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Reproduced with permission of 45 Virginia Journal of International Law (Fall 2004) 199-221

The Creeping Codification of Transnational Commercial Law:
An Arbitrator's Perspective

Charles N. Brower [*] & Jeremy K. Sharpe [**]

  1. Introduction
  2. Application of the UNIDROIT Principles by International Arbitral Tribunals
    A. Application of the UNIDROIT Principles by Agreement of the Parties
    B. Application of the UNIDROIT Principles as General Principles of Law
          1. International Commercial Arbitration
          2. Investment Dispute Arbitration
          3. United Nations Compensation Commission
          4. The Iran-United States Claims Tribunal
    C. Application of the UNIDROIT Principles in Establishing the Applicable Law
    D. Application of the UNIDROIT Principles to Interpreting or Supplementing International Conventions
  3. Conclusion

I. INTRODUCTION

Two notable features of contemporary life are the worldwide retreat of state authority and the privatization of functions (including dispute resolution) previously performed only by governments. These related developments have spurred the unprecedented growth of international arbitration.

Increased demand for the private resolution of international commercial and investment disputes testifies (1) to the desire of parties everywhere to avoid subjecting their rights and obligations to adjudication in national courts under national law, and (2) to the great extent to which so many states have facilitated this "privatized justice" through adoption of international treaties such as the New York Convention,[1] modern arbitration statutes,[2] and progressive, pro-arbitration jurisprudence.[3] [page 200] A less-noted part of this movement is the development of a body of privatized principles of transnational commercial law.[4] This process has aptly been described as the "creeping codification of the lex mercatoria."[5] Private parties, operating outside of state authority or control, have "codified" draft or model law, transforming amorphous concepts of transnational commercial law into concrete principles for use by contracting parties, arbitral tribunals, and even national courts and legislatures. Thus, through a fundamentally different form of lawmaking, private actors are developing a new body of law.

The development of this "extra-national" law comes at a propitious time. States face increasing difficulties negotiating and bringing into force multilateral treaties, especially treaties on subjects of universal ambit.[6] For a host of reasons - from bureaucratic inertia to opposition from powerful interest groups - states are refusing to ratify international conventions, even when they accept the legal rights and obligations at issue.[7] Indeed, even the successful codification of international law brings its own problems; once codified, the law cannot readily evolve to respond to the changing world.[8] The private, informal, even tentative [page 201] codification of principles of transnational law thus represents a welcome and potentially important development.[9]

The most significant of these codifications are the Principles of International Commercial Contracts, which were published in 1994 by the International Institute for the Unification of Private Law (UNIDROIT). A primary architect of the UNIDROIT Principles, Professor Michael Joachim Bonell, describes them as "a totally new approach to international trade law."[10] They are not model clauses, contract forms, international trade terms, or international legislation adopted by states through international agreement.[11] Rather, as one arbitral tribunal has remarked:

"The UNIDROIT Principles are a restatement of international legal principles applicable to international commercial contracts made by a distinguished group of international experts coming from all prevailing legal systems of the world, without the intervention of states or governments, both circumstances redounding to the high quality and neutrality of the product and its ability to reflect the present stage of consensus on international legal rules and principles governing international contractual obligations in the world, primarily on the basis of their fairness and appropriateness for international commercial transactions falling within their purview ...."[12]

In their concept and genesis, the UNIDROIT Principles are similar to the various Restatements issued by the American Law Institute, which have exerted enormous influence on the development of U.S. law.[13] The [page 202] UNIDROIT Principles consist of 119 "black-letter" articles, described as "general rules" conceived for "international commercial contracts."[14] Generally, the Principles are terse but broadly stated. Furthermore, like the Restatements, the UNIDROIT Principles are accompanied by commentary and factual illustrations to guide users from disparate legal and linguistic traditions.[15]

In one important respect, however, the UNIDROIT Principles differ from the Restatements: while the Restatements ostensibly "attempt to state and clarify existing law,"[16] the UNIDROIT Principles consciously, and progressively, seek in many instances to state the best law for drafting and interpreting international commercial contracts, regardless of whether each Principle constitutes extant lex mercatoria.[17] Thus, the UNIDROIT Principles expressly lay claim to being either "common to [page 203] existing national legal systems" or those rules deemed "best adapted to the special requirements of international commercial transactions."[18] As such, the UNIDROIT Principles do not restate the law, but seek to influence its development through their incorporation in international commercial contracts and through their application by arbitral tribunals and national courts.

Notably, those who drafted the UNIDROIT Principles - legal scholars, practitioners, judges, and civil servants expert in contract, comparative, and international commercial law - did so in their private capacities and not as representatives of government or particular commercial interests.

UNIDROIT's Governing Council, which drafted and maintains the UNIDROIT Principles,[19] has acknowledged that the Principles "do not involve the endorsement of Governments" and "are not a binding instrument."[20] Indeed, many governments reportedly would have refused to consent to the UNIDROIT Principles as a restatement of international contract law.[21] As a result, the Governing Council promulgated these principles as "draft law," thus obviating the need for state approval and avoiding further rounds of debate, delay, and compromise.[22] In fact, given the UNIDROIT Principles' broad subject matter and universal ambit, it is doubtful whether even a majority of the now nearly 200 independent states could have reached a meaningful consensus on the subject. [page 204]

The history of the UNIDROIT Principles clearly shows that the conscious exclusion of governments from a formal role in this extensive codification of transnational commercial law has greatly enhanced, if not enabled, its progressive development and application.[23]

The UNIDROIT Principles thus embody the creeping codification of transnational commercial law. This phenomenon is most evident in the context of international arbitration - a forum in which adjudicators arguably have greater freedom (and certainly have greater disposition) to apply transnational law than do judges in national courts. Indeed, international arbitration is proving to be the crucible in which the UNIDROIT Principles are tested.

