Symposium paper: long-term relational contracts and the UNIDROIT Principles of International Commercial Contracts.

AuthorRobertson, Donald
PositionSymposium Paper

ABSTRACT

This article considers how the UNIDROIT Principles of International Commercial Contracts ('UPICC') respond to the typical form of commercial contract--the relational contract. Relational contracts provide a 'framework' for relationships, allowing them to develop over time. The temporal element gives rise to peculiar issues, including: the need to accommodate changed circumstances; whether to keep the contract alive or terminate it in response to changed circumstances; contractual discretions and the role of fault and good faith; the role of contractual mechanisms for dealing with supervening risks. The article considers various of the provisions of the UPICC dealing with these issues and concludes with a consideration of possible new directions, including the proposal for a future edition of the UPICC that certain contracts can be terminated for 'just cause'.

As Australian commerce becomes more international in nature, we need a common framework--a 'new law merchant'--by which contractual relations are maintained. The Australian case law on relational contracts is thin. The UPICC will prod Australian courts and practitioners to grapple with these issues. However, that effort might stall if commercial parties believe the rules in the new law merchant are too open-textured, allowing too much judicial intervention in contracting practices.

  1. Relational Contracts

The UNIDROIT Principles of International Commercial Contracts have made a surprisingly quick impact upon contract law globally. Professor Bonell and others have documented the immediate success of the UNIDROIT Principles (1) They are in the form of a 'restatement', as if a code. However, they must inevitably develop the accretions of a common law system of reasoning, as they have gaps which must be filled and contain concepts that require interpretation.

The UNIDROIT Principles are a truly impressive exercise in reducing the core principles of contract law to writing--a new lex mercatoria (2) The great bulk of these principles are uncontroversial and, as the UNIDROIT Principles demonstrate, there is a good deal of commonality between the common law and civil legal worlds in this respect.

The UNIDROIT Principles are therefore having an influence in many jurisdictions, not just European jurisdictions, with which Australian business is engaging in commerce. They will bccome more important if the vision of the Commonwealth Government is achieved. The Commonwealth Attorney-General has said that it is the view of the Government 'that we should promote the Federal Court as the regional hub for commercial litigation'. (3) If this vision is to become a reality, commercial parties should consider adopting a system of law that governs their contractual relationships that will be acceptable to non-Australian entities. The UNIDROTT Principles are an obvious choice.

Whether the UNIDROIT Principles continue to have influence will depend on whether they make sense to commercial people. This primarily means that they promote contractual certainty. They should also confine themselves to the core workings of contract law and not stray into territory that is better left to tort law, equity or restitution law. A key test is whether the principles deal adequately with 'relational contracts'. In the commercial world this is the typical contractual [m]uch economic activity takes place within long-term, complex, perhaps multiparty contractual (or contract-like) relationships; behaviour is, in varying degrees, sheltered from market forces.' (4)

Relational contracts provide a 'framework' for transient and more permanent relationships and a 'norm of ultimate appeal when relations cease in fact to work' Contracts are one of the central institutions of capitalism. (5) However, all contracts--but especially long- term contracts--are necessarily incomplete (unforeseen events are inevitable) and parties have a degree to 'discretion' in relation to how they perform their contractual obligations, (6) which obligations can be 'evolutionary' in nature. (7)

The presence of discretion in the performance of contractual obligations gives rise to particular legal challenges, more like those found in public Law. Justice Finn has stated that special rules should not apply to such contracts, but 'particular rules of contract law have greater or less ease of application in relational contract settings'. (8)

There are four areas to which attention needs to be paid. First, as Justice Finn also notes, there is a need, in relational contracts of significant duration, to adjust terms to accommodate changed or unforeseen circumstances. (9)

Second, we need to work out whether we have a preference for keeping the contract alive or terminating it. The common law, by means of the relatively blunt doctrines of frustration and termination for breach, struggles (often unsuccessfully) to preserve...

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