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Reproduced with permission of 56 American Journal of Comparative Law (Winter 2008) 1-28

The CISG, European Contract Law and the Development of a World Contract Law

Michael Joachim Bonell [*]

  1. The CISG: A Veritable World Sales Law
    1. The Adoption of the CISG in 1980 or What a Different World as Compared to Now
    2. The CISG Today: A World-Wide Acceptance
  2. The CISG and the Development of a European Contract Law
    1. The Consumer Sales Directive: A Model for European Contract Law in General
    2. From the Principles of European Contract Law toa "Common Frame of Reference (Whatever that may mean)
    3. Prospects for the Future
  3. The CISG and the Development of a World Contract Law
    1. The CISG and the UNIDROIT Principles: International Legislation vs. "Restatement"
    2. The UNIDROIT Principles and Their Contribution to the Development of a World Contract Law
      1. The UNIDROIT Principles as a Model for National and International Legislation
      2. The Nature of UNIDROIT Principles as the Law Governing the Contract
      3. The UNIDROIT Principles Applied in Dispute Resolution
    Outlook

The United Nations Convention on Contracts for the International Sale of Goods (CISG), though promulgated more than a quarter of a century ago in an entirely different socio-economic and political environment, remains a landmark in the international unification process. Adopted by seventy countries, including most of the major trading nations, the CISG has not only achieved the status of a veritable world sales law but has also led a number of States to modernize their domestic sales laws. In addition, it heavily influenced the EC Consumer Sales Directive in Europe and is a source of inspiration to the current work on a possible European Civil Code. Moreover, at a universal level, the CISG has prompted UNIDROIT to prepare the UNIDROIT Principles of International Commercial Contracts, a sort of restatement of the law of international commercial contracts in general. The present article is intended to explore these developments further, focusing in particular on the potentialities of legislative instruments such as the CISG and the EC Consumer Sales Directive as opposed to non-binding or soft law instruments such as the UNIDROIT Principles.

I. THE CISG: A VERITABLE WORLD SALES LAW

A. The Adoption of the CISG in 1980 or What a Different World as Compared to Now

The United Nations Convention on Contracts for the International Sale of Goods [1] was adopted in 1980 at the conclusion of a Diplomatic Conference held in Vienna, which saw the participation of delegates from sixty-two countries and observers from eight international organizations. Twenty-seven years are not a few but they seem an eternity if one compares the world as it was in 1980 to what it is [page 1] now. Suffice it to mention that in those days, the cold war was still a reality, and not only the so-called Socialist countries but also a large number of developing countries had strictly centralized and planned economies, therefore playing a rather marginal role -- if any at all -- in international trade. To be sure, at the Vienna Diplomatic Conference the majority of the sixty-two participating States belonged to the Western hemisphere, equally divided between common law and civil law jurisdictions. Yet, there was also an ample representation of the so-called Eastern or Communist Bloc, and an even more numerous presence of "non-aligned" countries of the so-called Third World. To give an idea of the totally different geo-political context in which CISG was prepared and finally adopted: both within UNCITRAL -- the United Nations Commission for International Trade Law responsible for the preparatory work on the CISG -- and at the Vienna Diplomatic Conference there were still two German delegations, one for the Federal Republic and one for the then still existing and very active GDR; Bulgaria, Czechoslovakia, Hungary, Poland, and Romania, nowadays fully integrated in the European Union, at that time were member States, together with the GDR and the Soviet Union, of the Council of Mutual Economic Assistance -- better known as COMECON -- a sort of Eastern counterpart of the then European Economic Community; finally, among the non-aligned countries the most influential were Egypt and Ghana, while China -- today a country with one of the world's strongest economies -- at that time was not even yet a full member of UNCITRAL and also at the Diplomatic Conference was little more than an attentive observer. Under the circumstances, the fact that the Diplomatic Conference was able to complete its work was already a success on its own. Indeed, during the five weeks of intense debate, there were quite a few instances in which, due to the profound differences that emerged among the various groups of States, there was the risk of a complete failure of the Conference, or at least of the refusal of a number of delegations to sign the Final Act, despite the eminently technical and non-mandatory character of the uniform law instrument in preparation. Suffice it to mention the need for sales contracts to be in writing -- denied by the Western countries while strongly advocated by the Socialist countries; the relevance of usages not expressly agreed upon by parties -- supported by the Western countries while opposed by the developing nations as well as the Socialist countries; the question whether the buyer had a duty to give notice within a reasonable time of the defects discovered in the goods delivered and what the effects of its failure to do so should be -- on which the industrialized countries and the developing countries took totally different positions; the right to interest on sums in arrears -- strongly opposed by Islamic countries; finally, the question whether the determination of the price was a prerequisite for the valid conclusion of sales contracts -- [page 2] that saw once again the Western countries (with the important exception of France) opposed to the developing countries and also the Socialist countries.[2]

To be sure, the text of the CISG as eventually unanimously adopted by the Diplomatic Conference is far from perfect. In view of the considerable differences in the legal traditions and/or in the socio-economic structures of the States participating in the negotiations, some issues had to be excluded from the scope of the CISG at the outset. Additionally, with respect to a number of other items, the conflicting views could only be overcome by compromise solutions leaving matters more or less undecided.

Thus, some categories of sale -- such as consumer sales, sales of shares and other securities, of negotiable instruments and money, of ships and aircraft -- are expressly excluded from its scope.[3] But also with regard to ordinary sales contracts, a number of important issues had to be left out. The CISG itself expressly mentions the validity of the contract, the effect of the contract on the property rights in the goods, and the liability of the seller for death or personal injury caused by the goods to the buyer or any other person.[4] In addition, the CISG does not cover the conclusion of the sales contract through an agent, set-off, assignment of rights, and limitation periods -- let alone the use of electronic communications in connection with the formation and performance of international sales contracts which was virtually unknown at the time of the preparation of the CISG.[5]

Of the provisions laying down debatable compromise solutions between conflicting views, some openly leave the definite answer to the applicable domestic law -- for example, regarding the formal requirements of the contract, the option of obtaining a judgment for specific performance, or the possibility of a sales contract being validly concluded without an express or implied determination of the price.[6] Other provisions -- such as those dealing with the revocability of the offer or with the transfer of risk where the goods are sold in [page 3] transit -- use the technique of a main rule immediately followed by an equally broad exception, essentially leaving the question open as to which of the two alternatives will ultimately prevail in each single case.[7] Still other rules hide the lack of any real consensus behind vague and ambiguous language -- such as the provisions dealing with the general principle of good faith, the relevance of usages, or the definition of a fundamental breach of contract.[8]

Still, on the whole there can be no doubt that the CISG provides a most valuable and fairly innovative normative regime for international sales contracts. To begin with, in contrast to most domestic legislation in this field, it is not only concerned with the rights and duties of buyer and seller arising from the sales contract but also addresses important aspects of general contract law, such as contract formation and interpretation, the right to suspend performance, anticipatory breach, and finally, damages and exemption from liability for non-performance. There are also several provisions which were virtually unknown at the time to most, if not all, traditional domestic sales laws: mention may be made of the substantially unitary approach to the different cases of non-performance by both seller and buyer and to the respective remedies; the seller's right to cure defects in its performance not only up to the date of delivery but even thereafter, provided that it can do so without unreasonable delay and without causing the buyer unreasonable inconvenience; and the passing of the risk of loss of, or damages to, the goods which was separated from the passing of "property rights" in the goods and instead linked to their "delivery," etc.

B. The CISG Today: A World-Wide Acceptance

Up until now, the CISG has been adopted by no less than seventy States from all five continents including the major trading nations (with the sole exceptions of Japan, the United Kingdom, and India), with the result that today, at least in theory, most of the export/import transactions concerning goods, carried out worldwide, are subject to the same set of rules.

