. Such “databases” dedicated to the task of international harmonisation would serve more than “data”. Such use of information technology appears over time to offer the best chance of altering the orientation and focus of the world's legal communities in the way necessary to achieve the internationally uniform application of uniform texts and more generally to achieve greater harmonisation of international trade law.
The electronic environment provides possibilities for designing standard contracts that are virtually self contained and self-governing. The contract together with an entire Lex can easily be stored on electronic media - illustrated by the possibility of storing relevant portions of such databases as Lexis , Westlaw , or Lovdata on “disk”. The parties may confine themselves to their electronic contract, which contains or incorporates all sources of regulation and their interpretation in a convenient one-stop location, including inter alia : all relevant conventions, principles, rules and standard terms on which it is based, together with relevant commentaries and contractually authorised sources of authority (copyright problems apart). Having relevant material easily available from a single source is of some interest, however, the idea in itself is only of marginally greater interest than what is made possible by the use of one of the large commercial law databases.
In the electronic contract further steps could be taken in the design of the contract so as to limit the necessity to look elsewhere. Several issues that might not usually be agreed in advance could be covered, including procedural ones, such as the manner and amount of discovery in the event of a dispute. In creating an environment for the parties, it could also be used as a means of broaching some differences between civil law and common law approaches. There are numerous other possibilities, the contract could for example become part of a standard software utility program (being incorporated into a standard model regulatory order, based for example on the structure outlined within this text). Such a contract, even if agreed at a specific point in time, is likely to be more dynamic. It could guide the parties during contractual negotiations as to some of the more important factors to consider. On having entered a contract it could assist the parties in determining the nature and timing of their relative obligations. For longer term and more complex agreements, part of the contract directed towards the parties goals could be designed to have interactive logistical functions. It could make use of live data from specified sources - that is continually updated. “appendices” to the electronic contract could record submitted logs of performances of the parties. The parties may be guided to use electronic communication for third party conciliation and mediation, before the more serious step of adversarial dispute resolution through ICA.
Beyond this the imagination is the only limitation as to what might technically be done. Drawing back to the more mundane, but essential in today's world, the standard electronic contract could have country specific profiles that might include such details as the status of electronic documents and signatures, and relevant country specific details and peculiarities.
A standard electronic “autonomous contract” could provide greater control, and further simplify the parties' contractual environment. Given that this would be the result of the parties' contractual freedom there is no need to suggest that this would be the only or best solution, only that it should be workable, and should have potential if pursued.
Note on the validity of electronic documents and signatures
“Contract law is one of Rome's most important contributions to legal history. Yet, Watson (The Evolution of Law) writes, it is prima facie astonishing that the Romans never developed a written contract that would take its place by the side of stipulatio as a second contract form. Stipulation required the presence of both parties and was oral. A written contract could have been negotiated at a distance and would have been easier to prove. The Romans knew that written contracts had been standard and useful in classical Athens. But the idea of stipulatio as the contract form had become so ingrained in the Roman legal mind that the option of using an alternative form simply was not adopted.”
For most purposes but not all and in most jurisdictions though not all, contracts may be entered into without regard as to form: orally, in writing, or by conduct. It being possible, where necessary, to adduce evidence as to the existence and contents of an agreement. In some cases however, an agreement must be in writing, as for example in the case of an arbitration agreement for its recognition and enforcement under the New York Convention .
“rules should be technology-neutral (i.e., the rules should neither require nor assume a particular technology) and forward looking (i.e., the rules should not hinder the use or development of technologies in the future)”
This in a sense is a rejoinder to the Roman favouring of oral over written contracts, which today sounds backward, but in fact is no less so than the blanket non-acceptance of electronic writing and signatures regardless of suitable authentication and verification possibilities. Beyond these observations on the need for electronic documents to be held valid for electronic commerce, the discussion in this paper is generic to international commerce. Under the current diverse national orders, however, it is necessary to know the requirements of individual state laws to ensure the validity of electronic contracts where a contract is required to be in writing, and if in doubt to resort to paper.
It may be observed that the business counterparts are least cognisant of location in transactions that can be carried out entirely within the electronic world, such as trade in intangibles, money transfers, services, many areas on intellectual property; whereas trade in tangibles, including goods and most types of investment include a physical (off-line) component.
“... one should create awareness about the fact that an international contract or transaction is not naturally rooted in one particular domestic law, and that its international specifics are best catered for in a uniform law.”
Within the framework described in this section, education and sensitivity to the needs of the business community by the legal profession and academia would appear to be a necessary part of any solution. However, while the business community seeks and requires greater uniformity in their business relations, there has paradoxically, at a national level, been a trend towards a nationalisation of contract law, and a regionalisation of business practice.
“22. The similarity of the law of international trade transcends the division of the world between countries of free enterprise and countries of centrally planned economy, and between the legal families of the civil law of Roman inspiration and the common law of English tradition. As a Polish scholar observed, ”the law of external trade of the countries of planned economy does not differ in its fundamental principles from the law of external trade of other countries, such as e.g., Austria or Switzerland. Consequently, international trade law specialists of all countries have found without difficulty that they speak a 'common language'
23. The reason for this universal similarity of the law of international trade is that this branch of law is based on three fundamental propositions: first, that the parties are free, subject to limitations imposed by the national laws, to contract on whatever terms they are able to agree (principle of the autonomy of the parties' will); secondly, that once the parties have entered into a contract, that contract must be faithfully fulfilled ( pacta sunt servanda ) and only in very exceptional circumstances does the law excuse a party from performing his obligations, viz., if force majeure or frustration can be established; and, thirdly that arbitration is widely used in international trade for the settlement of disputes, and the awards of arbitration tribunals command far-reaching international recognition and are often capable of enforcement abroad."
