Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law [1st ed.] 9783030543211, 9783030543228

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Ius Comparatum – Global Studies in Comparative Law

Alejandro Garro José Antonio Moreno Rodríguez  Editors

Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law

Ius Comparatum – Global Studies in Comparative Law Founding Editors Jürgen Basedow, Max Planck Institute for Comparative and International Private Law, Hamburg, Germany George A. Bermann, Columbia University, New York, USA

Volume 51

Series Editors Katharina Boele-Woelki, Bucerius Law School, Hamburg, Germany Diego P. Fernández Arroyo, Institut d’Études Politiques de Paris (Sciences Po), Paris, France Editorial Board Joost Blom, University of British Columbia, Vancouver, Canada Vivian Curran, University of Pittsburgh, USA Giuseppe Franco Ferrari, Università Bocconi, Milan, Italy Makane Moïse Mbengue, Université de Genève, Switzerland Marilda Rosado de Sá Ribeiro, Universidade do Estado do Rio de Janeiro, Brazil Ulrich Sieber, Max Planck Institute for Foreign and International Criminal Law, Freiburg, Germany Dan Wei, University of Macau, China

As globalization proceeds, the significance of the comparative approach in legal scholarship increases. The IACL / AIDC with almost 800 members is the major universal organization promoting comparative research in law and organizing congresses with hundreds of participants in all parts of the world. The results of those congresses should be disseminated and be available for legal scholars in a single book series which would make both the Academy and its contribution to comparative law more visible. The series aims to publish the scholarship emerging from the congresses of IACL / AIDC, including: 1. of the General Congresses of Comparative Law, which take place every 4 years (Brisbane 2002; Utrecht 2006, Washington 2010, Vienna 2014, Fukuoka 2018 etc.) and which generate (a) one volume of General Reports edited by the local organizers of the Congress; (b) up to 30 volumes of selected thematic reports dealing with the topics of the single sections of the congress and containing the General Report as well as the National Reports of that section; these volumes would be edited by the General Reporters of the respective sections; 2. the volumes containing selected contributions to the smaller (2-3 days) thematic congresses which take place between the International Congresses (Mexico 2008; Taipei 2012; Montevideo 2016 etc.); these congresses have a general theme such as “Codification” or “The Enforcement of Law” and will be edited by the local organizers of the respective Congress. All publications may contain contributions in English and French, the official languages of the Academy.

More information about this series at http://www.springer.com/series/11943 Académie Internationale de Droit Comparé International Academy of Comparative Law

Alejandro Garro • José Antonio Moreno Rodríguez Editors

Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law

Editors Alejandro Garro Columbia Law School New York, NY, USA

José Antonio Moreno Rodríguez National University of Asuncion Asuncion, Paraguay

ISSN 2214-6881 ISSN 2214-689X (electronic) Ius Comparatum – Global Studies in Comparative Law ISBN 978-3-030-54321-1 ISBN 978-3-030-54322-8 (eBook) https://doi.org/10.1007/978-3-030-54322-8 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgment

The authors would like to thank Maria Belen Moreno, without whose editorial assistance this volume would not have been possible.

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Contents

The UNIDROIT Principles as a Common Frame of Reference for the Uniform Interpretation of National Laws . . . . . . . . . . . . . . . . . . Alejandro Garro and José A. Moreno Rodríguez The Use of the UNIDROIT Principles of International Commercial Contracts in Order to Interpret or Supplement Argentine Contract Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Julio César Rivera

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The UNIDROIT Principles As Reference for the Uniform Interpretation of National Laws: National Report Austria . . . . . . . . . . . Andreas Schwartze

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General Considerations on the Interaction of the UPICC and the Brazilian Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lauro Gama

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The UNIDROIT Principles As Reference for the Uniform Interpretation of National Laws: Chile . . . . . . . . . . . . . . . . . . . . . . . . . . Rodrigo Momberg

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The UNIDROIT Principles As Reference for the Uniform Interpretation of National Laws: China . . . . . . . . . . . . . . . . . . . . . . . . . Chin-Fa You and Chia-Te Hsiao

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UNIDROIT Principles As Reference for Uniform Interpretation of National Laws: Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Monika Pauknerová and Magdalena Pfeiffer Les Principes Unidroit comme cadre de référence pour l’interprétation uniforme des droits nationaux : Rapport national Droit français . . . . . . 125 Pascale Deumier

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The Use of the UPICC in Order to Interpret or Supplement German Contract Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Katharina Erler and Martin Schmidt-Kessel Questionnaire on the Use of the UPICC in Order to Interpret or Supplement National Contract Law: Greece . . . . . . . . . . . . . . . . . . . 173 Eugenia Dacoronia The Unidroit Principles of International Commercial Contracts (UPICC) as Reference for the Uniform Interpretation of Guatemalan Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 Pedro Mendoza Montano and Enrique Martínez Guzmán The UNIDROIT Principles as Reference for the Uniform Interpretation of National Laws: Report on Hungarian Law . . . . . . . . . 195 Miklós Király Italian National Report on the Use of the UPICC in Order to Interpret or Supplement National Contract Law . . . . . . . . . . . . . . . . 209 Anna Veneziano and Eleonora Finazzi-Agrò The UNIDROIT Principles as Reference for the Uniform Interpretation of National Laws: The Case of Japan . . . . . . . . . . . . . . . 243 Hiroo Sono and Tetsuo Morishita The UNIDROIT Principles of International Commercial Contracts (UPICC) as Reference for the Uniform Interpretation of Paraguayan Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 José Antonio Moreno Rodríguez THE UNIDROIT Principles As Reference for the Uniform Interpretation of National Laws: National Report for Russian Federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 Andrey M. Shirvindt Questionnaire on the Use of the UPICC in Order to Interpret or Supplement National Contract Law: South Africa . . . . . . . . . . . . . . . 327 Sieg Eiselen Use of UPICC in Turkish Law: Replies to the Questionnaire on the Use of the UPICC in Order to Interpret or Supplement National Contract Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Selim Ciger Questionnaire on the Use of the UPICC in Order to Interpret or Supplement National Contract Law: Uruguay . . . . . . . . . . . . . . . . . . 353 Andrés Mariño López

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The UNIDROIT Principles as Reference for the Interpretation of US Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 Ralf Michaels Use of the UPICC in Order to Interpret or Supplement National Contract Law: Venezuela . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395 Eugenio Hernández-Bretón and Claudia Madrid Martínez

The UNIDROIT Principles as a Common Frame of Reference for the Uniform Interpretation of National Laws Alejandro Garro and José A. Moreno Rodríguez

Abstract The preamble to the UNIDROIT Principles on International Commercial Contracts (otherwise referred to as “UPICC”, “PICC”, “UNIDROIT Principles” or simply the “Principles”) suggests many potential uses. However, almost half of the known judicial decisions and arbitral awards referring to the Principles invoke them for the purpose of supporting or providing further legitimacy to a solution which is either dictated or at least suggested by some national (domestic) law of contract. This general report provides a comparative perspective on how the Principles have been used to “interpret or supplement domestic law”. While exploring the use of the Principles in domestic contract law for the sole purpose of corroborating that a similar solution may be reached under the PICC, this research study suggests how courts and arbitrators may fruitfully resort to some of the rules of the PICC either for the purpose of clarifying some ambiguities or filling same internal gaps in domestic contract law.

1 Introduction The UNIDROIT Principles or PICC are meant to serve as many purposes as lawyers, arbitrators, judges, and different stakeholders who are aware of their existence find them useful to govern or settle cross-border transactions.1 However, the PICC are 1 The truth of the matter, however, is that still very few are aware of their content. Confronted with the question why should lawyers spend time and money researching conflicts of law rules and different solutions provided by domestic contract rules to contracts that are international, an

A. Garro Columbia Law School, New York, NY, USA e-mail: [email protected] J. A. Moreno Rodríguez (*) National University of Asuncion, Asuncion, Paraguay e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_1

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rarely applied on their own and the first edition of the Principles, unlike its sister project, the Principles of European Contract Law (“PECL”),2 did not contemplate its potential use as a means interpret or supplement domestic (national) law. It was not until the 2004, realizing that in numerous cases the Principles were mentioned for the purpose of corroborating a decision in a dispute governed by domestic law,3 that the Working Group decided to include, as one of its potential uses, the “interpretation and supplementation of national law”.4 But which are the typical patterns, if any, whereby judges and arbitrators from different jurisdictions allow the Principles to be applied in order to discover the meaning of domestic contract rules? Which normative link may be resorted to in order to fill gaps and decide the unprovided-for issue arising out of an international contract exclusively governed by domestic law? Is it appropriate resorting to such use of the Principles by referring to “general principles” of law found in some codes or statutes? Can the use of the Principles rest on the perception that the PICC

experienced international lawyer is said to have answered in 2016: “Of course, that is true. We believe that the UNIDROIT Principles are a wonderful tool. The problem is that most people do not know them and do not take the time to read them.” Brodermann (2018) quoting a senior director of the European Legal Department of a US manufacturing company selling pulp to 30 countries around the globe. 2 See Preamble to the PECL (“These Principles may provide a solution to the issue raised where the system or rules of law applicable do not do so”). See Lando and Bale (2003), Parts I and II, Art. 1:101(4). The PICC consists of a Preamble and 211 articles divided into 11 chapters covering various aspects of general contract law and accompanied by detailed commentaries and illustrations, including general provisions (Ch. 1), formation of contracts and the authority of agents (Ch. 2), validity (Ch. 3), interpretation (Ch. 4), content (Ch. 5, including third party rights and its conditions), performance (Ch. 6), non-performance (Ch. 7), set-off (Ch. 8), assignment of rights, transfer of obligations, and assignment of contracts (Ch. 9), limitation periods (Ch. 10), and plurality of obligors and obliges (Ch. 11). See Vogenauer and Kleinheisterkamp (2015). 3 A fairly accurate tough incomplete report of court decisions and arbitral awards resorting to the UPICC may be found in the data base of UNILEX (http://unilex.info), developed by the Centre for Comparative and Foreign Law of the University of Rome I, with the support of the Italian National Research Council. For a more comprehensive account of the different uses of the UPICC, see Michaels (2015), paras. 134–140. For use of the UPICC by arbitral tribunals, see Scherer M, Preamble II, paras. 46–57. See also Meyer (referring to the cases and awards reported by UNILEX in 2016) (“Of the more than 400 decisions that to date have referred to the PICC, the cases that concern the interpretation of a domestic law constitute the largest group in purely numerical terms”). 4 See para. 6 of the Preamble to the 2004 edition of the UPICC (“They may be used to interpret or supplement domestic law”). See Bonell (2005). After prescribing that the Principles “shall” be applied when the parties have agreed that their contract be governed by them, the Preamble suggests that the “may” be applied when “the parties have agreed that their contract be governed by general principles of law, the lex mercatoria or the like, “when the parties have not chosen any law to govern their contract”, and to “interpret or supplement international uniform law instruments”. They can also be used, and they have in fact been used many times, to “serve as a model for national and international legislators”. For a discussion of how the Principles have been used to inspire legislative reform, especially in countries with scarce jurisprudential developments on contracts involving foreign companies or those that have undergone radical socio-political changes, see Whited (2011).

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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somewhat embody or evidence “trade usages” or commercial “customs”? Thus, the first question addressed to the national reporters in this comparative study asks whether there is any statute, judicial decision or scholarly writings supporting reliance on the UPICC for this purpose.5 Several national reports assuredly inform that there are no judicial decisions in which the Principles have been ever cited or referred to as evidence of a “consensus on the law applicable to contracts”. In those jurisdictions lacking any explicit reference to a set of general principles or rules aimed at interpreting or supplementing the law applicable to international commercial contracts, the cases in which the Principles have been used to interpret domestic contract law are scarce or nonexistent. Other legal systems, in contrast, provide for different normative routes or doctrinal openings allowing the Principles to be used for the purpose of interpreting or supplementing (i.e., complementing or filling gaps) the domestic law of contract governing transnational disputes. Thus, some national reports mention cases in which the Principles have been referred to as evidence of a general consensus in the interpretation of treaties governing international contracts (e.g., international sales contracts governed by the CISG or international arbitration agreements governed by the New York Convention). Aside from the fact that in some jurisdictions the UNIDROIT Principles are cited by some courts while they are simply ignored in others, there is a significant weight of scholarly opinion regarding the Principles as a sort of “general consensus” of contract law shared by most Western legal systems, a sort of “common frame of reference on the law of contracts” or “global background law”6 that may substantiate or support the interpretation of the domestic law of contracts, especially with regard to issues on which most legal systems tend to agree but remain subject to different perspectives (e.g., the scope of application of open-ended principles such as “good faith”, or how serious or “fundamental” a breach of contract must be to warrant its termination, or which are the contours of the obligation to pay interest for failure to render a timely performance, etc.). This is why the second question posed to the national reporters sought trace those instances in which arbitral tribunals invoked the

The first question posed to the national reporters reads: Is there any legal source in your legal system allowing the use of the UPICC to interpret or supplement national contract law (either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source)? If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law). See The UNIDROIT Principles as A Common Frame of Reference for the Uniform Interpretation of National Laws, Reports to the XIXth International Congress of Comparative Law, International Academy of Comparative Law (2018). (“Questionnaire on the UNIDROIT Principles as a Common Frame of Reference”) (http://gc.iuscomparatum.info/gc/project/the-unidroit-principles-as-a-com mon-frame-of-reference-for-the-uniform-interpretation-of-national-laws-english/). 6 Michaels (2014) (Michaels refers to “nine surprising findings concerning the actual use of the PICC”, most of which pointing their perception of “a Restatement of global contract law, and their function as that of a global background law”). 5

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authority of the Principles and applied them, in the absence of the parties’ choice, as the general background contract law.7 The absence of a reference to the UNIDROIT Principles in the settlement of judicial disputes subject to domestic contract law presents a remarkable contrast with the generous hospitability given to the Principles by legal scholars from those same jurisdictions, who often rely on many provisions of the Principles as a comparative yardstick to clarify, interpret, and even “develop” their own domestic contract rules. This is probably the most extensive use of the UPICC other than in the context of judicial decisions and arbitral awards.8 In order to assess the extent to which the UPICC offer a modern and suitable response to issues of international commercial contracts which are not clearly or adequately addressed, or simply ignored, by the domestic contract law, the second and final part of the questionnaire individualizes a dozen provisions of the UPICC, scattered through its different chapters (formation, interpretation, performance and nonperformance), asking the national reporters to identify a counterpart (statutory or judge-made law) in their domestic law of contracts.9 The national reporters were also asked whether there are other rules,10 not included in the given list, which may be resorted to interpret or fill gaps of their domestic law of contracts.11 7 The second question posed to the national reporters reads: Have the UPICC been used as evidence of a general consensus on the law applicable to contracts (for example, on the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.)? If so, please indicate which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner. 8 This is probably the answer to the third question posed to the national reporters: Assuming that the UPICC have been not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a general body of contract law or to some of its provisions in particular; whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria). 9 Question 5 lists selected provisions of the PICC, posing the following question: If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or case-law rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law. 10 Question 7 reads: Please include those rules of the UPICC (other than those included in the given list) which have been relied upon by courts or arbitral tribunals for the purpose interpreting a similar provision of your national contract law or in order to supplement (thus serving as a gap-filler) the national contract law in force in your jurisdiction. 11 Question 6 reads: If there is no such a rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law.

