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Reproduced from "Study of the systems of private law in the EU with regard to discrimination and the creation of a European Civil Code", European Parliament, Directorate General for Research, Working Paper, Legal Affairs Series, JURI 103 EN (June 1999), Chapter III, 127-136

The Rules of European contract law

Ole Lando, Copenhagen

I.   Introduction
II.  Arguments against and in favour of a uniform law of obligations in Europe
III. The Commission on European Contract Law

I. Introduction

1. On 1 January 1900 the German Civil Code (Bürgerliches Gesetzbuch) entered into force. The Code unified civil law in Germany. As had already happened in France and Italy and was to be repeated a few years later in Switzerland, the achievement of national union had been the signal for the standardisation of civil law. The European Union will not manage to put a European Civil Code into force on 1 January 2000. But we might ponder the question whether the first decades of the third millennium will see the realisation of a European Civil Code or a uniform law of obligations. The European Parliament called on the Council and the Commission in 1989 [1] and again in 1994 [2] to undertake the necessary preparatory work for the creation of a uniform European Civil Code. In its appeal to the two institutions, Parliament stressed how important it is to standardise the law of obligations. Perhaps the first step will be a European law of contract. A draft has already been prepared, which makes it a good starting point for our discussion.[3]

II. Arguments against and in favour of a uniform law of obligations in Europe

2. Arguments against a standardised law of obligations

Several arguments can be advanced against the standardisation of the law of obligations. Neither in the earlier Treaties establishing the European Communities nor in the Maastricht Treaty on European Union nor in the recent Treaty of Amsterdam has anything been said about a uniform law of obligations. The following may be the reasons for this: [page 127]

-   The substantive differences between the European systems of private law are considerable, especially between the common law of England and Ireland and the civil law of the other countries. But there are wide divergences between the civil-law systems of continental Europe too.

-   Standardisation of the substantive law of contract is not necessary. In the Convention on the Law Applicable to Contractual Obligations, [4] the EU Member States have already standardised the international law of contract (rules governing conflicts of laws), thereby ensuring the requisite legal consistency.

-   There are countries that consist of several judicial territories, each with its own law of contract, such as the United Kingdom, Canada and the United States of America. These differences did not prevent them from becoming major industrial and commercial powers.

-   Any standardisation of substantive property law will meet with fierce resistance in the countries of the EU. This not only applies to England and Ireland, where the people, and particularly the lawyers, proudly cherish their common-law tradition, but also in France, where the Code Napoléon is regarded as a cornerstone of the nation's cultural heritage.

3. Arguments in favour

The points above may be answered as follows:

-   The great differences are actually a reason for standardising the law rather than an argument against it. These differences complicate foreign trade. At least one party to an international contract has to be subject to an alien legal system and will often have to invest a great deal of time, effort and money to become familiar with the foreign law. Venturing into a foreign market is risky, and many companies, especially small and medium-sized businesses, are wary of doing so. The legal differences are therefore obstacles to the free movement of goods, people and services, obstacles which are fundamentally irreconcilable with the principle of a common market.

-   The progress that has already been achieved makes the standardisation of standard law all the more essential. The Convention on the Law Applicable to Contractual Obligations is incomplete. It does not release enterprises from the trouble and cost involved in familiarising themselves with applicable foreign laws. This has been seen in many court cases, in which one litigant after the other has had to engage in expensive and time-consuming study of the substance of foreign legislation.

-   The United Kingdom, the United States and Canada do comprise several judicial territories. But their legal systems are not entirely distinct. Although Scots law was originally a civil-law system, it has been strongly influenced by common law and, in terms of methodology, it falls into the same camp as English law. A similar situation applies with regard to the law of Louisiana in the United States. [page 128]

-   While it is not a law of nature that political and economic unions gradually come to share the same civil law, experience has shown that it does often happen. This was seen in France, when the Code civil and the Code de commerce were introduced in 1804 and 1807 respectively, in Germany in 1900 and again in 1990; Austria (1812), Italy (1865) and the Swiss codifications of 1907-11 are further examples.