II. APPLICATION OF THE UNIDROIT PRINCIPLES BY INTERNATIONAL ARBITRAL TRIBUNALS

Arbitral tribunals have invoked the UNIDROIT Principles: (1) when the parties specifically have called for their application; (2) when parties have otherwise called for application of transnational commercial law; (3) when the UNIDROIT Principles offer a solution to an issue that cannot be resolved under the applicable law; and (4) when international uniform law instruments (such as the Vienna Sales Convention) contain gaps that the UNIDROIT Principles can fill or ambiguities that they can clarify.

A. Application of the UNIDROIT Principles by Agreement of the Parties

According to their preamble, the UNIDROIT Principles "shall be applied when the parties have agreed that their contract be governed by them."[24] This is by now an unremarkable provision. Except for states' [page 205] mandatory laws, nothing prevents arbitrating parties from designating the legal principles governing their contracts.[25] Article 28(1) of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, for instance, states that "the arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute ...."[26] Typically, parties no longer are legally obliged to designate a particular state law to govern their international contracts, as traditionally had been the case.[27]

The UNILEX database, which compiles cases citing the UNIDROIT Principles, reports only six cases in which the parties chose the UNIDROIT Principles to govern their contracts. In each case, the parties chose the UNIDROIT Principles only after the dispute had arisen:

Presumably, as the UNIDROIT Principles gain popularity,[34] more parties will incorporate them into their contracts, particularly if they cannot agree upon a governing national law. Indeed, UNIDROIT recently prepared a model clause for parties to incorporate the Principles into their contracts.[35]

A worldwide survey conducted in 2000 by the Center for Transnational Law reported fifty-three instances in which contracting parties had expressly chosen the UNIDROIT Principles as the law governing their agreements.[36] Some of these contracts undoubtedly will become the subject of international arbitration.

Likewise, arbitrators likely will continue to encourage parties to accept application of the UNIDROIT Principles to avoid thorny choice-of-law problems whose solutions might otherwise leave the parties unsatisfied.

B. Application of the UNIDROIT Principles as General Principles of Law

The UNIDROIT Principles "may be applied when the parties have agreed that their contract be governed by general principles of law, the lex mercatoria or the like."[37]

1. International Commercial Arbitration

Arbitrators, in particular, have accepted this invitation in the UNIDROIT Principles to resolve their commercial cases, finding the Principles to be a ready-made substitute for amorphous legal references often conjured by drafting parties. Arbitrators thus rely upon the UNIDROIT Principles where contracts have called for: [page 208]

Despite the increasing willingness of arbitrators to use the UNIDROIT Principles, at least one ICC tribunal recently refused to [page 209] apply the UNIDROIT Principles as lex mercatoria.[44] The tribunal reasoned that

"although the Unidroit [sic] Principles constitute a set of rules theoretically appropriate to prefigure the future lex mercatoria should they be brought into line with international commercial practice, at present there is no necessary connection between the individual Principles and the rules of the lex mercatoria, so that recourse to the Principles is not purely and simply the same as recourse to an actually existing international commercial usage."[45]

Although the debate continues as to whether the UNIDROIT Principles constitute part of the lex mercatoria, they are increasingly seen as such, thus altering the perception of the lex mercatoria and reinforcing the notion that the Principles are in fact part of that body of law.[46] A creditable view is that the UNIDROIT Principles are presumptively part of the lex mercatoria, subject to contrary evidence militating against their application in specific instances.[47]

Further support for this interpretation comes from the courts. National courts appear unwilling to set aside awards on the ground that arbitral tribunals have applied the UNIDROIT Principles as lex mercatoria.[48] The case of Iran v. Cubic Defense Systems is illustrative.[49] There, an ICC Tribunal found that because the parties had

"agreed to the complementary and supplementary application of general principles of international law and trade usages ... the Tribunal shall, to the extent necessary, take into account such principles and usages as well. As to the contents of such rules, the Tribunal shall be guided by the ... UNIDROIT Principles."[50] [page 210]

The Tribunal rendered an award in favor of the Iranian claimant, which then sought to enforce the award in the United States District Court for the Southern District of California.[51] The American defendant cross-claimed to vacate the foreign arbitral award, in part under Article V(1)(c) of the New York Convention, on the ground that the Tribunal's reliance on certain provisions of the UNIDROIT Principles exceeded the scope of the parties' terms of reference.[52] The court, however, rejected the American defendant's cross-claim and enforced the award. It held:

"The Tribunal's reference to and application of the UNIDROIT Principles and principles such as good faith and fair dealing do not violate Article V(1)(c). The Tribunal applied these principles to differences contemplated by and falling within the terms of the submission to arbitration and therefore the Award does not violate Article V(1)(c)."[53]

Even if the parties had not specifically agreed that their contract would be governed, in part, by "general principles of international law and trade usages," the arbitral award likely would have survived attack, for courts are loath to impugn arbitrators' choice-of-law analyses.[54] [page 211]

2. Investment-Dispute Arbitration

Disputes arising out of bilateral or multilateral investment treaties may also prove fertile ground for the application of the UNIDROIT Principles, especially considering the explicit role given to general principles of international law in the resolution of disputes arising under those treaties.[55] Indeed, Antonio Parra has reported two recent cases before the International Centre for Settlement of Investment Disputes in which "claimant investors have invoked the UNIDROIT Principles as embodying rules of international law," presumably as "general principles of law" within the meaning of Article 38(1) of the Statute of the International Court of Justice.[56] In light of the roughly 2,000 bilateral investment treaties now in force around the world (as well as multilateral investment treaties such as the North American Free Trade Agreement [57] and the Energy Charter Treaty [58] ), this trend is likely to continue.