The importance of the CISG has been questioned on the grounds that it applies only to international sales contracts which represent a small percentage of all the sales contracts concluded within the Contracting States; that even where it is applicable parties quite often contractually exclude it; and that in the absence of an international tribunal competent to make preliminary rulings on questions concerning [page 4] its interpretation it anyhow risks being applied differently in different parts of the world.[9]

These arguments are not convincing. Indeed, it is the international sales contracts that, from a legal point of view, pose most problems if only because parties are often unsure about what the applicable law will be until a dispute arises and until the relevant conflict-of-laws rules are determined by the respective adjudicating bodies. As to the frequency with which parties actually exclude the application of the CISG, it is true that in certain trade sectors (e.g., commodities) exclusion appears indeed to be the rule. However, in other areas, recent surveys show that after an initial rejection of the CISG, business people seem more and more willing to accept the new regime.[10] No doubt this is also due to the fact that there is now an increasing body of case law relating to the CISG. Even more important, the much feared danger of sharp differences in its interpretation by the various domestic courts seems to have been avoided to a large extent,[11] also thanks to the vast information on the decisions rendered world wide provided by specialized and easily accessible data bases.[12]

II. THE CISG AND THE DEVELOPMENT OF A EUROPEAN CONTRACT LAW

A. The Consumer Sales Directive: A Model for European Contract Law in General?

Despite the fact that the CISG is formally restricted to international sales contracts, in practice its operational range has proved to be much wider. Indeed, after its adoption, the CISG was taken as a model by individual States, or groups of States, for the purpose of reforming their domestic sales laws. [page 5]

This is the case for instance of the sales section of the new Dutch Burgerlijk Wetboek adopted in 1992 [13] and of the new German sales law contained in the German Civil Code (BGB) as amended by the Gesetz zur Modernisierung des Schuldrechts of 2002.[14] At the regional level, mention may be made of the common Sale of Goods Acts of the Scandinavian countries which were revised in Finland in 1988, in Norway in 1989, and in Sweden in 1991, in order to bring them into line with the system and contents of the CISG.[15]

Yet -- at least as far as Europe is concerned [16] -- by far the most important by-product of the CISG is the Directive of the European Parliament and the Council of May 25, 1999 on Certain Aspects of the Sale of Consumer Goods and Associated Guarantees -- better known as the "Consumer Sales Directive."[17] The Directive was aimed at "the creation of a common set of minimum rules of consumer law, valid no matter where the goods are purchased within the Community, [which] will strengthen consumer confidence and enable consumers to make the most of the internal market."[18] The Directive states in general terms the duty of a professional seller to deliver to the consumer "goods which are in conformity with the contract of sale."[19] It also specifies a number of factors or criteria which, if complied with at the time of delivery of the goods, create the presumption that the goods are in conformity with the contract,[20] and it grants the consumer a choice of four remedies in case of lack of conformity. [page 6] These four remedies include the right to require the seller to repair the goods or to replace them free of charge [21] and, if these two options fail,[22] the right to require an appropriate price reduction or to terminate the contract.[23] While it is left to the Member States to impose on the consumer the duty to inform the seller of the defects within two months after their discovery,[24] it is expressly provided that, in any case, the cut-off period for the seller's liability for lack of conformity is two years after the time of delivery, and that if the consumer's remedies are subject to a limitation period under the applicable domestic law, that period shall not expire before the end of the cut-off period.[25]

As openly admitted by the Community legislature itself, the CISG was the main model for the Consumer Sales Directive.[26] This is true in particular with regard to the basic concept of "conformity with the contract" of the goods to be delivered and to three of the four requirements thereof as set forth in Article 2 -- which almost literally corresponds to Article 35 of the CISG. It is also true for the remedies for lack of conformity as provided in Article 3 -- whose counterparts in the CISG can be found in Articles 36, 46, 49, and 50.

Yet, there are also significant differences between the Consumer Sales Directive and the CISG. Thus, according to the Directive, but not under the CISG, the seller is also, in principle, responsible for the quality and performance of the goods as advertised or labelled either by itself, or by the producer, or its representative.[27] Furthermore, the buyer may be under no duty to notify the seller of the lack of conformity as a condition to exercising his or her remedies.[28] Also, while as a rule it is up to the buyer to prove that the lack of conformity already existed at the time of delivery of the goods, any lack of conformity which becomes apparent within six months after delivery is presumed to have existed at the time of delivery.[29] Moreover, the final seller, if liable to the consumer for a lack of conformity resulting from an act or omission by the producer or any previous seller in the same contractual chain, may pursue remedies against the responsible manufacturer [page 7] or previous seller.[30] Finally, in case the seller or the producer offer additional undertakings over and above the remedies available to the consumer under the applicable domestic law, such contractual "guarantees" must meet particular requirements as to form and content.[31]

It has been argued that the Consumer Sales Directive is not only a more modern instrument than the CISG but that it provides, together with the 1993 Directive on Unfair Terms in Consumer Contracts (hereinafter the "Unfair Terms Directive"),[32] a sort of model for, or "cornerstone" of, the future European contract law in general.[33]

Such an assessment definitely seems to go too far.

To begin with, it is certainly true that some of the innovative solutions provided by the two Directives -- such as the policing of unfair, not individually negotiated terms,[34] the potentially binding effect of advertising, or the passing of liability up the chain of distribution [35] -- could also be applied to business-to-business transactions, albeit with the appropriate adaptations.[36] However, other provisions are clearly conceived with special regard to consumer transactions and are therefore ill-suited for a commercial context. Suffice it to mention, as far as the Unfair Terms Directive is concerned, the non-rebuttable presumption that terms drafted in advance have not been individually negotiated; the requirement that terms offered to the consumer in writing be drafted in plain, intelligible language; as well as the rule that the choice of the law of a non-EU-Member country shall not deprive the consumer of the protection granted by the Directive.[37] With respect to the Consumer Sales Directive, one may recall the priority accorded to the remedies of repair or replacement over price reduction and contract termination; the presumption that a lack of conformity which becomes apparent within six months after delivery existed at the time of delivery; the requirements as to both form and content of contractual guarantees; not to mention the mandatory nature of all the rights of the consumer under the Directive.[38] [page 8]

More importantly, the type of contracts that the Community legislature had in mind while preparing the Directives were mass contracts, concluded on the basis of standard terms in which the single transactions are not isolated but are part of a chain of contracts, starting from the manufacturer and progressing through a series of intermediaries before ending at the final customer. Admittedly, this is the typical scenario of consumer contracts, but to define it as "the most current phenotype of modern contract-making"[39] tout court is an exaggeration. In the field of commercial transactions, individually negotiated or "arms length" contracts are no less relevant than "boiler-plate" agreements (at least economically speaking), and the increasing importance of the so-called long-term or relational contracts poses still other problems.[40] Yet, if this is so, it is indeed hard to imagine how the two Directives could effectively serve as a basis for a coherent system of European contract law in general. Even with respect to standardized consumer contracts, they address only a few select aspects and leave most, if not all, the "classical" -- but certainly no less important -- issues of contract law to the not yet harmonized domestic laws of Member States.

B. From the Principles of European Contract Law to a "Common Frame of Reference" (Whatever that May Mean ...)

The credit for first proposing to abandon the fragmentary approach traditionally favored by the Community legislature, and to replace (or at least to integrate) it with a much more far reaching project, such as the harmonization or unification of European contract law in general -- as is so often the case with truly ingenious visions -- essentially goes to one individual: Ole Lando. It was Ole Lando who, back in 1976, at a time when even the CISG was still under preparation, on the occasion of a symposium on "New Perspectives for a Common Law of Europe" held at the newly established European University Institute in the Badia Fiesolana (Florence), launched the idea of embarking on the drafting of a European Uniform Commercial Code or, if this proved too ambitious, at least a European Restatement of Contract Law.[41] It was also due to Ole Lando's tireless personal commitment and missionary zeal that in the early 1980s, the "Commission on European Contract Law" -- also known as the "Lando Commission" in honor of its founder and chairman -- was established. It was composed of one or two experts for [page 9] each of the Member States of the former European Community (subsequently the European Union) [42] and entrusted with the preparation of what would later become the "Principles of European Contract Law" (hereinafter the European Principles).

The European Principles were published in three successive volumes. The first volume appeared in 1995, containing the chapters on general provisions, terms and performance of the contract, non-performance and remedies in general, and particular remedies for non-performance.[43] The second part was published in 2000, containing a revised version of the previous chapters combined with new chapters on authority of agents, validity, interpretation, and contents and effects.[44] Finally, the third volume was published in 2003, containing additional chapters on plurality of parties, assignment of claims, substitution of new debtors and transfer of contract, set-off, prescription, illegality, conditions, and capitalization of interest.[45]

The title "Principles of European Contract Law" is doubly misleading. First, the European Principles are not just a loose "catalogue of general principles"[46] but consist of 201 articles systematically organized in seventeen chapters, most of which lay down very specific rules covering all the major topics of general contract law. Second, their sources were not confined to the domestic laws of the Member States of the European Union and to Community law, but also included legal materials from outside of Europe, such as the American Restatements on Contracts and Restitution, as well as international conventions -- above all the CISG.[47]

As stated in their Introduction, the European Principles pursued both immediate and longer-term objectives. They wanted to be immediately available for use by parties making contracts, by courts and arbitrators in deciding contract disputes, and by legislators in drafting contract rules whether at the domestic or the European level. In the longer term, they aspired to help bring about the harmonization of general contract law within the European Union.[48] In fact, however, they have not been able to reach their full potential in practice [page 10] and have ultimately so far remained little more than an -- albeit extremely valuable -- academic exercise. Why?