-   U.S. commercial and contract law, which is standardised in many respects on the basis of the common law that applies in almost every state, has been further unified in the course of this last century. Among the unifying factors has been the introduction of the 'uniform laws'; the Uniform Commercial Code (UCC) in particular standardised important areas of domestic commercial law and the law governing the sale of goods as well as the law on negotiable instruments and real security. The requirements of inter-state trade provided the main impetus for the introduction of the UCC; which now applies in all states.[5]

-   The resistance of European lawyers to the standardisation of civil law is unavoidable. But it is there to be overcome. We know of the centuries of stubborn resistance to standardisation of the laws of France before the Revolution of 1789. Corrupt lawyers, the so-called noblesse de robe, were loath to learn new law and to give up their local monopolies. It is also questionable whether the new Bürgerliches Gesetzbuch was greeted enthusiastically throughout Germany in 1900. And is it now receiving acclaim in the five new Länder of the Federal Republic? Allowance has to be made for scepticism and resistance. They will delay the standardisation of civil law, but that will also give its proponents time to undertake the huge and complex research and preparation effort that needs to be made.

III. The Commission on European Contract Law

4. The Commission and its work

In 1980 the Commission on European Contract Law began its work. It set itself the task of formulating general European principles for a common system of contract law. The Commission is an independent private association of legal scholars from all Member States of the European Community. It has begun by devoting itself to the law of contract, because the most important instrument of business management and planning in a market economy is the private contract. The Commission began by examining the effects and the performance of contracts. It also dealt with impairment of performance and especially breaches of contract. This part of the Principles of European Contract Law was published in English in 1995 [6] and in French in 1997.[7] Part Two, dealing with the [page 129] conclusion of contracts, authority of agents, substantive validity and the interpretation of contracts, was published in 1999.[8] Work on Part Three, which covers general matters relating to the law of obligations, such as the assignment of claims and obligations, set-off and statute-barring, was begun in 1997 and is likely to continue through to the end of the year 2000.

5. The practice so far has been to distribute the material among five reporters, each of whom drafts a report and submits it to the other four. The work of this drafting group is then submitted to the whole Commission. At fourteen meetings of the first Commission and eight meetings of the second Commission, the principles have been discussed and developed. In addition, an editing group has dealt with questions of terminology and presentation of the material.

6. Sources

The Commission does not seek to develop revolutionary new provisions but to formulate appropriate modern uniform European principles. It is not a matter of identifying rules that already apply and are uniformly interpreted in every Member State but rather of seeking the best and most expedient principle in each case. Inspiration is drawn from the legal systems of the Member States and international sources, such as the Vienna Convention of 11 April 1980 on Contracts for the International Sale of Goods (CISG). American texts, such as the UCC and the Restatements, and the Swiss law of obligations have also come under scrutiny.

7. Presentation

The Commission formulates the principles in the manner of legal provisions. Since it was indispensable to address specific issues too, the principles assume the outward form of a 'Law of Contract Act'. Merely by reading through these principles, which are listed in a series of articles, one can obtain a general picture. These articles, however, have no binding force; they have to be persuasive. The U.S. Restatements furnished a methodological model which required only slight adaptation to the European situation. In this model the material for each principle is presented in three stages. At the apex is the principle itself. The principles are designed to be as brief and easily comprehensible as possible, but complex issues occasionally necessitate a more detailed formulation. The second stage is a commentary on each principle, indicating its meaning and purpose and explaining how it is put into practice. This commentary may therefore be compared with the official detailed explanatory statement that accompanies a legislative bill or even with the legal commentaries that are customary in Germany. Additional clarity is achieved through the insertion of examples to show how the principles should be applied. Some of these examples are drawn from the case law of the Member States. [page 130]

8. The Commission on European Contract Law also owes it to the user of the principles to cite the source of each principle and to indicate how European its principles are. For that reason, the third stage in the process comprises a more or less comprehensive comparative annotation. This explains the ways in which the legal systems of the EU Member States and, in some cases, standardised international law have solved the problem in question. This annotation takes the form of a 'reporter's note', i.e. an integrated comparative report setting out typical solutions as well as references from the various legal systems. This is where the complexity of the project emerges; whereas the authors of the U.S. Restatements are able to confine themselves in their reporters' notes to references to the relevant legislation, Europe has a host of codifications, which often diverge as soon as they go into detail, and numerous special laws, as well as collections of court decisions relating to this body of legislation. The 'annotation' is therefore ideally a small piece of comparative study on a European scale, which will often include non-European material. Apart from anything else, even the legal information it contains may well prove useful to many people.