3. The United Nations Compensation Commission

Third, the United Nations Compensation Commission (UNCC) has invoked the UNIDROIT Principles to aid its interpretation and application of general principles of international law. When the United Nations Security Council established the UNCC in 1991, the Commission was tasked with determining Iraq's liability, under international law, for any loss, damage, or injury directly resulting from its unlawful invasion and occupation of Kuwait.[59] The UNCC's rules of [page 212] procedure require that its Commissioners apply not only the relevant Security Council resolutions and decisions of the UNCC Governing Council, but "where necessary ... other relevant rules of international law."[60] In ascertaining the "relevant rules of international law," the UNCC has looked to the UNIDROIT Principles for guidance, including its provisions on force majeure and quantification and mitigation of damages.[61]

4. The Iran-United States Claims Tribunal

Finally, the Algiers Accords establishing the Iran-United States Claims Tribunal similarly open the door for the application of the UNIDROIT Principles. The Algiers Accords empower the Tribunal to "decide all cases on the basis of respect for law, applying such choice of law rules and principles of commercial and international law as the Tribunal determines to be applicable."[62] The Tribunal routinely resorts to the application of general principles of transnational law (and in fact has greatly contributed to the development of that law [63] ), there being a surprising concordance of views within the Tribunal regarding their content. To date, however, the Tribunal has not applied the UNIDROIT Principles.

C. Application of the UNIDROIT Principles in Establishing the Applicable Law

The Preamble to the UNIDROIT Principles indicates that they "may provide a solution to an issue raised when it proves impossible to [page 213] establish the relevant rule of the applicable law,"[64] and "a solution can be found in the Principles."[65] National legal systems generally aspire to comprehensiveness, and thus it is unsurprising to find only a small number of published arbitral awards invoking this use of the UNIDROIT Principles. Nevertheless, arbitrators may encounter circumstances where the relevant national law appears non-existent or is difficult to ascertain or otherwise unclear. In those instances, arbitrators might find sufficient justification for the application of the UNIDROIT Principles.

In a recent ad hoc arbitration in Auckland, for instance, the arbitral tribunal determined that the relevant New Zealand law was "in a somewhat unsettled state," and thus applied the UNIDROIT Principles as the most "definitive contemporary statement governing the interpretation of contractual terms ...."[66] A similar situation arose in a dispute between a U.S. oil company and a former Soviet state concerning the construction of a power station. Although the parties' contract designated the applicable law as that of the former Soviet state, the arbitral tribunal invoked the UNIDROIT Principles to fill lacunae and resolve ambiguities in that law, which was deemed in flux during the state's transition to a market economy.[67]

Furthermore, Professor Bonell has noted "that even where the applicable law is highly developed and easily accessible[,] the UNIDROIT Principles [can] be used to ensure its interpretation in conformity with internationally accepted standards" or to "fill in gaps."[68] Indeed, this unforeseen application of the UNIDROIT Principles has proven particularly important, principally because some seventy-five to eighty percent of international arbitration cases involve predetermined choice-of-law provisions designating a national law.[69] [page 214] There are numerous cases in which arbitral tribunals have relied on the UNIDROIT Principles to underscore the compatibility of the applicable national law with international legal precepts:

As Pierre Mayer has noted: "Use of the Principles in this way has an educational purpose: it reassures any party that may have been opposed to the application of the municipal law applied (especially where such law had not been chosen by both parties), and it promotes the UNIDROIT Principles as a body of rules whose role is naturally to apply to international contracts."[78]

Just as arbitrators have invoked the UNIDROIT Principles to help interpret provisions of national law and buttress their decisions, so too have national courts begun to rely on the Principles for those same purposes. A notable example is the Hughes Aircraft case, decided in 1997 by the Federal Court of Australia.[79] There, a California claimant alleged that the defendant, an Australian governmental agency, had breached its duty of good faith in denying the claimant equal opportunity to bid for a contract. The Federal Court noted that Australian judicial and scholarly opinion diverged on the issue of whether such a duty was implied in pre-award contracting. The court, however, canvassed the laws of foreign jurisdictions and invoked the UNIDROIT Principle that the duty of good faith and fair dealing is a fundamental principle in international commercial contracts. [page 217]

Already, the Federal Court's ruling has wended its way into the jurisprudence of the Supreme Court of New South Wales.[80] National courts in France, the Netherlands, and New Zealand similarly have invoked the UNIDROIT Principles as an aid in interpreting domestic law, and as a means of confirming that decisions rendered in accordance with national law can comport with international legal principles.[81]

D. Application of the UNIDROIT Principles in Interpreting or Supplementing International Conventions

The UNIDROIT Principles "may be used to interpret or supplement international uniform law instruments," including both international treaties and texts (such as INCOTERMS) published by trade associations and professional bodies.[82] In this way, the UNIDROIT Principles prevent gap-filling by domestic law that might be (or might be perceived as being) unfairly advantageous to one party.

As a result, in addition to working in conjunction with domestic law, the UNIDROIT Principles can complement international treaties and texts. Indeed, courts and arbitral tribunals generally cite the UNIDROIT Principles for these two purposes. [83]

National courts and arbitral tribunals have invoked the UNIDROIT Principles in combination with other international conventions.[84] The Supreme Court of Venezuela even invoked the UNIDROIT Principles to aid its interpretation of the requirements of the 1958 New York Convention and the 1975 Inter-American Convention on Commercial [page 218] Arbitration.[85] In enforcing two Venezuelan parties' contractual obligation to submit their dispute to ICC arbitration in New York, the Venezuelan Supreme Court cited, among other provisions, the UNIDROIT Principles' preambular statement that "the concept of "international' contracts should be given the broadest possible interpretation, so as ultimately to exclude only those situations where no international element at all is involved ...."[86]

Most significantly, however, national courts and arbitral tribunals have applied the UNIDROIT Principles in conjunction with the Vienna Sales Convention, which itself has become a pillar of international commercial law over the past two decades. The UNIDROIT Principles have been used to fill gaps in the Convention,[87] clarify ambiguities, and interpret or confirm principles.[88]

