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Reproduced with permission of 26 Uniform Law Review (1996) 229-246

The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law: Similar Rules for the Same Purposes?

Michael Joachim Bonell
Professor of Law, University of Rome I "La Sapienza"
Legal Consultant, UNIDROIT

INTRODUCTION

The year 1994 marked a turning point for two remarkable projects in the field of contract law. It was in that year that the Governing Council of the International Institute for the Unification of Private Law (UNIDROIT) gave its imprimatur to the publication of the Principles of International Commercial Contracts (hereinafter UNIDROIT Principles),[1] and the Commission on European Contract Law concluded its work on the first part of the Principles of European Contract Law (hereinafter European Principles).[2]

The UNIDROIT Principles have proved to be extremely successful. Barely two years after publication more than 2500 copies have been sold worldwide and -- what is even more significant -- the great majority of orders of the Principles have come from circles such as international law firms, corporate lawyers, chambers of commerce, arbitration courts and the like, which are the kind of potential users to whom the Principles are mainly addressed. Moreover, in addition to the five official versions (English; French; German; Italian; Spanish) the text of the black letter rules of the UNIDROIT Principles has also been translated into Arabic, Bulgarian, Chinese, Croatian, Dutch, Hungarian, Japanese, Slovak and Russian.[3] Finally, and most important of all, there are already reports of the first court decisions and arbitral awards referring to the UNIDROIT Principles in one way or the other.[4]

In the meantime the Commission on European Contract Law has embarked on the preparation of the remaining chapters of the European Principles. Work is expected to be concluded by the end of 1996 so that the complete version of them will be published in 1997 or, at the latest, in early 1998. [page 229]

In recent years each of these sets of Principles has been the subject of a substantial body of legal writings dealing with them either in general or with respect to specific topics they cover.[5] It now seems to be the right time to undertake a combined analysis of the two instruments with a view to comparing their content, scope and intended uses.[6] After a brief description of the origins and preparation (Part I) and the formal presentation (Part II) of the UNIDROIT Principles and the European Principles, Part III is devoted to an identification of the similarities and divergencies between the two instruments, with an attempt to distinguish divergencies of policy from those of a merely technical nature. Finally Part IV addresses the basic question as to the relationship between the UNIDROIT Principles and the European Principles, i.e. whether there is a risk that they will compete with one another or whether they may co-exist while serving different purposes.

I. ORIGINS AND PREPARATION

1. The UNIDROIT Principles

It was in 1971 that the UNIDROIT Governing Council decided to include in the Work Programme of the Institute what in the original French version of the resolution was indicated as an "essai d'unification portant sur la partie générale des contrats (en vue d'une Codification progressive du droit des obligations 'ex contractu')".[7] A small Steering Committee, composed of Professors René David (University of Aix-en-Provence), Clive M. Schmitthoff (City University of London) and Tudor Popescu (University of Bucharest), in representation of the civil law, the common law and the former socialist systems, was set up with the task of making preliminary inquiries on the feasibility of such a project. In a first report in 1974 the Steering Committee stressed the great importance of the project and laid down in broad terms the structure it should take.[8]

However, due to other commitments of the Institute, the project -- initially given the somewhat misleading title of "Progressive Codification of International Trade Law" -- and only later renamed "Preparation of Principles for International Commercial Contracts" -- did not for some years enjoy priority status.[9] [page 230]

Only in 1980 was a special Working Group set up with the task of preparing the various draft chapters of the Principles. The members of the Group, which included representatives of all the major legal and socio-economic systems of the world, were leading experts in the field of contract law and international trade law. Most of the members were academics, some high ranking judges or civil servants, all sitting, however, in a personal capacity and not expressing the views of their governments.[10]

The Working Group appointed from among its members Rapporteurs for each of the different chapters of the Principles. Their task consisted in preparing, after the necessary comparative studies, a first draft together with comments.

As to the working method, obviously it was impossible to take into account the law of every single country of the world, nor could every legal system have an equal influence on each issue at stake. From among the national codifications or compilations of law greater attention was naturally given to the most recent ones, such as the United States Uniform Commercial Code and the Restatement (Second) of the Law of Contracts, the Algerian Civil Code of 1975, the 1985 Foreign Economic Contract Law of the People's Republic of China, the drafts of the new Dutch Civil Code and of the new Civil Code of Quebec, which finally entered into force in 1992 and 1994 respectively. As far as international legislation is concerned, such an important and universally applied instrument as the United Nations Convention on Contracts for the International Sale of Goods (CISG) was an obligatory point of reference. Whenever appropriate, account was taken also of other international instruments prepared by UNCITRAL.[11] Moreover special attention was given to non-legislative instruments elaborated by professional bodies or trade associations and widely used in international trade.[12]

The preliminary drafts prepared by the Rapporteurs were discussed by the Group as a whole at its twice yearly working sessions. After their second reading the drafts were circulated among a wider group of experts, belonging to both academic and [page 231] business circles throughout the world for comments on the drafts. The drafts were also periodically examined by the UNIDROIT Governing Council -- the Institute's highest scientific body -- which offered its advice on the policy to be followed, especially in those cases where the Working Group had found it difficult to reach a consensus.[13] Moreover, the drafts were submitted to the Governments of the 56 Member States of the Institute for information.[14] The Working Group concluded the last reading of the different draft chapters in February 1994, and in May of the same year the final text of the UNIDROIT Principles was submitted to the Governing Council for approval.

2. The European Principles

The origins and preparation of the European Principles were largely similar.

