Symposium paper: afterthoughts: international commercial contracts and arbitration.

AuthorNottage, Luke
PositionSymposium Paper

ABSTRACT

This article mainly responds to Professor Bonell's three proposals (on page 177 of this volume) to expand usage of the UNIDROIT Principles of International Commercial Contracts (UPICC). As UPICC are primarily opt-in rules, they can be more ambitious than the United Nations Sales Convention (CISG). They also needed to be, being designed for all commercial contracts--including many more relational contracts. This imparts a somewhat different 'vibe' to UPICC, creating one impediment to the proposal for a UN Declaration urging interpretation of CISG in light of UPICC. As a formal reasoning based legal system, particularly in contract law, Australia also still struggles with such soft law initiatives. More promising will be law reform clarifying that courts, not just arbitrators in proceedings with the seat in Australia governed by the UNCITRAL Model Law on International Commercial Arbitration, are free to apply 'rules of law'--including UPICC--as the governing law. Elevating UPICC into a Model Law for International Commercial Contracts would also be useful. Australia could then adopt or adapt provisions as the basis for more comprehensive reform of its contract law. This would better mesh with burgeoning relational transactions, and many norms (such as good faith) could also extend to domestic dealings.

Introduction

From their first edition in 1994, the UNIDROIT Principles of International Commercial Contracts ('UPICC') covered more topics than the United Nations Convention on Contracts for the International Sale of Goods 1980 ('CISG'), in force from 1988 and incorporated into Australian law the following year). Especially during the final stages of negotiating CISG, several topics had to be omitted (e.g., arguably, pre-contractual liability) or watered down (e.g., direct and non-derogable obligations on contracting parties). (1) This was mainly to secure general acceptability, particularly on the part of Anglo-Commonwealth states. Even when states had acceded to CISG, prima facie binding their firms selling goods to counterparts in other CISG member states (pursuant to Art 1(1)(a)), firms were permitted to opt out of CISG in whole or in part (Art 6). Anglo-Commonwealth courts and lawyers have not applied CISG as frequently or consistently as counterparts particularly from major civil law tradition jurisdictions. Yet CISG did establish a common language for addressing core issues of contract formation and performance. (2)

The first edition of UPICC heralded a new round of harmonisation in this field, often reproducing wording from CISG. But the Principles added new or more specific obligations (e.g. Art 1.8 on good faith and Art 2.1.15 on pre-contractual liability). UPICC needed to be more ambitious because the provisions were not limited to international sales of goods. They could afford to be so because generally applied on only an opt-in basis--unlike CISG, which applies pursuant to Art 1 unless parties exclude it through CISG Art 6. The second edition of UPICC (2004) further expanded coverage, into areas such as third parties, assignment, and limitation periods. (3) A Working Group completed a third edition draft in mid-2010, expected to be formalised for public release by 2011. (4) The Working Group considered adding possible provisions on 'termination for just cause', but eventually decided not to include them in the third edition of UPICC. The proposed provisions were aimed at covering situations not amounting to excusable force Majeure. (Art 7.1.7, like CISG Art 79) or even 'hardship' (Arts 6.1.2-3) or 'fundamental non-performance' (i.e. serious or material breach justifying termination: Art 7.3.1, more detailed than CISG Art 25). (5) Such topics are particularly important in long-term 'relational contracts', especially cross-border service transactions like distributorships or licensing contracts(6) UPICC has thus moved with the times in developing new norms to govern trading in services, not just in goods, rather like in 1994 when the World Trade Organization added the Central General Agreement on Trade in Services (and a treaty on Trade Related Aspects of Intellectual Property Rights) to the long-standing Central Agreement on Tariffs and Trade.

Perhaps after many more decades of experience with C1SG, and UPICC applied on a 'soft law' basis, at least some of the Principles may be folded into a Protocol to CISG--including, perhaps, narrower scope for firms in acceding states then to exclude provisions in that Protocol. Meanwhile, however, Professor Bonell(7) outlines three softer means of expanding the already considerable usage of the Principles by judges (including of course Justice Finn),(8) arbitrators, legislators, and lawyers negotiating and drafting cross-border commercial contracts. Already a decade ago, empirical research showed that the lex mercatoria and similar concepts--increasingly exemplified by UPlCC's detailed provisions and growing jurisprudence--were quite widely used in the practice of arbitrating, negotiating and (especially) drafting international contracts. For arbitrators, this practice derived not so much from an express choice of the lex mercatoria as the governing law, for example, but more from using the lex mercatoria to supplement or interpret: other applicable international or domestic law. (9) When arbitrators do so, procedural fairness generally requires them to give all parties sufficient opportunity to present arguments based on the lex mercatoria, just as they would when applying foreign law. (10) However, the extent of that opportunity will depend on the applicable arbitration law. Under s 18C of Australia's International Arbitration Act 1974 (Cth), as amended in July 2010, for example, each party need only be given a 'reasonable' opportunity--no longer a 'full' opportunity--to present its case. (11)

I, UNCITRAL Declaration on UPICC to Interpret CISG

To expand UPICC usage, Professor Bonell first suggests some form of Declaration from the United Nations Commission on International Trade Law (UNCITRAL) recommending interpretation of CISG, including Art 7(2) requiring gaps in CISG to be interpreted in light of its general principles, in light of successive editions of UPICC. This might be useful, since there seem to be 'many roads to Rome' (and possibly some dead-ends) on this point within current arbitral practice and influential academic commentary. (12)

However, my first concern is that the 'general principles' underlying UPICC (or, for Australians, their 'vibe') (13) do not necessarily...

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