The UNIDROIT Principles, for example, fill a significant gap in Article 78 of the Vienna Sales Convention, which provides for the payment of interest "if a party fails to pay the price or any other sum that is in arrears."[89] That article, however, says nothing about the tolling date, the relevant currency, the method for ascertaining the applicable rate, and the place at which the rate is to be ascertained.[90] Article 7.4.9 of the UNIDROIT Principles, by contrast, provides that "the aggrieved party is entitled to interest from the time when payment is due" at "the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment ...."[91]

Application of the UNIDROIT Principles in this manner also enables a court or arbitrator to find an international solution to a disputed [page 219] international contract, rather than a local solution that might leave one or more of the parties unsatisfied.[92] Applying rules that are consonant with the purposes of international trade instead of filling gaps in international treaties and texts with domestic law promotes consistency, and therefore predictability. Moreover, applying easily accessible transnational law, instead of national law that may be more accessible or familiar to one party than another, promotes fairness in international dispute resolution.[93]

III. CONCLUSION

Through the creeping codification of transnational commercial law, international law has undergone a dynamic shift. Three aspects of this process bear noting.

First, the process stands traditional, positivist lawmaking on its head, eschewing state-backed codification in favor of private efforts - albeit sometimes under the umbrella of international organizations. These developments are made possible, of course, only by states' acceptance and facilitation of party autonomy, which enables contracting parties to stipulate the law governing their rights and obligations.

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

Third, the process is not fixed, immutable, and static, but is tentative, flexible, and adaptable. Indeed, the authors of the UNIDROIT Principles deliberately have sought to make them "sufficiently flexible to take account of the constantly changing circumstances brought about by the technological and economic developments affecting cross border [sic] trade practice."[94] The UNIDROIT Principles are a work in progress [page 220] and, unlike an international treaty, are readily amenable to amendment to reflect contemporaneous commercial concerns.[95] Principles that may fail the test of the marketplace will be cast off, and those that are needed but nowhere found will be (and are being [96] ) devised. The UNIDROIT Principles thus bid fair to make a lasting contribution to the development of the lex mercatoria and general principles of contract law.

The UNIDROIT Principles, however, cannot "advance themselves as general principles of law or as lex mercatoria."[97] Nor can the Principles succeed merely as the darling of international legal scholars or arbitrators eager to trump inconvenient or anachronistic national law. If the UNIDROIT Principles are to become more than a legal Esperanto, parties and their counsel must perceive the practical benefits of their use in international commercial contracting and dispute resolution.

Undoubtedly, arbitrators also will play a crucial role in the success or failure of the UNIDROIT Principles, as they offer, in appropriate circumstances, an attractive alternative to the application of domestic law in the resolution of transnational disputes. Despite the UNIDROIT Principles' manifest appeal, however, arbitrators must not invoke them reflexively or shirk choice-of-law analyses that may call for the application of national law. If the UNIDROIT Principles truly are to flourish, it is not enough that arbitrators invoke them to render equitable decisions; they must be used in furtherance of party autonomy. If arbitrators can balance these dual concerns, the UNIDROIT Principles not only will be accepted in the resolution of international commercial and investment disputes; their invocation will be expected. [page 221]


FOOTNOTES

* Judge of the Iran-United States Claims Tribunal, Member of 20 Essex Street Chambers, Special Counsel to White & Case LLP, Member of the Register of Experts of the United Nations Compensation Commission, and Member of the Panels of Conciliators and Arbitrators of the International Centre for Settlement of Investment Disputes.

** White & Case LLP; Member of the New York and Washington, D.C. Bars. An earlier version of this article was prepared for the sixth IBA International Arbitration Day, "International Commercial Arbitration and Globalisation," held February 13, 2003, in Sydney, Australia.

1. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 [hereinafter 1958 New York Convention].

2. As of April 16, 2004, for instance, forty countries (plus Hong Kong, Macao, Scotland, and five U.S. states) had enacted arbitration legislation based on the United Nations Commission on International Trade Law's 1985 Model Law on International Commercial Arbitration. See United Nations Commission on International Trade Law (UNCITRAL), UNCITRAL Model Law on International Commercial Arbitration (1985), in Status of Conventions and Model Laws, at <http://www.uncitral.org/english/status/status-e.htm> (last updated on Apr. 16, 2004).

3. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 614, 629 (1985) (holding that

"concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that [courts] enforce the parties' [arbitration] agreement, even assuming that a contrary result would be forthcoming in a domestic context.)."

The Mitsubishi holding increasingly reflects, and has inspired, similar judicial sentiment in many countries. See, e.g., Attorney General v. Mobil Oil New Zealand, Ltd. [1989] 2 N.Z.L.R. 649, 668 (holding that, although U.S. court decisions such as Mitsubishi reflect "United States judicial policy towards international investments and contracts[,] ... such principles are appropriate even in this small country as international trade and commercial relationships are of critical importance.").

4. See Charles N. Brower, The Privatization of Rules of Decision in International Commercial Arbitration, in Law of International Business and Dispute Settlement in the 21st Century: Liber Amicorum Karl-Heinz Böckstiegel 111 (Robert Briner et al. eds., 2001).

5. See Klaus Peter Berger, The Creeping Codification of the Lex Mercatoria (1999).

6. See Charles N. Brower, The International Treaty-Making Process: Paradise Lost, or Humpty Dumpty?, in Multilateral Treaty-Making: The Current Status of Challenges to and Reforms Needed in the International Legislative Process 75, 75-79 (Vera Gowlland-Debbas ed., 2000) (discussing, at the 1998 Geneva Forum, contemporary difficulties of multilateral treaty-making).