To begin with, at a time when the final version of the European Principles had not even been published yet, a group of distinguished European scholars -- headed by Christian von Bar, but including also several members of the then still existing Lando Commission -- encouraged by two Resolutions of the European Parliament of 1989 and 1994 advocating the preparation of a "European Civil Code,"[49] as well as by the outcome of an international colloquium on this very topic organized in 1997 by the Dutch Government [50] -- decided to set up a "Study Group on a European Civil Code" (hereinafter SGECC) with a view to preparing what was supposed to become the core of the envisaged European Civil Code. Indeed, the new instrument was intended to cover not only general contract law, but also specific contracts as well as other areas of "patrimonial law," including torts, unjust enrichment, negotiorum gestio, transfer of ownership, credit securities in movables, etc. To be sure, it was generally accepted that even within this new context, the European Principles were still to play an important role. At the same time, it was clear from the outset that by incorporating them into the future Code they would inevitably have to be revised. This was not only to make them fit in with the remaining parts but also -- and above all -- in order to take into account the relevant Community law on consumer protection.[51] As a result, it is fair to say that shortly after the publication of their final version, the European Principles in a certain sense already belonged to the past, the hope being that they would be revived in a broader framework sometime in the future. It is thus not surprising that in 2003, an Arbitral Tribunal, explaining the non-application of the European Principles in a dispute between two European parties, openly stated that "[the European Principles] constitute an academic research, at this stage not largely well-known to the international business [page 11] community and are a preliminary step to the drafting of a future European Code of Contracts, not enacted yet."[52]

Yet in the meantime, the very idea of a European Civil Code was increasingly put in doubt.

To be sure, this is not imputable to the SGECC which, also thanks to the contribution of special teams addressing specific subjects,[53] has produced an impressive amount of work. The latest version of what was originally intended to be the draft of the envisaged Code, and is now called "Draft Proposal for a Common Frame of Reference,"[54] consists of over 700 articles divided into 10 "Books." Each "Book" is subdivided into "Chapters" and "Sections," dealing with general provisions, contracts, and other judicial acts,[55] obligations and corresponding rights,[56] specific contracts (sales, service contracts, commercial agency, franchise and distribution, loan agreements, personal security contracts, leasing of movables, insurance contracts, mandate contracts, donation), benevolent intervention in another's affairs, non-contractual liability arising out of damage caused to another, unjustified enrichment, transfer of movables, and proprietary security rights in movable assets and trusts. Some parts may appear excessively regulatory [57] or based on questionable conceptual distinctions,[58] not to speak of the use of at times unconvincing [page 12] (English) terminology.[59] But as a whole the draft represents a most remarkable achievement that could undoubtedly provide a valuable basis for a future European Civil Code.

What has changed is the political climate.

After the initial euphoria caused by a first Communication on European Contract Law published in 2001,[60] in which the European Commission (though without using the term "Code") expressly mentioned the adoption of a "new comprehensive legislation at EC level" -- either in the form of a binding or of a merely optional instrument -- as one of the possible options to improve the present state of contract law in Europe,[61] a period of gradual disenchantment followed. Already in its second Communication of 2003 entitled "A More Coherent European Contract Law. An Action Plan,"[62] the Commission relegated the idea of a Code to a secondary position, reducing it to an "optional instrument" limited to cross-border transactions.[63] Instead, the Commission indicated that the main objective to be pursued now was the improvement of the quality of the Community acquis in the area of contract law by the creation of a so-called "Common Frame of Reference" (CFR).[64] In its 2004 Communication on "European Contract Law and the Revision of the Acquis: The Way Forward,"[65] the Commission was even more explicit. While confirming that reflections on the advisability of an Optional Instrument would continue, it now insisted that "[...] it is [not] the Commission's intention to propose a 'European Civil Code' which would harmonize contract laws of Member States [...]."[66] At the same time, however, the Commission defined the CFR as a "toolbox" providing "fundamental principles," "definitions," and "model rules" to be used "to improve the quality and coherence of the existing acquis and future legal instruments [page 13] in the area of contract law" (emphasis added).[67] In so doing, it left open the question of whether the CFR might also serve as the basis of an Optional Instrument if it was decided to create one.[68] Moreover, the Commission indicated that it would entrust the preparation of the CFR to select research groups -- ultimately the SGECC and a newly established Acquis Group -- whose task would be to identify the best solutions. These groups would be taking into account not only the Community acquis and national contract laws, but also relevant international instruments -- in particular the CISG -- and possibly distinguish between rules applicable to contracts between businesses or private persons and contracts between a business and a consumer.[69] In so doing, the Commission clearly implied that the scope of the CFR was still intended to cover both kinds of transactions.[70] All this made the sudden change of direction -- or, as Bénédicte Fauvarque-Cosson put it, the "coup de frein brutal"[71] -- which was decided barely a year later, all the more unexpected. In its "First Annual Progress Report on European Contract Law and the Acquis Review," published in 2005,[72] the Commission announced that what had been indicated in its 2004 Communication as a mere example of a wider program of reviewing the Community acquis, i.e., the review of the consumer acquis,[73] would for now be the predominant, if not exclusive focus of the CFR.[74] As further explained in the "Green Paper on the Review of the Consumer Acquis" published in February 2007,[75] the "overarching aim" of this review is "[...] to achieve a real consumer internal market striking the right balance between a high level of consumer protection and the competitiveness of enterprises, while ensuring the strict respect of the principle of subsidiarity." To this end "the [existing consumer] directives are being reviewed as a whole and individually to identify regulatory gaps and shortcomings affecting all of them as well as problems specific to individual directives,"[76] with a view ultimately to choose among three possible options or "main strategies." These strategies include a vertical approach, i.e., the individual revision of the existing directives; a horizontal approach, i.e., the adoption of one or more framework [page 14] instruments to regulate common features of the acquis; or a combination of the two.[77]

C. Prospects for the Future

The present situation is -- to say the least -- paradoxical. After having launched and generously financed a far-reaching research project involving hundreds of scholars from all over Europe and aiming at the preparation of a draft "academic" CFR covering the entire field of European contract law, the European Commission suddenly decided drastically to restrict the scope of the "political" CFR and to reduce it to the review -- important as it may be -- of the consumer acquis. This erratic course is not exactly what one would expect from an institution committed to the principles of transparency, proportionality, and subsidiarity.

What will be next? In particular, will the "academic" CFR, the completion of which is expected by the end of 2008, just remain an academic exercise or will it also have a role in practice? To be sure, with the European Principles, the sole publication of such rich and scientifically stimulating material would in and of itself constitute a significant event which would make a considerable contribution to the creation of a "European legal scholarship" or "culture juridique commune," rightly considered as one of the most important objectives of our times.[78] Yet, what about possible uses in practice? The role, if any, the "academic" CFR might play as a "tool-box" for the Commission in its work on the revision of the existing consumer acquis or in preparing the future acquis is still to be determined.[79] But could the CFR also provide -- at least with respect to the part concerning general contract law -- the basis for the preparation of an Optional Instrument that parties in cross-border relationships can choose as the law governing their contract? The answer generally given -- at least by those directly involved in the project -- is decidedly in the affirmative. Still, opinions differ as to whether such an instrument should cover both business-to-business and business-to-consumer transactions,[80] apply only to commercial contracts [81] or, alternatively, only to [page 15] consumer contracts.[82] At this stage it may be premature to take any firm position, although the third alternative is probably to be preferred. Indeed, Hans Schulte-Nölke's idea of an optional "European Consumer Contract Law" (which consumers could be invited to opt for by pressing a "Blue Button" embellished with the twelve golden stars) is very attractive.[83] By contrast, it is quite difficult to conceive of one and the same set of rules appealing equally to businesses, including small and medium enterprises (SMEs) when dealing with other businesses, and to consumers when dealing with businesses (including SMEs). Likewise, the idea of a specifically European lex mercatoria, as opposed to the international lex mercatoria or lex mercatoria tout court, seems rather awkward.[84]

III. THE CISG AND THE DEVELOPMENT OF A WORLD CONTRACT LAW

A. The CISG and the UNIDROIT Principles: International Legislation vs. "Restatement"

Both the merits and the shortcomings of the CISG prompted the International Institute for the Unification of Private Law (UNIDROIT) to embark upon a project as ambitious as the preparation of the UNIDROIT Principles. In other words, but for the world-wide adoption of an international uniform sales law like the CISG, any attempt at formulating rules for international commercial contracts in general would have been unthinkable. At the same time, it was precisely because the negotiations leading up to the CISG had so amply demonstrated that this Convention was the maximum that could be achieved on the legislative level, that UNIDROIT decided to abandon the idea of a binding instrument and instead proceeded merely to "restate" (or whenever appropriate "pre-state") international contract law and practice.

The UNIDROIT Principles, first published in 1994, in their present edition of 2004,[85] consist of a Preamble and 185 articles organized [page 16] into 10 chapters. These chapters cover topics such as general provisions, contract formation including authority of agents, validity, interpretation, content including third party rights, performance including hardship, non-performance and remedies, set-off, assignment of rights, transfer of obligations and assignment of contracts, and limitation periods.[86]

As to the sources of inspiration, the CISG was of course an obligatory point of reference, but other international legislation was also influential. It included the 1974 U.N. Convention on the Limitation Period in the International Sale of Goods (as amended by the 1980 Protocol), the 1983 Geneva Convention on Agency in the International Sale of Goods, the 1988 Ottawa Convention on International Factoring, the 2001 U.N. Convention on Assignment of Receivables in International Trade, and the (then Draft) U.N. Convention on the Use of Electronic Communications in International Contracts. Moreover, special attention was given, whenever appropriate, to soft-law instruments, such as INCOTERMS or the Uniform Customs and Practice for Documentary Credits prepared by the International Chamber of Commerce (ICC), the UNCITRAL Legal Guides on Drawing Up International Contracts for the Construction of Industrial Works and on International Countertrade Transactions, the FIDIC model contracts, etc.

