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LEGAL RESEARCH PAPER SERIESPaper No 34/2010 March 2010

Common Frame of Reference and UNIDROIT Principles of

International Commercial Contracts:

Coexistence, Competition, or Overkill of Soft Law?

STEFAN VOGENAUER

This paper can be downloaded without charge from the

Social Science Research Network electronic library at:

http://ssrn.com/abstract=1581352

An index to the working papers in the

University of Oxford Legal Research Paper Series is located at:
http://ssrn.com/abstract=1581352http://ssrn.com/abstract=1581352http://www.ssrn.com/link/oxford-legal-studies.htmlhttp://www.ssrn.com/link/oxford-legal-studies.htmlhttp://www.ssrn.com/link/oxford-legal-studies.htmlhttp://ssrn.com/abstract=1581352


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(2010) 6 European Review of Contract Law, Issue 2

Common Frame of Reference and UNIDROIT Principles of

International Commercial Contracts:

Coexistence, Competition, or Overkill of Soft Law?

Stefan Vogenauer*

Abstract: This paper compares the scope, the purpose, the legal effect and the content of the emergingCommon Frame of Reference on the one hand and the UNIDROIT Principles of International CommercialContracts on the other. It predicts that the two instruments will largely coexist side by side, rather thancompete for potential users. The author further argues that, in the area of commercial law, there is no strongneed for a non-binding, or soft Common Frame of Reference because the UNIDROIT Principles aresufficiently capable of performing the functions that such a Frame of Reference can legitimately claim tofulfil: the Common Frame of Reference may be just one soft law instrument too many.

The Common Frame of Reference is in the making. The UNIDROIT Principles exist. So

is there a need for the former? And if we establish a Common Frame of Reference

(CFR) can we expect it to be in a better position than the UNIDROIT Principles to

achieve the purposes that it is meant to achieve? Or could these purposes be equally well,

perhaps even better achieved by the UNIDROIT Principles? We need to ask these

questions, particularly at a time when there is intense reflection about the priorities in the

work towards a European contract law, not the least amongst the Swedish Presidency

whose representatives have asked me to address the relationship between the two

instruments in question.

* Professor of Comparative Law, University of Oxford; Director of the Oxford Institute of European andComparative Law. This is a slightly revised version of a paper delivered at the conference A CommonFrame of Reference for European Contract Law in Stockholm on 23 October 2009. The conference washosted by the Swedish Ministry of Justice as part of the activities of the Swedish Presidency of the EU inthe second half of 2009.


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The UNIDROIT Principles of International Commercial Contracts (PICC) were

published by UNIDROIT, the International Institute for the Unification of Private Law.

UNIDROIT is an independent intergovernmental organisation with 63 Member States

from all six continents, including the major trade nations. The PICC were first published

in 1994. A second, extended version followed in 2004,1

and a third edition is expected in

2010 or 2011.

In comparing the PICC with the CFR that we might expect to emerge obviously a

somewhat speculative venture I will deal with the four fundamental aspects of the

Common Frame of Reference with regard to which the Justice and Home Affairs

Council defined its position in April 2008: the scope, the purpose, the legal effect and the

content of the instrument.2

How do these aspects compare with the respective features ofthe UNIDROIT Principles?

I. Scope

Let us begin with the scope of the two instruments. The PICC, according to the first

paragraph of their Preamble, are designed to establish general rules for international

commercial contracts. Therefore their scope of application differs substantially from that

of the academic Draft Common Frame of Reference (DCFR) which was published in

1 UNIDROIT, UNIDROIT Principles of International Commercial Contracts(Rome: UNIDROIT, 2004),.

Throughout this paper, reference is made to contributions published in S Vogenauer and JKleinheisterkamp (eds), Commentary on the UNIDROIT Principles of International Commercial Contracts(PICC) (Oxford: Oxford University Press, 2009), cited as Vogenauer/Kleinheisterkamp/contributor.2 Council of the European Union, Press Release: 2863rd Council meeting, Justice and Home Affairs,Luxembourg, 18 April 2008 (8397/08) p 18. The JHA Council discussed these factors in a slightly differentorder (purpose, content, scope and legal effect) from which I have deviated for ease of exposition. Theposition of the JHA Council was adopted on the basis of a draft report by the Slovenian Presidency whichwas informed by discussions in the Committee on Civil Law Matters: Council of the European Union,Notefrom Coreper II to Council: Draft report to the Council on the setting up of a Common Frame of Reference

for European contract law, Brussels, 11 April 2008 (8286/08).


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February 20093

and, perhaps to a somewhat lesser extent from that of an eventual CFR.

These differences concern both the territorial scope and the coverage of topics.

1. Territorial Scope

The PICC are explicitly designed to apply to international transactions. Their scope

would therefore seem to be at the same time broader and narrower than that of the DCFR

or a potential CFR.

On the one hand, it is broader because the notion of international is not confined to

transactions that involve at least one party from an EU Member State or that have at least

some other connection with the EU. Indeed, the elaboration of the PICC can at leastpartially be seen as a reaction to the particular difficulties encountered in trade on a

global scale, notably between Western and non-Western societies, between capitalist and

non-capitalist systems and between developed and developing nations. The PICC aspire

to apply across the globe. By contrast, we may expect that the CFR will be restricted to

transactions with a European dimension. The DCFR does not spell this out as clearly as

the Principles of European Contract Law (PECL) did.4 But it is what we must assume,

first, from the working titles used in the official documents of the organs of the EU 5 and

by the Study Group;6

3 C von Bar, E Clive, H Schulte-Nlke et al (eds), Principles, Definitions and Model Rules of European

Private Law: Draft Common Frame of Reference (DCFR) Outline Edition (Munich: Sellier, 2009).

secondly, from its genesis that goes back to the PECL and is part of

the ongoing process of the Europeanisation of private law; and, thirdly, from its political

link to the creation of a (European) internal market and its focus on the (European)

consumer acquis. Even if the CFR will not be expressly limited in this way, it will be

4 Cf Art 1:101(1) PECL.5 Commission of the European Communities, Communication from the Commission to the EuropeanParliament and the Council: A more Coherent European Contract Law an Action Plan [2003] OJ C63/1para 90 refers to rules particularly adapted to contracts in the internal market. Both documents cited inn 2 above refer to the Common Frame of Reference forEuropean contract law, as does EuropeanCommission First Annual Progress Report on European Contract Law and the Acquis Review, 23September 2005, COM(2005) 456 final, para 1: European Contract Law (ECL) initiative (emphasisadded).6 See n 3 above: Model Rules ofEuropean Private Law (emphasis added).


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designed for European transactions, not necessarily those beyond the borders of the

continent.

On the other hand, the scope of the PICC is narrower because the notion of international

requires a cross-border transaction or at least some other international dimension of the

deal, such as an impact on international trade.7 Purely domestic transactions are not

covered. By contrast, we may expect the CFR to apply to transactions between parties

based within the same EU Member State. It would therefore potentially cover all

transactions in Europe, whether they have a cross-border dimension or not. At any rate,

this was the position of the PECL,8 it does not seem to have been abandoned by the

drafters of the DCFR,9 and has not been ruled out by the political organs of the EU.10

Anything else would of course have been surprising, given the attempt to integrate theEU consumer acquis which currently also applies to transactions between parties based in

the same Member State.

2. Coverage of Topics

Perhaps the most important difference between the two instruments concerns the range of

topics covered by them. The PICC, according to their Preamble, set forth general rules

for commercial contracts. Their scope is therefore narrower than that of the proposed

CFR, and it is so on two counts.

To begin with, the PICC are exclusively concerned with the general law of contract, i.e.

the rules and principles that are common to all types of contracts (sales, services, leases,

etc.). The PICC have Chapters on, inter alia, formation, validity, interpretation, content,

performance and non-performance that can be relevant for all contracts. The 2004

7 Vogenauer/Kleinheisterkamp/Michaels Preamble I para 21.8 Art 1:101(1), with Comment A.9 Art I.-1:101(1).10 Commission of the European Communities, Communication from the Commission to the Council and theEuropean Parliament on European contract law [2001] OJ C255/1 para 53 (legal issues, especiallyconcerning cross-border contracts). Whilst the focus was first on cross-border contracts (paras 23-33 of the2001 Communication; Commission,Action Plan (n 5 above) paras 90, 92), no such limitation has beensuggested since the 2005 re-prioritisation of the project towards consumer law (see n 197 below).