As suggested in the passage quoted earlier by Lalive and Goode and underlined by the discussion throughout this paper, an increased attention to international commercial law and arbitration is merited in the law student's curriculum. Efforts by a number of institutions aimed at enriching student awareness, education and experience in this respect, through the arrangement of such international inter-collegiate activities as arbitration moots and essay competitions are commendable. Equally so are various international commercial law oriented Internet efforts that are of value to researchers and practitioners alike.
This paper has discussed a number of interrelationships, themes, problems and possible solutions that arise from its premises, perspective, and framework, as set out in summary form in the introduction. It highlights the need for lawyers world-wide to foster a genuine international approach to their thinking, method, practice and solutions with regard to international commercial contracting and law. The conduct of business world-wide is increasingly transnational. It demands that the legal community keep abreast of and cater for these needs. Efforts to find solutions to should similarly focus on a transnational and harmonising direction. The discussion in this paper concentrates on various aspects that are raised in consequence of this with regard to: the legal framework available for the international business community; problems related to further transnationalisation; and some possible solutions. It is not, however, a mere matter of choice for the legal community to decide whether or not to take an interest in this increasingly evident phenomena. The international business community has the power to find ways to meet their needs through the expression of their choice in the exercise of their contractual freedom. In using this power they exert influence on the conduct of the legal community in a manner which ensures that these needs are eventually satisfied. The business community subscribes to the legal framework and services provided by those sensitive to their needs. Those less sensitive are marginalised and eventually persuaded of the need to adapt. The results that would be achieved by absolute freedom of contract, however, are not necessarily the most ideal for the business community as a whole. As such it is necessary to be mindful of the limitations of contractual freedom and legislators should give recognition to this need as well.
* Lectures on private law aspects of international trade at the Faculty of Law, University of Tromsø, Norway, and created ITL - International Trade Law Monitor http://itl.irv.uit.no/trade_law/ or http://tradelaw.net/ off which a large number of the (black letter) legal texts referred to in this paper are available.
Thanks are due to Albert Kritzer, the Executive Secretary, Institute of International Commercial Law, Pace University School of Law and Petri Keskitalo, Research Fellow, Faculty of Law, University of Tromsø, for reading and commenting on this text in its preparatory stages. The views expressed here and any remaining errors are my sole responsibility.
URLs are occasionally provided as references. These are subject to change without notice.
1. Maria Livanos Cattaui, The global economy - an opportunity to be seized in Business World the Electronic magazine of the International Chamber of Commerce (Paris, July 1997) at http://www.iccwbo.org/html/globalec.htm
2. Tangential support for the simile from Hans Petter Graver, “Den juristskapte virkelightet og juristrollen” in Jussens Venner (1986) p. 314-324.
3. René David suggests the primary constraints on development are “conservatism, routine, prejudice and inertia” cited by the UNCITRAL Secretariat, The Future Role of UNCITRAL - Promoting Wider Awareness and Acceptance of Uniform Texts , in Uniform Commercial Law in the Twenty First Century - Proceedings of the Congress of the United Nations Commission on International Trade Law (New York, 1992) pp. 249-259 on p. 252, referred to later as 25th UNCITRAL Congress . See also René David comments in International Encyclopedia of Comparative Law , Vol. II, Chap. 5 (Tübingen, 1971) pp. 24 and 25.
4. Ronald Coase, Industrial Organization: A Proposal for Research (1972) in The Firm, The Market and the Law (Chicago, London, 1988) pp. 57-74, comp. Coase's Nobel Lecture The Institutional Structure of Production , AER 82 (1992) pp. 713-719. For a web site inspired by the work of Coase see The Center for Research on Contracts and the Structure of Enterprise at the Katz School, University of Pittsburgh http://crcse.business.pitt.edu/ also the New Institutional Economics Network http://sykuta.business.pitt.edu/nie/
5. For an introduction to the different approaches to law and economics see Nicholas Mercuro and Steven Medema, Schools of Thought in Law and Economics: A Kuhnian Competition in Robin Malloy and Christopher Brown (ed.) Law and Economics New and Critical Perspectives (New York, 1995) pp. 65-123.
6. See Michael Trebilcock, The Limits of Freedom of Contract (Harvard, 1993).
7. Discussed very briefly in section 2.3.4 of this paper in relation to protective principles.
8. Which is pursued by Wisconsin University and Michigan State University. Mercuro and Medema (1995) pp. 65-123 at pp. 95-108.
9. The concept of the autonomous contract becomes attractive when looked upon as the collective embodiment of elusive characteristics that the business community seeks upon which to base their transactions, and includes: harmonisation, transnationalism and a-nationalism for our purposes insofar as it furthers the other two objectives.
10. An a-national uniform transnational legal framework for contracts that is independent of, but supported by governments.