To the extent that the UNIDROIT Principles address the same issues as the CISG, their provisions are normally taken either literally or at least in substance from the corresponding provisions of the CISG.[87] Since the UNIDROIT Principles are not restricted to sales transactions but apply to all types of international commercial contracts, however, they cover a number of topics which are not dealt with at all in the CISG.[88]

Some of the additional provisions are specifically tailored for (individually negotiated) service contracts, especially long term service contracts and so-called relational contracts. Such provisions include those on the manner in which a contract may be concluded, the conclusion of a contract dependent on agreement about specific matters or in a particular form, contracts with terms deliberately left open, [page 17] the duty of cooperation, the distinction between a duty to achieve a specific result and a duty of best efforts, the determination of the quality of performance, and the unilateral cancellation of contracts of indefinite period, and hardship.[89] Other provisions have been included for their importance for all types of contracts, such as the provisions on the parties' duty to act in good faith throughout the life of the contract including negotiations; on mistake, fraud and threat; on authority of agents; on third party rights; on set-off; on assignment of rights, transfer of obligations and assignment of contracts; and on limitation periods.[90] Finally, certain provisions are clearly designed to meet the special needs of international trade practice and/or the different socio-economic conditions in the various parts of the world. Examples include provisions on the relevant time zone, linguistic discrepancies, the "Himalaya clause," public permission requirements, the currency of payment and the currency in which damages are to be assessed, non-assignment clauses, and the effects of the expiration of limitation periods.[91] Moreover and most significantly, in contrast to the CISG and other international instruments which do not deal at all with questions concerning the substantive validity of contracts, the UNIDROIT Principles provide a variety of means for "policing" the contract or its individual terms against both procedural and substantive unfairness. Suffice it to mention the provisions on surprising clauses contained in standard terms, gross disparity, exemption clauses, and penalty clauses.[92] These provisions reject the widespread belief that business people are always professionals who have equal experience and who always act fairly.

B. The UNIDROIT Principles and Their Contribution to the Development of a World Contract Law

1. The UNIDROIT Principles as a Model for National and International Legislators

Despite their non-binding nature, the UNIDROIT Principles -- emphatically described as "a significant step towards the globalization of legal thinking"[93] -- may, and actually do, make a significant contribution to the development of a veritable world contract law. [page 18]

To begin with, a number of national legislatures have chosen the UNIDROIT Principles as one of the sources of inspiration for the reform of their domestic contract laws.

In some cases -- as in the preparation of the new Civil Code of the Russian Federation [94] -- this occurred even before the publication of the first edition in 1994. In the following years, the UNIDROIT Principles were chosen as a model for the new Civil Codes of Estonia [95] and of Lithuania,[96] both of which entered into force in 2001. Other significant examples are the proposals for the reform of the rules on interpretation of legal acts published in 1996 by the Scottish Law Commission [97] and the proposal for the reform of the general rules on commercial contracts in the Spanish Commercial Code, published by the Comisión General de Codifición in 2004.[98] Also the German legislature, in preparing the reform of the law of obligations of the BGB which entered into force in 2002, took into account the UNIDROIT Principles, though eventually only to a limited extent.[99]

Outside Europe, above all of the Chinese Contract Law of 1999, widely inspired not only by the CISG but also by the UNIDROIT Principles comes to mind.[100] Additional mention may be made of the project for the modernization and harmonization of contract law in the context of the Economic Cooperation Organisation (ECO) set up in 1985 by Iran, Pakistan, and Turkey.[101] Similar projects are underway in Mongolia [102] and in Vietnam.[103] Also, the successive drafts for the revision of Article 2 of the Uniform Commercial Code in the [page 19] United States contained references to individual provisions of the UNIDROIT Principles.[104] Most recently, the Council of Ministers of the Organisation pour l'Harmonisation en Afrique du Droit des Affaires (OHADA) requested UNIDROIT to assist OHADA in the preparation of a uniform contract law based on the UNIDROIT Principles, and in September 2004 Marcel Fontaine -- appointed as the expert responsible for the project -- after consultation with the legal communities of the various Member States of OHADA, transmitted to the competent organs of OHADA for consideration an Avant-projet d'Acte uniforme sur le droit des contrats.[105]

To be sure, the examples of the Lithuanian Civil Code, the new draft Spanish Commercial Code, and the draft OHADA Uniform Contract Law, of which large parts were literally taken from the UNIDROIT Principles, are rather exceptional. In most cases, the influence of the UNIDROIT Principles has been neither exclusive nor necessarily predominant. Moreover, a particular solution provided by the UNIDROIT Principles may well have been accepted as a model in one country while decidedly rejected in another. A typical example of this are the provisions on hardship. On the one hand, they have been incorporated with only minor modifications in the Civil Code of the Russian Federation to cope with the dramatic changes in the socio-economic and legal setting that followed the collapse of the Soviet regime.[106] On the other hand, they were rejected after an intense debate by the Chinese legislature for fear that the courts would not apply them properly.[107]

However, the model function of the UNIDROIT Principles is not limited to law reform projects in civil law jurisdictions. Indeed, in common law countries, courts are also increasingly referring to the [page 20] UNIDROIT Principles in support of a more internationally oriented approach with respect to specific issues of general contract law. Suffice it to mention that Australian courts have on several occasions admitted the relevance of the principle of good faith both in contract negotiations and in contract performance, with express reference to the UNIDROIT Principles (and to the CISG).[108] In addition, courts in New Zealand and England have recently attributed to the UNIDROIT Principles (and to the CISG) a significant role in support of a liberal interpretation of contracts and of the admissibility of evidence of pre-contractual negotiations to interpret written agreements.[109]

2. The Choice of the UNIDROIT Principles as the Law Governing the Contract

One may think of a variety of situations in which parties -- be they powerful "global players" or small or medium businesses -- wish to avoid the application of any domestic law, and in which they prefer instead to "de-nationalize" their contract by subjecting it to a genuinely neutral, a-national or transnational legal regime.[110]

Traditionally, the parties could only generically refer to "principles of international commercial law," the "lex mercatoria" or the like, leaving it to the adjudicating body to determine the precise meaning of such rather vague formulas in each given case. This solution has met with considerable criticism because of its unpredictability, if not arbitrariness. A valid alternative may now be the recourse to an easily accessible and comprehensive restatement of international contract law such as the UNIDROIT Principles. Indeed, recent experience shows that in practice, parties more and more often agree on the UNIDROIT Principles as the law governing their contract.[111] Likewise, an increasing number of model contracts prepared by international agencies, such as the International Chamber of Commerce (ICC) or the International Trade Center (ITC)/UNCTAD/WTO, contain [page 21] a reference to the UNIDROIT Principles either as the exclusive lex contractus or in conjunction with other sources of law (e.g., a particular domestic law; general principles of law prevailing in a given trade sector; or usages).[112]

It still remains to be seen whether and to what extent the relevant rules of private international law permit the parties to choose a soft law instrument such as the UNIDROIT Principles as the law governing their contract in lieu of a particular domestic law. In the context of international commercial arbitration, the answer is currently definitely in the affirmative.[113] As far as court proceedings are concerned, however, the traditional and still prevailing view is that the parties' freedom of choice is limited to a particular domestic law,[114] with the result that a reference to the UNIDROIT Principles will be considered as a mere agreement to incorporate them into the contract. As such, the UNIDROIT Principles can bind the parties only to the extent that they do not affect the mandatory provisions of the lex contractus.[115] Things may change, however, in the near future, and it is fair to say that the appearance of the UNIDROIT Principles has considerably contributed to such new prospects.

