lex mercatoria: - the autonomous contract - reflecting the ... · the autonomous contract -...

The Autonomous Contract - Reflecting the borderlesselectronic-commercial environment in contracting

Ralph Amissah

copy lexmercatoriaorg

Copyright copy [Ralph Amissah]

SiSU lexmercatoriaorg ii

Contents

Contents

The Autonomous Contract 1

Reflecting the borderless electronic-commercial environmentin contracting 11 Introduction 12 In search of autonomy 3

21 The diminishing role of States 422 Solutions available within national law 523 A transnational regulatory order for contracts 824 The autonomous contract - an a-national solu-

tion a summary 193 The problem of predictability 20

31 Predictability at a municipal level 2132 Uniformity at an international level 22

4 Alternative solutions 2541 Independent supra-national interpretation

tribunals 2642 Authoritative reviews as co-ordinating guides 2643 Limiting of sources for interpretation 2744 Information technology solutions - transnational

harmonising information and knowledge-bases 28

45 E-contract solutions 2846 Education 30

5 Summary 326 Endnote 32

Metadata 33SiSU Metadata document information 33

SiSU lexmercatoriaorg iii

The Autonomous Contract - Reflecting the borderless electronic-commercial environment in contracting

The Autonomous Contract1

Reflecting the borderless electronic-commercial2

environment in contracting

amp169 Ralph Amissah3

1 Introduction4

ldquoGlobalization is unstoppable Even though it may be only in5

its early stages it is already intrinsic to the world economyWe have to live with it recognize its advantages and learn tomanage it

That imperative applies to governments who would be unwise6

to attempt to stem the tide for reasons of political expediencyIt also goes for companies of all sizes who must now competeon global markets and learn to adjust their strategies accord-ingly seizing the opportunities that globalization offers1

At a national level jurists as lawmakers over time magically cre-7

ate their own reality that is the world in which they work and arecertified as oracles2 They are proud of their traditions in whichthey are specialists and about which they tend to be protectiveCommercial men as contracting parties with greater ease instan-taneously through an expression of their will (by the wave of theirpens if not by mere incantations) can choose to make any oneof several alternative parallel worlds their reality The various dog-mas and beliefs held as sacrosanct by individual sovereign legal

1Maria Livanos Cattaui The global economy - an opportunity to be seized inBusiness World the Electronic magazine of the International Chamber ofCommerce (Paris July 1997) at lsaquohttpwwwiccwboorghtmlglobalechtmrsaquo

2Tangential support for the simile from Hans Petter Graver ldquoDen juristskaptevirkelightet og juristrollenrdquo in Jussens Venner (1986) p 314-324

parishes are not necessarily so hallowed by the business commu-nity3 The fact that the desired ldquolawrdquo may generally be selected byan expression of the will of the parties means that they can electout of any of these fettered systems This paper is unsentimentalabout legal systems its loyalty is placed elsewhere in the contractand its ability to find solutions to the needs of the parties it servesAn eminent economist has suggested that the study not of con-tract law but rather of contract practice is the key to understandingthe economic properties of contracting that are necessary to workout sensible uniform laws for commercial purposes4 That view isshared in this paper However even within the frame of law andeconomics5 (to which only passing reference is made in this paper)it is necessary to be mindful of the limitations of the desirability ofabsolute freedom of contract6 And to recognise the fact that theinternational business community as a whole may benefit from a

3Reneacute David suggests the primary constraints on development areldquoconservatism routine prejudice and inertiardquo cited by the UNCITRALSecretariat The Future Role of UNCITRAL - Promoting Wider Awareness andAcceptance of Uniform Texts in Uniform Commercial Law in the Twenty FirstCentury - Proceedings of the Congress of the United Nations Commission onInternational Trade Law (New York 1992) pp 249-259 on p 252 referred tolater as 25ltsupgtthltsupgt UNCITRAL Congress See also Reneacute Davidcomments in International Encyclopedia of Comparative Law Vol II Chap 5(Tuumlbingen 1971) pp 24 and 25

4Ronald Coase Industrial Organization A Proposal for Research (1972) inThe Firm The Market and the Law (Chicago London 1988) pp 57-74 compCoases Nobel Lecture The Institutional Structure of Production AER 82(1992) pp 713-719 For a web site inspired by the work of Coase see TheCenter for Research on Contracts and the Structure of Enterprise at the KatzSchool University of Pittsburgh lsaquohttpcrcsebusinesspittedursaquo also theNew Institutional Economics Network lsaquohttpsykutabusinesspitteduniersaquo

5For an introduction to the different approaches to law and economics seeNicholas Mercuro and Steven Medema Schools of Thought in Law andEconomics A Kuhnian Competition in Robin Malloy and Christopher Brown(ed) Law and Economics New and Critical Perspectives (New York 1995) pp65-123

6See Michael Trebilcock The Limits of Freedom of Contract (Harvard 1993)

SiSU lexmercatoriaorg 1


degree of control over such freedom7 This possibility is recog-nised by more modern schools of law and economics such as theInstitutional Approach8

ltugtThe autonomous contractltugt is a concept based on three8

ideas that provide lenses or perspectives with which to view theneeds of the international business community as they affect andare affected by a polymorphous set of interrelated issues and ar-eas of law (i) ltugtThe ldquoautonomous contractrdquo as an expression ofthe will that ldquogovernsrdquo international commerceltugt The extensivefreedom of contract granted the parties in international commerceensures that the contract determines the nature of the businessrelationship and most matters that govern it including the ldquolawrdquo se-lected (subject to the mandatory provisions of applicable governinglaw) and the means of dispute resolution In a real sense the con-tract is at the top of the hierarchy of legal instruments that governthe parties relationship This ensures that the selection of ldquolawrdquoand means of dispute resolution is a market driven affair that willbe based on their ability to provide the parties with the greatest util-ity Contractual autonomy as a function of freedom of choice in theglobal economy (ii) ltugtThe ldquoautonomous contractrdquo as seek-ing the means to transcend national boundariesltugt Economicactivities have become increasingly global and the ldquolawrdquo that pro-vides for them should do so in the same dimension The questis to find or achieve a uniform legal order that is preferably delo-calised transcends state boundaries provides cross-border trans-parency and world-wide effect9 This idea is discussed in relative

7Discussed very briefly in section 234 of this paper in relation to protectiveprinciples

8Which is pursued by Wisconsin University and Michigan State UniversityMercuro and Medema (1995) pp 65-123 at pp 95-108

9The concept of the autonomous contract becomes attractive when lookedupon as the collective embodiment of elusive characteristics that the businesscommunity seeks upon which to base their transactions and includesharmonisation transnationalism and a-nationalism for our purposes insofar as it

terms the more transnational and transcending of state law thegreater the uniformity achieved or the more a-national the ldquolawrdquothe more autonomous the resulting contract10 Areas of particularinterest are uniform substantive rules of law uniform interpretationof such rules and the contract and the global enforcement of deci-sions Seeking a foundation for contract that is more autonomousof individual states with the aim of attaining greater efficiency con-sistency and predictability in international business transactionsand thereby insofar as it is possible to transcend the relevanceof borders (iii) ltugtldquoThe autonomous contractrdquo designed tobe virtually self-contained and ldquoself-governingrdquoltugt The contractcould become a transnational medium of regulation onto itself be-ing designed as a one-stop reference containing all the materialrequired for its functioning governance and the resolution of anydisputes arising under it Technology of the electronic age togetherwith developments in international law would allow a contract to beincorporated and presented together with all material that was tohave a binding authoritative effect in relation to it (excepting themandatory law)11 The self-contained autonomous contract asone possible solution to the efficient achievement of global pre-

furthers the other two objectives10An a-national uniform transnational legal framework for contracts that isindependent of but supported by governments11Though parties can ldquolegislaterdquo an extensively autonomous contact they

cannot ldquolegislaterdquo a contract that is entirely Areas such as ldquovalidityrdquo are defineddifferently within different jurisdictions and international contracts can be subjectto laws on currency control export and import control hazardous substancesantitrust | competition rules anti-boycott anti-bribery etc Similarly mandatoryrules on such matters as good faith fair dealing unconscionability fraudduress extortion interest penalty clauses etc In specialised fields such asconsumer contracts contracts with local sales representatives and specialisedindustries such as banking and insurance one also encounters national lawsthat parties cannot modify by their contract ldquolegislationrdquo See also article by JanRamberg Autonomy of Contract and Non-Mandatory Law in ScandinavianStudies in Law (1993) pp 141-149



dictability

The practicability and utility of an ldquoautonomous contractrdquo (eg one9

founded in a-national law) is dependent on its ability to serve theinternational business community as a suitable risk managementtool and to result in improved transaction costs Much discussionis focused on the underlying supportive structure for contractingand how a predictable and efficient means of contracting world-wide might be achieved There is a relationship (sometimes co-operative at others competitive) between the efforts of interestedinternational organisations and governments to provide services tothe international business community on which they can choose tobase the substance of their contracts and the resolution of disputesarising thereunder Given the scope of the subject matter of the pa-per only a broad outline and general framework can be developedThe discussion though occasioned by and made more current bythe nature and growth of electronic-commerce is a broader onethat holds true for all contracts that have a transnational aspirationand as such is of general relevance to international commerce Thewider frame is adopted under the assumption that solutions shouldas far as possible be technology neutral ltugtSection 2ltugt of thispaper looks at the variousmeans available to the international busi-ness community to cope with the multitude of states in which theyconduct business It suggests a correlation between the searchto establish reliable internationally uniform business methods andhaving greater autonomy from state law The autonomous contractin the second sense seeking the means through greater autonomyof individual state to reflect a desired borderless transnational en-vironment in contracting ltugtSection 3ltugt looks at the difficultyin achieving predictability in international disputes which is a req-uisite for commercial contract planning and which all legal ordersespecially those that are autonomous of state must satisfactorilycope with if they are to succeed ltugtSection 4ltugt looks at possi-ble alternative ways of improving uniform predictability andor effi-

ciency of dispute resolution that would result in greater autonomyor lead to the further transcending of state law

2 In search of autonomy 10

The business community engaged in international commerce has 11

had to find ways to cope with the high degree of legal uncertaintybrought about by the crossing of numerous legal systems whoserules are expressed in a multitude of languages This section dis-cusses the business communitys search to reduce the relevanceof borders and attain greater uniformity for their contracts by vari-ous means including basing their contracts on a-national law andreliance upon international commercial arbitration for the resolutionof disputes that may arise Methods employed to reduce the legalrelevance of borders include inter alia

(1a) Use of standard contracts (1b) Reference to uniform prin- 12

ciples and rules (2a) Choice of law of an acceptable state12

(2b) Choice of law of a state applying relevant uniform laws (3)Choice of jurisdiction of an acceptable state13 (4a) Recourseto international commercial arbitration (ICA) which gives the great-est effect to the will of the parties and provides the most extensiveregime for enforcement (4b) In ICA excluding the applicationof the law of any sovereign state - through application instead oflex mercatoria or the like - the rules and principles of the interna-tional business community (5) Use of self-regulating constitu-tional contracts that attempt to internalise all aspects of the partiesrelationship eg a long-term joint venture which may or may notbe designed so as to result in the establishment of a separate com-pany (Shell is such a company) (6) Large multinationals which12Criteria for selection might include familiarity application of uniform lawneutrality reputation language and convenience13Similar criteria to choice of law in addition to which include appropriateenforcement treaties location



are vertically and horizontally integrated in their production and pro-vision of services across national boundaries are able to arrangetheir transactions internally within the corporate structure to a largeextent avoiding the need for contract law and practice Examples 5and 6 are related to corporate structuring and are outside the scopeof this paper

The contract is a formal tool used by the business community to13

structure their relations for which business practice and economicssuggest the importance of a predictable and efficient underlying le-gal framework However any kind of legal regulation is a potentialsource of unpredictability The transnational nature of internationalbusiness provides an additional dimension to the difficulty of se-curing these requirements The predictability of business relationsis dependent on such aspects of ldquolawrdquo as the predictable interpre-tation and construction of legal texts and the global recognitionand enforcement of the dispute resolution judgement or awardPredictability and efficiency which may be roughly equated to riskmanagement and transaction costs can be enhanced through theestablishment and use of uniform ldquolawsrdquo rules and principles in-sofar as they result in reduced complexity The ldquoautonomous con-tractrdquo in the three senses of the concept if directed towards theseends by the business community suggests various means to se-cure these collective ends for the international business commu-nity A more autonomous basis for contract is already given sup-port by relevant international institutions (and states competing forinternational business) that take into account the needs of the busi-ness community signalled by their choices (of law and legal frame-work)

21 The diminishing role of States14

The paradigmatic concept of law andmodel of legal order is still that15

of the sovereign state14 National systems for all their shortcom-ings tend to consistently apply themselves in a way that becomespublicly known to the relevant legal community and allows for thepredictable structuring of relations However members of the in-ternational business community are not well served by having toemploy lawyers in each country in which they operate to providespecialist advice on similar areas of law15 and are in a constantsearch for ways around these obstacles There are a number ofways in which this paradigm is being broken down in the sphere ofinternational commerce (a) At one level the concept of law of thenation state is eroded through action of the states themselves bytheir implementation of uniform laws (both at an international andregional16 level) This may be the result of a state wishing to mod-ernise its law or recognising the limitations of a fractal internationallegal order and wishing to facilitate trade by simplifying their rela-tionship to it This is typically done by working through internationalinstitutions to achieve substantive uniformity in a particular area ofcommercial law The result of this being that individual state lawbecomes less important (b) With modern substantive uniformlaw states are increasingly called upon to bind themselves andtheir judiciaries17 to take account of the ldquointernational characterrdquoof the uniform law and ldquothe need to promote uniformity in interna-tional traderdquo In spite of the formidable problems associated withachieving uniformity of application of such uniform laws in the ju-

