2. In search of basic principles

Conclusion

Introduction

In 1994 the International Institute for the Unification of Private Law ("UNIDROIT") published a collection of "principles" intended to govern international commercial contracts.[1] Three years later, the Commission on European Contract Law (the "CECL") published the results of the first phase of its work. The first volume of "Principles of European Contract Law" included only general provisions and rules regarding the binding force of contracts and remedies for non-performance. In 1998, upon completion of its work, the Commission revised its previously published text.[2]

The UNIDROIT and the CECL perspectives are far from identical. In the first place, their geographical scopes of application are different: the European Principles contemplate the single European market, whereas the UNIDROIT Principles are intended to be used throughout the world.[3] While the UNIDROIT Principles concern commercial contracts, the European Principles "are not limited to commercial relations, but may be applied to any contract . . .".[4] They therefore include consumer contracts.

Fundamentally, these two undertakings were born of the same need for a uniform body of law applicable to contracts. As Catherine Kessedjian points out, "their substantial scope of application is identical in that they both aspire to be general principles of contract law".[5] To use an expression well known in the world of international commerce, both are held out as a sort of codification of the modern lex mercatoria. The preamble to the UNIDROIT Principles states that "they can be applied where the parties accept that their contract will be governed by "general principles of law", by "lex mercatoria" or "similar expressions" whereas Article 1.101 (3)(a) of the European Principles indicates that they may be applied when the parties "have agreed that their contract is to be governed by "general principles of law", by the "lex mercatoria" or the like".

Another common feature of both texts is that they are not of mandatory application, but rather amount to "non-legislative instruments of harmonisation of law".[6] In a summary fashion their common objectives can be described as follows: they aspire to be models for national and international legislators, they each describe themselves as formulations of the lex mercatoria, and to some extent promote the harmonisation of the law of contracts.

In view of their close relationship, these works merit a comparative study in order to understand their similarities and differences, at least with respect to certain matters.

There already exists one important binding instrument in the field of transnational commercial law - the United Nations Convention on Contracts for the International Sale of Goods ("CISG").[7] This convention "unifies the rules applicable to international contracts for the sale of goods, both with respect to their formation and performance. . . . It contains the core of a true international commercial code".[8] It deals with a certain number of subjects identical to those of the Principles, as even the "father" of the UNIDROIT Principles acknowledges: "CISG was of course an obligatory point of reference in the preparation of the UNIDROIT Principles".[9] The drafters of the European Principles also cite it among their sources.

This comparison of the two sets of principles will therefore be made in the light of the CISG which "has already codified a substantial part of the lex mercatoria" [10] and has been adopted in national legislation of over fifty countries.

Just what is the content of the lex mercatoria? In this study we refer to two specialists in the subject, Berthold Goldman and Jan Paulsson. Referring to the well known inventory by Lord Mustill, Goldman notes that "the list includes principles as well as rules and customs".[11] Goldman uses this distinction in part to describe the content of the lex mercatoria, through an analysis of doctrine and arbitral decisions. Paulsson also aims to shed light on the content of the lex mercatoria, through an analysis of ICC arbitral decisions: "These principles have been applied in ICC arbitrations without reference to nation law, thus constituting as such material rules of the lex mercatoria". [12] He treats the two concepts as one and the same, or at least does not distinguish between them, and presents in his study the "norms" according to their purpose or their area of application.[13]

Following Goldman's approach, we will attempt to identify primarily, though not exclusively the rules governing formation of contracts that are embodied in the three texts and then to derive a number of general principles which apply to all of the rules.[14] In this way, we will compare both the philosophical and methodological approaches of the texts. In the light of Goldman's and Paulsson's articles, we will then briefly review the extent to which each of the texts embodies the contemporary lex mercatoria.

1. Description and analysis of certain rules of the UNIDROIT Principles, the European Principles and the CISG

1.1 Formation of Contracts

In this chapter, the CISG takes an abbreviated chronological approach,[15] beginning with descriptions and definitions of offer [16] and acceptance [17] and providing in Article 23 that: "A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provision of this Convention". It is important to note that Article 18, together with Article 24, enshrines the reception theory with respect to offer or acceptance, whereas in other situations, the CISG embodies the "transmission theory".[18]

Another relevant concept, applicable to any exchange between the parties and which can in some instances play an important role in the formation of contracts is that of a "writing", which the CISG defines as including telegram and telex.[19] The CISG does not, however, require that a contract be concluded or evidenced in writing.[20]

While considerable freedom is left to the parties, the CISG does require that the offer be "sufficiently definite".[21] The CISG states that a proposal is sufficiently definite if it "indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price".[22] The CISG does provide, however, in Article 55, that the price may be undetermined at the time of formation of the contract and not be determinable.[23]

The UNIDROIT Principles are much more complete in respect of the rules of formation of contracts. In addition to the usual provisions on the means of formation of contracts by offer and acceptance, they specifically require a written confirmation of the contract,[24] they provide for the case of contracts that are made subject to agreement on certain matters of form or substance,[25] the validity of contracts including clauses which are the object of subsequent agreements,[26] the conduct of the parties during precontractual negotiations as well as sanctions,[27] the duty of confidentiality,[28] merger clauses,[29] standard terms,[30] and "surprising" terms.[31]

With respect to the requirement of a writing, the UNIDROIT Principles use a functional definition: "any mode of communication that preserves a record of the information contained therein and is capable of being reproduced in tangible form".[32] This could include computer or data communications, a possibility not contemplated in the CISG.