11. Though parties can “legislate” an extensively autonomous contact, they cannot “legislate” a contract that is entirely. Areas such as “validity” are defined differently within different jurisdictions, and international contracts can be subject to laws on currency control; export and import control; hazardous substances; antitrust | competition rules; anti-boycott; anti-bribery, etc. Similarly, mandatory rules on such matters as good faith, fair dealing, unconscionability, fraud, duress, extortion, interest, penalty clauses, etc. In specialised fields, such as consumer contracts, contracts with local sales representatives and specialised industries, such as banking and insurance, one also encounters national laws that parties cannot modify by their contract “legislation”. See also article by Jan Ramberg Autonomy of Contract and Non-Mandatory Law in Scandinavian Studies in Law (1993) pp. 141-149.
12. Criteria for selection might include: familiarity; application of uniform law; neutrality; reputation; language; and convenience.
13. Similar criteria to choice of law in addition to which include: appropriate enforcement treaties; location.
14. E.g. Thomas Wilhelmsson, Legal Integration as Disintegration of National Law in Legal Polycentricity - Consequences of Pluralism in Law (1995) pp. 127-147 on p. 128.
15. E.g. arbitration law (different arbitration statutes), electronic commerce (the validity of electronic documents and signatures), or sale of goods law (England and Japan do not apply the CISG ) for example. Also see comment by Charles Brower, in the arbitration panel, Are International Institutions Doing Their Job? - The American Society of International Law, Proceedings of the 90th Annual Meeting, 1996 (Washington D.C. 1996) p. 249.
16. E.g. EC, NAFTA, ASEAN .
17. De jure if not de facto .
18. See William W. Park, International forum selection (Hague, 1995).
19. Regional efforts with their frequently associated political objectives are outside the scope of this paper.
20. See Roy Goode, Reflections on the Harmonisation of Commercial Law in Uniform Law Review (1991) pp. 54-74 for a more detailed account of the alternatives and related considerations.
21. E.g. UN Model Law on Arbitration 1985 ; UN Model Law on Electronic Commerce 1996 .
22. The International Institute for the Unification of Private Law, Rome, http://www.agora.stm.it/unidroit/ also http://itl.irv.uit.no/trade_law/papers/unidroit.html
23. UNIDROIT Principles of International Commercial Contracts (Rome, 1994) text of the principles and accompanying commentary; Joachim Bonell, An international restatement of contract law: the UNIDROIT principles of international commercial contracts (New York, 1994); and UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria? (Paris, 1995) referred to later as UNIDROIT Principles: A New Lex Mercatoria? The black letter text of the Principles are on the Internet at http://www.agora.stm.it/unidroit/english/principles/pr-main.htms and http://itl.irv.uit.no/trade_law/doc/Unidroit.Contract.Principles.1994.html
24. John Honnold, Goals of unification - Process and value of the unification of commercial law: lessons for the future drawn from the past 25 years (1992) in 25th UNCITRAL Congress , pp. 11-13, p. 11.
25. United Nations Commission on International Trade Law, Vienna, http://www.un.or.at/uncitral also http://itl.irv.uit.no/trade_law/papers/UNCITRAL.html
26. United Nations Convention On Contracts For The International Sale Of Goods (1980) . See Honnold, Uniform Law for International Sales, Under the 1980 United Nations Convention (Philadelphia, 1991); Fritz Enderlein and Dietrich Maskow, International Sales Law, United Nations Convention on Contracts for the International Sale of Good... (1992); Kritzer, International Contract Manual: Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods (1994) and the CISG W3 Database , Institute of International Commercial Law, Pace University School of Law http://www.cisg.law.pace.edu/ For some general links http://itl.irv.uit.no/trade_law/nav/sales.html
27. Ernst Rabel, Das Recht des Warenkaufs Bd. I&II (Berlin, 1936-1958). Two volume study on sales law.
28. Cornell Project on Formation of Contracts 1968 - Rudolf Schlesinger, Formation of Contracts. A study of the Common Core of Legal Systems , 2 vols. (New York, London 1968). Arthur von Mehren (ed.), International Encyclopedia of Comparative Law - Konrad Zweigert, including an agenda for national reports and general reports on various issues of contract law from formation to termination. For more information see Erich Schanze, New Directions in Business Research in Børge Dahl & Ruth Nielsen (ed.), New Directions in Contract Research (Copenhagen, 1996) pp. 61-90, on p. 61.
29. Uniform Law on the Formation of Contracts for the International Sale of Goods ( ULF ) and the Convention relating to a Uniform Law on the International Sale of Goods ( ULIS ) The Hague, 1964.
30. László Réczei, Process and value of the unification of commercial law: lessons for the future drawn from the past 25 years (1992) in 25th UNCITRAL Congress , pp. 5-7, on p. 6.
31. The CISG for example covers international sale of goods of specific types not those listed under Article 2; and specifically excludes its application to factors that vitiate a contract and the passing of property under Article 4.
32. E.g. ICC's Incoterms (1990) and contract clauses on Hardship and Force Majeure , and recently completed model for various CISG transactions.
33. Such as the European Council for Europe, General Conditions for the Supply of Plant and Machinery for Export (Form No. 574) (UN - ECE, 1955); The International Federation of (independent) Consulting Engineers, FIDIC Red Book on Construction (1996); Works of the European trade association Orgalime .
34. Such as the Grain and Feed Trade Association - GAFTA
35. Honnold (1992) on p. 12.
36. Honnold id. p. 13.
37. CISG Article 78 - Interest; UNIDROIT Principles , Article 7.4.9 - “interest for failure to pay money,” and Article 7.4.10 - “interest on damages.”