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revision of the instrument added Chapters on, inter alia, set-off, assignment of rights and

transfer of obligations. The rules in those Chapters can apply to contractual as well as to

extra-contractual obligations. Therefore, at least in theory, the PICC now do not only

cover significant chunks of what would be regarded as general contract law in most

jurisdictions, but also selected aspects of what would be called the general law of

obligations in some national legal systems. However, the PICC were not drafted for the

purpose of being applied outside the area of contract, 11 and it is not to be expected that

they will actually be used for non-contractual obligations in practice. The forthcoming

third edition of the PICC will probably add further rules which have the potential of

relating to contracts alone (such as illegality and the unwinding of failed contracts) or to

obligations in general (on the plurality of obligors and obligees) although the latter are

again carefully devised so as to apply to contractual obligations only.12 UNIDROIT doesnot, at present, intend to extend the scope of the PICC, so as to deal with specific types of

contracts, tort, unjustified enrichment or personal property law.13

Very soon, the range of topics covered by the PICC will therefore almost exactly

correspond to that of the PECL, and it will be broadly in line with the subject-matter dealt

with in the first three books of the DCFR which were drafted against the background of

the PECL. However, as is well known, the coverage of the DCFR is much broader. It is

essentially a blueprint for a European civil code in the area of patrimonial law 14 that also

deals with specific types of contracts, non-contractual obligations and issues related to

personal property, security rights and trusts. It is equally well known that there is not the

faintest degree of political support for such a broadly conceived instrument in the Council

and the Commission.15

11

MJ Bonell, UNIDROIT Principles 2004 [2004] ULR 5, 29-30; O Lando, The Structure and the LegalValues of the Common Frame of Reference (CFR) (2007) 3 ERCL 245, 248;Vogenauer/Kleinheisterkamp/Michaels Preamble I para 20.

The Commission has focussed on contract law, and particularly

on the general law of contract, since it first looked into the issue of European private law

12 Unidroit (2009) Study L Doc 112, Draft Off Cmt 2 to Draft Art 1.1, p 5.13 References in Vogenauer/Kleinheisterkamp/Vogenauer Introduction paras 42-43.14 S Vogenauer, Memorandum in House of Lords, European Union Committee,European Contract Law:the Draft Common Frame of Reference Report with Evidence (HL Paper 95, 10 June 2009) para 14.15 However, the European Parliament seems to be strongly in favour of the broad coverage envisaged by theDCFR: cf, inter alia, its Resolutions of 15 November 2001, OJ C140E of 13 June 2002, p 538 paras 9, 13and of 12 December 2007, OJ C323E of 18 December 2008, p 364 para 6.


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in 2001.16 The more recent policy documents of the Council speak with equal clarity of

the setting up of a Common Frame of Reference for European contract law.17 There is

therefore an emerging consensus that the conversion of the academic DCFR into a

political CFR will require a re-contractualisation of the scope of the instrument. 18

However, even if it is possible to reach agreement on confining the CFR to contract law it

must still be decided how many aspects of contract law, and perhaps even of other areas

of law need to be included to ensure that the CFR will be fit for purpose. 19 Whilst the

drafters of the DCFR advocate the broadest possible coverage,20 the Council seems to

favour a minimalist approach, excluding even the law relating to specific types of

contracts for the time being.21

We might therefore expect that the range of topics covered

by the CFR will not differ significantly from that of the PICC.

There is, however, one important exception to this broad similarity of coverage, and this

is the second reason why the scope of the PICC is and will remain more narrowly

confined than that of the DCFR and the CFR: the PICC are exclusively concerned with

commercial contracts. The notion is understood broadly, and it might include contracts

that would not be classified as commercial in some domestic legal systems. But it is

certainly meant to exclude consumer contracts from the scope of the instrument.22

16 Commission,Action Plan (n

Furthermore, the PICC are not designed to apply to contracts between two parties,

particularly natural persons, who are not dealing in the course of a business. Thus,

5 above) para 10 (somewhat broadened in para 13); Commission of theEuropean Communities, Communication from the Commission to the European Parliament and theCouncil European Contract Law and the revision of the acquis: the way forward, Brussels, 11 October2004, COM(2004) 651 final, Annex I, pp 14-16.17 Council, Press Release (n 2 above); Council of the European Union, Press Release: Guidelines on thesetting up of a common frame of reference for European contract law 2946th Justice and Home Affairs

Council meeting, Luxembourg, 5 June 2009 (emphasis added).18 R Schulze and T Wilhelmsson From the Draft Common Frame of Reference towards European Contract

Law Rules (2008) 4 ERCL 154, 165. See also Lando (n 11 above) 251; House of Lords, EU Committee (n14 above) para 100.19 The scope of the CFR, therefore, cannot be defined without reference to the purpose(s) of the instrument,for which see Part II below.20 C von Bar, H Beale, E Clive and H Schulte-Nlke, Introduction in v Bar et al (n 3 above) paras 66-70:When in doubt, topics should be included.21 Presidency of the European Union,Draft report to the Council on the setting up of a Common Frame ofReference for European contract law, Brussels, 7 November 2008, 15306/08, para 12: should not betreated with priority in the CFR.22 Vogenauer/Kleinheisterkamp/Michaels Preamble I paras 25-28.


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translated into the language of European contract law, the PICC are meant to apply to

B2B transactions, but not to B2C or C2C contracts.

By contrast, the DCFR purports to apply to all these types of contracts (B2B, B2C and

C2C)23 although some of its rules are expressly confined to business transactions,

consumer contracts or agreements between non-business parties.24 This is in line with

the position of the political organs of the EU. They have made it clear from the outset that

the CFR will include the law of consumer contracts, particularly the acquis

communautaire in the area of consumer contract law.25 This focus has not changed,26

perhaps to the detriment of B2B contracts to which less attention seems to have been

given in the European contract law initiative so far.27

Obviously, all these differences with regard to the scope of the instruments have a

bearing on their respective contents, and I will return to some of the issues arising from

them in the fourth part of this paper.

23 Art I.-1:101 DCFR (the Introduction (n 20 above) para 67 only discusses the inclusion of consumercontracts). This is in line with the position of the PECL which can be inferred from, inter alia, Comment Aand the outset of the Notes to Art 4:110 PECL; see also A Hartkamp, The UNIDROIT Principles forInternational Commercial Contracts and the Principles of European Contract Law (1994) 2 ERPL 341,

343.24 See, eg, Arts II.-9:403 to II.-9:405 (control of standard terms) and Arts II.-3:102 to II.-3:104 (informationduties).25 Commission, Communication (n 10 above) para 30; Commission,Action Plan (n 5 above) para 31. Butsee the most recent statement in Communication from the Commission to the European Parliament and theCouncil: An area of freedom, security and justice serving the citizen, 10 June 2009, COM (2009) 262 final,pp 13-14, discussed on p 42 below.26 Council, Press Release (n 2 above): general contract law including consumer contract law; Presidency,Draft report(n 21 above) paras 11-13.27 See pp 35-39 below.


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II. Purposes

1. Background Law (Toolbox) and Applicable Contract Law Regime (Optional

Instrument)

The potential purposes or functions of a CFR in the area of contract law have been amply

discussed in recent months. Three of these remain realistic options. First, the ominous

toolbox that would be conceived as a tool for better lawmaking targeted at Community

lawmakers.28 This is the minimalist option preferred by the Council. The second

potential purpose is the so-called optional instrument. This would provide a set of rules

which the parties of a transaction might choose (or: opt in to) with the result that the

instrument would govern the transaction as the applicable contract law. This is the optionmooted by the Commission in 2003.29 It seemed to be off the agenda after having been

repeatedly ignored by the Council.30 However, it recently resurfaced in a Communication

from the Commissions DG Justice,31

and it has long been on the books of the European

Parliament, so it cannot be dismissed as a complete damp squib at present. The third

potential purpose of the CFR much less controversial and rarely discussed is its use as

an aid to the teaching of European, comparative and national contract law.

The PICC have similar aspirations. The second paragraph of their Preamble seeks to

establish them as what we might call an optional instrument for the general law of

contract in international commercial transactions. It suggests that adjudicators apply the

PICC when the parties have agreed that their contract be governed by them, or, to use

CFR-speak, when the parties have opted in. The following two paragraphs of the

Preamble suggest an application of the PICC when such an opt-in has not occurred but

the parties have agreed that their contract be governed by general principles of law, the

lex mercatoria or the like and even when the parties have not chosen any law to govern

28 Council, Press Release (n 2 above).29 Commission,Action Plan (n 5 above) paras 89-97.30 The idea of an optional instrument was not even mentioned in Council, Press Release (n 2 above) andCouncil, Guidelines (n 17 above). In her contribution to the conference mentioned in n * above, TRasmussen of the Swedish Ministry of Justice made it clear that Council rejects an opt-in instrument.31 Commission, COM (2009) 262 final (n 25 above) pp 13-14.


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their contract at all. The PICC thus envisage, as it were, that the opt-in can also be

exercised by the adjudicator if the parties have not opted into any given state law.

Paragraphs 5 and 6 of the Preamble then suggest the use of the PICC as an aid to the

interpretation and supplementation of international uniform law and domestic law.

Paragraph 7 of the Preamble extends an invitation to national and international legislators

to model their contract laws on the UNIDROIT Principles. The Principles therefore have

a model function: they serve as a background law for domestic law and transnational

law.32

This seems to be but another articulation of the toolbox idea, albeit not in a

European but in a global context.