It was Ole Lando who, in 1976 on the occasion of a symposium on "New Perspectives for a Common Law of Europe" held at the newly established European University Institute, first launched the idea of embarking on the drafting of a European Uniform Commercial Code or, if this proved to be too ambitious, at least a European Restatement of Contract Law.[15]

After informal discussions in Brussels, which resulted in a commitment by the EEC Commission to provide some financial support for the project, the Commission on European Contract Law -- also known as the "Lando Commission" in honour of its founder and chairman -- was set up and began its actual work in 1982.[16] Like the UNIDROIT Working Group, this Commission was composed of academics and practitioners in their personal capacity. Unlike the former, however, which was composed of experts from all the five continents, the membership of the latter was intentionally restricted to lawyers from member States of the former European Community, now the European Union.[17]

Also the working method of the Commission very much resembled that of the UNIDROIT Group. This is true not only with respect to the appointment of [page 232] Rapporteurs for the preparation of the preliminary drafts of the individual chapters, but also to the sources of inspiration. Indeed, notwithstanding its mandate to prepare Principles of European Contract Law, the Commission did not confine its sources to the national laws of the member States of the European Union, but drew on legal materials also from outside Europe, such as the American Restatements on Contract and Restitution and conventions such as CISG.[18]

Naturally the Commission on European Contract Law was from the outset aware of the work being conducted by the UNIDROIT Group and vice-versa.[19] Moreover, as the two groups were dealing with the individual chapters at different times, it was inevitable that each group was influenced by the work of the other. While the UNIDROIT Group started its work with the chapter on formation, followed by those on interpretation, validity, performance and non-performance, the Commission took these topics in the inverse order. Consequently each group, as it proceeded from one topic to another, profited by having at its disposal the results of the other's work, at least in the form of a preliminary draft.

II. STRUCTURE AND FORMAL PRESENTATION

1. The UNIDROIT Principles

The UNIDROIT Principles are composed of a Preamble and 119 articles divided into seven chapters, namely "General Provisions" (Chapter 1); "Formation" (Chapter 2); "Validity" (Chapter 3); "Interpretation" (Chapter 4); "Content" (Chapter 5); "Performance" (Chapter 6) and "Non-Performance" (Chapter 7). Chapter 6 has two sections dealing with "Performance in General" and "Hardship" respectively, while Chapter 7 has four sections, namely one concerning "Non-Performance in General", one on the "Right to Performance", one on "Termination", and one on "Damages".

There are provisions, such as that which lays down the principle of freedom of contract [20] and the one dealing with the formation of the contract,[21] which are very concise and formulated in general terms, while others, such as the provision on the currency of payment [22] or that on the right to cure,[23] are on the contrary much more detailed. In general the UNIDROIT Principles are drafted more in the style of the European codes than in the notoriously more elaborate fashion typical of common law statutes. [page 233]

Each article is accompanied by comments and, where appropriate, by factual illustrations intended to explain the reasons for the black letter rule and the different ways in which it may operate in practice.

As to their formal presentation, the UNIDROIT Principles deliberately seek to avoid the use of terminology peculiar to any given legal system. The international character of the Principles is also stressed by the fact that the comments to the black letter rules systematically refrain from referring to national laws in order to explain the origin and rationale of the solution retained. Only where the rule has been taken over more or less literally from the world wide accepted CISG is explicit reference made to its source.

2. The European Principles

As already pointed out, the European Principles are not yet ready in their complete version. Only the chapters on general provisions, performance, non-performance and remedies have been published while the chapters on formation, authority of agents, validity, interpretation, contents and effects are still in the draft form. Subject to any deletions or additions which might be made when consolidating the different provisions, it is expected that the complete version of the European Principles will consist of some 134 articles divided into nine chapters, namely "General Provisions" (Chapter 1); "Formation" (Chapter 2); "Authority of Agents" (Chapter 3); "Validity" (Chapter 4); "Interpretation" (Chapter 5); "Contents and Effects" (Chapter 6); "Performance" (Chapter 7); "Non-Performance and Remedies in General" (Chapter 8) and "Particular Remedies for Non-Performance" (Chapter 9).

There are striking similarities in the drafting style and the formal presentation of the European Principles and the UNIDROIT Principles. The only significant difference is that the former, in addition to the black letter rules and comments, contains notes to the rules identifying the principal sources utilized and describing briefly the manner in which the issue is dealt with in the various legal systems of the member States of the European Union.

The absence of comparative notes in the UNIDROIT Principles has been criticised on the ground that the indication of the national precedents for the solutions adopted in the UNIDROIT Principles would have conferred on them greater authoritative characters.[24] However, in this respect it should be borne in mind that, as already pointed out, in the preparation of the UNIDROIT Principles it was inevitable that the laws of some countries played a more significant role than others: consequently it might even have been counterproductive to highlight this fact by including comparative notes in the official text of the Principles. On the other hand, notwithstanding the much more restricted and homogeneous legal background of the European Principles, even their comparative notes do not always provide adequate support for the solutions adopted. [page 234]

III. CONTENTS COMPARED

To indicate precisely the extent to which the contents of the UNIDROIT Principles and the European Principles correspond or diverge is not all that easy. A direct article by article comparison is almost impossible, because there are issues which in one instrument are dealt with in a single article while in the other in more than one article, and because in both instruments there are single articles addressing several issues which are dealt with in separate articles in the other instrument.

1. Corresponding Provisions

Taking as a point of reference the UNIDROIT Principles, about seventy of their articles have corresponding provisions in the European Principles.