38. See footnote 23.
39. The Principles of European Contract Law 1998 (publication expected in 1998). Previews of the final text of the Principles of European Contract Law are available on the Net at http://www.ufsia.ac.be/~estorme/PECL.html and http://itl.irv.uit.no/trade_law/doc/EU.Contract.Principles.1997.preview.html Also the earlier edition of the principles and accompanying commentary is published: Ole Lando and Hugh Beale (ed.) Principles of European Contract Law, Part I: Performance, Non-performance and Remedies (1995).
40. Alexander Komarov Remarks on the Applications of the UNIDROIT Principles of International Commercial Contracts in International Commercial Arbitration (1995) in UNIDROIT Principles: A New Lex Mercatoria? pp. 157-166 on p. 157; Stewart Hancock A Uniform Commercial Code for International Sales? We Have it Now in New York State Bar Journal (January, 1995) quoting oral statement by Werner Melis to the effect that practically all international commercial disputes are settled by arbitration and not before state courts. Also see comments by Yasuhei Taniguchi, The Changing Attitude to International Commercial Dispute Settlement in Asia in Arbitration and Dispute Resolution Law Journal (London, 1997) pp. 67-77 at pp. 72-73.
41. Dispute resolution is a service industry - with many competing arbitration entities, both institutional and freelance, it is sensitive to its market. An arbitration tribunal's mandate is determined by the “will” of the contracting parties, this extends to the methods and “law” employed by it in dispute resolution. Competition exists also on a national level as regards national arbitration laws to attract ICA, see Park (Hague, 1995).
42. Attained through state support of the New York Convention 1958 (108 states contracting states) said to be honoured/ effective in 98 per cent of cases, see Albert Jan Van Den Berg, Some practical questions concerning the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1992) in 25th UNCITRAL Congress pp. 212-220 at p. 213. Also through the subsequent UN Model Law on Arbitration 1985 . In the important but less generic area of investment disputes were a contracting state is a party to the contract, the ICSID Arbitration Rules have even wider and further reaching effect.
43. Such as UNCITRAL .
44. Such as the ICC's International Court of Arbitration ; LCIA - London Court of International Arbitration ; AAA - American Arbitration Association .
45. For a brief overview see Sir Michael Kerr, Concord and Conflict in International Arbitration , in Arbitration International (London, LCIA, 1997) Vol. 13 pp. 121-143.
46. See Allan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration (London, 1991) pp. 47-49; and Esa Paasivirta, Participation of States in International Contracts (Helsinki, 1990).
47. The Rt. Hon. Lord Justice Mustill, The New Lex Mercatoria: The First Twenty-five Years in Maarten Bos and Ian Brownlie, Liber Amicorum for the Rt. Hon. Lord Wilberforce, Clarendon Press (Oxford, 1987) pp.149-183.
48. See Ole Lando, The Law Applicable to the Merits of the Dispute , in Julian Lew (ed.) Contemporary Problems in International Arbitration (1987) pp. 101-112 on p. 104.
49. W. Laurence Craig, William W. Park, Jan Paulsson, International Chamber of Commerce Arbitration (New York, looseleaf updated, 2nd ed.) p. 640.
50. Lando, The lex mercatoria in International Commercial Arbitration , 34 ICLQ (1985) p. 753. as cited by Komarov (1995) pp. 157-166 on p. 161.
51. Discussions and examples of lex mercatoria are to be found in: Berthold Goldman, Frontières du droit et lex mercatoria , Archives de philosophie du droit (Paris 1964); La lex mercatoria dans les contrats et l'arbitrage internationaux: réalité et perspectives , 106 Culnet Journal du droit international (1979) p. 475; Etudes offèrtes à Berthold Goldman (Paris 1982) contributions by Battifol, Kahn, von Mehren, Rigaux, Weil; Cremades and Pehn, The New Lex Mercatoria and the Harmonisation of the Laws of International Commercial Transactions 3 Boston Univ Intl LJ 317 (1984); The applicable Law: General Principles of Law - the Lex Mercatoria in J. Lew (ed.), Contemporary Problems in International Arbitration (1986) p. 113; Lex Mercatoria in Forum Internationale, No.3 (Nov. 1983); Pierre Lalive of Switzerland, Transnational (or Truly International) Public Policy and International Arbitration ; Mustill, The New Lex Mercatoria: The First Twenty-five Years , (Oxford, 1987) pp.149-183; E. Gaillard (ed.), Transnational Rules in International Commercial Arbitration (Paris, 1993); Lando, Lex mercatoria 1985-1996 in Festskrift till Stig Strömholm , Vol. II p. 567-584 (Götenborg, 1997). Also Clive Schmitthoff, Nature and Evolution of the Transnational Law of Commercial Transactions in the Transnational law of International Commercial Transactions in Studies in Transnational Economic Law, Vol. 2 (1982) pp. 23-24. See also the UNIDROIT Principles of International Commercial Contracts 1994 and the Principles Of European Contract Law 1998. .
52. See Himlar Raeschke-Kessler, Should an Arbitrator in an International Arbitration Procedure apply the UNIDROIT Principles? (1995) in UNIDROIT Principles: A New Lex Mercatoria? , pp. 167-177 on p. 169 “It is no secret that the prevailing opinion among jurists in some countries, like mine, is plainly adverse towards an uncodified lex mercatoria as an independent body of transnational law” and discussion by Ulrich Drobnig, The Use of the UNIDROIT Principles by National and Supranational Courts (1995) in UNIDROIT Principles: A New Lex Mercatoria? , pp. 223-229 on p. 226-227.
