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Reproduced with permission of 11Vindobona Journal of International Commercial Law & Arbitration (2/2007) 299-304

The UNIDROIT Principles: Are They Law?

Nathan O'Malley, Lisa Bench Nieuwveld [a1]

  1. Introduction
  2. Development
  3. UNIDROIT Principles' applications by arbitral tribunals in recent history
  4. Are the UNIDROIT Principles "law"?
  5. Conclusion

1. INTRODUCTION

The UNIDROIT Principles of International Commercial Contracts (UNIDROIT Principles) continue to grow in popularity amongst the world's legal and business communities. As their name suggests, they are a body of principles which reflect the norms and practices of international commercial contracts. Their utility is not simply academic, as the preamble to the 1994 UNIDROIT Principles states:

[the] objective of the UNIDROIT Principles is to establish a balanced set of rules designed for use throughout the world irrespective of the legal traditions and the economic and political conditions of the countries in which they are to be applied ... [the UNIDROIT Principles] are sufficiently flexible to take account of the constantly changing circumstances brought about by the technological and economic developments affecting cross border trade practice while at the same time they attempt to ensure fairness in international commercial relations.[1]

The UNIDROIT Principles are intended to be of practical use as a reflection of correct practice. Nevertheless, does the scope of their application reach a point [page 299] where the UNIDROIT Principles may be accepted as a body of law and not just a reflection of practice or trade usage? This article will briefly review the history of the UNIDROIT Principles in regard to this question and also examine a recent arbitral decision rendered under the World Intellectual Property Organization ('WIPO') Arbitration Rules which suggests that the UNIDROIT Principles can in fact be considered proper law.[2]

2. DEVELOPMENT

Inspired in part by the American Restatements of the Law of Contracts, the UNIDROIT Principles came about due to an initiative to provide in written form general international contract principles.[3] With this purpose in mind, a working group comprised of members from all different legal and socio-economic systems was formed.[4] The working group included scholars, lawyers, and judges acting in an advisory capacity and not as legal representatives of their respective governments.[5]

Although intended as a reflection of commonly accepted principles, the working group studied national legislation or other compilations of law to assist in the process. These sources included the American Uniform Commercial Code and the Restatement (Second) of the Law of Contracts, the Algerian Civil Code of 1975, all drafts of the Dutch Civil Code and the new Civil Code of Quebec, the United Nations Convention on Contracts for the International Sale of Goods, INCOTERMS and many more.[6]

Similar to the Restatement of the Law of Contracts and other Restatements in the United States ('the Restatements'); the UNIDROIT Principles provide a compilation of legal principles and accepted practices already at work in the legal community. The Restatements, as a distillation of developed case law, are recognised as a highly persuasive authority on what the correct law is and are applied by American judges as such. In this respect, the UNIDROIT Principles have a use similar to the Restatements. [page 300]

3. UNIDROIT PRINCIPLES' APPLICATIONS BY ARBITRAL TRIBUNALS IN RECENT HISTORY

So far, arbitral tribunals have generally applied the UNIDROIT Principles in one of four situations: (1) 'when the parties specifically have called for their application; (2) when parties have otherwise called for application of transnational commercial law; (3) when the UNIDROIT Principles offer a solution to an issue that cannot be resolved under the applicable law; and (4) when international uniform law instruments contain gaps that the UNIDROIT Principles can fill or ambiguities that they can clarify.'[7]

Interestingly, commentators have typically focused more on whether the UNIDROIT Principles could qualify as general principles of law in instances where such a reference is made in an arbitration clause, instead of whether they qualify as simply the term 'law' or 'laws'.[8] At least 38 awards have made reference to the UNIDROIT Principles (between May 1994 and December 2000), without addressing this specific issue.[9] Instead, the Principles were applied when the arbitral clauses mentioned: (1) generally accepted principles of international commercial law; (2) general standards and rules of international contracts;[10] (3) international practices;[11] (4) natural justice, rules of natural justice, and laws of natural justice;[12] (5) general principles of equity;[13] and (6) Anglo-Saxon principles of law.[14]

Over time the use of UNIDROIT Principles has progressed and become accepted as an embodiment of lex mercatoria by authors and case law. Commentators have supported the application of the UNIDROIT Principles where an arbitrator must choose the law that will govern an international agreement. One such author states, 'But one may well take the view that, in an international contract, there is a closer [page 301] connection to an autonomous system of rules, such as the UNIDROIT Principles and the European Principles, than to a particular national law.'[15]

Similarly, Professor Fabrizio Marrella has also pointed out, 'The UNIDROIT Principles (with lex mercatoria) may now be considered as a sort of default law.'[16] Again, the emphasis is that these principles may be chosen as an applicable 'law' when the parties have failed to choose the law that governs the contract/agreement. Marrella went further in his comments by noting how common it is for such arbitration institutions, including both the WIPO Arbitration Center and the ICC International Court of Arbitration, to have rules allowing the arbitrator to choose the rules of law they deem most appropriate;[17] which can include national laws, general principles of international law or the UNIDROIT Principles.[18]