Finally, the UNIDROIT Principles adopt the reception theory with regard to questions of notice, regardless of the type and the object of the notice. This is the only "regime" which applies to all exchanges between partners.[33] The term "notice" is defined to include "a declaration, demand, request or any other communication of intention".[34] Does this expression include offer and acceptance? Notice is not subject to the requirement of a writing as set forth in Article 1.10.

The provisions on formation of contracts are quite classical - contracts are formed by the acceptance of an offer.[35] However, the text takes into account the fact that in business relationships it is often difficult to identify the sequence of offer and acceptance from among various precontractual exchanges.[36] It also takes into account the "behaviour of the parties".

The European Principles appear a little more original, or at least more innovative, in their rules of formation of contracts. First, in the provisions dealing with the means of formation, the terms "offer" and "acceptance" do not appear. While they clearly may well be implicit, the formulation used certainly leaves some latitude. Moreover, according to the express terms of Section 2:211, a contract cannot be concluded by the normal exchange of offer and acceptance. The text appears to focus more on the state of mind of the parties than on a legally recognised process. In this regard, it is interesting to note that the texts of both the UNIDROIT Principles and the European Principles use practically the same terms, but that their respective positions can or could give rise to divergent results. While the UNIDROIT Principles require that the conduct of the parties sufficiently shows agreement,[37] the European Principles require that the parties have reached "a sufficient agreement".[38] In the former case, the notion of sufficiency relates to the will to be contractually bound, whereas in the latter, as Section 2:103 stipulates, it is more the substance of the contract that is contemplated.

On the other hand, the European Principles contain no provisions governing withdrawal of an offer.

The absence of formalism in respect of conclusion of contracts as contemplated in Section 2:101(2) of the European Principles is identical to that in Section 1.2 of the UNIDROIT Principles.

A significant difference arises in respect of the formalism required for amendment of contracts. According to Section 2.18 of the UNIDROIT Principles, as under Article 29§2 of the CISG, when a contract contains a provision "requiring any modification or termination by agreement to be in writing [it] may not be otherwise modified or terminated by agreement", whereas under article 2:106 of the European Principles, such a clause only establishes a presumption that "an agreement to modify or end the contract is not intended to be legally binding unless it is in writing".

As for writings, the definition set out in Article 1:301(6) of the European Principles is very interesting: "'Written' statements include communications made by telegram, telex, telefax and electronic mail, and other means of communication capable of providing a readable record of the statement on both sides". The text is very modern indeed!

"Notice" can also, depending on the circumstances, take various forms, and the meaning of the term is less obscure than under the UNIDROIT Principles, as it "includes the communication of a promise, statement, offer, acceptance, demand, request or other declaration".[39]

With respect to communications between contracting parties we find the same duality in the European Principles as in the CISG. The general principle of reception is set out in Article 1:303 (3). However, in case of non-performance, the transmission theory prevails.

Most of the provisions relating to offer and acceptance are, with minor exceptions, identical to those in the UNIDROIT Principles and the European Principles.

The content of an offer, as proposed by both sets of principles, merits attention. According to Article 2.2 of the UNIDROIT Principles and Article 2:201 of the European Principles, in order to constitute an offer, a proposal must be "sufficiently definite". The commentaries of the drafters of the UNIDROIT Principles state: "Even essential terms, such as the precise description of the goods or the services to be delivered or rendered, the price to be paid for them, the time or place of performance, etc., may be left undetermined in the offer without necessarily rendering it insufficiently definite".[40] The price therefore need not be determined, or even determinable at the time of conclusion of the contract and may be fixed later.[41] Article 6:105 of the European Principles allows a similar interpretation. Both texts are therefore of the same effect as Article 55 of the CISG.

Finally, we point out that the CISG and the European Principles both expressly contemplate the case of an offer made to the general public, however they each take a different approach to the legal characterisation of such an offer. For the CISG, "a proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal".[42] On the other hand, according to the European Principles:

On this question, on its very face, the text of the UNIDROIT principles leaves room for doubt. No allusion is made to the recipient of the offer or to the proposition. Nevertheless, according to the explanations of the drafters, their position is midway between that of the CISG and that of the European Principles:

In other words, it would be difficult, but not impossible to characterise a proposal as an offer to the public.

1.2 Validity of Contracts

While they are not, from a formal point of view, part of the provisions on formation of contracts, certain of the provisions on validity of contracts also merit attention because some problems related to the legal existence of contracts, or rather to their non-existence, can be traced back to the time of creation of the agreement.

Like the European Principles, the UNIDROIT Principles devote an entire chapter to the validity of contracts. Similarly, they refrain from addressing questions that are fundamentally matters of local law or public order such as incapacity of the parties or illicity of contracts.

Both texts also deal with what might be called defects in formation. With respect to error, there is a minor difference in approach between Article 3.5 1) of the UNIDROIT Principles and Article 4:103 of the European Principles. The former seem to refer, at least partially, to an objective test, as they measure the importance of the error from the perspective of a "reasonable person" whereas the latter only consider the matter from the points of view of the parties.

It is interesting to note that, besides error, fraud and threat, the texts devote considerable attention to lesion or gross disparity. The UNIDROIT Principles seem clearer than the European Principles in this respect, at least at first glance. Article 3.10 of the UNIDROIT Principles states that a party may avoid the contract or a term of it if "at the time of conclusion of the contract, the contract or term unjustifiably gave the other party an excessive advantage".[45] The article goes on to set out factors to be considered in determining if an advantage is unjustifiable.