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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Some national reports identified rules of domestic contract law functioning as clear counterparts to PICC rules and principles, though not always formulated in the same fashion. Other PICC provisions, in contrast, did not recognize any counterpart in the domestic law of contracts. The information provided in the national reports were thus able to identify the UPICC’s most innovative provisions, generally dealing with issues of particular relevance to international business transactions (e.g., conflicting languages, default rules for determining the currency of performance of monetary obligations), turning those rules quite attractive for the purpose of interpreting, filling gaps, or “developing” and ultimately stimulating and inspiring efforts towards law reform. While starting with the study of actual or potential openings for the use of the UPICC in domestic contract law, this general report closes with a comparative analysis of contrasting approaches towards the Principles, speculating on possible explanations for their limited use in some jurisdictions in contrast with the generous hospitability received in others. This is perhaps the most important contribution furnished by the magnificent national reports that we had the privilege of examining. The national responses that we seek to sort out, in fact, foreshadow the continuous potential of the UNIDROIT Principles to increasingly inspire and affect the development not only of the law of international commercial contracts, but also of the domestic law of contracts in general.

2 Foundations for Using the PICC to Interpret and Supplement Domestic Contract Law Because most national legal systems have been conceived as self-sufficient, that is, as providing for themselves the method to follow while filling any gaps or lacunae, it is necessary to find a normative or doctrinal foundation within the national legal order by which the PICC may be resorted to as a means to interpret or supplement domestic contract law. In in the absence of a viable legal “route” by which the Principles can enter the legal system it would be difficult to legitimize the application of a non-binding instrument such as the UNIDROIT Principles. The answer to the question whether the legal system provides for “any legal source” opening the door for the application of the PICC in their jurisdictions received very different answers from the national reports, suggesting that some legal systems are more amenable than others for allowing the UPICC to influence the interpretation and supplementation of domestic law. Whereas some national reports pointed to the absence of any legal link between between the UNIDROIT Principles and their domestic law of contract, others pointed to the reference to the “general principles of law” and “trade usages” as a potential legal foundation on which the application of the Principles may rest.

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Jurisdictions Lacking Normative Foundations for Applying the PICC to Interpret or Supplement the Domestic Law Governing the Contract

Some national reports such as those from Chile, Germany, Greece, Japan, Italy, and the United States point to the absence of legislative provisions expressly admitting the use of the UNIDROIT Principles for the purpose of interpreting domestic law contract law or for filling its gaps. Not surprisingly, there have been instances in which a court’s reluctance to apply the UNIDROIT Principles to a dispute governed by domestic contract law rested on the ground that, not having been incorporated by the parties into their contract, the PICC are not to be considered “universally recognized principles” of contract law, nor can they be legitimately applied an integral part of the national law of contracts.12 In other instances, it has been held that the PICC’s non-binding nature represents a compromise among conflicting legal solutions which are not always acceptable at the domestic level, thus rejecting their identification with trade usages common to international business transactions.13

2.2

The Concept of “General Principles of Law” as a Source of Application of the PICC

Other national reports, although failing to report the existence of an express and direct source providing legal foundations to apply the PICC to cases governed by domestic law, they nevertheless point to their potential application through alternative doctrinal foundations. This is the case of Mexico, whose due process clause prescribes the courts’ duty to follow the text of the law and, in the absence thereof, to resort to “general principles of law” or similar formulations. Failure to apply the law “correctly” may become a reversible error in amparo trials.14 The Brazilian,15

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Russian Federal Commercial Court, Central Circuit, 19 July 2011, referred to by Meyer (2016), p. 601, n. 13. 13 Tribunale Verona (Italy), 30 June 2010, also referred to by Meyer, n. 14. 14 Mexico Nat. Rep., referring to Article 14 of the Mexican Constitution, in fine (“. . .In civil actions, the final judgment must be rendered in accordance with the letter of the law or its legal interpretation and, in the absence thereof, in accordance with general principles of law”). 15 See Article 4 of the Law of Introduction to Norms of the Brazilian Law, Law No. 12376 of September 30, 2010 (“Braz. LNDB”). When the legislation is silent, the judge shall decide the case according to analogy, customs and the general principles of law (“Quando a lei for omissa, o juiz decidirá o caso de acordo com a analogia, os costumes e os princípios gerais de direito”).

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Paraguayan16 and Uruguayan17 reports, among others, also refer to the application of the “general principles of law”, found in the Constitution as well as the Civil code, both of which supporting the potential application of the UPICC.

2.3

The PICC as a Codification of the Law Merchant (‘lex mercatoria’)

Less plausible, though not theoretically inconceivable, is the opening offered to the application of the UNIDROIT Principles by way of reference to the lex mercatoria as a supplementary source of law. Although this meaning is unlikely to be attributed to the concept of “law merchant”, as used in specific contexts such as it is found in Section 1-103 of the Uniform Commercial Code of the United States (“UCC”),18 the diffuse and amorphous concept of lex mercatoria is precisely mentioned in the preamble to the PICC as the meaning sought to be acquired by the PICC.19 Yet,

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Parag. Nat. Rep., referring to Article 6 of the Paraguayan Civil and Commercial Code of 1985 (“Parag CC”), directing judges to take into account, in addition to the letter and spirit of the statutes, analogous cases as well as the general principles of law. 17 Urug. Nat. Rep., referring to Art. 332 of the Uruguayan Constitution (“The provisions of this Constitution acknowledging individual rights as well as those conferring rights and prescribing duties of public authorities shall be applied despite the absence of applicable rules, in default of which shall be governed by the rationale of analogous statutes, the general principles of law and generally accepted scholarly doctrine.”). Reference to general principles are also found in Art. 1302 of the Urug. CC (“In civil cases that cannot be resolved by the letter or the spirit of the law on the subject matter, resort shall be made to analogous statutes and, if doubt still persists, to general principles of law and the most accepted scholarly doctrine, taking into account the circumstances of the case.”). 18 See USA Nat. Rep., referring Section 1-103 UCC and Karl Llewellyn’s idea of opening up the UCC to the “immanent law” emerging from industry’s practices. See 1-103 UCC (“Supplementary General Principles of Law Applicable. Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions”). Emphasis added. As noted the national reporter, the Official Comment accompanying this provision suggests that such references to the law merchant point to the common law of contracts developed courts in the United States, rather than some body of laws of a transnational nature. 19 In the words of Lord Mustill, the Principles “represent a distillation of a large number of laws which it would often be impracticable to examine individually. . .”, quoted in Bonell, An International Restatement at 239. For a pointed criticism of the concept of “lex mercatoria”, see Czech Nat. Rep. at 3 (“Czech legal theory does not differentiate substantially from traditional theories of private international law in Europe. Lex mercatoria is a fuzzy term, and it is in our opinion impossible to accept that the rules arising from lex mercatoria could be regarded as having the nature of generally binding legal norms. As sometimes mentioned in literature, lex mercatoria is not a “lex”. Only states adopt generally binding legal norms”).

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some national reports refer to isolated cases in which a court relied on the PICC as an expression of the lex mercatoria.20 In two decisions reported by Unilex, rendered relatively recently by the Court of Appeals of Rio Grande do Sul, the PICC were referred to as a “new lex mercatoria”, which the Brazilian court conceptualized as a “group of norms gathered in principles, usages and customs, model clauses, model contracts, judicial decisions and arbitral awards, conceived or derived from trade transactions amongst actors of international commerce.”21

2.4

International “Trade Usages” or Customs as an Alternative Source of the PICC

Most national legal systems give binding effect to trade usages, customs and commercial practices having played, and currently playing, a most significant role as a source of domestic22 as well as international23 business transactions. Trade usages draw on unofficial practices, by and large closely related to a specific branch of trade or particular markets. Trade usages have played a significant role in international trade, providing a greater level of flexibility absent in the more formal legislative process, thus allowing market participants to react more quickly to changing circumstances and new developments. Accordingly, some decisions,

20 See, e.g., Urug. Rep. at 1, referring to an appellate court decision relying on Article 7.1.6 PICC to uphold the validity of an exemption of liability clause (Civil Court of Appeals of Montevideo, Term 1, Decision No. 152/204, 13 August 2014). 21 Court of Appeals of Rio Grande do Sul, 14 February 2017, Noridane Foods S.A. v. Anexo Comercial Importação e Distribuição Ltda, reported in http://www.unilex.info/principles/case/ 2035. See also Court of Appeals of Rio Grande do Sul, citing the Brazilian national reporter, Professor Lauro Gama Jr., for the proposition that “the use of the UNIDROIT Principles – as well the application of the CISG even if not part of the Brazilian domestic law – reaffirms a flexible, non-positivist approach to disputes as is required in the field of international commercial law”. See also, Court of Appeals of Rio Grande do Sul, 30 March 2017, Voges Metalurgia Ltda. v. Inversiones Metalmecanicas I.C.A. – IMETAL I.C.A., reported in http://www.unilex. info/principles/case/2042. 22 See, e.g., Turkish CC, Art. 1. For the ample room conferred on usages in Spanish law, see Spain Nat. Rep. (referring to the “normative” as well as “interpretative” function played by usages in the Spanish CC and ComC). See also UCC Section 1-303(c), referring to “usage of trade”. In many jurisdictions, however, trade usages or customary practices are allowed only in those cases in which the law refers to them (secuendum legem). See Parag. Nat. Rep., referring to Article 7 Parag. CC, according to which “commercial usages and customs can only apply when the law refers to them to determine the sense of words or technical phrases of commerce and to interpret acts and conventions of the same nature”.). 23 See the formulation of the binding force of trade usages under Art. 9(3) CISG and Art. 1.9 UPICC.

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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including one from the High Commercial Court of Ukraine,24 and more than one arbitral award of China’s International Economic and Trade Arbitration Commission (“CIETAC”),25 have declared that the UNIDROIT Principles express international usages applicable to cross-border transactions in the absence of, and unless in conflict with, the domestic law governing the contract.26 Most national reports point to the absence of judicial decisions in which the UNIDROIT Principles have been applied as part of international trade usages.27 Although many of the national reports indicate that the UNIDROIT Principles have never been used as trade usages by the national courts,28 other reports state that as long as the PICC “represent ‘trade usages’ and ‘general principles of commercial law’, an arbitral tribunal is allowed to take them into consideration and, consequently, use them to interpret or supplement national contract law.”29 In fact, in more than one occasion Paraguayan courts have resorted to the UNI DROIT Principles in disputes governed by domestic contract law, finding that the usages and practices referred to in Article 7 of the Paraguayan Civil Code30 give rise to the kind of “implied obligations” referred to in Article 5.1.2(b) PICC.31 In a case in which a party complained to the Supreme Court because the lower court relied on 24 Letter of the Supreme Economic Court of Ukraine, 7 April 2008, On Some Issues in the Application of the Civil and Commercial Code of Ukraine, referred to by Michaels (2014) note 27. 25 See Huang (2008), pp. 105, 135–136. 26 Although acknowledging that the PICC was not and cannot be conceived as a restatement of commercial usages, Michaels notes that this may be one of the roles the Principles assume in order to gain legitimacy in its application (“If courts, especially in formerly socialist countries, draw on them regardless, it appears they sue them as a hook to escape their overly restrictive domestic laws.”). See Michaels (2014) note 27. 27 See, e.g., Greek Nat. Rep. at 1, reporting “no court cases . . .where the UPICC have been invoked as representing “trade usages” or “customs” in the field of contract law and, accordingly, no relevant court decisions.”. 28 See Japanese Nat. Rep. at 1 (“The UPICC has never been explicitly used by Japanese courts in interpreting or supplementing Japanese law. There is no institutional barrier for using the UPICC for that purpose as far as the principles in the UPICC can be viewed as representing “customs” or “trade usages”. Nonetheless, that has not happened.”). 29 Guatemalan National Rep., point to Article 36(2) and (3) of the Guatemalan Arbitration Law, referring to the application of the “usages and principles of international commercial law”, “trade usages and commercial practices of general acceptance”, and “usages of the trade applicable to the particular case.”. 30 Article 7 of the Paraguayan Civil Code provides customs and practices cannot create rights unless the parties refer to them. 31 Article 5.1.2(d) PICC provides that implied obligations in a contract may arise, inter alia, from “the practices established between the parties and usages”. In a dispute involving a sales commission agreement, a Paraguayan court of appeals found that that the seller’s delivery of the goods directly to the customers, instead of at the place of the seller’s premises as originally agreed, resulted from the usages and practices binding on the parties by virtue of Article 1.9 PICC, which closely follows Article 9 CISG, giving rise to the seller’s implied obligation to deliver the goods directly to the customers. See Paraguayan Nat. Rep., referring to Ofelia Valenzuela Fernandez c. Paraguay Granos y Alimentos SA, Civil and Commercial Court of Appeals of Asuncion, 6th Chamber, Acuerdo y Sentencia 66 (2016).

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Article 5.1.3 PICC for the purpose of imposing a duty to cooperate with the other contracting party, the Supreme Court of Paraguay, although revoking the lower court decision on other grounds, upheld the use of such provision of the UNIDROIT Principles stating that the duty to cooperate “complements the principle of good faith in contractual relations recognized in Paraguayan law.”32 Whether the PICC codifies international trade usages appears as a controversial route of entry for the UNIDROIT Principles to be used in the interpretation or supplementation of domestic contract law.33 Actually, it does not seem appropriate to assimilate the UNIDROIT Principles to international trade usages, as if the PICC were to codify usages and practices developed throughout the years. Whereas trade usages and customs are rooted in habitual practices, the rules embodied in the UNI DROIT Principles do not necessarily reflect nor intend to formulate predominant practices, but they rather aim at articulating the most suitable solutions for crossborder transactions. Not surprisingly, some arbitral awards have refused to put the PICC on an equal footing with trade usages.34 In some jurisdictions such as the Chzech Republic, even though proven trade usages clearly preempt default rules of the otherwise applicable law,35 its national report does not find it likely that Chzech courts would resort to the

32 Paraguayan Nat. Rep., referring to Jorge Moises Etcheverry Ali c. Rosa Maria Ramona Etcheverry de Brizuela, decided by the Civil and Commercial Court of Appeals of Asuncion, Sixth Chamber, Acuerdo y Sentencia 62 (2015). The Paraguayan National Report refers to other cases in which Paraguayan courts of appeals consistently resorted to Article 5.1.3 PICC, providing thus: “Each party shall cooperate with the other party when such cooperation may reasonably be expected for the performance of that party’s obligation”. See Paraguayan Nat. Rep. (“The duty of cooperation is not expressly contemplated in Paraguayan domestic laws. However, the Court of Appeals sustained that it is derived from the duty of good faith in contractual relations, which, in turn, is contemplated by Paraguayan domestic laws. The Court supported its conclusion in the UPICC, relying on its Article 5.1.3 and also referring to its explanatory notes.”). 33 Trade usages are generally regarded as born out of habitual practices, thus calling for an ascertainment of facts rather than law. See Oser (2008), pp. 80–81. On the evidentiary difficulties inherent in the finding of trade usages prevailing in relevant markets, geographic locations and branches of trade, see Bernstein (2015). 34 See, e.g., ICC Case No. 10021 (2000) (“the reference to the UNIDROIT Principles as codified trade usages is rather of persuasive rather than binding nature”); ICC Case No. 124446 (2004) (“though this arbitration tribunal does not deny that UNIDROIT Principles indicate well thought good rues, that fact does not make the UNIDROIT Principles worldwide trade customs or usages”). See also ICC No. 9029 (March 2004) (“[A]lthough the UNIDROIT Principles constitute a set of rules theoretically appropriate to prefigure the figure lex mercatoria should they be brought into line with international commercial practice, at present there is no necessary connection between the individual Principles and the rules of the lex mercatoria, so that recourse to the Principles is not purely and simply as recourse to an actually existing international commercial usage”), cited in Meyer, notes 58–61. 35 Czech National Rep., at 3, quoting Article 558(2) of the Czech Civil Code: “In legal transactions among entrepreneurs, account is taken of business usages maintained in general or in a given industry, unless excluded by an agreement between the parties or by a statute. Unless otherwise agreed, a business usage is conclusively presumed to take precedence over a non-mandatory