14Eg Thomas Wilhelmsson Legal Integration as Disintegration of NationalLaw in Legal Polycentricity - Consequences of Pluralism in Law (1995) pp127-147 on p 12815Eg arbitration law (different arbitration statutes) electronic commerce (thevalidity of electronic documents and signatures) or sale of goods law (Englandand Japan do not apply the CISG ) for example Also see comment by CharlesBrower in the arbitration panel Are International Institutions Doing Their Job -The American Society of International Law Proceedings of the 90th AnnualMeeting 1996 (Washington DC 1996) p 24916Eg EC NAFTA ASEAN 17 De jure if not de facto



diciaries of different states acting independently of each other thisobligation further internationalises state law (c) Perhaps moreimportantly the contract regulatory order represented by the lawsand judiciary of the sovereign state has a significant competitorthat is arguably much better suited to the needs of transnationalcommerce in the package represented by the many forms of in-ternational commercial arbitration (d) States in accepting thepreference of the international business community play a furtheressential role in giving support to the framework required by arbi-tration for it to function effectively This in fact is carried further ascompetition exists on a state level as regards providing nationalarbitration laws that attract arbitration18 (e) Most important andunderlying this advance has been the granting of full effect to theldquowillrdquo of contracting businessmen Through freedom of contract incommercial affairs states have provided parties with comprehen-sive autonomy in the organisation of their commercial affairs withthe exception of course of mandatory law If state law does notsuit the demands of the business community they are free to goelsewhere Businessmen can and do limit the role of the state intheir contractual relations seeking more globally applicable anduniform solutions Responding to this demand there are variousinternational institutions and service providers that are sensitive tothe needs of the business community that increasingly target thecontracting parties as representing an alternative means of unifyingldquolawrdquo and providing global solutions

22 Solutions available within national law16

221 Uniform law and its limitations17

Selection of the law of a municipal system that applies uniform law18

is one important step that can be taken within the framework of18See William W Park International forum selection (Hague 1995)

municipal law to make the contract more autonomous The com-ments in this paper will be restricted to uniform substantive law inthe form of conventions that are to be adopted and applied in a uni-form manner at an international level19 Several other approachesto reaching various levels of uniformity exist20 The model law ap-proach for example is based on ensuring that the law of differentcountries has a similar recognisable structure and essential ele-ments This is used where structural similarity is desirable but uni-formity is not essential21 or where the achievement of greater uni-formity would prove difficult or impossible due to differences in na-tional law Also discussed in this paper are ldquorestatementsrdquo of lawin the form of general principles of contract with the UNIDROIT22 Principles of International Commercial Contracts 23 providing aprominent current example

The CISG as a uniform law example 19

ldquoCan clear predictable international law be made from the di- 20

19Regional efforts with their frequently associated political objectives areoutside the scope of this paper20See Roy Goode Reflections on the Harmonisation of Commercial Law in

Uniform Law Review (1991) pp 54-74 for a more detailed account of thealternatives and related considerations21Eg UN Model Law on Arbitration 1985 UN Model Law on Electronic

Commerce 1996 22The International Institute for the Unification of Private Law Romelsaquohttpwwwagorastmitunidroitrsaquo alsolsaquohttpitlirvuitnotrade_lawpapersunidroithtmlrsaquo23 UNIDROIT Principles of International Commercial Contracts (Rome 1994)text of the principles and accompanying commentary Joachim Bonell Aninternational restatement of contract law the UNIDROIT principles ofinternational commercial contracts (New York 1994) and UNIDROITPrinciples for International Commercial Contracts A New Lex Mercatoria(Paris 1995) referred to later as UNIDROIT Principles A New Lex MercatoriaThe black letter text of the Principles are on the Internet atlsaquohttpwwwagorastmitunidroitenglishprinciplespr-mainhtmsrsaquo andlsaquohttp



vergent rules of dozens of domestic legal systems rules builtwith local idioms for which there are no equivalent terms inother languages The answer unhappily is no but that is notthe end of the storyrdquo24

The greatest success for the unification of substantive commercial21

contract law to date has been by UNCITRAL 25 with respect tothe sale of goods in the Vienna Sales Convention ( CISG )26 TheCISG is currently applied by 49 states commonly estimated asrepresenting two-thirds of world trade It may be regarded as theculmination of an effort in the field dating back to Ernst Rabel27 fol-lowed by the Cornell Project28 and connected most directly to the

itlirvuitnotrade_lawdocUnidroitContractPrinciples1994htmlrsaquo24John Honnold Goals of unification - Process and value of the unification of

commercial law lessons for the future drawn from the past 25 years (1992) in25ltsupgtthltsupgt UNCITRAL Congress pp 11-13 p 1125United Nations Commission on International Trade Law Viennalsaquohttpwwwunoratuncitralrsaquo alsolsaquohttpitlirvuitnotrade_lawpapersUNCITRALhtmlrsaquo26 United Nations Convention On Contracts For The International Sale Of

Goods (1980) See Honnold Uniform Law for International Sales Under the1980 United Nations Convention (Philadelphia 1991) Fritz Enderlein andDietrich Maskow International Sales Law United Nations Convention onContracts for the International Sale of Good (1992) Kritzer InternationalContract Manual Guide to Practical Applications of the United NationsConvention on Contracts for the International Sale of Goods (1994) and theCISG W3 Database Institute of International Commercial Law Pace UniversitySchool of Law lsaquohttpwwwcisglawpaceedursaquo For some general linkslsaquohttpitlirvuitnotrade_lawnavsaleshtmlrsaquo27Ernst Rabel Das Recht des Warenkaufs Bd IampII (Berlin 1936-1958) Twovolume study on sales law28Cornell Project on Formation of Contracts 1968 - Rudolf Schlesinger

Formation of Contracts A study of the Common Core of Legal Systems 2 vols(New York London 1968) Arthur von Mehren (ed) International Encyclopediaof Comparative Law - Konrad Zweigert including an agenda for national reportsand general reports on various issues of contract law from formation totermination For more information see Erich Schanze New Directions inBusiness Research in Boslashrge Dahl amp Ruth Nielsen (ed) New Directions in

UNIDROIT inspired Hague Uniform Law for International Sales (ULIS and ULF )29 the main preparatory works behind the CISG

The development and formulation of uniform law takes time as 22

does the formulation of uniform principles and rules Unlike princi-ples and rules however for uniform law to come into force and tobe applicable must go through a long process of ratification andaccession by states Even where states implement uniform lawthey frequently do so with various reservations Success that is byno means guaranteed takes time For every uniform law that is asuccess there are more failures Even where there is widespreaduse of a uniform law there are usually as many or more states thatare exceptions The implementation of uniform law is howevernot the end of the story as immediately the question of its uniformapplication arises This is a fascinating subject that is of central im-portance to the development of autonomy both within and outsidethe framework of municipal law

ldquoIf UNCITRAL manages to become accepted by the whole 23

world in any domain of the law or a set of rules one believesthat the problem of conflict of laws will be eliminated in thisfield but this is not the case A counter-effect enters into thepicture The uniform law from the very moment of its cominginto operation starts to differ from itself Every judge in everycountry is a sovereign interpreter of the text and the judge be-came a judge by learning the system of law of his own countryAnd as the speediest bird is unable to fly out of itself so thejudge is unable to forget the law that he has learned Divergentor contradictory interpretations like the application of rules of

Contract Research (Copenhagen 1996) pp 61-90 on p 6129 Uniform Law on the Formation of Contracts for the International Sale of

Goods ( ULF ) and the Convention relating to a Uniform Law on theInternational Sale of Goods ( ULIS ) The Hague 1964



different countries lead to different judgementsrdquo30

We shall return to the problem of uniform application under that24

heading and in the context of seeking means of achieving solu-tions to the problem of predictability It should be noted here how-ever that uniform law does not cover all aspects of the relationshipbetween the contracting parties its scope is defined31 Relevantapplicable and mandatory law continues to apply

222 Uniform rules and principles25

We include in this category rules and principles governing spe-26

cific aspects of the contractual relationship 32 negotiated standardcontracts and more comprehensive negotiated standard contractsdrafted by international institutions33 and trade associations34 Inaddition to these are the newcomers in the form of comprehensivegeneral contract principles or contract law restatements that createan entire ldquolegalrdquo environment for contracting Standard rules andprinciples provide greater flexibility and have one clear advantageover uniform law in their being contractually agreed and therebyas Honnold put it ldquobecoming effective by a stroke of the pen of the

30Laacuteszloacute Reacuteczei Process and value of the unification of commercial lawlessons for the future drawn from the past 25 years (1992) in 25ltsupgtthltsupgtUNCITRAL Congress pp 5-7 on p 631The CISG for example covers international sale of goods of specific typesnot those listed under Article 2 and specifically excludes its application tofactors that vitiate a contract and the passing of property under Article 432Eg ICCs Incoterms (1990) and contract clauses on Hardship and Force

Majeure and recently completed model for various CISG transactions33Such as the European Council for Europe General Conditions for the

Supply of Plant and Machinery for Export (Form No 574) (UN - ECE 1955)The International Federation of (independent) Consulting Engineers FIDIC RedBook on Construction (1996) Works of the European trade associationOrgalime 34Such as the Grain and Feed Trade Association - GAFTA

parties concernedrdquo35 Amongst the reasons for their use is the re-duction of transaction cost ldquoparties often want to close contractsquickly rather than hold up the transaction to negotiate solutionsfor every problem that might ariserdquo36 and they satisfy risk man-agement criteria being known tried and tested their effects be-ing predictable Furthermore uniform principles allow unificationon matters that at the present stage of national and regional plural-ism could not be achieved at a treaty level Take for example thequestion of ldquointerestrdquo which is a politically sensitive issue in somecountries though largely accepted by the business community andcompare the provision in the CISG with that of the UNIDROIT In-ternational Contract Principles 37 Such provisions are extremelyuseful to have for clarity and may be varied if unacceptable to thecontracting parties With the UNIDROIT 38 and EU 39 ContractPrinciples we have contract law restatements that is standardrules and principles of contract that create what is close to an au-tonomous (complete and independent) environment for contract-ing This is so even where selected in conjunction with the law of asovereign state whether in the context of litigation or arbitration Weshall return to consider the UNIDROIT International Contract Prin-ciples in the context of international commercial arbitration whereit is possible to achieve even greater autonomy

35Honnold (1992) on p 1236Honnold id p 1337 CISG Article 78 - Interest UNIDROIT Principles Article 749 - ldquointerest forfailure to pay moneyrdquo and Article 7410 - ldquointerest on damagesrdquo38See footnote 2339 The Principles of European Contract Law 1998 (publication expected in1998) Previews of the final text of the Principles of European Contract Law areavailable on the Net at lsaquohttpwwwufsiaacbe~estormePECLhtmlrsaquo and lsaquohttpitlirvuitnotrade_lawdocEUContractPrinciples1997previewhtmlrsaquoAlso the earlier edition of the principles and accompanying commentary ispublished Ole Lando and Hugh Beale (ed) Principles of European ContractLaw Part I Performance Non-performance and Remedies (1995)



223 Situation specific standard contracts27

Standard contracts may attempt to be autonomous in themselves28

but seldom are having a limited scope of regulation and depend-ing for their ultimate interpretation and gap filling on the applicableldquolawrdquo This type of standard contract is more often than not draftedunilaterally by a single firm that represents a particular contractualinterest These are too diverse for much of a general nature to beextracted for our current purposes being specific to the businessthat prepares them and to the type of goods or services for whichthey provide

23 A transnational regulatory order for contracts29

Within the traditional municipal order a limited degree of autonomy30

is available in contract Autonomy is here used in the sense ofreducing the relevance of specific national laws This is achievedas discussed through the selection of the law of a state that ap-plies uniform law the use of uniform rules and principles andorthe use of negotiated standard contracts There are problems how-ever with states judiciaries limited ability to disengage themselvesfrom their traditional legal process methods of legal reasoning useof sources and interpretation of uniform law principles rules andcontracts In addition to these there are problems associated withthe enforcement of claims in other states world-wide as required forinternational commerce These constraints have long representeda hindrance to the business community that has sought and founda preferable solution in international commercial arbitration Thismay be further enhanced through the selection of a-national lawas the governing law of the contract under arbitration such as lexmercatoria This a-national regulatory order is made possible by(a) States acceptance of ltugtfreedom of contractltugt ( odre publicor public policy excepted) (b) Sanctity of contract embodied in

the principle ltugtpacta sunt servandaltugt (c) Written contrac-tual selection of dispute resolution by ltugtinternational commercialarbitrationltugt - ad hoc or institutional usually under internation-ally accepted arbitration rules (d) Enforcement arbitration wherenecessary borrowing the state apparatus for ltugtlaw enforcementthrough the New York Conventionltugt on Recognition and En-forcement of Arbitral Awards 1958 (e) Greater transnationaleffect is achieved through the exclusion of state law as governingthe contract Usually substituting the choice of general principles oflaw or ltugtlex mercatorialtugt as governing the contract or callingupon the arbitrators to act as amiable compositeur or ex aequo etbono For increased predictability preferably through applicationof the UNIDROIT Principles

231 International commercial arbitration (ICA) 31

It appears accepted that ICA has become the most prevalent 32

means of dispute resolution in international commerce40 This ishardly surprising as ICA is a cornerstone of the autonomous con-tract and unlike litigation survives on its merits as a commercialservice to provide for the needs of the trading community As suchICA adheres more closely to the rules of the market economyresponding to those needs and catering for them more adequatelyIt has consequently been more dynamic than the national courts