Finally, the Official Comment to the Preamble also mentions that the PICC can be usedas an aid to the teaching of contract law.33

The order of presentation, it seems to me, represents the importance attributed by the

drafters to the various purposes: the PICC are primarily intended to be an applicable

regime of contract law (or: optional instrument). The use as a source of inspiration and

as a model (or: toolbox) was thought to be less relevant indeed, the idea that the PICC

might be used to interpret or supplement domestic law had not even been included in the

original Preamble: the penultimate paragraph was only introduced in the 2004 edition

because it had become apparent that the PICC had actually been used for this purpose in

practice.34

2. Success in Achieving the Purposes

If we refer to the use of the PICC in practice we have to ask whether the instrument has

actually been able to achieve its purposes. Perhaps paradoxically, the PICC have been

32 For this expression, see R Michaels, Umdenken fr die UNIDROIT-Prinzipien: Vom Rechtswahlstatutzum Allgemeinen Teil des transnationalen Vertragsrechts (2009) 73 RabelsZ 866, 876 and S Vogenauer,Interpretation of the UNIDROIT Principles of International Commercial Contracts by national courts in HSnijders and S Vogenauer (eds), Context and Meaning of National Law in the Context of TransnationalLaw (Munich: Sellier, 2009) 157, 164.33 Off Cmt 8 to the Preamble, p 7.34 Vogenauer/Kleinheisterkamp/Michaels, Preamble I para 111.


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much more successful with regard to their second function.35 They have been a source of

inspiration for a fair number of national lawmakers, and they seem to have been taken

into account by the international Working Group behind the DCFR.36

Various state

courts and arbitral tribunals around the globe have referred to the PICC for the purposes

of interpreting and supplementing international uniform law and domestic law. The PICC

have therefore indeed assumed the function of a global background law for international

commercial transactions.

The PECL have assumed a similar role in Europe and, to a lesser extent, beyond. 37 Based

on their experience and that of the PICC, we may anticipate a similar or even bigger

success for the CFR as a model for law reform. Even if its purposes are confined to being

a simple toolbox its role would go far beyond a mere guideline for the legislative organsof the Union when drafting EU law. Realistically, one would also expect it to become a

source of inspiration for European and national courts when interpreting EU law38 and, to

a lesser extent, for national legislators and judges when drafting and interpreting national

law.39

But what about the purpose of providing an applicable contract law regime that parties

can use as a set of rules governing real life transactions? Despite frequent assertions to

the contrary, the PICC have been much less successful in this regard. Only a small

number of cases have been reported where arbitral tribunals applied the PICC after the

parties had subjected their transaction to general principles of law or the lex

mercatoria, or had not made any choice of law at all. There is even less evidence of

35 References are provided by Vogenauer/Kleinheisterkamp/Michaels Preamble I paras 88-139.36 The exact extent of the influence is not clear. According to E Clive, An Introduction to the CommonFrame of Reference (2008) 9 ERA Forum S13, 20, in the areas of common coverage, the DCFR is even

closer to the Unidroit Principles than PECL was. Somewhat less strong: DCFR Introduction (n 20 above)para 25.37 See, e.g., O Meyer, Principles of Contract Law und nationales Vertragsrecht: Chancen und Wege freine Internationalisierung der Rechtsanwendung (Baden-Baden: NOMOS, 2007); E Roca Tras and BFernndez Gregoraci, The Modern Law of Obligations in the Spanish High Court (2009) 5 ERCL 45.38 V Trstenjak, Der Gemeinsame Referenzrahmen und der Europische Gerichtshof in M Schmidt-Kessel(ed),Der Gemeinsame Referenzrahmen: Enstehung, Inhalte, Anwendung (Munich: Sellier, 2009) 235.39 See the suggestion to use the DCFR as a source of inspiration for a reform of Scottish contract law by LMcGregor, Report on the Draft Common Frame of Reference: a report prepared for the ScottishGovernment, 5 March 2009, http://www.scotland.gov.uk/Publications/2009/03/05095249/0.


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cases where the parties to an international commercial transaction did indeed agree on the

PICC as the law governing their transaction.40 A recent empirical study shows that this is

gradually changing, perhaps in line with an increasing awareness of the existence of the

PICC,41 but for the time being one has to agree with Professor Michaels of Duke

University who speaks of an embarrassingly low number of cases where the parties

used the possibility to choose the Principles.42

We may assume that this reluctance is due to a variety of reasons. They include the

relative novelty of the PICC, practitioners lack of familiarity with them, doubts as to the

substantive merits of at least some of their black letter rules and, perhaps most

importantly, the uncertainty attached to an instrument that has not been as extensively

tested and litigated as the existing national contract laws. There is, of course, anotherimportant obstacle to more frequent opt ins to the PICC: such choices will not always

be acknowledged. At present, a purported choice of the PICC as the law governing the

contract would only be recognised by (most) arbitral tribunals43 but it would not be

accepted in state courts. No given jurisdiction with the somewhat marginal exception of

the US State of Oregon has choice of law rules which allow the choice of a non-state

law.44 As is well known, the introduction of such a possibility was considered and

rejected both during the conversion of the Rome Convention into the Rome I

Regulation45 and in the course of the 2001 revision of the Uniform Commercial Code in

the United States.46

40 For an overview of the empirical research, see Vogenauer/Kleinheisterkamp/Vogenauer Introductionparas 40-41.41 S Vogenauer, Perceptions of Civil Justice Systems in Europe and their Implications for Choice of Forumand Choice of Contract Law: an Empirical Analysis in S Vogenauer and C Hodges (eds), Civil JusticeSystems in Europe: Implications for Choice of Forum and Choice of Contract Law (Oxford: Hart,

forthcoming 2010). This study was confined to European businesses, and a world-wide survey might showmore wide-spread choice of the PICC by parties to international transactions.42 Michaels (n 32 above) 871.43 Vogenauer/Kleinheisterkamp/Scherer Preamble II.44 For an overview of the existing conflicts regimes, see Vogenauer/Kleinheisterkamp/Michaels Preamble Iparas 49-63 (for Oregon, see para 58).45 Art 3(1), together with Recitals 13 and 14 of Regulation (EC) No 593/2008 of the European Parliamentand of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) [2008] OJL177/6.46 1-301 UCC (2001), retracted in 2008.


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The DCFR suffers from the same problems, and so will a future CFR. It is difficult to

predict whether the parties would be willing to trade the (presumed) certainty of a

domestic contract law for the uncertainty attached to a novel European instrument. The

experience of the PICC suggests that they might need further incentives to do so. For

consumers, this could be a level of protection that is generally acknowledged to be higher

than that provided for by the consumer laws of the Member States. As far as B2B

contracts are concerned, it may be expected that businesses will only opt into a European

contract law if they are convinced that the substantive rules are more appropriate for their

transactions than those of national contract laws. This will not be easy to achieve if the

CFR is closely based on the DCFR, as I will try to show later. 47 However, the EU should

be able to overcome some of the obstacles that seem to deter parties from choosing the

PICC. First, it has the resources to encourage the teaching of European contract law atuniversity level and through judicial and practitioners workshops. As a result, lack of

familiarity with the content of the CFR would be less of a problem. Secondly, the EU

legislator could either amend the Rome I Regulation or provide in the CFR itself that

state courts must acknowledge an opt in of the parties.48

This would ensure that parties

which do not wish to submit their disputes to arbitration are at least not actively

discouraged from opting into the CFR. Whether the political organs make use of the

means that are at their disposal, though, is a question of political will, and there does not

currently seem to be much enthusiasm for changing the Regulation.

III. Legal Effect

1. Soft Law

A further fundamental aspect of the emerging CFR is that of its bindingness, or absence

of bindingness. The April 2008 document of the Justice and Home Affairs Council raised

this issue under the rubric of legal effect and suggested that the CFR be conceived as a

47 See Part IV. below.48 As envisaged in Recital 14 of the Rome I Regulation (n 45 above).


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set of non-binding guidelines to be used by lawmakers at EU level on a voluntary basis as

a common source of inspiration or reference in the lawmaking process.49 Obviously, the

question of bindingness is intimately linked to the purposes of the instrument. Having

opted for the toolbox function, the Council sees the EU legislator as the addressee of the

CFR. Given the freedom of the legislative organs to make law within the constitutional

framework of the Founding Treaties as they see fit, the toolbox cannot be anything but

non-binding unless, that is, it would be elevated to Treaty status. The Commissions

2008 Proposal for a Consumer Rights Directive50 which does not seem to have taken into

account the previously published Interim Outline Edition of the DCFR51

does not

amount to constitutional impropriety. Quite the contrary, it would seem that a legislator

who is convinced that the legislative guidelines are not entirely suitable for his purposes

is bound to disregard these guidelines and employ the rules, principles and definitionsthat would secure the best possible outcome.

