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Reproduced with permission of 46 American Journal of Comparative Law (1988) 129-150

International Arbitral Practice and the UNIDROIT
Principles of International Commercial Contracts

Klaus Peter Berger [*]


The following arguments are intended to provide an insight into the practice of international arbitrators vis à vis the UNIDROIT Principles of International Commercial Contracts.[1] Almost three years after the promulgation of the Principles in May 1994,[2] review of [page 129] the case law of international arbitral tribunals, being the natural judges of international trade and commerce, can provide a first indication of the success or failure of UNIDROIT's ambitious project for the unification of international contract law. At the same time, this survey will reveal the success of a new phenomenon in international trade law. Over the last decade, a change of paradigm has appeared:[3] the Principles demonstrate that the unification of law is "privatized" through a restatement-like set of rules and principles, drafted like black-letter law but issued by a private working group of specialized practitioners and academics instead of a convention or a model law negotiated at a conference such as the Hague Conference of Private International Law.[4] The salient question is whether this innovative approach proves to be the right way to achieve the degree of harmonization and unification of international contract law necessary to tackle the ever changing and rapidly developing problems of international trade commerce.

I. The Comparative Nature of the International Arbitral Process

A brief look at the nature and quality of the international arbitral process as such reveals why international arbitration is the ideal starting point for the analysis of the success of the Principles.

International commercial arbitration provides the perfect "real-life laboratory" to test the workability and consequently the viability of the UNIDROIT Principles in practice. International arbitrators, by their very nature, use to take not only an interest-orientated, but also a natural comparative approach to decision making:

"International commercial arbitration has radically transformed the role of comparative law. Not long ago, comparative law was perceived to be an academic discipline. Its primary function was to provoke reflection on various legal systems and could at its best lead to legislative reform. International commercial arbitration revolutionized the field, [page 130] transforming comparative law into an eminently practical and often lucrative discipline. Indeed, in many instances important international commercial litigations are won, based on the resolution of issues of comparative law."[5]

This natural comparative orientation [6] is caused primarily by the fact that in international arbitration -- much more than before domestic courts -- cultural and legal diversity is at issue. Comparative law provides the means to do justice to all legal systems involved.[7] This is exemplified, e.g., by the international arbitrators' comparative approach to conflict of laws problems. International arbitrators very often apply the so-called "cumulative approach." Instead of referring to just one conflict of law rule, they justify their choice of law decision with reference to all conflict of laws rules concerned (i.e., that of the seat of the arbitration and of the respective home countries of the parties).[8] The same comparative orientation is to be found in those cases where the arbitrators do not apply a domestic conflict of laws rule but general principles of private international law.[9] Also in the field of substantive law counsel and arbitrators alike, even in cases of a purely domestic law nature, tend to derive additional persuasive [page 131] authority for their decision on the merits through a comparative analysis of municipal laws.[10]

Employing this comparative method is primarily geared towards making the award more understandable or more palatable to the parties of the arbitration, who very often come from totally different cultural and legal backgrounds.[11] The comparative method extends the function of the arbitrator or "cultural interpreter" into the post-award stage of the arbitration. This, in turn, will avoid problems when it comes to the enforcement of the award or will even lead to voluntary compliance with the award in the pre-enforcement stage.

The natural comparative orientation of international arbitrators meets with the goals of the drafters of the UNIDROIT Principles. According to the official commentary of UNIDROIT, "the objective of the UNIDROIT Principles is to establish a neutral and balanced set of rules designed 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."[12] This underlying thrust of the principles clearly is geared towards decision-making by international arbitrators. This is why the official commentary recommends that parties who wish to adopt the Principles as the rules applicable to the contract should combine the reference to the Principles with an arbitration agreement.[13]

There can be no doubt that with respect to its subject matter, the international law of contracts, the Principles have been a success from the outset. Contract law has always been the most promising subject matter in comparative legal science.[14] The attractiveness of this subject for privatized comparative research and law-making is exemplified by the various projects, such as the "Common Core of Legal Systems of Cornell Law School" [15] or the "Franco-Italian Code [page 132] of Obligations",[16] which have thus far been launched in this field of law.

With respect to international commercial arbitration, however, the test for the viability of the Principles is whether international arbitrators are able to reconcile the various options for use enumerated in the Preamble of the Principles [17] with generally accepted conflict of laws principles. Only this reconciliation will make good for the non-binding, restatement-like character of the Principles.

II. Application of the Principles in International Arbitral Case Law

The question whether international arbitrators have achieved this reconciliatory task can only be answered with respect to the individual ways in which the Principles are being used in modern arbitral practice.

Until now, three distinctive approaches can be discerned which international arbitrators have taken to apply the Principles in practice since their promulgation in May 1994:

   -    First, the Principles are used to interpret or supplement international uniform law instruments and more particularly the UN Convention on Contracts for the International Sale of Goods of 1980 (CISG).[18] This approach is expressly provided for in the Preamble of the Principles.
   -    Secondly, the Principles are used to fill gaps in the applicable domestic laws or to arrive at an internationally useful interpretation of the applicable domestic law.[19] This approach is not directly provided for in the Preamble. However, it is nothing but a natural addition to the non- exhaustive list of options contained therein.
   -    Thirdly, international arbitrators go even a step further and begin to use the Principles as the proper law of the contract, either based on a choice of law clause in the contract or even absent a choice of law based on the applicable conflict of laws rules of the arbitration law or arbitration rules. [page 133]

1. Interpretation and Supplementation of International Uniform Law Instruments

In the first group of cases international arbitrators have used the Principles to fill gaps in the U.N. Sales Convention.

A typical example for this approach is provided for by ICC Award No. 8128 rendered in 1995.[20] In this case, the claimant-buyer had avoided the sales contract due to a fundamental breach of the defendant-seller and sought to recover his costs incurred for the buying of replacement goods as damages under Art. 75 of the Convention. The arbitrators granted this claim and decided that the claimant was also entitled to interest under Art. 78 of the Convention. The tribunal was faced with the delicate problem that unlike its predecessor, the 1964 Uniform Law on the International Sale of Goods,[21] the Convention does not indicate the rate of interest. During the deliberations of the Convention, the drafters could not agree on the applicable-interest rate [22] due to the diverging views on the economic function of interest, on possible limitations on interest contained in Islamic Shari'a laws.[23] There was also disagreement whether the interest rate, however defined, should be that of the debtor's or the creditor's country. Art. 78 CISG therefore constitutes the "lowest common denominator" of all members of the U.N. Working Group.[24] In view of this drafting history, the majority opinion in legal doctrine refers the judge or arbitrator, who seeks to determine the rate of interest to be applied under Art. 78 CISG back to Art. 7, Sec. 2 CISG.[25] This provision provides [page 134] that gaps in the Convention shall be closed in conformity with general principles on which the Convention is based or, absent such principles, in conformity with the law applicable by virtue of the applicable conflict of laws rules.[26] Since the Convention itself does not contain any indication of the rate of interest, this approach necessarily leads to the application of the statutory rate of interest of the seller, since he is the one who performs the characteristic obligation.

