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The inadequacy of the law to make changes derives from two characteristics of contemporary economy. The first is the meta-national nature of the economy which is antithetical to the national character of the legal systems. This process implies that the contractual consensus which assumes a law-making force of its own, is shaped, influenced and validated by external criteria other than the parties' self-interest in making a profitable deal. If the confidence of one side in the compliance with the contractual terms by the other is disappointed, the arbitrators, whose jurisdiction is based on the consensus of the parties, assume the function of a control instance.

The parties' confidence is no longer focused on the counter-party's will to comply with the contractual terms but on the competence of the arbitral tribunal as a privately constituted and 'genuine' court for international trade.

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The transfer of the case from the plane of the individual bargain to the arbitral tribunal also leads to a change of perspective. The neutrality of the arbitrators requires them to take an objective view of the case, applying objective commercial standards such as 'fair dealing', 'reasonableness' and 'trade usages', thereby enriching the abstract contractual consensus ' pacta sunt servanda ' with commercial life The private character of the arbitral process may therefore not be used as an argument to deny the control competence of international arbitrators Rather, the contractual character of their competence guarantees the homogenous character of the transnational legal process in that not only the participation in it but also the compliance control is based on the same legal notion, i.

It is not surprising, therefore, that both general contract law and arbitration, are characterized by the same principle: ' in favorem validitatis' Again, the consensus-based dispute settlement system has important repercussions on the development of transnational law.

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The drafting practice of international trade, geared towards the ideal of conflict avoidance, reacts to the case law of international arbitral tribunals and thereby consolidates and stabilizes the general structure of the new lex mercatoria which, in turn, is shaped and influenced by international drafting practice. This phenomenon of 'consensual regulation of international commerce' is well known from the field of investment contracts:. Every arbitral award, every other solution of such a conflict - and every drafting technique adopted to solve such problems - contribute to the finding of the law.

One should not be impatient. The 'actors' Irrational conduct from one or the other side will always have catastrophic consequences for the party It is at this juncture that the circle of consensual law-making is closed. Dispute settlement through arbitration or other dispute resolution techniques forms the vital link between spontaneous and reactive drafting techniques and the formation and evolution of the new lex mercatoria.

Transnational law may therefore be traced back to the consensus of the participants of international trade This consensus has a legal force of its own without the need of a prior acknowledgment by domestic legislatures. The edition of the Principles has not changed this basic structure but has lead to the addition of three new chapters and new subsections in Chapters 2 and 5.

The edition consists of articles. The first chapter 'general provisions' of the UNIDROIT Principles contains basic legal notions and principles that deal with such fundamental notions as freedom of contract, freedom of form and proof, pacta sunt servanda , good faith and fair dealing and the primacy of usages and practices in international trade.

The other chapters contain provisions relating to the conclusion of contracts, the effect of contracts, the construction of contractual stipulations, the content of contracts, performance and the legal consequences of non-performance.

However, in contrast to the Restatement 2nd. The drafters intentionally left out such references to national legal systems in order to emphasize the international character of the UNIDROIT Principles, which are detached from any domestic legal system Also, the omission of comparative references was intended to avoid highlighting the fact that in the preparation of the Principles, some legal systems played a more significant role than others The first version of the American Restatement also did not contain any references to the practice of the common law in the various American states However, in order to enhance its acceptance, such notes were included in the second edition of the Restatement.

A collection of comprehensive comparative references may attach increased legitimacy and authority to a list of general principles and rules of international commercial law and may serve as a starting point for their differentiation and diversification This issue will be looked at in more detail when the 'creeping codification' through the drafting of lists of general principles and rules of the new lex mercatoria is discussed A particular characteristic of many of the provisions contained in the Principles is the attempt to uphold the contract as much as possible The assertion of the Principle ' in favorem validitatis' reflects a general concern of economic practice perceived in the general international law of contracts ' favor contractus ' and also in the area of international commercial arbitration Whether formulated as a comprehensive regulatory framework of the parties or drafted by reference to general conditions of trade, the contract detaches the legal relationship between the parties from the 'otherwise' applicable domestic law.

Due to its self-sufficient character the contract becomes the 'substitute law' for the parties Influenced by Anglo-American drafting techniques, the comprehensive contractual arrangements 'autonomize' the parties' legal relationship from the direct application of substantive law In both long term business relationships and arms' length bargains, the parties therefore have a vital interest in upholding their contract. The validity of the contract becomes all the more important since aspects of consumer protection do not play any role in this context From the perspective of legal theory the principle of ' favor contractus ' correlates with the general significance of the contractual consensus of the parties as the driving force behind the creation and evolution of transnational commercial law A survey of those provisions which reflect the principle 'favor contractus' may give an indication of the significance which it has played in the drafting of the Principles.

