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Saggi, Conferenze e Seminari 49. Reproduced with permission of Centro di studi e ricerche di diritto comparator e straniero, diretto da M.J. Bonell

Principles of European Contract Law and Unidroit Principles: Similarities, Differences and Perspectives

Ole Lando
Roma (April 2002)

  1. The Two Sets of Principles
  2. The Similarities
    1. Structure, content and terminology of the Principles
    2. Interpretation of the Principles
  3. The Main Differences
  4. The Perspectives

I. The two sets of Principles

These dark blue booklets have brought short and easily read messages of importance. They are widely read by those who receive them. I am therefore honoured to have been invited to make a contribution to this series, published by professor Bonell's Centro di studi e ricerche di diritto comparato e straniero in Rome.

I will compare the Unidroit Principles of International Commercial Contracts prepared by a working group established under the Unidroit, (hereinafter the Unidroit Principles) and the Principles of European Contract Law (hereinafter PECL) which were worked out by the Commission on European Contract Law (CECL). I will not do it in detail,[1] only bring an outline of the main similarities and differences. Then I will discuss the perspectives which these two sets of Principles have opened and will open up.

The Unidroit working group started its work in 1979. The CECL began its work in 1982. The members of the Unidroit group came from all parts of the world, those of the CECL from the European Communities. Most of the members of the two groups were academics. Some of the members of CECL were also member of the Unidroit working group. Both groups were and are independent and not representatives of specific political or governmental interests.

The scope of the work for both groups was the general principles of contract law. The Unidroit Group prepared rules on formation, validity, interpretation, content, performance and non-performance (breach) of [page 1] contracts. The Principles of International Commercial Contracts were published by Unidroit in 1994.[2] A new Unidroit working group is presently preparing rules on third party rights, agency, assignment of rights, transfer of obligations, assignment of contracts, set off and limitation periods. It considers to include rules on waiver and related issues and on abuse of rights. The work is scheduled to be finished in 2003, and a revised new edition of the Unidroit Principles of International Commercial Contracts will then be published.

The CECL first prepared rules on performance, non-performance of contracts. Part 1 of the PECL was published in 1995.[3] In 1992 the Commission began to work on the formation, validity, interpretation and contents of contracts, as well as on the authority of an agent to bind his principal (hereinafter called agency). The principles of European Contract Law Part I and II were published in 1999.[4] In the years 1997-2001 the Commission prepared rules on plurality of creditors and debtors, assignment of claims, substitution of a new debtor and transfer of contract, set-off, prescription illegality, conditions and capitalisation of interests. Part III of the PECL is in the process of being printed and will appear soon. [page 2]

Since July 1999 a Study Group of a European Civil Code has been established under the leadership of Professor Christian von Bar, University of Osnabrück in Germany. The Study Group is preparing a draft code based on comparative studies and drafts worked out in centers in Germany, Austria and the Netherlands. New centers in other EU countries are in the process of being established. The Group is dealing with the specific contracts (notably sales and services), torts, negotiorum gestio, unjust enrichment and secured transactions and transfer of title in moveable property. It is envisaged that the general principles of the law of contracts provided in the PECL I-III will be integrated in the Draft European Civil Code. Family law and the law of wills and succession will not be included in the first draft of the Code.

II. The similarities

1. Structure, content and terminology of the Principles

It is characteristic of the CECL and the Unidroit Group that they started from scratch. There were no venerable traditions to bind them, no ancestors to worship. The members were not compelled to retain any relics of a dead past, as the Germans appear to have been when they enacted the reform of the law of obligations, which came into force on January 1 2002. In the amended German Civil Code the provisions on performance and non-performance of contracts, which badly needed a revision, were radically changed in substance. However, the authors of the new provisions preserved most of the complicated structure of the BGB which is over 100 years old, and which was made for a system of non-performance that is widely different from the new one. They also kept to the sophisticated style of the BGB. The provisions of the amended Code are as difficult to understand for laymen and foreigners as were those of the old Code. In contrast, the rules of the two set of Principles, the PECL and the Unidroit Principles, are drafted as short as possible, and the sentences are short. The provisions convey their message clearly so that the educated citizen can understand it. [page 3]

The structure, terminology and contents are similar. Both deal with the general principles of contract law. The chapters follow chronologically the life of the contract from its formation to its performance. Most of chapters of the two books that have been published treat the same subjects in the same order, formation, validity, interpretation, content, performance and non-performance.