Article 4:109 of the European Principles is formulated in a curious manner. It approaches the problem from the inverse perspective, as it begins by stating the possible conditions of weakness of the disadvantaged party [46] and then goes on to describe lesion. This approach may be explained by the fact that, independently of the concrete result obtained, it is contrary to the principles of good faith to take advantage of the weakness of one's co-contractant. The analysis of the situation therefore accords priority to the power relationship between the parties. One should also not overlook the fact that the European Principles respond to a need for "harmonisation and elimination of differences between national laws which interfere with cross-border transactions within Europe".[47] The method used to achieve this objective proceeds by "the search of a common basis and the elaboration, from this basis, of an operative system".[48] In Europe, the majority of legal systems impose sanctions more for the fact of having profited from one's position of strength to draw the other party into a contractual relationship [49] than for disproportionality between the obligations in themselves.

Just like the UNIDROIT Principles, the European Principles admit that the imbalance may be financial or of another nature. Both texts provide that the sanction for lesion is either the nullity of the contract or judicial adaptation of the contract to redress the imbalance between the parties.

One difference worth noting: the UNIDROIT Principles deal with both the case of the lesionary contract and the lesionary clause in the same provision. On the other hand, the European Principles clearly distinguish the two possibilities. Article 4:110 deals with "abusive" clauses. The approach is similar to that of the Civil Code of Québec, which distinguishes between lesion, contemplated in Article 1406, and which, according to some commentators, "always results from an imbalance in the contract as a whole" [50] and Article 1437 on abusive clauses which only focuses on one element of a contract. One might suppose that, like this article of our civil code, Article 4:110 of the European Principles governs consumer contracts, recalling that the European Principles aim to regulate consumer contracts, and adhesion contracts, even between commercial entities.

For the European Principles, like for the UNIDROIT Principles, the sanction for invalidity is the avoidance of the contract, in whole or in part, with the classic retroactive effect, including mutual restitution. Moreover, the party "at fault" may be held liable for damages, subject to one nuance: the amount allowable under the UNIDROIT Principles only has as its function "to put the other party in the same position in which it would have been if it had not concluded the contract",[51] irrespective of whether or not the contract has been avoided, whereas under the European Principles, the amount awarded may be different depending on whether there has been avoidance of the contract or not. In the latter case, the damages claimed are "limited to the loss caused by the mistake, fraud, threat or taking of excessive benefit or unfair advantage".[52] The provisions of both the UNIDROIT Principles and the European Principles in respect of fraud, threat and excessive advantage are compulsory.

The CISG does not deal very much with questions of validity of contracts in any manner whatsoever, as its Article 4 explains:

Leaving this question to national law, the Convention "would not therefore achieve one of the main objectives of uniform laws".[53]

It therefore completely disregards question of defects of consent and does not provide for avoidance of the contract on any basis. At most, it may be resolved on the basis of non-performance, as under the UNIDROIT Principles and the European Principles.

1.3 Summary

To summarise, the three texts have similar common features when considered from the perspective of "technical" rules relating in one way or another to the formation of contracts.

More interesting, perhaps, are the differences.

One of the most obvious arises from the fact that the CISG deliberately leaves aside most questions of the validity of contracts and sanctions for invalidity, whereas these questions are treated in great detail, and in practically the same way, by both the UNIDROIT Principles and the European Principles.

Another divergence - and on this account the UNIDROIT Principles take a different approach -- is in the way they deal with communications between parties at a distance. While the CISG and the European Principles adopt a mixed regime - transmission theory in cases of problems related to performance and reception theory in all other cases, including, as a general rule, the conclusion of contracts, the UNIDROIT Principles opt for a uniform approach, favouring the reception theory, regardless of the subject of the communication. This question is essential, as it goes to the determination of the moment of formation of the contract. We can conclude that from this narrow point of view, the three texts are similar since, in two situations,[54] the contract will be, according to their terms, concluded when the indication of acceptance is received by the offeror, in other words, when the offeror knows or is able to know that the other party agrees to be bound.

Looking in more detail, the three texts all deviate from the reception theory in matters of formation of contracts. In effect "if by virtue of the offer, of practices which the parties have established between themselves, or of a usage, the offeree may accept the offer by performing an act without notice to the offeror, the contract is concluded when the performance of the act begins".[55] This procedure could be treated as a "transmission", although the offeror is not necessarily informed of the precise time when the performance of the act begins.

We can therefore conclude that, in matters of formation of contracts, the provisions create a harmonious regime.

There are several differences between the three texts in the way they define a "writing". The CISG reflects the state of technology as it was at the time it was drafted and does not show any attempt to anticipate new developments. The UNIDROIT Principles and the European Principles, on the other hand, adopt a more futuristic vision of writings.

2. In Search of Basic Principles

Ms. Kessedjian, in an article criticising the work of UNIDROIT, questions even its title. She bases her position on two arguments.

First, the word "principle" suggests "the basis of a rule of law",[56] or, to quote the definition of the Capitant dictionary cited by the author, "a legal rule established by a text in general terms, to be applied in a variety of situations and having a superior authority".[57] A principle being, by definition, fundamental, it cannot vary, except by way of a slow evolution. Ms. Kessedjian points out that the working group considers that a second amended edition of the Principles could see the light of day in the near future.[58]

Second, according to Ms. Kessedjian, rather than being limited to what one might call an outline, the results published by UNIDROIT in 1994, "depart from the initial idea and create precise technical rules that only have a distant relationship with true principles . . . ."[59]

While this author often shares Ms. Kessedjian's views, in particular with regard to the practical utility [60] of these Principles, on this point her condemnation is somewhat severe. First, the term "principle" can designate a "set of legal rules". "... What we call principles are simply a group, or if you will, a systematic set of rules." (Boulanger in Études Ripert, t.1, no. 4, p. 55).[61]

Moreover, the UNIDROIT Principles, just like the European Principles, are not limited to a set of simple technical rules, but contain and express principles. Thus one could say, following Mr. Goldman's commentary of Lord Mustill's inventory, that the Principles are rich because they include "principles as well as rules and usages".[62]

In this part, we seek to identify the overarching ideas which have a particular importance in the formation of contracts.[63]

2.1 Contractual Freedom

While Mr. Goldman and Mr. Paulsson do not refer to it, contractual freedom is described by two authors as the "cornerstone of a non-national new lex mercatoria".[64]

This principle is the object of the first article of the UNIDROIT Principles [65] and according to their drafters, "is of paramount importance in the context of international trade".[66] They describe the principle by reference to two key ideas: business people have the right "to decide freely to whom they will offer their goods or services and by whom they wish to be supplied" [67] and "freely to agree on the terms of individual transactions".[68] We might add that the fundamental freedom is that to enter into a contract or not!