These provisions include acceptance of a contractual offer by performing an act without notice to the offeror Art. Also, the principles on re-negotiation in case of hardship Artt. The last two principles are characterized by their inherent vagueness and lack of clarity. They are workable in practice, only when they are embedded in a comprehensive legal system which is based on such fundamental legal notions as ' pacta sunt servanda ' According to the doctrine of legal sources, all these terms may be grouped under the heading of 'norm' Like the American Restatement they are merely drafted like norms so that the principles relevant to the drafting of norms of domestic law may always be applied here by analogy.

Whereas with respect to a rule, there are definite guidelines directing what conditions must be met before the rule can be applied and there is a determined central area of application surrounded by a fringe of vagueness, i. General principles do not necessarily have pre-set conditions for application.

Instead, they merely constitute 'rules of optimal application' which means that they may be complied with in varying degrees. The required degree of compliance depends not only on the actual but also on the legal options open to the target group. Application of general principles therefore requires a substantial process of weighing up contradictory principles and rules General principles are therefore always subject to a continual discussion about their effectiveness and scope General principles of law thus express a general truth which serves as a basic guideline for the application of the law, whereas rules are the practical formulation of the principle and, for reasons of expediency, may vary and depart, to greater or lesser extent, from the principle from which they spring.

This teleological aspect reduces the level of foreseeability with respect to cases in which general principles are applied as well as their practical workability. However, general principles of law also have the important task of explaining the function of individual legal institutions in the context of a legal system. They assist the legal institutions in that they appear not only as a simple group of standards and rules but as a group with meaning and therefore as a 'system' Reference to general principles of law therefore allows for a certain degree of self-control of the decision-maker in that the solution found for an individual legal problem has to be integrated into the network of coherent general principles enunciated so far , at It is for this reason that in the judgments of domestic courts, general principles of law today take the place of standard references to vague blanket clauses of substantive law, thereby investing the courts with a kind of 'quasi-law-making power', enabling them to find more modern, more contemporary solutions for the legal problems of today They keep to very definite rules with a clearly defined scope of application.

In addition to the provisions relating to the conclusion of contracts Artt. However, the UNIDROIT Principles are not restricted to the reproduction of the technicalities of conclusion of contracts by offer and acceptance and the performance of contracts and possible secondary claims. Instead, a number of general principles in the form of general clauses take precedence in the first chapter over the specific provisions in chapters 2 to 7 and are then worked through by the UNIDROIT Principles as a central theme, making assessments and comparisons between rules and general principles possible.

This is in accordance with the general experience that in the field of law of contracts, the application of the law always oscillates between the strict principle ' pacta sunt servanda ' and general fairness considerations and is therefore largely dependent on the consideration of a number of flexible principles In addition, general principles perform an important gap-filling function These general principles are either expressly contained in the individual articles of the Principles 'good faith', 'reasonableness' etc.

This concept of an autonomous uniform interpretation without reverting to any domestic law, constitutes an important leading principle in international uniform law. It formed the basis of Art. UNIDROIT's official commentary to the Principles accordingly makes it clear that in order to promote uniformity in the application of the principles, gaps should be filled 'whenever possible, within the system of the principles itself before resorting to domestic laws' Through this statement, the Working Group directly recognized the 'openness' of the 'system' and the important function of the general principles contained therein.

Legal principles have to be weighed against legal rules when such provisions in the UNIDROIT Principles are applied which, though having the characteristics of rules, allow wide scope for teleological considerations by using broad legal language which requires extensive interpretation and elaboration.

The following are examples of such provisions: Duty to pay damages in case of breaking off of negotiations in bad faith Art. The general principles which serve as important reference points for the assessment process described above are: The principle of party autonomy as the Magna Charta of international contract law Art. The notion of good faith in particular belongs to the common core of the legal systems of the civil law countries and is also acknowledged by the American Uniform Commercial Code and the Restatement 2nd.

The German Federal Supreme Court has stated 'that the notion of good faith is a supra-national legal principle that is inherent in all legal systems' English courts, however, have always rejected the idea of a general principle of good faith ever since Lord Mansfield described the notion of good faith as 'the governing principle In their view, such a general principle of law would run counter to the parties' respective positions during contract negotiations and over the duration of the contract and would also be impracticable Thus, the English House of Lords has ruled that an express agreement that parties must negotiate in good faith is unenforceable From the perspective of a functional comparative analysis , however, the assumption of a general principle of good faith and its inclusion in the UNIDROIT Principles is justified and has also found its way into Art.