The arbitral tribunal in ICC case No. 8128, however, did not follow this approach. Instead, the German arbitrator referred to Art. 7.4.9 subsection 2 of the UNIDROIT Principles, which, in his view, constitutes a general principle in the sense of Art. 7, subsection 2 of the Convention.[27] This Article provides that the rate of interest to be paid by the debtor for a sum in arrears shall be the average short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the state of the currency of payment. The tribunal drew inspiration from this article but did not apply it literally. To determine the rate of interest it referred to the London Interbank Offered Rate (LIBOR), but added another 2%. In the eyes of the tribunal, only this slightly increased rate reflects the usual credit rate charged by banks for credits by commercial enterprises.[28] With this modification of the Principles, the arbitrator impliedly delivered a justification why Art. 7.4.9 of the UNIDROIT Principles is part of the general principles on which, according to Art. 7(2) CISG, the Sales Convention is based. From a functional perspective, the interest claim in Art. 78 CISG just as the one incorporated in Art. 7.4.9 of the Principles and any statutory interest claim constitutes a minimum lump sum compensation for damages in areas where the creditor need not prove the actual damages incurred.[29] It is a long standing practice of international arbitrators [30] as well as of [page 135] the Iran-U.S. Claims Tribunal [31] to consider the interest claim as part of the general claim for damages. Also, many international arbitrators that had to decide disputes in the context of Islamic law have granted interest irrespective of the prohibition on interest inherent to Shari'a law. They have justified their decision with reference to the function of interest as "compensatory indemnity in lieu of interest" [32] or have made reference to the "compensatory principle" as the common legal basis of interest adjudication in international commercial arbitration.[33] This liberal approach to interest adjudication is in line with modern trend in Islamic doctrine and legislation which gives a new meaning to the notion of interest, allowing the taking of interest for the use of productive capital by exception to the rule of prohibition [page 136] of Shari'a law.[34] Interestingly enough, even under the traditional conflict of laws approach to Art. 78 CISG, the arbitrator or judge, faced with interest prohibitions in the applicable law shall apply "compensations with a similar function ... even rates for lump sum compensation for damages."[35] This approach means an implied acknowledgement that Art. 78 CISG, irrespective of its systematic position within Chapter V between Section II on damages and Section IV on exemptions gives a claim for damages.[36]

This view is supported by the fact that during the deliberations of the Sales Convention, some states such as Great Britain refused to agreed to an inclusion of a provision on interest in the Convention since, in their view, interest was covered by the general provisions on damages anyway.[37]

All this reveals that the tribunal in ICC Award No. 8128 was justified in assuming that Art. 7.4.9 of the UNIDROIT Principles reflects the principle of compensation for damages [38] which is a principle on which the Sales Convention, or more precisely Section II of Chapter V, is based. As a further consequence of this understanding of Art. 78 CISG, the tribunal applied a slightly increased LIBOR rate. This add-up to the London inter-bank credit rate was necessary since the tribunal had to find an abstract, i.e., generally applicable and at the same time realistic measure for the damage that was caused by the non-payment of money. Since there is a general assumption that commercial enterprises usually borrow money because they work with a substantial credit line rather than lose return on investment. For this reason, the credit rate charged by commercial banks to private borrowers rather than the inter-bank rate or the loss of return on investment reflects the hypothetical damage incurred by the creditor. It has to be applied by international arbitral tribunals to determine the damage that justifies an interest claim.

This approach to interest adjudication was also followed by the arbitrators in two awards rendered under the auspices of the Arbitration Court of the Austrian Economic Chamber in Vienna in June 1994. Again, the arbitrator sought inspiration from the UNIDROIT [page 137] Principles in his determination of the interest to be awarded.[39] In doing so, he emphasized the "full compensation" principle embedded in Art. 74 of the Convention and the fact that at least in a commercial context, creditors who do not receive a sum due can typically be expected to work with bank credit.

It seems therefore that in view of the enormous economic relevance of interest claims in international commercial arbitration,[40] the provision on interest has been the article of the Principles which, so far, has received the greatest attention by international arbitral tribunals. This is a very positive and long-awaited development, since interest adjudication in international arbitration suffers from severe inconsistencies, the arbitrators' decisions ranging from reference to LIBOR [41] or FIBOR to the American Prime Rate,[42] the Eurodollar-Interest rate [43] or the discount rate at the seat or habitual residence of the creditor.[44] To make things worse, many arbitrators do not finish any comprehensible justification for their decision as to interests. Sometimes, they just "split the difference."[45]

2. International Interpretation of Domestic Law

In the second group of cases, international arbitrators have used individual articles of the Principles to arrive at an internationally acceptable and economically sensible interpretation of the domestic law [46] which the parties or the arbitrators had chosen as the proper law of the contract. [page 138]

The underlying rationale for this approach is that domestic law and the meaning given to it by the interpretative work of the courts very often does not meet the specific needs of international trade and commerce,[47] especially in international reinsurance and copyright law.

International arbitral practice has since long been struggling with this dilemma.[48] The Principles for the first time furnish a legal instrument which can guide them in their efforts to improve the interpretation of domestic laws in the context of international trade law problems.

Interestingly enough, this approach was pursued even before the final draft of the Principles was promulgated in May 1994. Thus, before the Berlin Court of Arbitration, the successor of the Arbitration Court of the Chamber of Foreign Trade of the former German Democratic Republic,[49] the hardship provision of the then Draft Principles were cited as an expression of international commercial practice, serving as an additional argument to justify hardship and its consequences under the General Conditions of Delivery of Goods between Organizations of the Member Countries of the Council for Mutual Economic Assistance [50] which did not contain hardship [page 139] provisions.[51] In these arbitrations, the Principles were treated like international Conventions which are quite often cited and referred to by international tribunals as ratio scripta even before their coming into force.[52]

As far as international arbitral case law after the promulgation of the Principles is concerned, arbitrators referred to the Principles to support their decision on the merits. In the unpublished ICC Award No. 8240 of 1995 the arbitrator, having before him a dispute between Swiss viz. Singaporian claimants and Belgian respondents, had to decide on the exchange rate to be applied to the agreed purchase price to be paid by the respondents for the repurchase of inventory from the claimants in a foreign currency after termination of a distribution agreement that was subject to Swiss law. In order to justify his view that each party has to pay its debts at the nominal value agreed upon by the parties and that later currency fluctuations do not lead to a modification of this principle of nominalism, the sole arbitrator referred not only to Swiss court decisions and legal doctrine, but also to Art. 6.1.9(3) of the Principles [53] which allows a debtor who has to pay a money debt expressed in a currency other than that of the place of payment to pay this debt in the currency of that place at the "rate of exchange prevailing there when payment is due."

In another unpublished ICC-Award No. 8486 of 1996, the arbitral tribunal, having before it a dispute between a Dutch and a Turkish party, was confronted with the allegation of the Turkish respondent that exchange rate fluctuations in his country had discharged him from his payment obligation under the hardship provision of Art. 6:258 of the new Dutch Civil Code (Burgelijk Wetboek, BW) which was applicable to the sales contract in dispute.

The arbitrator was thus faced with the task, which is typical in the international arbitral context, to reconcile the principle of sanctity of contracts ("pacta sunt servanda") with the doctrine of excuse from performance as reflected in the notions of force majeure and hardship.[54] However, he had to perform this task not on the transnational [page 140] plane, i.e., on the basis of the lex mercatoria, but in the context of the applicable Dutch Civil Code.

To justify his decision that these doctrines, even under Dutch law, apply only in very rare, extreme cases, the sole arbitrator referred not only to Dutch legal doctrine but also to Article 6.2.1 of the Principles. It states that where the performance of a contract becomes more onerous for one of the parties, that party is nevertheless bound to perform its obligation. The underlying thrust of this provision is to make it clear that as a consequence of the basic rule of "pacta sunt servanda", the significance of which is underlined by the fact that it is also embodied in Art. 1.3 of the Principles, performance must be rendered as long as it is possible and regardless of the burden it may impose on the performing party. Adding references to international arbitral case law which had rejected force majeure or hardship defenses based on mere exchange rate fluctuations or inflationary tendencies, the arbitrator thus arrived at a restrictive, i.e., internationally useful and economically sensible interpretation of Art. 6:258 of the Dutch Civil Code.

Interestingly enough, he found support for this innovative approach to the construction of domestic laws in Dutch legal doctrine. A Dutch scholar maintains that in interpreting Dutch legal rules in international contexts, and in particular the provisions on hardship and force majeure contained in the new Dutch Civil Code, Dutch judges should draw inspiration from the UNIDROIT Principles.[55] This view is of utmost importance for international arbitral practice since thus far, arbitrators seeking to apply international standards to the construction of domestic law were always confronted with the argument that arbitral tribunals may not change the meaning of the law that they are required to apply. The principles of interpretation developed by the courts and doctrine of the relevant legal system form part of the applicable law, setting the limits for every attempt to "internationalize" the meaning of individual provisions of this law. The famous saying of W. Goldschmidt applies that "the judge is architect when applying his own domestic law, while he is acting as mere photographer when he applies foreign law."[56] On the other hand, however, if the foreign law allows a substantial degree of liberty in the interpretation of its provisions, then the judge or arbitrator need not be reluctant but enjoys the same degree of freedom and leeway [page 141] that a judge in that particular jurisdiction would have.[57] Consequently, if the domestic doctrine of this legal system favors this "internationalization" of construction, international arbitrators receive the justification they need to go ahead with this kind of innovative approach to the construction of domestic law.