7. A notable example is the United States' failure to ratify the 1969 Vienna Convention on the Law of Treaties, which the Senate has sat on since 1972, despite the U.S. government's longstanding acceptance of the 1969 Vienna Convention as a correct statement of international law on the subject. See Charles N. Brower, Charles H. Brower, II, and Jeremy K. Sharpe, The Coming Crisis in the Global Adjudication System, 19 Arb. Int'l 415, 437-38 (2003).

8. The 1958 New York Convention is a case in point. To date, 134 states have acceded to the New York Convention. See UNCITRAL, Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), in Status of Conventions and Model Laws, at http://www.uncitral.org/english/status/status-e.htm#Convention%20on%20the%20Recognition%20and%20Enforcement%20of%20Foreign%20Arbitral%20Awards%20(New%20York,%201958) (last updated on Apr. 16, 2004). Its very success, however, all but ensures states' inability to amend it.

9. The International Institute for the Unification of Private Law is an independent, intergovernmental organization established in 1926 to promote the harmonization of international law. It was originally established as an auxiliary organ of the League of Nations and, following the League's demise, was reestablished in 1940 on the basis of its Statute. The International Institute for the Unification of Private Law (UNIDROIT), UNIDROIT Principles of International Commercial Contracts (2004), available at <http://www.unidroit.org/english/presentation/main.htm> [hereinafter UNIDROIT Principles].

10. Michael Joachim Bonell, The UNIDROIT Principles of International Commercial Contracts: Why? What? How?, 69 Tul. L. Rev. 1121, 1122 (1995).

11. Id.

12. Partial Award in ICC Case No. 7110, June 1995, excerpted in ICC Int'l Ct. Arb. Bull., Fall 1999, at 39, 49.

13. According to the American Law Institute, as of April 1, 2003, state and federal courts have cited the Restatements 158,183 times. American Law Institute, Published Case Citations to Restatements of the Law as of April 1, 2003, at <http://www.ali.org>. Sixty percent of those citations have been to the Restatements on contracts and torts. Id. Further evidence of the Restatements' influence is found in the jurisprudence of the Supreme Court of Arizona, which has established them as default principles of law: Arizona courts "follow the principles set forth in the American Law Institute's Restatement of the Law except in cases where a different rule has been laid down by this Court" or where a statute is controlling. Odekirk v. Austin, 366 P.2d 80, 81 (1961) (citations omitted).

14. UNIDROIT Principles of International Commercial Contracts: Presentation (1994), available at <http://www.unidroit.org/english/principles/contracts/presentation.htm>. The Principles of European Contract Law (PECL), by contrast, "are intended to be applied as general rules of contract law in the European Union." Art. 1.101(1). See <http://web.cbs.dk/departments/law/staff/ol/commission_on_ecl/PECL%20engelsk/engelsk_partI_og_II.htm>. Thus, "while the UNIDROIT Principles are confined to "international' and "commercial' contracts, the European Principles apply to all kinds of contracts, including transactions of a purely domestic nature and those between merchants and consumers." See Michael Joachim Bonell, The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law: Similar Rules for the Same Purpose?, 1996 Uniform L. Rev. 229, 238.

15. Indeed, the UNIDROIT Principles, and accompanying commentary, already have been translated into sixteen languages. See UNIDROIT Principles of International Commercial Contracts: Presentation, supra note 14.

16. Restatement (Second) of the Foreign Relations Law of the United States, at xi (1965) (emphasis added). The 1987 Restatement (Third) of the Foreign Relations Law of the United States sustained criticism, even prior to its completion, that it does not always reflect existing law, but promotes the authors' views of what the law ought to be. See The Draft Restatement of the Foreign Relations Law of the United States (Revised), 76 Am. Soc'y Int'l L. Proc. 184 (1982).

17. See Bonell, The UNIDROIT Principles of International Commercial Contracts, supra note 10, at 1129 ("What was decisive was not just which rule was adopted by the majority of jurisdictions, but rather which of the rules under consideration had the most persuasive value or appeared to be particularly well-suited for cross-border transactions or both."). Similarly, the Principles of European Contract Law seek not only to distill common principles from Europe's disparate legal traditions, but also to establish new principles deemed best suited to Europe's contemporary economic and social conditions. See Commission on European Contract Law, Introduction to the Principles of European Contract Law, available at <http://www.cbs.dk/departments/law/staff/ol/commission_on_ecl/survey_pecl.htm>.

18. UNIDROIT Principles, supra note 9, at 3 (pmbl. cmt. 4.a ).

19. UNIDROIT Principles, supra note 9.

20. Id. at ix.

21. Hilmar Raeschke-Kessler, Should an Arbitrator in an International Arbitration Procedure Apply the UNIDROIT Principles?, in The ICC Institute of Business Law and Practice, UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria? 167, 169-70 (1995).

22. The United Nations Convention on Contracts for the International Sale of Goods, for example, required eight years to enter into force after its signing, which followed twelve years of development within UNCITRAL, and a further twenty-two years of preparatory work by UNIDROIT (for a total of forty-four years). See John A. Spanogle, Jr., The Arrival of International Private Law, 25 Geo. Wash. J. Int'l L. & Econ. 477, 488 (1991); United Nations Convention on Contracts for the International Sale of Goods, opened for signature Apr. 11, 1980, 19 I.L.M. 671 [hereinafter Vienna Sales Convention]. Admittedly, the UNIDROIT Principles were not produced overnight. They were conceived in 1968, put on UNIDROIT's agenda in 1971, and published in 1994 (for a total of twenty-six years). See Roy Goode, International Restatements and National Law, in The Search for Principle: Essays in Honour of Lord Goff of Chieveley, 45 (William Swadling & Gareth Jones eds., 1999). Nevertheless, because the UNIDROIT Principles did not require ratification by states, they were "effective" immediately upon their publication.