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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UNIDROIT Principles as embodying business practices.36 The national report on Russia does not disclose any court judgment resorting to the UNIDROIT Principles as trade usages, yet the Principles have been applied several times as reflecting international trade usages in awards rendered by arbitration tribunals operating under International Arbitration Court and the Russian Federation Chamber of Commerce (“ICAC”).37

2.5

Jurisdictions Where the PICC Have Been Used as a Model for Reform of the Domestic Contract Law

Surveys undertaken about a decade ago showed that the UPICC remained relatively unknown several years after they were originally adopted in 1994.38 Awareness of the Principles is likely to improve with the passage of time, as reflected by the reference to the PICC in academic debates about new trends in contract law and the impact it had on the drafting of regional restatements such as the PECL, OHADA,39 and more recent projects in Asia (“PACL”)40 and Latin America (“PLACL”).41 More importantly for the purpose of resorting to the UNIDROIT Principles in the interpretation of domestic contract law is the case of those jurisdictions were the Principles have been relied upon as a model for the reform of the domestic law of contract law.42 Many rules of the Principles have been relied upon as a model for modernizing the law of contracts, not only in socialist or former socialist States (People’s Republic of China, Latvia, Estonia, Lithuania, the Czech Republic, Hungary, the

provisions of a statute; otherwise, an entrepreneur may invoke a usage if he proves that the other party must have known a given usage and was aware that it would be followed”. 36 Czech National Rep., at 3 (“We are of the opinion that in light of the indicated approach to usages, it cannot be assumed that in the future Czech courts would use this provision to apply the UPICC. Such scenario is not likely to take place. . .”). 37 See Russian Nat. Report at 6, referring to a series of published arbitral awards of the ICAC, including ICAC award of 5 June 1997, Case No. 229/1996, referring to the UNIDROIT Principles as “progressively acquiring the status of international customs”. 38 Surveys conducted among English and US judges, international practitioners, and legal scholars yielded disappointing results. For the UK, see Goode (2001) and Fitzgerald (2008). For the USA, see Gordon (1998). 39 For a discussion of the draft contract law adopted by the Organization for the Harmonization of Commercial Law in Africa (“OHADA”). 40 For a discussion on the PACL see Kanaya (2010) and Han (2013). 41 For a discussion of the PLACL, see Pizarro Wilson (2012). 42 See Bonell, note 78, noting the success of the UPICC as a progressive “model contract law” or source of inspiration for law reform, especially, though not exclusively, in former socialist states.

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Russian Federation),43 but they also have been influential in law reform projects in jurisdictions with a long and influential practice and legal scholarship (France,44 Germany,45 and Japan).46 In these jurisdictions the UNIDROIT Principles are expected to be increasingly taken into account when their courts are asked to interpret the newly enacted codes, especially when it is clear that the UPICC influenced the drafting of the particular provision to be interpreted.47 There are

43 For a general discussion of the use of the Principles as a model for law reform in Lithuania, Estonia, Latvia, Russia, and other jurisdictions, see Estrella Farias (2016), pp. 238, 243–247. 44 See amendments for the modernization and simplification of the law and procedure on the field of justice and domestic affairs (Loi No. 2015-177 du 16 février 2015 relatif à la modernization et à la siplificqtion du droit et des procedures dqns les domaines de lq justice et des qffaires interieures). See Fauvarque-Cosson (2014). See also Estrella Farias (2016), pp. 262–269. The statute authorizes the Executive branch to promulgate a regulation (ordonnance) revising twelve specific areas in the field of conventional obligations governed by the Code civil. In many instances, the reform reproduces pre-existing provisions or case-law developments ( jurisprudence constante), but many other provisions mirror the UPICC. This is the case, for example, on the overriding duty of r1.7 UPICC); liability for breaking off negotiations in bad faith and the duty of maintain confidentiality in the course of negotiations (Art. 1112 Fr.CC and Art. 2.1.15 UPICC). Also in correspondence with the approach of the Principles, the amendments to the French Civil Code eliminate the concept of cause among the essential elements of the contract (see comments to Art. 3.1.2 UPICC); introduces the notion of “anticipatory breach”, also covered by Art. 71 CISG, allowing one party to suspend performance in case of a serious risk of non-performance by the other party (Art. 1220 Fr. CC and Art. 7.3.3 UPICC); excludes specific performance in cases where performance would be unreasonably burdensome and expensive (Art. 1221 Fr.CC and Art. 7.2.2 (b)). Following the approach of Arts. 6.2.2 and 6.2.3 UPICC, Art. 1195 Fr.CC allows either party to the contract to request renegotiations when unforeseen and drastic changes after the conclusion of the contract disrupts the equilibrium of the performances, turning excessively harsh the performance of a party that had not assumed such a risk (“Si un changement de circonstances imprévisible lors de la conclusion d’un contrat rend l’exécution excessivement onéreuse pour une partie qui n’avait pas accepté d’en assumer le risque. . .”). If the renegotiations end in failure, both parties may request the court to adapt the contract. But if both parties fail to agree on how to adjust the performances, either party may apply for a judicial revision or termination of the contract. 45 For a survey on the influence of the UPICC in the modernization of the German law of obligations, passed on 27 November 2001 and entered into force in January, 2002, see Zimmermann (2005). 46 A working group set up by the Legislative Council of the Japanese Ministry of Justice have been meeting since 2009 for the purpose of revising Book III of the Japanese Civil Code of 1896, dealing with obligations and contracts. The working group submitted a draft bill to the National Diet on March 31, 2015. According to Professor Takashi Uchida, a member of the Legislative Council, the UPICC has been a “a rich source of inspiration” for some of the revised rules on contract law. See Ushida (2011) pp. 697, 710. See also Estrella Farias (2016), pp. 259–260. 47 This is case in a jurisdiction such as Lithuania, whose Civil Code replicated many provisions of the UPICC. See Supreme Court of Lithuania, 19 Jan. 2005 (referring to Art. 2.1.15 UPICC and its comments for the interpretation of Art. 6.163 of the Lithuanian CC dealing with liability for the braking-off contractual negotiations in bad faith); Svenska Petroleum Exploration AB, Government of the Republic of Lithuania, 4 Nov. 2005, a decision rendered by the English High Court, applying the relevant rules of contract interpretation in Arts. 6.193 to 6.195 of the Lithuanian CC, which according to a Lithuanian legal scholar “repeat Article 4.1 to 4.6 of the UNIDROIT Principles.” See Meyer, notes 43–44. See also Zukas (2007) pp. 238–239.

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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also a number of jurisdictions, such as Spain48 and Scotland,49 in which the Principles are being considered as a possible source of inspiration for future reforms in the law of contracts. Another case on point on the consultation of the PICC as a source of legislative intention is the Contract Law of the People’s Republic of China (1999), whose rules applicable to contracts in general has been significantly influenced by the UNIDR OIT Principles.50 The Civil Code of the Russian Federation (“CCRF”), adopted at different stages between 1994 and 2008, has largely drawn inspiration from the U NIDROIT Principles, even though its drafters not always made express reference to those instances in which a particular provision has been modeled after a rule of the UNIDROIT Principles.51 The PICC are also mentioned as a model for some of the

48

For the influence of the UPICC in the drafting of Spanish legislative projects, see Martìnez Cañellas (2007) (discussing the wisdom of using the UPICC as a source of inspiration of for the revision of commercial (or mercantile) contracts regulated in the Commercial Code, preventing the Spanish Autonomous Communities from passing special laws to regulate those issues of contract law). See also Estrella Farias (2016) reporting on the influence of many provisions dealing with the formation of contracts, taken from the CISG or from the UPICC (e.g., Arts. 2.1.1 and 2.1.6), noting that those provisions with no equivalent in the CISG are clearly derived from the UPICC, such as those on negotiations in bad faith (Art. 2.1.15 UPICC), duty not to disclose information received during the negotiations of the contract (Art. 2.1.16 UPICC), modification in a particular form (Art. 2.1.18 UPICC), writings in confirmation (Art. 2.1.12 UPICC).). 49 For a discussion of the impact of the UNIDROIT Principles on the reform of the Scottish reform of domestic contract law, see Orucu (2011), pp. 1002–1023. 50 Contract Law of the People’s Republic of China, President’s Order No. 15, 15 March 1999 (“Chinese Contract Law” or “ChCL”). A statistical study undertaken by the Civil Law Bureau of the Legislative Committee of the National People’s Congress, cited by Professor Zhang Shaohui, refers to the influence of foreign domestic sources, including the civil codes from Italy (31.8%), Germany (25.7%), Japan (14.3%), France (10.7%), and even the Uniform Commercial Code (3.5%). Instruments of international uniform law such as the UPICC are also credited with influencing the general part of contract law (47.3%) and the CISG on specific rules on the contract of sale (50%). See Shaohui (2008). The most evident influence of the Principles on the ChCL is in the field of formation of contracts, though such influence is questionable given the similarities with those of the CISG, upon which many of the UPICC rules on formation of contract were modeled after. But the rules of the ChCL on the validity of contracts (Art. 55 ChL and Art. 3.2.9 UPICC) and the consequences of breach of contract corresponds to many of the rules found in Chapters 6 (“Performance”) and 7 (“Non-Performance”) of the UPICC. See Yuqing and Danhan (2000). See also Estrella Farias (2016), pp. 250–252, notes 67–69. 51 See Russian Nat. Rep., at 1 (The travaux préparatoires to the reform stress that the UPICC were one of the main models and explicitly invoke their provisions many times. The (final version of the) Concept for the Development of Civil Legislation in the Russian Federation makes three references to the UPICC (the only reference to non-state law above that being the one to the ICC Uniform Customs and Practice for Documentary Credits (UCP 600)). The much more detailed draft Concept of the working group on obligations has built mainly upon soft law and international instruments: the ‘international principles of contract law’, generally meaning the UPICC and the like, were referred to 10 or 11 times, the UPICC specifically – 14 times (whereas the PECL – only 5 times and the DCFR – not a single time). The real number of inspirations from the UPICC might have been higher if one suggests that there were cases where the drafters have made use of the UPICC with no specific reference to the Principles. It is worth mentioning that Alexander S. Komarov, a member of the working groups for the preparation of the first three editions of the UPICC (1994, 2004, 2010), has participated in the drafting of the original text of the Code as well as of the amendments to it during the reform.”).

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contract provisions incorporated into the Argentine Civil and Commercial Code of 2015 (“ArgCCC”).52 Even though no one questions that the Principles have been used up certain extent as a source of inspiration, the degree to which different States have modelled their contract rules on the PICC varies from country to country, and the level of influence of the Principles may also depend on each contract rule in particular. On the one hand we have the case of the Lithuanian Civil Code, some of whose provisions follow word for word the UNIDROIT Principles.53 On the other hand, we have other jurisdictions, such as the Civil Code of the Czech Republic (2012) and the Hungarian Civil Code (2013) in which It is not altogether clear the extent to which the UNIDROIT Principles were taken into account in the drafting of their contract rules. Both national reports indicate that their recently enacted codes have been influenced in one way or another by different provisions of the Principles, although it remains to be seen the extent to which the Czech54

52

See Argentina Nat. Rep., referring to Law No. 26.994 passed on October 1, 2014, adopting a new Civil and Commercial Code (“Arg. CCC”), replacing the Civil Code of 1869. Justice Ricardo Lorenzetti, who presided the legislative committee that drafted the new CCC, expressly referred to the influence of the UPICC in the drafting of the new provisions on contracts. See Código Civil y Comercial de la Nación, Buenos Aires, Led. La Ley, preface by R. L. Lorenzetti, at XCII (“The design of these provisions [referring to the title on contracts in general] draws heavily on the U NIDROIT Principles, which are widely accepted in today’s legal tradition (Arts. 971 et seq.). . .”). Although the Committee’s final report fails to mention specific provisions of the Principles, the national report expressly refers to the text of a draft Civil Code prepared by a committee established by Executive Decree No. 685/95, whose “1998 CC Draft” (Anteproyecto de Codigo Civil de 1998) refers to the influence of the UPICC (together with the PECL and a Draft of a European Contract Code by the Academy of Pavia) on areas such as the contract of representation or agency (mandate), the formation of contracts, as well as the impact of Art. 7.4.4 UPICC on foreseeability of the harm. See Argentina Nat. Rep. (“The influence of the UNIDROIT Principles as a source of the [1998 CC Draft] --and therefore a source of the CCC-- is not limited to the occasions in which it is expressly mentioned in the recitals. As in the [1998 CC Draft], the Principles have inspired many other solutions. . . .”). 53 Reportedly, Article 6.163 of the Lithuanian Civil Code follows verbatim Article 2.1.13 PICC on precontractual liability. See Meyer, 607. 54 Czech Nat. Rep., text accompanying note 26, referring to the Civil Code of the Czech Republic that came into effect on January 1, 2014 (Law No 89/2012) (“CzCC”) and at p. 18 (“Undoubtedly, the UPICC may be regarded as an interpretation tool with regard to the provisions of the new 2012 Civil Code, as the UPICC served, together with other sources, as a model for some new provisions”). Thus, the Czech Nat. Rep. refers to the influence of some provisions of the Principles in the drafting of the new Civil Code, such as Art. 1753 on surprising terms (Art. 2.1.20 UPICC); Art. 2002(1) CzCC on the right to terminate a contract in case of fundamental breach (Art. 7.3.1 (1) UPICC). However, it is not the text of the PICC the one that always prevailed as a source of inspiration. See Czech Nat. Rep. at 9, referring to the rules on precontractual liability adopted in Sections 1728–1729 CzCC “(In 2012 the Czech Republic saw extensive recodification of private law resulting in the adoption of a new civil code which came into effect on 1 January 2014. In the new CC precontractual liability is expressly regulated under Sections 1728 – 1729. According to the Explanatory Report on the CC the drafters were inspired by the regulation of pre-contractual liability in Art. 6 – 8 Code Européen des Contrats rather than by the regulation contained in the UPICC”).

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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and Hungarian courts55 rely on the PICC in order to interpret ambiguities or fill gaps in the law of domestic contracts. This is also the case of the most recent reform to the Japanese Civil Code, which will come into force on April 1, 2020, to which the UNIDROIT Principles served as a significant legislative model for the drafting of domestic rules on contract law. It remains to be seen, however, whether the Principles, which up to this day remains relatively unknown to most Japanese practitioners, will become an important source of consultation in the interpretation of the new contract rules or in order to fill its gaps.56

2.6

Choice of the PICC as a Means of Interpreting and Supplementing the Applicable Domestic Law

Because the PICC provides for contract “rules”, rather than “law”, much of the use of the UNIDROIT Principles, even in those cases in which the parties have expressly chosen the application of the PICC, depends on the recognition and scope of the principle of party autonomy of forum.57 This is why it is always highly commendable for the parties to opt into the Principles through a dispute resolution clause, as recommended in the official footnote to the second paragraph of the Preamble. Even if the parties include a choice-of-law clause into the contract, it is the applicable

55

Hungary Nat. Rep., referring to provisions of the Hungarian Civil Code (of 2013 (“HCC”) that were inspired by the Principles, such as Art. 6:63 HCC on trade usages (Art. 9 CISG and Art. 1.9 UPICC); Art. 1:3 on liability for breaking off negotiations in bad faith (Art. 2.1.15 UPICC); Art. 6:78 HCC on standard terms (Art. 2.1.20 UPICC); and Art. 6:86 HCC on interpretation of a contract as a whole (Art. 4.4 UPICC). See Hungary Nat.Rep. at 2 (“During the preparation of the [Hungarian Civil Code or “HCC”] several instruments of unification of contract law were taken into account, as a source of inspiration, especially the United Nations Convention on Contracts for the International Sale of Goods (CISG), the UNIDROIT Principles of International Commercial Contracts (UPICC) and the Principles of European Contract Law (PECL). This influence and inspiration was expressly admitted by the Editorial Committee preparing the original draft of the HCC. So, it is not surprising, that the sections on contracts of the HCC fairly often contain similar or compatible norms to that of the UPICC”). 56 See Japan Nat. Rep. at 4 (“The receptivity toward the UPICC, however, may have gradually changed during the course of the past few years, as it has been frequently referred to as an important legislative model in the recent amendment of the Japanese Civil Code. This may have some positive impact on the courts and arbitral tribunals, but it is still yet to be seen if the courts and arbitral tribunals in Japan are prepared to find that UPICC is a restatement of “customs” or “trade usages” in international contacts”). 57 See Guatemalan Report, referring to Article 31 of the Law of the Judicial Branch, providing that “Legal acts and contracts are governed by the law chosen by the parties, unless such choice is contrary to prohibitive rules or public order”. The Guatemalan Report adds: “According to the rules of interpretation governing in Guatemala, the term “law” should be interpreted narrowly and refers only to a State law, i.e., one issued by the corresponding legislative authority of a State, and not an instrument of soft law.”