Thus, with respect to the Preamble and the chapter on General Provisions, the provisions of the UNIDROIT Principles which have either a literal counterpart in the European Principles, or at least with respect to which the latter contain basically the same rules, are paragraphs 1 and 2 of the Preamble, Article 1.2 (No form required), Article 1.4 (Mandatory rules) and Article 1.5 (Exclusion or modification by the parties).[25]

In the chapter on formation this is true of Article 2.1 (Manner of formation), Article 2.2 (Definition of offer), Article 2.4 (Revocation of offer), Article 2.5 (Rejection of offer), Article 2.6 (Mode of acceptance), Article 2.7 (Time of acceptance), Article 2.9 (Late acceptance. Delay in transmission), Article 2.11 (Modified acceptance), Article 2.13 (Conclusion of contract dependent on agreement on specific matters or in a specific form), Article 2.15 (Negotiations in bad faith), Article 2.16 (Duty of confidentiality), and Article 2.22 (Battle of forms).[26]

In the chapter on validity the same can be said of Article 3.2 (Validity of mere agreement), Articles 3.4 (Definition of mistake) and 3.5 (Relevant mistake), Article 3.6 (Error in expression or transmission), Article 3.8 (Fraud), Article 3.9 (Threat), Article 3.10 (Gross disparity), Article 3.11 (Third persons), Article 3.12 (Confirmation), Article 3.13 (Loss of right to avoid), Article 3.14 (Notice of avoidance), Article 3.15 (Time limits), Article 3.16 (Partial avoidance), Article 3.17 (Retroactive effect of avoidance), Article 3.19 (Mandatory character of the provisions), and Article 3.20 (Unilateral declarations).[27]

As concerns the chapters on interpretation and on content, provisions which are also to be found in the European Principles are Article 4.1 (Intention of the parties), Article 4.2 (Interpretation of statements and other conduct), Article 4.3 (Relevant circumstances), Article 4.4 (Reference to contract or statement as a whole), Article 4.5 [page 235] (All terms to be given effect), Article 4.7 (Linguistic discrepancies), Article 5.3 (Cooperation between the parties), Article 5.6 (Determination of quality of performance), and Article 5.8 (Contract for an indefinite period).[28]

In the chapter on performance this is true of Article 6.1.1 (Time of performance), Article 6.1.4 (Order of performance), Article 6.1.5 (Earlier performance), Article 6.1.6 (Place of performance), Article 6.1.11 (Costs of performance), Articles 6.1.12 (Imputation of payments) and 6.1.13 (Imputation of non-monetary obligations), and Articles 6.2.1 to 6.2.3 on hardship.[29]

Finally, with respect to the chapter on non-performance, this is the case of Article 7.1.1 (Non-performance defined), Article 7.1.2 (Interference by the other party), Article 7.1.3 (Withholding performance), Article 7.1.5 (Additional period for performance), Article 7.2.1 (Performance of monetary obligation), Article 7.2.2 (Performance of non-monetary obligations), Article 7.2.3 (Repair and replacement of defective performance), Article 7.3.1 (Right to terminate the contract), Article 7.3.2 (Notice of termination), Article 7.3.3 (Anticipatory non-performance), Article 7.3.4 (Adequate assurance of due performance), Article 7.3.5(2)(3) (Effects of termination in general), Article 7.4.1 (Right to damages), Article 7.4.2 (Full compensation), Article 7.4.3 (Certainty of harm), Article 7.4.5 (Proof of harm in case of replacement transaction), Article 7.4.6 (Proof of harm by current price), Article 7.4.7 (Harm due in part to aggrieved party), Article 7.4.8 (Mitigation of harm), Article 7.4.12 (Currency in which to assess damages) and Article 7.4.13 (Agreed payment for non-performance).[30]

2. Divergencies

As concerns the divergencies between the two instruments, there are first of all provisions in the UNIDROIT Principles which differ in content from their counterparts in the European Principles. In addition, there are issues addressed in the former which are not dealt with at all in the latter and vice-versa. While most of these divergencies appear to be of a merely technical nature, some others are of a "policy" nature, i.e. they clearly reflect the different scope of the two instruments.

(a) Divergencies of a technical nature

Examples of divergencies of a merely technical nature are the adoption by the UNIDROIT Principles of the "receipt" rule with respect to all kinds of notices the parties may exchange (Art. 1.9(2)), as opposed to the provision in the European Principles of the "dispatch" rule with respect to notices prompted by the (actual or [page 236] anticipated) non-performance by one of the parties (Art. 1.303(4)); that according to the UNIDROIT Principles a contract in writing which contains a clause requiring any modification to be in writing may not be otherwise modified (Art. 2.18), while in the European Principles the same type of clause establishes only a presumption to this effect (Art. 2.106(1)); and that the UNIDROIT Principles grant the party entitled to avoid the contract the right to reliance damages irrespective of whether or not it has actually avoided the contract (Art. 3.18), while the European Principles provide for the recovery of such damages only where the contract has actually been avoided (Art. 4.17).

Other instances of divergencies not originating from any policy considerations are that according to the UNIDROIT Principles in the case that the third person cannot or will not fix the price the price shall be a reasonable price (Art. 5.7), while the European Principles presume that the parties have empowered the court to appoint another person to determine the price (Art. 6.106(1)); that the UNIDROIT Principles grant the non-performing party the right to cure even if the aggrieved party has rightfully terminated the contract (Art. 7.1.4), while according to the European Principles the non-performing party may cure only where the time of performance has not yet arrived or the delay would not be such as to constitute a fundamental non-performance (Art. 8.104); and that the UNIDROIT Principles state in general terms that exemption clauses may not be invoked if it would be grossly unfair to do so (Art. 7.1.6), while the European Principles also make provision for the invalidity of such clauses where non-performance is intentional (Art. 8.109).

Still further examples are that even in case of total and permanent impediment the UNIDROIT Principles make termination dependent on the initiative of the parties (Art. 7.1.7(4)), while the European Principles provide for automatic termination of the contract in such cases (Art. 9.303(4)); that according to the UNIDROIT Principles in case of termination either party may claim restitution of whatever it has supplied either in kind or in the form of an allowance in money (Art. 7.3.6), while the European Principles grant the right to recovery only in a limited number of cases, i.e. where a party has paid for a performance which it did not receive or has properly rejected (Art. 9.307), or where a party has supplied property or rendered another performance for which it has not received payment (Arts. 9.308 and 9.309); and that the UNIDROIT Principles restrict the non-performing party's liability to foreseeable losses (Art. 7.4.4), while the European Principles provide for an exception to this limitation in cases in which non-performance was international or grossly negligent (Art. 9.503).