40Alexander Komarov Remarks on the Applications of the UNIDROITPrinciples of International Commercial Contracts in International CommercialArbitration (1995) in UNIDROIT Principles A New Lex Mercatoria pp157-166 on p 157 Stewart Hancock A Uniform Commercial Code forInternational Sales We Have it Now in New York State Bar Journal (January1995) quoting oral statement by Werner Melis to the effect that practically allinternational commercial disputes are settled by arbitration and not before statecourts Also see comments by Yasuhei Taniguchi The Changing Attitude toInternational Commercial Dispute Settlement in Asia in Arbitration and DisputeResolution Law Journal (London 1997) pp 67-77 at pp 72-73



in adjusting to the changing requirements of modern world trade41

ICA in taking its mandate from and giving effect to the will ofthe parties provides them with greater flexibility and frees themfrom many of the limitations of municipal law As examples ofthis it seeks to give effect to the parties agreement upon thelex mercatoria as the law of the contract the number of andpersons to be ldquoadjudicatorsrdquo the language of proceedings theprocedural rules to be used and as to the finality of the decisionICA through state support provided by the New York Convention(and where implemented by the UN Model Law on ICA) grantsinternational commercial contracts an unparalleled enforcementapparatus world-wide42 Much that has been essential to the suc-cess of ICA has been contributed by the activities of internationalorganisations both governmental43 and non-governmental44 inproviding the necessary legal infrastructure for arbitration in theform of international legal instruments and the dissemination of in-formation about their application on a world-wide basis There are

41Dispute resolution is a service industry - with many competing arbitrationentities both institutional and freelance it is sensitive to its market Anarbitration tribunals mandate is determined by the ldquowillrdquo of the contractingparties this extends to the methods and ldquolawrdquo employed by it in disputeresolution Competition exists also on a national level as regards nationalarbitration laws to attract ICA see Park (Hague 1995)42Attained through state support of the New York Convention 1958 (108states contracting states) said to be honoured effective in 98 per cent of casessee Albert Jan Van Den Berg Some practical questions concerning the 1958New York Convention on the Recognition and Enforcement of Foreign ArbitralAwards (1992) in 25ltsupgtthltsupgt UNCITRAL Congress pp 212-220 at p213 Also through the subsequent UN Model Law on Arbitration 1985 In theimportant but less generic area of investment disputes were a contracting stateis a party to the contract the ICSID Arbitration Rules have even wider andfurther reaching effect43Such as UNCITRAL 44Such as the ICCs International Court of Arbitration LCIA - London Court of

International Arbitration AAA - American Arbitration Association

multitudes of papers and publications dedicated to ICA45

Note Arbitration under the World Bank supported ICSID Rules 4633

is of special importance for investment disputes involving a statewhich is a contracting party to the convention ICSID arbitration(which is beyond the scope of this paper) is binding and enforce-able without appeal even on the grounds of public policy and hasan even wider global range of enforceability than is available to ICAunder the New York Convention

232 Lex Mercatoria - and its essential link to arbitration 34

ldquoThe lex mercatoria has sufficient intellectual credentials to 35

merit serious study and yet is not so generally accepted as toescape the sceptical eyerdquo47

ldquoLet me just note that in Europe the lex mercatoria is a fact 36

Arbitrators apply it and those courts which have faced awardsapplying it have accepted its applicationrdquo48

ldquoArbitrators entrusted with the task of settling a dispute in ac- 37

cordance with the intention of the parties and without recourseto any national legal system usually find themselves in a ratherchallenging situation However it is widely recognised as a

45For a brief overview see Sir Michael Kerr Concord and Conflict inInternational Arbitration in Arbitration International (London LCIA 1997) Vol13 pp 121-14346See Allan Redfern and Martin Hunter Law and Practice of International

Commercial Arbitration (London 1991) pp 47-49 and Esa PaasivirtaParticipation of States in International Contracts (Helsinki 1990)47The Rt Hon Lord Justice Mustill The New Lex Mercatoria The First

Twenty-five Years in Maarten Bos and Ian Brownlie Liber Amicorum for the RtHon Lord Wilberforce Clarendon Press (Oxford 1987) pp149-18348See Ole Lando The Law Applicable to the Merits of the Dispute in JulianLew (ed) Contemporary Problems in International Arbitration (1987) pp101-112 on p 104



matter of fact that arbitrators are not so reluctant to apply a-national and less definite systems of rules agreed upon by theparties as their colleagues from a state judiciary who are moreconcerned with legal technicalities than with the desire to finda solution in a way contemplated by the parties at the time ofconclusion of the contract49 Obviously that can also explainthe reason why arbitrators of differing nationalities who haveapplied the lex mercatoria in collegiate arbitral tribunals havenot experienced great difficulties in reaching consensusrdquo50

The concept of lex mercatoria of an autonomous set of rules and38

practices accepted by the international business community as reg-ulating their transactions has been actively promoted by a numberof eminent authorities mainly in continental Europe and has con-tinued to gain in stature over the years51 The concept has devel-oped particularly in conjunction with ICA identified by Clive Schmit-49W Laurence Craig William W Park Jan Paulsson International Chamber

of Commerce Arbitration (New York looseleaf updated 2nd ed) p 64050Lando The lex mercatoria in International Commercial Arbitration 34 ICLQ(1985) p 753 as cited by Komarov (1995) pp 157-166 on p 16151Discussions and examples of lex mercatoria are to be found in BertholdGoldman Frontiegraveres du droit et lex mercatoria Archives de philosophie dudroit (Paris 1964) La lex mercatoria dans les contrats et larbitrageinternationaux reacutealiteacute et perspectives 106 Culnet Journal du droit international(1979) p 475 Etudes offegravertes agrave Berthold Goldman (Paris 1982) contributionsby Battifol Kahn von Mehren Rigaux Weil Cremades and Pehn The NewLex Mercatoria and the Harmonisation of the Laws of International CommercialTransactions 3 Boston Univ Intl LJ 317 (1984) The applicable Law GeneralPrinciples of Law - the Lex Mercatoria in J Lew (ed) Contemporary Problemsin International Arbitration (1986) p 113 Lex Mercatoria in ForumInternationale No3 (Nov 1983) Pierre Lalive of Switzerland Transnational (orTruly International) Public Policy and International Arbitration Mustill The NewLex Mercatoria The First Twenty-five Years (Oxford 1987) pp149-183 EGaillard (ed) Transnational Rules in International Commercial Arbitration(Paris 1993) Lando Lex mercatoria 1985-1996 in Festskrift till StigStroumlmholm Vol II p 567-584 (Goumltenborg 1997) Also Clive SchmitthoffNature and Evolution of the Transnational Law of Commercial Transactions inthe Transnational law of International Commercial Transactions in Studies in

thoff of England and advanced by such authorities as BertholdGoldman of France and Pierre Lalive of Switzerland Under cur-rent legal thinking most national courts still require a contract tobe governed by a national legal system52 although on this frontalso lex mercatoria advances53 ICA is not so constrained It hasbeen suggested that lex mercatoria was being used in as many as5-10 of ICA cases54 Ole Lando identified 1985 as the landmarkyear when the UNCITRAL Model Law on International Commer-cial Arbitration in Article 28(1) allowed for arbitral disputes to bedetermined ldquoin accordance with the rules of law as chosen by thepartiesrdquo55 This clarification is welcome though hardly revolution-

Transnational Economic Law Vol 2 (1982) pp 23-24 See also the UNIDROITPrinciples of International Commercial Contracts 1994 and the Principles OfEuropean Contract Law 1998 52See Himlar Raeschke-Kessler Should an Arbitrator in an International

Arbitration Procedure apply the UNIDROIT Principles (1995) in UNIDROITPrinciples A New Lex Mercatoria pp 167-177 on p 169 ldquoIt is no secret thatthe prevailing opinion among jurists in some countries like mine is plainlyadverse towards an uncodified lex mercatoria as an independent body oftransnational lawrdquo and discussion by Ulrich Drobnig The Use of the UNIDROITPrinciples by National and Supranational Courts (1995) in UNIDROITPrinciples A New Lex Mercatoria pp 223-229 on p 226-22753The Inter American Convention on the Law Applicable to International

Contracts 1994 invites state courts to apply lex mercatoria Article 10 This isdone in addition to the application of state law In the absence of its selection bythe parties the state with the closest ties Article 9(1) Significantly Article 9(2)provides that the court also take into account the general principles ofinternational commercial law recognised by international organisations SeeLando (1997) pp 567-58454Kazuaki Sono The Changing Role of UNCITRAL within The Future Role of

UNCITRAL (1992) in 25ltsupgtthltsupgt UNCITRAL Congress pp 249-252on p 250 Statement made prior to the UNIDROIT Principles a significantfigure as pinning down the exact content and effect of use of lex mercatoria isfar from certain55Lando (1997) p 575 See also UNIDROIT Principles Preamble 4 a AlsoArthur Hartkamp The Use of UNIDROIT Principles of International CommercialContracts by National and Supranational Courts (1995) in UNIDROITPrinciples A New Lex Mercatoria pp 253-260 on p 255 notes that ldquothere is



ary56 It has long been accepted that arbitrators in executing theirmandate derived from the will of the parties if so requested willsettle the dispute on non legal grounds in equity or on the meritsacting as amiable compositeur or ex aequo bono 57 Given thatICA is decided according to ldquothe willrdquo of the contracting parties itwas open earlier for an a-national (autonomous) decision based onlex mercatoria by specification of its application together with therules of equity58 This would have fallen under the accepted provi-sions of the earlier recognition and enforcement of arbitration rulesIt appears to be accepted that ltugtwhen agreed by the parties inICAltugt lex mercatoria may be applied as a separate legal frameindependently of national law (mandatory law apart) and that suchdecisions will be enforced as valid by national courts59 Equallyif so instructed both in arbitration and in national courts lex mer-catoria may be called upon to play a gap filling function for theselected applicable national law Lex mercatoria is a polycentric

a growing tendency to permit them to choose `rules of law other than nationallaws on which the arbitrators may base their decisionsrdquo56Innovative and new are the (ldquoLandordquo and ldquoBonellrdquo) codifications of contractprinciples ldquolex mercatoriardquo discussed in the following section Though thesemay be regarded as being inspired by the US Restatement of Contract Law 57As indicated eg by the European Arbitration Convention 1961 UNCITRAL

Arbitration Rules 1975 UNCITRAL Model Law 1985 58Komarov (1995) on p 163 Hans Van Houtte The UNIDROIT Principles of

International Commercial Contracts and International Commercial ArbitrationTheir Reciprocal Relevance (A1995) in UNIDROIT Principles A New LexMercatoria pp 181-195 on p 18359There is no dissent on this from the correspondents of various nationalities in

UNIDROIT Principles A New Lex Mercatoria Eg Michael Furmston in TheUNIDROIT Principles in International Commercial Arbitration (1995) inUNIDROIT Principles A New Lex Mercatoria pp 199-208 on p 202Raeschke-Kessler (1995) p 170 See also UNIDROIT Principles Preamble 4a See also Van Houtte (A1995) p 183 Apart from the UNCITRAL Model Lawon International Commercial Arbitration (Article 28) specific provision permittingthe selection of ldquorules of lawrdquo (as opposed merely to ldquothe lawrdquo) is provided in thenew Arbitration Rules of both the ICC (Article 17) and LCIA (Article 22(2))both effective from 1 January 1998

and integrative concept that has eluded precise definition its pre-cise nature scope content and application being vague with widelatitude granted arbitrators60 It has been suggested that ldquothere canat most be no universal lex mercatoria but merely a variety of lexmercatoria systems depending on sector or regionrdquo61 It has beenpointed out that lex mercatoria is a distinct concept from harmon-isation and transnationalism62 There is a convergence howeverif one takes the perspective of the businesss communitys needsand goals The business community usually refers to lex merca-toria by what are regarded as loose synonyms in such phrasesas ldquointernationally accepted principles of law governing contractualrelationsrdquo that more clearly indicate the intent behind their sub-scription to it63

Some reservation must be expressed to their unconsidered use 39

based on the uncertainty they represent Amongst the items ofwhich the lex mercatoria has grown to be comprised of64 in a notnecessarily hierarchical manner are (a) Customs and usages65

of international trade (b) Relevant rules promulgated by interna-tional institutions on the area of law concerned - ICC - Incoterms or the Uniform Customs and Practices for Documentary Credits

60See comment by Van Houtte International Trade Law (London 1995) p28-29 and p 399 suggests that lex mercatoria is too vague and imprecise tobe ldquoself-sufficientrdquo See the next section of this paper on ldquogeneral contractprinciples as lex mercatoria rdquo61Van Houtte (London 1995) p 28 Given the uncertainty as to its precisescope and application he also suggests that it is safer to apply a given system ofstate law Van Houtte (London 1995) p 412 and p 39962Mustill (1987) pp149-183 at pp152-15363As applied in Deutsche Schachtbau-und Tiefbohrgesellschaft v Ras Al

Khaimah National Oil Co [1987] 2 All ER 769 See comment by Komarov(1995) on p 16264See for example Lando (1997) pp 567-58465Trade usages are actual practices of the relevant business community theexistence of which must be established and if necessary proven eg by expertwitnesses The trade usage is not a source of law



(c) The rules and principles common to all or most states engagedin international trade or to those states which are connected to thecontract Apart from individual principles and rules for given cir-cumstances this includes uniform law such as UNCITRALs CISG The following quotation is of interest as regards general principlesconstituting Lex Mercatoria

ldquoDistilled from a vast literature these general principles have40

been enumerated by Lord Justice Mustill as (in abridgedform)66 (1) Pacta sunt servanda (contracts should beenforced according to their terms) (2) Rebus sic stantibus(substantially changed circumstances can entail a revisionof contract terms) (3) Abus de droit (unfair and uncon-scionable contracts should not be enforced) (4) Culpa incontrahendo (5) Good faith [and fair dealing] (6) Bribesrender a contract void or unenforceable (7) A state may notevade its obligations by denying its own capacity to makean agreement to arbitrate (8) The controlling interest of agroup of companies is regarded as contracting on behalf of allmembers (9) Parties should negotiate in good faith if unfore-seen circumstances arise (10) rdquoGold clauseldquo agreements arevalid and enforceable (11) One party may be released fromits obligations if there is a fundamental breach by the other(12) No party can be allowed by its own act to bring about anon-performance of a condition precedent to its own obliga-tion (13) A tribunal is bound by the characterisation of thecontract ascribed to it by the parties (14) Damages for breachof contract are limited to the foreseeable consequences of thebreach (15) A party which has suffered a breach of contractmust mitigate its losses (16) Damages for non-delivery arecalculated by reference to the market price of the goods andthe price at which the buyer has purchased equivalent goods