In another ICC Award the arbitral tribunal again referred to Art. 7.4.9 of the Principles to determine the rate of interest applicable to an interest claim that the claimant had under the law applicable to the contract. The amount payable was due in US $, but payable in Sweden. Following the guideline of the first alternative of Art. 7.4.9(2) of the Principles, the arbitrators first tried to ascertain the prime rate for US $ credits in Sweden as the place of payment. The Swedish banks informed the tribunal that no such rates exist in Sweden as credits are granted by Swedish banks in Swedish currency only and a kind of "Eurodollar" credit rate for US $ credits in Sweden was not ascertainable. In fact, the solution adopted by the drafters of the Principles will usually turn out to be inoperative in most if not all conceivable cases, since no prime rates for credits in foreign currencies exist in most countries.[58] The tribunal thus turned again to the UNIDROIT Principles for guidance and applied the prime rate applicable to US $ credits issued in the United States as provided for by the second alternative of Art. 7.4.9 (2) of the Principles. This provision has also been used by other ICC arbitrators in their search for commercially reasonable interest rates. One could well imagine that the proper law of the contract in this case was Swiss Law. Under Art. 104, Sec. 3 of the Swiss Law of Obligations, the creditor is entitled to the usual discount rate charged by banks, provided this rate exceeds 5% and both parties are merchants. The precise meaning of the term "usual bank discount" is disputed in Swiss legal doctrine.[59] Consequently, it is suggested that in international cases, the LIBOR rate should be applied in the context of Art. 104, Sec. 3 of the Swiss Law of Obligations.[60] Reference to Art. 4.7.9 of the Principles would give additional support to this view. [page 142]

Finally, in another unpublished award rendered in 1996, the arbitral tribunal made reference to certain provisions in 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.[61]

3. Application as the Proper Law of the Contract

In a third group of cases, international arbitrators have gone beyond the non-binding, suppletive character of the principles. In two recent ICC Awards,[62] the arbitrators for the first time referred to the Principles as a whole as the law applicable to the contract under Art. 13, sec. 3 of the ICC Arbitration Rules.[63] Both cases involved state parties which, for reasons of sovereignty, usually avoid being subjected to a domestic law and instead prefer submission of the contract to general principles of law.[64] In the two cases the parties had agreed that their contract be subject to "Anglo-Saxon principles of law" and "principles of natural justice" respectively.[65] In both cases, the arbitrators did not hesitate to refer to the UNIDROIT Principles, supplemented by the contractual provisions of the parties and the relevant trade usages, as the law applicable to the contracts.[66] In one of the cases the arbitrators expressly referred to the fact that the Principles, in contrast to the vague notion of "general principles of law", derived from Art. 38 of the Statute of the International Court of Justice, which has so far been used in such cases to justify reference to transnational law especially in concession, production sharing and [page 143] other contracts that necessarily involve the participation of a state party, have a concrete and workable content.[67] Finally, in the Eurotunnel arbitration, one of the most important infrastructure and construction arbitrations of the nineties, arbitrators and parties have agreed to apply the UNIDROIT Principles.[68] The choice of law contained in the complex construction contract calls for the application of "the principles common to both English law and French law and in the absence of such common principles, [of] such general principles of international trade law as have been applied by national and international tribunals."[69]

It is said that the way in which the arbitrators arrived at the application of the Principles in at least one of these cases went through the assumption of a "negative choice of law." This negative choice of the parties excludes all application of domestic laws and leads to the application of transnational law instead.[70] So far, the assumption of a negative choice of law has met with great skepticism. In order to assume such a choice, some arbitrators have content themselves with the assumption that the contract before them had international character and that it contained an arbitration clause both aspects being an indication for the intention of the parties [page 144] detach the contract from the sphere of any domestic law. The combined effect of these two aspects would then serve as a genuine conflict of law rule for the application of the lex mercatoria as the proper law of the contract absent an implied or express choice of law by the parties.[71] However, international arbitrators that pursue this approach often run the risk of basing their decision on a fictitious choice of law, given the numerous reasons (e.g., an equal bargaining position as to the applicable law) for a missing choice of law clause in the contract.[72] In a worst case scenario, this might lead to the setting aside of the award at the seat of the arbitration or to the refusal of enforcement Under Art. V of the New York Convention on the Recognition and Enforcement of International Arbitral Awards of 1958.

However, the arbitral tribunal in the case mentioned above did not embark on the risky venture of assuming a negative choice of law. Instead, it was able to base its application of the Principles on a positive choice, expressed by the parties' reference to "principles of natural justice." The Preamble emphasizes that the Principles may be applied when the parties have agreed that their contract be governed by "general principles of law, the lex mercatoria or the like", thus leaving it entirely up to the parties how they want the reference to the Principles be phrased and termed. The introductory provision of the Principles of European Contract Law [73] clearly shows that this kind of implied reference to the Principles has to be distinguished from a negative choice. Art. 101 of the European Principles contains a reference to the lex mercatoria which is almost identical to the one [page 145] of the Preamble of the UNIDROIT Principles. In addition, however Art. 1.101(3) (b) of the European Principles allows for their application "when the parties have not chosen any system or rules of law to govern their contract." This is the classical negative choice of law which has met with so much skepticism in the past and which, probably for this reason, has not been included in the Preamble of the UNIDROIT-Principles.

In another unpublished award, the arbitral tribunal, faced with an international contract that contained no choice of law clause, decided to base its decision on the merits on "the terms of the contract supplemented by general principles of trade embodied in the lex mercatoria."[74] In applying this principle, the tribunal without any further explanation, referred to various articles of the Principles.[75] In another recent ICC arbitration proceeding, the arbitrators for the first time were called upon to and in fact did choose to apply the UNIDROIT Principles as lex causae due to an express choice of law by the parties [76] in the Terms of Reference on the basis of Art. 13, Section 3, 1st sentence of the ICC Arbitration Rules.[77]

Also, in an award rendered under the auspices of the National and International Court of Arbitration of Milan, the parties, at the outset of the proceedings, agreed to have their dispute settled "in conformity with the UNIDROIT Principles tempered by recourse to equity."[78] Consequently, the arbitrator in its decision on the merit made reference to numerous articles of the Principles.[79]

The question remains, whether the parties' reference to the Principles in these cases can be considered as a genuine choice of law of the parties, supervening any mandatory provisions of the otherwise applicable domestic law ("kollisionsrechtliche Verweisung") or whether the reference is a mere incorporation by reference, making the Principles part of the contractual stipulations, the validity which is always subject to the ius cogens of the applicable domestic law ("materiellrechtliche Verweisung").[80] [page 146]

These choice law problems are avoided from the outset if the parties have authorized the arbitral tribunal to act as amiable compositeur (ex aequo et bono). In these cases, the arbitrator may decide to be guided in his decision making only by what he deems just and fair in the given case. It is generally assumed that this authority implies, above all, to base the decision "not on the substantive law of any particular jurisdiction, but on general principles of law and trade practices."[81] In practice, arbitrators acting as amiable compositeurs often feel bound by the law in spite of their broad equitable powers. They do this not because it is promulgated by a domestic legislature, but because the law is regarded by them as the ratio scripta which leads the way to an equitable solution of the dispute before them. The same rationale applies to the Principles which constitute the ratio scripta of transnational contract law.[82]

If the parties have not authorized the arbitrators to act as amiable compositeurs, the conflict of laws provisions contained in most modern arbitration laws and rules have to be consulted for guidance. They indicate that the parties' reference, whether express or implied, constitutes a genuine choice of law. These provisions refer not simply to the "compositors" to be agreed upon by the parties, but indicate the "rules of law" as the object of the parties' choice. The revision of the Arbitration Rules of the International Chamber of Commerce in Paris makes this difference in terminology even more apparent in that it allows the parties to chose "the law or rules of law" to be applied by the arbitral tribunal.[83] According to the almost unanimous opinion of international doctrine this term encompasses not only domestic laws but also transnational rules of law, including the lex mercatoria and the UNIDROIT Principles.[84] Thus, the parties' reference to the Principles constitutes a genuine choice of law.