First of all, on two occasions, the 1994 Inter-American Convention on the Law Applicable to International Contracts refers to legal sources of an a-national or supra-national character for the purpose of the determination of the lex contractus,[116] thereby justifying the conclusion that under this Convention the UNIDROIT Principles may well be applied as the law governing the contract, at least if expressly chosen by the parties.[117]

Furthermore, a reference to the possibility for the parties to agree on the applicability of the UNIDROIT Principles can now be found even in the Uniform Commercial Code. More precisely, Comment 2 to 1-302, as revised in 2001, states that "[...] parties may vary the effect of [the Uniform Commercial Code's] provisions by stating that their relationship will be governed by recognised bodies of rules or principles applicable to commercial transactions [...] [such as e.g., ] the UNIDROIT Principles of International Commercial Contracts) [...]."[118] [page 22]

Finally, even more significant changes appeared to be imminent within the European Union, at least until recently. In its "Green Paper on the Conversion of the 1980 Rome Convention on the Law Applicable to Contractual Obligations into a Community Instrument and its Modernisation of 14 January 2003,"[119] the Commission, among others, had raised the question whether Article 3(1) should be amended to permit parties to choose a-national or transnational rules as the law governing their contract.[120] Encouraged by the predominantly positive responses to the questionnaire,[121] the Commission presented a draft Regulation [122] in December 2005 in which it proposed to insert in Article 3 a new paragraph 2 providing that "[t]he parties may also choose as the applicable law the principles and rules of the substantive law of contract recognised internationally or in the Community [...]." As pointed out in the explanatory notes, "[t]he [...] words used would authorise the choice of the UNIDROIT Principles, the Principles of European Contract Law, or a possible future optional Community instrument, while excluding the lex mercatoria, which is not precise enough, or private codifications not adequately recognised by the international community [...]." Unfortunately the innovative proposal put forward by the Commission seems to be meeting strong reservations on the part of Member States apparently concerned about the risk of excessive legal uncertainty deriving from the choice of a-national principles and rules as compared to the alleged certainty and predictability of the choice of a particular domestic law. One can only hope that this in not yet the last word, and that before definitely rejecting the Commission's proposal, governments come to realize that the UNIDROIT Principles (as well as the European Principles) are far from just a loose set of a few poorly drafted general provisions. In fact, they represent -- as pointed out by an eminent Swiss scholar [123] -- "a codification of high quality and homogeneity [page 23] in contents which in many respects even surpasses the quality of traditional national legal orders." And, if gaps were to be found in the UNIDROIT Principles, the second sentence of the proposed new paragraph 2 of Article 3 of the EU Draft Regulation expressly provides that such gaps should be filled in accordance with the general principles underlying the instrument or, failing such principles, in accordance with the domestic law applicable in the absence of a choice under the Regulation.

3. The UNIDROIT Principles Applied in Dispute Resolution

By far the most significant contribution the UNIDROIT Principles make to the creation of a genuinely international or transnational legal environment for cross-border commercial transactions is the role they play in the context of international dispute resolution.

The UNIDROIT Principles are more and more often invoked in individual statements of claim or defences to corroborate the arguments developed therein, and to demonstrate their conformity with internationally accepted standards. More importantly, judges and arbitrators increasingly refer in their decisions to the UNIDROIT Principles in various manners.

Let us look at some figures. As of October 2007, 150 decisions referencing to the UNIDROIT Principles were reported in the UNILEX database [124] -- by comparison it took the CISG eight years to come into force, and another four years before the first 100 decisions applying it had been rendered.[125] Moreover, while 106 of those decisions were arbitral awards,[126] 44 were court decisions, which contradicts the widespread belief that in view of their non-binding nature, the UNIDROIT Principles can only be relevant in the context of arbitration. Finally, the truly universal application of the UNIDROIT Principles is confirmed by the fact that in more than two-thirds of the cases, at least one of the parties was non-European. In fact, in almost one-third of the cases, all parties involved were from outside Europe, representing some thirty-five countries world-wide.

As to content, the decisions may be divided into three categories, depending on the way in which the UNIDROIT Principles are used.

First, there are decisions -- clearly the most important ones and all of them arbitral awards -- in which the UNIDROIT Principles were applied as the law governing the substance of the dispute.[127] [page 24] Sometimes this was expressly requested by the parties, either in the contract itself or at the beginning of the arbitration proceedings. More often however, the contracts merely referred to "general principles of law," "principles of international law," "lex mercatoria" or the like, and the arbitrators applied the UNIDROIT Principles on the assumption that they represented a particularly authoritative expression of supra-national or transnational principles and rules of law.[128] Recently there have been an increasing number of cases in which arbitral tribunals have gone even further and applied the UNIDROIT Principles -- either alone or in conjunction with the otherwise applicable law -- even in the absence of any choice of law clause in the contract. In doing so, the arbitrators relied on the relevant statutory provisions or arbitration rules according to which they may -- to quote the language used in Article 17 of the ICC Rules of Arbitration -- "apply the rules of law which [they] determine to be appropriate" and "in all cases [...] shall take account of [...] the relevant trade usages."

In a second group of decisions -- which include court opinions -- the UNIDROIT Principles have been used to interpret or supplement international uniform law instruments. For obvious reasons, most of these decisions concerned Article 7 CISG, which states that the Convention should be interpreted by taking into account its international character and the need to promote uniformity and that gaps should be filled whenever possible by the general principles underlying it. Yet, occasionally the UNIDROIT Principles have also been used to interpret other international instruments.[129]

In a third category of decisions -- which represents almost half of the reported cases and again includes a number of court decisions -- the UNIDROIT Principles have been referred to in applying a particular domestic law. To be sure, more often than not the reference to the UNIDROIT Principles had no direct impact on the decision of the merits; individual provisions of the UNIDROIT Principles were cited essentially to demonstrate that the solution adopted under the applicable domestic law was in conformity with current internationally accepted standards and rules.[130] Still, in a number of cases, the courts and arbitral tribunals resorted to the UNIDROIT Principles in support of the adoption of one of several possible solutions under domestic laws, or in order to fill a gap in the latter.[131] It is important to note that the domestic laws so interpreted were not limited to those of less [page 25] developed countries, or countries in transition to a market economy. Instead, they include, among others, the laws of France, Switzerland, and the State of New York, thus confirming that even highly sophisticated legal systems do not always provide clear and/or satisfactory solutions to the special needs of current international commercial transactions, while the UNIDROIT Principles may offer such a solution. Suffice it to mention, by way of example, that Articles 1.1, 1.3, 1.7 and 2.15 (now 2.1.15) have been invoked in support of the solution adopted under the law of New York whereby an agreement to negotiate in good faith with a view to concluding a final contract is enforceable;[132] that Article 7.4.3(2) was invoked in order to apply under Swiss law the rule that the loss of a chance must be compensated in proportion to the probability of its occurrence; [133] and that Article 1.8 was cited in connection with French law to bolster the principle of prohibition of inconsistent behavior.[134]

OUTLOOK

The CISG, though promulgated more than a quarter of a century ago in a vastly different socio-economic and political environment, still remains a landmark in the international unification process. Adopted by seventy countries including most of the major trading nations, it has achieved the status of a veritable world sales law.

In Europe, the CISG led a number of States to modernize their domestic sales laws and has inspired the Community legislature in drafting the Consumer Sales Directive. Moreover, by substantially influencing the work of the Lando Commission, it contributed to the preparation of significant parts of what may one day become a European Civil Code.

Worldwide, the CISG prompted UNIDROIT to embark on the ambitious project to "restate" the law of international commercial contracts in general. Already in their present form of a non-binding instrument, the UNIDROIT Principles provide an increasingly "global" legal environment for cross-border commercial transactions. Apart from serving as a source of inspiration for law reform projects, particularly for countries in transition, the UNIDROIT Principles are increasingly chosen by parties as the law governing their contract and applied by domestic courts and arbitral tribunals in dispute resolution. [page 26]

Yet the UNIDROIT Principles could play an even greater role in the development of a veritable world contract law.[135]

A first step in that direction was the formal endorsement of the UNIDROIT Principles by UNCITRAL -- on the occasion of UNCITRAL's 40th Plenary Session in June 2007.[136]

Another significant step would be a formal recommendation by UNCITRAL to use the UNIDROIT Principles to interpret and supplement the CISG, provided that the issues at stake fall within the scope of the CISG and that the individual provisions of the UNIDROIT Principles referred to can be considered an expression of a general principle underlying both instruments. Such a recommendation would help to promote uniformity in the application of the CISG world-wide, while at the same time ensuring that in practice, recourse to the UNIDROIT Principles is made only within the limits and on the conditions provided by Article 7 CISG.

An even more far-reaching step would be the formal recognition at a universal level of the right of parties to an international commercial contract to choose a soft law instrument such as the UNIDROIT Principles as the governing law. Such explicit recognition, to be promoted by the Hague Conference on Private International Law, would render the principle of party autonomy consonant with the needs of businesses engaged in international trade. At the same time it would eliminate the unjustified difference in the parties' freedom to choose the applicable law, depending on whether they decide to have their disputes decided by arbitration or in court.

Last but not least, the UNIDROIT Principles as such could be adopted in the form of a model law, possibly in the context of a broader and even more ambitious project, such as the preparation of a "Global Commercial Code." This Code could be prepared by UNCITRAL in cooperation with other interested international organizations as a consolidation of existing international uniform law instruments (e.g., the CISG, the various transport law conventions, the UNIDROIT Conventions on leasing and factoring, as well as soft law instruments such as INCOTERMS, the UCP, etc.).[137] Such a [page 27] Code could refer to the UNIDROIT Principles as its "general contract law," i.e., contain a provision declaring them applicable with respect to the specific contracts covered by the Code unless the parties have excluded their application by choosing a different law or otherwise.[138] [page 28]


FOOTNOTES

* Professor of Law, University of Rome I "La Sapienza"; Chairman of the Working Group for the preparation of the UNIDROIT Principles of International Commercial Contracts. The opinions expressed in this paper are those of the author only and do not necessarily reflect those of the other members of the Working Group.