On the whole there are more provisions which bring the same message than rules which differ in substance, and, above all, the salient features are the same. This holds true of the freedom of contract as a basic principle, the absence of formal requirements for the validity of a contract, each contracting party's duty to act in accordance with good faith and fair dealing, the offeror's freedom to revoke his offer until it has been accepted and the exceptions to this freedom, the "knock out" solution to the battle of forms, the rules on the implied and apparent authority of the agent, on mistake, fraud, duress and undue influence as vitiating defects in the contracting process. It also holds true of the rules on hardship and force majeure, on the creditor's right to specific performance, the aggrieved party's right to damages for his foreseeable loss in case of non-performance and his right to terminate the contract in case of a fundamental non-performance.

Several of the rules, notably on formation, performance and non-performance, are similar to those provided in United Nations Convention on Contracts for the International Sale of Goods (CISG) which in July 2002 is in force in more than 60 countries.

Also part III of the PECL and the Unidroit Principles yet to be published appear to be similar in many respects. Both will treat assignment of claims, transfer of obligations and assignment of contracts, prescription and set off. The published PECL I and II already have rules on agency and third party rights which the future Unidroit Principles will cover.[5] [page 4]

2. Interpretation of the Principles

Also the rules governing the interpretation of the two sets of Principles are very similar.

PECL art 1.106 dealing with interpretation and supplementation of the Principles provides that they should be interpreted and developed in accordance with their purposes. In particular regard should be had to the need to promote good faith and fair dealing, certainty in contractual relationship and uniformity in their application. The Unidroit Principles art 1:6 on interpretation an supplementation, provides that in their interpretation of the Principles regard is to be had to their international character and to their purposes including the need to promote uniformity in their application. Both PECL art 1: 106 (2) and the Unidroit Principles art 1.6 (2) provide that issues within their scope but not expressly settled by them are to be settled in accordance with their underlying general principles.

Both mention the need to promote uniformity of interpretation. The same is provided in the corresponding provision in the United Nations Convention on Contracts for the International Sale of Goods (CISG) art 7(1). Courts and arbitrators applying the Principles should pay regard to the case law and the writings of well-known authors.

For CISG, UNCITRAL has established an information system CLOUT (Case Law on UNCITRAL Texts) which brings cases concerning the UNCITRAL conventions. It has the original decisions available and brings in an abbreviated form the decisions of courts and arbitral tribunals which have been collected by national reporters in the Member States. These abstracts are available on the internet in the six United Nations working languages. The Uniform Law Review has in several of its issues reported arbitral awards on The Unidroit Principles.

There is no world court or editorial board to give rulings or recommendations on the interpretation of CISG, and it is not likely that such a body will be established for the interpretation of the Unidroit Principles. If the EU adopts a Code of Contract or a Civil Code as a [page 5] binding instrument it is to be envisaged that the Court of Justice of the European Communities or a special division of this Court established for this purpose will be given jurisdiction to give preliminary rulings on the interpretation of the Code as the Court now gives rulings on the interpretation of community law.

The Unidroit Principles art 1.6 (1) mentions that regard should be had to their international character. This is also provided in art 7(1) of CISG. The authors point out that the concepts and expressions of these instruments should be given an autonomous meaning and not that of a specific national law. This meaning should be based on the purpose of the provisions and the travaux préparatoires. Though not expressly mentioned in PECL art 1: 106 this principle of interpretation is implied. For this reason the authors of both set of rules have used a factual language avoiding terms which had a special meaning in the legal system of the language used.

Art 1:201 of the PECL provides that each party must act in accordance with good faith and fair dealing. Art 1: 106 (1) lays down that in the interpretation of the Principles regard should be had to the need to promote good faith. Under art 1: 7 of the Unidroit Principles each party must act in accordance with good faith and fair dealing in international trade, and this mandate also covers the interpretation of the Principles.

III. The main differences

One could ask. Since they deal with the same subjects and by and large provide the same rules, are not the PECL and the Unidroit Principles an unnecessary duplication?