66Mustill (1987) pp149-183 at pp174-177

in replacement (17) A party must act promptly to enforce itsrights lest lose them by waiver (18) A debtor may set offhis own cross-claim to diminish his liability to a creditor (19)Contracts should be construed according to ut res magisvaleat quam pereat (20) Failure to respond to a letter isregarded as evidence of assent to its termsrdquo67

(d) In the absence of the above the arbitrators will apply or establish 41

the rule which appears to them to be best suited to the situation(e) In ICA also relevant is the public policy of the country in whichthe award is likely to be requested68 (f) Recently the definition oflex mercatoria has been greatly if controversially assisted by com-prehensive international rules made for this purpose by UNIDROITand the Commission on European Contract Law

233 Codified general contract principles as lex 42

mercatoria

ldquoThe unification of law has ceased to be the prerogative of 43

State legislators The hope of all of us who believe in the ne-cessity of a flexible and pluralistic approach to the internationalunification of law is that this equilibrium will be maintained infuturerdquo69

67As presented by Jarrod Wiener The `Transnational Political Economy AFramework for Analysis (1995) atlsaquohttpitlirvuitnotrade_lawpapersTheTransnationalPoliticalEconomyaFrameworkforAnalysisJarrodWienerUKChtmlrsaquo For a listing ofgeneral principles to be found within the CISG see Ulrich Magnus DieAllgemeinen Grndsaumltze im UN-Kaufrecht [The General Principles of the CISG-in German] Rabels Zeitschrift fuumlr auslaumlndisches und internationales Privatrecht(1995) 469-494 For an english translation of this text seelsaquohttpwwwcisglawpaceeducisgbibliomagnushtmlrsaquo at the CISG W3Database Institute of International Commercial Law Pace University School ofLaw68Mustill (1987) pp149-183 at p 17369Bonell Various Techniques of Unification - Non-legislative means of



ldquoIn offering the UNIDROIT Principles to the international le-44

gal and business communities the Governing Council is fullyconscious of the fact that the Principles which do not involvethe endorsement of governments are not a binding instrumentand that in consequence their acceptance will depend on theirpersuasive authorityrdquo70

ldquoThe objective of the UNIDROIT Principles is to establish a45

balanced set of rules designated for use throughout the worldirrespective of the legal traditions and the economic and politi-cal conditions of the countries in which they are to be appliedThis goal is reflected both in their formal presentation and inthe general policy underlying themrdquo71

The precise contents of ldquothe general principles of lawrdquo and of lex46

mercatoria have always been vague and obscure and presentedthe arbitrator who was to apply them with something of a chal-lenge72 This is changed by reference to the UNIDROIT Inter-national Contract Principles or European Contract Principles asthe proper law of the contract73 They provide a comprehensiveset of rules to govern contractual relations and may be regardedas contract law restatements although it has been pointed out thatit is not for these principles to advance themselves as lex mercato-

harmonisation (1992) in 25ltsupgtthltsupgt UNCITRAL Congress pp 33-40 onp 4070Introduction of the UNIDROIT Principles of International Commercial

Contracts (Rome 1994) p ix71Id p viii72As pointed out their general nature and the wide latitude granted arbitratorsto determine the case has led to some reservation as to the general suitabilityof their use see Van Houtte id p 412 and p 39973Whether so instructed specifically by the parties or referred to as suggestedby the Preamble of the UNIDROIT Principles 1994 Comp Article 1101 -Application of the Principles of the European Principles European Principles1998

ria 74 Given our global perspective we shall confine ourselves tothe UNIDROIT Principles which were more international in theirformulation and purpose75

The arrival of the UNIDROIT International Contract Principles was 47

particularly timely It coincided with the successful attempt at re-ducing trade barriers represented by the World Trade Agreement and the start of the general use of the Internet76 which has allowedfor the exponential growth of electronic commerce and has furtheremphasised its transnational nature This is all the more opportunebearing in mind that it takes years to prepare such a legal instru-ment The UNIDROIT Principles were contemplated in 1971 asteering committee was formed composed of Reneacute David CliveSchmitthoff and Tudor Popescu to make a study into the feasibilityof such a project Their first report in 1974 stressed the importanceof the project laying down the broad outlines for its structure In1980 a special working group was constituted ldquomembers of theGroup which included representatives of all the major legal andsocio-economic systems of the world were leading experts in thefield of contract law and international trade law all sitting ina personal capacity and not expressing the views of their gov-

74The most constraining suggestion being that it is only when the UNIDROITPrinciples 1994 and the EU Principles 1998 converge together with the CISGthat there is a clear indication that they represent the Lex Mercatoria seeRaeschke-Kessler (1995) on p 17475Bonell The UNIDROIT Principles of International Commercial Contracts and

the Principles of European Contract Law Similar Rules for the Same Purposein UNIDROIT Uniform Law Review (Rome 1996) pp 229-246 at pp 242-243Lando (1997) pp 567-584 where he states ldquoThe UNIDROIT Principles are forthe World The PECL [Principles of European Contract Law] are for theEuropean Unionrdquo on p 57276See Amissah On the Net and the Liberation of Information that wants to be

Free in Fra institutt til fakultet Jubileumsskrift i anledning av at IRV vedUniversitetet i Tromsoslash feirer 10 aringr og er blitt til Det juridiske fakultet (Tromsoslash1996) pp 59-76 or the same at lsaquohttpitlirvuitnotrade_lawpapersOntheNetandInformation17021997Amissahdhtmlrsaquo



ernmentsrdquo77 The first edition of the UNIDROIT Principles werefinalised in 1994 23 years after their first conception and 14 yearsafter work started on them in earnest The UNIDROIT Principlesconstitute a system of principles and rules that governmost aspectsof contractual relations They were drawn up after consideration ofdifferent legal systems but such influence has been deliberatelyobscured with the intention and instruction that the UNIDROITPrinciples should be interpreted according to an autonomous inter-national standard The only earlier set of rules to which referenceis made within their commentary being the CISG 78 Neverthelessthey have been met with certain reservation especially as regardstheir relationship to lex mercatoria It has been expressed on theone hand that

ldquoIt is not up to the Principles to advance themselves as gen-48

eral principles of law or as lex mercatoria As general princi-ples of law the UNIDROIT text will only be accepted when thelegal community and not merely the some twenty drafters ofthe UNIDROIT text no matter how skilled and reputed theselawyers may be has recognised that the UNIDROIT docu-ment states principles which underlie most legal systems andare generally accepted In fact some UNIDROIT rules arecertainly too specific to be perceived as such The UNIDROITstandards will only be part of the lex mercatoria if they are

77See Bonell (1996) on pp 230-23178Bonell The UNIDROIT principles of International commercial contracts

Why What How in Boslashrge Dahl amp Ruth Nielsen (ed) (1996) pp 91-98 on p93 and in id (1997) on p 231 comments on sources of inspiration mentioningdiverse sources including (articles combined) the United States UniformCommercial Code and the Restatement (Second) of the law of Contracts thedrafts of the Dutch Civil Code 1992 the Civil Code of Quebec 1994 also theForeign Economic Contract Law of the Peoples Republic of China 1985 andthe Algerian Civil Code of 1975 The international instrument referred to is theCISG Also to non-legislative instruments such as Incoterms the UCP FIDICRed book and various works by UNCITRAL

recognised as such by the business community and its ar-bitrators Since the UNIDROIT Principles have just beenlaunched it is too early to assess this possibilityrdquo79

Or again that 49

ldquoNo one doubts of course that the principles are the brainchild 50

of learned lawyers who laboured independently All the sameis it not somewhat pretentious to claim that the principles rep-resent the generally accepted principles of lawrdquo ldquoFor thetime being the UNIDROIT Principles remain no more than alearned codificationrdquo80

And it has been suggested that an indication of the traditional lex 51

mercatoria is only firmly established by these codified principleswhere the three new systems represented by the CISG theUNIDROIT Principles and EU Principles converge81 Be theseobjections as they may the UNIDROIT (and EU ) Principlesas contract law restatements cater to the needs of the businesscommunity that seeks an a-national or transnational law as thebasis of its contracts Where in the past they would have beenforced to rely on the ethereal and nebulous lex mercatoria thebusiness community is finally provided with the opportunity tomake use of such a ldquolawrdquo that is readily accessible and has a clearand reasonably well defined content As such the UNIDROITPrinciples allow for more universal and uniform solutions Theirfuture success will depend on such factors as (a) Suitabilityof their contract terms to the needs of the business community(b) Their becoming widely known and understood (c) Theirpredictability evidenced by a reasonable degree of consistency in79Van Houtte The UNIDROIT Principles as a Guide to Drafting Contracts(B1995) in UNIDROIT Principles A New Lex Mercatoria pp 115-125 on p11880Jeacuterocircme Huet Synthesis (1995) in UNIDROIT Principles A New Lex

Mercatoria pp 273-281 on p 278 and p 28181Supra footnote 74



the results of their application (d) Recognition of their potentialto reduce transaction costs (e) Recognition of their being neutralas between different nations interests (East West North South)At the present time the UNIDROIT Principles have to overcomethe deterrent fact that they are relatively new and untested Theircontent which needs to be known for their practical applicationis as yet unfamiliar Their suitability for various tasks has not yetbeen fully ascertained And the workings of many discretionarypowers granted the arbitrators have not yet been observed muchin practice

There are those within the business community who point out that52

ldquoany pretension to interfere from the outside through the imposi-tion of uniform legislation would be inopportune and in any casedoomed to failurerdquo82 In this regard the UNIDROIT Principles ad-vancing themselves as a matter of choice for the parties do notconstitute such an imposition

The UNIDROIT Principles require study and understanding for53

their effective use in contracting (a) The UNIDROIT Principlesare broad in scope covering most aspects of contract and as suchcreate a largely autonomous uniform legal environment for con-tracting Exceptions are mandatory law and some validity issuesincluding capacity These occur in a minority of disputes83 (b)The UNIDROIT Principles adhere to the principle of freedom ofcontract but contain mandatory provisions that parties voluntarilychoosing to use them cannot contract out of (c) They are to beunderstood not on their own but in conjunction with their commen-tary (d) The UNIDROIT Principles cover most aspects of con-tract including chapters on formation validity interpretation con-

82J Carver Uniform law and its impact on business circles the experience ofthe legal profession in UNIDROIT (ed) International Uniform Law in Practice(NY 1988) p 411 see also Bonell (1992) p 3983Honnold Documentary History of the Uniform Law for International Sales(1989) para 19 on p 256

tent performance and non-performance The section on forma-tion also covers pre-contractual negotiations (e) The standardsapplied are meant to be international and may be different fromsimilar domestic standards - eg good faith and fair dealings ldquoininternational traderdquo84 (f) The UNIDROIT Principles contain sep-arate provisions for the interpretation of the text of the UNIDROITPrinciples themselves (Article 16) and those of the contract towhich they apply (Chapter 4) (g) Most of the UNIDROIT Prin-ciples can be regarded as ldquodefault rulesrdquo that save the parties thetime and cost ldquoof negotiating and drafting by providing rules thatthey would probably have agreed upon had they taken the time todo sordquo85 (h) An important consideration is that these rules aredrafted specifically to take into account the needs of internationaltrade and as such contain provisions specifically directed at suchmatters as determination of price currency of payment govern-ment permissions to perform liquidated damages interest rate onmoney due reference back to original language text of a contract incase of doubt (i) Unlikely to be familiar to those used to contractlaw models based on caveat subscriptor are a number of protec-tive principles including those of good faith and fair dealing andloyalty which are discussed briefly later in this paper (j) Thereare also rules which (in contrast with the regular acceptable de-fault rules) serve rather the role of inducing the parties to negotiatemore suitable terms for their transaction86 (k) In yet other areasthe rules are extremely general such as the hardship provision andother works on standard rules may provide more suitable solutions87 (l) The UNIDROIT Principles contain many discretions that

84Article 17 Comment 2 Also see Van Houtte (A1995) p 18685See Allan Farnsworth An American View to the Principles as a Guide to

Drafting Contracts in UNIDROIT Principles A New Lex Mercatoria pp 85-92on p 8786Farnsworth id as an example points out Article 614(2) does not reflectcommercial practice87Eg the ICCs Force Majeure and Hardship clauses



arise from their nature as principles and use of standards withinthem (such as reasonable) that are without specific meaning thecontent of which depends on the context in which they are applied88 (m) One might additionally observe that the UNIDROIT Princi-ples can be used in conjunction with more specific rules and regu-lations Of particular interest in the sale of goods the UNIDROITPrinciples are suitable for use (on the contracting parties elec-tion89 ) together with the CISG to fill gaps in the provisions ofthe CISG Provisions of the CISG would be given precedenceover the UNIDROIT Principles under the accepted principle ofspecialia generalibus derogant 90 The CISG has many situa-tions that are not provided for at all or which are provided for inless detail than the UNIDROIT Principles Examples include thedeliberately excluded validity (Article 4) the provision on interest(Article 78) impediment (Article 79) and what many believe to bethe inadequate coverage of battle of forms (Article 19)91

As to the suitability of The UNIDROIT Principles for complex inter-54

national contracts there are differing views As pointed out force-fully by Vivian Gaymer

ldquoIn relation to the complex type of contracts I have to say that if55

the parties are content that the contract would be governed bya well-developed existing law which has been found to be sat-isfactory in relation to similar contracts in the past they wouldbe unlikely even to consider using the Principles The rea-sons are obvious Parties like to know where they stand They