The decision to obligate oneself or not may take place after a period of negotiations. In fact, international contracts, and even certain contracts of a local nature, are not always formed in the same way as purely domestic ones that we enter into several times a day without being particularly conscious of it. In view of the value of the contract, the duration of the relationship, the distance between the parties, cultural, social and legal differences between the parties, transnational contracts are rarely formed after the simple presentation of an offer. In other words, as Mr. Mousseron so nicely puts it, there is no "contractual love at first sight".[69] Quite the contrary, these agreements usually result from a process of negotiation.

Both the UNIDROIT and the European Principles expressly contemplate the precontractual phase, primarily in their chapters devoted to the formation of contracts.[70] Each of them includes the general rule of freedom of negotiation and the universally accepted corollary of freedom of contract according to which "the obligation to negotiate in a negotiation which is not preceded by a contractual undertaking to negotiate leaves absolute freedom to conclude an agreement or not".[71] Moreover, both Principles provide a framework for the conduct of the parties during negotiations and provide for the liability of a party in breach of its obligation of good faith in negotiations. Discussions prior to the formation of a contract are such an integral part of the relation between the parties that one can refer to them in interpreting their agreement and determining the intention of the parties, according to Article 4.3 of the UNIDROIT Principles and Article 5:101 of the European Principles.

Both texts also provide for an obligation of confidentiality in respect of information received in the course of negotiations, expressed in practically the same terms.

As two authors point out, "no solution to the problems of precontractual agreements can be found in the Vienna Convention, whose scope of application, as we have mentioned, is limited to the formation of simple contracts of sale and their performance in the most elementary phases".[72] The CISG is effectively quite silent with respect to the precontractual phase. Negotiations are only mentioned in reference to questions of interpretation.[73]

Of course, the principle of contractual freedom suffers some exceptions. Notable among them is the rule that the free will of the parties may be limited by mandatory rules "of national, international or supranational origin", as Article 1.4 of the UNIDROIT Principles puts it, or imposed by the Principles themselves, as Article 1.5 of the UNIDROIT Principles states. Articles 1:102 and 1:103 of the European Principles are of the same effect with respect to contractual freedom and its limitations.

The only allusions to contractual freedom in the CISG may be in its Article 6 which allows the parties to exclude the application of the Convention or to vary the effect of any of its provisions to some extent, and its Article 29, which permits the parties to amend or terminate their contract by mutual agreement.

2.2 Good Faith

Good faith is a universally recognised principle of law, inherent in all legal orders. It "is a legally constraining imperative, albeit of imprecise content, of international morality".[74] To quote Mr. Osman, it is "a basic principle that bears upon the formation and performance of international contracts, as well as their interpretation".[75] Lord Mustill mentions it only in respect of performance: "A contract should be performed in good faith".[76]

The CISG refers to good faith in only one place: "In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade."[77] Apparently this somewhat obscure and, to say the least, limited, if not limitative drafting is the result of disagreement among the drafters, certain having favoured the inclusion of the general principle of good faith in the chapter on formation of contracts and others having opposed it on the grounds that the proposed wording would have been too vague.[78] The first paragraph of Article 7 appears to be the expression of a compromise between these two positions.

In both sets of Principles good faith holds an important place. Article 1.7 of the UNIDROIT Principles expresses the general rule and its mandatory character, as the parties may not exclude or limit it. This principle is not only essential to the philosophy of the UNIDROIT Principles, - "good faith and fair dealing may be considered to be one of the fundamental ideas underlying the Principles" [79] - it also follows the parties throughout their relationship: ". . . even in the absence of special provisions in the Principles the parties' behaviour throughout the life of the contract, including the negotiation process, must conform to good faith and fair dealing".[80] The concept is mentioned in around 25 articles of the Principles.

Article 1.7 speaks of acting "in accordance with good faith and fair dealing in international trade", hence it is not a strictly national concept and is particularly adapted to commercial transactions.

Article 1:201 of the European Principles is of more or less the same effect. Here too, the principle of good faith is a sort of guiding light, "bringing life to the Principles".[81] Perhaps to avoid limiting its scope, the text of the revised version is expressed in broader terms than that of the earlier one. While the first version required each party to act in good faith "in the exercise of its rights and performance of its obligations",[82] the revised version provides: "Each party must act in accordance with good faith and fair dealing".[83]

Note that the European Principles do not include the level of detail contained in Article 1.7 of the UNIDROIT Principles. This might be explained by the fact that the text is not intended to apply exclusively to commercial relations. On the other hand, like the UNIDROIT Principles, they do indicate that the rule is mandatory.