The PICC are also designed to be a non-legislative means of unification or

harmonisation of law.52 Right at the outset of the drafting process 53 it was decided not to

follow the traditional approach towards the unification of private law, i.e. the conclusion

of an international Treaty or Convention that would bind the Contracting States in public

international law to implement the uniform rules. The PICC were rather drawn up by an

international Working Group of contract lawyers who sat in their personal capacity, and

not as representatives of their respective governments. There was no attempt by the

Member States of UNIDROIT to conclude an agreement to be bound by the results of

these labours. The Governing Council of UNIDROIT explicitly decided that it would not

formally approve the Principles but rather authorise their publication. 54

49 Council, Press Release (n 2 above). Reiterated in Presidency,Draft report(n 21 above) para 16; Council,

Guidelines (n 17 above) para 20.50 8 October 2008, COM(2008) 614/3.51 M Hesselink, The Consumer Rights Directive and the CFR: two worlds apart? (2009) 5 ERCL 290,291, 298, 302; P Rott and E Terryn, The Proposal for a Directive on Consumer Rights: No Single Set ofRules [2009] Zeitschrift fr Europisches Privatrecht 456, 457-458, 487; R Zimmermann, The PresentState of European Private Law (2009) 57 Am J Comp L 479, 487-489.52 Governing Council, Introduction to the 1994 Edition in UNIDROIT (n 1 above) p xiv. See also MJBonell, Unification of Law by Non-legislative Means (1992) 40 Am J Comp L 617.53 References in Vogenauer/Kleinheisterkamp/Vogenauer Introduction para 16.54 (1994) CD (73) 18, p 22. Cf Vogenauer/Kleinheisterkamp/Vogenauer Introduction para 20.


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As a result, the PICC are not binding on any of the UNIDROIT Member States. It is open

to any state to endorse them by way of implementation or promulgation as domestic law.

However, as long as a state refrains from doing so, the PICC do not constitute law

proper within the meaning of the traditional theory of legal sources that equates law with

the rules emanating from the sovereign of a nation state.55 The PICC are, as is frequently

said, mere soft law. The Governing Council of UNIDROIT freely admits that the PICC

are not a binding instrument and that in consequence their acceptance will depend upon

their persuasive authority.56

2. Mandatory Provisions in Soft Law Instruments

The PICC show that a non-binding set of rules of contract law can be used both as a

toolbox and as an optional instrument.57 However, it does not necessarily follow that

it would be feasible to enact a non-binding CFR that was to perform the function of an

optional instrument. The soft law approach would certainly not work if the CFR were

to apply, as is currently envisaged, to consumer contracts. The most important rules of

consumer law are, by their very nature, of a mandatory character. It would not make

sense for the parties to a consumer contract to opt into the CFR and at the same time to be

allowed to opt out of the mandatory rules designed for the protection of the consumer. 58

Of course it would be perfectly possible to stipulate in the optional instrument or

somewhere else that in opting for the instrument the parties may not exclude the

application of its mandatory rules.59

But this is incompatible with the soft law approach

that is politically desired: such a provision would, like it or not, turn it into an act with

binding force.

55 For the classic exposition of the traditional theory, see J Austin, The Province of JurisprudenceDetermined(1832), HLA Hart (ed) (London: Weidenfeld & Nicholson, 1954) 1-3.56 Governing Council (n 52 above) p xv.57 See Part II. 2., pp 9-12 above.58 For a similar point made with regard to insurance law, see J Basedow, The Optional Application of thePrinciples of European Insurance Contract Law (2008) 9 ERA Forum S111, 113.59 H Heiss and N Downes, Non-Optional Elements in an Optional European Contract Law. Reflectionsfrom a Private International Law Perspective (2005) 5 ERPL 693, 703, 709; Clive (n 36 above) S30.


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The PICC face a similar problem. They set forth a number of provisions which spell out

that the parties are not permitted to exclude or to derogate from them. These provisions

include the rules on the policing of grossly unfair exemption and liability clauses, on the

avoidance of the contract because of fraud, threat or gross disparity and on the duty to act

in accordance with good faith and fair dealing. 60 The Official Comment to the PICC

refers to these rules as mandatory provisions, but at the same time it acknowledges that,

given the particular nature of the Principles, the agreement to derogate from these rules

may have no consequences.61 This will be the case whenever the PICC are applicable

because the parties have expressly chosen their application62 and have at the same time

derogated from one or more of the mandatory provisions. Here, the parties (partial)

choice of the PICC simply does not extend to these particular provisions. The arbitral

tribunal would not enforce the purported mandatory rules of the PICC.63

I have argued elsewhere that this is more or less an academic problem. 64 Derogating from

these rules would effectively amount to one of the parties suggesting to the other during

the negotiations: Let our transaction be governed by the UNIDROIT Principles, but, hey,

even if I act fraudulently you shall not be able to avoid the contract. This would hardly

induce the other party to proceed. Furthermore, if the parties have deselected a

particular rule of the PICC the tribunal must have recourse to the contract law that is

otherwise applicable.65 Since most of the mandatory provisions of the PICC reflect

standards of behaviour which are of a mandatory character under most domestic laws

also66

this will usually not make a difference to the outcome.

60 Cf Arts 1.7, 3.8, 3.9, 3.10, 3.19 and 7.1.6, respectively.61 Off Cmt 3 to Art 1.5, p 15.62 I do not attempt to deal with the more difficult question of the application of self-styled mandatory

provisions if the tribunal applies the PICC because the parties have agreed that their contract be governedby general principles of law or have not made any choice of law at all (cf paragraphs 3 and 4 of thePreamble of the PICC). This question will not arise in the context of the CFR as long as it is designed as apurely opt in instrument.63 EM Belser, Die Inhaltskontrolle internationaler Handelsvertrge durch internationales Recht: Ein Blickauf die Schranken der Vertragsfreiheit nach UNIDROIT Principles in [1998] Jahrbuch jungerZivilrechtswissenschaftler 73, 79.64 Vogenauer/Kleinheisterkamp/Vogenauer Art 1.7 paras 42-43.65 Vogenauer/Kleinheisterkamp/Vogenauer Art 1.6 paras 58-59.66 Off Cmt 3 to Art 1.5, p 15.


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However, this will not always be the case. You may imagine, for example, a party from

England and a party from the United States opting into the PICC, but excluding the duty

to negotiate in good faith that is stipulated in Articles 1.7 and 2.1.15 PICC. An arbitral

tribunal that would have to apply the PICC in this case would not be able to enforce the

duty against the agreement of the parties. Since the domestic laws of the parties do not

acknowledge such a duty either67

the lack of negotiations in good faith would only be

sanctioned if the law of a third jurisdiction which recognizes a corresponding duty

happened to be applicable to the extent that the transaction is not governed by the PICC.

From what I have just said it should be clear that my earlier statement, according to

which the problems faced by the PICC and the CFR with regard to their mandatory

provisions are similar, must be qualified. This is true as a matter of principle. However,the PICC face these problems to a much lesser degree. Given their scope, they are only

concerned with commercial contracts and therefore set forth a significantly smaller

number of mandatory rules. What would be a serious issue for a non-binding CFR that

includes consumer protection rules is not hugely disturbing for a non-binding instrument

that governs the relationship between two commercial parties which do not have, at least

prima facie, unequal bargaining power and may be expected to take legal advice.

3. Degrees of Persuasive Authority

But let us assume that the CFR will indeed be adopted as a non-binding toolbox in the

first place. In the absence of binding authority, would it at least have persuasive

authority? And, given that persuasive authority is a matter of degree, would it be stronger

or weaker than that of the PICC? The persuasive authority of a soft law instrument that

was designed by academics within an institutional framework would seem to depend on

at least four factors: first, on the strength of the institution backing the instrument and the

force of the institutional endorsement; secondly, on the personal authority of its drafters;

thirdly, on the methodological credibility of the drafting process; and fourthly, on the

67Walford v Miles [1992] 2 AC 128, 138 (HL); 1-304 UCC; 205 Restatement 2d Contracts, withComment e, p 102.


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inherent quality of its provisions.68

I will deal with the last of these issues in somewhat

more detail in the following part of this paper. With regard to the other three factors, a

mixed picture emerges.

The CFR is bound to do better on the first count. Any kind of endorsement by the

legislative organs of the EU will be more impressive than UNIDROITs cautious

authorisation to publish the Principles.69

But the CFR arguably does less well, or at

least not better with regard to the other factors.

The PICC derive their persuasive force to a great extent from the fact that as it was said

by the Australian Government commenting on the draft PICC in 1993 they were

elaborated by some of the most eminent world experts in this area of the law. 70 Similarcomments have been made in some arbitral awards which applied the PICC.71 This

cannot be said with equal force of the DCFR. Obviously its first three books are based on

the PECL which were drafted and integrated into the DCFR by equally eminent experts, 72

and the coordinators and team leaders of the DCFR are of similar academic distinction.73

However, much of the groundwork in the various teams preparing Books IV-X seems to

have been done by much more junior scholars, and the legal community will find it more

difficult to have trust in their work and thus in the overall product.