53. The Inter American Convention on the Law Applicable to International Contracts 1994 invites state courts to apply lex mercatoria , Article 10. This is done in addition to the application of state law. In the absence of its selection by the parties the state with the closest ties, Article 9(1). Significantly, Article 9(2) provides that the court also take into account the general principles of international commercial law recognised by international organisations. See Lando (1997) pp. 567-584.
54. Kazuaki Sono, The Changing Role of UNCITRAL within The Future Role of UNCITRAL (1992) in 25th UNCITRAL Congress , pp. 249-252, on p. 250. Statement made prior to the UNIDROIT Principles , a significant figure as pinning down the exact content and effect of use of lex mercatoria is far from certain.
55. Lando (1997) p. 575. See also UNIDROIT Principles , Preamble 4 a. Also Arthur Hartkamp, The Use of UNIDROIT Principles of International Commercial Contracts by National and Supranational Courts (1995) in UNIDROIT Principles: A New Lex Mercatoria? , pp. 253-260 on p. 255, notes that “there is a growing tendency to permit them to choose 'rules of law' other than national laws on which the arbitrators may base their decisions”.
56. Innovative and new are the (“Lando” and “Bonell”) codifications of contract principles “lex mercatoria” discussed in the following section. Though these may be regarded as being inspired by the US Restatement of Contract Law .
57. As indicated e.g. by the European Arbitration Convention 1961 , UNCITRAL Arbitration Rules 1975 , UNCITRAL Model Law 1985 .
58. Komarov (1995) on p. 163; Hans Van Houtte, The UNIDROIT Principles of International Commercial Contracts and International Commercial Arbitration: Their Reciprocal Relevance (A:1995) in UNIDROIT Principles: A New Lex Mercatoria? , pp. 181-195 on p. 183.
59. There is no dissent on this from the correspondents of various nationalities in UNIDROIT Principles: A New Lex Mercatoria? E.g. Michael Furmston in The UNIDROIT Principles in International Commercial Arbitration (1995) in UNIDROIT Principles: A New Lex Mercatoria? , pp. 199-208 on p. 202; Raeschke-Kessler (1995) p. 170. See also UNIDROIT Principles , Preamble 4 a. See also Van Houtte (A:1995) p. 183. Apart from the UNCITRAL Model Law on International Commercial Arbitration (Article 28) specific provision permitting the selection of “rules of law” (as opposed merely to “the law”) is provided in the new Arbitration Rules of both the ICC (Article 17) and LCIA (Article 22(2)), both effective from 1 January 1998.
60. See comment by Van Houtte, International Trade Law (London, 1995) p. 28-29 and p. 399 suggests that lex mercatoria is too vague and imprecise to be “self-sufficient”. See the next section of this paper on “general contract principles as lex mercatoria .”
61. Van Houtte (London, 1995) p. 28. Given the uncertainty as to its precise scope and application he also suggests that it is safer to apply a given system of state law, Van Houtte (London, 1995) p. 412 and p. 399.
62. Mustill (1987) pp.149-183 at pp.152-153.
63. As applied in Deutsche Schachtbau-und Tiefbohrgesellschaft v. Ras Al Khaimah National Oil Co. [1987] 2 All ER 769. See comment by Komarov (1995) on p. 162.
64. See for example Lando (1997) pp. 567-584.
65. Trade usages are actual practices of the relevant business community, the existence of which must be established and if necessary proven, e.g. by expert witnesses. The trade usage is not a source of law.
66. Mustill (1987) pp.149-183 at pp.174-177.
67. As presented by Jarrod Wiener, The 'Transnational' Political Economy: A Framework for Analysis (1995) at http://itl.irv.uit.no/trade_law/papers/The.Transnational.Political.Economy.a.Framework.for.Analysis.Jarrod.Wiener.UKC.html For a listing of general principles to be found within the CISG , see Ulrich Magnus, Die Allgemeinen Grndsätze im UN-Kaufrecht [The General Principles of the CISG- in German] , Rabels Zeitschrift für ausländisches und internationales Privatrecht (1995) 469-494. For an english translation of this text, see http://www.cisg.law.pace.edu/cisg/biblio/magnus.html at the CISG W3 Database , Institute of International Commercial Law, Pace University School of Law.
68. Mustill (1987) pp.149-183 at p. 173.
69. Bonell, Various Techniques of Unification - Non-legislative means of harmonisation (1992) in 25th UNCITRAL Congress , pp. 33-40 on p. 40.
70. Introduction of the UNIDROIT Principles of International Commercial Contracts (Rome, 1994) p. ix.
71. Id. p. viii.
72. As pointed out, their general nature, and the wide latitude granted arbitrators to determine the case, has led to some reservation as to the general suitability of their use, see Van Houtte, id. p. 412 and p. 399.
73. Whether so instructed specifically by the parties, or referred to as suggested by the Preamble of the UNIDROIT Principles 1994 . Comp. Article 1.101 - Application of the Principles of the European Principles, European Principles 1998 .