1. United Nations Convention on Contracts for the International Sale of Goods, art. 2, Apr. 11, 1980, 1489 U.N.T.S. 3 [hereinafter CISG].

2. On these and other conflicts of policy still topical Gyula Eörsi, A Propos the 1980 Vienna Convention on Contracts for the International Sale of Goods, in 31 Am. J. Comp. L. 333 et seq. (1983).

3. See CISG art.2.

4. See CISG arts.4 & 5, respectively.

5. Some of these topics are the subject of separate Conventions such as the 1974 U.N. Convention on the Limitation Period in the International Sale of Goods (as amended by the 1980 Protocol), the 1983 Geneva Convention on Agency in the International Sale of Goods prepared under the auspices of UNIDROIT, the 2001 U.N. Convention on Assignment of Receivables in International Trade, and the 2005 U.N. Convention on the Use of Electronic Communications in International Contracts. Of these instruments only the Limitation Convention has entered into force (though only with few major trading nations among the nineteen Contracting States), while the others have up until now not been ratified by a sufficient number of States to permit their entry into force.

6. See CISG arts. 12 & 96, 28 & 55, respectively.

7. See CISG arts. 16 & 68, respectively.

8. See CISG arts. 7(1), 9(2) & 25, respectively.

9. Cf. EU Sales Directive. Commentary P 5 (Massimo C. Bianca & Stefan Grundman eds., 2002).

10. See also, for further references, Filip De Ly, Opting Out: Some Observations on the Occasion of the CISG's 25th Anniversary, in Quo Vadis CISG, 25 et seq. (Franco Ferrari ed., 2005), in particular at 28 (with reference to the commodity trade) and 30 et seq. (analyzing the main objectives of parties in excluding or not excluding CISG). For a different assessment, at least with respect to the United States, see however Mathias Reimann, The CISG in the United States: Why It Has Been Neglected and Why Europeans Should Care, Rabelz 71, 115 (2007).

11. For further details, Franco Ferrari, Do Courts Interpret the CISG Uniformly?, supra note 9, at 3 et seq., in particular 6 et seq., (with ample references to decisions rendered both within and outside Europe, especially in the United States).

12. Such as CLOUT (www.uncitral.org), UNILEX (www.unilex.info), the Pace Database on the CISG and International Commercial Law (cisgw3.law.pace.edu), CISG-online.ch (www.cisg-online.ch); cf. for further details, Franco Ferrari, Do Courts Interpret the CISG Uniformly?, in Quo Vadis CISG, supra note 11, at 13-14.

13. Cf. Ewoud Hondius, in EU Sales Directive, PP 150-55 (Massimo C. Bianca & Stefan Grundmann eds. 2002).

14. See also, for further references, Reinhard Zimmermann, The New German Law of Obligations. Historical and Comparative Perspective 96 et seq. (2005).

15. Cf. Jan Ramberg, Unification of Sales Law: A Look at the Scandinavian States, Uniform L. Rev. 201 et seq., at 202-03 (2003).

16. Outside of Europe, mention may be made of the Uniform Act relating to General Commercial Law enacted in 1997 by the Organisation pour l'Harmonisation en Afrique du Droit des Affaires (OHADA), Book 5 of which, dealing with sales contracts between merchants, is largely modelled on CISG, notwithstanding the fact that at that time of the sixteen Member States of OHADA only one -- Guinea -- was a party to CISG; for further details on OHADA Uniform, see Gaston K. Douajni, La vente commerciale OHADA, Uniform L. Rev. 191 et seq. (2003). For further details on OHADA, see <http://www.ohada.org>.

17. Cf. Council Directive 1999/44/EC, 1999 O.J. (L 171) 12 (EC) [hereinafter Consumer Sales Directive].

18. Cf. Consumer Sales Directive Consideration 5.

19. Cf. Consumer Sales Directive art. 2(1).

20. Cf. Consumer Sales Directive art. 2(2), according to which "[c]onsumer goods are presumed to be in conformity with the contract if they (a) comply with the description given by the seller and possess the qualities of the goods which the seller has held out to the consumer as a sample or model; (b) are fit for any particular purpose for which the consumer requires them and which he made known to the seller at the time of conclusion of the contract and which the seller has accepted; (c) are fit for the purposes for which goods of the same type are normally used; (d) show the quality and performance which are normal in goods of the same type and which the consumer can reasonable expect, given the nature of the goods and taking into account any public statements on the specific characteristics of the goods made about them by the seller, the producer or his representative, particularly in advertising or on labelling."

21. The two remedies are, though with certain limitations, available at the consumer's choice: see Consumer Sales Directive art. 3(2).

22. This is the case if repair or replacement is impossible or at any rate too costly for the seller, or if the seller has failed to repair or replace the goods within a reasonable time or without significant inconvenience to the consumer: see Consumer Sales Directive art. 3(3).

23. Cf. Consumer Sales Directive art. 2(5). Rescission of the contract is however excluded in the case of minor defects: see Consumer Sales Directive art. 2(6).

24. Cf. Consumer Sales Directive art. 5(2).

25. Cf. Consumer Sales Directive art. 5(1).

26. See, for further references, EU Sales Directive, supra note 9, at P 6.

27. Cf. Consumer Sales Directive art. 2(2)(d).

28. Cf. Consumer Sales Directive art. 5(2).

29. Cf. Consumer Sales Directive art. 5(3).

30. Cf. Consumer Sales Directive art. 4, leaving it to the applicable domestic law to determine both the person or persons against whom the final seller may pursue remedies and the relevant actions and conditions of exercise.

31. Cf. Consumer Sales Directive art. 6.

32. Cf. Council Directive 93/13/EEC, 1993 O.J. (L 095) 29 (EC) [hereinafter Unfair Terms Directive].

33. EU Sales Directive, supra note 9, at PP 7 & 19.

34. See Unfair Terms Directive art. 3.

35. See Consumer Sales Directive arts. 2(2)(d) & 4, respectively.

36. See EU Sales Directive, supra note 9, at P 24; Zimmermann, supra note 14, at 119.

37. See Unfair Terms Directive arts. 3(2), 5 & 6(2), respectively.

38. See Consumer Sales Directive arts. 3(3), 5(3) & 7, respectively.

39. EU Sales Directive, supra note 9, at PP 7, 19.

40. To be sure, the specific characteristics of the latter type of contracts is acknowledged also by Stefan Grundmann: see Europäisches Vertragsrecht -- Quo vadis?, in JuristenZeitung (2005), 860 et seq., 868.

41. For further details, see Ole Lando, Unfair Contract Clauses and a European Uniform Commercial Code, in New Perspectives for a Common Law of Europe,267 et seq.284-88 (Mauro Cappelletti ed., 1978).

42. Thus the Commission was initially composed of members from Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, and the United Kingdom; after 1987 also from Portugal and Spain; after 1995 also from Austria, Finland, and Sweden.

43. Cf. Principles of European Contract law, Part 1: Performance, Non-Performance and Remedies (Ole Lando & Hugh Beale eds., 1995).

44. Cf. Principles of Contract Law, Part I and II (combined and Revised) (Ole Lando & Hugh Beale eds., 2000).

45. Cf. Principles of European Contract Law, Part III (Ole Lando et al. eds., 2003).

46. For such a definition of the European Principles, see Grundmann, supra note 40, at 861 ("Prinzipienkatalog").

47. Cf. Principles of Contract Law, Part I and II (combined and Revised), supra note 44, at xxv-xxvi.

48. Id. at xxviv.

49. Cf. Resolution A2-157/89, 1989 O.J. (C 400); Resolution A3-0329/94, 1994 O.J. (C 205) 518.

50. See in particular the favorable opinions expressed by Edwoud Hondius, Walter van Gerven, Winfried Tilmann, Konstantinos D. Karameus, Walter Snijders, Ulrich Drobnig, Ole Lando, and Thijmen Koopmans (papers reproduced in 5 European Review of Private Law, 455, 465, 471, 475, 483, 489, 525, and 541, respectively (1997)); but see also the more cautious if not openly critical approach taken by Antonio Gambaro, Ugo Mattei, Michael Joachim Bonell, and Basil S. Markesinis (papers reproduced 5 European Review of Private Law, 497, 537, and 519, respectively (1997)).

51. For a criticism of the European Principles on account of their having ignored the Community consumer acquis see in particular Thomas. Wilhelmsson, International Lex Mercatoria and Local Consumer law: An Impossible Combination?, Uniform L. Rev. 141, 149 (2003); Hans W. Micklitz, Verbraucherschutz in den Grundregeln des Europäischen Vertragsrechts, 103 Zeitschrift für Vergleichende Rechtswissenschaft 88 (2004).