2.3 Consensualism

While neither Goldman, Paulsson nor Lord Mustill mention it, it is important to consider the place that the texts under review accord to this "anational principle that the form of a contract is nothing more than exterior expression of the will of international business actors".[84]

Article 3.2 of the UNIDROIT Principles which deals with the validity of contracts provides: "A contract is concluded, modified or terminated by the mere agreement of the parties, without any further requirement". The same idea underlies Article 1.3 of the UNIDROIT Principles which deals with the binding force of contracts. Article 1.2 clearly indicates that agreements are not subject to any requirements as to formalities. We can see here that the UNIDROIT Principles make a distinction between questions of substance and questions of form which are of an evidentiary nature when referring to the medium in which the contract is recorded.

The first article of the European Principles dealing with general provisions on the formation of contracts states the absence of any formal requirements and mentions methods of proof.[85] There is no counterpart to Article 3.2 of the UNIDROIT Principles. However, the position of this provision under the heading "Conditions for the Conclusion of a Contract" leads one to conclude that the European Principles do not dwell on the distinction between questions of form and validity, and that Article 2:101 encompasses both aspects. If, at worst, one saw a shortcoming in this, there can be no doubt that the validity of an informal agreement would be determined in accordance with the rules set out in Articles 1:105 (particularly paragraph (2)) and 1:106.

As we know, the CISG does not govern some questions of validity of contracts. Consequently, from our point of view, its Article 11 precluding requirements of formalism only refers to the manifestation of will and not to the substance of the act.

Neither the UNIDROIT Principles nor the European Principles purport to limit the freedom of the parties as to the form of the contracts to which they apply.

2.4 The Binding Force of Contracts

This principle, expressed in the adage pacta sunt servanda, is, according to Mr. Paulsson, a "classic basic postulate".[86] It finds itself at the head of Lord Mustill's list:

It finds expression twice in the UNIDROIT Principles. Article 1.3, in the chapter on general provisions, states that a contract is binding on the parties provided it is validly entered into. As a result of its binding force, a contract theoretically cannot be amended or terminated without the consent of the parties.

Because of the binding effect of contracts, they must be performed whatever occurs and in all circumstances failing which the sanctions set out in the Principles will apply. This is the general rule stipulated in Article 6.2.1 of the UNIDROIT Principles. An exception is made in the case of a change of circumstances, defined as hardship, which "lead to a fundamental alteration of the equilibrium of the contract",[88] something similar to the public law theory of rebus sic stantibus.

It should be emphasised that the notion of hardship does not mean that performance is prevented or rendered impossible - it makes it more onerous. Article 6.2.2. of the UNIDROIT Principles sets out the characteristics of an event that makes the excuse of hardship available. It is important to recall that hardship does not permit a termination of the obligations, but permits a renegotiation of the contract so as to re-establish the equilibrium of the contract and to facilitate its survival.

Unlike the UNIDROIT Principles, the European Principles do not expressly provide for the binding force of contracts in its general provisions. Article 6:111 which deals with changes in circumstances begins with the rule that "A party is bound to fulfil its obligations even if performance has become more onerous, whether because the cost of performance has increased or because the value of the performance it receives has diminished." In this one relatively long article, the European Principles set out almost the same conditions for hardship as the UNIDROIT Principles. One should note, however, that unlike the European Principles, the UNIDROIT Principles require that the events in question be "beyond the control of the disadvantaged party".[89] As for the consequences of a change in circumstances, Ms. Kessedjian observes that the two sets of Principles result in notably different results. While the UNIDROIT Principles permit the parties to engage in renegotiations, the European Principles require it. This obligation has its repercussions if the parties are unable to agree and the matter is resolved by a court. Under the European Principles, the court has the power to sanction if the attitude of the parties during renegotiations merits sanction.

Article 79(1) of the CISG which provides for exoneration for non performance in the event of a change in circumstances arguably stands as an a contrario statement of the principle pacta sunt servanda. But the CISG does not include a hardship rule or a rule on change of circumstances that would allow the revision of the contract. For Mr. Paulsson, the theory of change of circumstances is one of the "dubious" or "vague" rules of the lex mercatoria, that is to say, one of the rules whose application independently of any national law is not yet sufficiently generalised in the world of international commerce that one can say with certainty that it forms part of the lex mercatoria".[90] In reviewing a number of principles that constitute the lex mercatoria, Mr. Goldman comments on the adage pacta sunt servanda, saying: "If it were generally accepted - one could add the limitation of this principle by an implicit clause of rebus sic stantibus".[91]

Mr. Osman also notes that if the "principle of intangibility of contracts is affirmed with some vehemence by international commercial arbitrators",[92] the same is not true of the theory of change of circumstances: "As a whole, anational law, through a large body of consistent arbitral jurisprudence has unequivocally rejected the principle of changeability of contracts when, as a result of exceptional circumstances, performance becomes excessively onerous to the point of threatening the debtor with an exorbitant loss".[93]

2.5 Force Majeure

Force majeure is another notion that can be an excuse for non-performance. It is different from hardship in the that it renders performance completely impossible, either temporarily or definitively.

The European Principles call it an "impediment".[94] It permits the exoneration of the party who was unable to perform its obligation due to an event beyond its control that was unforeseeable at the time of conclusion of the contract, and that is insurmountable. In the opinion of the commentators, this provision is based on Article 79 (1) of the CISG.[95]

Article 7.1.7. of the UNIDROIT Principles provides for force majeure in almost the same terms as the European Principles.

Some take the view that the description of events that constitute force majeure for the three texts are not exactly the same as force majeure as it is usually understood by international commercial arbitrators: " . . . force majeure as defined under anational law is the only possible case of impossibility of performance".[96] What is described in Articles 79 of the CISG, Article 8:108 of the European Principles and Article 7.1.7. of the UNIDROIT Principles is a similar notion, but more flexible, as they do not require absolute, but rather only relative impossibility in order to be applicable.