Provisions which appear only in one of the two instruments but not in the other without there being any "policy" reason for their inclusion or exclusion clearly are, in the UNIDROIT Principles, Article 1.1 (Freedom of contract), Article 1.3 (Binding character of contract) in the chapter on general provisions; Article 2.3 (Withdrawal of offer), Article 2.8 (Acceptance within a fixed period of time), Article 2.10 (Withdrawal of acceptance), Article 2.21 (Conflict between standard terms and non-standard terms) and Article 2.20 (Surprising terms) in the chapter on formation; Article 4.8 (Supplying an omitted term) in the chapter on interpretation; Article 6.1.2 (Performance at one time or in instalments), Article 6.1.3 (Partial performance), Article 6.1.8 [page 237] (Payment by funds transfer) and Article 6.1.10 (Currency not expressed) in the chapter on performance; Article 7.2.5 (Change of remedy), Article 7.4.10 (Interest on damages) and Article 7.4.11 (Manner of monetary redress) in the chapter on non-performance.

In the European Principles, provisions with no counterpart in the UNIDROIT Principles are Article 1.302 (Reasonableness) and Article 1.305 (Imputed knowledge and intention) in the chapter on general provisions; Article 2.102 (Intention) and Article 2.103 (Sufficient agreement) in the chapter on formation; Article 4.106 (Incorrect information) in the chapter on validity; Articles 6.105 (Unilateral determination by a party), Article 6.106 (Determination by a third person) and Article 6.107 (Reference to a non existent factor) to the extent they refer to contractual terms other than the price, and Article 6.112 (Alternative performance) in the chapter on contents and effects; Article 7.107 (Property not accepted), Article 7.108 (Money not accepted) and Article 7.109 (Performance by a third person) in the chapter on performance; Article 8.107 (Performance entrusted to another) in the chapter on non-performance and remedies in general); Article 9.101(2) (Monetary obligations) and Article 9.302 (Contract to be performed in parts) in the chapter on particular remedies for non-performance.

Yet even the inclusion of more controversial provisions, such as Article 2.14 (Contract with terms deliberately left open), Article 5.4 (Duty to achieve a specific result; Duty of best efforts), Article 5.5 (Determination of kind of duty involved) and Article 7.2.4 (Judicial penalty) of the UNIDROIT Principles, and Article 2.201(2)(3) (dealing with proposals to the public), Article 2.107 (Promises binding without acceptance), the entire chapter on authority of agents, Article 6.101 (Statements giving rise to contractual obligations), Article 6.103 (Simulation), Article 6.113 (Stipulation in favour of a third party) and Article 9.401 (Right to reduce price) of the European Principles, seems ultimately due to preferences of a merely technical nature.

(b) Divergencies of policy

The most significant divergency between the two instruments appears right from the outset. In the Preamble of the UNIDROIT Principles it is stated that they set forth "general rules for international commercial contracts", whereas the European Principles "are intended to be applied as general rules of contract law in the European Community" (Article 1.101)(1) (emphasis added). It means that, while the UNIDROIT Principles are confined to "international" and "commercial" contracts, the European Principles apply to all kinds of contracts, including transactions of a purely domestic nature and those between merchants and consumers. On the other hand, the territorial scope of application of the UNIDROIT Principles is universal, while that of the European Principles is formally limited to the member States of the European Union.

This difference in scope explains a number of additional divergencies of policy appearing in subsequent provisions.

Some of these divergencies depend on the fact that the UNIDROIT Principles specifically address international contracts, as opposed to the European Principles which cover contracts in general, including purely domestic ones. [page 238]

Thus, while in the European Principles the parties' duty to act in accordance with good faith and fair dealing is stated in general terms (Art. 1.201), the corresponding provision in the UNIDROIT Principles (Art. 1.7) refers to "good faith and fair dealing in international trade" (emphasis added), so as to make it clear that under the UNIDROIT Principles the two concepts are not to be construed according to the meaning generally attached to them in the domestic sphere, but in the light of the special conditions of international trade. Likewise, while Art. 1.104(2) of the European Principles states that the parties are bound by any usage which would be considered generally applicable by persons in the same situation as the parties, Art. 1.8(2) of the UNIDROIT Principles restricts the applicable usages to those which are "widely known to and regularly observed in international trade by parties in the particular trade concerned" (emphasis added), thereby excluding as a rule usages of a purely local or national origin.

Some other divergencies derive from the fact that the UNIDROIT Principles relate to contracts between merchants or other professionals, whereas the European Principles apply to consumer transactions as well and therefore cannot unconditionally adopt solutions which typically presuppose parties having the same bargaining power and/or negotiating skill.