74. The most constraining suggestion being that it is only when the UNIDROIT Principles 1994 and the EU Principles 1998 converge, together with the CISG that there is a clear indication that they represent the Lex Mercatoria , see Raeschke-Kessler (1995) on p. 174.
75. Bonell, The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law: Similar Rules for the Same Purpose? in UNIDROIT Uniform Law Review (Rome, 1996) pp. 229-246 at pp. 242-243; Lando (1997) pp. 567-584 where he states “The UNIDROIT Principles are for the World ... The PECL [Principles of European Contract Law] are for the European Union” on p. 572.
76. See Amissah, On the Net and the Liberation of Information that wants to be Free in Fra institutt til fakultet, Jubileumsskrift i anledning av at IRV ved Universitetet i Tromsø feirer 10 år og er blitt til Det juridiske fakultet (Tromsø, 1996) pp. 59-76 or the same at http://itl.irv.uit.no/trade_law/papers/On.the.Net.and.Information.17.02.1997.Amissah.d.html
77. See Bonell (1996) on pp. 230-231.
78. Bonell, The UNIDROIT principles of International commercial contracts: Why? What? How? in Børge Dahl & Ruth Nielsen (ed.), (1996) pp. 91-98 on p. 93 and in id. (1997) on p. 231, comments on sources of inspiration mentioning diverse sources including (articles combined) the United States Uniform Commercial Code and the Restatement (Second) of the law of Contracts , the drafts of the Dutch Civil Code 1992 , the Civil Code of Quebec 1994 , also the Foreign Economic Contract Law of the Peoples Republic of China 1985 , and the Algerian Civil Code of 1975 . The international instrument referred to is the CISG . Also to non-legislative instruments such as Incoterms, the UCP, FIDIC Red book, and various works by UNCITRAL .
79. Van Houtte, The UNIDROIT Principles as a Guide to Drafting Contracts (B:1995) in UNIDROIT Principles: A New Lex Mercatoria? pp. 115-125 on p. 118.
80. Jérôme Huet, Synthesis (1995) in UNIDROIT Principles: A New Lex Mercatoria? pp. 273-281 on p. 278 and p. 281.
81. Supra footnote 74.
82. J. Carver, Uniform law and its impact on business circles: the experience of the legal profession , in UNIDROIT (ed.), International Uniform Law in Practice (N.Y., 1988) p. 411. see also Bonell (1992) p. 39.
83. Honnold, Documentary History of the Uniform Law for International Sales (1989) para. 19 on p. 256.
84. Article 1.7, Comment 2. Also see Van Houtte (A:1995), p. 186.
85. See Allan Farnsworth, An American View to the Principles as a Guide to Drafting Contracts in UNIDROIT Principles: A New Lex Mercatoria? pp. 85-92 on p. 87.
86. Farnsworth id. as an example points out Article 6.1.4(2) does not reflect commercial practice.
87. E.g. the ICC's Force Majeure and Hardship clauses .
88. Van Houtte (A:1995), p. 185.
89. Also consider present and future possibilities for such use of The Principles under CISG articles 8 and 9.
90. Special principles have precedence over general ones. See Huet, Synthesis (1995) p. 277.
91. Drobnig, id. p. 228, comment that the CISG precludes recourse to general principles of contract law in Article 7. This does not refer to the situation where parties determine that the UNIDROIT Principles should do so, see CISG Article 6.
92. Vivien Gaymer, The UNIDROIT Principles as a Guide for Drafting Contracts: A View from an International Commercial Lawyer , in UNIDROIT Principles: A New Lex Mercatoria? pp. 97-102 on p. 100.
93. Sono (1992) p. 250.
94. Furmston (1995) p. 202, provides the compelling examples of two such agreements involving (i) the construction and (ii) the operation of the Channel Tunnel by Anglo-French consortiums. Both agreed upon disputes being “governed by those Principles of English and French contract law which are common and, if were no relevant common principles, by general principles of international commercial law.” Dispute resolution to be by ICC arbitration in Brussels.
95. Special problem regarding common/shared resources discussed by Garrett Hardin in Science (1968) 162 pp. 1243-1248. For short discussion and summary see Trebilcock, (1993) p. 13-15.
96. Hugh Collins, The Law of Contract (London, 1986) p. 160; Lars Erik Taxell, Avtalsrättens normer (Turku, 1987) p. 11; cited by Wilhelmsson, Questions for a Critical Contract Law - and a Contradictory Answer: Contract as Social Cooperation in Wilhelmsson (ed.), Perspectives of Critical Contract Law (1993) pp. 9-52 on p. 20.
97. There are other protective provisions in the form of: hardship (Chapter 6, Section 2); surprising terms (2.20); duty of confidentiality (2.16); and negotiation in bad faith (2.15). The principles also have specific provisions on: fraud (3.8); threat (3.9) gross disparity (3.10); and mistake (3.4, 3.5).
98. Gaymer (1995) p. 97 states “I particularly noted Article 1.7, which requires each party to act in accordance with good faith and fair dealing. This is not a general principle of English contract law, nor can it be readily achieved under that law and I am interested to learn more about its perceived application and benefits.” The US has come further than England with the development of the doctrine of unconscionability, and in basing the Uniform Commercial Code on the principle of good faith, which is hailed as its “single most important concept” and as “the foundation on which the [UCC] was drafted”, citations to Dore and DeFranco from Albert Kritzer, International Contract Manual: Guides to Practical Applications of the CISG (looseleaf 1994) p. 74. See also the Official UCC Commentary , Section 1-203.