However, in matters of temporary non-performance, for the European Principles, like the CISG, the excuse for non-performance is only available during the time that performance is impossible, not more, not less, whereas under the UNIDROIT Principles the excuse is available for "such period as is reasonable, having regard to the effect of the impediment on the performance of the contract".[97]

It is interesting to consider the fate of the contract in cases of force majeure. Under Article 8:101 of the European Principles the debtor may not be held liable for specific performance or for damages of any nature (including, unless agreed otherwise, liquidated damages or penalty clauses) because the non-performing party cannot be held responsible if the non-performance is due to circumstances beyond his control (in the absence of a special clause in the contract providing otherwise).[98] If the non-performance relates to an essential obligation under the contract, the contract is terminated ipso facto as a result of the joint effect of Articles 9:301(1) and 9:303(4). In cases of partial impediment, the creditor may demand performance of that which remains possible.

The UNIDROIT Principles provide for similar results.

Under both sets of Principles, the rules governing force majeure are expressed in fairly general terms, permitting the parties to provide more concise provisions in their agreement, adapted to their particular situation. In addition, these are not mandatory rules: the parties may agree to "alter the allocation of the risk of impossibility of performance or of any given event of force majeure".[99]

2.6 Tacit Acceptance

Mr. Goldman notes that "Lord Mustill mentions, among the elements of the lex, an even more liberal rule [than the one permitting the use of telex or telefax between the parties]: the failure of one party to respond to a letter addressed to him by the other is considered as evidence of his agreement to its terms".[100] In his enumeration of the "norms of the lex mercatoria relevant to the evaluation of conduct of the parties", Mr. Paulsson writes that "the actions of a party can be analysed as a tacit acceptance of an amendment of the contract".[101]

In numerous provisions of the two sets of Principles one can see that the conduct of the parties is normally also a valid expression of their wills, provided that this conduct is "active", that is, that the party concerned has acted in a particular way.

On the other hand, a "passive" attitude does not bind the party. In other words, the principle of tacit acceptance does not mean that silence can be interpreted as consent. In particular with respect to formation of contracts, the CISG and the Principles are very clear: "Silence or inactivity does not in itself amount to acceptance".[102]

At least, they seem very clear! But for some, the inclusion of the words "in itself" could allow silence to be seen as acceptance in some circumstances. So, "silence constitutes neither acceptance nor refusal, it must simply be interpreted in the context of all the relevant circumstances of the case".[103]

2.7 Summary

The UNIDROIT Principles, like the European Principles, contain a certain number of "general rules", of ideas which, more than giving exact and technical solutions for specific situations or problems, indicate directions for a solution.

In this area, the two sets of Principles seem very close, since one finds in them very similar provisions, and the differences are few. Moreover, they do not omit or leave unaddressed any of the fundamental norms or "principles" proposed by Mr. Goldman and Mr. Paulsson. In this regard, it is interesting to note that, particularly for Mr. Paulsson, who describes the norms in relation to the different phases of the contractual relationship, little is said of the formation of contracts or the norms - rules or principles - that prevail at this stage. As his reflections are based on the study of arbitral decisions, one might conclude that these gaps can be attributed to the fact that disputes bear more upon the conduct of the parties, their liability and the interpretation of the agreement than on the formation of the agreement itself.

Among the principles that have a major impact on the formation of contracts, perhaps the most important to recall is that of freedom of contract, considered by the UNIDROIT Principles and the European Principles as a fundamental element. In contrast, the CISG says little on this point. In addition, let us recall that it does not regulate the precontractual phase in any way, unlike the two sets of Principles, which each do so in a similar way.

Good faith, which in both sets of Principles occupies a very important place throughout the life of the contractual relationship, is only referred to in the CISG in connection with interpretation of the contract.

Consensualism, another fundamental rule for the Principles, has an effect on both the formal existence of contracts as well as their substance. By excluding questions of validity from its scope of application, the CISG limits the relevance of consensualism to questions of the form of legal acts.

The binding force of contracts is clearly recognised in the UNIDROIT Principles and somewhat less directly in the European Principles, which is not to say that the principle is not implicitly recognised throughout the whole of the Principles. In this respect the CISG is also very timid.

Among the important principles recorded in the provisions of all three texts is that of force majeure, which tempers the force of the maxim pacta sunt servanda, and which appears to be formulated in more flexible terms than are admitted under anational commercial law.

Finally, all three texts reflect a principle identified by Mr. Goldman and Mr. Paulsson which could have an important impact on the analysis of the formation of contracts: tacit acceptance. We have seen that according to these texts, silence may have legal consequences in some circumstances.

On the basis of this brief review, it would appear that in terms of principles . . . the Principles are clearly richer than the CISG.

Conclusion

The two sets of Principles bear many similarities and some differences, resulting in some cases from the absence of a subject in one or the other set of Principles, and from clearly contradictory solutions in other cases. The same can be said when they are compared to the CISG.

Of course, when comparing these texts, one must recall that they do not purport to regulate the same fields of activity. The CISG aims to govern international contracts, but exclusively in the field of sales between professionals, the UNIDROIT Principles are designed to govern commercial contracts,[104] without limitation to contracts of sale, and the European Principles aim to cover an even broader field as they are stated to apply "to contracts in general, including contracts between professionals and consumers"[105] and unlike the CISG and the UNIDROIT Principles, whether the contract is national or international. Moreover, in the preparation and drafting of the CISG, it was necessary to take into account the legal systems of the member states and therefore sometimes to make compromises, particularly between civil law and common law positions. The two sets of Principles, on the other hand, are as far removed as possible from any notion of national law.