Thus, while both instruments provide that additional or modified terms contained in writings in confirmation become part of the contract unless such terms materially alter the contract or the recipient objects to them without undue delay, the European Principles expressly confine the operation of this rule to situations in which both contracting parties are professionals.[31] Similarly, the rule according to which a contract in writing containing a merger clause cannot be contradicted or supplemented by evidence of prior statements or agreements appears in the UNIDROIT Principles without further qualifications (Art. 2.17), while in the European Principles the same rule applies only where the merger clause has been individually negotiated (Art. 2.105(1)).[32] Likewise, the UNIDROIT Principles subject the incorporation of standard terms to the general rules on formation (Art. 2.19), with the result that a mere reference to the standard terms will normally suffice to incorporate them in the contract. By contrast, the European Principles provide that non-individually negotiated contract terms will be binding only when the party invoking them has taken appropriate steps to bring them to the other party's attention before or when the contract was concluded, and expressly specify that a mere reference to such terms in the contract document is insufficient for this purpose (Art. 2.104).[33] Again, while the UNIDROIT Principles [page 239] provide for the avoidance of the contract or its individual terms only where elements of both procedural and substantive unfairness exist,[34] the European Principles, in addition to such a rule,[35] permit the striking out of non-individually negotiated contract terms simply because they are substantively unfair, i.e. if, contrary to the requirements of good faith and fair dealing, they cause a significant imbalance in the parties' rights and obligations arising under the contract (Art. 4.110).[36]

Finally, there are divergencies which stem from the universal sphere of application of the UNIDROIT Principles as opposed to the regional vocation of the European Principles.

A first example can already be found with respect to the intended use of the two instruments. While both state that they are applicable when the parties have expressly referred to them or have subjected their contract to "general principles of law", the "lex mercatoria" or the like, and when it proves impossible to settle the issue raised in accordance with the law otherwise applicable,[37] the UNIDROIT Principles provide for two additional uses, i.e. as a means of interpreting and supplementing existing international instruments and as a model for national and international legislators (emphasis added).[38] By contrast, while the text of the European Principles is silent in this respect, significantly enough the Introduction states that "[they] will assist both the organs of the Communities in drafting measures and the courts, arbitrators and legal advisers in applying Community measures" (emphasis added).[39]

Another example is that, while both instruments provide that payment may be made in any form used in the ordinary course of business, the UNIDROIT Principles deem it necessary to add the further qualification "at the place for payment",[40] thereby taking into account that modes of payment which are normal business practices in some regions of the world, are not necessarily so in others. Furthermore, while according to the European Principles a monetary obligation expressed in a currency other than that of the place for payment may always be paid in the currency of the place for payment at the current rate of exchange, unless the parties have stipulated that payment shall be made only in the contractually agreed currency (Art. 7.111(1)(2)), the UNIDROIT Principles, in view of the fact that there are countries in [page 240] the world whose economy does not permit the adoption of a freely convertible currency, state that payment must be made in the contractually agreed currency not only when expressly stipulated, but also when the currency of the place for payment is not freely convertible (Art. 6.1.9(1)). Lastly, the UNIDROIT Principles, but not the European Principles, contain provisions specifically dealing with the case where the validity of single transactions or their performance is subject to public permission requirements, thus reflecting the fact that situations of this kind continue to occur quite frequently in East-West and North-South trade and only rarely, if at all, within the European single market.[41]

IV. TERMS OF CO-EXISTENCE

Once the European Principles are finalised, the question will inevitably arise as to how they can co-exist with the UNIDROIT Principles. Will there be room for both instruments or are they bound to compete with each other? And if they do not overlap, what are precisely their respective functions?

1. Two sets of "Principles" for the same purposes?

At first sight it may seem suprising that such similar instruments as the UNIDROIT Principles and the European Principles could have been elaborated more or less contemporaneously. However, a closer examination reveals that there were several good reasons for pursuing the two projects in parallel.

To begin with, when in the early Seventies UNIDROIT decided to undertake work with a view to preparing uniform rules on international commercial contracts in general, it was not at all certain that such an ambitious programme could ever be successfully accomplished. At that time the two Hague Uniform Sales Laws had been adopted only by a small number of countries, mostly belonging to Western Europe, while the work on what was eventually to become the universally accepted CISG had just begun within the recently established UNCITRAL. Under these circumstances it is no wonder that some years later a similar project for the codification of general contract law was launched at the European level, where in view of the more homogeneous economic and political environment chances of success naturally appeared greater. And when with the passage of time the UNIDROIT project gained increasing support, work on both projects had reached such an advanced stage that it was no longer realistic to abandon one in favour of the other. [page 241]

Yet there were also substantial reasons in support of the two projects. UNIDROIT, being an intergovernmental organisation of a universal nature which addresses the entire world, had no other choice than to confine the scope of its project to international commercial contracts. Due to the differences which continue to exist at the world-wide level between the economic and political structures of the various countries, the legal regimes of purely domestic contracts vary considerably from State to State; moreover consumer protection, while highly developed in some regions, is virtually unknown in others. By contrast, the wider scope of the European Principles is wholly justified in view of the fact that they are designed to operate within the Single European Market, where any distinction between contracts entered into by nationals of one State and cross-border contracts would appear rather artificial, and where even the legal regime of consumer transactions has reached a high degree of harmonization.[42]

2. UNIDROIT Principles and European Principles: no real competition

The future existence of two similar sets of "Principles" has led some commentators to make catastrophic forecasts. Parties and arbitrators, it is argued, will be faced with two entirely equivalent, and therefore competing, instruments, and the need to choose between two leges mercatoriae is seen as a veritable "nightmare scenario".[43] In less dramatic, but still preoccupied, tones it has been observed that the question as to the precise relationship between the UNIDROIT Principles and the European Principles (as well as between the two and the CISG) [44] will be the subject of discussion for many years to come.[45]

Yet are these fears justified?