9. Languages

One difficulty for Europe is the language issue, which also affects the work of the Commission on European Contract Law. The Commission has at least one member from each State of the European Union. Every member speaks English, most of them speak French too, but none of them understands all the other nine official languages of the Community. Extensive translation of all oral or written statements would stretch the Commission's budget beyond breaking point. For this reason, the drafts are compiled as a rule in the commonest language, namely English. Discussions are also largely conducted in English, although French has also come to play an important role in the course of time. Experience has shown that legal texts devised in English are sometimes difficult to translate into the languages of the civil-law countries. Translating English sources into French has therefore proved to be a necessary test of their potential value. It is self-evident that the conferment of such elevated status on these two languages is fraught with problems. It is also clear that a European law of contract is scarcely worthy of the name unless it is available in at least the major languages of the Community and preferably in all of them. It is therefore desirable that concordant versions of the Principles of European Contract Law be drawn up soon in all nine of the other EU languages, but that is a mammoth task. The first aim will be to present a European law of contract at least in those languages which, on the one hand, are most widely spoken in Europe and which, on the other hand, have had the greatest effect on the legal language in which the main bodies of European law are formulated; I am referring here to the languages of the systems that spawned the three legal traditions represented in the European Community today. This means that concordant versions and terminological equivalents must be developed without delay in English, French and German at any rate. This is the only way to develop a truly European language of contract law, embracing common concepts and extending beyond mere translations. [page 131]

10. First draft of a European code of contract law

An important model for the principles of European contract law has been provided by the Restatements of the Law, published by the American Law Institute, and especially the Restatement on the Law of Contracts, the second edition of which appeared in 1981.[9] As I mentioned above, the Commission on European Contract Law has based its work on the approach adopted in the Restatements. In so doing, the Commission has demonstrated that the principles may be regarded not only as the first draft of a legal code but also, like the Restatements, as an instrument for those who need general rules of contract law for business purposes (to formulate terms and conditions).

11. The principles, however, are not a restatement in the true sense of the term. The American Restatements do, to a certain extent, restate the common law that applies in 49 of the American states. But common law is not uniform law, and there are considerable legal disparities between states. The Restatements therefore contain many rules which are the result of political deliberations. They reflect the rules which their authors regard as the best options.

12. For the Commission on European Contract Law it was even more difficult to reflect the legal precepts that are common to all fifteen countries of the European Union. The common ground is far sparser than in the United States. What the principles of European contract law do have in common with the Restatements, however, is the fact that they are non-binding in character and can only work, as we saw above, if they are persuasive. In this respect, however, the principles can serve several purposes.

13. The benefits for EU law

The contracts concluded by the institutions and other bodies of the EU with private individuals and businesses are governed today by one of the national legal systems. This sort of discrimination in favour of a single domestic legal system is not a satisfactory long-term solution. Such contracts ought to be judged on the basis of European law. Moreover, a European law of contract can serve as an additional means of interpreting those provisions of the law of obligations that have already been standardised. The Treaty on European Union establishes the criteria that a law of obligations must fulfil if it is to be consistent with the Treaties.[10] In addition, the European Court of Justice has taken the first steps towards standardisation in the domain of civil law, for example by developing rules on force majeure.[11]

14. According to the second sentence of Article 288 (new numbering) of the EC Treaty, the official liability of the Communities is to be judged on the basis of the "general principles common to the laws of the Member States". Such general legal principles were in short supply, and the European Court has had to create some. The judgments of the Court on the concept of loss or damage, on proof of loss or damage, on causality and [page 132] adequacy have become part of the common European law of obligations, which can also have a bearing on contractual liability.[12] New issues will arise when the Directives on commercial agents [13] and consumer protection have to be interpreted. The Germans will not find it difficult to transpose concepts in the Directive on commercial agents such as the precept of acting "dutifully and in good faith" (Articles 3(1) and 4(1)) into their national law, where such concepts already exist. For other Member States, however, considerable difficulties could arise here.

15. The Directive on commercial agents

The Directive on the coordination of the laws of the Member States relating to self-employed commercial agents was one of the first European directives to deal exclusively with the law governing commercial contracts. As a matter of fact, the desirability of harmonisation of the law of contract is expressed in the recitals of the Directive:

"Whereas trade in goods between Member States should be carried on under conditions which are similar to those of a single market, and this necessitates approximation of the legal systems of the Member States to the extent required for the proper functioning of the common market; whereas in this regard the principles concerning conflict of laws do not, in the matter of commercial representation, remove the inconsistencies referred to above, nor would they even if they were made uniform, and accordingly the proposed harmonisation is necessary notwithstanding the existence of those rules".

16. ECJ judgments

In one respect the lack of standardisation of laws prompted the European Court of Justice to refer to national rather than European norms. For example, in determining the place of performance referred to in Article 5 of the Civil Jurisdiction Convention, the Court based its decision on the national law to which responsibility is assigned under the international private law of the forum in question.[14] It did the same thing again in its ruling on the question whether an agreement concerning jurisdiction within the meaning of Article 17 of the Civil Jurisdiction Convention had been validly concluded [15] or whether the contract with the agreement on jurisdiction had been tacitly extended. In these domains, I believe the European Court should be able to establish common rules.