One answer to this question is that when two groups of lawyers each having members from many different countries reach similar conclusions these conclusions must have some value. In fact the two [page 6] sets of Principles support each other; they have gained authority and have established a new jus commune of contract rules.

Furthermore, the Unidroit Principles govern only international contracts, whereas the PECL apply to domestic, intra-community and -- when the rules of private international law leads to their application -- international contracts.

Why this difference?

In the EC a contract law already exists in fragments. I am referring among other measures to the directives, which protect the consumer as a contracting party [6] and to the directives on the co-ordination of the laws of the Member States relating to the self-employed agent,[7] on combating late payment in commercial transactions [8] and on electronic commerce.[9] [page 7] These directives all apply both to intra-community and domestic transactions. The directives do not cover the general contract law which to day is governed by the national laws. The differences in content between the various domestic contract laws are considerable, and the application of the directives vary considerably dependant on which domestic contract law is applicable to a given case. This seriously jeopardizes the ultimate goal of the directives, which is uniformity. In order to secure this uniformity there is a need for supplementing the existing directives with general contract rules. A European Contract Law will fill in the gaps which these directives have left, and this law must also govern domestic transactions.

Furthermore, in the Union national frontiers are in the process of being effaced. It has become increasingly inconvenient for businessmen in Europe to have to distinguish between the intra community and domestic intercourse. For them it is a trade barrier that their contracts are subject to different national laws. How can you make a meaningful comparison between offers coming from various countries if first you have to figure out which national contract law governs each of them and then to ascertain the contents of the applicable national law? In the EU this need of a uniform contract law is being enhanced by the present means of communication, above all the electronic commerce which knows no frontiers.

This problem is not only a problem for the EU. It is a problem for the commerce all over the world. However, it would be an overwhelming task to try and establish a law to apply to domestic contracts in every country of the world. Provided the Global Commercial Code including the Unidroit Principles will become as widely accepted in the world as CISG is today, an offeree who gets offers from domestic and foreign offerors will often have to compare [page 8] only two systems, his own law and that of the Unidroit Principles both of which he will know. The Global Commercial Code will be treated below in section 4.

Another difference between the two sets of Principles is that the Unidroit Principles apply only to commercial contracts. Consumer contracts are not included. International consumer contracts exist, but they do not have the same significant economic importance for the world trade as commercial contracts, and it would not be appropriate to let the Unidroit Principles govern consumers for whom many countries have enacted special protective laws. The EU already has a consumer contract law which will form part of a future European Code of Contracts. The PECL have not excluded consumer contracts but have not provided special consumer protective measures either. Such measures are being covered in the drafts made by the Study Group of a European Civil Code.

Finally, the Unidroit Principles do not provide general rules on the invalidity arising from the immorality or illegality of a contract,[10] whereas Chapter 15 in part III of the PECL on illegality treats the effect it has upon the validity of a contract that it is contrary to principles recognized as fundamental in the laws of the EU Member States or infringes mandatory rules of a law which is applicable to the contract. Chapter 15 of PECL will cover the cases for which the Unidroit Principles provide specific rules, namely the cases, where the law of a State requires a public permission affecting the validity of the contract or its performance,[11] a requirement which is still relevant in a number of state trading countries.[12] [page 9]

IV. The Perspectives

For the time being the two sets of Principles operate solely as soft law, rules which are not binding upon the courts. They guide national legislators, who wish to improve their contract law, and we have seen a considerable influence of the Unidroit Principles and PECL on the new German law of obligations and other recent codifications in Central Europe and elsewhere. The two sets of Principles may also help courts which are in need of guidance. Since their publication in 1994 the Unidroit Principles have often been applied as a lex mercatoria by international commercial arbitral tribunals.[13]

PECL are meant to serve as a part of a future Draft European Code of Contracts. When the work started in the 1980s many lawyers in Europe held this purpose to be utopian, only nourished in the daydreams of some Euro-enthusiasts. Today it is in fact being considered to introduce a Code of Contract for the EU. Believing that such a code is necessary, the European Parliament passed resolutions in 1989, 1994 and 2000 requesting that preparatory work be commenced for the drafting of a European Code of Private Law. In the preamble to the first resolution it was mentioned that "unification can be carried out in branches of private law which are highly important for the development of a Single Market, such as contract law".[14] In the summer of 2001 the EC Commission issued a Communication, (Com (20001) 398 final), seeking views from Governments, institutions, organisations and academics on a possible harmonisation of European Contract Law.[15] One of the measures which the Commission mentioned is to enact a comprehensive European legislation on contract law. They will then bind the courts. The parties cannot derogate from their mandatory rules but they can, of course, [page 10] replace the non-mandatory rules by the terms of their contract or other texts.