As far as the credibility of the drafting process is concerned, it is important to note that

the PICC and the PECL were elaborated on the basis of a very similar methodology. In

the preparation of the first three books of the DCFR this approach was broadly adhered

to, although the incorporation of the consumer acquis threw up additional methodological

68 For a much more thorough examination of the phenomenon of authority of soft law instruments, see theforthcoming book by N Jansen, The Making of Legal Authority: Non-legislative Codifications in Historical

and Comparative Perspective (Oxford: OUP, 2010).69 See n 54 above.70 Letter of the Attorney Generals Department to the Secretary General of UNIDROIT of 19 November1993, cited in MJ Bonell, The UNIDROIT Principles of International Commercial Contracts and thePrinciples of European Contract Law: Similar Rules for the Same Purposes? [1996] ULR 229, 243 n 50.71 References in MJ Bonell,An International Restatement(Ardsley: Transnational Publishers, 3rd edn,2005) 277-300.72 The members of the Lando Commission and the DCFR Compilation and Redaction Team are listed inAcademic contributors and funders in v Bar et al (n 3 above) 47, 53-54.73 Ibid, 48-49.


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problems. We may thus expect that, broadly speaking, approval as well as criticism of the

methodology employed in preparing the PICC and the CFR will usually apply to both

instruments in equal measure. Concerns relating to the drafting process tend to relate to,

first, the sources of inspiration which the drafters drew upon; secondly, the inherent

tension between the avowed aim to create a restatement of the common core of

European or global contract law and the need to search for best solutions whenever such

a common core cannot be established, combined with a tendency to emphasize the

restatement character in order to downplay the policy choices made by the Working

Groups and the frequent (and inevitable) deviations from at least some national contract

laws; thirdly, the apparent lack of in-depth comparative research conducted by the

Working Groups; and, fourthly, the difficulties in receiving and processing input from

non-academic stakeholders, such as politicians, businesses and consumer organisations.There is, however, at least one aspect of the drafting process on which the PICC score

infinitely better: the Working Group had much more time to design its instrument, and it

shows. By contrast, the drafting of the DCFR seems to have been extremely rushed, with

the result that the outcome inspires less confidence in its maturity. Now, Books II and III

which are the focus of this paper are based on the PECL, and work on those began in

1980. But the DCFRs Compilation and Redaction Team that was charged with, inter

alia, integrating the PECL material was only established in 2006.74

In any event, the

logic of the DCFR suggests that the amendments necessary to adjust the PECL to the

new, de-contractualised structure of the DCFR could only be made towards the very end

of a drafting process that happened within a very short timeframe. This is, of course, a

deficiency that can be remedied in the forthcoming transition from the DCFR into a CFR

for which the Commission should set a more realistic deadline than for the production of

the DCFR.

74 v Bar et al (n 72 above) 54.


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IV. Content

Finally, and most importantly, to what extent does the content of the UNIDROIT

Principles differ from the first three books of the DCFR that might be turned into a CFR?

As far as I know, no comparison of the two instruments has been attempted so far.

Apparently the forthcoming issue of the Uniform Law Review will offer a comprehensive

synopsis of the respective provisions by Professor Bonell of UNIDROIT.75 Unfortunately

this has not been available to me in preparing this paper. However, I have enormously

benefited from the comparative analyses of the PECL and the PICC undertaken by

Professor Bonell and others in the past. 76

The striking resemblance of these two instruments with regard to both form andsubstance has been pointed out frequently.77 It has been said that about two thirds of the

185 articles contained in the PICC have almost literally corresponding provisions in the

PECL.78 We cannot assume a similar match with regard to the DCFR although the DCFR

contains many rules that are derived from the [PECL].79

75 This has now been published as MJ Bonell and R Peleggi, UNIDROIT Principles of InternationalCommercial Contracts and Draft Common Frame of Reference: A Synoptical Table [2009] ULR 437. Fora short overview, see also U Blaurock, Lex mercatoria and Common Frame of Reference [2007]

Zeitschrift fr Europisches Privatrecht 118, 125-127.

First, the PICC and the PECL

were drafted more or less in parallel by relatively small Working Groups with a

significant personal overlap of some of the key players. No such temporal proximity and

a much smaller personal link exist with the DCFR. Secondly, as we have seen before, the

relevant books of the DCFR shifted the focus from straightforward contract law to rules

concerning the general law of obligations and integrated the consumer acquis. According

to the Introduction to the DCFR, the PECL could not simply be incorporated as they

stood. Deviations were unavoidable in part due to the different purpose, structure and

76 Bonell (n 70 above) 229; id (n 11 above) 31-38; MJ Bonell and R Peleggi, UNIDROIT Principles ofInternational Commercial Contracts and Principles of European Contract Law: A Synoptical Table [2004]ULR 315; Bonell (n 71 above) 335-359. See also Hartkamp (n 23 above); O Remien, Die UNIDROIT-Prinzipien und die Grundregeln des Europischen Vertragsrechts Ein vergleichender Blick in E CashinRitaine and E Lein (eds), The UNIDROIT Principles 2004: Their Impact on Contractual Practice,Jurisprudence and Codification (Zurich et al: Schulthess, 2007) 65.77 Most recently, Zimmermann (n 51 above) 483.78 Bonell (n 11 above) 33.79 DCFR Introduction (n 20 above) para 49.


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coverage of the DCFR and in part because the scope of the PECL needed to be broadened

so as to embrace matters of consumer protection.80 As a result, we may expect a

substantial number of divergences between the PICC and the DCFR. There is, as one of

the editors of the DCFR has forcefully argued, a fundamental difference in the

philosophy of the respective projects.81

1. Formal Aspects

It is perhaps more surprising that the two instruments differ so much with regard to

formal aspects. These concern the mode of presentation, the structure and the style of

drafting.

a) Mode of Presentation

Both instruments are essentially contract law codifications. They contain a set of model

rules or, as they are called in the PICC, black letter rules. In the PICC, each article is

followed by one or more Official Comments explaining the background and the reasons

for the adoption of the rule and its potential applications. Some of these Comments are

interspersed with Illustrations, hypothetical fact patterns that are designed to show how

the rule might operate in practice. Rules, Comments and Illustrations were all produced

simultaneously, and only in their entirety do they constitute what is called the integral

version of the PICC.

I take it that the Full edition of the DCFR will include similar comments and

illustrations, as did the PECL. As opposed to the PICC but again in line with the PECL

it will also contain comparative Notes describing briefly the manner in which the

80 Ibid. For an overview of the adaptations of the PECL rules in the DCFR, see ibid paras 30-53; HEidenmller, F Faust, HC Grigoleit, N Jansen, G Wagner and R Zimmermann, The Common Frame ofReference for European Private Law Policy Choices and Codification Problems (2008) 28 OJLS 659,666-667; B Jud, Die Principles of European Contract Law als Basis des Draft Common Frame ofReference in Schmidt-Kessel (n 38 above) 71.81 ME Storme, Une question de principe(s)?: Rponse quelques critiques lgard du projet provisoire deCadre commun de rference (2008) 9 ERA Forum S65, 66-68. However, see the views of Clive, cited inn 36 above.


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issue addressed in a particular model rule is dealt with in the laws of the Member States,

the consumer acquis and in other contract law regimes. The PICC deliberately refrained

from such notes in order to highlight the international character of the instrument an

omission that has been widely and rightly criticized.82

In the interest of transparency it is

very much to be welcomed that the Study Group will publish their comparative notes. It

is to be hoped that they will not only be more comprehensive in terms of jurisdictions

covered but also provide more in-depth-analysis than the notes of the PECL which are

very sketchy, of uneven quality and do not always provide adequate support for the

solutions adopted in the model rules.

It is a different question whether the comparative notes should become an integral part of

the final CFR, as has been suggested by members of the Study Group. 83 I fail to see howa more or less interesting array of comparative material can form part of any set of

guidelines binding or not for legislators. Whilst the notes will certainly provide

interesting (or: essential84

) background information, they are devoid of any normative

content and should not be vested with even the lowest degree of legal authority by the

organs of the EU. The notes will explain the solutions adopted in the black letter rules

but, like the travaux prparatoires of national legislation, they cannot be a part of these

solutions. This, incidentally, applies with equal force to the comments and the

illustrations which should not become an integral part of the final CFR, and even more

so if the CFR might one day evolve into an optional instrument lex iubeat, non disputet.

b) Structure

The structure of the PICC is fairly straightforward. Ten Chapters relate to different

contract law issues. The Chapters which were included in the original version of the

PICC adopt a chronological sequence following the life of a contract from its formation

82 References in Vogenauer/Kleinheisterkamp/Vogenauer Introduction paras 21, 23, 27.83 H Beale, The Future of the Common Frame of Reference (2007) 3 ERCL 257, 264 and, it seems, C vonBar, What legal policy for the Common Frame of Reference? [2009] Revue des contrats 822, 823-824.84 DCFR Introduction (n 20 above) para 71.


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to the remedies for non-performance (Chapters 2 to 7). The remaining three Chapters deal

with the topics added by the 2004 revision.