Each of the sets of Principles purports to be a "body of general rules" [106] universally applicable in its respective sphere. This goal is certainly attained in the filed of international sale of goods by the CISG, to which a large number of states have now voluntarily adhered.

As for the Principles, however, one might ask whether these attempts at harmonisation represent wishful thinking. They are not treaties proposed for ratification by states, [107] so for them to acquire any authority in the resolution of commercial disputes will depend on their use by parties to contracts and the reception they enjoy from the authorities who are called upon the resolve disputes.

The response to these questions will also answer another unique question - are they really a written expression of the lex mercatoria? At present, in spite of the "promotional" efforts of the members of the UNIDROIT working group in particular, it would seem that the answer is no. Several authors, observers and commentators have expressed doubts as to their effectiveness in the resolution of disputes.[108] In addition, a factor not to be underestimated is the fact that "they represent neither practice nor arbitral jurisprudence".[109]

A businessman, who is not a jurist, and who negotiates major international contracts in the field of information technology and telecommunications expresses the businessman's point of view when he says "certain provisions of the Principles [UNIDROIT] depart from common trading practices and have the potential to increase the uncertainty surrounding a business transaction" [110] and concludes finally that "the Principles are an admirable draft of a uniform contract law, but a draft is not a law".[111]

In sum, only the future will provide the answer to the question:

FOOTNOTES

1. Hereinafter the UNIDROIT Principles.

2. Hereinafter the "European Principles". The English text, without commentaries or notes, is available on the following web site: URL: http://www.ufsia.ac.be/~estorme/PECL2en.html.

3. UNIDROIT, Principles of International Commercial Contracts, Rome, International Institute for the Unification of Private Law, 1994, viii.

4. Isabelle de Lamberterie, Georges Rouhette and Denis Tallon, Les principes du droit européen du contrat, Paris, La documentation française, 1997, p. 19.

5. Catherine Kessedjian, "Un exercice de rénovation des sources du droit des contrats du commerce international: Les Principes proposés par l'Unidroit", (1995) 84 Rev. crit. dr. internat. privé 641, 668.

6. UNIDROIT, op. cit. note 3, p. vii.

7. Vienna, April 11, 1980, hereinafter, "CISG".

8. Alain Prujiner, Traités et documents internationaux usuels en droit du commerce international, Montréal, Wilson & Lafleur, 1992, p. 29.

9. Michael Joachim Bonell, "The UNIDROIT Principles of International Commercial Contracts and CISG - Alternatives or Complementary Instruments?", URL: <htp://www.cisg.law.pace.edu/cisg/bibli/ulr96.html

10. Bénédicte Fauvarque-Cosson, "Les contrats du commerce international. une approche nouvelle: les Principes d'UNIDROIT relatifs aux contrats du commerce international", (1998) 2 R.I.D.C. 463, 482.

11. Berthold Goldman, "Nouvelles réflexions sur la lex mercatoria", in Christian Dominicé, Robert Patry and Claude Reymond (dir.), Études de droit international en l'honneur de Pierre Lalive, Bâle, Helbing & Lichtenhahn, 1993, p. 241, p. 243.

12. Ian Paulsson, "La lex mercatoria dans l'arbitrage CCI", (1990) Rev. arb. 55, 79.

13. Norms in respect of the arbitral process, the binding force of contracts, the assessment of the conduct of the parties, etc.

14. This article does not purport to advance a conceptual debate over the notions of "rule" and of "principle". For purposes of this study, "rules" are considered as sufficiently detailed prescriptions bearing on a particular subject, whereas "principles" are more general in nature, expressing basic, fundamental ideas that serve as guides, whether or not spelled out in the form of several rules.

15. The CISG does not refer to the precontractual phase. See section 2.1.

16. Articles 14 to 17.

17. Articles 18 to 22.

18. Article 27.

19. Article 13.

20. Article 11.

21. Article 14.

22. Id.

23. Several authors see an apparent contradiction here. See, for example: Delphine Lecossois, "La détermination du prix dans la Convention de Vienne, le U.C.C. et le droit français: critique de la première décision relative aux articles 14 et 55 de la Convention de Vienne", (1996) 41 McGill L.J. 513.

24. Article 2.12.

25. Article 2.13.

26. Article 2.14.

27. Article 2.15.

28. Article 2.16.

29. Article 2.17.

30. Article 2.19.

31. Article 2.20.

32. Article 1.10.

33. The effect is tempered in respect of formation of contracts. See p. 12 below.

34. Article 1.9 (4)

35. Article 2.1.

36. UNIDROIT, op. cit. note 3, p. 27.

37. Article 2.1, emphasis added

38. Article 2:101, emphasis added

39. Article 1:303 (6). Perhaps to avoid ambiguity with respect to formation of contracts, one can see that the 1998 definition has been expanded and enriched compared to the 1997 version. In effect, Article 1.110 (4) provided that the term "notification" applied also to a "statement, request, demand or any other form of communication".

40. UNIDROIT, op. cit. note 3, p.28.

41. Article 5.7.

42. Article 14 § 2.

43. Article 2:201.

44. UNIDROIT, op. cit. note 3, p.29.

45. Id., p. 82.

46. Article 4:109 (a).

47. I. de Lamberterie, G. Rouhette et D. Tallon, op. cit. note 4, p. 16.

48. Id., p. 20.

49. For example, the notions of "undue influence" of English and Irish law, and abuse of circumstances sanctioned by the Luxembourg and German civil codes. Perhaps also the notion of violence referred to in Article 1112 of the French Civil Code, which the courts have applied in cases of abusive exploitation of circumstances (TGI Bourges, 11 avr. 1989, Gaz. Pal. 1990).