This does not mean, however, that application of the Principles leads to a legal vacuum, freed of all constraints of mandatory laws. As in the case of the general lex mercatoria doctrine, application of the Principles is always subject to the mandatory rules ("lois d'application immediate") applicable according to the relevant rule of [page 147] private international law.[85] This basic principle is manifested in Article 1.4 of the Principles. It is of utmost importance for the legitimacy the international arbitral practice under the Principles. One of the major arguments of those who oppose the lex mercatoria doctrine has always been that this transnational approach to decision making serves to circumvent rules and Principles of a public policy nature.[86] If this were true, national courts would no longer lend their support to the international arbitral process and would set aside or refuse enforce international awards on the basis of a violation of international public policy.[87] Thus far, the domestic courts of the world has not pursued this adversarial attitude towards the international process but have increasingly shown their willingness to acknowledge the application of transnational rules by international arbitrators.[88] The change of paradigm mentioned in the Introduction [page 148] is accompanied by a change in attitude of domestic courts vis à vis the international arbitral process, thus creating a favorable climate for the application of transnational rules such as the Principles.


The above survey of recent arbitral case law reveals that the UNIDROIT Principles of International Commercial Contracts have furnished international arbitrators with a perfect and eminently practical tool for their comparative decision making. This impression is confirmed by UNIDROIT itself a worldwide inquiry conducted in September 1996 has revealed that the Principles have met with increasing acceptance among international contract and arbitration lawyers and academics.[89] This success of "privatized rule making" shows that the science of comparative law, which, since its inception at the Congress of Comparative Law held in Paris in 1900, had to fight against allegations of being a purely academic subject,[90] has met the challenges of the times and has proved that it is eminently practical in nature and has developed, in the words of Sir Arnold McNair, into a truly "Applied Comparative Law."[91]

At the same time, the increasing reference of international arbitrators to the Principles promotes the development of genuine transnational case law of international arbitral tribunals. Since arbitral awards more and more assume a genuine precedence value within the international arbitration process,[92] it can be expected that the general trend towards denationalizing the arbitrators' decision on the merits of their cases gains new momentum. Even the domestic courts are beginning to give up their traditional reluctance vis à vis transnational legal rules. The Court of Appeals of Grenoble, in two decisions [page 149] rendered in January and October 1996, has applied the Principles generally accepted principles of international trade law.[93]

This worldwide movement towards a growing acceptance of the Principles, ranging from the stage of contract negotiations to dispute settlement through international arbitral tribunals and even domestic courts, will, in turn, give new impetus to the doctrine and practice of a law merchant, a new lex mercatoria. [page 150]


* Klaus Peter Berger is S.J.D., University of Bielefeld; J.D., University of Cologne; LL.M, University of Virginia; Professor of Private, Commercial, Comparative and Private International Law; Director, Institute for International Business Law and Center for Transnational Law (CENTRAL), Munster University, Germany. This article is based on a presentation given at the Moot Alumni Association's (MAA) Forum at Pace University's Fifth Annual Willem C. Vis Arbitration Moot in Vienna on April 3, 1997.

1. UNIDROIT (ed.), Principles of International Commercial Contracts (1994); UNIDROIT (ed.), Principles relatifs aux contrats du commerce international (1994) [cited hereinafter as "the Principles"].

2. Cf. generally Bonell, "A 'Restatement' of Principles for International Commercial Contracts: An Academic Exercise or A Practical Need?," Revue de Droit des Affaires International (1988), at 873 et seq.; Michel J. Bonell, An International Restatement of contract Law (2nd ed. 1997) at 17 et seq. [hereinafter cited as: An International Restatement] : Bonell, "The UNIDROIT Principles of International Commercial Contracts: Why? what? How?", 69 Tul. L. Rev. (1995), at 1121 et seq.; Michael J. Bonell, I Principi UNIDROIT Dei Contratti Commerciali Internazionali: Origini, Natura e Fihalità, Diritto Dell Commercio Internazionale 1995, at 3 et seq.; Bonell, "The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law: Similar Rules for the Same purpose?," Uniform L. Rev. (1996), at 229 et seq.; Klaus P. Berger, Formalisierte oder "schleichende" Kodifizierung des transnationalen Wirtschaftsrechts ( 1996), at 139 et seq. [hereinafter cited as: Schleichende Kodifizierung]; van Houtte, "The UNIDROIT Principles of International Commercial Contracts," Arbitration International 1995, at 373 et seq.; Brazil, "UNIDROIT Principles of International commercial Contracts in the Context of International Commercial Arbitration," International Arbitration Report, April 1996, at 31 et seq.; Perales Viscasillas, "UNIDROIT Principles of International Commercial Contracts: Sphere of Application and General Provisions," 13 Ariz. J. Int'l & Comp. L. (1996), at 383 et seq.; Fontaine, "Les principes pour les contrats commerciaux internationaux élaborés par UNIDROIT," Revue de droit international et de droit comparé 1991, at 23 et seq.; James N. Gordley, An American Perspective on the Unidroit Principles (1996), at 1 et seq.; Lando, "Assessing the role of the UNIDROIT Principles in the Harmonization of Arbitration Law," 3 Tul. J. Int'l. & Comp. L. (1994), at 129 et seq.; Perillo, "UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review," 63 Fordham Int'l L. Rev. 1994, at 281 et seq.; Storme, "Applications Possibles et Caractères Généraux des Principes de Droit Uniforme des Contrats," in Revue de Droit international et de Droit comparé 1995, at 309 et seq. ; see also the contributions by Lalive, Monaco, Fontaine, Farnsworth, Gaymer , Razumov, De Nova, van Houtte, Reymond, Giardina, Komarov, Raeschke-Kessler, Furmston, Beraudo, Drobnig, Morera, Tallon, Hartkamp and Huet in, ICC Institute of International Business Law and Practice (ed.), UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria? (1995), at 7 et seq.

3. Cf. for this phenomenon Berger, "Die UNIDROIT -Prinzipien für Internationale Handelsverträge, Indiz für ein autonomes Weltwirtschaftsrecht?," Zeitschrift. für Vergleichende Rechtswissenschaften (1995), at 217 et seq.; Berger, Schleichende Kodifizierung, supra n. 2, at 24 et seq.; Boele-Woelki, "Principles and Private International Law," Uniform Law Review 1996, at 652, 659; Boele-Woelki, Principles En IPR, 1995, at 9.

4. See generally Parra-Aranguren, "The Centenary of the Hague Conference on Private International Law," in Christian Dorninicé, Robert Patry & Claude Reymond (eds.), Etudes de Droit international en L'Honneur de Pierre Lalive (1993), at 97 et seq.

5. Gaillard, "The Use of Comparative Law in International Commercial Arbitration," in Pieter Sanders (ed.), Arbitration in settlement of international commercial disputes involving the Far East and arbitration in combined transport, ICCA congress. ser. no. 4, 1989, at 283.

6. See Lalive, "On the Neutrality of the Arbitrator and the Place of Arbitration," in Claude Reymond & Eugen Bucher (eds.), Recueil de travaux Suisses sur L'Arbitrage International (1984), at 23,27: "An international arbitration should be decided by an international arbitrator, i.e., someone who is more than a domestic lawyer, someone who is internationally orientated and has been educated in comparative law and who is inclined to take a comparative and hence truly 'international' viewpoint" (original in French).

7. Cf. Goodman-Everard, "Cultural Diversity in International Arbitration -- A Challenge for Decision Makers and Decision Making," Arbitration International 1991, at 155, 161.