17. Ideas for legislators

National legislatures which are planning to reform the law of contract can benefit from the principles of European contract law. For the nations of Central and Eastern Europe [page 133] which once lived under Communist legal systems, the principles serve as a source of provisions designed to operate in a market economy.

18. A lex mercatoria

Moreover, the principles can assist international arbitral tribunals if they wish to apply a non-national code of law, a lex mercatoria. The discussion on the existence and necessity of a lex mercatoria is one of the most important debates of our age in the domain of international commercial law from both a practical and a theoretical point of view.[16]

19. Opponents of a lex mercatoria

Its opponents[17] maintain that a lex mercatoria cannot be valid for the simple reason that it is not backed by governmental authority. No legislature has adopted or ratified it. Moreover, they say, it is difficult, if not impossible, to define its substance and component elements. Even if some general legal principles and other 'international sources of law' could be identified as parts of a lex mercatoria, it would not be desirable, for political and other reasons, to use it as the basis of an arbitral award. The lex mercatoria, according to its opponents, is an indefinite and unbounded 'source of law'. Its 'application' would lead to nothing more than 'cadi justice' and would pose a threat to legal consistency. Consequently, in their view, every arbitral award and every judgment by a state court must be founded on national law.

20. Pro lege mercatoria

I am not convinced, however, by these rejectionist arguments.[18]

-   Whether legal norms possess validity is a socio-psychological question, depending entirely on whether those empowered to apply the norms do actually apply them and not on whether they are adopted or approved by a governmental authority. In practice, arbitral tribunals have applied lex mercatoria in international arbitration procedures. And indeed the lex mercatoria has acquired a certain authority. National courts have recognised the application of lex mercatoria by arbitral tribunals.[19] Their application is also explicitly recognised in Article 1496 of the French, Article 1054 of the Dutch and [page 134] Article 834 of the Italian Code of Civil Procedure, as well as in Article 1700 of the Belgian Code judiciaire and section 46(2) of the UK Arbitration Act 1996. The Uncitral Model Law of 1985 on International Commercial Arbitration, in Article 28(1), recognises the application of lex mercatoria. The Model Law has been put into force in fourteen countries as well as in eight U.S. states.

-   Although the body of lex mercatoria is still a highly indeterminate and incomplete 'legal system', it has never been entirely without substance, and in recent times its stock of norms has been considerably increased.

-   There have always been legal principles that are accepted by all or most of the 'civilised' nations, such as the precept of pacta sunt servanda and the rule that compensation must be provided for damage or loss caused by a breach of countract for which one party may be held accountable. This common core of the leal systems also includes the principle whereby a party may terminate a contract if the other party has significantly breached it. In addition, international agreements provide a constantly expanding source of standardised law. For example, the Vienna Convention of 11 April 1980 on Contracts for the International Sale of Goods (CISG) has now entered into force in well over 50 countries. The number of bilateral, multilateral and global agreements is likewise growing in many other domains of the law of contract.

-   In addition, international usage is catalogued in documents such as the Incoterms and the Uniform Customs and Practice for Documentary Credits, which were developed bythe International Chamber of Commerce and are now in widespread use. To these may be added commercial practices that have been developed in 'real life' in the various domains of international trade. Finally, the Principles of European Contract Law and the Unidroit Principles of International Commercial Contracts, which Unidroit published in Rome, with accompanying explanatory notes, in 1994,[20] must also be included in the lex mercatoria. Like the Principles of European Contract Law, the Unidroit Principles are intended as recommendations for the international business world and for arbitral tribunals. They contain rules on the conclusion of contracts, substantive validity and the interpretation of contracts, on content, performance, breach of contract and legal redress in the event of a breach of contract. These two sets of principles have considerably enriched the lex mercatoria.

-   Gaps and uncertainties are also found in national legal systems. Furthermore, some principles found in the national systems of contract law are unsuitable instruments for dealing with international contracts. Examples are the doctrines of consideration and privity of contract in common law and the current principles governing breach of contract in German law. [page 135]

-   As far as procedure and application are concerned, the lex mercatoria has the advantage of providing a level playing field for all parties and all tribunals. No one is handicapped by having to cope with foreign law, and neither party has home advantage.