To begin with, in view of their different origin and scope it is unlikely that there will be any real competition between the UNIDROIT Principles and the European Principles outside Europe. [page 242]

Thus, legislators from Africa, the Americas, Asia or Oceania can hardly be expected to take as a model the European Principles which by their own admission "are designed primarily for use in the Member States of the European Community" and "have regard to the economic and social conditions prevailing in the Member States"?[46] And indeed, in a number of law reform initiatives undertaken outside the European Union it was the UNIDROIT Principles which served, at least to a certain extent, as a model: suffice it to mention the new Civil Code of the Russian Federation or similar projects underway in China, Estonia, Indonesia,[47] Israel [48] and New Zealand.[49] As pointed out by the Australian Government,

"[...] The [UNIDROIT] Principles could be a timely additional resource for the authorities of those and other countries in their efforts in drafting an important and difficult area of commercial law. In that respect those authorities may derive confidence from the fact that the [UNIDROIT] Principles [...] have been drafted in an atmosphere free from any particular political or ideological persuasion and by some of the most eminent world experts in this area of the law".[50]

Similarly, in the context of international commercial contracts involving non-Europeans, why should the parties or, in case of disputes, the arbitrators refer to the European Principles which openly present themselves as a "European lex mercatoria",[51] instead of the UNIDROIT Principles whose declared objective "is to establish a balanced set of rules designed for use throughout the world"?[52] Confirmation of this can be found in a recent arbitral award in which the arbitrators, called upon to settle a dispute between an English company and an Iranian governmental agency in accordance with "principles of natural justice", expressly stated that

"[...] general legal rules and principles enjoying wide international consensus, applicable to international contractual obligations and relevant to the Contracts, are primarily reflected by the Principles of International Commercial Contracts adopted by UNIDROIT (the ‘UNIDROIT Principles’) in 1994 [...]. In consequence, without prejudice to taking into account the provisions of the Contract and relevant trade usages, this Tribunal finds that [page 243] the Contracts are governed by, and shall be interpreted in accordance to, the UNIDROIT Principles with respect to all matters falling within the scope of such Principles, and for all other matters, by such other general legal rules and principles applicable to international contractual obligations enjoying wide international consensus which would be found relevant for deciding controverted issues falling under the present arbitration".[53]

And more recently even in a judgment rendered by a State court, in a dispute between a French and a U.S. company, two articles of the UNIDROIT Principles were applied as they were considered to represent "principles of international trade law".[54]

On the other hand, the European Principles, and not the UNIDROIT Principles, will be the obligatory point of reference for the legislative and judicial organs of the European Union when drafting or interpreting Community law. The same applies mutatis mutandis to the parliaments of single member States, and to courts when deciding intra-European disputes. Finally, while even parties operating within Europe are in theory free to choose as the rules governing their contracts the UNIDROIT Principles instead of the European Principles, in practice it is likely that they will prefer the latter to the former, especially in contracts between merchants and consumers.[55]

3. Future prospects

Neither the UNIDROIT Principles nor the European Principles have been prepared with a view to becoming binding instruments. Both were conceived as a set of non-binding rules which would be applied by virtue of their persuasive value only. Yet even if, due to their success in practice, they were to be converted into binding instruments, there would be room for both. To be more precise, contrary to what has been suggested,[56] there is no need to merge them into a single set of rules, and indeed one might even argue that to do so would be almost impossible. And again the reason lies in the different scope of the two instruments.

To begin with, even supposing that the UNIDROIT Principles were to be converted into an international convention at some stage in the future,[57] why should this signify the end of the European Principles? The new convention, adopted at world-wide level, would necessarily have to be restricted to international commercial [page 244] contracts. Consequently, the European Principles would continue to play an important role within the European Union if only with respect to purely domestic transactions and cross-border transactions between merchants and consumers. On the other hand, the day the European Principles become part of the future Common European Code of Private Law as invoked by the European Parliament in two resolutions,[58] there will still be a need for the UNIDROIT Principles -- whether in their present form or as a binding instrument -- as the rules governing international commercial contracts entered into outside Europe or, in any case, involving non-Europeans.

CONCLUSIONS

For the purpose of unification or harmonisation of law there is nothing worse than duplication of work leading to the adoption of different instruments competing with one another in the same area. At first sight it would appear that the more or less contemporaneous preparation of two sets of rules such as the UNIDROIT Principles and the European Principles is an example of such a duplication. A closer examination demonstrates that this is not the case.

It is true that both instruments address basically the same issues of general contract law and are very similar in terms of formal presentation. However, they definitely differ as to their scope. The UNIDROIT Principles relate specifically to international commercial contracts, while the European Principles are intended to apply to all kinds of contracts, including transactions of a purely domestic nature and those between merchants and consumers. Moreover, while the territorial scope of the UNIDROIT Principles is universal, that of the European Principles is formally limited to the member States of the European Union.

It follows that the two instruments in actual practice not only do not overlap but may well coexist and play equally important, but not interchangeable, roles. Indeed, outside Europe or in commercial transactions involving non-Europeans, it will be the UNIDROIT Principles that apply, while within the European Union or in purely intra-European contracts, especially between merchants and consumers, it will be the European Principles that prevail.

In these circumstances it should not be surprising either, nor cause too great concern, that the two instruments do not entirely coincide as to their content. Some of the differences clearly depend on their different scope, and such differences of policy would at any rate be hard, if not impossible, to overcome as long as both instruments maintain their present sphere of application. As to the differences of a purely technical nature, the competition between different solutions may even be beneficial: time and actual practice will determine which rules should ultimately be preferred. [page 245]


FOOTNOTES

1. Cf. International Institute for the Unification of Private Law, Principles of International Commercial Contracts (Rome, 1994).

2. Cf. O. LANDO -- H. BEALE (eds), The Principles of European Contract Law, Part I: Performance, Non-performance and Remedies (Dordrecht, 1995).

3. For the text in Arabic, Chinese, English, French, German, Italian, Russian and Spanish, see M.J. BONELL. An International Restatement of Contract Law. The UNIDROIT Principles of International Commercial Contracts, Irvington, N.Y., 1994, p.157 et seq.

4. For a summary of five of these awards cf. M.J. BONELL, Un "codice" internazionale del diritto dei contratti. I Principi UNIDROIT dei Contratti Commerciali Internazionali, Milano, 1995, pp. 193-196.