8. See W. Lawrence Craig, William W. Park & Jan Paulsson, International Chamber of Commerce Arbitration (2nd ed. 1990), at 79: "The principal method used by ICC arbitrators to choose an appropriate conflict of laws rule is the cumulative application of the different rules of the countries having a relation to the dispute;" see also Sandrock, "Welches Kollisionsrecht hat ein Internationales Schiedsgericht anzuwenden?," Recht der Internationalen Wirtschaft (1992), at 785, 794; Lew, "Relevance of Conflict of Law Rules in the Practice of Arbitration," in Albert J an van den Berg (ed.), Planning Efficient Arbitration Proceedings, The Law Applicable in International Arbitration (1996), at 447, 450 et seq.; ICC Award No. 2730, Clunet 1984, at 914; No. 5314, Yearbook Commercial Arbitration 1995, at 35, 38 et seq.; No. 6149, Yearbook Commercial Arbitration 1995, at 41, 53: "A comparison of the conflict of law rules of the states most closely connected with the subject matter of the present arbitration shows that they all are in harmony with each other and that they therefore have to determine the proper law of the contract" (emphasis added, footnote omitted).

9. See Klaus Peter Berger, International Economic Arbitration (1993), at 505 ("In fact, [the] comparative technique is followed by most arbitrators in practice even if they purport not to apply any particular choice of law rule"); cf. also ICC Award No. 4650, Yearbook Commercial Arbitration 1987, at 111, 112; No. 6149, Yearbook Commercial Arbitration 1995, at 41, 54: "The decision is further supported by some other general principles prevalent in modern conflict of laws."

10. Cf. Berger, supra n. 9, at 509 et seq.

11. See Goodman-Everard, supra n. 7, at 161.

12. See UNIDROIT (ed.), Principles, supra n. 1, Introduction, at VIII.

13. See UNIDROIT (ed.), Principles, supra n. 1, at 3.

14. See Harold Cooke Gutteridge, Comparative Law, An Introduction to the Comparative Method of Legal Study & Research (2nd ed. 1949), at 32 et seq.: "The law of obligations ... appears to provide one of the most promising fields for comparative study and research ... [I]t deals with ... the 'mobile' elements in human relationships; in other words, it is the law of everyday life ... The conclusions arrived at are, in general, more or less identical, although the method of arriving at them may differ considerably ... The law of contract furnishes the necessary groundwork for a comparison of the commercial laws of the world; it is also the essential prelude to any proposal for the unification of these laws."

15. See Rudolf B. Schlesinger (ed.), Formation of Contracts: A Study of the Common Core of Legal Systems, 2 Volumes, 1968; cf. also Schlesinger, "Research on the General Principles of Law Recognized by Civilized Nations," 51 Am. J. Int'l L. (1957), at 734 et seq.; Kahn-Freund, "Comparative Law in Action," 18 Am. J. Comp. L. (1970), at 429 et seq.

16. Cf. Rotondi, "The Proposed Franco-Italian Code of Obligations," 3 Am. J. Comp. L. (1954), at 345 et seq.

17. See generally Ferrari, "Le Champ D'Application des 'Principes pour les Contrats Commerciaux Internationaux' Elaborés par UNIDROIT," Revue Internationale de Droit Comparé 1995, at 985 et seq.

18. UN Doc. No. A/Conf.9 7/18 (Annex I) 1980; cf. generally John Honnold, Uniform Law for International Sales (2nd ed. 1991), at 47 et seq.

19. Cf. generally for this approach Berger, Schleichende Kodfizierung, supra n. 2, at 174 et seq.

20. ICC Award No. 8128, Clunet 1996, at 1024 et seq. with note by Hascher, id., at 1028 et seq.; For an overview of the UNIDROIT principles in arbitral practice see also Bonell, "Erste Entscheidungen zu den UNIDROIT principles," ASA Bulletin (1997), at 600 et seq. and Bonell, "The UNIDROIT Principles in Practice: The Experience of the First Two Years," Uniform L. Rev. (1997), at 2, 10.

21. Art. 83 of the Uniform Law provided that the interest rate should be 1% above the official discount rate in the country where the creditor has his place of business or his habitual residence, see Weitnauer in Hans Dölle, Kommentar zum Einheitlichen Kaufrecht (1976) Art. 83, No.1 et seq.

22. Cf. Honnold, supra n. 18, Art. 78 No.4.

23. Cf. generally for interest prohibitions under Islamic law ("ribah") Grabau, Zeitschrift für vergleichende Rechtswissenschaften 1990, at 330,348; Maiwald, Recht der internationalen Wirtschaft (RIW) 1984, at 521 et seq.; Shirazai (ed.), Islamic Banking, 1990, at7 et seq.; S.H. Hamoud, Islamic Banking (1985), at 17 et seq.; Chinoy, Journal of Int'l Banking Law 1995, at 517 et seq.

24. Cf. the statement of the chairman of the UN-Working Group, cited by Albert H. Kritzer, Guide to Practical Applications of the United nations Convention on Contracts for the International Sale of Goods (1989), at 498.

25. Cf. Eberstein & Bacher in Ernst v. Caemmerer & Peter Schlechtriem (eds.), Kommentar zum Einheitlichen UN-Kaufrecht -- CISG --, (2nd ed. 1995), Art. 78, No. 26; Karollus, UN-Kaufrecht, 1991, at 227; Ferrari, "Tasso Degli Interessi Ed Applicazione Uniforme Della Convenzione di Vienna Sui Contratti di Vendita Interanzaionale," Rivista Di Dirritto Civile 1995, 277, 288 et seq.; Reinhart, UN-Kaufrecht, 1991, Art. 78, No. 6; Magnus, "Währungsfragen im Einheitlichen Kaufrecht, Zugleich ein Beitrag zu seiner Lückenfullung und Auslegung," RabelsZ 53 (1989), at 116, 140; Herber Czerwenka, Internationales Kaufrecht, 1991, Art. 78, No. 6; Piltz, Internationales Kaufrecht, 1993, 5, No. 413; Nicholas, in C. Massimo Bianca & Michael J. Bonell, Commentary on the International Sales Law, 1987, art. 78 No. 2.1; Herdegen, Internationales Wirtschaftsrecht, (2nd ed. 1993), at 155; Ryffel, Die Schadensersatzhaftung des Verkäufers nach UN-Kaufrecht (1992), at 86.

26. Cf. Ferrari, "Interprétation Uniforme de la Convention de Vienne de 1980 sur la Vente Internationale," Revue Internationale de Droit Comparé 1996, at 813, 846 et seq.; Magnus, "Die allgemeinen Grundsätze im UN-Kaufrecht," RabelsZ 1995, at 469 et seq.

27. Clunet 1996, at 1927; cf. generally for the function of the UNIDROIT Principles as expression of the general principles under Art. 7(2) CISG Bonell, "The UNIDROIT Principles of International Commercial Contracts and CISG -Alternatives or Complementary Instruments," Uniform L. Rev. 1996, at 26, 36 et seq.

28. Clunet 1996, at 1027.

29. See Berger, "Der Zinsanspruch im Internationalen Wirtschaftsrecht," RabelsZ 1997, at 313, 333 et seq.

30. Cf. the ICC Award No. 6219, Clunet 1990, at 1047, 1049 with comment by Derains, id. at 1053 et seq., in which the tribunal fixed the rate of interest irrespective of statutory interest rates of domestic law and stated: "Comme le relévant de nombreuses sentences arbitrales, les intérêts moratoires sont alloués pour réparer le dommage résultant du fait que le créancier a été privé pendant un certain délai, de l'usage et de la disposition de sommes qu'il aurait dû recevoir ... un taux de 8,5% rémunére de maniére raisonnable les capitaux dont la demanderesse a été privée pendant cette période.;" see also ICSID Award Asian Agricultural Products Ltd. v. Republic of Sri Lanka, ILM 1991 at 580, 626: "The survey of the literature reveals that, in spite of the persisting controversies with regard to cases involving moratory interest, the case law elaborated by international arbitral tribunals strongly suggests that in assessing the liability due for loss incurred the interest becomes an integral part of the compensation itself ...;" cf. also ICC Award No. 3226, Clunet 1980, at 959; Ad Hoc Award of July 23,1981, Yearbook Commercial Arbitration, 1983, at 89, 94: "The rate of interest must reflect ... only commercial loss.;" cf. also Mann, "Compound interest as an item of damage in International Law," in F.A. Mann (ed.), Further Studies in International Law (1990), at 377, 383 et seq. (for compound interest); Berger, supra n. 9, at 625 et seq.; cf. also Honnold, supra n. 18, at 424 ("Commercial fact that failure to receive funds is always a loss."), Branson & Wallace, "Awarding Interest in International Commercial Arbitration: Establishing a Uniform Approach," 28 V. J. Int'l. L. 1988, 919, at 923.