Professor Michael Bonell also describes the UNIDROIT Principles as being eligible for a state court or arbitrator to select when deciding the rules of law governing the relevant contract.[19] Others have described the UNIDROIT Principles as a 'restatement of international legal principles' that 'seek in many instances to state the best law for drafting and interpreting international commercial contracts ...' (emphasis added).[20]

One example of this approach in practice is a reported ICC arbitration case where a tribunal was given the mandate to choose an applicable 'neutral legislation' as the applicable law for the dispute. In the end, the tribunal explicitly chose the UNIDROIT Principles as the applicable law, qualifying them as lex mercatoria.[21] A similar decision was taken in the ICC Arbitration Case No. 12111 where the arbitrator was required to choose the applicable 'international law'. Here, the tribunal agreed with the Claimant and upheld the UNIDROIT Principles as the appropriate choice of law on the basis that they were general principles of international law and/or lex mercatoria.[22]

The examples above appear to edge the UNIDROIT Principles closer to the status of being 'law'. However, whether they can be confidently pronounced as a proper alternative to national law or accepted international law such as what is set out in international conventions has been somewhat uncertain. In other words, to use a [page 302] phrase from the Anglo-Saxon legal lexicon -- are the UNIDROIT Principles black letter law?

4. ARE THE UNIDROIT PRINCIPLES "LAW"?

A recent arbitral case held under the WIPO Arbitration Rules has addressed the question of whether the UNIDROIT Principles qualify as straightforward 'law' and not just a 'rule or principle of law'. The parties in this instance agreed to submit the matter to a tribunal seated in Geneva, Switzerland, but failed to select a governing law for the license agreement, preferring instead to allow the tribunal to choose the appropriate law for the resolution of the dispute. The relevant arbitration clause stated: 'The dispute, controversy or claim shall be decided in accordance with the laws as decided to be most appropriate to proper resolution of the dispute.' The only restriction laid upon the tribunal was that it must select a set of 'laws' to govern the dispute.

The claimant argued that the arbitration clause should be construed to refer exclusively to a choice of national law or 'enacted law', but not a reference to the UNIDROIT Principles as proposed by respondent. The distinction made by the claimant was that UNIDROIT could only be considered 'rules of law' and not proper 'law' or 'laws' as required by the contractual clause. Interestingly, the WIPO Arbitration Rules themselves make reference to both 'law' and 'rules of law'; thus reinforcing the distinction between the two concepts.[23]

After receiving submissions on the matter, the tribunal held that, 'contrary to what claimant implies, the word law does not only refer to provisions enacted by national legislature.' In looking to Black's Law Dictionary, the tribunal reasoned that the word 'laws' had a broader meaning, which could also encompass 'principles'. 'Law' was defined in Black's Law Dictionary as: 'the body of rules, standards, and principles that the courts of a particular jurisdiction apply in deciding controversies brought before them.'[24] After asserting that the UNIDROIT Principles are also commonly referred to as a 'uniform law', the arbitrator determined that although the parties used the word 'laws', they never intended to exclude the application of such general international principles as the UNIDROIT Principles.

Furthermore, the tribunal took into consideration the opinions of experts such as Professor Bonell in reasoning that the modern trend was to apply the UNIDROIT Principles in lieu of a national law which may appear biased or unfair to one of the parties. The tribunal stated, 'in such cases, it is preferable to apply (where they exist) a set of rules which, as the UNIDROIT Principles, are common to existing national legal systems and which are consequently more neutral to the parties.' [page 303]

In sum, when confronted with the question of whether the UNIDROIT Principles constitute a proper law, the tribunal answered in the affirmative. This implies that they can be considered a legitimate choice of law on par with national and international law. The practical implication of this line of reasoning is that when faced with the need to choose a law, an arbitral tribunal does not necessarily have to follow a 'private international law' or 'conflict of law' analysis to find a national law to apply, but may turn instead to UNIDROIT as the most appropriate fit.[25]

Indeed, there is a logical argument to be made that in today's world when two sophisticated parties from different jurisdictions draft a contract without a choice of law, they can hardly be said to have had anything other than commonly understood legal principles in mind when forming their agreement. In such a case the UNIDROIT Principles may seem to be just as good a choice of law as any particular national system.

5. CONCLUSION

The UNIDROIT Principles have since their introduction in 1999 and subsequent revision in 2004 generated a considerable amount of academic discussion and debate.[26] Nevertheless it is their practical application which has and will continue to contribute to their popularity.