5. For an up-to-date bibliography on the two instruments see M.J. BONELL, Un "codice", cit., pp. 410-417.

6. For a first comparison of this kind, limited only however to Part I of the European Principles, see A.S. HARTKAMP, The UNIDROIT Principles for International Commercial Contracts and the Principles of European Contract Law, in 2 European Review of Private Law (1994) 341-357; R. ZIMMERMANN, Konturen eines Europäischen Vertragsrecht, in Juristenzeitung 1995, 477-490.

7. Cf. UNIDROIT 1971, C.D. 50th Session, p. 93.

8. Cf. UNIDROIT 1974, Study L -- Doc.7.

9. For further details regarding the preliminary inquiries made at that time on the feasibility of such a project, as well as regarding the first concrete plans of realization elaborated by the Steering Committee, see M.J. BONELL, The UNIDROIT Initiative for the Progressive Codification of International Trade Law, 27 The International and Comparative Law Quarterly (1978), p. 413 et seq.

10. (Nomi dei singoli membri)

11. E.g. the UNCITRAL Legal Guide on Electronic Funds Transfer (1986), the UNCITRAL Model Law on International Credit Transfers (1992), the UNCITRAL Legal Guides on Drawing Up International Contracts for the Construction of Industrial Works (1988) and on International Countertrade Transactions (1993), as well as the Convention on International Guarantee Letters (1995) and the draft Model Statutory Provisions on the Legal Aspects of Electronic Data Interchange (EDI).

12. E.g. INCOTERMS, the Uniform Customs and Practice for Documentary Credits or the Force Majeure (Exemption) Clause and the drafting suggestions concerning hardship provisions prepared by the International Chamber of Commerce, the General Conditions for the Supply and Erection of Plant and Machinery for Import and Export n. 188A (1953) and n. 574A (1955) of the United Nations Economic Commission for Europe, the FIDIC Conditions of Contract for Works of Civil Engineering or for Electrical and Mechanical Work or the UNIDO Model Form of Turnkey Lump Sum Contract for the Construction of a Fertilizer Plant (1983).

13. From the beginning the Governing Council had been regularly informed by the Secretariat of state of the work on the project. However, while the Council initially limited itself to acknowledge the work in progress, as from 1990 it examined in detail the contents of the single draft chapters as prepared by the Working Group (cf. UNIDROIT 1990; C.D. 69 -- Doc. 24, pp. 9-33 (formation and validity); UNIDROIT 1991; C.D. 70 -- Doc. 22, pp. 9-37 (performance in general); UNIDROIT 1992; C.D. 71 -- Doc. 18, pp. 4-23 (hardship, non-performance in general, specific performance and termination; UNIDROIT 1993; C.D. 72 -- Doc. 18, pp. 5-27 (damages and general provisions)).

14. The replies were in general extremely positive: see in particular the elaborate observations of the governments of Australia and Canada (UNIDROIT 1994, Study L -- (WG)WP 3).

15. O. LANDO, Unfair Contract Clauses and a European Uniform Commercial Code, in M. CAPPELLETTI (ed), New Perspectives for a Common Law of Europe (1978), p. 267 et seq. (pp. 284-288).

16. Cf. O.LANDO, Preface, in The Principles of European Contract Law, Part I cit., pp. ix-x.

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

18. Cf. The Principles of European Contract Law, Part I cit., Introduction, pp. xx.

19. The mutual exchange of information was facilitated by the fact that a number of experts, including the author, were members of both groups.

20. UNIDROIT Principles, Art. 1.1

21. UNIDROIT Principles, Art. 2.1

22. UNIDROIT Principles, Art. 6.1.9

23. UNIDROIT Principles, Art. 7.1.4

24. Cf. K.P. BERGER, Die UNIDROIT-Prinzipien für Internationale Handelsverträge, in Zeitschrift für Vergleichende Rechtswissenschaft 1995, p. 217 et seq. (p. 218).

25. Cf. Arts. 1.101(2)(3)(a), 2.101(2) and 1.102 of the European Principles, respectively.

26. Cf. Arts. 2.211, 2.201(1), 2.202(1)(2), 2.203, 2.204, 2.206, 2.207, 2.208, 2.103(2), 2.301, 2.302 and 2.209 of the European Principles, respectively.

27. Cf. Arts. 2.101(1)(b), 4.103, 4.104, 4.107, 4.108, 4.109, 4.111, 4.114, 4.105(1)(2), 4.112, 4.113, 4.115, 4.116, 4.118 and 4.120 of the European Principles, respectively.

28. Cf. Arts. 5.101, 1.106, 5.103, 5.107, 5.108, 5.109, 1.202, 6.108 and 6.109 of the European Principles, respectively.

29. Cf. Arts. 7.102, 6.110, 7.103, 7.101, 6.111, 7.106 and 6.114 of the European Principles, respectively.

30. Cf. Arts. 1.301(4), 8.101(3), 9.201, 8.106, 9.101(1), 9.102(2), 9.102(1), 9.301(1)(2) and 8.103, 9.303, 9.304, 8.105, 8.102 and 9.305(2), 8.102 and 9.501(1), 9.502 and 9.501(2)(a), 9.501(2)(b), 9.505, 9.506, 9.504(1)(a), 9.504(1)(b) and (2), 9.509 and 9.508 of the European Principles, respectively.

31. Cf. Art. 2.12 of the UNIDROIT Principles and Art. 2.210 of the European Principles.

32. There is only a presumption to this effect if the merger clause has not been individually negotiated (cf. Art. 2.105(2)).

33. It should be noted that the European Principles make a distinction between "non-individually negotiated terms " and "general conditions of contract": while the latter are defined as "[...] terms which have been formulated in advance for an indefinite number of contracts of a certain nature" (cf. Art. 2.209(3)), no further definition is given of the former.