31. See Sylvania Technical Systems, Inc. v. The Government of the Islamic Republic of Iran, Claims Tribunal Report (CTR) 1985, at 298, 320; McCollough & Co., Inc. v. Ministry of Post, CTR 1986, at 3, 29: "... two principles or guidelines, of general import, albeit of delicate implementation, can be deduced from international [arbitral] practice ... The first principle is that under normal circumstances, and especially in commercial cases, interest is allocated on the amounts awarded as damages in order to compensate for the delay with which the payment to the successful party is made ... The second principle is that the rate of interest must be reasonable ...;" cf. also the dissenting opinion of Judge Brower in the McCollough arbitration, at 41, 42:

"Conceptually, interest in an item of damage. Its award is intended as compensation for the temporary withholding of money and its measure is the cost of such deprivation."

32. Libyan American Oil Company (LIAMCO) v. The Government of the Libyan Arab Republic, Ad Hoc Award of April 12, 1977, ILM 1981, at 1,87.

33. Cf. Ad Hoc Arbitral Award of November 17, 1994, Banque Arabe et Internationale d'Investissement (BAII) et al. c. The Inter-Arab Investment Guarantee Corporation (IAIGC), reprinted in International Arbitration Report, April 1996, at A-l, A-27 (= Yearbook Commercial Arbitration 1995, at 13 et seq.): "There is ... a common legal principle which can govern [the issue of interest1 namely the compensatory principle: a party may claim the damnum emergens (ma lahaqahu min darar) and the lucrum cessans (ma fatahu min ribh) suffered by it as a direct result of a breach of contract, provided ... such result was reasonably foreseeable by the parties when they entered into the contract ... The tribunal considers that the LIBOR rate for US dollar interbank deposits with prime banks is a reasonable measure of the loss of earnings or cost of money arising from non-receipt of U.S. dollar by a bank ...".

34. See EI-Ahdab, "The Post-arbitral Phase," in van den Berg (ed.), International Arbitration in a Changing World (1994), at 165, 186 et seq.

35. Cf. Berber & Czerwenka, supra n. 25, Art. 78, No.7; cf. also Karollus, supra n. 25 at 227.

36. Cf. Honnold, supra n. 18, art. 78, No.421: "The principle underlying [Art. 78] is like that of Article 74 which provides for the recovery of "damages ... equal to the loss ... suffered as a consequence of the breach."

37. Cf. UN Doc. A/CONF.97/C.1/L.226, O.R.138; Ryffel, supra n. 25, at 85.

38. Cf. Bonell, supra n. 27, at 37: "Art. 7.4.0 ... clearly intends to make sure that the interest to be paid covers to the greatest possible extent the loss actually suffered by the aggrieved party as a consequence of the non-payment of the sum of money due" (emphasis added).

39. Cf. Awards of June 15, 1994, reprinted in Recht der Internationalen Wirtschaft (RIW) 1995, at 590 et seq., with note by Schlechtriem id., at 592; see also Boele-Woelki, supra n. 3, at 23; Perales Viscasillas, supra n. 2, at 402; Bonell, supra n. 20, at 9.

40. See Karrer, "Transnational Law of Interest in International Arbitration," in Emmanuel Gaillard (ed.), Transnational Rules in International Commercial Arbitration (1993), at 223; cf. also van Houtte, supra n. 2, at 375.

41. Cf. the partial award Wintershall AG et al. v. The Government of Qatar, ILM 1989, 798 (809): "generally prevailing LIBOR rate on the date of the award;" cf. also the claimant's request in ICC arbitration No. 4462 ("Sun Oil"), ILM 1990, at 567, 578: "Order Sun Oil to pay interest on all amounts [claimed] at a compounded rate of two percent above the LIBOR rate prevailing since the date of the filing of the Request for Arbitration", Ad Hoc Award of July 28, 1995, ASA Bulletin 1995, at 742, 750; ICC Award No. 6998, Yearbook Commercial Arbitration 1996, at 54, 78.

42. See the Award of The Netherlands' Hide and Leather Exchange of October 30, 1980, Yearbook Commercial Arbitration 1982, at 52, 60; ICC Award No. 6320, Yearbook Commercial Arbitration 1995, at 62, 108.

43. See ICC Award No. 4237, Yearbook Commercial Arbitration 1985, at 52, 60.

44. See Berger, supra n. 9, at 629.

45. See Ad Hoc Award of July 23, 1981, Yearbook Commercial Arbitration 1983, at 89, 94: "The agent is claiming 10%, the Shipowner is offering 8%. Arbitrators fix the rate [of interest] at 9% per annum.;" cf. for this tendency of international arbitrators Derains, Intérêts moratoires, dommages-intérêts compensatoires et dommages punitifs devant l'arbitre international, in Etudes offertes à Pierre Bellet (1991), at 101, 120; Karrer, supra n. 40, at 227 et seq.

46. Cf. generally for this approach Berger, Schleichende Kodifizierung, supra n. 2, at 174 et seq.

47. See Goode, "Reflections on the Harmonisation of Commercial Law," Unif. L. Rev. 1991, at 54, 59; Malintoppi, "Les Relations entre L'Unification et L'Harmonisation du Droit et la Technique de l'Unification ou de L'Harmonisation par la Voie d'Accords Internationaux," UNIDROIT Annuaire 1967-1968, Vol. II, at 43, 56 et seq.: Lando, "Some Issues Relating to the Law Applicable to Contractual Obligations," The Kings College L.J. 1996-1997, at 55, 62; see also for the role of comparative law in the decade of "economic transnationalism" Buxbaum, "Die Rechtsvergleichung zwischen nationalem Staat und internationaler Wirtschaft," RabelsZ 1996, at 201, 219 et seq.

48. See generally Lew, "Interest on Money Awards in International Arbitration," in Festschrift Roy Goode, to be published in 1997; Cerina, "Interest as Damages in International Commercial Arbitration," 4 Am. Rev. Int'l. Arb. 1993, at 255 et seq.; Gotanda, "Awarding Interest in International Arbitration," Am. J. Int'l. L. 1996, at 40 et seq.; Mann, "Compound Interest as an Item of Damage in International Law," in F.A. Mann (ed.), Further Studies in International Law (1990), at 377, 382; Hunter & Triebel, "Awarding Interest in International Arbitration," J. Int'l. Arb. 1989, at 7 et seq.; Schönle, "Intérêts moratoires, intérêts compensatoires et dommages-intérêts de retard en arbitrage international," in, Christian Dominicé, Robert Patry & Claude Reymond (eds.), Etudes de Droit International en L'Honneur de Pierre Lalive (1993), at 649 et seq.; Boyd, "Interest for the Late Payment of Money," Arbitration International 1985, at 153 et seq.; Wetter, "Interest as an Element of Damages in the Arbitral Process," International Financial Law Review, Dec. 1986, at 20 et seq.; Lowenfeld, "The Party Appointed Arbitrator in International Controversies: Some Reflections," International Arbitration Report, November 1996, at 29, 36; Berger, supra n. 9, at 621 et seq.; cf. also ICC Award No. 3226, Clunet 1980, at 959; No. 6219, Clunet 1990, at 1047; ICSID Award Asian Agricultural Products Ltd. v. Republic of Sri Lanka, ILM 1990, at 580, 626; cf. also for examples of practical applications of Art. 7.9.4 by international arbitrators infra n. 162.