52. ICC Award No. 12111 of Jan. 6, 2003, in The UNIDROIT Principles in Practice, 1054 et seq. (Michael Joachim Bonell ed. (2nd ed. 2006)). In the case at hand the parties had agreed that their contract be governed by "international law," and the Arbitral Tribunal applied the UNIDROIT Principles on the ground that the parties intended to refer to general principles of law and the lex mercatoria best expressed by the UNIDROIT Principles.

53. For example, a group under Christian von Bar in Osnabrück has worked on torts, unjust enrichment, negotiorum gestio and now trust; a group under Ulrich Drobnig in Hamburg has worked on personal securities or guarantees and securities over moveable property, while other groups have been working on sales, service contracts and long term contracts in Utrecht, Amsterdam, and Tilburg, on transfer of property in moveables in Graz; and on leasing in Bergen.

54. See the version of Nov. 2006, available at <http://www.home.uni-osnabrueck.de/sswann/DCFR29112006.doc>.

55. Much of this Book consists of provisions taken from the European Principles, but there are also new provisions on non-discrimination and pre-contractual information duties, on the consumer's right to withdraw from certain contracts and on non-negotiated terms (the latter basically taken from the Unfair Terms Directive).

56. Also much of this Book consists of provisions taken from the European Principles.

57. See, e.g., the Chapter on service contracts consisting of no less than seventy-nine articles some of which are very lengthy and/or appear redundant or even repetitive.

58. See, e.g., the distinction as to the effects of the agent's acts between "the representative acting in its own name" and "the unidentified principal," the location of the provision on hardship ("variation or termination by court on a change of circumstances") in the chapter on "Obligations in General," together with the provisions on "conditional rights and obligations," "time-limited rights and obligations," "variation or termination by agreement" and "variation or termination by notice," or the distinction between "mandate contracts" and "indirect mandate contracts."

59. See, e.g., the use of the terms "representation" and "representative" instead of "agency" and "agent," of "solidary obligation" instead of "joint and several obligation," of "prescription" instead of "limitation period," of "leasing" instead of "lease."

60. Cf. Communication from the Commission to the Council and the European Parliament on European Contract Law COM (2001) 398 final (July 11, 2001). The Communication was prompted by a request formulated by the Council of the European Union in Tampere in 1999 for an "overall study on the need to approximate Member States' legislation in civil [substantive law] matters." For further references, see Christian von Bar, Ein gemeinsamer Referenzrahmen für das marktrelevante Privatrecht in der Europäischen Union, in Festschrift für Erik Jayme, 1217 et seq. (2004).

61. Communication from the Commission to the Council and the European Parliament on European Contract Law, supra note 60, at P 61.

62. Communication from the Commission to the European Parliament and the Council: A More Coherent European Contract Law, An Action Plan, COM (2003) 68 final (Feb. 12, 2006).

63. Id. at P 89.

64. Id. at P 55.

65. Communication from the Commission to the European Parliament and the Council: European Contract Law and the revision of the acquis: the way forward, COM (2004) 651 final (Oct. 11, 2004).

66. Id. at P 2.3.

67. Id. at P 2.1.1.

68. Id. at P 2.3 & Annex II n.4.

69. Id. at PP 3.1.1 & 3.1.3.

70. See the layout of the "Model Rules" of the CFR in id. at annex I, ch. III.

71. Benedicte Fauvarque-Cosson & Sara Patris-Godechot, Le Code civil face à son destin 141 (2006).

72. Report From the Commission: First Annual Progress Report on European Contract Law and the Acquis Review, COM (2005) 456 final (Sept. 23, 2005).

73. Cf. European Contract Law and the revision of the acquis: the way forward, supra note 65, at P 2.1.1.

74. Id. at P 2.6.1.

75. Commission of the European Communities, Green Paper on the Review of the Consumer Acquis, COM (2006) 744 final (Feb. 2, 2007).

76. Id. at P 2.1.

77. Id. at P 4.2.

78. See expressly Reinhard Zimmermann, Comparative law and the Europeanization of Private Law, in The Oxford Handbook of Comparative Law 539 et seq., at 546 (Mathias Reimann & Reinhard Zimmerman, eds., 2006); Cosson & Godechot, supra note 71, at 145; but see already Martijn W. Hesselink, The European New Legal Culture (2001).

79. For some interesting suggestions in this regard, see Hugh Beale in his Presentation at the Public Hearing of the European Parliament on "Common Framework of Reference: What next in European Contract Law?" held on Nov. 21, 2006 [hereinafter the EP Hearing] <http://www.europarl.europa.eu/comparl/juri/hearings/20061121/beale_en.pdf>.

80. As strongly advocated e.g., by Brigitte Lurger (see her Presentation at the EP Hearing) <http://www.europarl.europa.eu/comparl/juri/hearings/20061121/lurger_en.pdf> and, though less vigorously, by Hugh Beale (see his Presentation at the EP Hearing).

81. As vigorously argued, also in the light of a recent survey of 175 businesses in eight Member States conducted by the Clifford Chance law firm, by S. James, Partner at that law firm and one of the "stakeholders" appointed by the Commission (see his Memorandum submitted for the EP Hearing) <http://www.europarl.europa.eu/comparl/juri/hearings/20061121/james_en.pdf>.

82. In this sense e.g., Hans Schulte-Nölke (see his Presentation at the EP Hearing) <http://www.europarl.europa.eu/comparl/juri/hearings/20061121/schultenolke_de.pdf>.

83. Ibidem.

84. Cf. KlausPeter Berger, European Private Law, Lex Mercatoria and Globalisation, in Towards a European Civil Code, 3rd ed. 43 at 55 (Arthur K. Hartkamp et al. eds., 2004) ("[T]here is no such thing as a 'European' lex mercatoria![...] The lex mercatoria is not a regional but a truly global law.").

85. The integral version of the UNIDROIT Principles of International Commercial Contracts 2004 [hereinafter UNIDROIT Principles 2004] is available in English, French, Italian, and Spanish at <http://www.unidroit.org/english/principles/contracts/main.htm> (also containing information on the Chinese, Korean, Romanian, Russian, and Vietnamese integral language versions).

86. UNIDROIT is currently working on a third edition of the Principles to include new chapters on unwinding of failed contracts, illegality, plurality of obligors and obligees, conditions, and termination of long term contracts for just cause.

87. For a more detailed analysis, see Michael Joachim Bonell, An International Restatement of Contract Law 305-08 (3rd ed. 2005).

88. Prompting some observers to speak of the UNIDROIT Principles as a sort of "general part" of CISG; see Pierre A. Karrer, Internationalization of Civil Procedure -- Beyond the IBA Rules of Evidence, in Reflections on the International Practice of Law. Liber Amicorum for the 35th Anniversary of Bär & Karrer 127, 129 (Nedim Peter Vogt ed., 2004).

89. See UNIDROIT Principles 2004 arts. 2.1.1, 2.1.13, 2.1.14, 5.1.3, 5.1.4- 5.1.5, 5.1.6, 5.1.8 & 6.2.1- 6.2.3, respectively.

90. See UNIDROIT Principles 2004 arts. 1.7, 1.8, 2.15, 2.1.16, 3.4 to 3.9, 2.2.1 to 2.2.10, 5.2.1 to 5.2.6, 8.1 to 8.5, 9.1.1 to 9.3. 7 & 10.1 to 10.11, respectively.

91. See UNIDROIT Principles 2004 arts. 1.12, 4.7, 5.2.3, 6.1.14 to 6.1.17, 6.1.9, 6.10, 7.4.12, 9.1.9 & 10.9, respectively.

92. See UNIDROIT Principles 2004 arts. 2.1.20, 3.10, 7.1.6 & 7.4.13, respectively.

93. Joseph M. Perillo, UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review, 43 Fordham L. Rev. 281, at 282 (1994).

94. Cf. Josef Skala, The UNIDROIT Principles of International Commercial Contracts: A Russian Perspective, in The UNIDROIT Principles 2004. Their Impact on Contract Practice, Jurisprudence and Codification 119 (Eleanor Cashin Ritaine & Eva Lein eds., 2007).

95. See the information sent by the Estonian Minister of Justice to the Secretary General of UNIDROIT on June 8, 1995.

96. Cf. Valentinas Mikelenas, Unification and Harmonisation of Law at the Turn of the Millennium: The Lithuanian Experience, Uniform L. Rev. 243 et seq. (2000).

97. Cf. Scottish Law Commission, Discussion Paper No. 101, Interpretation in Private Law, Aug. 1996, 23, 33, 52, 55 & 58, respectively (express reference to arts.4.1 & 4.2, 4.4, 4.5, 4.6 & 4.7 of the UNIDROIT Principles).

98. Cf. Anselmo Martínez Can ellas, The Influence of the UNIDROIT Principles on the Proposal of the Reform of the Spanish Commercial Code, in The UNIDROIT Principles 2004, supra note 94, at 215.