Also, the principle of good faith lies at the roots of such important legal institutions of the common law systems as ' promissory estoppel ' or ' estoppel in pais ' Finally, it seems that under the influence of European law, especially with respect to the EU- Directive on Unfair Terms in Consumer Contracts, implemented in the Unfair Terms in Consumer Contracts Regulations , and continental legal traditions, the long-standing hostility against the principle of good faith will soon be overcome by English lawyers and courts Thus, it may be said that the principle of good faith is a perfect example for the basic drafting approach of the UNIDROIT Working Group, which has always been rather pragmatic than purely dogmatic In any event, the influence of the Principles in this respect has already been felt.

In an unpublished award of , an arbitral tribunal made reference to the Principles in order to demonstrate to the parties that the enforceability of the parties' agreement to negotiate in good faith under the applicable New York law was in line with international contract practice This was done in order to make it clear from the outset that the conduct of the parties is not to be measured according to the subjective standards of their bilateral or multilateral contractual relationship, nor according to the standards of their respective domestic legal systems but according to a far-reaching, objective standard to be found among businessmen in international trade, amounting to a 'fairness in the market place' This objective understanding of the notion of good faith in international business is not only in line with the approach taken in Sec.


In any event, the standard reflected in Art. It is detached from the particularities of domestic legal systems and has to be seen in the socio-economic environment in which multinational enterprises usually operate This confirms the general observation that it is impossible to compile a common stock of concrete rules, principles and applications that are related to the principle of good faith.

Instead, this broad and vague notion always has to be interpreted and applied in a context-oriented manner In spite of its general and vague character, Art. The principle of good faith and fair dealing performs a central function in the interpretation of the Principles and in transnational commercial law in general By stating in general terms that each party must act in accordance with this standard, the article makes it clear that even in the absence of special provisions in the Principles the parties' behavior throughout the life of the contract, including the negotiation process, must meet certain requirements which are generally accepted within the international business community It is supplemented by the parties' commitment to trade usages to which they have agreed or which are widely known to and regularly observed in international trade by parties in the particular trade concerned and to practices which they have established between themselves Art.

The basic difference between the approach chosen in the Principles and in the Uniform Sales Law is that the standard of reasonableness which leads to the exclusion of the application of trade usages has been changed. The heavily criticized subjective test of the Sales Law ' Under the Uniform Sales Law and the Vienna Sales Convention, the 'reasonableness-test' 'reasonable person'; 'reasonable time'; the juxtaposition of 'reasonable' and 'unreasonable' has been used as a general criterion for the evaluation of the parties' conduct in those cases where there is no specific provision to be applied to their legal relationship The new Dutch Civil Code also contains specific provisions on the standard of reasonableness which it links to the principle of good faith ' redelijkheid en billigheid ', Artt.

The notion of 'reasonableness' thus provides the classical standard which attaches an objective quality to the principle of good faith The standard thereby performs an important prohibitive function which, under German law, is effected by the prohibition of the improper exercise of legal rights under the blanket clause of good faith contained in Sec.

It is composed not only of clearly defined legal duties but also and to a large extent of general standards and duties of conduct ' obligations de comportement ' They allow for the adaptation of the law to the changing circumstances of international trade and commerce. Under the standard of 'reasonableness', it is irrelevant whether or not a party has acted upon what it honestly believed to be reasonable rather, it is decisive that one has put forth his best efforts, exercised due diligence in performing his contractual obligations, upheld the common contractual goals, avoided abuse of rights required under the contract and facilitated the other party's performance The flexibility and ' souplesse ' of the standard of reasonableness also reflects its major virtue: It allows arbitrators and judges to focus on the search for a fair and 'equitable' solution of international commercial disputes At the same time, the standard provides a further indication for the 'openness' of any legal system in general and of the lex mercatoria in particular, proving the quality of transnational commercial law as a 'law in action'.

The standard of reasonableness has its origin in a sociological understanding of the contract which is also the basis for the idea of an institutional development of the law through the international community of merchants This view is confirmed by the fact that reasonable behavior usually means nothing more than keeping to one's word in all circumstances or at least to one's word in the manner commonly intended by the parties The idea of reasonable conduct is therefore inextricably linked to the principle of ' pacta sunt servanda ' and to the notion of a general transnational liability for breach of confidence as a basic pillar of the lex mercatoria In the context of the UNIDROIT Principles, the reasonableness test is of particular relevance for all those provisions which require a flexible interpretation and application in individual cases.

They include those relating to the application of usages and practices Art. In the context of these provisions, the standard of reasonableness frequently takes the place of party agreements thereby reflecting the drafters attitude of the existence of a general standard of conduct in international trade. Therefore, the construction of international contracts and the determination of the conduct of the parties depends upon a close interaction between the criterion of good faith Art.

A contract as well as a unilateral statement or conduct of a party shall be interpreted under the UNIDROIT Principles according to the intention of the party or parties and, where no such intention can be established, according to the meaning that a reasonable person of the same kind as the parties or party would give to it under the circumstances Artt. The Principles are therefore even more detailed than the Vienna Sales Convention which contains a reasonableness test in Art.