88Van Houtte (A1995) p 18589Also consider present and future possibilities for such use of The Principlesunder CISG articles 8 and 990Special principles have precedence over general ones See Huet Synthesis(1995) p 27791Drobnig id p 228 comment that the CISG precludes recourse to generalprinciples of contract law in Article 7 This does not refer to the situation whereparties determine that the UNIDROIT Principles should do so see CISGArticle 6

like to have access to an existing body of expert advice ThePrinciples for the time being at least suffer from the dis-advantage of novelty The lawyers seem to be resistant tochangerdquo92

Paradoxically where governments are involved (in complex agree- 56

ments) they not infrequently find it necessary to resort to an a-national order to govern the contract Kazuaki Sono before thepromulgation of the UNIDROIT Principles writes

ldquoFor complex transactions which were seldom heard of in the 57

past there is a tendency to have resort to rdquothe general prin-ciple of lawldquo lex mercatoria or rdquothe principle of good faithand fair dealingldquo particularly through arbitration clauses Dur-ing the Congress I have been told personally from a reliablesource that 5 to 10 per cent of the disputes which are submit-ted to arbitration now contain such clauses The person whoprovided me with this information said rdquoonly 5 to 10 per centldquobut to me it is an extremely significant percentage Yet thecontents of these principles are still far from certainrdquo93

In such situations selection of the UNIDROIT Principles should 58

provide a welcome increase in clarity 94 Their use where statesparticipate in international contracts is likely to generally boost con-fidence in their use for more complicated agreements also withinthe business community92Vivien Gaymer The UNIDROIT Principles as a Guide for Drafting Contracts

A View from an International Commercial Lawyer in UNIDROIT Principles ANew Lex Mercatoria pp 97-102 on p 10093Sono (1992) p 25094Furmston (1995) p 202 provides the compelling examples of two suchagreements involving (i) the construction and (ii) the operation of the ChannelTunnel by Anglo-French consortiums Both agreed upon disputes beingldquogoverned by those Principles of English and French contract law which arecommon and if were no relevant common principles by general principles ofinternational commercial lawrdquo Dispute resolution to be by ICC arbitration inBrussels



234 Protective principles as a necessary part of lex59

mercatoria

The virtues of freedom of contract are stressed in this paper in that60

they allow the international business community to structure theirbusiness relationships to suit their needs The protective princi-ples of good faith and fair dealing are of particular interest as inthe UNIDROIT Principles they are mandatory and place an en-cumbrance on this freedom Other protective principles such asloyalty also absent from some traditional contract systems are ofsimilar interest It has been pointed out however that it is nec-essary to be mindful of the limitations of the benefits of absolutefreedom of contract The mandatory protective principles may bejustified in that they (on the balance) reflect the collective needs ofthe international business community It may be further and morepositively argued that they are in fact beneficial and facilitate trade(a) The protective principles help bring about confidence and fos-ter relations between parties They provide an assurance in theinternational arena where parties are less likely to know each otherand may have more difficulty in finding out about each other (b)They better reflect the focus of the international business commu-nity on a business relationship from which both sides seek to gain(c) They result in wider acceptability of the principles within bothgovernments and the business community in the pluralistic interna-tional community These protective principles may be regarded asenabling the Principles to better represent the needs of ldquo the Com-monwealth rdquo (here used to mean the world as a whole) (d) Goodfaith and fair dealing are fundamental underlying principles of in-ternational commercial relations More generally freedom of con-tract benefits from these protective priciples that need mandatoryprotection from contractual freedom to effectively serve their func-tion One might suggest that for most types of international con-tract based on a-national law this is the minimum price of freedom

of contract that should be insisted upon by mandatory internationallaw as the limitation which hinders the misuse by one party of un-limited contractual freedom They appear to be an essential basisfor acceptability of the autonomous contract (a-national contractbased on agreed rules and principles) As mandatory principlesthey become the default standard for the conduct of internationalbusiness and as such may be looked upon as ldquocommon propertyrdquoUnless mandatory they suffer a fate somewhat analogous to thatof ldquothe tragedy of the commonsrdquo95

Modern contract ldquolawrdquo models lay greater emphasis on the contract 61

as an expression of co-operation between the parties96 Both theUNIDROIT Contract Principles and the EU Contract Principlesdisplay these modern features They include protective principlessuch as good faith and fair dealing loyalty and hardship97 that willnot be as familiar to those used to the traditional contract model98

95Special problem regarding commonshared resources discussed by GarrettHardin in Science (1968) 162 pp 1243-1248 For short discussion andsummary see Trebilcock (1993) p 13-1596Hugh Collins The Law of Contract (London 1986) p 160 Lars Erik Taxell

Avtalsraumlttens normer (Turku 1987) p 11 cited by Wilhelmsson Questions fora Critical Contract Law - and a Contradictory Answer Contract as SocialCooperation in Wilhelmsson (ed) Perspectives of Critical Contract Law(1993) pp 9-52 on p 2097There are other protective provisions in the form of hardship (Chapter 6Section 2) surprising terms (220) duty of confidentiality (216) and negotiationin bad faith (215) The principles also have specific provisions on fraud (38)threat (39) gross disparity (310) and mistake (34 35)98Gaymer (1995) p 97 states ldquoI particularly noted Article 17 which requireseach party to act in accordance with good faith and fair dealing This is not ageneral principle of English contract law nor can it be readily achieved underthat law and I am interested to learn more about its perceived application andbenefitsrdquo The US has come further than England with the development of thedoctrine of unconscionability and in basing the Uniform Commercial Code onthe principle of good faith which is hailed as its ldquosingle most important conceptrdquoand as ldquothe foundation on which the [UCC] was draftedrdquo citations to Dore andDeFranco from Albert Kritzer International Contract Manual Guides to Practical



though they will be more familiar to others These may be justi-fied as co-operative rules and principles to which members of theinternational business community are prepared to subscribe in or-der to be able to assume the same of others Being able to makethese assumptions may facilitate trade by allowing for greater trustbetween parties that are in less of a position to know of or find outabout each other than would be the case in a domestic transactionGood faith and fair dealing also identified by the English Lord Jus-tice Mustill as part of ldquoTherdquo Lex Mercatoria 99 is a pervasive andfundamental underlying principle common to both the UNIDROITand EU Principles 100 The loyalty principle means that a partycannot take a completely singular view of its own interests to theexclusion of the other having in some circumstances to take ac-count of those of the other party

Conversely it is instructive to question the role in international com-62

merce of the traditional contract represented by English contractreasoning and inherited by the British Commonwealth Based onfreedom of contract pacta sunt servanda and caveat subscrip-tor Although claimed to be neutral in making no judgement asto the contents of a contract this claim is misleading It is basedon free market arguments that parties best understand their inter-ests and the contract arrived at will be an optimum compromise

Applications of the CISG (looseleaf 1994) p 74 See also the Official UCCCommentary Section 1-20399Supra 232 in esect39100 UNIDROIT Contract Principles General provisions - Article 17 Each partymust act in accordance with good faith and fair dealing in international trade (2)The parties may not exclude or limit this liability EU Contract Principles General Obligations - Article 1201 (ex art 1106) - Good faith and fair dealingldquo(1) Each party must act in accordance with good faith and fair dealing (2) Theparties may not exclude or limit this dutyrdquo Good faith and fair dealing is also tobe found in several national contract law systems if not the English andldquoAmericanrdquo Generally see Lando Each Contracting Party Must Act InAccordance with Good Faith and Fair Dealing in Festskrift til Jan Ramberg(Stockholm 1997) pp 345-361

between their competing interests It not being for an outsider toregulate or evaluate what a party of its own free will and volition hasgained from electing to contract on those terms This approach tocontract is adversarial based on the conflicting wills of the par-ties achieving a meeting of minds It imposes no duty of goodfaith and fair dealing or of loyalty (including the disclosure of ma-terial facts) upon the contracting parties to one another who areto protect their own interests The traditional models failings areknown in the domestic and international arena frequently produc-ing contractual relations that take advantage of the weaker andless informed party101 Information presents particular problems ininternational commerce102 Adherents to the caveat subscriptormodel point to the fact that parties have conflicting interests andshould look out for their own interests However as compared withdomestic transactions the contracting parties in international com-merce are less likely to possess information about each other orof what material facts there may be within the other partys knowl-edge and will find it more difficult (and costly) to acquire And asMichael Trebilcock put it ldquoEven the most committed proponentsof free markets and freedom of contract recognise that certain in-formation preconditions must be met for a given exchange to pos-sess Pareto superior qualitiesrdquo103 Furthermore the more informa-tion one already has the less it costs to identify and to obtain anyadditional information that is required104 This suggests that some

101Roger Brownsword Towards a Rational Law of Contract in Wilhelmsson(ed) Perspectives of Critical Contract Law (1993) pp 241-272 on p 241Furmston (1995) on p 201 notes ldquoIt is recognised that even betweencommercial parties there may be stronger and weaker partiesrdquo in discussingArticle 310 of the UNIDROIT Principles 102Apart from the more straightforward cases of different types ofmisrepresentation103Trebilcock (1993) p 102 followed by a quotation of Milton Friedman fromCapitalism and Freedom (1962) p 13104Trebilcock (1993) p 102 note quoted passage of Kim Lane ScheppeleLegal Secrets Equality and Efficiency in the Common Law (1988) p 25



parties will be in a much better position to determine and accesswhat they need to know a factor that should be reflected in theapplication of the principle105 It is also increasingly accepted thatit is not possible to fix long-term contracts once and for all withoutfuture adjustments as the traditional model would suggest Alsoof interest are the claims of those who point out that this method ofcontracting is out of step with the reality of what businessmen dowhen entering an agreement Ian Macneil106 suggests that con-tract has become an unrealistic abstraction there being no soli-darity except in legal remedies with reciprocity absent except inthe case of the discrete transaction And it has been pointed outthat business-persons at the time of contracting look not to theirrights and remedies but to the success of the business relation-ship107 Modern contract models in placing greater emphasis onco-operation between the parties and recognising a distinction be-tween procedural and substantive fairness go some way towardsredressing these objections and arguably better reflect the ideologyand needs of the international business community notwithstand-ing such other issues as risk allocation

The area represented by protective provisions generally placing a63

limitation on freedom of contract is a large and complicated onewhich beyond these comments is outside the scope of this pa-per108

105On the loyalty principle generally see LE Taxell Avtalstraumltt (Stockholm1997) For a critical opinion on the principle of loyalty see Ernst NordtveitPartnerskap ved utveksling av ytingar Realitet eller illusjon in Lov og Rett(1996) p 337106Ian Macneil Barriers to the Idea of Relational Contracts in F Nicklisch(ed) Der komplexe Langzeitvertrag (Heidelberg 1987) 31-49 at 35107Stewart Macaulay Non-Contractual Relations in Business a PreliminaryStudy in American Sociological Review (1963) pp 55-67 on p 61108Writing on EC law Hans-W Micklitz Principles of Justice in Private Lawwithin the European Union pp 259-258 at pp 284290 discusses the conceptof ldquolegitimate expectationsrdquo as having the potential to cover similar ground in a

Caveat Contract law is not built on one model but on several 64

competing ones109 Protective principles though they may bewidely suited for most types of contract may be persuasively ar-gued against for others Protective principles may for example begenerally suited for trade in goods and services or use in joint ven-ture agreements (which may benefit from their tendency to fos-ter trust between international business contracting parties) How-ever they are less certain suit the needs of financial agreementsand some specialist contract areas

24 The autonomous contract - an a-national solution a 65

summary

The autonomous contract in the sense of one based on an a- 66

national autonomous order is possible both in form and substancewhere based on ICA and lex mercatoria with the mandatory lawof states excepted The mandatory law exception referring princi-pally to the laws of states in which performance is to be made orawards are to be enforced This arrangement can be provided withgreater predictability through application of the UNIDROIT Princi-ples This model provides the potential to reduce transaction costthrough the possibility of adherence to a uniform acceptable stan-dard that can be applied across borders with minimal concern asto the underlying municipal legal structure110 This presupposesthe functional and substantive predictability of the a-national ldquolawrdquobased contract Functional predictability appears to have beenprovided ICA being better catered for on a world-wide basis than

more constructive manner as being as yet without national connotations it maybe easier to achievedevelop an internationally uniform definition andinterpretation109Wilhelmsson Legal Polycentricity Consequences of Pluralism in Law(1995) pp127-147 on p 131110Secured as required by relevant conditions precedent and contractualguarantee



the national legal order having secured for itself an unparalleledregime for the recognition and enforcement of awards111 Discus-sion might focus on how much could usefully be adopted in ICAfrom the ICSID approach to arbitration The issue is much morecomplicated where substantive predictability is concerned Thesimple answer would appear to be to accept a degree of uncer-tainty as being in the nature of legal reasoning Parties should per-haps look more to a reasonable solution based on the applicationof the relevant rules and principles as many parties do With thisin mind there is nothing to prevent the updating of the UNIDROITPrinciples periodically in the light of experience of their use Theprincipals are analogous to the US Restatement of Contract Law which is periodically updated as are ICCs Incoterms and UniformCustoms and Practices and even the FIDIC Red Book on con-struction Occasional updating would allow the UNIDROIT Prin-ciples to keep pace with developments and should not fall foul ofthe point raised by Jeacuterocircme Huet

ldquoHowever if the UNIDROIT Principles were to be modified67

corrected or improved they might also finally be rejected Thisis because even if one believes in themerits of rdquosoft lawldquo whichis often more effective than written law it remains that any lawmust be known and accepted There must be sufficient timeto get used to it In other words it must be reasonably stableand not be a `changing lawrdquo112

The commentaries could be updated with greater frequency (than68

the black letter text of the UNIDROIT Principles ) in the light ofexperience So doing should allow for adjustments in the text thatassist in ensuring the more uniform application of the principlesThe question however remains as to how such predictability might