99. Supra 2.3.2. in e§39.
100. UNIDROIT Contract Principles , General provisions - Article 1.7 Each party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this liability. EU Contract Principles , General Obligations - Article 1.201 (ex art. 1.106) - Good faith and fair dealing: “(1) Each party must act in accordance with good faith and fair dealing. (2) The parties may not exclude or limit this duty.” Good faith and fair dealing is also to be found in several national contract law systems, if not the English and “American”. Generally see Lando, Each Contracting Party Must Act In Accordance with Good Faith and Fair Dealing in Festskrift til Jan Ramberg (Stockholm, 1997) pp. 345-361.
101. Roger Brownsword, Towards a Rational Law of Contract in Wilhelmsson (ed.), Perspectives of Critical Contract Law (1993) pp. 241-272 on p. 241. Furmston (1995) on p. 201 notes: “It is recognised that even between commercial parties there may be stronger and weaker parties” in discussing Article 3.10 of the UNIDROIT Principles .
102. Apart from the more straightforward cases of different types of misrepresentation.
103. Trebilcock, (1993) p. 102, followed by a quotation of Milton Friedman, from Capitalism and Freedom (1962) p. 13.
104. Trebilcock, (1993) p. 102, note quoted passage of Kim Lane Scheppele, Legal Secrets: Equality and Efficiency in the Common Law (1988) p. 25.
105. On the loyalty principle generally see L.E. Taxell, Avtalsträtt (Stockholm, 1997). For a critical opinion on the principle of loyalty see Ernst Nordtveit, Partnerskap ved utveksling av ytingar. Realitet eller illusjon in Lov og Rett (1996) p. 337.
106. Ian Macneil, Barriers to the Idea of Relational Contracts , in F. Nicklisch (ed.), Der komplexe Langzeitvertrag (Heidelberg, 1987) 31-49, at 35.
107. Stewart Macaulay, Non-Contractual Relations in Business a Preliminary Study , in American Sociological Review (1963) pp. 55-67 on p. 61.
108. Writing on EC law Hans-W. Micklitz, Principles of Justice in Private Law within the European Union pp. 259-258 at pp. 284.290, discusses the concept of “legitimate expectations” as having the potential to cover similar ground in a more constructive manner as being as yet without national connotations it may be easier to achieve/develop an internationally uniform definition and interpretation.
109. Wilhelmsson, Legal Polycentricity: Consequences of Pluralism in Law (1995) pp.127-147 on p. 131.
110. Secured as required by relevant conditions precedent and contractual guarantee.
111. Under the New York Convention 1958 , UNCITRAL Model Law on Arbitration 1985 and arbitration laws that have been influenced by it.
112. Huet (1995) p. 278 and p. 281.
113. For more detailed reading see Goode (1991) pp. 54-74. For an English law perspective on uniform statutes see F.A. Mann, Uniform Statutes in English Law in P.V. Baker (ed.) The Law Quarterly Review (London, 1983) Vol. 99 pp. 376-406.
114. Lando (1987) p. 111.
115. Ronald Dworkin, Laws Empire (Harvard, 1986); Hard Cases in Harvard Law Review (1988). For a short summary see Wayne Morrison, Jurisprudence: from the Greeks to post-modernism (London, 1997) pp. 415-448.
116. E.g. pacta sunt servanda and the narrow clausula rebus sic stantibus .
117. E.g. pacta sunt servanda and good faith under the UNIDROIT and EU Principles and their interpretation clauses.
118. Honnold (1992) p. 11.
119. In the common law system based on the earlier authoritative legal reasoning of binding precedent and persuasive authority.
120. Word coined by John Horgan in The End of Science (London, 1996) to cover the related fields of chaos and complexity. Chaos theory is a branch of mathematics and physics. Sometimes described as the edge of chaos, what is studied here is not randomness or disorder. Chaoplexity examines non-linear systems in which simple sets of deterministic rules can lead to highly complicated (detailed) results, which cannot be predicted accurately. A good introduction to the subject chaos is provided by James Gleick, Chaos: Making a New Science (New York, 1987).
121. Such as those provided by Dworkin in explaining the application of rules and principles (to determine judicial outcomes).
122. Hugh Collins, European Private Law and Cultural Identity of States in European Review of Private Law 3 (1995) pp. 353 at 356, 357-58, citation used by Christian Joerges, The Process of European Integration and the 'Denationalization' of Private Law in Børge Dahl & Ruth Nielsen (ed.), (1996) pp. 73-90, p. 82.
123. Herbert Briggs, The Law of Nations; Cases, Documents and Notes (New York, 1952) on p. 897.
124. Lord Diplock in Fothergill v Monarch Airlines [1981], A.C. 251, 282 or see http://itl.irv.uit.no/trade_law/papers/England.Fothergill.v.Monarch.Airlines.HL.1980.html#ecs85. Also Mann (London, 1983) at p. 379.