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conflict of law rules of the forum (be it an arbitration or a judicial forum) which will decide if and how the UNIDROIT Principles will be accepted.58 The model clauses suggested by UNIDROIT distinguish between choices that the parties may conclude in the contract itself and after the dispute has arisen, and one of the models provides for the language that may be included in a clause in which the PICC are selected as a means of interpreting and supplementing the applicable domestic law: “This contract shall be governed by the law of [the State X] interpreted and supplemented by the UNIDROIT Principles of International Commercial Contracts (2010)”. The comments point to the convenience of relying on the Principles when the applicable domestic law pertains to a legal system without much exposure and experience on cross-border transactions, but it also remarks how important is to count on the support of the Principles when the applicable domestic law is that of a highly developed legal system. The role of the PICC in these cases may be relevant in those instances where the applicable domestic law fails to provide for a clear-cut solution to specific issues, either because scholarly opinions are sharply divided, the case-law on the matter is not altogether clear, or the issue at stake has not been addressed at all.59

2.7

Use of the PICC by Arbitral Tribunals as Opposed to National Courts

Relatively recent empirical studies indicate that the parties make little use of UPICC, both in contracts whose disputes were settled by arbitrators as well as those ending up before the regular courts.60 Those same studies show that in most cases the PICC were actually resorted to and used by adjudicators even in cases in which they have not been chosen by the parties to the contract.61 In those cases in which the parties

58 Although party autonomy in the determination of the applicable law to commercial contracts may be considered a principle generally accepted in most Western jurisdictions, in some Latin American jurisdictions party autonomy is only accepted in disputes submitted to arbitration (e.g., Bolivia, Brazil, Colombia, and Uruguay). See Albornoz (2010), pp. 47–48. 59 See Model Clauses for Use by Parties at 20–21. 60 See Michaels (2014), pp. 646–647, reporting in 2014 figures reported by UNILEX and the ICC (“. . .UNILEX lists only 19 arbitral decisions addressing the applicability of the PICC as rules of law governing the contract in disputes before an arbitral tribunal, out of 186 arbitral decisions that mention the PICC. Out of those 19, no more than four concern matters in which the parties had chosen the PICC in their contract. . .[T]he PICC were mentioned in only 54 proceedings or 0.8 % of all proceedings. From another report, we learn that, between 2007 and 2011, the PICC were mentioned in contracts in only seven matters referred to arbitration under the ICC, as opposed to 3, 551 in which national law was chosen. . .”). 61 See Michaels (2014), p. 648, Figure 1, showing different applications of the UPICC by judges and arbitrators. By far the biggest portion of decisions were those in which the Principles were applied to interpret and supplement domestic law (221), followed by their use in the interpretation of international commercial instruments (62). In 60 cases the Principles were used in the absence of

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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have not chosen the application of the UNIDROIT Principles, the third paragraph onwards of the Preamble suggests that the Principles may still be applied in several instances, without distinguishing those cases in which the adjudicator is a state (national) court or an arbitration tribunal. As previously noted, however, the distinction between these two types of adjudication remains relevant, as noted in most national reports. It is worth returning to this distinction, because the possibility of resorting to the PICC as a means of interpreting and supplementing the applicable domestic law also depends on whether the dispute is to be decided by an arbitral tribunal as opposed to a national court. Because the choice of law rules of most traditional legal systems still require the parties to choose a national “state” law, the choice of the PICC in combination with the choice of a judicial forum (state court) calls for an interpretation of such clause in the sense that the parties intended the Principles to be incorporated into the contract, which remains governed by the applicable state law.62 The application of the UN DROIT Principles is, at least in principle, excluded under traditional choice-of-law regimes.63 The possibility of choosing non-State law may be achieved through their incorporation into the contract.64 By way of exception, a few international treaties such as the 1994 Inter-American Convention on the Law Applicable to International Contracts (the “Mexican Convention”)65 and the 2015 Hague Principles on the Choice of Law in International

express choice of law by the parties, in 25 cases as a reflection of the “lex mercatoria” and the like, and only in 30 cases they were chosen by the parties. 62 The distinction between the application of the UNIDROIT Principles as a mere incorporation of its rules into the contract, as opposed to their application as a contract legal regime, may be relevant to determine the impact of the mandatory laws (Art. 1.4 PICC). As to the theoretical underpinnings of relying on the UPICC as “applicable law”, as opposed to incorporating them into contract clauses. On the negligible practical differences between these different manners of choosing the UPICC, see Estrella Farias (2016), n. 12. 63 See, e.g., Art. 3(1) of the Rome I Regulations. 64 See, e.g., Council Regulation (EC) 593/2008 on the Law Applicable To Contractual Obligations (2008) OJ L 177 recital 13 (“Rome I Regulation”), enabling the choice of non-state law through incorporation. See also Italian National Report, referring to Italian case law according to which the parties’ reference to the lex mercatoria and the UNIDROIT Principles do not constitute a veritable “choice of law” by the parties, but rather the incorporation of such rules into the contract, so that they bind the parties to the extent they are not in conflict with mandatory domestic law. 65 Inter-American Convention on the Law Applicable to International Contracts (1994), 33 ILM 732 (1994). In the absence of the parties’ choice of the applicable law, the first paragraph of Article 9 of the Mexican Convention (ratified to this date only by Mexico and Venezuela) provides for the application of the law with which the contract has “its closest ties”. However, in an undisputable reference to the UNIDROIT Principles, the second paragraph also allows the court to resort to “the general principles of international commercial law recognized by international organizations”. Article 10 of the Mexican Convention provides in turn that in the determination of the applicable law to the contract, the court may also take into account “the guidelines, customs, and principles of international commercial law as well as commercial usage and practices generally accepted”.

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Contracts (the “Hague Principles on Choice of Law”)66 allow a national court to choose the UNIDROIT Principles even in the absence of the parties’ choice. As noted in the Paraguayan national report, Article 5 of Law No. 5393 (2015) is the first jurisdiction to grant formal status to a set of rules such as the UNIDROIT Principles, replicating the Hague’s Principles on Choice of Law: “In this law, a reference to law includes rules of law of a non-State origin that are generally accepted as a neutral and balanced set of rules”.67 This solution has been recently advocated for future legal reforms in the continent by the “Guide on the Law Applicable to International Commercial Contracts in the Americas”, approved by Resolution 249 of 2019 of the Inter-American Juridical Committee of the Organization of American States.68 In contract, most modern arbitration statutes and rules increasingly allow arbitral tribunals to choose the applicable law or “rules of law”, thus allowing the application of the UPICC69 as an alternative to domestic/state law.70 Not surprisingly, it is at the result of the arbitral tribunal’s own initiative that the UNIDROIT Principles have been applied, at times for the purpose of clarifying a rule of domestic law, and at other times for the purpose of supplementing, tempering or merely corroborating a solution resulting from the application of the domestic law applicable to the contract. 71 The widest possible impact of the UNIDROIT Principles is likely to arise when the choice of the Principles is incorporated into an arbitration clause. Thus, the parties are invited to adopt the wording suggested in the official footnote to the second paragraph of the Preamble to the UNIDROIT Principles, being offered

See Hague Principles on Choice of Law, Art. 3 (allowing a court to apply the “rules of law that are generally accepted on an international, supranational, or regional level as a neutral and balanced set of rules, unless the law of the forum provides otherwise”.). On the influence of the 1994 Mexican Convention on the 2015 Hague Principles on Choice of Law, see Moreno and Albornoz (2011), pp. 491–526. 67 See Parag. Nat. Rep. and Moreno Rodriguez (2016). (hereinafter “2 Eppur si muove”). 68 CJI/RES. 249 (XCIV-O/19). The text is available at the site http://www.oas.org/en/sla/iajc/docs/ Guide_Law_Applicable_to_International_Commercial_Contracts_in_the_Americas.pdf. 69 Unlike state choice-of-law rules, those governing international commercial arbitration, or the arbitration rules chosen by the parties, by and large do not compel arbitrators to determine the applicable law on the basis of predetermined choice of law rules. This is not always the case, but many arbitration laws speak in terms of “rules of law”, thus opening the door for the application of non-state law such as the UNIDROIT Principles. 70 See, e.g., Art. 28(2) UNCITRAL Model Law on International Commercial Arbitration, providing for the arbitral tribunal to choose the applicable law throughout the application of the pertinent choice of law rules (voie indirecte) (Art. 33(1) Swiss Rules of International Arbitration), as opposed to arbitration regimes in which the arbitral tribunal may directly choose the applicable rules of law (voie directe), such as Art. 1115 French Code of Civil Procedure. See also the many institutional arbitration rules authorizing the arbitral tribunal, in default of the parties’ choice, to determine the “rules of law” most suitable to decide the dispute. See, e.g., ICC Rules on International Commercial Arbitration, Art. 21(1); UNCITRAL Arbitration Rules, Art. 35; London Court of International Arbitration, Art. 22(3); CEAC Hamburg Arbitration Rules, Art. 35(c). 71 See Muñoz and Geny (2016), pp. 109, 114. 66

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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eleven model clauses for the parties to on the language most suitable to their transaction.72

2.8

Use of the PICC for the Purpose of “Clarifying” and “Adapting” Domestic Law to the Cross-Border Nature of the Transaction

Most rules of contract law found in domestic legal systems were not conceived with a cross-border dimension in mind, so that the contribution of UNIDROIT Principles in order to clarify an area of national law offering diverse solutions, or to fill a gap on an issue on which the national law remains silent, may prove positive and influential in the outcome of the dispute. A decision rendered by the Federal Court of Australia has been mentioned as one instance in which the UNIDROIT Principles were creatively resorted to for the purpose of adapting the restrictive approach toward the notion of good faith under traditional English common law, to the more flexible international standard of “good faith and fair dealing” which Article 1.7 PICC recognizes as a veritable duty of the parties to the contract.73 Alexander S. Komarov, a member of UNIDROIT’s working groups for the first three editions of the PICC (1994, 2004, and 2010), who also had an active participation in the drafting of the Civil Code for the Russian Federation (“CCRF”) and its amendments, reported on the influential role of the UNIDROIT Principles in the interpretation of concepts introduced in the CCRF for the for the first time, such as “good faith and fair dealing” and “hardship”.74 Professor Christina Ramberg also refers to the influence of the PICC in the development by the Swedish courts of the ramifications implicated in the duty of “good faith”.75 The value of the construing domestic law in light of the UNIDROIT Principles has been also referred to for the

72

See UNIDROIT, Model Clauses for Use by Parties of the UNIDROIT Principles of International Commercial Contracts (2013), accessible online by googling “Unidroit Model Clauses”. See Veneziano A, The Model Clauses for the Use of the UNIDROIT Principles of International Commercial Contracts as a Tool for Party Autonomy and in Adjudication, in 2 Eppur si muove 1687–1697. 73 See Hughes Aircraft Systems International v. Airservices Australia, 30 June 1997, cited by Meyer, 606, attributing to Justice Finn, an Australian member of the UPICC Working Group, favoring an expansive application of the principle of good faith more in tune with the case law and legal scholarship developed in civil law jurisdictions. Quoting from the language of the Hughes Aircraft case, Justice Finn stated that good faith, pursuant to Art. 1.7 UPICC, “has been propounded as a fundamental principle to be honored in international commercial contracts”. 74 Referring to a decision of 8 February, 2008, rendered by the International Court of Arbitration of the Chamber of Industry and Commerce of the Russian Federation, referred to in Meyer, 604 n. 27. 75 Referred to in Meyer, 604 n. 28.

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purpose of interpreting a cross-border transaction in the context of a consumer dispute.76 A different, though admittedly very close, situation is presented when the international nature of the transaction actually calls for an interpretation of the domestic applicable law which, though consistently with the intention and expectations of the parties, “pushes the envelope” and requires the “development” of the applicable national law, so as to make it compatible with the international standards espoused by the Principles. Even more significant is the role the Principles may play to settle a set of practical issues which are generally not covered in domestic rules of contract law, whose choice may also be far from evident. I am referring to issues such as timezone management (Art. 1.12(3)).

2.9

Reference to the PICC for the Sole Purpose of Corroborating a Result Reached Under Domestic Law

Mere reference to the UPICC does not tell us much whether their use is limited to an ornamental remark or whether the rule applied by the court or tribunal is actually relevant to the outcome of the dispute or the development and modernization of the law governing an issue at stake in the dispute. It is only upon a close look at what was actually decided that one may ascertain whether the solution furnished by the Principles was the same as the one provided under domestic law. Indeed, in some cases, the UPICC play an important role in actually assisting the interpreter to favor one out of several possible outcomes under domestic law, filling a veritable gap left by traditional contract law, or at times providing an elegant escape from overly restrictive rules. Yet, in many other instances reference to the PICC is meant to serve as a check on the reasonableness of the outcome reached under the otherwise applicable domestic law of contract. The use of the Principles as obiter dicta or as a sort of a check on an outcome otherwise and already provided under domestic law, rather than a source for interpreting and supplementing domestic law whenever it appears unclear or in order to fill gaps for the unprovided-for case, has not gone unnoticed in the national reports. Spanish courts, for example, have resorted to the UPICC in more than 850 cases, more than 60 of which rendered by Spain’s highest court.77 Yet, a closer look at those decisions reveal that, rather than “interpretation” or “supplementation” of Spanish contract law, the main role played by the UPICC has been one of

76 Tribunale di Nola, 6 December 2010, in which an Italian court relied on the PICC for the purpose of deciding a dispute in which a patient sought restitution of a fee paid to a dentist, referred to in Meyer, 604, n. 32. 77 Spain Nat. Rep., identifying the first decision by the Spanish Supreme Court of July 4, 2006. See Bouza Vidal (2016) and Perales Viscasillas (2016), p. 1619.

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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“support”,78 a recurring [national law applicable to the contract, courts and arbitral tribunals often decide to strengthen the conclusion that the court or arbitral tribunal made the right decision by resorting to the UPICC, adding that the same result would have been arrived at by applying the Principles.79 Similarly, it is reported that in the majority of cases where Russian courts resorted to the UNIDROIT Principles, the reference was made for the purpose of corroborating the rationale underlying a decision reached under domestic law.80 As noted in the Argentine national report, in several instances the courts resorted to the Principles “as a confirmation that the proposed solution enjoys consensus in international commercial law”,81 providing an indication of those rules in the PICC supplying the level of persuasiveness that the otherwise applicable domestic law fails to provide. This is the case, for example, to the need for the breach to be “fundamental” in order to allow for the remedy of termination (Art. 7. 3 PICC); that negotiated clauses prevail over conflicting standard clauses (Art. 2.2.1 PICC); that silence or inactivity does not amount in itself as an acceptance (Art. 2.1.6(1) PICC).