The Study Group of a European Civil Code envisages that the PECL will become part of a Civil Code of the European Communities. In the first stage the Code is planned to cover the law of contractual and non-contractual obligations and moveable property (transfer of title and secured transactions). It will probably be no problem to treat agreements to transfer or mortgage property as contracts and the perfection of these agreements as performance of the contracts. This is done in most of the laws of the EU.[16]

In the German Civil Code (BGB) some of the rules on the contents and performance, non-performance and the remedies for non-performance apply both to contracts, restitution and torts, and have therefore got a very abstract and vague formulation. It is submitted that in a future Code one should avoid rules on performance, non-performance and remedies which cover both contractual and non-contractual relationships. These rules belong in the law of contracts. In the chapters on tort and restitution reference can be made to those of the rules on performance of contracts and on damages for non-performance which may apply to claims in tort or restitution.[17]

Can the Unidroit Principles ever become part of a World Code of Contract applicable to international commercial contracts? [page 11]

The secretariat of the UNCITRAL has proposed the preparation of a Global Commercial Code.[18] The Code should be a compilation of special rules relating to the most important kinds of commercial transactions. Most of these rules already exist in form of separate international conventions or model laws while others may be added for the occasion. One the most, if not the most, important existing convention is CISG. In an article in the Uniform Law Review professor Bonell supports this idea [19] In the view of professor Bonell the existing instruments "cannot simply be transplanted as such into the new Code, but will have to be co-ordinated not only in terms of formal presentation and terminology but also, to some extent to their content". However, an overall revision of the existing instruments should be avoided.[20] The Code should only apply to international transactions

As proposed by the UNCITRAL secretariat the Code would not cover the general contract law. This should be governed by national law. However, as pointed out by professor Bonell the differences in content between the various domestic contract laws are considerable. "Consequently, the solutions may well vary considerably dependant on which domestic law is applicable in a given case, thus seriously jeopardizing the ultimate goal of the Global Commercial Code, uniformity". In order to secure uniformity in the application of the Code there will be a need of cementing the existing instruments by general contract rule. This, says professor Bonell, could be achieved if the Code specifically referred to the Unidroit Principles.[21] [page 12]

Professor Bonell's idea deserves support. It is submitted that if uniformity is to be achieved the reference to the Unidroit Principles can hardly be one which preserved the status of the Unidroit Principles as soft law. It would be necessary to lift the Unidroit Principles from their present status as soft law to rules of law which are binding upon the courts. In addition, this merger of the Unidroit Principles and the existing instruments will require a rather deep going revision of the contents and terminology of the existing instruments. Some adaptation of the Unidroit Principles will probably also have to be made.

Under such a system the European Civil Code will be a national legal system operating within the EU. A contract made between a party within and a party outside of the EU will be governed by the Global Commercial Code unless the parties agree that it shall be governed by the European Civil Code.[22]

The need for a Global Commercials Code as the one envisaged by professor Bonell is already there and will grow with the globalisation of communication and commerce. Modern means of communication knows no frontiers. When the world becomes one market, this market will require one law. [page 13]


FOOTNOTES

1. See Michael Joachim BONELL, An International Restatement of Contract Law, 2d ed, New York 1997 ( hereinafter Bonell) chapter 5 on the Unidroit Principles and the Principles of European Contract Law.

2. English edition with comments and illustrations: Principles of international commercial contracts published by Unidroit, Rome 1994. In addition versions of the Principles with comments and illustration have been published in Arabic, Chinese, French, German, Italian, Portuguese, Russian, Slovak and Spanish, see Bonell (op. cit note 1) 29.