125. And other international organisations such as UNIDROIT - footnote added.
126. Réczei (1992), p. 6.
127. Examples: The United Nations Convention on Contracts for the International Sale of Goods 1980, Article 7; The UNIDROIT Principles of International Commercial Contracts 1994, Article 1.6; The Principles of European Contract Law 1998 Article 1.106; The United Nations Convention on the Carriage of Goods by Sea (The Hamburg Rules) 1978, Article 3; The United Nations Convention on the Limitation Period in the International Sale of Goods 1974 and 1978, Article 7; UN Model Law on Electronic Commerce 1996, Article 3; UNIDROIT Convention on International Factoring 1988, Article 4; UNIDROIT Convention on International Financial Leasing 1988¸ Article 6; also EC Convention on the Law Applicable to Contractual Obligations 1980, Article 18.
128. Honnold, Uniform words and uniform applications. Uniform Words and Uniform Application: The 1980 Sales Convention and International Juridical Practice in Einheitliches Kaufrecht und nationales Obligationenrecht . Referate Diskussionen der Fachtagung. am 16/17-2-1987, hrsg. von Peter Schlechtriem (Baden-Baden, 1987) pp. 115-147.
129. Under Article 7. See also footnote 126.
130. To take account of its international nature and the need to promote uniformity in international trade.
131. For an example based on the probable international treatment of Norway's singular and controversial transformation of the CISG see Viggo Hagstrøm, Kjøpsrettskonvensjon, Norsk Kjøpslov og Internasjonal Rettsenhet in Tidsskrift for Rettsvitenskap (1995) pp. 561-588 on p. 569 and Joseph Lookofsky, Understanding the CISG in Scandinavia (Copenhagen, 1996) on p. 5, 13, and 105. Compare Kai Krüger's argument in Komparativ rettsmetode - observasjoner vedrørende prinsipper for rettsanvendelse i Europa nord og sør - illustrert ved tilfellet Norge og Italia in Jussens Venner (1996) pp. 281-312 on p. 312.
132. For further information on such projects and information sources, see ITL the International Trade Law Monitor by Amissah at http://itl.irv.uit.no/trade_law/
133. Coming as they do from different: states; genre of writing; sources and levels of authority.
134. UNCITRAL Secretariat (1992) p. 253. Proposed by David (France) at the second UNCITRAL Congress and on later occasions put forward by Farnsworth (USA). For references on interpretation of the CISG by a supranational committee of experts or council of “wise men” see Bonell, Proposal for the Establishment of a Permanent Editorial Board for the Vienna Sales Convention , in International Uniform Law in Practice/Le droit uniforme international dans la pratique [Acts and Proceedings of the 3rd Congress on Private Law held by the International Institute for the Unification of Private law (Rome 7-10 September 1987)], (New York, 1988) pp. 241-244; and Drobnig, Observations in Uniform Law in Practice , supra. at p. 306.
135. UNCITRAL Secretariat, id.
136. UNCITRAL Secretariat, id.
137. UNCITRAL Secretariat, id. p. 258.
138. Sono (1992) p. 251. The suggestion by Louis Sohn found in, Uniform laws require uniform interpretation: proposals for an international tribunal to interpret uniform legal texts (1992) in 25th UNCITRAL Congress , pp. 50-54.
139. UNCITRAL Secretariat, id.
140. Which is not the same as to suggest that the idea would be new. As Goode points out “Truly there is nothing new under the sun. Nearly two thousand years have elapsed since Cicero proclaimed the virtues of legal harmonisation”, see Goode (1991) p. 54.
141. Robert Hillman, CISG Cross Reference and Editorial Analysis: Article 7 in CISG W3 Database , Institute of International Commercial Law, Pace University School of Law (New York, September 1997) http://www.cisg.law.pace.edu/cisg/text/hillman.html
142. It should be noted that whilst electronic media makes such a solution more practicable and attractive, the same thing is achieved through the age-old tradition of incorporation by reference.
143. John Robert Cassidy Mahwah, An Undergraduate Course in Comparative Legal Studies in Rechtstheorie Zeitschrift für Logik, Methodenlehre Kybernetik und Soziologie des Rechts, Beiheft 12 Monistic or Pluralistic Legal Culture? Ed. Peter Sack, Carl Wellman, Mitsukunk Yasaki (Berlin, 1987) pp. 200-207 on p. 205. See also footnote 3 of this text.
144. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards New York, 1958 , Article II. The convention is available off ITL.
145. Noted in the European Initiative on Electronic Commerce (1997) §45. “A number of Member States' rules governing the formation and the performance of contracts are not appropriate for an electronic commerce environment and are generating uncertainties relating to the validity and enforceability of electronic contracts (for example the requirements for written documents, for hand written signatures, or the rules of evidence that do not take into account electronic documents)...” http://www.cordis.lu/esprit/src/ecomcomx.htm
146. US Framework for Global Electronic Commerce (1997) http://www.whitehouse.gov/WH/New/Commerce/
147. UNCITRAL Secretariat (1992) p. 255.
148. Schanze (1996) p. 62.
149. Lalive, International Arbitration - Teaching and Research in Julian Lew (ed.), Contemporary Problems in International Arbitration (1987) at p. 18, quoting statement by Goode.
150. Regionalisation may be a step towards internationalisation, but is not the same thing, and the subsequent step does not necessarily follow.
151. See Lalive, id. reference to Goode and the Institute of International Law, Teaching of International Law, 1987 Committee chaired by Zourek.
152. Report of the Secretary-General of the United Nations, Progressive Development of the Law of International Trade (1966). Report prepared for the UN by C. Schmitthoff.
153. The Institute of International Commercial Law, Pace University School of Law, is engaged in the various activities mentioned in this paragraph with regard to the CISG .
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