23. The same conclusion can be drawn from the Principles of European Contract Law (PECL). Although the European Parliament twice requested the preparation of a European Civil Code, the European Commission has evidenced little inclination to harmonize general principles of contract law, in part because of doubts as to the authority to do so under the Amsterdam Treaty. The PECL, drafted as "soft law" by a group of academics for use by contracting parties and arbitrators, have emerged "as a first draft of a part of a European Civil Code." Commission on European Contract Law, Introduction to the Principles of European Contract Law, available at <http://www.cbs.dk/departments/law/staff/ol/commission_on_ecl/survey_ pecl.htm> (last visited Aug. 24, 2004); see also A.S. Hartkamp et al., Towards a European Civil Code (2d ed. 1998).

24. UNIDROIT Principles, supra note 9, pmbl. P 2 (emphasis added). Likewise, the UNIDROIT Principles shall not apply if the parties expressly exclude them. Id. art. 1.5.

25. "There have been no reports of any ... awards having been set aside by courts on the ground that by applying the UNIDROIT Principles they contravened mandatory rules of domestic law." Michael Joachim Bonell, The UNIDROIT Principles and Transnational Law, 2000 Uniform L. Rev. 199, 204.

26. United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (1985), available at <http://www.uncitral.org/uncitral/en/index.html> (emphasis added). Art. 28(2), by contrast, states that, "failing any designation [of rules of law] by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable." Accordingly, Judge Howard Holtzmann has concluded "that in cases governed by the UNCITRAL Model Law, arbitrators have no power to choose the UNIDROIT Principles as the basis for the arbitral award, unless the parties have authorized them to do so." Howard M. Holtzmann, Application of the UNIDROIT Principles of International Commercial Contracts in Arbitrations Governed by the UNCITRAL Model Law on International Commercial Arbitration, in The UNIDROIT Principles: A Common Law of Contracts for the Americas? 161, 165 (1996) [hereinafter UNCITRAL Model Law].

27. See Michael Joachim Bonell, An International Restatement of Contract Law: The UNIDROIT Principles of International Commercial Contracts 196-98 (2d ed. 1997) (discussing recognition of party autonomy in the international arbitration laws of England, France, Germany, Italy, The Netherlands, Russia, and Switzerland).

28. Award in Case No. A-1795/51, Dec. 1, 1996, abstracted at <http://www.unilex.info>.

29. Final Award in ICC Case No. 8331, Dec. 1996, excerpted in ICC Int'l Ct. Arb. Bull., Fall 1999, at 65.

30. Award in Case No. 116, Jan. 20, 1997, abstracted at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13618&x=1>.

31. Award of Apr. 21, 1997. See supra note 30.

32. Award of Jan. 25, 2002. See supra note 30.

33. Award of Jan. 31, 2003. See supra note 30. The parties reportedly agreed to application of the UNIDROIT Principles in part because they were not seen as precluding application of relevant principles of English or Swiss law. Id. The UNIDROIT Principles also were applied in a partial award in that same case. Id.

34. Already by 1997, the UNIDROIT Principles were being taught in nearly 100 universities, including in some of the world's most prestigious law schools. See UNIDROIT, The Use of the UNIDROIT Principles in Practice: Results of the First Enquiry Undertaken by the Secretariat of UNIDROIT, C.D. (76) 7, Report of the Governing Council, P 3.1, 76th Sess., Rome, Apr. 7-12, 1997 [hereinafter UNIDROIT Report].

35. See UNIDROIT, Model Clause, 1998, available at <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=14278&x=1>.

36. See Klaus Peter Berger, Holger Dubberstein, Sascha Lehmann & Viktoria Petzold, The CENTRAL Enquiry on the Use of Transnational Law in International Contract Law and Arbitration: Background, Procedure and Selected Results, in The Practice of Transnational Law 91 (Klaus Peter Berger ed., 2001).

37. UNIDROIT Principles, supra note 9, pmbl.P 3 (emphasis added).

38. Karl-Heinz Böckstiegel, The Application of the UNIDROIT Principles to Contracts Involving States or Intergovernmental Organizations, in International Chamber of Commerce, UNIDROIT Principles of International Commercial Contracts: Reflections on Their Use in International Arbitration 51, 54 (2002) [hereinafter UNIDROIT Principles of International Commercial Contracts].

39. Interim Award in ICC Case No. 9474, Feb. 1999, excerpted in ICC Int'l Ct. Arb. Bull., Fall 2001, at 60, 61 (holding that the invocation of "general standards and rules of international contracts," as proposed by the Tribunal and accepted by the parties, referred to the United Nations Convention on Contracts for the International Sale of Goods ("which embodies universal principles applicable in international contracts") and to the UNIDROIT Principles and the Principles of European Contract Law (as "recent documents that express the general standards and rules of commercial law")).

40. Final Award in ICC Case No. 10114, Mar. 2000, excerpted in ICC Int'l Ct. Arb. Bull., Fall 2001, at 100.

41. Partial Award in ICC Case No. 7110, June 1995, excerpted in ICC Int'l Ct. Arb. Bull., Fall 1999, at 39, 48-49 (concluding "that the reasonable intention of the parties regarding the substantive law applicable to the Contracts was to have all of them governed by general legal rules and principles in matters of international contractual obligations such as those arising out of the Contracts, which, though not necessarily enshrined in any specific national legal system, are specially adapted to the needs of international transactions like the Contracts and enjoy wide international consensus" - as "primarily reflected by ... the UNIDROIT Principles").

42. Final Award in ICC Case No. 9797, July 28, 2000, excerpted in ICC Int'l Ct. Arb. Bull., Fall 2001, at 88 (declaring UNIDROIT Principles "a reliable source of international commercial law in international arbitration[,] for they contain in essence a restatement of those "principes directeurs' that have enjoyed universal acceptance and, moreover, are at the heart of those most fundamental notions which have consistently been applied in arbitral practice") (citation and internal quotation omitted).