49. See Berger, "International Economic Arbitration in Germany: A New Era," Arbitration International 1992, at 118 et seq.

50. In spite of their denomination as "contract conditions," they had a lawlike quality.

51. See Maskow, "Hardship and Force Majeure," 40 Am. J. Comp. L. 1992, at 657, 665 et seq.

52. See, e.g., ICC Award No. 5713, Yearbook Commercial Arbitration 1990, at 70, 71; ICC Award No. 2438, Clunet 1976 at 969; No. 6281, Clunet 1991, at 1054 with note Hascher, id., at 1056 et seq.

53. The Provision provides: "Payment in the currency of the place for payment is to be made according to the applicable rate of exchange prevailing there when payment is due."

54. Cf. generally for this principle Nagla Nassar, Sanctity of Contracts Revisited (1995), at 193 et seq.; Fontaine, "Les clauses de force majeure dans les contrats internationaux," Droit et Pratique du Commerce International 1979, at 469 et seq.; Fontaine, "Les clauses de hardship -- aménagement conventionnel de 1'imprevision dans les contrats à long terme," Droit et Pratique de Commerce International 1976, at.7 et seq.; cf. also Gaillard, "Thirty Years of Lex Mercatoria: Towards the Selective Application of Transnational Rules," "the criticism that transnational rules are too few in number and often contradictory rests on an inaccurate assumption. The principle of the binding force of contacts, and the various principles limiting its scope, are not at all in contradiction. On the contrary, they follow the logic principle of 'principle -- conditions -- exceptions' that recurs in all legal systems."

55. Cf. Kuijer, Een vergelijking van 'hardship' uit de UNIDROIT-regeling met de onvoorziene omstandigheden uit artikel 6:258 van het BW, Ars Aequi 1996, at 16, 19.

56. See Kegel, Internationales Privatrecht (7th ed. 1995), at 367.

57. Kegel, id.

58. It has therefore been suggested to apply the prime rate charged by banks for credits in the amount of the claim after conversion into the currency of the creditor, since there is a general presumption that the creditor will take up credits in the currency of his home country, see Berger, supra n. 29.

59. See Wiegand, in Heinrich Honsell, Nedim Peter Vogt & Wolfgang Wiegand (eds.), Kommentar zum Schweizerischen Privatrecht, Obligationenrecht I, 1992, Art. 104, No. 6.

60. See Schönle, supra n. 48, at 659; cf. also ICC Award No. 6573, Yearbook Commercial Arbitration 1995, at 110, 124 ("Absent a clear statutory rule to the contrary, economic reality requires that interest be computed at the rate generally applicable in business to commitments in the currency of the debt, i.e., here in U. S. dollars. This tribunal has ascertained this rate by means of an inquiry from a prime bank at the place of payment").

61. See Bonell, supra n. 20, Uniform Law Review (1997), at 8 et seq. and ASA Bulletin (1997) at 601 et seq.

62. ICC Award No. 7110 of 1995 and ICC Award No. 7375 of 1996, both unpublished.

63. Art. 13, Sec. 3, 2nd sentence provides: "In the absence of any indication by the parties as to the applicable law, the arbitrator shall apply the law designated as the proper law by the rule of conflict which he deems appropriate.;" cf. generally for the arbitrators' determination of the proper law of the contract Craig & Park & Paulsson, supra n. 8, at 283 et seq.

64. Cf. generally Mann, "State Corporations in International Relations," in F.A. Mann (ed.), Further Studies in International Law (1990), at 199 et seq.; Weil, "Principes généraux du droit et contrat d'Etat," in Le Droit des Relations Economiques Internationales, Etudes offertes a Berthold Goldman (1982), at 387, 388 et seq.; Petroleum Development Ltd. v. Sheikh of Abu Dhabi, 18 ILR 144 (1951), The Government of the State of Kuwait and The American Independent Oil Company (AMINOIL), ILM 1982, at 976, 1000; Texaco Overseas Petroleum Company (TOPCO)/California Asiatic Oil Company (CALASIATIC) v. The Government of the Lybian Arab Republic, ILM 1978, at 1, 14 et seq.; Sapphire International Petroleum Ltd. v. National Iranian Oil Company, ILR 1967, at 136, 173.

65. Cf. Bonell, "Die UNIDROIT Prinzipien der internationalen Handelsverträge: Eine neue Lex Mercatoria?," Zeitschrift für Rechtsvergleichung (1996), at 157; Bonell, supra n. 20, Uniform Law Review (1997), at 10 et seq.; Boele-Woelki, Principles En IPR, 1995, at 12.

66. Bonell, id.; Boele-Woelki, id.; see also Blessing, "Regulations in Arbitration Rules on Choice of Law," in Albert Jan van den Berg (ed.) Planning Efficient Arbitration Proceedings, The Law Applicable in International Arbitration (1996), at 402.

67. Cf. Boele-Woelki, id.; see also Brazil, supra n. 5, at 36 et seq.; UNIDROIT (e) Principles, supra n. 1, at 4 (comment No. 4b to the Preamble): "Hitherto, such references by the parties to not better identified principles and rules of a supranational transnational character have been criticised, among other grounds, because of extreme vagueness of such concepts. In order to avoid, or at least considerably reduce, the uncertainty accompanying the use of such vague concepts for the determination of their content, it might be advisable to have recourse to a systematic and well-defined set of rules such as the Principles.;" cf. also the extract of the award reported by Bonell, "Die UNIDROIT-Prinzipien der internationalen Handelsverträge Eine neue Lex Mercatoria?", Zeitschrift für Rechtsvergleichung 1996, at 152, 157: "general legal rules and principles enjoying wide international consensus ... are primarily reflected by the UNIDROIT Principles ... In consequence, without prejudice to taking into account the provisions of the Contract and relevant trade usages, the Tribunal finds that the [Contract is] governed by, and shall be interpreted in accordance to, the UNIDROIT Principles with respect to all matters falling with the scope such principles ...".

68. See Schlechtriem, "UNIDROIT-Principles (Einheitliche Prinzipien für Verträge) und Werkvertragsrecht," in Vygen & Böggerin (eds.), Dem Baurecht ein For Festschrift für Götz von Craushaar zum 65. Geburtstag ( 1977), at 157.

69. The full text of the choice of law clause reads: "The construction, validity and performance of the contract shall in all respects be governed by and interpreted in accordance with the principles common to both English and French law, and in the absence of such common principles by such general principles of international trade law as have been applied by national and international tribunals. Subject in all cases with respect to the works to be respectively performed in the French and in the English part of the site, to the respective French or English public policy (ordre publique) provisions;" the text of the choice of law clause is reprinted in Jayme, "BOT-Projekte Probleme der Rechtswahl," in Nicklisch (ed.), Rechtsftagen privatfinanzierter Projekte (1994), at 65, 73.

70. This approach was taken by the arbitral tribunal in ICC Award No. 59 Primary Coal Inc. (USA) c. Campania Valenciana de Cementos Portland, Revue L'Arbitrage 1990, at 70, 711; cf. also Blessing, supra n. 62, at 391.

71. See Goldman, Note, Cour d'Appel de Paris of July 13, 1989, Compania Valencianade Cementos Portland c. Société Primary Coal Ltd., Clunet 1990, at 433, 440; "S'il est vrai, en effet, que la désignation de la lex mercatoria implique nécessairement une qualification de la matière litigieuse, elle découle immédiatement de cette qualification, lorsque celle-ci fait apparaître que le contrat (ou le délit) s'inscrit dans les relations économiques internationales. La méthode est théoriquement conflictuelle, mais elle échappe aux incertitudes et aux complexités du fonctionnement de la règle de conflit, lorsque celle-ci est utilisée dans son domaine traditionnel, pour désigner une loi nationale." (emphasis added).