As a consequence of its more de-contractualised approach, the DCFR adopts a more

complex structure and divides the subject-matter between two Books. Book II (Contracts

and other juridical acts) sets forth rules which apply to contractual obligations only. It

addresses the topics covered by Chapters 2 to 5 PICC. Book III (Obligations and

corresponding rights) contains rules which apply to both contractual and non-contractual

obligations. Its coverage broadly corresponds to the issues dealt with in Chapters 6 to 10

PICC. We might expect this difference between the instruments to disappear from the

final, re-contractualised CFR. As an added benefit, we will lose the overly complex

numbering of the provisions which makes it near impossible to cite the articles inconversation and puts off even the most open minded potential user.

However, as the DCFR stands now, its structure does not always assist the reader who

looks for clear-cut answers to questions that typically arise in contractual relationships.

Let us look at a fairly small and technical issue, that of the release (or: waiver, or

renunciation) of a contractual right by one of the parties. From a comparative

perspective, the most interesting question is whether to be valid a release requires that the

creditor and the debtor agree on it or whether the creditor can bring it about by a

unilateral act. European legal systems differ in their solutions. Under Italian and Scottish

law, for example, a unilateral declaration of the creditor to release the debtor is sufficient.

Other legal systems insist that the debtor needs to accept the creditors offer of a release

(although these jurisdictions are prepared to water this requirement down by holding that

silence of the debtor amounts to acceptance) or must provide consideration. These

include England, France, Germany, Switzerland and the Netherlands.85

85 For a comparative overview, see J Kleinschmidt, Erlass einer Forderung in J Basedow, K Hopt and RZimmermann (eds),Handwrterbuch des Europischen Privatrechts, vol I(Tbingen: Mohr Siebeck,2009) 441, 442-443.

One might

therefore expect that a supranational contract law regime which aims at harmonisation

and simplification resolves the issue one or the other way. This is what the PICC do,

arguably in the wrong place (towards the end of the Section on Content of contracts)


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and providing a less-than-ideal solution.86

But it is a clear solution, and it is laid down in

a single article which can be identified with ease (Article 5.1.9).

What does the DCFR have to say on this issue?87

There is no specific article on the

release of a contractual right, nor as one might perhaps expect on the release of rights

in general. So it is to the general provisions that the reader must turn. The most obvious

candidates can be found in Chapter 1 (General provisions) of Book II and in the first

Chapter (General) of Book III. Article II.-1:103(3) allows for the modification or

termination of any right resulting from a contract by agreement between the debtor and

creditor. In Book III, a couple of provisions deal with the variation or termination of a

right, obligation or contractual relationship. According to Article III.-1:108, this

normally requires an agreement, whilst a variation or termination by notice of one ofthe parties is only permitted in the cases provided for in Article III.-1:109. It would

therefore seem that the unilateral (partial or full) release of a contractual right is a

narrowly confined exception to the general rule that rights can only be varied or

terminated by agreement.

But there are provisions pointing in the opposite direction. To begin with, the general

rule, according to which silence or inactivity does not amount to acceptance,88 is not

qualified with regard to releases, as is done in domestic systems that adhere to the

contractual solution.89 More importantly, Article II.-1:103(2) explicitly recognises the

binding effect of unilateral promises (undertakings) without acceptance.90Prima facie, I

can see nothing that makes it impossible to apply this rule to the unilateral promise of the

creditor to release his right. And it has indeed been suggested that Article 2:107 PECL on

which this provision of the DCFR is based91 covers the release of contractual rights.92

86

For an overview of the criticism, see Vogenauer/Kleinheisterkamp/Vogenauer Art 5.1.9 paras 5, 10-12.

It

87 The following observations are based on Kleinschmidt (n 85 above) 443-444. I am extremely grateful toDr Kleinschmidt for providing his advice on issues relating to release.88 Art II.-4:204(2).89 Cf the text preceding n 85 above.90 Art II.-1:103(2).91 See Table of Derivations in v Bar et al (n 3 above) 113, 114.92 J Kleinschmidt,Der Verzicht im Schuldrecht(Tbingen: Mohr Siebeck, 2004) 13-14, 306, with furtherreferences; R Zimmermann, Ius Commune and the Principles of European Contract Law: ContemporaryRenewal of an Old Idea in H MacQueen and R Zimmermann (eds),European Contract Law: Scots and


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may of course be argued that the PECL lack specific rules on the variation or termination

of contracts, and since the DCFR has such rules Article II.-1:103(2) should be interpreted

so as not to cover releases. However, this is far from obvious, as it would seem that, with

regard to contracts and other juridical acts, the rules in Book II of the DCFR would

have to be seen as more in point than those in Book III, and thus would have to take

precedence over the latter and none of the paragraphs of Article II.-1:103 seems to be

more specific than the other and would thus have to prevail. 93 Incidentally, a Section in

Book II of the DCFR that deals with Other juridical acts 94 even provides that a person

benefiting from a unilateral act is entitled to reject the benefit95

and thus dispels one of

the traditional counter-arguments against the validity of unilateral releases.

That such releases are considered to be valid seems to be confirmed by two provisions onthe plurality of debtors and creditors in Chapter 4 of Book III where, finally, the term

release is used for the first time. One of them seems to assume that if the creditor

releases a solidary debtor this is different from the two parties reaching a settlement. 96

The other speaks of the release granted to the debtor by one of the solidary creditors. 97

The term grant is used in other parts of the DCFR as well, particularly in the context of

agency (the authority of a representative may be granted by the principal)98 and the

granting of security rights.99 To the eyes of a lawyer who is not trained in the subtleties

of the DCFR all of these look suspiciously like unilateral acts. Finally, in a completely

unrelated context the DCFR seems to assume that a party may waive a right which

again seems to support the possibility of a unilateral release.100

South African Perspectives (Edinburgh: Edinburgh University Press, 2006) 1, 31 (release as an obviousillustration of Article 2:107 PECL).93 Art I.-102(5) imports the interpretative maxim lex specialis derogat legi generali into the DCFR.94

Somewhat bizarrely, this is placed in a Chapter that most readers will expect to apply to contracts onlybecause it has the heading Formation (Book II Chapter 4).95 Art II.-4:303.96 Art III.-4:109(1).97 Art III.-4:207(1).98 Chapter 6 of Book II, particularly Art II.-6:103(1).99 Sub-section 2 of Section 1 of Chapter 2 of Book IX.100 Art II.-1:102(3), on rights arising from mandatory rules (emphasis added). As far as I can see, this is theonly place where the notion of waiver is used, apart from the more specific contexts of waiver ofconsumer rights and security rights which are dealt with in later Books.


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I have no reason to defend the particular solution provided by Article 5.1.9 PICC, nor is

this the place to take a position on the issue whether a European contract law should or

should not acknowledge unilateral releases. Nor do I intend to engage in the debate on

whether the de-contractualised approach of the DCFR makes sense on its own terms.101

The simple point I wish to make is that by branching out beyond the law of contract the

DCFR becomes complex and abstract to a point where it can be confusing and

inaccessible. We have just looked at nine different provisions that can be found in six

different Sections or Chapters of the instrument. I have to confess that I have tried to get

my head round these a number of times, and I still do not find in the model rules of the

DCFR a clear answer to the most fundamental question relating to the release of

contractual rights.102 Perhaps the Comments will help. In any event, if the aim is to

design a regime ofcontractlaw and, yet again, this is all the Commission and theCouncil have ever asked for I find it difficult to argue that the structure of the DCFR is

superior to that of the PICC.103

c) Style of Drafting

So much has been said about the style of drafting of the DCFR that I do not wish to add

much here. Suffice it to say that I find some force in the criticism made by the Czech

Presidency that the current model rules of the DCFR do not correspond to the Councils

request that the CFR be clear, concise and easy to understand. 104 The DCFR is

extremely complex and often seems to be too comprehensive. It is probably unfair to

compare its length to domestic pieces of legislation on contract law105

101Pro: DCFR Introduction (n

which are often

20 above) paras 44-46; Clive (n 36 above) S19; H Beale, The Drafting ofthe Common Frame of Reference in Schmidt-Kessel (n 38 above) 35, 45-46. Contra: Lando (n 11 above)249-251; Schulze and Wilhelmsson (n 18 above); S Grundmann The Structure of the DCFR Which

Approach for Today's Contract Law? (2008) 4 ERCL 225; O Lando, Which Contract Law for Europe andthe World [2009] Revue des contrats 768, 776.102 Incidentally, I am not alone: the comprehensive synopsis by Bonell and Peleggi (n 75 above) 508 doesnot list a DCFR provision that corresponds to Art 5.1.9 PICC; see also ibid 446.103 As is done by Storme (n 81 above) S69-70.104 Presidency of the European Union, Questionnaire on the setting up of a Common Frame of Referencefor European contract law, 15 January 2009, 5116/09, para 1(c).105 See, e.g., J Gernandt, DCFR and EC Contract Law: Formation of a contract, negotiations andconditions of validity a practitioners perspective [sic] [2009] Revue des contrats 865, 866, 867 and 870:the Swedish Contracts Act states in one provision what is spelt out in six articles of the DCFR.