2.10

Application of the PICC to Cross-Border and Domestic Contract Disputes

It appears that the UNIDROIT Principles have been used in domestic and international settings situations in roughly similar numbers.82 Because national (domestic) contract law may govern not only national (domestic) disputes but also those connected with more than one jurisdiction, the use and potential misuse of the UN IDROIT Principles should be examined when the Principles are applied to cross-

78

See Spain Nat. Rep., pointing that the assumption that Spanish courts would resort to the Principles in order to interpret or supplement domestic law appears “too optimistic” (“[I]n the case were the UNIDROIT Principles have been used the function of the Principles is restricted to that of supporting or ratifying the decision based on national law in international litigation or to support the interpretation of contractual clauses, i.e., as support of the ratio decidendi, or as a comparative or doctrinal reference which supports the decision of the judge or arbitrator.”). 79 See Michaels, 652 (“The desire of judges seems to be to ascertain that a solution they find in domestic law is compatible with what is considered a global consensus. The PICC are not cited as applicable law nor are they usually the only source used, but their use is for the purpose of information and confirmation.”). 80 See Russian Nat. Rep. at 5 (“In an overwhelming majority of cases the courts have invoked the UPICC to just additionally endorse the conclusion following from the relevant provisions of the Russian law. The courts introduce references to the UPICC with help of expressions like ‘besides, it should be noted that. . .’, “based on a similar premise”, “the normative basis. . .is not only Art. . .of the Civil Code. . .but. . .the UPICC as well. . .Cases where the court explicitly states that the UPICC were used as a gap-filler are extremely rare.”). 81 Argentine Nat. Rep., responding to Question (2). 82 Michaels, 657 (“Contrary to their explicit international character, the PICC are used in similar intensity in domestic and international situations”).

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border transactions, for which they are particularly suitable, or when resorted to decide a contractual dispute of a purely domestic nature. Although the application of the Principles to purely domestic disputes has not been ruled out, the Principles have been drafted with “international commercial contracts” in mind, that is, those disputes calling for the potential application of the law of more than one jurisdiction. It is these type of disputes, arising out of an international commercial contract, when the interpretation of the domestic law governing the dispute may benefit the most from the UNIDROIT Principles.83 The application of the Principles to implement or supplement “domestic contract law” serves in this type of disputes the purpose of “adjusting” the application rules meant to be applied to a domestic setting to cross-border transactions generally involving parties from different jurisdictions. Applying the Principles to disputes arising out of international commercial contracts appears more suitable to the reasonable expectations of the parties than applying them to disputes arising from domestic contracts, especially if the response provided by the UPICC is compatible with the solution provided under the domestic applicable law.84 If the solution provided by the domestic contract law is unclear or ambiguous, resorting to the Principles for the purposes of interpreting a rule of contract law presumably intended for purely domestic contracts is probably a most suitable legal methodology for arriving at a fair outcome.85 In contrast, the application of the PICC may become questionable if resorted to justify a result that clearly contradicts the domestic contract law governing a purely domestic dispute. The legitimacy of the use of the Principles would suffer if, invoking the “proper interpretation” of the applicable national law, the UNIDROIT Principles were to be used in defiance of the applicable law which the parties have agreed to follow or in violation of the domestic law applicable pursuant to the choice of law rules of the forum.86

83

See Comment 6 to the Preamble of the UPICC, stating that the Principles may be used for guidance in the interpretation of domestic law “[e]specially where the dispute relates to an international commercial contract, it may be advisable to resort to the Principles as a source of inspiration”]. 84 See Meyer, 604 (“If national law is the same on the decisive question as the PICC, which of course were especially formulated for international commercial contracts, this can remove any doubt as to the suitability of the national law in an international context.”). 85 See Berger (2001), pp. 877, 879 (referring to the process of examining the application of national law in light of the UPICC standards applicable to international contracts as an “international method of construction”). See also Marrella (2003) (pointing to this legal methodology for checking on the suitability of domestic law as a “transnational test”). 86 See Meyer, 604 (“[T]his ‘ trick’ of rephrasing an interpretation contra legem into one praeter legem should only be used when very good reasons permit so as not to disappoint the legitimate expectations of the parties.”).

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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3 The UNIDROIT Principles as Evidence of a ‘General Consensus’ on the Law of Contracts Exploring additional and alternative ways and means by which judicial opinions and arbitral awards may resort to the Principles to interpret and supplement domestic contract law, it is important to acknowledge that the PICC reflect, up to a certain extent, concepts and rules that, by and large, are shared by most of the world’s legal systems. This is why the second question posed to the national reporters asks whether the UPICC have ever been used as “evidence of a general consensus on the law applicable to contracts”.87 The statement that the UNIDROIT Principles reflect widely shared concepts and rules on contract law intends to highlight that the Principles are in a unique position to serve as an international restatement of contract law, reflecting the views of scholars from different legal traditions.88 Thus, the Principles have been used for the purpose of interpreting or even filling gaps in “international instruments of uniform law,89 whose uniform or at least harmonic interpretation by domestic courts is highly desirable.90 This conception of the Principles as embodying a “consensus” on general rules of contract law is consistent with the trend towards economic globalization and the increase of cross-border contracts and disputes, compelling judges, lawyers and law students to think about contract law outies the confines their own legal systems. Thus, the use of the UPICC as an instrument of comparative interpretation of national contract law conforms to this idea of “general consensus”. Lord Mustill has been quoted as pointing out this feature of the Principles when stating that “[T]he Principles may be of particular value here since (a) they represent a distillation of a large number of laws which it would often be impracticable to examine individually; and (b) they have the imprimatur of an international organization and numerous distinguished scholars.” 88 In areas where legal systems diverge, the Principles by force give preference to one solution over the other, even if the chosen formula is not found in most domestic legal systems. See also Michaels, 662 (“The authors of the PICC admitted freely that differences between existing contract laws existed and that they frequently chose one over the other on the basis of quality”). 89 See Austria Nat. Rep., referring to cases in which the provisions on the measure of recoverable damages under the PICC embody the principle of “full compensation” underlying the CISG, hence could be legitimately resorted to for the purpose of filling the gap left under Articles 74 and 78 CISG. On the use of selective provisions of the UPICC for the purpose of interpreting some issues governed by the CISG (e.g., the calculation of damages (Arts. 4.7.2 and 4.7.3 UPICC; the definition of standard terms, Art. 2.1.19 UPICC; the calculation of interests, Art. 4.7.9 UPICC), see Michaels, pp. 665–666. 90 But see the USA Nat. Rep., reporting a couple of decisions by the Federal District Court for the Southern District of Florida dismissing the use of the gross disparity provision in Art. 3.10 UPICC of 1994 (Art. 3.2.7 of the 2010 and 2016 UPICC) and as evidencing gross disparity as an internationally-neutral defense against the enforcement of contracts. In a decision rendered in 2005, the 11th Circuit Court of the Appeals held that a seaman’s right to bring a court action under the Jones Act (46 U.S.C. Section 30104) does not apply to prevent the enforcement of an arbitration agreement falling under the New York Convention. Bautista v. Star Cruises, 396 F.3rd 1289 (11th Cir. 2005). When the defendant objected to the enforceability of the arbitration agreement on the ground that it was unconscionable, the 11th Circuit referred nonetheless the parties to arbitration declaring that Art. II(3) NY Convention offers little guidance on the applicable 87

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Yet, the rules embodied in the PICC are not simply a compilation of uncontroversial rules enjoying worldwide consensus.91 In fact, US courts have expressly rejected the idea of resorting to the PICC as evidence of a global consensus on the law of contract.92 Court decisions from other jurisdictions have also refused to regard the Principles as evidencing a consensus on contract rules, either because they have no binding force unless the parties embrace them in their contract,93 or because they reflect a compromise, not always acceptable at the domestic level, between conflicting national legal solutions,94 or because the Principles allegedly reflect a

law to the validity of the arbitration agreement. The Court refused to invalidate the agreement given the absence of universally accepted standards of enforcement of arbitration agreements, declaring that it is “doubtful that there exists a precise, universal definition of the unequal bargaining power defense that may be applied effectively across the range of countries that are parties to the [New York] Convention.” Ibid., at 1302. When plaintiffs invoked the gross-disparity provision in the Principles, the Federal District Court for the Southern District of Florida, in a decision rendered in 2007, dismissed the argument on the ground that the UPICC are not binding. Koda v. Carnival Corporation, 2007 WL 7757994, 7 Sep 2007 (S.D. Florida), and subsequent cases cited in USA Nat. Rep., note 40. In another decision rendered in 2013, the same court dismissed the application of the gross-disparity provision in the Principles on the ground that it cannot have status of a “universal principle” since only 63 countries have joined UNIDROIT. The Court also noted that neither Art. 3.10 UPICC (1994) nor its official comment provide a the type of “universal definition” called for by the Bautista holding of the 11th Circuit. See Singh v. Carnival Corporation, 2013 WL 12139415 (S.D. Florida). See USA Nat. Rep., criticizing these decisions on the ground that unconscionability or gross disparity amounts, as noted by Gary Born, as a “generally-applicable and internationallyneutral” defense against the enforcement of contracts that is available virtually everywhere. 91 See, e.g., Chartbrook Ltd. v. Persimmon Homes Ltd. & Ors [2009] UIHL 38 (1 July 2009) 39, in which the House of Lords rejected the view of the PICC as representing a general consensus on contract law, suggesting that Art. 4.3 UPICC does not represent English law, but rather a “French philosophy of contractual interpretation, which is altogether different from that of English law.” For a critique of this decision, see Vogenauer (2007), pp. 123, 127–129. See also Michaels, 651, n. 37, referring to five UK decisions, two Australian decisions and three New Zealand decisions rejecting the view embodied in Art. 4 UPICC that pre-contractual negotiations can be relied upon to interpret the terms of a contract. 92 In a case in which resorting to the PICC was indeed of limited assistance, the plaintiff relied on the rules of the Principles on freedom of contract and on agency in order to assert his status as an agent of a corporation. Although reference to the Principles in this case does not seem to have been helpful or even appropriate, the court dismissed the reference to the UPICC as a “somewhat nebulous discourse on the law of corporations and his view on the effect of [the UNIDROIT Principles]”. Chien v. Commonwealth Biotechnologies, Inc., 484 B.R. 659 (E.D. Virginia 2012). 93 Federal Commercial Court (Central Circuit) of the Russian Federation, 19 July 2011, holding that the UPICC have no place among the sources of law listed in Article7 Russian CC, cited by Meyer, n. 13. 94 Tribunale Verona, 30 June 2010, cited by Meyer, n. 14.

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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legal philosophy on contract interpretation alien to that of the law applicable to the contract, which in the case at hand happened to be English law.95 The fact that in many instances the UNIDROIT Principles adopts rules not always acceptable in domestic contract law explains why some national courts refuse to rely on the PICC to substantiate the court’s interpretation of its own domestic law of contracts.96 But the picture emerging from scholarly opinions, however, is quite different from the impression one may gather from the absence of any reference to the UNIDROIT Principles in the court reports of a given jurisdiction. The national reports from jurisdictions such as Austria, Germany, Guatemala, Japan, and the United States report that their courts rarely, if ever, resort to the application of the PICC for the purpose of interpreting and supplementing domestic contract law or for any other purpose. On the other side of the spectrum, courts form Argentina, Brazil, Paraguay, Russia, and Spain frequently refer to the PICC. This is not surprising, for it is known that the UNIDROIT Principles received a warm reception in jurisdictions undergoing a transition from socialist to free-market economies.97 or those particularly drawn to internationally oriented sources of law,98 in contrast to the tepid if not 95 In a case reportedly decided by the New Zealand Court of Appeals, it was decided to exclude evidence of what transpired at the contractual negotiations for determining the meaning of the terms of the contract, arguably allowed under Art. 8(3) CISG and Art. 4.3 UPICC, in favor of the more restrictive approach of the English common law towards contract interpretation. Hideo Yoshimoto v. Canterbury Golf International Limited, 27 Nov. 2000, cited in Meyer, n. 37. Meyer also refers to a couple of decisions in which the standards of interpretation of contracts espoused by the CISG and the UPICC were contrasted with those of the English common law, the UK Supreme Court finally deciding that the presumably freer and more “international” standards reflected in those instruments “reflect the French philosophy of contractual interpretation, which is altogether different from that of English law.” See Meyer, Ibidem, at 606–607, notes 38–39, referring to Proforce Recruit Limited v. The Rugby Group Limited (17 Feb. 2006) and Chartbook Limited v. Persimmon Homes Limited and others (1 July 2009). 96 See Denmark Nat. Rep. (“[I]t seems safe to say that no Danish court has ever cited the UPICC as evidence of a ‘consensus on the law applicable to contracts’.”). 97 See, for example, the reception accorded to the UPICC in Russian law, especially during the first years following the adoption of the new Civil Code, when the law of contract was sought to be modernized in order to catch up with the winds of transition towards a free market economy. Alexander Komarov, referring to the doctrinal developments on contract law advanced by the International Court of Arbitration of the Chamber of Industry and Commerce of the Russian Federation, in Unif. L. Rev. 657, 659 (2011). 98 See Denmark Nat. Rep., referring to the dominant influence played by the UPICC in contract legal scholarship, in which the “the unwritten (judge-made) general principles of Danish domestic law as regards Contracts and Obligations will, in the long term, increasingly be inspired and affected by foreign and international rules of law.” Professor Christina Ramberg also refers to the warm reception of the UPICC in Scandinavian countries, “where it is hardly possible to analyze a contractual problem without reference to the PICC”. For the receptiveness towards the UNIDROIT Principles on part of the Paraguayan legal community, from early teaching in law schools to the training of judges, see Paraguayan Nat. Rep. (“The UPICC are part of the legal discourse of Paraguayan practice and academia. A contract law textbook which compares the UPICC with the Civil Code’s solutions is used in regular Contract Law courses in major universities. The 2010 version of the Principles were published in Asunción by Intercontinental Editora. There is a specific subject in the Judicial School (Escuela Judicial) which deals with the interpretation of the Civil

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indifferent reception of the Principles in more self-centered legal systems, less opened to the reflections and borrowings prompted by comparative legal studies.99 Depending on the relative permeability of a legal system to comparative perspectives, there is a noticeably trend in some jurisdictions to look for support in rules of contract law transcending national borders.100 The PICC happens to provide a blueprint of transnational contract law in readily accessible language, available and supported by abundant legal scholarship published in different languages and venues. Thus, several national reports indicate that the absence of explicit reference to the UPICC as a formal source of contract law, or the absence of reported judicial decisions relying on the Principles does not mean that they could not be applied for the purpose of interpreting or supplementing domestic law.101 The fact that the PICC have not found their place in the court reports of a given jurisdiction, or that the courts in that country seldom rely on the UNIDROIT Principles in order to interpret or supplement domestic law does not necessarily mean that the Principles are absent from academic analyses on the law of contracts. This contrast between the absence of court decisions mentioning the PICC and the Code aided by the UPICC. Teams of National and Catholic Universities of Asunción have participated in Arbitration Moot Competitions involving the application of the UPICC such as the Vis Moot, the Moot Madrid and the Moot jointly organized by the University of Buenos Aries and Rosario of Bogotá. Moreover, as stated, the UPICC are being used by courts for interpreting and supplementing national contract law.”). 99 See USA Nat. Rep., mentioning, among other reasons attempting to explain the negligible attention paid to the PICC, the “almost stereotypical internationalization of US law and US lawyers, who have more difficulty than lawyers elsewhere to think in terms and ways other than those of their own law.” See also Japanese Nat. Rep. at 4 (“Though comparative studies of foreign laws have significant influence on academic studies, and attorneys might refer to foreign laws in their memorandum, it is rare for judgments in Japanese courts to refer to foreign laws in their judgments, and the same could be said in relation to the UPICC”). 100 This seems to be the case in Russia, where its highest courts, the Supreme Court and the Supreme Commercial (Arbitrazh) Court of the Russian Federation refer to the PICC with relative frequency. See Russian Nat. Report at 3, note 5, noting that the impact of the PICC in Russia is suggested by the UNILEX database, reporting at by the end of 2018, 48 Russian judgments out of the 266 decisions in which the PICC were referred to worldwide provides a strong indication of the role played by the UNIDROIT Principles in the Russian Federation. A caveat is nevertheless entered with regard to the actual relevance of the Principles in the outcome of the cases. See Russian Nat. Rep., at 2 (“The numbers of cases where the UPICC have been invoked by the court or the tribunal undoubtedly attest to a warm reception of the Principles by the Russian judges and arbitrators. However, a cautious attitude is appropriate. If is noteworthy that judges and their assistants frequently tend to borrow phrasing from previous decisions in similar cases, thus generating series of judgments with similar structures and wording. . .”). 101 See Denmark Nat. Rep., stating that Danish courts often need to determine, for example, whether a given breach of contract reaches the level of seriousness to justify termination, a determination resting almost invariably on domestic (Danish) law. The Danish National Report adds, however, that “no formal barrier would prevent a Danish Court from applying Article 7.3.1 of the UPICC to determine whether a given breach of a given contract with an international element had reached “fundamental” proportions under the Danish domestic law of contracts and sales”. See Denmark Nat. Rep. n. 4 (adding that “the opinions of Danish courts rarely include references to scholarly writing --a category which arguably might include the UPICC”.).