111Under the New York Convention 1958 UNCITRAL Model Law onArbitration 1985 and arbitration laws that have been influenced by it112Huet (1995) p 278 and p 281

be improved for an a-national legal order

3 The problem of predictability 69

However parties contractually structure their relations there is al- 70

ways the question of the interpretation of their contract and anyldquolawrdquo on which it is based whether municipal uniform law or rulesand principles The question is how to achieve the uniform applica-tion of uniform ldquolawrdquo and legal texts It is necessary to understandthe nature of the problem in order to discuss the viability of andto seek ways of achieving uniform international contract law anautonomous contract order and the autonomous contract (in thethird sense used in this paper) as a possible solution Note thatmuch in this section is an overview related to problems regardingthe unification of international law113 it examines the nature of theproblem of achieving a uniform global ldquolegalrdquo platform on which tobase the autonomous contract and the problems associated withattaining a high degree of predictability for international commerceConsider the following passage by Ole Lando

ldquoI believe that in many arbitrators as in many lawyers there 71

are two conflicting attitudes One wishes the law to be a per-fect and stringent system of rules under which the good lawyercan always find the true and only solution To apply the law isthe same as to apply the theorems of mathematics This willproduce certainty and predictability for the citizen

The other attitude tells the arbitrator that absolute predictability 72

is not attainable Each legal system has many gaps and themost provident legislator cannot close them all Nor can he

113For more detailed reading see Goode (1991) pp 54-74 For an English lawperspective on uniform statutes see FA Mann Uniform Statutes in English Lawin PV Baker (ed) The Law Quarterly Review (London 1983) Vol 99 pp376-406



prevent new gaps from arising when social conditions changeNo legal system provides certain solutions to all problemsEven the best lawyer in the most highly-developed country isoften in doubt Besides predictability is only one of severallegal values Rules which create certainty also tend to bringabout rigidity They do not consider special circumstances andchanging conditions The legal process is not and can neverbe a mere syllogism It is above all an effort to reach the mostfair and appropriate decision In this process which is often in-ventive the arbitrator will weigh the possible solutions againsteach other and make his choicerdquo 114

Uniform ldquolawrdquo has the potential to reduce transaction costs and in-73

crease world-wide predictability in international commerce How-ever the success of an autonomous uniform international regula-tory order is tied to its ability to provide for the risk managementneeds of the business community and has proved to be one ofthe most challenging fascinating and enduring problems The se-lection of uniform laws and uniform rules is not enough as thisdoes not ensure their uniform application without which the pur-pose of establishing uniform law is largely defeated Pragmaticallythe issue of predictability may be regarded as one of degree ldquoUni-formity of applicationrdquo is closely related to the ldquopredictabilityrdquo of alegal text and although not identical their use has at times been in-terchanged in this writing What degree of uniformity is necessaryor acceptable in the ordering of relations and what trade-offs arethere in achieving or attaining this predictability There is clearly atension between certainty and flexibility - ldquorules which create cer-tainty also tend to bring about rigidityrdquo

Some comments may be made on the decision-making process74

and discretion in relation to rules and principles An attempt to basea legal system on rules alone would create gaps Discretion is re-

114Lando (1987) p 111

quired which is applied through principles of law which are moreholistic constraining legal standards Ronald Dworkin115 appearsto distinguish them in two ways (i) Whereas a rule is either ap-plicable or not principles do not operate in this all or nothing wayhaving a dimension and weight they can apply to varying extents(ii) Rules cannot conflict either they apply or they do not whereasprinciples may conflict with each other116 Some principles will bemore pervasive than others117 Their relative importance may varyaccording to the circumstances in which they are to be appliedThe work of the legal craftsman being to know when and how theyare to be applied in a given factual situation according to the differ-ent considerations and relationships between particular conflictingcircumstances and in so doing arrive at the ldquocorrectrdquo legal solu-tion

31 Predictability at a municipal level 75

Complete predictability in a legal or regulatory regime is not attain- 76

able - this is a charge that can be levelled against all legal systemsincluding those of sovereign states At a national level the nature oflegal reasoning and application of particular rules of law and prin-ciples is understood by its practitioners and certified by supremeauthority Consider the comment of John Honnold

ldquoPerfect clarity and predictability in law as most of you know 77

all too well is not for this world Nevertheless within a singledomestic system it usually has been possible to keep uncer-

115Ronald Dworkin Laws Empire (Harvard 1986) Hard Cases in HarvardLaw Review (1988) For a short summary see Wayne Morrison Jurisprudencefrom the Greeks to post-modernism (London 1997) pp 415-448116Eg pacta sunt servanda and the narrow clausula rebus sic stantibus 117Eg pacta sunt servanda and good faith under the UNIDROIT and EUPrinciples and their interpretation clauses



tainty within tolerable limits so that nearly everyone prefers lawto anarchyrdquo118

This issue is important enough to merit special consideration (i)78

Ignoring evidentiary problems total predictability is unattainableeven at a domestic level where we are confined to the workings oflegal reasoning without admitting the possibility of extraneous in-fluences The nature of the decision-making process in this casein the application of rules and principles with various sources of lawfor appropriate guidance119 has all the hallmarks of a highly com-plex system indeed in the nature of the chaoplexic120 The factthat decisions stem from deterministic processes does not meanjurists can predict all their meanderings The application of sim-ple deterministic axioms121 to subtly differing sets of circumstancecan lead to complex results that often cannot be predicted withcertainty Simple sets of principles and rules applied give riseto extremely complicated patterns that never quite repeat them-selves (ii) Even within a single national jurisdiction whetheror not they should extraneous influences will play a role in thedecision-making process There will be differences in the basic ide-ologies and beliefs of the adjudicators and these will sometimeshave an effect on the decision-making process The diversity ofbasic ideology views and politics accepted within a democracy to-118Honnold (1992) p 11119In the common law system based on the earlier authoritative legal reasoningof binding precedent and persuasive authority120Word coined by John Horgan in The End of Science (London 1996) tocover the related fields of chaos and complexity Chaos theory is a branch ofmathematics and physics Sometimes described as the edge of chaos what isstudied here is not randomness or disorder Chaoplexity examines non-linearsystems in which simple sets of deterministic rules can lead to highlycomplicated (detailed) results which cannot be predicted accurately A goodintroduction to the subject chaos is provided by James Gleick Chaos Making aNew Science (New York 1987)121Such as those provided by Dworkin in explaining the application of rules andprinciples (to determine judicial outcomes)

gether with the different social economic and cultural backgroundsof adjudicators guarantee a difference in their basic assumptionsthat cannot be excluded from playing a role in their application ofdiscretion and in the weighing of principles Even Dworkins super-judge Hercules is not unaffected In a democracy accepting thepluralism of views there is no single set of background character-istics that may be used to define such a being

32 Uniformity at an international level 79

Absolute predictability does not exist at a purely domestic level 80

These problems are compounded in the context of the applicationof a uniform law by different judiciaries

ldquoEven within a common set of rules and concepts the habits of 81

mind of lawyers in different legal systems no doubt reinforcedby rules of civil procedure are too deeply ingrained to achievepractical uniformity in approach the instinct of civil lawyers isto turn to rules contained in the code whereas English lawyersturn principally to the terms of the contract The difference be-tween legal systems about what constitutes a good argumentwhat has intellectual strength and integrity will prove hard toabolishrdquo122

Adjudicators (especially within national courts) are faced with 82

formidable compounded complexity where attempting to apply auniform law in a uniform manner that will frequently prove difficultto satisfactorily overcome even where assuming that there is noproblem of access to information These are a consequence of

122Hugh Collins European Private Law and Cultural Identity of States inEuropean Review of Private Law 3 (1995) pp 353 at 356 357-58 citation usedby Christian Joerges The Process of European Integration and the`Denationalization of Private Law in Boslashrge Dahl amp Ruth Nielsen (ed) (1996)pp 73-90 p 82



their different legal traditions which have different technical rulesof procedure rely on different sources for authority and respectdifferent reasoning as legally sound (There are also additionalextraneous influences resulting from their different cultures andideologies)

321 The UN Convention on the Law of Treaties83

Where dealing with uniform law the way of discovering the rights84

and duties of contracting parties is by its interpretation and thatof the parties contract Herbert Briggs in The Law of NationsCases Documents and Notes 123 on the interpretation of treatiesstates

ldquoPractically all treatises on international law have sections on85

the so-called `canons of interpretation of treaties Analysisreveals that the canons consist largely of the application ofthe principles of logic equity and common sense to the textof a treaty in an endeavour to discover its `clear or `naturalmeaningrdquo

The UN Convention on the Law of Treaties 1969 (in force 1980) is86

considered to be a codification of existing public international lawwith regard to the interpretation of treaties124

The relevant articles on interpretation are Article 31 and 32 Arti-87

cle 31 instructs that a ldquotreaty shall be interpreted in good faith inaccordance with the ordinary meaning to be given to the terms ofthe treaty in their context and in the light of its object and purposerdquo

123Herbert Briggs The Law of Nations Cases Documents and Notes (NewYork 1952) on p 897124Lord Diplock in Fothergill v Monarch Airlines [1981] AC 251 282 or seelsaquohttpitlirvuitnotrade_lawpapersEnglandFothergillvMonarchAirlinesHL1980htmlecs85rsaquo Also Mann (London 1983) at p 379

Article 32 instructing that reference bemade to its travaux preacutepara-toires and circumstances of its conclusion to confirm the meaningresulting through application of Article 31 and resolve any ambi-guity or that which is manifestly absurd or unreasonable Article31(2) takes into account agreements made by the parties as to itsinterpretation on the conclusion of the treaty Article 31(3)(a) and(b) instruct the taking into account of any subsequent agreementbetween the parties regarding the interpretation of the treaty or theapplication of its provisions including that which is evidenced bya practice in its application by the parties Article 31(3)(c) makesany relevant rules of international law applicable in the relationsbetween the parties Article 31(4) states that the application of aspecial meaning shall be given to a term if it is established that theparties so intended

322 Interpretation clauses within uniform laws 88

ldquoThe more successful the activities of UNCITRAL 125 rdquothe 89

more it extends its activities in the field of international traderelations the more necessary the uniform interpretation of theuniform rules will berdquo 126

Modern uniform laws and principles increasingly contain their own 90

interpretation clauses which increasingly provide for the taking intoaccount of their international character and the need to promoteuniformity in their application 127 The CISG provision on inter-

125And other international organisations such as UNIDROIT - footnote added126Reacuteczei (1992) p 6127Examples The United Nations Convention on Contracts for the InternationalSale of Goods 1980 Article 7 The UNIDROIT Principles of InternationalCommercial Contracts 1994 Article 16 The Principles of European ContractLaw 1998ltigt Article 1106 The United Nations Convention on the Carriage ofGoods by Sea (The Hamburg Rules) 1978 Article 3 The United NationsConvention on the Limitation Period in the International Sale of Goods 1974and 1978 Article 7 UN Model Law on Electronic Commerce 1996 Article 3



pretation - Article 7

(1) In the interpretation of this Convention regard is to be had91

to its international character and to the need to promote uni-formity in its application and the observance of good faith ininternational trade

(2) Questions concerning matters governed by this Conven-92

tion which are not expressly settled in it are to be settled inconformity with the general principles on which it is based orin the absence of such principles in conformity with the lawapplicable by virtue of the rules of private international law

The UNIDROIT Principles provision on the ldquointerpretation and sup-93

plementation of the Principlesrdquo - Article 16

(1) In the interpretation of these Principles regard is to be had94

to their international character and to their purposes includingthe need to promote uniformity in their application

(2) Issues within the scope of these Principles but not ex-95

pressly settled by them are as far as possible to be settledin accordance with their underlying general principles

Most scholarly writing to date has centred on the CISG though96

much of the discussion there holds true generally for all uniformlaw It is instructive to read Honnolds text UniformWords and Uni-form Application 128 prepared with input from 16 professors to getan idea of the dimension of the problem faced as seen through theeyes of scholars representing each of the major legal systems The

UNIDROIT Convention on International Factoring 1988 Article 4 UNIDROITConvention on International Financial Leasing 1988cedil Article 6 also ECConvention on the Law Applicable to Contractual Obligations 1980 Article 18128Honnold Uniform words and uniform applications Uniform Words andUniform Application The 1980 Sales Convention and International JuridicalPractice in Einheitliches Kaufrecht und nationales Obligationenrecht ReferateDiskussionen der Fachtagung am 1617-2-1987 hrsg von Peter Schlechtriem(Baden-Baden 1987) pp 115-147

professors agreed that to achieve the uniform application of texts itwas necessary to look at writings in other jurisdictions and to lookbeyond the traditional national sources and methods of interpreta-tion They also agreed that this was a Convention duty imposedupon Contracting States129 Relevant sources were identified as(a) The legislative history (b) Rulings world-wide (c) Theofficial and other commentaries (d) Scholarly writings Howeverperhaps not surprisingly despite such forward thinking as to howuniformity might be achieved success so far has been limited and anumber of questions have been raised Where a particularly novelsolution is employed by a court is it to be followed elsewhereWhere a solution thought to be inappropriate is adopted is this tobe followed must it be distinguished or can it simply be ignored Ifthere is much text generated on a particular uniform law how muchis it necessary to cover and what should be approached first andwhat relative weight should be given the different sources Courtswill still have a tendency to look first to domestic decisions and writ-ings In one sense ICA with an international arbitral panel providesa better balance in having a more international perspective as tohow the uniform law should be applied This will allow arbitratorsto reach a reasonable conclusion in the circumstances taking intoaccount their multi-national perspective of the uniform law Sucha method of reaching a reasonable decision though more flexiblehas its measure of predictability where the approach is understoodIt may be what a significant proportion of the international businesscommunity that chooses ICA are after A distinction is to be madebetween world-wide predictability in application and predictabilityon a national scale Where national law is applied by its nationalcourt ldquoArdquo that looks first to its domestic writings it may have a clear- predictable manner of application even if not in the spirit of theConvention Another nation ldquoBrdquo may apply the uniform law in adifferent way that is equally predictable being perfectly consistent