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extremely laconic and have only been made workable by decades, if not centuries of

fleshing out by caselaw. However, I hope to support my point by a simple comparison

with the PICC. Their principled and abstract style of drafting resembles that of civilian

codes, rather than the casuistic approach of English statute law. The PICC avoided any

attempt to merge what cannot be merged. There is hardly any cross-referencing. The

layout of the articles is clear, the sentences are short. The language is simple, highly

readable, and at times even elegant.

It may be instructive to contrast the respective Sections on contracts for the benefit of a

third party (Section 5.2 PICC and Book II Chapter 9 Section 3 DCFR). This is,

incidentally, an area where the DCFR substantially amended the solution of the PECL

which was inadequate,106 so the style of drafting is purely DCFR. Even moreinterestingly, this is one of the few topics covered by the DCFR where the drafters

explicitly drew inspiration from the solution of the PICC.107 The PICC deal with the

subject-matter in a mere 157 words, whilst the DCFR needs 365. This would of course be

justified if the DCFR provided substantially more to be precise: 2.26 times as much

information or guidance on the issues typically arising in third party relationships.108

Now, the DCFR does indeed set forth one rule on an issue that is omitted from the PICC

although it arguably should have been included:109 it spells out the consequences of the

third partys rejection of the right conferred on him (the right is treated as never having

accrued).110

106 DCFR Introduction (n

Furthermore, the model rules of the DCFR explicitly say that the third

partys rights do not only include the right to performance but also the right to invoke

20 above) para 53.107

Storme (n 81 above) S68; DCFR Introduction (n 2020 above) para 32 (recent developments in international instruments).108 There are other instances where the greater length of the DCFR is justified, e.g. Art III.-1:103 (Goodfaith and fair dealing) provides substantially more information than Art 1.7 PICC; the level of detail of ArtII.-3:401 (Unsolicited goods or services) is much higher than that of the second indent of Art 9 of Directive97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers inrespect of distance contracts [1997] OJ L144/19, Art 4:104 ACQP or any corresponding national provisionthat I am aware of.109 Vogenauer/Kleinheisterkamp/Vogenauer Art 5.2.6 para 6.110 Art II.-9:303(1)(2).


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remedies for non-performance.111 In the PICC this information is tucked away in the

Official Comments, arguably because it goes without saying. 112

Apart from this, the DCFR, despite its considerable length, does not add anything

material. Sometimes the desire for terminological purity seems to stand in the way of

brevity and comprehensibility. The DCFR anxiously avoids the established terms

promisor and promisee (promettantand stipulant, Versprechenderand

Versprechensempfnger,promittente and stipulante etc.) to denote the parties who, by

their contract, create a right in the third party. It stubbornly refers to them as the parties

to a contract or the contracting parties. As a result, instead of being able to simply say

that the promisor may assert his defences against the third party, the DCFR is forced to

spell out that [w]here one of the contracting parties is bound to render a performance tothe third party under the contract he may assert his defences. 113 The PICC avoid such

complexity (and the trap of unconsciously importing national legal concepts and

conceptions) by providing a simple and short designation of the names of the parties in

the triangular relationship at the very outset of their Section on third party rights.114

Sometimes the length of the DCFR is due to an exaggerated striving for completeness.

The constant reference to a right or benefit in Articles II.-9:301 and II.-9:303

unnecessarily inflates the number of words by dealing with a non-issue: under no contract

law has it ever been doubted that the parties to a contract may confer a benefit on a third

person; the issue is whether the legal system permits them to create an enforceable right

in the third person.115 Even if the assumptions of the DCFR are correct, i.e. if (a) rights

are a sub-category of benefits116

111 Art II.-9:302(a).

and (b) benefits other than rights should be included in

the instrument, it would be sufficient to speak of benefit only, rather than using the

112 Vogenauer/Kleinheisterkamp/Vogenauer Art 5.2.1 para 32.113 Art II.-9:302.114 Art 5.2.1(1): The parties (the promisor and the promisee) may confer a right on a third party(the beneficiary).115 H Ktz, Rights of Third Parties: Third Party Beneficiaries and Asssignment in A von Mehren (ed),International Encyclopedia of Comparative Law, vol VII: Contracts in General, ch 13 (Tbingen: MohrSiebeck, 1992) paras 18-38; Vogenauer/Kleinheisterkamp/Vogenauer Art 5.2.1 para 10.116 Cf Art II.-9:301(1)(1): a right or other benefit.


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formula right or benefit throughout. It may also be questioned whether it is really

necessary to mention three times that most of the provisions in Section II.-9:3 are mere

default rules. Granted that it makes sense to remind the reader at the beginning of the

Section that the nature and content of the third partys right or benefit are determined by

the contract and are subject to any conditions or other limitations under the contract,117 it

would seem to go without saying that it is, in the first instance, the contract which

determines the requirements for revocation or modification of the right by the contracting

parties,118 the rights and remedies available to the third party119 and the defences which

may be asserted against that party.120 The repeated explicit assertion of the default

character of these rules is even more startling as there is a general proviso to this effect at

the beginning of Book II.121

This points to a third source of the DCFRs prolixity in the area of contracts for the

benefit of third parties: existing potential for shortening the text is not realized although

one of the reasons advanced for having a separate Book on the general law of obligations

is precisely to avoid unnecessary repetition.122 Reasonable minds will differ on whether

it is a good idea to equate the rights and remedies of the third party to those of the

recipient of a binding unilateral undertaking, as is suggested in the DCFR.123 However,

if this is the solution adopted it is hard to see why there should be a lengthy provision on

the requirements for, and the consequences of a valid rejection of the right by the third

party if exactly the same mechanism is already provided for in the general rules on

unilateral juridical acts.124

117 Art II.-9:301(2). A similar rule can be found in Art 5.2.1(2) PICC.118 Art II.-9:303(2)(2).119

Art II.-9:302(a).120 Art II.-9:302(b).121 Art II.-1:102(2) which resembles Art 1.5 PICC. A similar point is made with regard to Book IV byEidenmller et al (n 80 above) 705-706.122 DCFR Introduction (n 20 above) para 46. The repetitive character of the DCFR has also been criticizedby Eidenmller et al (n 80 above) 691 (on mandate and representation) and MJ Bonell The CISG,European Contract Law and the Development of a World Contract Law (2008) 56 Am J Comp L 1, 12 n57 (on service contracts).123 Art II.-9:302(a).124 Arts II.-9:303(1) and II.-4:303.


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The only material difference between the two instruments concerns the moment in time

from which the original parties may not revoke or modify the right of the third party.

Under both regimes, they are barred from doing so once the third party has reasonably

acted in reliance on the right (this being a default rule under the PICC and a mandatory

provision under the DCFR).125 Otherwise the default rule on the cut off point is either the

third partys acceptance of the right (PICC) or the third party receiving notice of the

conferral of the right (DCFR).126 This difference does not seem to reflect a

straightforward policy choice because, depending on the circumstances of the case, it

may play out in favour or against the third party. In any event, whether one or the other

solution is materially better is not relevant for the purposes of this paper. 127 But I fail to

see why the DCFR takes more than four times the number of words than the PICC to lay

down its solution.128

Apart from the convoluted language and the sheer length,129 the provisions in the DCFR

are not always structured in a way that assists the reader. 130 For example, it is unhelpful

to deal with the rejection and the revocation of the right, two very different issues, in one

and the same article.131

125 Arts II.-9:303(3) DCFR and 5.2.5 PICC (cf Vogenauer/Kleinheisterkamp/Vogenauer Art 5.2.5 para 8).

This is not only a matter of esthetic pleasure. It is a question of

getting the legislative message across. I would argue that the DCFR, in the particular area

I have focused on, is less successful than the PICC on this count. I may add that these

126 Art 5.2.5 PICC and Arts II.-9:303(2) DCFR (surely it does not matter that notice is given to the thirdparty but that it reaches the addressee: Art I.-1:109(3) DCFR?).127 It is submitted that the solution of the DCFR is highly problematic. It seems to imply that the right onlyaccrues with the third party receiving notice, not already with the conclusion of the contract between thetwo original parties (see the language of the introductory words of Art II.-9:303(2)(1) which does not referto revocation or modification of an existing right but to the parties entitlement to remove or modify thecontractual term conferring the rightor benefit (emphasis added)). Assuming this is no linguistic glitch,the DCFR severely restricts the third partys right as opposed to most domestic contract laws (and thePICC) because it would worsen his position in cases of the promisees insolvency or death. This isparticularly problematic for third parties which are not in existence at the time the contract is

concluded (Art II.-9:301(1)(2)). Such a policy choice would run counter to the established solutions in themajor European jurisdictions (see Vogenauer/Kleinheisterkamp/Vogenauer Art 5.2.1 paras 27, 32).128 Cf Art 5.2.5 PICC (29 words) and Art II.-9:303(2) and (3) DCFR (129 words).129 For criticism of the verbosity of the DCFR, see also Eidenmller et al (n 80 above) 686-687, 705-706;cf the Review of the Interim Outline Edition by H Collins (2008) 71 MLR 840, 843.130 On the other hand, Art II.-9:301(1)(2) makes clear that the issue of whether the third party must be inexistence or identified (better: identifiable, cf Art 5.2.2 PICC) at the time the contract is concludedbelongs to the requirements of the creation of a right in the third party, and it thus compares favourablywith the separate treatment in Art 5.2.2 PICC.131 Art II.-9:303. Cf Arts 5.2.5 and 5.2.6 PICC.