The UNIDROIT Principles as a Common Frame of Reference for the Uniform. . .

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development of contract law and scholarship in that same jurisdiction emerges not only from some national reports (e.g., national reports from Denmark,102 the Czech Republic,103 and Hungary104), but also from a jurisdiction like Germany, whose leading legal Kommentaren on contract law generously refer to the UPICC.105 It should be borne in mind, however, that in those jurisdictions most hospitable to the use of the Principles, they are rarely used as the applicable law to the contract, to the exclusion of other national laws, but rather as one body of contract rules, together with contract rules from other foreign legal systems, among which the Principles play a prominent role due to their global, universal, or international aspiration.106 Even in those jurisdictions where it is reported that the Principles are regarded as providing modern rules on transnational contact law, such rules are relied upon more as “as a confirmation that the proposed solution enjoys consensus in international commercial law,”107 as opposed to resorting to the Principles as the law applicable to See the answers provided in the Denmark Nat. Rep. to the first three questions in the survey, the first focusing on whether the Principles have been used for the purpose of interpreting and supplementing domestic law, the second one on whether the UPICC are regarded as “evidence of a consensus on the law applicable to contracts”, and the third question whether they have been used in any other way (“(2) Turning to the next question posed by the General Reporters (and judging, once again, by the reported decisions available online in the Danish Weekly Law Reports), it seems safe to say that no Danish court has ever cited the UPICC as evidence of a ‘consensus on the law applicable to contracts’. . . .3) Turning now to Danish scholarly opinion, the situation is quite different from that set forth under heads (1) and (2) above, in that Danish legal scholars frequently refer to the UPICC, both as a general body of contract law and as regards many of its specific provisions. . .”). Emphasis added. 103 Czech Republic Nat. Rep. (“The UPICC may be regarded as an interpretation tool with regard to the provisions of the new 2012 Civil Code, as the UPICC served, together with other sources, as a model for some new provisions”). 104 Hungary Nat. Rep. (referring to the UPICC as a source relied upon for drafting the new Civil Code). 105 See Meyer, 605. 106 See, for example, decision of the Spanish Supreme Court of 29 February 2012 (Case No. 74/2012), dealing with the interpretation of contracts, for which the Spanish legal system provides ample coverage (Arts. 1281–1289 Spanish CC; Arts. 50, 57, and 59 Spanish CoC), in which the UPICC are relied upon, in a broad comparative survey on contract interpretation, together with canons of interpretation in Art. 236 Portuguese CC, Art. 1156 French CC, Art. 1362 Italian CC, and Art. 5:101 PECL, cited in Michaels (2014), p. 648. 107 See Argentina Nat. Rep., answering Question No. 2, referring to nine decisions rendered by Argentine courts in which selective provisions of the Principles are cited mostly for the purpose of confirming a result consistent with Argentine law or the domestic law applicable to the dispute. See., e.g., Ingeniero Nestor A. Brandolini y Asociados SRL c. Oviedo Funes, Maria Lila y otro, Cordoba Ct. App., 6th Panel, 14 March 2008 (resorting to the notion of “fundamental breach” in Art. 7.3 UPICC (2004)); Trianna Transportes SRL c. Cervercería y Maltería Quilmes S.A., Càmara Nacional en lo Commercial, Sala A (“ Nat.Com. Ct. App., Panel A”), 8 April 2008 (referring to Art. 2.2.1 UPICC for the proposition that non-standard clauses prevail over standard clauses), a rule also relied upon in subsequent cases, D.G. Belgrano SA. C. Procter & Gamble Argentina SRL, Nat.Com. Ct.App., Panel A, 28 June 2013; Nea Commerce S.A. c. Sky Arentina S.C.A., Nat.Com.Ct.App., Panel A, 13 March 2009); LV7 Radio Tucuman S.A., c. Provincia de Tucumán, 27 June 2008 (confirming the outcome reached under Art. 919 of the former Argentine CC, to the effect that 102

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the contract pursuant to the parties’ choice or by virtue of the forum’s rules of private international law. Whether to provide clarity or fill a gap in the domestic law of contract, regardless whether the application of the Principles contributes very little or is crucial to the outcome of the case, irrespective of whether the dispute concerns a purely domestic contract or a cross-border transaction, and independently whether it is a state court or an arbitral tribunal adjudicating the dispute, the UPICC are rarely used as a comprehensive system of contract rules. As stated before, the Principles are rarely chosen as the applicable law by the parties and, in the absence of the parties’ choice, judges and arbitrators rarely treat them in their entirety as the applicable law, preferring instead to rely on individual provisions and in connection, as discussed earlier, with other domestic contract law.108

4 Counterparts of UPICC Selected Provisions in National Contract Law Bearing in mind that most use of the Principles is to rules of particular relevance or usefulness, the national reporters were consulted on whether nine selected provisions of the UPICC (for reasons of time and space it was impracticable to cover all the provisions of the Principles) find a counterpart in the domestic law of contract of that

silence shall not be construed as a tacit acceptance by referring to Art. 2.9.1 UPICC (2010)); Compibal SRL c. Roux Ocefa SA, Nat.Com.Ct.App., Panel D, 17 Nov. 2008 and Editorial Ver S.A. v. DYS S.A., Nat.Com.Ct.App., Panel D, 19 Aug. 2009 (alluding to Art. 5.1.8 UPICC (2004) and comments to decide that a contract for an indefinite period may be terminated giving notice a reasonable time in advance; Horbath Abraya Gildeharth, Sofia Hilda c. Cabaña Solaz S.A., Nat. Com.Ct.App., Panel A, 30 Dec. 2012, resorting to Art. 5.1.3 UPICC to corroborate the cooperation mutually owned by the parties to a contract, a corollary of the overriding principle of good faith consecrated by Argentine law; NSS S.A. c. Mera Latina S.A., Nat.Com.Ct.App., Panel A, 20 Dec. 2012, referring to several articles of the Principles pointing to the binding force of the course of dealing and practices observed by the parties, as well as trade usages widely known and regularly observed in the am branch of trade; Sanovo International v. Ovoprot International S.A., Nat.Com. Ct.App., Panel A, 16 Oct. 2013 (in a case governed by the CISG, the Court referred to different paragraphs of Art. 7.4 UPICC for the purpose of establishing the obligor’s foreseeability of the harm as a limit of the recoverable damages, as well as resorting to Art. 7.4.6 UPICC (2010) in order to determine the meaning of “current market price”; Murex Argentina S.A. c. Abbott Laboratories y otro, Nat.Com.Ct.App., Panel A, 1 Apr. 2014, affirming the court’s power to fill a gap in the contract with “a term appropriate to the circumstances”, which the court was entitled to fill pursuant to Art. 1198 of the former Argentine CC (current Art. 961 Argentine CCC) but found support in Art. 4.8 UPICC; D.G. Belgrano S.A. c. Procter & Gamble Argentina S.R.L., Nat.Com. Ct.App., Panel A, 28 June 2013, finding in the concept of gross disparity under Art. 3.10 UPICC. 108 See Michaels (2014).

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particular jurisdiction.109 National reporters were also asked to identify the domestic rule addressing the same issue of contract law, noting the differences, if any, with the rule adopted by the Principles. In case there is no domestic counterpart to the rule of the UPICC included in the questionnaire, national reporters were consulted on whether the UPICC rule may be resorted to for the purpose of supplementing that gap in the domestic law of contracts.110 Finally, the national reporters were also asked to add their own list of UPICC rules (other than the nine provisions identified in the questionnaire) used in their jurisdictions, if any, for the purpose of interpreting or supplementing their national contract law.111 As expected, a considerable number of the individual provisions of the Principles listed in the questionnaire, if not most, find some counterpart in the jurisdictions represented in the national reports.112 Yet, in many of these cases the parallel drawn with the UPICC rule rests on the fact that it addresses the same issue or problem covered by a domestic rule of contract law. A closer examination of the domestic contract law and the relevant UPICC rule is likely to reveal that, although broadly in accordance with the domestic rule, the UPICC offers a more straightforward answer and, in many cases, addressing the same problem but with a different focus, the UPICC rule provides a more concrete solution than the more general and abstract rule in domestic contract.113 109

See Questionnaire on the UNIDROIT Principles as a Common Frame of Reference, Question (5): If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or case-law rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law. 110 See Questionnaire on the UNIDROIT Principles as a Common Frame of Reference, Question (6): If there is no such a rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law. 111 Questionnaire on the UNIDROIT Principles as a Common Frame of Reference, Question (7): Please include those rules of the UPICC (other than those included in the given list) which have been relied upon by courts or arbitral tribunals for the purpose interpreting a similar provision of your national contract law or in order to supplement (thus serving as a gap-filler) the national contract law in force in your jurisdiction. 112 Most national reports pointed to a statutory—and occasionally jurisprudential—domestic counterpart to the UPICC rules indicated in the survey. With the exception of the provisions regarding the liability for breaking off negotiations in bad faith (Art. 2.1.5 UPICC), linguistic discrepancies (Art. 4.7 UPICC), and interest on damages (Art. 7.4.10), most national reports pointed and discussed provisions dealing with the same topic. 113 For example, many legal systems provide for the obligation to pay interest for failure to seasonably perform a monetary obligation, and in most cases the parties, judges, and arbitrators can rely on a statutory legal rate of interest in case the parties fail to agree on a reasonable rate. What many legal systems lack is a specific choice-of-law rule to determine the applicable rate of interest for the failure to perform timely a monetary obligation. Although the classic principle of full compensation may be relied upon in order to recover compensation for additional losses, most

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By way of exception, a few of the PICC rules listed in the questionnaire do not have a counterpart in the domestic legal system, either because the Principles provide an innovative or specific solution to a problem typically arising in international contracts. This is the case, for example, of the “choice-of-language” rule in a contract negotiated and drafted in more than one language (Art. 4.7 PICC), or whether the obligor has the right to choose the currency in which to be paid (Art. 6.1.9 PICC). Most national reports fail to identify a domestic rule addressing the issue of linguistic discrepancies,114 but some reports point to laws and regulations dealing with the currency of payment. However, there seems to be ample room for the PICC to play a significant role in interpreting or supplementing domestic laws on choice of currency. Many legal systems follow a traditional rule requiring all obligations and judgments to be paid in the national currency of the place of payment or the currency of the forum, and in most instances the obligor or judgment debtor is allowed to choose the currency of the place of payment or of the place where the judgment is rendered.115 It is only by way of exception that some legal systems specify whether

legal systems fail to expressly address the question whether the obligee may recover damages over and above the statutory rate of interest by establishing a greater loss. Although the national reports invariably point to a counterpart to the pertinent UPICC rule, most of domestic provisions fail to address the choice-of-law issue and other issues addressed in Art. 7.4.9 UPICC. 114 By way of exception, see Art. 125(2) of the Chinese Contract Law, pointing to the purpose of the contract (“Where a contract is concluded in two or more languages and it is agreed that all versions are equally authentic, the words and sentences in each version are construed to have the same meaning. In case of any discrepancy in the words or sentences used in the different language versions, they shall be interpreted in light of the purpose of the contract.”). Some jurisdictions address the problem of multiple language versions in consumer protection statutes. USA Nat. Rep., referring to Section 1632 (j) of the California Civil Code (“The terms of the contract or agreement that is executed in the English language determine the rights and obligations of the parties. However, the translation of the contract or the disclosures required by subdivision (e) in any of the languages specified in subdivision (b) in which the contract or agreement was negotiated shall be admissible in evidence only to show that no contract was entered into because of a substantial difference in the material terms and conditions of the contract and the translation.”). See also Ramos v. Westlake Services LLC, 242 Cal.App. 4th 674 (2015) (in a consumer contract drafted by one of the parties, where the English original includes an arbitration agreement that is missing from the Spanish translation, the agreement is void); Torres v. United Staffing Associates LLC, 2015 WL 5752583*4 (Cal. Sup.) (Trial Order) (in a consumer contract drafted in the English language but only signed in its Spanish version, the court held that the Spanish version prevails). 115 See, e.g., Argentina Nat. Rep., referring to Art. 765 Arg.CCC, providing for the release of the debtor by paying in national currency (“Concept. When the debtor owes a certain amount of currency that is determined or determinable at the time the obligation is constituted, such an obligation shall be considered an obligation to pay a sum of money. If at the time the obligation is constituted it is stipulated to give currency that is not legal tender in Argentina, such an obligation shall be considered as an obligation to deliver a quantity of things, and the debtor may be released by giving the equivalent amount in legal tender.”). The Argentina Nat. Rep. adds that it is disputed in Argentina whether this is a mandatory or a default rule. To the same effect, see Art. 403 of the 2017 Revised Japanese Civil Code (“When the amount of the claim is specified in the currency of a foreign state, the obligor may pay in the legal currency of Japan using the foreign exchange rate current in the place of performance.”) It is unclear under those provisions which is the relevant day

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the creditor or judgment creditor may choose, unless the parties had agreed otherwise, to be paid in the currency of the place of payment, in which the loss was incurred, or the currency of the forum (assuming these are different locations with different currencies).116 Other questions, such as whether the debtor is allowed to choose the currency of the place of payment and, if so, which day should count for determining the exchange rate, wisely addressed in Article 6.1.9 PICC, are not always addressed by domestic rules on contract law and obligation.117 The method to calculate the payment of interest is another issue which, though generally settled with reference to domestic law, would benefit greatly from the role that Article 7.4.9 PICC may play in interpreting or supplementing such domestic law. This issue was left open in Article 78 CISG, and plausible attempts have been made to fill this gap by resorting to the general principles underlying the Vienna Sales Convention, being one of those issues “governed but not expressly settled” by the CISG.118 Even though Article 7.4.9 PICC cannot be said to represent a genuine international consensus,119 this rule is likely to be more suitable to cross-border transactions than calculating the amount of interest under any domestic law.120 In many instances Article 7.4.9 may fill a gap not only when the applicable domestic law, or the choice of law rule to apply in order to determine such law is unclear, but also in the many instances in which the applicable law fails to indicate the interest

for determining the exchange rate between the national and foreign currency, but the Japanese Nat. Rep. points to the judicial practice in Japan of fixing the exchange rate at the time of conclusion of the oral arguments in the proceedings. For a more nuanced, though not necessarily more predictable legal framework offered by federal and state law in the United States, see USA Nat. Rep., referring to different solutions offered by federal and state case-law, as well as the law of negotiable instruments (Section 3-107 UCC), the Restatement on Foreign Relations (Section 823 of the Restatement (3rd) on Foreign Relations), and the Uniform Foreign-Money Claims Act (“UFMCA”, Section 7(b) on Judgments and Awards in Foreign Claims and Section 1(3), defining “Conversion Date”). 116 But see Japanese Nat. Rep., referring to Article 403 of the 2017 Revised Civil Code for Japan, replicating the rule found in the 1896 Civil Code (“When the amount of the claim is specified in the currency of a foreign state, the obligor may make payment in the legal currency of Japan using the foreign exchange rate current in the place of the performance”). 117 Article 6.1.9(3) and (4) PICC provide for the applicable rate of exchange prevailing where and when payment is due, unless the payor is in default, in which case the payee may choose between the rate of exchange when payment was due or at the time of actual payment. See Japanese Nat.Rep. at 8, pointing to Japanese “court practices” relying on the exchange rate “available in Japan when the oral arguments in the proceedings are concluded.” 118 See CISG Advisory Council No. 14, Interest Under Article 78 CISG, at http://www.cisgac.com/ cisgac-opinion-no14-p3/. 119 For one thing, Article 7.4.9(3), following Article 78 CISG, allows the obligee to claim, in addition to interest, other damages as long such damages can be established. See Japanese Nat. Rep. at 13, referring to a decision of the Japanese Supreme Court of October 11, 1973, according to which the aggrieved party cannot recover additional damages even if it proves that its loss exceeds the interest. Contra, see Article 345 of the Greek Civil Code (obligee is entitled to recover damages in addition to interest as long as it can prove having suffered such harm). 120 See Gotanda (2009).