72. Cf. Robine, "What Companies expect of International Commercial Arbitration," J. Int'l Arb. No. 2, 1992, at 31, 36: "Although they did, indeed, deliberately keep silent on the applicable law, it was because they thought that when the time came, the arbitrator would make a choice between the possible municipal laws, which seldom exceed two. In other words, the parties deliberately took the risk that the arbitrator would choose the law of their contracting partner or at worse that of a third country linked through law with the contract. The parties did not generally take the risk that the arbitrator would make a break with all municipal law. It is often through a misunderstanding of negotiation that some arbitrators take it for granted that, where the contract is silent, they should refrain from selecting a municipal law since they would, in such a case, be doing exactly what the parties had decided not to do. In any event, it would be the proper policy, before reaching a decision for the arbitrator to get the parties to explain what they expect." (emphasis added).

73. See Ole Lando & Hugh Beale, The Principles of European Contract Law (1995); cf. also Lando, "Principles of European Contract Law: An Alternative or a Precursor of European Legislation?", 40 Am. J. Comp. L. (1992), at 573 et seq.; Drobnig, "Ein Vertragsrecht für Europa," Festschrift Steindorff (1990), at 1141 et seq.

74. Bonell, supra n. 20, Uniform Law Review (1997), at 11.

75. Bonell, id.

76. See Blessing, supra n. 62, at 401 et seq.: "There is no doubt in my mind that parties may (for instance, instead of referring to general principles of law) elect have their contract governed by these 1994 UNIDROIT Principles ..."

77. Art. 13, Sec. 3 1st sentence provides: "The parties shall be free to determine the law to be applied by the arbitrator to the merits of the dispute." The tribunal thus equated the term "law" with the term "rules of law", thus anticipating the next revision of the ICC Arbitration Rules, see infra n. 77.

78. Bonell, supra n.20, Uniform Law Review (1997), at 11.

79. Bonell, id.

80. Cf. Drobnig, "The Use of the UNIDROIT Principles by National and Supranational Courts," in ICC (ed.), UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria? (1995), at 223, 225 et seq.; cf. also Boele-Woelki "Principles and Private International Law," Uniform L. Rev. 1996, at 663; Berger "Die UNIDROIT -Prinzipen für Intenrationale Handelsverträge, Indiz für e autonomes Weltwirtschaftsrecht?" Zeitschrift für Vergleichende Rechtswissenschaft (ZvglRWiss.) 1995, at 224.

81. See UN Doc. A/CN.9/SER>A/1976, at 179.

82. See Berger, supra n. 78, at 217, 219.

83. See ICC Document No. 420/350 of October 8, 1996, at 9.

84. See, e.g., Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 121 (2nd ed. 1991); Gaillard, "The UNCITRAL Model Law and Recent Statutes on International Arbitration in Europe and South America," 2 ICSID Rev.-Foreign Investment L.J. (1987), at 424, 433; Derains, "International Commercial Arbitration in Civil Law Countries," in Pieter Sanders (ed.), Arbitration in Settlement of International Commercial Disputes Involving the Far East and Arbitration in Combined Transportation, ICCA Congress Series n. 4, 1989, at 229, 240.

85. This (unwritten) rule has been deduced from a comparative analysis of Article (1) of the Rome Convention on the Law Applicable to Contractual Relations of July 19, 1980, Art. 19 of the Swiss Federal Law on Private International Law of 1989, Article 16 of the Hague Convention on the Law Applicable to Agency Contracts of March 1978, Art. 16 of the Hague Trust-Convention, Art. 13 of the Benelux Loi Uniforme International Private Law and the Alnati-Decision of the Dutch Hoge Raad of May 1966; cf. generally Zweigert, RabelsZ 1942, at 283 et seq.; Wengler, ZVglRWiss. 19 at 168 et seq.; Lorenz, RIW 1987, at 569, 581 et seq.; this conflict of law rule requires that: 1) the relevant norm has to be qualified as mandatory provision of law; 2) the preconditions of this norm have to be met in the individual case; 3) this norm wants to be applied irrespective of the law applicable to the contract; 4) there is a close connection between the state that has enacted the norm and the contract; 5) the legislative policy which the norm is intended to implement has to be in accordance with transnational public policy ("shared values", "Wertegleichklang"); see generally Berger, supra n. 9, at 690 et seq.; Berger, "Die Einwirkung drittstaatlicher Eingriffsnormen auf internationale Verträge am Beispiel islarnischer Zinsverbote," in Herrmann & Berger Wackerbarth (eds.), Deutsches und Internationales Wirtschafts-und Bankrecht Wandel (1997) at 322, 330 et seq.; Schaefer, "Eingriffsnormen im deutschen IPR-a neverending story?," in Festgabe Sandrock, 1995, at 37, 45 et seq.; Schiffer, Normäuslandischen "offentlichen" Rechts in internationalen Handelsschiedsverfahr (1990) at 137 et seq.

86. Cf. the statement of Tallon, cited by Kropholler, Internationales Privatrecht (2nd ed. 1991), 52 ii.3.e.): "In the absence of any ius cogens, international trade would be ruled by jungle law;" see also Sandrock, "How much freedom should an International Arbitrator Enjoy? -- The Desire for Freedom from Law v. the Promotion of International Arbitration," Am. Rev. Int'l. Arb. (1992) at 30, 54 et seq.; Georges A. Hecke, Internationaal Privaatrecht (2nd ed. 1989) No. 860.

87. See Juenger, "Lex mercatoria und Eingriffsnormen," Festschrift Ritt (1991), at 233, 249: "If the arbitrator evades the task to implement the notion of fairness and justice reflected in these [mandatory] norms, this task will necessarily be taken over by the domestic courts, which will try to counterbalance this development through non-recognition of arbitral awards. In other words, if arbitral tribunals are aloof from the demands of international fairness and justice, they put into question the validity of their own decisions ... This task also serves to provide legitimacy to the arbitral process as such and strengthens the confidence in the fairness of the institution. One should not assume that ethical aspects and the notion of responsibility towards international commerce do not play a role in the arbitrators' decision making;" cf. also Tschanz, "Le Nouveau Droit Suisse de L'Arbitrage International RDAI 1988, at 437, 447; ICC Award No. 2216, Clunet 1975, at 917.

88. See French Cour de Cassation, Société Fougerolle v. Banque de Proche Ori Revue de l'Arbitrage 1982, at 183 et seq.; Cour d'Appel de Paris of July 13, 19__ Compania Valenciana de Cementos Portland S.A. v. Primary Coal Inc., revue de l'Arbitrage 1990 at 663 et seq.; Austrian Supreme Court of November 18, 1982, NORSOLOR S.A. v. Pabalk Ticaret Ltd., Yearbook Commercial Arbitration 1984, at 159; English Court of Appeal, Deutsche Schachtbau- und Tietbohrgesellschaft m.b.H. v. R'as al Khaimah National Oil company ('Rakoil'), (1987) 2 Lloyd's L. Rep. 246, 252 (holding that an award based on "internationally accepted principles governing contractual relations" cannot be regarded as unenforceable on the ground of violation of public policy); see for an approving comment on the "Rakoil" case, Lalive, "Arbitrage en Suisse et 'Lex Mercatoria', 5 ASA Bulletin 1987, at 165 et seq.; cf. also Obergericht Kanton Zürich, Bl.ZürchRspr 1986, No. 23 (bank guarantee as element of a "transnational lex mercatoria").

89. Bonell, supra n. 20, Uniform Law Review (1997), at 3 et seq.

90. See Gutteridge, supra n. 14, at 23: "Comparative law has been described as the 'Cinderella of the Legal Sciences'. It has gained a foothold in the domain of the law, but its position is by no means secure, and comparative studies must often be carried out in an atmosphere of hostility, or, at best, in a chilly environment of indifference."

91. See Gutteridge, supra n. 14, at 7.

92. See generally Berger, "The International Arbitrators' Application of Precedents," J. Int'l. Arb. 1992, at 5, 19 et seq.

93. Bonell, supra n. 20, Uniform Law Review (1997), at 9 et seq.

Pace Law School Institute of International Commercial Law - Last updated January 23, 2008
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