50. Pierre-Gabriel Jobin, "Les clauses abusives", (1996) 75 Can.B.Rev. 503, 507. Original italicised.

51. Article 3.18.

52. Article 4:117 (2).

53. Barry Nicholas, "The United Kingdom and the Vienna Sales Convention: Another Case of Splendid Isolation?". URL <http://www.cnr.it/CTDCS/frames9.htm>. The author reports the opinion of a governing member of the London Bar in the 1990s, Mr. Derek Wheatley.

54. Being when the acceptance is sent and when the offeree expresses a certain conduct.

55. Article 2:205 European Principles, Article 18§3 CISG and Article 2.6 (3) UNIDROIT Principles are substantially identical.

56. CRDPQ, Dictionnaire de droit privé, Montréal, CRDPQ, 1985, p. 151.

57. C. Kessedjian, loc.cit. note 5, 654-655.

58. Id., 654.

59. Id., 655.

60. Id., 670.

61. CRDPQ, op. cit. note 56, p. 151.

62. B. Goldman, loc. cit. note 11, 243.

63. This is why, for example, we do not speak of the well known principle of the obligation to mitigate damages, linked to questions of contractual liability which Mr. Paulsson cites as having become a "norm that is regularly applied in ICC arbitral decisions" (J. Paulsson, loc. cit. note 12, 92).

64. Bernardo M. Cremades et Steven L. Plehn, "The New Lex Mercatoria and the Harmonization of the Laws of International Commercial Transactions", (1984) 2 Boston University Int. L. J. 317, 328.

65. Article 1.1.

66. UNIDROIT, op. cit. note 3, p.7.

67. Ibid.

68. Ibid.

69. Jean-Marc Mousseron, Technique contractuelle, Paris, Éditions juridiques Lefebvre, 1998, p. 17.

70. UNIDROIT Principles, Articles 2.15, 2.16. European Principles, Articles 2 :301, 2:302.

71. ICC Decision no 5953, Journal du droit international, 117, 1090.

72. Jean Thieffry and Chantal Granier, La vente internationale, Paris, Centre Français du Commerce Extérieur, 1985, p. 79.

73. Article 8§3.

74. Pierre Lalive, "Sur la bonne foi dans l'exécution des contrats d'État", in Mélanges offerts à Raymond Vander Elst, Bruxelles, Némésis, 1986, p. 432.

75. Filali Osman, Les principes généraux de la lex mercatoria - Contribution à l'étude d'un ordre juridique anational, Paris, L.G.D.J., 1992, p. 27.

76. Lord Mustill's list is reproduced by Philippe Kahn, "La lex mercatoria: point de vue français après quarante ans de controverses", (1992) 37 McGill L.J. 413 at 422.

77. Article 7§1.

78. See Michael Joachim Bonell, "Formation of contracts and precontractual liability under the Vienna Convention on international sale of goods" in Formation des contrats et responsabilité précontractuelle, Paris, CCI, 1990, no 10, p. 9 at 18.

79. UNIDROIT, op. cit. note 3, p. 17.

80. Ibid.

81. I. de Lamberterie, G. Rouhette et D. Tallon, op. cit. note 4, p. 50.

82. Article 1.106 (1).

83. Article 1:201.

84. F. Osman, op. cit. note 75, p. 84.

85. Article 2:101.

86. I. Paulsson, loc. cit. note 12, 82.

87. P. Kahn, loc. cit. note 76, 422.

88. UNIDROIT, op. cit. note 3, p. 152.

89. Article 6.2.2 (c), European Principles.

90. I. Paulsson, loc. cit. note 12, 79.

91. B. Goldman, loc. cit. note 11, 243.

92. F. Osman , op. cit. note 75, p. 151.

93. Id., p. 153-154.

94. Article 8:108.

95. I. de Lamberterie, G. Rouhette et D. Tallon, op. cit. note 4, p. 169.

96. F. Osman , op. cit. note 75, p. 160.

97. Article 7.1.7.

98. I. de Lamberterie, G. Rouhette et D. Tallon, op. cit. note 4, p. 166.

99. Id., p. 164.

100. B. Goldman, loc. cit. note 11, 249, note 36.

101. I. Paulsson, loc. cit. note 12, 89.

102. Articles 18§1 CISG, 2.6. 1) UNIDROIT Principles and 2:204 (2) European Principles.

103. F. Osman , op. cit. note 75, p. 116.

104. Speaking of commercial contracts, "the idea is … that of excluding from the scope of the Principles so-called "consumer transactions" which are within the various legal systems being increasingly subjected to special rules, mostly of a mandatory character, aimed at protecting the consumer, i.e. a party who enters into the contract otherwise than in the course of its trade or profession". UNIDROIT, op. cit. note 3, p.2.

105. I. de Lamberterie, G. Rouhette et D. Tallon, op. cit. note 4, p. 19.

106. Preamble, UNIDROIT Principles, Article 1.101 European Principles.

107. B. Fauvarque-Cosson, loc. cit. note 10, 463.

108. See, for example, C. Kessedjian, loc.cit. note 5, who argues that their place at the bottom of the hierarchy of sources of law of international contracts, seriously compromises their applicability. See also, B. Fauvarque-Cosson, loc. cit. note 10.

109. B. Fauvarque-Cosson, loc. cit. note 10, 482.

110. Richard Hill, "A Businessman's View of the UNIDROIT Principles", (1997) 13 Jl of International Arbitration, 163.

111. Id. 169.

112. B. Fauvarque-Cosson, loc. cit. note 10, 482.

Pace Law School Institute of International Commercial Law - Last updated November 5, 2002

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