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rate to be applied when the judgment or award is expressed in a currency foreign to the place of payment, the seat of the arbitration, or the forum where the judgment was rendered. Be this as it may, even in those cases in which the Principles simply restate a rule that permeates most Western legal systems, such as freedom of contract (Art. 1.1 PICC), the duty of good faith and fair dealing (Art. 1.7 PICC), the definition of standard terms (Art. 2.1.19 PICC) or the calculation of damages (Arts. 7.4.2 and 7.4.3 PICC), it is the manner or way in which the rule is formulated what is likely to determine its potential usefulness to “interpret” or “supplement” domestic contract law. A mere restatement of generally accepted rules, however, is unlikely to play a role in the interpretation of domestic law as significant as those rules of the Principles supplying meaning to concepts that, though not inconsistent with the applicable domestic law, are not specifically addressed by such law.121 It is in these cases when the auxiliary role played by the PICC is likely to come into play, either to assist in the interpretation of national contract law that is unclear or by filling a gap or “supplementing” a lacunae praeter legem in the domestic law. A decision by the Swiss Federal Tribunal of 2009, while dismissing an action to set aside an arbitral award, provides good illustration of using the UPICC in the interpretation of domestic contract law in those case in which such law to elaborate on the meaning of concepts or terms that are not altogether clear, or when it fails to settle an issue is specifically addressed by the Principles. The case involved dispute under a contract concluded between parties from different countries who agreed to submit their disputes to arbitration in Switzerland, choosing Swiss law as the law applicable to their contract. According to the contract, either party was entitled to terminate it in case of “material breach”, a concept which was not adopted nor elaborated under Swiss domestic law. The arbitral tribunal resorted to Art. 25 CISG and Art. 7.3.1 UPICC, relying on the concept of a “fundamental breach” in order to interpret the contract. The losing party challenged the award before the Swiss Federal Tribunal on the ground that the arbitral tribunal had exceeded its powers by applying a set of rules that the parties had excluded in favor of the application of Swiss domestic law. Switzerland’s highest court dismissed the challenge, affirming the authority of the arbitral tribunal to resort to the CISG and the UPICC for the purpose of interpreting the meaning of “material breach”. In the view of the court, the arbitral tribunal gave effect to the common intention of the parties, who could reasonably expect the application of instruments governing international commercial contracts as an auxiliary tool for the interpretation of Swiss law.122

See Japanese Nat. Rep., at 16 (“. . .[T]he UPICC may have some role to play in the future in developing case law in areas where Japanese law is not settled. Among the principles discussed above, such areas include regulation of surprising terms (Art. 2.1.20 UPICC) and the solution of linguistic discrepancies in contract interpretation (Art. 4.7 UPICC).”). 122 Swiss Federal Tribunal, 16 Dec. 2009. See Kleinheisterkamp (2017). 121

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5 By Way of a Conclusion: The Potential Contribution of the UPICC to the Development of an Increasingly Harmonized National Contract Law The jurisdictions represented in the national reports vary greatly in the extent to which they make use of the Principles. Some national reports indicate that the case law reports at the time of this writing have never made reference (or rarely disclose) references to the UNIDROIT Principles.123 Other national reports acknowledge that courts in their countries have occasionally resorted to the Principles, though never as a tool to interpret or supplement their domestic law of contracts. Some national reports, however, cite and discuss cases in which the highest court in the jurisdiction or intermediate appellate courts have relied on specific provisions of the PICC in both domestic as well as international disputes governed by domestic contract law. Noticeably, in most cases the Principles have rarely been used as a “rule of decision” and for the purpose of clarifying or correcting shortcomings of the applicable domestic the law. The support sought by the courts from the UNIDROIT Principles bears little or no influence at all on the outcome of those cases decided under national contract law. In those jurisdictions where the Principles are frequently cited by the courts, judges often resort to a specific rule of the UPICC not necessarily for the purpose of interpreting or dispelling ambiguities and omissions in their domestic law of contracts, but rather to substantiate their own interpretation of the national contract law, as if finding support in a supposedly global consensus on the law of contract would strengthen the legitimacy of their decisions. Indeed, it is this role of the Principles as a tool to be used for adding comparative perspectives where the Principles are most likely to have an impact in the “development” of national contract law.124 The contribution of the Principles to the development of a modern contract law, whether to the settlement of disputes with a cross-border dimension or arising out of a purely domestic consumer contract, cannot be determined on number of cases citing the UPICC, for in many cases such references amount to not much more than ornamental remarks. What actually counts measuring the significance of the Principles is the factual context in which they are used and the extent to which the application of an individual provision of the UPICC actually adds predictability and fairness to the case at hand. This type of analysis cannot be done in the abstract, requiring a closer look at the role played by the Principles in the interpretation and

123

See, e.g., Guatemalan National Report (“In Guatemala, there are no reported cases in which national courts have used the UPICC to interpret or supplement national laws, nor in any other way.”). 124 See Michaels (2014), p. 657 (“Doctrinally, the PICC are rarely an ‘applicable law’ in the sense of private international law. Instead, they enter judicial opinion in a variety of other ways. The most important way is in the course of comparative legal argument for questions where judges do no find a clear and/or satisfying answer in their own legal system. . .”).

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supplementation of national contract law that is either ambiguous, unpredictable, or simply unsuitable. The overall conclusion emerging from the national reports is that in most jurisdictions the PICC has played a minor role in the interpretation and supplementation of domestic law. In fact, the UNIDROIT Principles are rarely applied on their own in the absence of the parties’ choice and the parties rarely opt-in for the Principles as the applicable law. And when the Principles are chosen, more often than not they are not applied in totum, as a whole, to the exclusion of any other law. There are many reasons why this is the case, the fact that national contract law continues to be regarded as an expression of the sovereignty exercised by jurisdictions represented in this report being one of them. Yet, looking back at the number of arbitral awards and judicial decisions that have acknowledged the role played by the UNIDROIT Principles over time, on is left with the impression that the Principles continue to offer a comprehensive and well-balanced legal regime whose role in international commercial contracts will continue to grow steadily. In fact, even in those jurisdictions where the courts never or rarely referred to the UNIDROIT Principles, their leading commentaries on domestic contract law rarely fail to make some comparative reference to some individual provisions of the Principles while discussing issues of domestic contract law. In brief, courts in various countries greatly differ not only on whether they refer to the Principles, but significant variations are noted on the reasons why they refer to the Principles and the legal route they choose to take in order to apply them. But in those jurisdictions where the UNIDROIT Principles are better known, regardless of the route chosen for entering into national legal systems (“general principles of law”, “trade usages”, “lex mercatoria”, or simply as an additional tool offering comparative perspectives), most national reports point to cases in which individual provisions of the Principles are cited and relied upon by arbitral tribunals and courts as a check on the reasonableness of the outcome reached under the otherwise governing law. In those jurisdictions the significance of the UNIDROIT Principles has grown with the increasing globalization of the economy and the internationalization of the law of contracts. This is not a small treat, because the contrast between the solutions provided by traditional contract rules of domestic law and those offered by the Principles provide not only a useful measure of comparison, but also an impetus for reflection and eventual law reform.

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Annex: Questionnaire on the Use of the UNIDROIT Principles on International Commercial Contracts in Order to Interpret of Supplement National Contract Law The Limited Scope of the Questionnaire The preamble to the UNIDROIT Principles on International Commercial Contracts (“UPICC” or the “Principles”) lists, among the “uses” to which such Principles may be put to work, the possibility of resorting to this body of soft law in order to “interpret or supplement domestic law. . .”. The questionnaire seeks to address this specific point. Rather than addressing general aspects of the UPICC, the national reporters are requested to focus their reports on the acceptance of the UPICC, actual or potential, for the interpretation, re-interpretation and complementation of their national rules and local views on the specific issues of contract law addressed in the questionnaire. A set of initial questions address whether the UPICC have actually been used by their national courts or arbitral tribunals and, if so, national reporters are asked to specify which courts have resorted to the UPICC and in which specific factual contexts (with proper citation of authorities publicly available or, if not publicly available, attaching the full text of the decisions in which the UPICC have been used). A second set of questions focus on specific principles and rules of the UPICC, on which national reporters are asked to specify whether, on those rules, there is any incompatibility between such rules and those found in national rules on contract law. Assuming that national contract law does not provide for a specific rule on that issue, national reporters are asked to indicate whether there is any support or opposition, either in case law or prevailing scholarly doctrine, for applying the UPICC in order to “supplement” national contract law (indicating the arguments used in support of either position). National reporters are free to introduce other rules of the UPICC, in addition to those listed in the questionnaire, which have been used by courts or arbitral tribunals as a reference to interpret or supplement domestic rules of contract law.

Questionnaire on the Use of the UPICC in Order to Interpret or Supplement National Contract Law (1) Is there any legal source in your legal system allowing the use of the UPICC to interpret or supplement national contract law (either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source)? If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example,

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(3)

(4)

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whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law). Have the UPICC been used as evidence of a general consensus on the law applicable to contracts (for example, on the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.)? If so, please indicate which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner. Assuming that the UPICC have been not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a general body of contract law or to some of its provisions in particular; whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria). Please indicate whether any of the following selected provisions of the UPICC have a counterpart in your national (domestic) contract law: ARTICLE 2.1.15 (Negotiations in bad faith) ARTICLE 2.1.20 (Surprising terms) ARTICLE 4.1 (Intention of the parties) ARTICLE 4.2 (Interpretation of statements and other conduct) ARTICLE 4.3 (Relevant circumstances) ARTICLE 4.4 (Reference to contract or statement as a whole) ARTICLE 4.5 (All terms to be given effect) ARTICLE 4.7 (Linguistic discrepancies) ARTICLE 6.1.9 (Currency of payment) ARTICLE 7.3.1 (Right to terminate the contract) ARTICLE 7.4.9 (Interest for failure to pay money) ARTICLE 7.4.10 (Interest on damages) If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or case-law rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law. If there is no such a rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law

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(7) Please include those rules of the UPICC (other than those included in the given list) which have been relied upon by courts or arbitral tribunals for the purpose interpreting a similar provision of your national contract law or in order to supplement (thus serving as a gap-filler) the national contract law in force in your jurisdiction.

References Albornoz MM (2010) Choice of law in international contracts in Latin American legal systems. J Priv Int Law 6:23 Berger KP (2001) Int Comp Law Q 50 Bernstein L (2015) Custom in the courts. Northwest Univ Law Rev 110:63 Bonell MJ (2005) An international restatement of contract law: the UNIDROIT principles of international commercial contracts 234, 3rd edn Bouza Vidal N (2016) The UNIDROIT principles as legal background in Spanish case law. In: The age of uniform law. Essays in Honour of Michael Joachim Bonell to celebrate his 70th Birthday Brodermann EJ (2018) UNIDROIT principles of international commercial contracts. An Articleby-Article Commentary 1 CISG Advisory Council No. 14, Interest Under Article 78 CISG, at http://www.cisgac.com/cisgacopinion-no14-p3/ Estrella Farias A (2016) The influence of the UNIDROIT principles of international commercial contracts on national laws. Uniform Law Rev 21 Fauvarque-Cosson B (2014) The French contract law reform in a European context. ELTE Law J 1:59 Fitzgerald PL (2008) The international contracting practices survey project. J Law Commerce 27:1 Goode R (2001) Insularity or leadership? The role of the U.K. in the harmonisation of commercial law. Int Comp Law Q 50:751 Gordon MW (1998) Some thoughts on the receptiveness of contract rules in the CISG and the UNIDROIT principles as reflected in one state’s (Florida) experience of (1) Law School Faculty, (2) Members of the Bar with an International Practice and (3) Judges. Am J Comp Law Suppl 46:361 Gotanda J (2009) When recessions create windfalls: the problem of using domestic law to fix interest rates under Article 78 CISG. Vindobona J Int Commer Law Arbitr 19:229 Han S (2013) Principles of Asian contract law: an endeavour of regional harmonization of contract law in East Asia. Villanova Law Rev 58:589 Huang J (2008) Direct application of international commercial law in Chinese courts: intellectual property, trade, and international transportation. Manchester J Int Econ Law 105 Inter-American Convention on the Law Applicable to International Contracts (1994) Kanaya N (2010) PACL –the significance and task of PACL. 1406 Jurist 102 Kleinheisterkamp J (2017) The CISG and the PICC as models for convergence/or transnational will-o-the-wisps? Lando O, Bale H (eds) (2003) Principles of European contract law, Parts I and II, Art. 1:101 (4) PECL. Kluwer Law International Marrella F (2003) Vanderbilt J Transnatl Law 36 Martìnez Cañellas A (2007) The influence of the UNIDROIT principles on the proposal of the reform of the Spanish Commercial Code. In: Cashin Ritain E, Lein E (eds) The UNIDROIT Principles 2004: their impact on contractual practice, Jurisprudence and Codification 215 Meyer O (2016) The UNIDROIT principles as a means to interpret or supplement domestic law. Uniform Law Rev 21:599, 600 Michaels R (2014) The UNIDROIT principles as global background law. Uniform Law Rev 19:643