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observations are backed up by the empirical evidence of 15 Oxford postgraduates with

very different legal and linguistic backgrounds struggling with a comparison of the

respective Sections a few months ago!

Brevity and elegance come at a price: that of a lack of precision. The PICC have been

criticized for their frequent use of general clauses or open-textured standards, such as

the standard of good faith and fair dealing. 132 Such provisions, framed at a high level of

generality, are even more frequently used in the PICC than in domestic contract laws in

the continental tradition. I do not wish to express an opinion on whether they are as

conducive to uncertainty as is frequently assumed. But, paradoxically, the DCFR

despite its casuistic style seems to contain an even bigger number of open-textured

provisions and has been much attacked for its lack of determinacy and guidance which issaid to lead to a massive expansion of judicial power. 133

Finally, a quick point on terminology here. Both instruments subscribe to the aim of

adopting a neutral terminology which eschews legal concepts having a specific

connotation in national systems. Both documents achieve their objective to a varying

extent in different areas of law. The DCFR fails spectacularly on this count by referring

to the archaic notion ofstipulatio alteri or stipulation pour autrui in the very heading of

the Section on contracts for the benefit of a third party which was referred to above. They

thereby import a concept which is not only of a distinctly Romano-French origin but that

is also positively unhelpful because it conceals the truly contractual origin of the third

partys right. Incidentally, the PICC do not compare favourably on this particular point:

their Section heading is much broader than the content of the Section and uses

terminology that has a very distinct (and different) meaning in the CISG.134

132 Art 1.7.

However, we

should not forget to mention one major terminological achievement of the DCFR: it

discards the ominous figures called obligee and obligor which populate the PICC for

133 Eidenmller et al (n 80 above) 674-677, 686-687, 707; H Eidenmller Party Autonomy, DistributiveJustice and the Conclusion of Contracts in the DCFR (2009) 5 ERCL 109, 114, 117-118. See also SWhittaker, The Draft Common Frame of Reference: an Assessment, commissioned by the Ministry ofJustice, United Kingdom, November 2008, , p 156.134 Arts 41-43 CISG. Cf Vogenauer/Kleinheisterkamp/Vogenauer Introduction to Section 5.2 paras 1-2.


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convincing theoretical reasons but which students can only identify with the greatest

difficulty they will be relieved that the DCFR brings the good old creditor and

debtor back to life.135

2. Substantive Solutions

a)Model Rules, Definitions and (Underlying) Principles

As requested by the Commission,136 the DCFR contains definitions, principles and model

rules. The Council supports this mix for the CFR. 137 The drafters of the DCFR adopted a

compartmentalised approach vis--vis these three components. There is a long list of

definitions in the Annex, on top of the many definitions scattered throughout the modelrules.138 Some definitions are stipulated both in the Annex and in the model rules. The

underlying principles of contractual freedom, contractual security, justice and

efficiency are set out by way of preface in a discursive essay. 139

This essay also refers

to a number of aspects, ingredients or manifestations of these underlying principles

which are included in the model rules, such as good faith and fair dealing or party

autonomy. Many lawyers would refer to these as principles as well.

The first Chapter of the UNIDROIT Principles140 also include principles of this kind.

Thus we find provisions on Freedom of contract (Article 1.1), the Binding character of

contract (Article 1.3) and Good faith and fair dealing (Article 1.7). These can be easily

matched with the three fundamental principles which the Justice and Home Affairs

Council suggested to introduce in order to reflect the values underpinning the CFR in its

Guidelines of June 2009.141

135

Clive (n

They also correspond broadly to the most important

36 above) S27-28.136 Commission, Way Forward(n 16 above) para 2.1.1 and Annex I.137 Council, Press Release (n 2 above): a set of definitions, general principles and model rules in the fieldof contract law to be derived from a variety of sources.138 See, e.g., Arts I.-1:103, I.-1:105 to I.-1:107, II.-1:101, III.-1:102, III.-1:106(1).139 C von Bar et al, Principles in v Bar et al (n 3 above) 57.140 The designation as Principles is generally regarded as a misnomer because most of the provisions ofthe PICC set forth relatively specific rules, cf Vogenauer/Kleinheisterkamp/Michaels Preamble I para 12.141 Council, Guidelines (n 17 above) paras 9-10: the principle of freedom of contract (party autonomy),the principle of legal certainty in contractual matters which includes, inter alia, the binding force of the


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codifies the entirety of general contract law (leave alone a more comprehensive

instrument along the lines of the DCFR) might be better advised to follow the continental

model, as the PICC do.

I would also advise the drafters of the final CFR to follow UNIDROITs approach with

regard to principles and include these in the model rules. 144

Otherwise there is bound to

be considerable debate on the relationship between the higher order principles in the

preface and the lower order principles in the model rules. Like the comments,

illustrations and comparative notes, the essay on principles should not be included in the

final CFR: it is a tool of exposition that illuminates the thinking of the drafters, but it is

not suited to provide concrete guidance. It is, perhaps, the developers master plan, rather

than the content of the builders toolbox.

b)Similar Solutions

Turning to the substance of the model rules / principles, we see a number of far reaching

similarities between the two instruments.145 Both, for example, state that a contract is

concluded, without any further requirement, if the parties reach sufficient agreement

and intend to be legally bound thereby implicitly rejecting a doctrine of consideration

or cause.146 Neither of them subjects contracts to a formal requirement.147 As we have

seen above, the rules on contracts for the benefit of a third party are very similar in

substance. So are the respective provisions on contractual interpretation although in this

area we already encounter some interesting differences in detail.148

144 In view of Art I.-1:102(4), it would be helpful if they were dealt with somewhere.145 For a comprehensive overview, see Bonell and Peleggi (n 75 above).146 Arts 3.2 and 2.1.2 PICC; Art II.-4:101 DCFR.147 Art 1.2 PICC; Art II.-1:106(1) DCFR.148 Cf Art 4.7 PICC to Art II.-8:107 DCFR and Arts 4.8, 5.1.1, 5.1.2 PICC to Art II.-9:101 DCFR. See alsoArts II.-8:101(3)(b) and II.-8:103(2) DCFR (p 35 below).


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c) Different Solutions

Other areas and issues are dealt with very differently, for example the respective Sections

on agency or representation.149 Some of the divergences simply follow from the

different territorial scopes. The PICC have a specific provision on the relevant time

zone.150 In their Chapters on performance and set-off they take account of the fact that

some national currencies are not freely convertible.151 Their Section on damages makes

allowance for the fact that some countries have no average commercial bank short-term

lending rate or statutory rate of interest.152 A few provisions deal with public permission

requirements affecting the valid conclusion or the performance which can be found in

many jurisdictions, particularly beyond Europe.153

The DCFR does not need to cater for

these situations. Finally, the standard of good faith and fair dealing in Article 1.7 is thatof good faith and fair dealing in international trade (emphasis added), and thus

arguably much narrower than that of the DCFR.

Further differences, and these are particularly interesting, follow from the differences in

coverage of subject-matters. Some of these are the result of the process of de-

contractualisation of the DCFR already referred to. The scope of many rules had to be

broadened or narrowed to make them fit for the purpose of serving as a general law of

obligations, rather than a mere general law of contract as it can be found in the PICC.

However, most of the differences in substance follow from the commercial focus of the

PICC that is at odds with the ambition of the DCFR to cover commercial, non-

commercial and consumer relationships alike. The tension is increased by the DCFRs

strong focus on the consumer acquis. For example, whilst the PICC provide for damages

if negotiations are led or broken off in bad faith, 154

149 Section 2.2 PICC and Book II Chapter 6 DCFR.

they include nothing approaching the

150 Art 1.12(3).151 Arts 6.1.9(1) and 8.2. Cf Arts III.-2:109 and III.-6:104 DCFR.152 Art 7.4.9.153 Arts 6.1.14-6.1.17.154 Art 2.1.15. Cf Art II.-3:301 DCFR.


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far reaching precontractual information duties and liabilities of businesses vis--vis

consumers in the DCFR.155

By limiting themselves to commercial contracts, the PICC also avoid a phenomenon

which has been frequently criticized156 and which we might call consumerism creep:

the DCFR has a tendency to generalise from s

unidroit y draft

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