43. London Court of International Arbitration Award, 1995, cited at <http://www.unilex.info>.

44. See Final Award in ICC Case No. 9029, Mar. 1998, excerpted in ICC Int'l Ct. Arb. Bull., Fall 1999, at 88.

45. Id. at 90.

46. See, e.g., Discussions, in UNIDROIT Principles of International Commercial Contracts, supra note 38, at 119-51.

47. See Comments of Klaus Peter Berger, supra note 36, at 126.

48. Indeed, an arbitral tribunal's erroneous determination of the applicable law is not among the limited grounds for non-recognition of arbitral awards under the 1958 New York Convention or the UNCITRAL Model Law. See 1958 New York Convention, supra note 1, art. V.1, at 330 U.N.T.S. 40; UNCITRAL Model Law, supra note 26, art. 34.

49. Final Award in ICC Case No. 7365, Islamic Republic of Iran v. Cubic Defense Systems, Inc., May 5, 1997, excerpted in 1999 Uniform L. Rev. 796.

50. Id. at 797.

51. Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc., 29 F. Supp. 2d 1168 (S.D. Cal. 1998); see also Michael Joachim Bonell, UNIDROIT Principles: A Significant Recognition by a United States District Court, 1999 Uniform L. Rev. 651.

52. That provision states:

"Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that ... (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced ...."

1958 New York Convention, supra note 1, art. V(1)(c), at 330 U.N.T.S. 42.

53. 29 F. Supp. 2d at 1173.

54. See also Raeschke-Kessler, supra note 21, at 169-70 (noting injury to party autonomy through arbitrators' application of "fictitious choice-of-law" or improper resort to lex mercatoria). But see Pierre Lalive, The UNIDROIT Principles as Lex Contractus, With or Without an Explicit or Tacit Choice of Law: An Arbitrator's Perspective, in UNIDROIT Principles of International Commercial Contracts, supra note 38, at 77, 78-79 ("There is a risk that [judicial non-intervention] may well cause incautious or overconfident arbitrators to pay insufficient attention to the specific complexities of private international law and possibly also, in some cases, induce them to refer too readily to the UNIDROIT Principles.").

55. See, e.g., Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, opened for signature Mar. 18, 1965, art. 42(1), 17 U.S.T. 1270, 575 U.N.T.S. 159:

"The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable."

56. See Comments of Antonia Parra, in UNIDROIT Principles of International Commercial Contracts, supra note 38, at 131. The Preamble to the UNIDROIT Principles also recognizes that "in disputes falling under the ICSID Convention, the Principles might even be applicable to the exclusion of any domestic rule of law." UNIDROIT Principles, supra note 9, at cmt. 4.

57. North American Free Trade Agreement, Dec. 17, 1992, U.S.-Can.-Mex., chs. 1-9, 32 I.L.M. 289, chs. 10-22, 32 I.L.M. 605.

58. Energy Charter Treaty, opened for signature Dec. 17, 1994, 34 I.L.M. 360.

59. S.C. Res. 687, U.N. SCOR, 46th Sess., 2981st mtg., U.N. Doc. S/INF/47 (1991), available at <http://www.unog.ch/uncc/resolutio/res0687.pdf>.

60. Decision Taken by the Governing Council of the United Nations Compensation Commission, 6th Sess., 27th mtg., at 17, U.N. Doc. S/AC.26/1992/10 (1992), available at <http://www.unog.ch/uncc/decision/dec_10.pdf>.

61. See Report and Recommendations Made by the Panel of Commissioners Concerning Part One of the First Installment of Claims by Governments and International Organizations (Category "F" Claims), U.N. Doc. S/AC.26/1997/6 (1997), available at <http://www.unog.ch/uncc/reports/r97-06.>.

62. Article V of the Claims Settlement Declaration states: "The Tribunal shall decide all cases on the basis of respect for law, applying such choice of law rules and principles of commercial and international law as the Tribunal determines to be applicable, taking into account relevant usages of the trade, contract provisions and changed circumstances." Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran, reprinted in 1 Iran-U.S. Claims Tribunal Rep. 9, 11 (1983).

63. See Maurizio Brunetti, The Lex Mercatoria in Practice: The Experience of the Iran-United States Claims Tribunal, 18 Arb. Int'l 355 (2002).

64. UNIDROIT Principles, supra note 9, pmbl. P 3 (emphasis added).

65. UNIDROIT Principles, supra note 9, pmbl. cmt. 5.

66. David A.R. Williams, The Further Development of International Commercial Arbitration Through the Unidroit Principles of International Commercial Contracts, 2 New Zealand Bus. L.Q. 7, 7, 20 (1996).

67. See Böckstiegel, supra note 38, at 54.

68. Michael Joachim Bonell, The UNIDROIT Principles as a Means of Interpreting and Supplementing International Uniform Law, in UNIDROIT Principles of International Commercial Contracts, supra note 38, at 29.

69. See Julian D.M. Lew, The UNIDROIT Principles as Lex Contractus Chosen by the Parties and Without an Explicit Choice-of-Law Clause: The Perspective of Counsel, in UNIDROIT Principles of International Commercial Contracts, supra note 38, at 85, 86 (citing "statistics showing that around 80% of matters that come to ICC arbitration have a predetermined choice-of-law provision"); Horacio Grigera Naon, Closing Remarks, ICC Int'l Ct. Arb. Bull. 149 (Special Supp. 2002) (citing ICC statistics for the year 2000 showing that seventy-seven percent of new cases filed contained an express choice-of-law provision, and seventy-five percent of new cases designated a national law).