129Under Article 7 See also footnote 126



internally This however defeats much of the purpose of the uni-form law The court of nation ldquoBrdquo applying the national law of stateldquoArdquo is much more likely to take seriously the treaty obligation un-dertaken by that state130 and much the same is the case wherea nation fails in its Convention obligations as to its implementationof a uniform law131 The question both as regards the adoption ofuniform substantive law and attempting to achieve its uniform ap-plication is not so much whether or not a country has a perfectlygood and modern contract law tradition and should definitely notbe whether it is felt that the effort could be improved upon Thequestion should be how far is it possible to end up with a commonunderstanding and application of a uniform text so as to achievea uniform and predictable law at as international a level as pos-sible and thereby facilitate international commerce by simplifyingit

Among the solutions levelled at the problem is the greater dissem-97

ination of information including making use of information technol-ogy to ensure that writings are commonly known world-wide Ef-forts have been started by UNCITRAL UNIDROIT and someacademic institutions132 But assuming successful updating anddissemination of relevant international texts if much writing is gen-

130To take account of its international nature and the need to promote uniformityin international trade131For an example based on the probable international treatment of Norwayssingular and controversial transformation of the CISG see Viggo HagstroslashmKjoslashpsrettskonvensjon Norsk Kjoslashpslov og Internasjonal Rettsenhet in Tidsskriftfor Rettsvitenskap (1995) pp 561-588 on p 569 and Joseph LookofskyUnderstanding the CISG in Scandinavia (Copenhagen 1996) on p 5 13 and105 Compare Kai Kruumlgers argument in Komparativ rettsmetode -observasjoner vedroslashrende prinsipper for rettsanvendelse i Europa nord og soslashr -illustrert ved tilfellet Norge og Italia in Jussens Venner (1996) pp 281-312 on p312132For further information on such projects and information sources see ITL theInternational Trade Law Monitor by Amissah atlsaquohttpitlirvuitnotrade_lawrsaquo

erated whether in the form of decisions or literature there is aninformation management challenge What does one look at ifone has to be selective and in any event what weight should begiven to any given legal writing133 And according to whose le-gal methodology and practice should they be applied And thequestion is this really the best way to promote the development ofuniform law

4 Alternative solutions 98

Whoever is able to provide the business community with the solu- 99

tions it is seeking in an acceptable way has a reasonable chanceof being subscribed to Keep in mind (i) the business commu-nitys interest in greater efficiency and predictability in the uniformand if possible transnational application of ldquolawrdquo and uniform texts(ii) the business communitys lack of focus on national law as agoal per se increased autonomy from state law being acceptableand in fact desirable if successfully able to further the mentionedgoals and (iii) the business communitys ability through free-dom of contract to take advantage of what is made available tothem

However a question does arise as to whether the ability to create 100

alternative solutions and even an independent lex is or should bewithout limits The present author is of the opinion that the duties ofgood faith and fair dealing and loyalty (or an acceptable equivalent)should be a necessary part of any attempt at the self-legislation orinstitutional legislation of any contract regime that is based on ldquorulesand principlesrdquo (rather than a national legal order) If absent a re-quirement for them should be imposed by mandatory internationallaw As discussed in section 234 such protective provisions are

133Coming as they do from different states genre of writing sources and levelsof authority



to be found within the UNIDROIT and EU Contract Principles ongood faith and fair dealing and loyalty

41 Independent supra-national interpretation tribunals101

A radical approach has been proposed134 to have states accept an102

independent supra-national interpretation tribunal to whom ques-tions of an international commercial character concerning a uniformlaw would be referred for clarification and whose rulings would befollowed under a droit commune

ldquo[O]nly a fundamental methodological change would have a103

chance to reduce the gap between the slow pace of interna-tional legislation and the requirements of the modern worldespecially in the field of international trade He suggested thatStates should agree by way of a general Convention to ac-cept rules established by the Commission or under its aus-pices as a body of common law ( droit commune )rdquo135

This suggestion was advanced on more than one occasion at early104

sessions of UNCITRAL where it drew respectful attention but lit-tle enthusiastic support136 A mitigation might be to give such atribunal only persuasive authority137

134 UNCITRAL Secretariat (1992) p 253 Proposed by David (France) at thesecond UNCITRAL Congress and on later occasions put forward byFarnsworth (USA) For references on interpretation of the CISG by asupranational committee of experts or council of ldquowise menrdquo see BonellProposal for the Establishment of a Permanent Editorial Board for the ViennaSales Convention in International Uniform Law in PracticeLe droit uniformeinternational dans la pratique [Acts and Proceedings of the 3ltsupgtrdltsupgtCongress on Private Law held by the International Institute for the Unification ofPrivate law (Rome 7-10 September 1987)] (New York 1988) pp 241-244 andDrobnig Observations in Uniform Law in Practice supra at p 306135 UNCITRAL Secretariat id136 UNCITRAL Secretariat id137 UNCITRAL Secretariat id p 258

ldquoAs Professor Don King also indicated a need may soon be 105

felt for the establishment of a global court of commerce initiallyfor those cases where resort has been made in arbitration toa national lex mercatoria or to general principles of contractlaw At this Congress we already heard a suggestion of Pro-fessor Sohn for the establishment of an international tribunalto interpret uniform textsrdquo138

To date the political will backed by the financing for either such 106

organ has not been forthcoming In 1992 the UNCITRAL Sec-retariats conclusion was that ldquoprobably the time still has not yetcomerdquo139

42 Authoritative reviews as co-ordinating guides 107

A less radical possibility is that there might be some body charged 108

with (or that charges itself with) the task of reviewing important de-velopments in relation to uniform texts over the course of time andgiving their authoritative or persuasive opinion on the issue as tothe right course to be taken in future This might be an interna-tional body of scholars formed by the institution concerned or insome other manner acceptable to legal counsel of the internationalbusiness community that reviews the decisions and writings madeover the year and makes recommendations as to the future coursethat should be taken by others in the interpretation of the textThis could alternatively be pursued as an international interdisci-plinary research effort (involving legal academics and practitionerseconomists business schools and representatives of the businesscommunity) that is co-ordinated by a central institution

138Sono (1992) p 251 The suggestion by Louis Sohn found in Uniform lawsrequire uniform interpretation proposals for an international tribunal to interpretuniform legal texts (1992) in 25ltsupgtthltsupgt UNCITRAL Congress pp50-54139 UNCITRAL Secretariat id



If pursued through the original formulating agency this could be109

done as a periodic update to a relevant commentary such as thatof the UNIDROIT Principles which could be updated in light of theexperience that has been gained from the application of the textAgain this would be able to take advantage of the opportunitiesoffered by information technology Alternatively an independentauthoritative guide on uniform application could be published an-nually (as a complete text) However organised and whether byintegral commentary update or independent guide provided thepublication is reputable and acceptable to the business communityit has a number of attractive features The parties in their contractcould specifically refer to the commentary or guide together withthe black letter text as the primary source of regulation and meansof interpretation of the uniform ldquolawrdquo in dispute resolution

43 Limiting of sources for interpretation110

This suggests the possibility of another approach to the problem of111

unpredictability of uniform application Given the mentioned prob-lems serious consideration should be given to the fact that im-proved predictability and efficiency may be better achieved by lim-iting of sources to be applied for the purpose of interpretation Whatmight such an alternative solution be In attempting to achieve theuniform transnational application of a uniform text it is most effi-cient to look for answers as far as possible within the text itselfand if there is one in the commentary or guide An argument maybe made for leaving the rest largely to the discretion of arbitratorsPart of the appeal of the UNIDROIT Principles is that they maybe regarded (at the parties election) as largely self-contained andthat they allow for the arrival at efficient reasonable resolutions ofdisputes The parties may wish to rely on the substantive text andaccompanying commentary or guide to the greatest possible ex-tent and to restrict external sources for their interpretation in the

interests of efficiency - achieving this ldquoat the stroke of a penrdquo Thisto the common law lawyer is unfamiliar territory140 Predictabilityin most circumstances may be increased by reduced complexity inknowing where to look the parties having a uniform clear and con-cise idea of what there is to be aware of on the issue Transactioncost should be reduced as a result in knowing that there is a sin-gle set of transnational uniform rules and principles and a limitedamount of text to be ploughed through This would represent thefurther rise of pragmatism over legal technicalities

Robert Hillmanwriting on Article 7 of the CISG (contemporaneously 112

with the writing and presentation of this paper) makes the follow-ing observations that are of general relevance to harmonisationefforts and with which the present author is in full agreement assuggesting the sensible approach and way forward

ldquoProfessor Honnold suggests that decisions construing the 113

Convention and secondary analysis will also clarify thesignificance of focusing on the rdquointernational characterldquo ofthe Convention In fact most authorities have called for thepublication of cases construing the Convention to increasethe potential for its uniform application The problem withthis approach is that a high reliance on cases may create theimpression that they are the primary source of internationalsales law and that the Conventions principles are inadequateSuch an environment may encourage tribunals not only totake their eyes off the principles but to engage in distinguish-ing overruling and even manipulating precedent Lawyersfrom common-law states may feel comfortable with theseactivities but they do not offer much promise if the goal isto achieve uniformity and certainty in the international sales

140Which is not the same as to suggest that the idea would be new As Goodepoints out ldquoTruly there is nothing new under the sun Nearly two thousand yearshave elapsed since Cicero proclaimed the virtues of legal harmonisationrdquo seeGoode (1991) p 54



law Perhaps most worrisome de-emphasizing principlesmay encourage tribunals facilely to turn to domestic casesexpressly or implicitly when interpreting and gap-filling underArticle 7 Analysts should therefore urge tribunals to try to findanswers within the four corners of the Convention and to lookto cases only in the unusual case where the Convention doesnot supply adequate guidancerdquo141

In addition to original texts international supra-national bodies114

or acceptable third parties might produce works on interpretationwhich if not overly voluminous and if they become generallyknown and recognised could provide a particularly efficient way ofreducing transaction costs and achieving sufficient predictabilityRelying upon the reasonable resolution of the dispute by anarbitrator directed to use these specific sources as authority forreaching the decision

44 Information technology solutions - transnational115

harmonising information and knowledge-bases

There can be no doubt that the information potential of informa-116

tion technology will play a vital role in this process As a tool whatis most valuable is its potential to make instantly available largevolumes of information if required (from anywhere on the globe)At the most basic level tremendous potential is provided for com-parative study of developments around the world with regard touniform law texts - academic writings court decisions Howeverits most exciting potential is realised when designed for transna-tional harmonisation There is every possibility to adopt the ap-proaches discussed in section 41-43 combined with an educa-141Robert Hillman CISG Cross Reference and Editorial Analysis Article 7 inCISG W3 Database Institute of International Commercial Law Pace UniversitySchool of Law (New York September 1997)lsaquohttpwwwcisglawpaceeducisgtexthillmanhtmlrsaquo

tional aspect (section 46) One possibility is the development ofspecialist sites dedicated to particular uniform law texts that at-tempt to catalogue and manage information regarding internationaldevelopments and in so doing implicitly or explicitly recommendand provide a guiding hand as to how it should be interpreted andapplied Such ldquodatabasesrdquo dedicated to the task of internationalharmonisation would serve more than ldquodatardquo Such use of informa-tion technology appears over time to offer the best chance of alter-ing the orientation and focus of the worlds legal communities in theway necessary to achieve the internationally uniform application ofuniform texts and more generally to achieve greater harmonisationof international trade law

45 E-contract solutions 117

The electronic environment provides possibilities for designing 118

standard contracts that are virtually self contained and self-governing The contract together with an entire Lex can easilybe stored on electronic media - illustrated by the possibility ofstoring relevant portions of such databases as Lexis Westlaw or Lovdata on ldquodiskrdquo The parties may confine themselvesto their electronic contract which contains or incorporates allsources of regulation and their interpretation in a convenientone-stop location including inter alia all relevant conventionsprinciples rules and standard terms on which it is based togetherwith relevant commentaries and contractually authorised sourcesof authority (copyright problems apart) Having relevant materialeasily available from a single source is of some interest howeverthe idea in itself is only of marginally greater interest than whatis made possible by the use of one of the large commercial lawdatabases142 The real value of such a concept arises where142It should be noted that whilst electronic media makes such a solution morepracticable and attractive the same thing is achieved through the age-old



the electronic contract (as a one-stop solution) is designed tomeet the ldquoobjectiverdquo of the business community for a relativelystraightforward transnational and uniform Lex (see Section 24)that is of a limited textual dimension (see Section 4 and 41 - 44)It was suggested that limiting the sources for the interpretationof uniform texts might be a better way to achieve uniformity thanseeking to know and distinguish all that has been decided on pointinternationally

In the electronic contract further steps could be taken in the de-119

sign of the contract so as to limit the necessity to look elsewhereSeveral issues that might not usually be agreed in advance couldbe covered including procedural ones such as the manner andamount of discovery in the event of a dispute In creating an en-vironment for the parties it could also be used as a means ofbroaching some differences between civil law and common lawapproaches There are numerous other possibilities the contractcould for example become part of a standard software utility pro-gram (being incorporated into a standard model regulatory orderbased for example on the structure outlined within this text) Sucha contract even if agreed at a specific point in time is likely to bemore dynamic It could guide the parties during contractual nego-tiations as to some of the more important factors to consider Onhaving entered a contract it could assist the parties in determin-ing the nature and timing of their relative obligations For longerterm and more complex agreements part of the contract directedtowards the parties goals could be designed to have interactivelogistical functions It could make use of live data from specifiedsources - that is continually updated ldquoappendicesrdquo to the elec-tronic contract could record submitted logs of performances of theparties The parties may be guided to use electronic communi-cation for third party conciliation and mediation before the more

tradition of incorporation by reference

serious step of adversarial dispute resolution through ICA

Beyond this the imagination is the only limitation as to what might 120

technically be done Drawing back to the more mundane but es-sential in todays world the standard electronic contract could havecountry specific profiles that might include such details as the sta-tus of electronic documents and signatures and relevant countryspecific details and peculiarities