99. See also, for further references, Reinhard Zimmermann, The New German Law of Obligations, 41 (2005).

100. Cf. Huang Danhan, The UNIDROIT Principles and their Influence in the Modernisation of Contract Law in the People's Republic of China, Uniform L. Rev. 107 (2003); Xi Jing, The Impact of the UNIDROIT Principles on Chinese Legislation, in The UNIDROIT Principles, supra note 94, at 107.

101. Cf. Bijan Izadi, Harmonisation of Commercial Law Contract Law in the ECO Region: A Role for the UNIDROIT Principles, Uniform L. Rev. 301 (2001).

102. Cf. the letter of the Mongolian Government to the Secretary-General of UNIDROIT of Feb. 10, 2005 announcing the Government's intention to revise the contract law of Mongolia to the UNIDROIT Principles.

103. Cf. Minh H. Nguyen, Les Principes UNIDROIT: Jurisprudence et expériences pour le Vietnam, in Revue de droit des affaires internationales 619 (2005).

104. See National Conference of Commissioners on Uniform State Laws (ed.), Uniform Commercial Code: Revised Article 2 Sales, Mar. 21, 1997 Draft, p.6 (with reference to the definition of standard terms), p.33 (with reference to "battle of forms"), and p.127 (with reference to cure); also the proposed solution as to merger clauses (pp.18-21) and to surprising terms contained in standard terms (pp.26-29) is basically inspired by that provided for by the UNIDROIT Principles. In the final version of revised Article 2 as adopted in 2003 all references to international instruments such as the CISG or the UNIDROIT Principles have been deleted even where the solution adopted in the Code was inspired by the latter. For an exhaustive comparison of the revised version of Article 2 of the UCC and the UNIDROIT Principles (as well as the CISG) see Henry D. Gabriel, Contracts for the Sale of Goods: A Comparison of Domestic and International Law (2004).

105. The draft consists of 13 chapters, 10 of which are almost identical to the corresponding chapters of the UNIDROIT Principles while the remaining three chapters deal with subjects not (yet) dealt with by the latter, i.e., Chapters 9 ("Confusion"), 10 ("Obligations conditionnelles, solidaires et alternatives"), and 13 ("Protection des créanciers et des tiers"). On the project, see Marcel Fontaine, Une projet d'harmonisation du droit en Afrique, in The UNIDROIT Principles, supra note 94, at 95.

106. Cf. Alexei G. Doudko, Hardship in Contract: The Approach of the UNIDROIT Principles and Legal Developments in Russia, Uniform L. Rev. 483 (2000).

107. Cf. Xi Jing, The Impact of the UNIDROIT Principles on Chinese Legislation, in The UNIDROIT Principles supra note 94, at 117.

108. See, e.g., Hughes Aircraft Systems International v. Airservices Australia, in 146 Australian Law Reports (1998), 1 (per Finn J); GEC Marconi Systems Pty Ltd. v. BHP Information Technology Pty Ltd. And Others), in 128 Federal Court Reports (2003) 1 (per Finn J).

109. Cf. Hideo Yoshimoto v. Canterbury Golf International Limited, in [2001] 1 New Zealand Law Reports, 253 (per Thomas J); Proforce Recruit Limited v. The Rugby Group Limited, in [2006] EWCA Civ 69 (per Arden L J); The Square Mile Partnership Ltd v. Fitzmaurice McCall Ltd (per Arden L J), in [2006] EWCA Civ 1690). For a comment on these decisions see Michael Joachim Bonell, The UNIDROIT Principles and CISG -- Sources of Inspiration for English Courts?, Uniform L. Rev. 305 (2006).

110. For the most frequent situations, see recently Eckart Brödermann, The Growing Importance of the UNIDROIT Principles in Europe -- A Review in Light of Market Needs, the Role of Law and the 2005 Rome I Proposal, Uniform L. Rev. 749, at 751 (2006).

111. For further details, see Bonell, supra note 87, at 273-75.

112. For the complete list, see id., 275-77.

113. See also, for further references, id. at 192-99.

114. For a convincing criticism of this traditional approach, see recently Boris Schinkels, Die (Un-) Zulässigkeit einer kollisionsrechtlichen Wahl der UNIDROIT Principles nach Rom I, in Zeitschrift für Gemeinschaftsprivatrecht 106, 108 (2007).

115. See also, for further references, Bonell, supra note 87, at 180-82.

116. Precisely in Inter-American Convention on the Law Applicable to International Contracts art. 9(2) & art. 10, Mar. 17, 1994 O.A. S. Treaty Series No. 78.

117. For further references, see Bonell, supra note 87, at 183-86.

118. It is true that such reference is made in the context of 1-302 of the Uniform Commercial Code laying down the principle of freedom of contract and not in the context of 1-301 dealing with the parties' right to choose the applicable law. Yet, the fact that the UNIDROIT Principles are expressly referred to as an alternative set of rules applicable to the kind of transactions falling within the scope of the Code is in itself significant, and the probability that, if parties actually choose the UNIDROIT Principles as the rules of law governing their contract, individual provisions of the Principles will be struck out because of their incompatibility with the Code is rather remote, all the more so since most of the mandatory provisions of the Code are restricted to consumer transactions.

119. Commission of the European Communities, Green Paper on the Conversion of the 1980 Rome Convention on the Law Applicable to Contractual Obligations into a Community Instrument and its Modernisation COM (2002) 654 final (Jan. 14, 2003).

120. Id. at Question 8: "[ ... ][should] the parties be allowed to directly choose an international convention, or even the general principles of law [ ... ]."

121. For the full text of the replies, see <http://europa.eu.int/comm/justice_home/news/consulting_public/rome.i/news_summary_rome1_en.htm>.

122. Cf. Proposal for a Regulation of the European Parliament and the Council on the Law Applicable to Contractual Obligations (Rome I), COM (2005) 650 final (Dec. 15, 2005).

123. See, with express reference to the UNIDROIT Principles, Frank Vischer, The Relevance of the UNIDROIT Principles for Judges and Arbitrators in Disputes Arising out of International Contracts, 1 The Eur. J. of L. Reform 203, 211 (1998/1999).

124. Cf. Unilex on CISG and UNIDROIT Principles, International Case Law and Bibliography, <http://www.unilex.info> (last visited Oct. 9, 2007) [hereinafter UNILEX].

125. See id.

126. In fact the number of arbitral awards referring in one way or another to the UNIDROIT Principles is likely to be much greater since most awards on account of their confidential nature remain unknown.

127. For a more detailed analysis, see Bonell, supra note 87, at 281-90.

128. Significantly enough on one occasion this approach received express confirmation by a U.S. federal court: see United States District Court, S.D. California, Dec. 7, 1998 (Ministry of Defence and Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defence Systems, Inc.), in The UNIDROIT Principles in Practice 764, supra note 52.

129. For a more detailed analysis, see Bonell, supra note 87, at 293-94; 325-32.

130. For further references, see id., at 295-96.

131. For further references, see id., at 297-99.

132. Cf. ICC International Court of Arbitration Award of Sept. 4, 1996, No. 8540 (excerpts in White & Case International Dispute Resolution, Vol. 10, Mar. 1997, at 3).

133. Cf. Arbitral Award of the World Intellectual Property Organization Arbitration and Mediation Center (abstract in UNILEX).

134. Cf. Award of an ad hoc arbitration of Mar. 4, 2004 (abstract in UNILEX).

135. For further details, see Michael Joachim Bonell, Towards a Legislative Codification of the UNIDROIT Principles? (Paper presented at the UNCITRAL Symposium on "Modern Law for Global Commerce," Vienna, July 9-12, 2007, in Uniform L. Rev. 233-46 (2007)).

136. See Report of the United Nations Commission on International Trade Law on the work of its fortieth session, Vienna, 25 June -- 12 July 2007 (A/62/17 Part I), PP 209-13.

137. The idea of a Global Commercial Code was first launched by Gerold Herrmann, Law, International Commerce and the Formulating Agencies -- The Future of Harmonisation and Formulating Agencies: The Role of UNCITRAL (paper presented at the Schmitthoff Symposium 2000 "Law and Trade in the 21st Century," Centre of Commercial Law Studies, London June 1-3, 2000). For a further elaboration, see Michael Joachim Bonell, Do We Need a Global Commercial Code?, 106 Dick L. Rev. 87 (2001); Ole Lando, CISG and Its Followers: A Proposal to Adopt Some International Principles of Contract Law, 53 Am. J. Comp. L. 379, 384 (2005).

138. In this sense, see Michael Joachim Bonell, supra note 137, at 95; Arthur S. Hartkamp, Modernisation and Harmonisation of Contract Law, in Uniform L. Rev. 81, 89 (2003); Huang Danhan, The UNIDROIT Principles and Their Influence in the Modernisation of Contract law in the People's Republic of China, in Uniform L. Rev. 107, 117 (2003). For a more radical proposal see Ole Lando, supra note 137, at 384, suggesting the proposed Code be adopted by a binding treaty formally incorporating the text of UNIDROIT Principles including their mandatory provisions.


Pace Law School Institute of International Commercial Law - Last updated May 14, 2008
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