Through the creeping codification of transnational commercial law, international law has undergone a dynamic shift. Three aspects of this process bear noting. First, the process stands traditional, positivist lawmaking on its head, eschewing state-backed codification in favor of private efforts - albeit sometimes under the umbrella of international organizations. These developments are made possible, of course, only by states' acceptance and facilitation of party autonomy, which enables contracting parties to stipulate the law governing their rights and obligations.

Second, the process may lead to better and more transparent application of transnational commercial law. No longer must arbitrators who apply lex mercatoria draw from a grab bag of unwritten rules; they may now identify the source of the applicable transnational law. In resolving international commercial disputes involving parties from disparate legal and cultural traditions, the use of concrete, neutral, pragmatic principles can only lead to greater certainty, predictability, and fairness.

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Third, the process is not fixed, immutable, and static, but is tentative, flexible, and adaptable. Indeed, the authors of the UNIDROIT Principles deliberately have sought to make them "sufficiently flexible to take account of the constantly changing circumstances brought about by the technological and economic developments affecting cross border [sic] trade practice. If the UNIDROIT Principles are to become more than a legal Esperanto, parties and their counsel must perceive the practical benefits of their use in international commercial contracting and dispute resolution.

Undoubtedly, arbitrators also will play a crucial role in the success or failure of the UNIDROIT Principles, as they offer, in appropriate circumstances, an attractive alternative to the application of domestic law in the resolution of transnational disputes. Despite the UNIDROIT Principles' manifest appeal, however, arbitrators must not invoke them reflexively or shirk choice-of-law analyses that may call for the application of national law.

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If the UNIDROIT Principles truly are to flourish, it is not enough that arbitrators invoke them to render equitable decisions; they must be used in furtherance of party autonomy. If arbitrators can balance these dual concerns, the UNIDROIT Principles not only will be accepted in the resolution of international commercial and investment disputes; their invocation will be expected.

See, e. Soler Chrysler Plymouth, Inc. The Mitsubishi holding increasingly reflects, and has inspired, similar judicial sentiment in many countries. Mobil Oil New Zealand, Ltd. See Charles N. A notable example is the United States' failure to ratify the Vienna Convention on the Law of Treaties, which the Senate has sat on since , despite the U. Brower, Charles H. Brower, II, and Jeremy K.

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Int'l , The New York Convention is a case in point. To date, states have acceded to the New York Convention. Its very success, however, all but ensures states' inability to amend it. The International Institute for the Unification of Private Law is an independent, intergovernmental organization established in to promote the harmonization of international law.

It was originally established as an auxiliary organ of the League of Nations and, following the League's demise, was reestablished in on the basis of its Statute. According to the American Law Institute, as of April 1, , state and federal courts have cited the Restatements , times. Sixty percent of those citations have been to the Restatements on contracts and torts.

Further evidence of the Restatements' influence is found in the jurisprudence of the Supreme Court of Arizona, which has established them as default principles of law: Arizona courts "follow the principles set forth in the American Law Institute's Restatement of the Law except in cases where a different rule has been laid down by this Court" or where a statute is controlling. Odekirk v. Austin, P. Thus, "while the UNIDROIT Principles are confined to "international' and "commercial' contracts, the European Principles apply to all kinds of contracts, including transactions of a purely domestic nature and those between merchants and consumers.

The Restatement Third of the Foreign Relations Law of the United States sustained criticism, even prior to its completion, that it does not always reflect existing law, but promotes the authors' views of what the law ought to be. Soc'y Int'l L. See Bonell, The UNIDROIT Principles of International Commercial Contracts, supra note 10, at "What was decisive was not just which rule was adopted by the majority of jurisdictions, but rather which of the rules under consideration had the most persuasive value or appeared to be particularly well-suited for cross-border transactions or both. Similarly, the Principles of European Contract Law seek not only to distill common principles from Europe's disparate legal traditions, but also to establish new principles deemed best suited to Europe's contemporary economic and social conditions.

The partial codification of contract: lessons from New Zealand

See John A. Spanogle, Jr. Int'l L. Qty : UK Delivery working days.

The Conflict of Laws in New Zealand: News and Comment

This book is also available in other formats: View formats. The European codification project has rapidly gathered pace since the turn of the century. This monograph considers the codification project in light of a series of broader analytical frameworks — comparative, historical and constitutional — which make modern codification phenomena intelligible. This new reading across fields renders the European codification project currently being promoted through the Common Frame of Reference and the Optional Sales Law Code proposal vulnerable to constitutionally-grounded criticism, traceable to normative considerations of private law authority and legitimacy.