Usage of the UNIDROIT Principles in arbitral case law has been largely limited to instances when they were needed as supplements to national laws or international treaties, when mentioned specifically or when general trans-national rules were somehow alluded to in the arbitration clause. Over time, authors and arbitrators have accepted them as fair representations of lex mercatoria. Now, however, it would seem that arbitral tribunals are willing to go further and regard the UNIDROIT Principles as a law in their own right. [page 304]


FOOTNOTES

a1. Nathan O'Malley, Esq. and Lisa Bench Nieuwveld, Esq. are members of Van Mens & Wisselink's International Commercial Arbitration Group, located in Rotterdam, The Netherlands. <omalley@vmw.nl, <nieuwveld@vmw.nl.

1. UNIDROIT Principles, viii (1994). See also the more recent edition of the UNIDROIT Principles, the 2004 version at: <http://www.unidroit.org>. The preamble to the 2004 version states specifically that the UNIDROIT Principles may be applied when neither party to a contract has specified a choice of law.

2. This decision is unpublished and was rendered in an arbitration in which the authors of this note acted as counsel.

3. Baron, G., 'Do the UNIDROIT Principles of International Commercial Contracts Form a New Lex Mercatoria?' (1999) 15/2 Arbitration International 115, 123. The 2nd Restatement of the Law of Contract is an update of the original first Restatement which was published in 1932. It is a publication of the American Law Institute and can be obtained at: <http://www.ali.org>.

4. Supra fn 3.

5. Ibid, at p. 124.

6. Bonnell, M., 'The UNIDROIT Principles of International Commercial Contracts: Why? What? How?' (1995) 69 Tulane Law Review 1121, at pp. 1129-30.

7. Brower, C. and Sharpe, J., 'The Creeping Codification of Transnational Commercial Law: An Arbitrator's Perspective' (2004) 45 Vanderbelt Journal International Law 199, at p. 204.

8. See e.g. van Houtte, H. 'The UNIDROIT Pricnples of International Commercial Contracts' (1995) 11/4 Arbitration International 373-390; Baron, G., 'Do the UNIDROIT Principles of International Commercial Contracts Form a New Lex Mercatoria' (1999) 15/2 Arbitration International 115.

9. Marrella, F., 'Choice of Law in Third Millennium Arbitrations: The Relevance of the UNIDROIT Principles of International Commercial Contracts' (2003) 36 Vanderbelt Journal of Transnational Law 1158.

10. Final Award ICC Case No. 10114 (2000) ICC Int'l Ct. Arb. Bull. 100 (2001).

11. Partial Award ICC Case No. 7110 (1995) ICC Int'l Ct. Arb. Bull. 39, at pp. 48-49 (1999).

12. Supra fn 9, Marrrella, at pp. 1159-1160, discussing ICC Award No. 7110.

13. Final Award ICC Case No. 9797 (2000) ICC Int'l Ct. Arb. 88 (2001).

14. Supra fn 7, Brower, at pp. 208-9.

15. Bonell, M., A New Approach to Int'l Comm. Contracts: The UNIDROIT Principles of Int'l Comm. Contracts, 1999, Kluwer Law International, The Hague, at p. 22.

16. Supra fn 9, Marrella, Choice of Law, at 1137, 1156.

17. See Art. 59(a) WIPO Arbitration Rules and Art. 17(1) ICC Rules of Arbitration.

18. Supra fn 9, Marrella, Choice of Law, at 1157.

19. Supra fn 15, Bonell, A New Approach to Int'l Comm. Contracts, at 9.

20. Supra fn 7, Brower, at pp. 202-203.

21. Jolivet, E., 'The UNIDROIT Principles in ICC Arbitration' (2005) Special Supplement International Court of Arbitration Bulletin 65, at p. 67; citing ICC Case No. 10422, J.D.I. 2003 1142-56 (Annot. E. Jolivet).

22. ICC Case No. 12111 (2003), available at: <http://www.unilex.info>.

23. World Intellectual Property Organization Arbitration Rules, Article 59 (A).

24. Garner, B., Black's Law Dictionary, 2004, 8th ed. Thomson West, London, 800.

25. As Marc Blessing wrote in particular to the Swiss debate on this topic, WIPO Arbitration Rules, 'Against this background we may understand that, within the past decade, a very significant development has taken place: the moving away from the traditional concept according to which an arbitral tribunal, in the absence of a choice of law made by the parties, has the duty to determine one particular national law as being the law applicable to the contractual relationship which is under review before that tribunal. The more modern perception reflects the realization that a particular national law is not necessarily the answer and may possibly not produce a satisfactory result.' Blessing, M., 'Determination of the Substantive Rules of Law' in Stephen Bertie d., International Arbitration in Switzerland, (2000, Kluwer Law International), 8.

26. Zimmerman, R., 'The UNIDROIT Principles of International Commercial Contracts 2004 in Comparative Perspective' (2006) 21 Tulane European & Civil Law Forum 1, at p. 4.


©Pace Law School Institute of International Commercial Law - Last updated January 8, 2010
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