34 Cf. Art. 3.10 ("Gross disparity") according to which a party may avoid the contract or any of its individual terms if, at the time of the conclusion of the contract, the contract or term gave the other party an excessive advantage by its exploitation of a bargaining handicap of the the first party.

35. Cf. Art. 4.109 ("Excessive or grossly unfair advantage").

36. Significantly enough this latter provision almost literally corresponds to Art. 3(1) of EEC Directive 93/13 of 5 April 1993 on Unfair Terms in Consumer Contracts.

37. Cf. Preamble to the UNIDROIT Principles, paras. 2, 3 and 4 and Art. 1.101(2), (3)(a) and (4) of the European Principles, respectively. According to Art. 1.101(3)(b) of the European Principles they may also be applied "when the parties have not chosen any system or rules of law to govern their contract", but this should not be considered as a veritable difference of policy with respect to the UNIDROIT Principles.

38. Cf. Preamble to the UNIDROIT Principles, paras. 5 and 6.

39. Cf. O. LANDO-H. BEALE (eds), The Principles of European Contract Law, Part I, cit., p. xvii.

40. Cf. Art. 6.1.7 of the UNIDROIT Principles and Art. 7.110 of the European Principles.

41. Arts. 6.1.14-6.1.17. -- The Principles do not address the question of which public permission requirements should be given effect in a particular case, i.e. whether, in addition to those of the law of the forum, those of the lex contractus and possibly even those of third countries are relevant, and if so that what extent. What the UNIDROIT Principles do is to provide the criteria for determining which party has to apply for the permission, what that party has to do in carrying out its duty and, finally, what are the consequences of the permission being refused or being neither refused nor granted.

42. Cf. C. CASTRONOVO, I 'Principi di diritto europeo dei contratti' e l'idea di codice, in Rivista del diritto commerciale 1995, I, p. 21 et seq. (p. 30 et seq.).

43. See in particular H. RAESCHKE-KESSLER, Should an Arbitrator in an International Arbitration Procedure apply the UNIDROIT Principles?, in Institute of International Business Law and Practice (ed.), UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria?, ICC Publication nº 490/1 (1995), p. 167 et seq. (pp. 174-175); C. KESSEDJIAN, Un exercise de rénovation des sources du droit des contrats du commerce international: Les Principes proposés par l'Unidroit, in Revue critique de droit international privé 1995, p. 641 et seq. (p. 669).

44. As to the relationship between the UNIDROIT Principles and CISG see A.S. HARTKAMP, The UNIDROIT Principles for International Commercial Contracts and the United Nations Convention on Contracts for the International Sale of Goods, in Asser Institute (ed.), Comparability and Evaluation. Essays on Comparative Law, Private International Law and International Commercial Arbitration, Nijhoff Publishers, 1994, p. 95 et seq.; M.J. BONELL, The UNIDROIT Principles of International Commercial Contracts and the Vienna Sales Convention (CISG) -- Alternatives or Complementary Instruments? in Uniform Law Review, 1996, p. 26 et seq.

45. SANDROCK O., Das Privatrecht am Ausgang des 20. Jahrhunders: Deutschland -- Europa -- und die Welt, in Juristen Zeitung, 1996, p. 1 et seq. (p. 4).

46. Cf. O. LANDO-H. BEALE (eds), The Principles of European Contract Law, Part I, cit., Introduction, p. xx.

47. For further details see M.J. BONELL, Un "codice" internazionale del diritto dei contratti, cit., p. 132 et seq. and p. 193.

48. See A. BARAK, Common Values in the UNIDROIT Principles and in the future Israeli Codification (Paper presented at the international colloquium on the Principles of UNIDROIT and Modern National Codifications held in Jerusalem on 23 November 1995).

49. See R. SUTTON, Commentary on 'Codification, Law Reform and Judicial Development', in 9 Journal of Contract Law (1996), p. 200 et seq. (pp. 204-205).

50. Cf. Letter of the Attorney General's Department to the Secretary-General of UNIDROIT of 19 November 1993.

51. Cf. O. LANDO-H. BEALE (eds), The Principles of European Contract Law, Part I, cit., Introduction, p. xviii.

52. Cf. International Institute for the Unification of Private Law, Principles of International Commercial Contracts, cit., Introduction, p. viii.

53. For an arbitral award in which a similar conclusion was reached where a contract between a U.S. company and a Saudi Arabian governmental agency made reference to no further specified "Anglo-Saxon principles of law", see M.J. BONELL, Un "codice" internazionale del diritto dei contratti, cit., pp. 195-196.

54. Cf. Cour d'Appel de Grenoble (Chambre commerciale), 24 January 1996 (unpublished).

55. In this sense explicitly, e.g., W. TILMANN, Zweiter Kodifikationsbeschluß des Europäischen Parlaments, in Zeitschrift für Europäisches Privatrecht 1995, p. 535 et seq. (pp. 536-537).

56. See in particular H. RAESCHKE-KESSLER, op. cit., p. 175; implicitly also A.S. HARTKAMP, Principles of Contract Law, in A.S. Hartkamp-M.W. Hesselink-E.H.Hondius-C.E. du Perron-J.M.B. Vranken (eds.), Towards a European Civil Code, Dordrecht 1994, p. 37 et seq. (p. ...).

57. In favour, e.g., J.P. BERAUDO, Les principes d'Unidroit relatifs au droit du commerce international, in La Semaine Juridique 1995, I, 3842 (p. 194).

58. See Resolution of 26 May 1989, Official Journal of the European Communities C 158/401 of 26 June 1989 and Resolution of 6 May 1994, Official Journal of the European Communities C 205/518. For the different ways in which these resolutions could be implemented, see W. TILMANN, op. cit., pp. 534-535.


Pace Law School Institute of International Commercial Law - Last updated October 9, 2008
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