A standard electronic ldquoautonomous contractrdquo could provide greater 121

control and further simplify the parties contractual environmentGiven that this would be the result of the parties contractual free-dom there is no need to suggest that this would be the only or bestsolution only that it should be workable and should have potentialif pursued

Note on the validity of electronic documents and signa- 122

tures

ldquoContract law is one of Romes most important contributions 123

to legal history Yet Watson (The Evolution of Law) writesit is prima facie astonishing that the Romans never devel-oped a written contract that would take its place by the side ofstipulatio as a second contract form Stipulation required thepresence of both parties and was oral A written contract couldhave been negotiated at a distance and would have been eas-ier to prove TheRomans knew that written contracts had beenstandard and useful in classical Athens But the idea of stip-ulatio as the contract form had become so ingrained in theRoman legal mind that the option of using an alternative formsimply was not adoptedrdquo143

143John Robert Cassidy Mahwah An Undergraduate Course in ComparativeLegal Studies in Rechtstheorie Zeitschrift fuumlr Logik Methodenlehre Kybernetikund Soziologie des Rechts Beiheft 12 Monistic or Pluralistic Legal CultureEd Peter Sack Carl Wellman Mitsukunk Yasaki (Berlin 1987) pp 200-207 onp 205 See also footnote 3 of this text



For most purposes but not all and in most jurisdictions though not124

all contracts may be entered into without regard as to form orallyin writing or by conduct It being possible where necessary to ad-duce evidence as to the existence and contents of an agreementIn some cases however an agreement must be in writing as forexample in the case of an arbitration agreement for its recognitionand enforcement under the New York Convention 144 Needless tosay for such purposes acceptance of the validity of electronic doc-uments is essential for truly electronic contracting and commerceFor electronic contracting to be borderless and effective globallysuch acceptance of validity should be world-wide Some states in-cluding some ldquomodernrdquo European ones do not recognise the valid-ity of electronic documents or electronic signatures however wellauthenticated and free from the possibility of tampering they maybe145 The UNCITRAL Model Law on Electronic Commerce 1996addresses these and other issues related to electronic commerceIn the interest of a global rather than regional solutions it makessense that states give electronic commerce the support it needsby adopting the Model Law or by enacting laws that are in confor-mity with it The guiding principle here to be applied to writing onpaper or electronically that is found in the UN Model Law on Elec-tronic Commerce is suggested by the US Framework for GlobalElectronic Commerce (1997)

ldquorules should be technology-neutral (ie the rules should nei-125

ther require nor assume a particular technology) and forward

144 United Nations Convention on the Recognition and Enforcement of ForeignArbitral Awards New York 1958 Article II The convention is available off ITL145Noted in the European Initiative on Electronic Commerce (1997) sect45 ldquoAnumber of Member States rules governing the formation and the performanceof contracts are not appropriate for an electronic commerce environment andare generating uncertainties relating to the validity and enforceability ofelectronic contracts (for example the requirements for written documents forhand written signatures or the rules of evidence that do not take into accountelectronic documents)rdquo lsaquohttpwwwcordisluespritsrcecomcomxhtmrsaquo

looking (ie the rules should not hinder the use or develop-ment of technologies in the future)rdquo146

This in a sense is a rejoinder to the Roman favouring of oral over 126

written contracts which today sounds backward but in fact is noless so than the blanket non-acceptance of electronic writing andsignatures regardless of suitable authentication and verificationpossibilities Beyond these observations on the need for electronicdocuments to be held valid for electronic commerce the discus-sion in this paper is generic to international commerce Under thecurrent diverse national orders however it is necessary to knowthe requirements of individual state laws to ensure the validity ofelectronic contracts where a contract is required to be in writingand if in doubt to resort to paper

It may be observed that the business counterparts are least cog- 127

nisant of location in transactions that can be carried out entirelywithin the electronic world such as trade in intangibles moneytransfers services many areas on intellectual property whereastrade in tangibles including goods and most types of investmentinclude a physical (off-line) component

46 Education 128

ldquo one should create awareness about the fact that an inter- 129

national contract or transaction is not naturally rooted in oneparticular domestic law and that its international specifics arebest catered for in a uniform lawrdquo147

Within the framework described in this section education and sen- 130

sitivity to the needs of the business community by the legal profes-sion and academia would appear to be a necessary part of any so-146 US Framework for Global Electronic Commerce (1997)lsaquohttpwwwwhitehousegovWHNewCommercersaquo147 UNCITRAL Secretariat (1992) p 255



lution However while the business community seeks and requiresgreater uniformity in their business relations there has paradoxi-cally at a national level been a trend towards a nationalisation ofcontract law and a regionalisation of business practice 148 AsPierre Lalive points out quoting Roy Goode ldquoThe undeniable factis that in most countries today the part played in a students cur-riculum by what I would call `non-national subjects (ie public andprivate international law comparative law international trade lawand the like) has steadily diminished over the years paradoxicallyat the very time when everyone can observe and should know thatthe world is becoming more and more internationalrdquo 149 The dis-parity grows worse today Legal education has become more localas a result of the considerable domestic and regional legislationpassed Textbooks and studies to cope with the increased ma-terial have had to concentrate on taking a domestic and regionalapproach with little space to spare for an international perspectiveor for comparative study150 This is regarded by many as unfortu-nate especially given the long experience with fruitful internationalcommunication in the area of international trade law151 Findingmeans to transcend national boundaries is also to continue in thetradition of seeking the means to break down barriers to legal com-munication and understanding In 1966 a time when there weregreater differences in the legal systems of states comprising theworld economy Clive Schmitthoff was able to comment that

ldquo22 The similarity of the law of international trade transcends131

the division of the world between countries of free enterprise

148Schanze (1996) p 62149Lalive International Arbitration - Teaching and Research in Julian Lew (ed)Contemporary Problems in International Arbitration (1987) at p 18 quotingstatement by Goode150Regionalisation may be a step towards internationalisation but is not thesame thing and the subsequent step does not necessarily follow151See Lalive id reference to Goode and the Institute of International LawTeaching of International Law 1987 Committee chaired by Zourek

and countries of centrally planned economy and between thelegal families of the civil law of Roman inspiration and the com-mon law of English tradition As a Polish scholar observedrdquothe law of external trade of the countries of planned econ-omy does not differ in its fundamental principles from the lawof external trade of other countries such as eg Austria orSwitzerland Consequently international trade law specialistsof all countries have found without difficulty that they speak a`common language

23 The reason for this universal similarity of the law of in- 132

ternational trade is that this branch of law is based on threefundamental propositions first that the parties are free sub-ject to limitations imposed by the national laws to contract onwhatever terms they are able to agree (principle of the auton-omy of the parties will) secondly that once the parties haveentered into a contract that contract must be faithfully fulfilled( pacta sunt servanda ) and only in very exceptional circum-stances does the law excuse a party from performing his obli-gations viz if forcemajeure or frustration can be establishedand thirdly that arbitration is widely used in international tradefor the settlement of disputes and the awards of arbitrationtribunals command far-reaching international recognition andare often capable of enforcement abroad152

As suggested in the passage quoted earlier by Lalive and Goode 133

and underlined by the discussion throughout this paper an in-creased attention to international commercial law and arbitrationis merited in the law students curriculum Efforts by a number ofinstitutions aimed at enriching student awareness education andexperience in this respect through the arrangement of such inter-

152Report of the Secretary-General of the United Nations ProgressiveDevelopment of the Law of International Trade (1966) Report prepared for theUN by C Schmitthoff



national inter-collegiate activities as arbitration moots and essaycompetitions are commendable Equally so are various interna-tional commercial law oriented Internet efforts that are of value toresearchers and practitioners alike153

5 Summary134

This paper has discussed a number of interrelationships themes135

problems and possible solutions that arise from its premises per-spective and framework as set out in summary form in the in-troduction It highlights the need for lawyers world-wide to fostera genuine international approach to their thinking method prac-tice and solutions with regard to international commercial contract-ing and law The conduct of business world-wide is increasinglytransnational It demands that the legal community keep abreastof and cater for these needs Efforts to find solutions to shouldsimilarly focus on a transnational and harmonising direction Thediscussion in this paper concentrates on various aspects that areraised in consequence of this with regard to the legal frameworkavailable for the international business community problems re-lated to further transnationalisation and some possible solutionsIt is not however a mere matter of choice for the legal communityto decide whether or not to take an interest in this increasingly ev-ident phenomena The international business community has thepower to find ways to meet their needs through the expression oftheir choice in the exercise of their contractual freedom In usingthis power they exert influence on the conduct of the legal commu-nity in a manner which ensures that these needs are eventually sat-isfied The business community subscribes to the legal frameworkand services provided by those sensitive to their needs Those less

153The Institute of International Commercial Law Pace University School ofLaw is engaged in the various activities mentioned in this paragraph with regardto the CISG

sensitive are marginalised and eventually persuaded of the need toadapt The results that would be achieved by absolute freedom ofcontract however are not necessarily the most ideal for the busi-ness community as a whole As such it is necessary to be mindfulof the limitations of contractual freedom and legislators should giverecognition to this need as well

Lectures on private law aspects of international trade at the Fac- 137

ulty of Law University of Tromsoslash Norway and created ITL - In-ternational Trade Law Monitor lsaquohttpitlirvuitnotrade_lawrsaquo orlsaquohttptradelawnetrsaquo off which a large number of the (black letter)legal texts referred to in this paper are available

Thanks are due to Albert Kritzer the Executive Secretary Institute 138

of International Commercial Law Pace University School of Lawand Petri Keskitalo Research Fellow Faculty of Law Universityof Tromsamposlash for reading and commenting on this text in itspreparatory stages The views expressed here and any remainingerrors are my sole responsibility

URLs are occasionally provided as references These are subject 139

to change without notice



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lsaquohttpwwwjusuionolmtheautonomouscontract07101997amissahsisu_

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Title The Autonomous Contract - Reflecting the borderless electronic-commercial


Creator Ralph Amissah

Rights Copyright (C)[Ralph Amissah]

Subject international contracts international commercial arbitration private international

law

Publisher SiSU lsaquohttpwwwjusuionosisursaquo (this copy)

Topics Registered lawinternationalcommercial arbitration|uniform law|harmonization-

private lawarbitrationinternational commercial

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The Autonomous Contract

Reflecting the borderless electronic-commercial environment in contracting

1 Introduction

2 In search of autonomy

21 The diminishing role of States

22 Solutions available within national law

23 A transnational regulatory order for contracts

24 The autonomous contract - an a-national solution a summary

3 The problem of predictability

31 Predictability at a municipal level

32 Uniformity at an international level

4 Alternative solutions

41 Independent supra-national interpretation tribunals

42 Authoritative reviews as co-ordinating guides

43 Limiting of sources for interpretation

44 Information technology solutions - transnational harmonising information and knowledge-bases

45 E-contract solutions

46 Education

5 Summary

6 Endnote

Metadata


Copyright copy [Ralph Amissah]

SiSU lexmercatoriaorg ii

Contents

Contents


















1 Introduction4



























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66Mustill (1987) pp149-183 at pp174-177





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46 Education 128




















5 Summary134













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1 Introduction















46 Education

5 Summary

6 Endnote

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Contents

Contents


















1 Introduction4



























dictability


























































































































66Mustill (1987) pp149-183 at pp174-177





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Or again that 49




































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summary




























114Lando (1987) p 111


































































































































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46 Education 128




















5 Summary134













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1 Introduction















46 Education

5 Summary

6 Endnote

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1 Introduction4



























dictability


























































































































66Mustill (1987) pp149-183 at pp174-177





mercatoria




























Or again that 49




































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summary




























114Lando (1987) p 111


































































































































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46 Education 128




















5 Summary134













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1 Introduction















46 Education

5 Summary

6 Endnote

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dictability


























































































































66Mustill (1987) pp149-183 at pp174-177





mercatoria




























Or again that 49




































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summary




























114Lando (1987) p 111


































































































































tures
















46 Education 128




















5 Summary134













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1 Introduction















46 Education

5 Summary

6 Endnote

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66Mustill (1987) pp149-183 at pp174-177





mercatoria




























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summary




























114Lando (1987) p 111


































































































































tures
















46 Education 128




















5 Summary134













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1 Introduction















46 Education

5 Summary

6 Endnote

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Or again that 49




































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summary




























114Lando (1987) p 111


































































































































tures
















46 Education 128




















5 Summary134













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Document Manifest


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Version Information




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1 Introduction















46 Education

5 Summary

6 Endnote

Metadata































mercatoria

























summary




























114Lando (1987) p 111


































































































































tures
















46 Education 128




















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1 Introduction















46 Education

5 Summary

6 Endnote

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summary




























114Lando (1987) p 111


































































































































tures
















46 Education 128




















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46 Education

5 Summary

6 Endnote

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114Lando (1987) p 111


































































































































tures
















46 Education 128




















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1 Introduction















46 Education

5 Summary

6 Endnote

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tures
















46 Education 128




















5 Summary134













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Document Manifest


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1 Introduction















46 Education

5 Summary

6 Endnote

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46 Education 128




















5 Summary134













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Document Manifest


manifesthtmlrsaquo






law




Version Information




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1 Introduction















46 Education

5 Summary

6 Endnote

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5 Summary134













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Document Manifest


manifesthtmlrsaquo






law




Version Information




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1 Introduction















46 Education

5 Summary

6 Endnote

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Document Manifest


manifesthtmlrsaquo






law




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1 Introduction















46 Education

5 Summary

6 Endnote

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