3. Lando and Beale (eds.), Principles of European Contract Law, Part 1: Performance, Non-performance and Remedies, Dordrecht (l995) A French version, Les principes du droit europèen du contrat, L' exécution, l'inexécution et ses suites, translated and edited by Isabelle de Lamberterie, Georges Rouhette and Denis Tallon, was published by La documentation Francaise, Paris in 1997.

4. Principles of European Contract Law, Parts I & II, .prepared by the Commission on European Contract Law, edited by OLE LANDO and HUGH BEALE, The Hague 1999. There is now an Italian version, Prinzipi di diritto europeo dei contratti, Parte I &II, editzione italiano a cura di Carlo Castronovo. Milano 2001 and a, German version, Grundregeln des europäischen Vertragsrechts Teile I und II, Deutsche Ausgabe von Christian von Bar, Reinhard Zimmermann München 2000. French, Spanish, Japanese and Korean versions are in preparation.

5. On difference see below in section 3.

6. Council Directive 851577 (OJ 1985 L 372131) of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises.

      Council Directive 87-1102 (OJ 1987 L 42148) of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit;

      Council Directive 90-188 (OJ 1990 L 61114) of 22 February 1990 amending Directive for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit.

      Council Directive 90-1314 (OJ 1990 L 158159) of 23 June 1990 on package travel, package holidays and package tours.

      Council Directive 93-113 (OJ 1993 L 95129) of 5 April 1993 on unfair terms in consumer contracts..

      Directive of the Parliament and the Council 94147 (OJ 1994 L 280183) of 26 October 1994 on the protection of purchaser in respect of certain aspects of contract relating to the purchase of the right of the use immovable properties on a timeshare basis.

      Directive of the Parliament and the Council 97-17 (OJ 1997 L 144-119) of 20 May 1997 on the protection of consumers in respect of distance contracts.

      Directive of the Parliament and the Council 1999-144 (OJ 1999 LI 71112) of 25 may 1999 on certain aspects of the sale of consumer goods and associated guarantees.

7. Of 18 December 1986 (OJ no L 382: 17).

8. Of 29 June 2000 ( OJ nr L 200 35).

9. Directive on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market of 8 June 2000 O J no L 178 , 17 07 2000 p. 1-16.

10. Unidroit Principles art. 3.1.

11. Idem arts. 6.1.14-6.1.17.

12. On this and other differences see Bonell (op. cit. note 1) chapter 5 on the Unidroit Principles and the Principles of European Contract Law, 91 ff.

13. See Michael Joachim BONELL, The Unidroit Principles and Transnational Law, Uniform Law Review Vol. V, 2000 p 199 ff.

14. See Resolution of 26 May 1989 in OJ No. C 158/-401 of 26 June 1989, Resolution of 6 May 1994 in OJ No. C 205/-519 of 25 July 1994 and Resolution of March 2000, OJ 377, 29.Dec 2000 p 323, item 28.

15. O.J. no C 255 of 13 Sept. 2001. p 1.

16. In German law the perfection of a secured transaction or of a transfer of title is considered to be a special "property agreement", (dinglicher Vertrag), see Kötz & Zweigert, Einführung in die Rechtsvegleiching, 1st edition 1971, Vol. I Chapter 15

17. See for instance, as far as the rules of PECL is concerned, art 7:101on the place of performance of an obligation, 7:106 on performance by a third person, 7:107 on form of payment, 7: 108 on currency of payment, 7:109 on appropriation of performances, 7: 111 on money not accepted and 7: 112 on costs of performance. A few of the rules on damages may also apply, see for instance art 9:507 on delay in payment of money and 9:510 on currency by which damages are to be measured.

18. See Hermann, Law, International Commerce and the Formulating Agencies -- The Future of Harmonisation and Formulating Agencies: The Role of UNCITRAL, paper presented at the Schmitthoff symposium 2000, "Law and Trade in the 21st Century", Centre of Commercial Law Studies, London 1-3 June 2000). The idea of preparing a code of international trade law was originally an idea launched in the 1960es by Unidroit.

19. Michael Joachim Bonell, Do we need a Global Commercial Code? Uniform Law Review, Vol. V, 2000 469.

20. Idem, 473-474.

21. Idem, 478-479.

22. See Bonell (op, cit note 1) 99


©Pace Law School Institute of International Commercial Law - Last updated January 4, 2010
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