70. See Final Award in ICC Case No. 8486, Sept. 1996, excerpted in ICC Int'l Ct. Arb. Bull., Fall 1999, at 69.

71. Id. at 70 (internal quotation omitted).

72. Preliminary Award of Nov. 25, 1994, excerpted in 22 Y.B. Com. Arb. 211, 218 (1997).

73. Final Award in ICC Case No. 10346, Dec. 2000, excerpted in ICC Int'l Ct. Arb. Bull., Fall 2001, 106, 107.

74. First Partial Award in ICC Case No. 8540, discussed in 10 White & Case Int'l Disp. Resol., Mar. 1997, at 3, 5.

75. See, e.g., Arbitration Rules of the United Nations Commission on International Trade Law, art. 33(3), Report of the United Nations Commission on International Trade Law, U.N. GAOR, 31st Sess., Supp. No. 17, U.N. Doc. A/31/17 (1976) ("In all cases, the arbitral tribunal ... shall take into account the usages of the trade applicable to the transaction."), available at <http://www.uncitral.org/english/texts/arbitration/arb-rules.htm>; Rules of Arbitration of the International Chamber of Commerce International Court of Arbitration, art. 17(2) (Jan. 1, 1998) ("In all cases the Arbitral Tribunal shall take account of ... relevant trade usages."), available at <http://www.iccwbo.org/court/english/arbitration/pdf_documents/rules/rules_arb_english.pdf.

76. Arbitral Award of Dec. 4, 1998, <http://www.unilex.info>; excerpted in 1999 Il Diritto del Commercio Internazionale 465.

77. Final Award in ICC Case No. 9594, Mar. 1999, excerpted in ICC Int'l Ct. Arb. Bull., Fall 2001, at 73, 74.

78. Pierre Mayer, The Role of the UNIDROIT Principles in ICC Arbitration Practice, in UNIDROIT Principles of International Commercial Contracts, supra note 38, at 105, 107.

79. Hughes Aircraft Sys. Int'l v. Airservices Australia (1997) 76 F.C.R. 151.

80. See Aiton v. Transfield (1999) N.S.W.S.C. 996.

81. See, e.g., Cour d'appel de Grenoble, Jan. 21, 1996, abstracted at <http://www.unilex.info>; Cour d'appel d Grenoble, Oct. 23, 1996, abstracted at <http://www.unilex.info>; RB Zwolle, 1997, abstracted at <http://www.unilex.info>; HR, Feb. 2, 2001, abstracted at <http://www.unilex.info>; HR, July 13, 2001, abstracted at <http://www.unilex.info>; HR, Dec. 20, 2002, abstracted at <http://www.unilex.info>; [2000] N.Z.C.A. 350, abstracted at <http://www.unilex.info>; [2001] N.Z.C.A. 348, abstracted at <http://www.unilex.info>.

82. UNIDROIT Principles, supra note 9, pmbl. P 5 (emphasis added).

83. See Bonell, supra note 68, at 29. See also Final Award in ICC Case No. 8547, Jan. 1999, excerpted in ICC Int'l Ct. Arb. Bull., Fall 2001, at 57; Case No. C-334/00, Sept. 17, 2002 abstracted at <http://www.unilex.info>.

84. Article 14 of the Model Contract for the International Commercial Sale of Perishable Goods, adopted in 1999 by the International Trade Centre UNCTAD/WTO, specifically provides that, for matters not covered by its provisions, the parties' contract shall be governed by, in descending order of precedence: (1) the Vienna Sales Convention; (2) the UNIDROIT Principles; (3) the law designated by the parties; and (4) in the absence of a choice of law, the law applicable at the seller's place of business. See Bonell, supra note 68, at 32.

85. Bottling Companies v. Pepsi Cola Panamericana, Oct. 9, 1997, (Venez.), abstracted in 1998-1 Uniform L. Rev. 176.

86. Id. (citing UNIDROIT Principles' Preamble and official comment).

87. See Final Award in ICC Case No. 8769, Dec. 1996, excerpted in ICC Int'l Ct. Arb. Bull., Fall 1999, at 75, ("Art. 78 [of the] Vienna [Sales] Convention does not specify a particular interest rate. The sole Arbitrator considers it appropriate to apply a commercially reasonable interest rate (see Art. 7.4.9 subs. 2 Unidroit [sic] Principles).").

88. See Final Award in ICC Case No. 8817, Dec. 1997, excerpted in ICC Int'l Ct. Arb. Bull., Fall 1999, at 75, 77 (1999) (citing UNIDROIT Principles as "perfectly suited" to resolving a disputed termination of an exclusive distributorship contract, as Art. 1.8 of the Principles ("The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.") extends the comparable article of the Vienna Sales Convention (9.1) to all international commercial contracts).

89. Vienna Sales Convention, supra note 22, art. 78, 19 I.L.M. at 689.

90. See Roy Goode, International Restatements of Contract and English Contract Law, 1997 Uniform L. Rev. 231, 237.

91. UNIDROIT Principles, supra note 9, art. 7.4.9.

92. See Goode, supra note 90, at 237.

93. See Alejandro M. Garro, The Gap-Filling Role of the UNIDROIT Principles in International Sales Law: Some Comments on the Interplay Between the Principles and the CISG, 69 Tul. L. Rev. 1149, 1153-54 (1995).

94. Bonell, supra note 10, at 1134. The UNIDROIT Principles' openness to usages - whether those established by parties or general trade usages - is an essential component of that flexibility.

95. UNIDROIT's Governing Counsel itself has stressed the need "to monitor their use with a view to a possible reconsideration of them at some time in the future." See UNIDROIT Report, supra note 34, P 1.

96. Indeed, in May 2004, UNIDROIT published Part II to the UNIDROIT Principles. The new or revised topics include: authority of agents, inconsistent behavior, release by agreement, third-party rights, set-off, assignment of rights, transfer of obligations, assignment of contracts, and limitations periods. See UNIDROIT Principles, supra note 9.

97. Hans van Houtte, The UNIDROIT Principles of International Commercial Contracts and International Commercial Arbitration: Their Reciprocal Relevance, in UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria?, supra note 21, at 181, 184.


Pace Law School Institute of International Commercial Law - Last updated September 16, 2005
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