-   The arbitral tribunal that rules on the basis of the lex mercatoria is not dispensing justice like a cadi. Its decision is always taken on the basis of the rule which the tribunal would wish to establish for international contracts if it were a legislative body; in arriving at that rule, it follows established doctrine and custom. And so it is the hope of the members of the Commission on European Contract Law that their principles will become part of that body of established doctrine. [page 136]


1. Official Journal of the European Communities (OJ) C 158/400 (1989).

2. OJ C 205/518 (1994).

3. On the follow-up project being undertaken by the Study Group on a European Civil Code, see the next contribution by Christian von Bar.

4. OJ L 266/1 (1980).

5. In Louisiana the UCC has only been partially incorporated into state law.

6. Lando and Beale (ed.), Principles of European Contract Law, Part 1. Performance, Non-performance and Remedies, Dordrecht, 1995. A German translation of the principles (only the articles themselves) was published in the Zeitschrift für Europäisches Privatrecht, 1995, p. 864. See also Reinhard Zimmermann, 'Principles of European Contract Law', ibid., p. 731.

7. Les principes du droit européen, L'exécution, l'inexécution et ses suites, Version française: Isabelle de Lamberterie, Georges Rouhette and Dennis Tallon, Paris, 1997.

8. Lando and Beale (ed.), Principles of European Contract Law, Parts I and II. The Hague, 1999.

9. American Law Institute (ed.), Restatement of the Laws, Second, Contracts 2d, I-III, St. Paul, 1981.

10. See Peter-Christian Müller-Graff, 'Europäische Normgebung und ihre judikative Umsetzung in nationales Recht', Part I, in Deutsche Richter-Zeitung (DRiZ), 1996, p. 259; Part II, ibid., 305.

11. ECJ Case No 284/82 (Busseni), ECR 1984, 557, and Case No 209/83 (Valsabbia), ECR 1984, 3089. See also the Communication from the Commission in OJ C 259/10 (1988).

12. See von der Groeben et al.,Kommentar zum EU-/EGV, 5th ed., 1995, Vol. V, pp. 219 et seq. (Article 215) and, as examples, ECJ Case No 13-24/66 (Kampffmeyer I), ECR 1967, 351 (concept of damage), Case Nos 6-60/74 (Kampffmeyer II), ECR 1976, 711, and 210/86 (Mulder), ECR 1988, 3244 (assessment of loss or damage), and Case No 169/73 (Compagnie Continentale Française), ECR 1975, 119 (cooperation of a plaintiff).

13. OJ L 382/17 (1986).

14. Case No 12/76 (Tessili), ECR 1976, 1473.

15. Case No 313/85 (Iveco), ECR 1986, 3337.

16. Literature: Mann, 'Lex facit Arbitrum', in Festschrift Domke, 1967, p. 157; von Hoffmann, 'Lex Mercatoria vor internationalen Schiedsgerichten', in Praxis des internationalen Privat- und Verfahrensrechts (IPRax), 1984, 1984, p. 106; Goldmann, 'The Applicable Law, General Principles of Law, the lex mercatoria", in: Lew (ed.), Contemporary Problems in International Arbitration, 1986, p. 113; Lando, 'The Lex Mercatoria in International Commercial Arbitration', in International and Comparative Law Quarterly (I.C.L.Q.), 1985, p. 747; Loewenfeld, 'Lex Mercatoria: an Arbitrator's View', in Arbitration International, Vol. 6, 1990, pp. 133-150; W. Lorenz, 'Die lex mercatoria, eine internationale Rechtsquelle?', in Festschrift Neumayer, 1985, p. 407; Mustill, 'The new Lex Mercatoria: The first 25 years', in Liber Amicorum for Lord Wilberforce, Oxford, 1987, pp. 149-183; Thomas E. Carbonneau (ed.), Lex Mercatoria and Arbitration, New York, 1990, with contributions by Goldmann, Mann, Berman and Dasser, Smit, Delaume, Highet, Park, Audit, Drobnig, Pfunder, Siqueiros, Màdl and Jünger; Lando, 'Lex mercatoria 1985-96', in Festskrift till Stig Strömholm, Uppsala, 1977, p. 567; Roy Goode, 'Usage and Its Reception in Transnational Commercial Law', in I.C.L.Q., 1997, p. 1.

17. See Mann, op.cit., W. Lorenz, op. cit., and Mustill, op.cit. (footnote 16 above).

18. Goldmann, op. cit., Lando, op. cit., and Loewenfeld, op.cit. (see footnote 16 above), argue for the validity of the lex mercatoria.

19. See Lando, op. cit. (footnote 16 above), p. 752.

20. ISBN 88-86 449-0-3.

Pace Law School Institute of International Commercial Law> - Last updated November 19, 2002
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