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Michaels R (2015) In: Vogenauer S, Kleinheisterkamp J (eds) Preamble, Commentary on the UN IDROIT Principles of International Commercial Contracts Moreno JA, Albornoz MM (2011) Reflections on the Mexico Convention in the context of the preparation of the future Hague instrument on international contracts. J Priv Int Law 7 Moreno Rodriguez JA (2016) The New Paraguayan Law on international contracts: back to the past. In: The age of uniform law. Essays in Honor of Michael Joachim Bonell to Celebrate his 70th Birthday 1146 Muñoz A, Geny D (2016) Les principes d’Unidroit dqns l’arbitrqge international RDAI/IBLJ, No. 2 Orucu E (2011) Legal culture and legal transplants: the Scottish National Report. In: Sanchez Cordero JA (ed) Legal culture and legal transplants: reports to the XVIIIth International Congress of Comparative Law (International Academy of Comparative Law) Oser D (2008) The UNIDROIT principles of international commercial contracts: governing law? Perales Viscasillas P (2016) Los Principios de Unidroit en la jurisprudencia del Tribunal Supremo Español. In: Essays in Honour of Michael Joachim Bonell Pizarro Wilson C (ed) (2012) El derecho de los contratos en Latinoamérica: Bases para unos principios de derecho de los contratos, ed. Fundación Fernando Fueyo Laneri Shaohui Z (2008) L’influence des Principes d’ UNIDROIT sur la réforme du droit chinois des obligations. Uniform Law Rev 13(1–2):153 UNIDROIT (2013) Model clauses for use by parties of the UNIDROIT principles of international commercial contracts UNIDROIT Principles as A Common Frame of Reference for the Uniform Interpretation of National Laws, Reports to the XIXth International Congress of Comparative Law, International Academy of Comparative Law (2018) Ushida T (2011) Contract law reform in Japan and the UNIDROIT principles. Uniform Law Rev 16 (3) Veneziano A, The model clauses for the use of the UNIDROIT principles of international commercial contracts as a tool for party autonomy and in adjudication Vogenauer S (2007) Interpretation of contract: concluding comparative observations. In: Burrows A, Peel E (eds) Contract terms Vogenauer S, Kleinheisterkamp J (eds) (2015) Commentary on the UNIDROIT principles on international commercial contracts, 2nd edn. Oxford University Press Whited CM (2011) The UNIDROIT principles of international commercial contracts: an overview of their utility and the role they have played in reforming domestic contract law around the world. ILSA J Int Comp Law 18:167 Yuqing Z, Danhan H (2000) The new contract law in the People’s Republic of China and the UN IDROIT principles on international commercial contracts: a brief comparison. Uniform Law Rev 5(3) Zimmermann R (2005) The new German law of obligations. OUP Zukas T (2007) Reception of the UNIDROIT principles of international commercial contracts and the principles of European contract law in Lithuania. In: Cashin Ritain E, Lein E (eds) The UNIDROIT principles 2004: their impact on contractual practice, jurisprudence and codification

The Use of the UNIDROIT Principles of International Commercial Contracts in Order to Interpret or Supplement Argentine Contract Law Julio César Rivera

Abstract Argentine contract law uses UNIDROIT Principles of International Commercial Contracts both as an inspiration in its legislation as for its interpretation and support on judicial decision. The recently into force Argentine Civil and Commercial Code mentions the Principles in the exposé des motifs regarding formation of contracts; agency, concession and franchise contracts and contract liability, and furthermore the inspiration on the Principles is not limited to the occasions in which it is expressly mentioned therein. Several provisions of the UNIDROIT Principles of International Commercial Contracts have a counterpart in Argentine contract law such as contractual negotiations—treated by the Principles as “negotiations in bad faith”—and surprising terms in standard terms contracts, which are evidently inspired in the UNIDROIT Principles. Moreover judicial decisions have referred to the Principles as a confirmation that the proposed solution enjoys consensus in international commercial law.

1 Introduction. The New Argentine Civil and Commercial Code Argentina has a new Civil and Commercial Code [hereinafter “CCC”] sanctioned in 2014 and in force since 1st August 2015. This implied the repeal of the 1869 Civil Code which was in force since January 1st 1871 and of the Commercial Code passed in 1859 for the then State of Buenos Aires and which was nationalized in 1862 and thoroughly reformed in 1889; the Civil Code had also been partially reformed an infinity of times through the enactment of laws relating to subjects originally not included in the Code or that renovated codified institutions; the most important of these was the 1968 reform which comprised a considerable amount of articles and

J. C. Rivera (*) Law School, University of Buenos Aires, Buenos Aires, Argentina e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_2

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substituted foundational criteria over the contract, civil liability and family law regimes.1 The CCC confirmed a much awaited aspiration of Argentine legal authors2 and even when not all the solutions enacted reach significant consensus, it cannot be denied that as a whole it represents a compelling advancement as the new text reflects contemporary tendencies in almost all subjects, in tune with comparative law both in property law and family law, sometimes with some recklessness,3 and its structure is obviously an improvement over the repealed codes.4 The CCC has frequently resorted to comparative law. It has not only considered the civil codes or positive laws from other countries in the same juridical tradition, it has also pondered some very well-known documents, such as the Unidroit Principles, the European Principles of Contract Law and the relevant Pavia Academy Draft. This is expressly evidenced in the exposé des motifs of the Draft for the CCC. Thus, in explaining the justification for the inclusion of rules regarding representation, the exposé des motifs read: “as others of its time, the Code (1869) does not include a general theory of representation. Modern codes, in general, conveniently separate representation from mandate. The most recent national project from 1998 did so and its exposé des motifs state having followed the 1987 Draft. These precedents have been very much taken into account, and so have the more recent in comparative i.e. the Unidroit Principles, the European Contract Code Draft (Pavia Academy), and the European Principles of Contract Law (Lando and Beale commission), without forgetting the common law institution of agency for its interesting input.” Furthermore, the exposé des motifs quote from the Unidroit Principles several times. Regarding the formation of contracts, the members of the drafting commission of the Code, wrote: “The general rule is that contracts are concluded with the acceptance of an offer or by the conduct of the parties that is sufficient to demonstrate the existence of an agreement. The wording fits within the Unidroit Principles, which receive offer/acceptance, as those cases where there is a continued process that starts with negotiations and gradually materializes.”5 Referring to agency, concession and franchise contracts which were not regulated in the repealed codes, the exposé des motifs state that “the 1998 Draft was followed for the regulation of these contracts with distributive ends, with modifications to adapt it to new forms that have developed over the past years, as well as the experience brought by comparative law with new laws and the work of Unidroit.6

1

Rivera (2002a, b), p. 83; Medina (2013), p. 43. Rivera (2014a, b), p. 2. 3 Rivera (2014a, b), p. 1. 4 Rivera (2015), p. 895. 5 (Emphasis added). 6 (Emphasis added). 2

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And where the exposé des motifs allude to the franchise contract the Argentine 1998 Draft is mentioned once again, clarifying that “The legal definitions have followed the Unidroit model.” The Principles are also quoted on the subject of contract liability, a subject in which the exposé des motifs confirm the need to make the idea of foreseeability precise and reading as follows: “In international doctrine, it may be noted that the Unidroit Principles [2010] provide: ‘Article 7.4.4.- (Foreseeability of Harm): The non-performing party is liable only for the harm which it foresaw or could reasonably have foreseen at the time of the conclusion of the contract as being likely to result from its non-performance.’ In Argentine legislation, the regulation of compensability of immediate and necessary consequences is related to this old rule, as Vélez based it on Pothier, cited in the note to Article 521.”7 Notwithstanding the aforementioned references, the influence of Unidroit Principles as a source of the Draft—and therefore a source of the CCC—is not limited to the occasions in which it is expressly mentioned in the exposé des motifs. As in the 1998 Civil and Commercial Code Draft8 the Principles have inspired many other solutions. Thereby, throughout this National Report we will examine the provisions of the Argentine CCC regarding contractual negotiations—treated by the Principles as “negotiations in bad faith”—and surprising terms in standard terms contracts, which are evidently inspired in the UNIDROIT Principles.

1.1

The Role of Uses, Practices and Customs in the CCC

The CCC has a preliminary title whose two first chapters refer subsequently to the “Law” and “Legislation”. Article 1 lists the sources of the law, and after the Constitution, treaties and legislation, it states: “Uses, practices and customs are binding when legislation or interested parties refer to them or in situations not regulated, when they are not contrary to the law.” Furthermore, uses and practices function towards interpreting and integrating contracts. In this regard, Article 964 of the CCC provides that the content of the contract is integrated with “. . .c) the uses and practices of the place of conclusion of a contract when applicable either for being declared mandatory by the parties or for being widely recognized and usually complied with in the sphere the contract is concluded, except when its application is unreasonable.” Article 1063 refers to uses and practices as a means for interpretation, providing: “Word meanings. Words used in a contract shall be understood in the sense of their general use, except when they have a specific meaning given by law, the agreement of the parties or the uses and practices of the place of conclusion according to the

7 8

(Emphasis added). Rivera (1999), p. 863.

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criteria provided for the integration of the contract. The same rules shall apply to the conducts, signs, and nonverbal expressions with which consent is manifested.” The CCC includes the regulation of private international law, at least partially for it lacks regulation on the enforcement of foreign judgements, omission which is justified because it is considered a procedural subject and as such reserved to the Provinces. However, it obviously does include the applicable law to the legal relationships of international scope and when referring to contracts it establishes the principle of choice of law by the parties to the contract. As for uses and practices or principles of international commercial law, the CCC provides that generally accepted commercial uses and practices, customs and principles of international commercial law shall be applicable when the parties have included them in the contract (Article 2651, d). This provision seems to impose that contracts shall always be governed by a state law and at the same time uses and practices have the same value than any other contractual clause. Nonetheless it is worth noting that in July 2018 the National Congress sanctioned the Law on International Commercial Arbitration which follows the lines of the Uncitral Model Law. In Article 80 the Law states “when the parties do not choose the applicable law, the arbitral tribunal shall apply the rules of law it deems appropriate.” It should be noted that the Argentine text proposes a substitution of the model law which directs the arbitrators towards the applicable law through rules of law, a concept which includes non-state law like the Unidroit Principles.

1.2

Cases When Uses, Practices and Customs Apply

Custom, uses and practices are binding when the law establishes its application, in situations not regulated by legislation, and when the parties so agree. When legislation refers to customs, uses or practices—customs or uses secundum lege—the hierarchy of the sources is altered and customs cease to be a subsidiary source to become a prime source. When customs, uses or practices apply due to the lack of precise legislation applicable to the case—customs or uses praeter legem—that is the rule of law through which the dispute not legally regulated is resolved. Finally it is worth noting that Article 1 of the CCC sets forth that customs, uses and practices are binding when the parties refer to them. The latter is extremely important in the practice of international commercial business, as the lex mercatoria is a customary law, based in uses and practices. Currently in certain practices generally accepted uses are recognized; for example in large construction contracts the parties commonly refer to the FIDIC rules, and contracts related to oil and gas commercialization and extraction recognize the existence of a “lex petrolea”. In this regard, parties may include these rules, uses and practices in their contracts, which shall result binding for them; this is expressly set forth in Article 2651, d) CCC which establishes that “generally accepted

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commercial uses and practices, customs and principles of international commercial law, are applicable when the parties have brought them to the contract.”

2 Use of Unidroit Principles of International Commercial Contracts As Evidence of a General Consensus on the Law Applicable to Contracts Certain judicial decisions have referred to the Principles as a confirmation that the proposed solution enjoys consensus in international commercial law. Among them we can mention:

2.1

Corte de Apelaciones de Córdoba [Cordoba Court of Appeals], Chamber 6, 14.3.08, “Ingeniero Néstor A. Brandolini y Asociados SRL c/ Oviedo Funes, María Lila y otro”

In this decision the court referred to a legal opinion stating that the Principles are useful in establishing when a non-performance may be considered essential citing Article 7.3 Unidroit Principles 2004.

2.2

Corte de Apelaciones en lo Comercial de la Capital Federal [CNCom] [Commercial Court of Appeals], Chamber A, 8.4.08, “Tri-anna Transportes SRL c/ Cervercería y Maltería Quilmes SA”

The court invoked the Principles in relation to standard clauses, citing in part the clause from the Principles and noting that they establish the invalidity of surprise clauses; also pointing out that when there is contradiction between standard and non-standard clauses the latter shall prevail (Article 2.2.1 Unidroit Principles 2004). Reference to this rule from the Principles is repeated in other decisions: CNCom., chamber A, 28.6.13, “D.G. Belgrano S.A. c/ Procter & Gamble Argentina S.R.L.”; CNCom., chamber A, 13.3.09, “Nea commerce S.A c/ Sky Argentina S.C.A S/ Cobro de pesos”; CNCom, chamber A, 13.3.09, “Visión Satelital SRL c/ Sky Argentina SCA.” There is another reference to the Principles in this decision regarding dominant position; the judicial court holds that having a dominant position in a contractual relationship is not synonym with abusive performance. . . abusive performance

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requires a deliberate act through surprise clauses aimed at taking advantage of the other party with the intention of gaining a disproportionate benefit to the other party’s expense or disadvantage, and quotes: “in this regard, see Article 3.1 of the Principles of International Commercial Contracts.”

2.3

Suprema Corte de la Provincia de Tucumán [Tucuman Supreme Court], 27.6.08, “LV7Radio Tucumán SA vs Provincia de Tucumán”

In this decision one of the matters of conflict was the validity of silence as a manifestation of acceptance. After citing Article 919 of the old Argentine Civil Code—in force at the time of the decision—which provided that silence does not imply acceptance except in the particular cases established by law, the decision notes that this legal criterion concurs with the directives in traditional and modern comparative law, grounding the statement on a citation from Article 2.9.1 Unidroit Principles 2010.

2.4

CNCom, sala D, 17.11.08, “Compibal SRL vs Roux Ocefa SA”

The case involved a concession agreement that lacked a determined period of validity; according to Argentine jurisprudence, these contracts may be terminated at any time by either party, but when termination is proposed by the grantor (or the party that granted the distribution in this case), the contract must have lasted as long as the concessionaire or distributor has amortized its investment and obtained a reasonable profit. In addition, reasonable notice must be given. These criteria are now consolidated in the CCC. In the specific case before us, referring to the question of the period of notice, the decision pondered certain contributions of comparative law and concluded by saying: “At the international level, the Institute... Unidroit, introduced in the Principles the rule that ‘A contract for an indefinite period may be ended by either party by giving notice a reasonable time in advance’ (Article 5.1.8 Unidroit Principles 2004)”. The court even alluded to the comment that accompanies this rule, which was transcribed. Another precedent in which the same allusions to the Principles appear is CNCom, chamber D, 19.8.09, “Editorial Ver SA vs. DYS SA.”

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CNCom, Chamber A, 30.12.2010, “Horbath Abraya Gildeharth, Sofía Hilda vs Cabaña Solaz SA”

A dispute between partners where the court alluded to the principle of cooperation between the parties, cooperation that constitutes a duty when it is reasonably expected; and implies that the party interested in obtaining a result must deploy the appropriate means, as would a person of the same condition, placed in the same circumstances, to achieve that end; and invokes that this principle is embodied in Article 5.1.3. and it is one of the guiding lines of the Principles.

2.6

CNCom, Chamber A, 20.12.2010, “NSS SA vs. Mera Latina SA”

In this case the judicial court invoked the Principles to hold that in international contracts it is a general principle that the parties are bound by any use whose application they have agreed to and by any practice they have established between them, and that they are bound by any use that is widely known and regularly observed in the trade in case by subjects participating in said trade, unless the application of that use is not reasonable, arguing explicitly that “these ideas have been copied as content of the governing principles of the commercial contracts formulated in Articles 1.1, 1.3, 1.4, 1.5, 1.6, 1.7, 1.8 of the Principles... formulated by Unidroit...).” And concludes that “These principles thus framed, lead to argue that beyond the contractual provisions, it should also be analyzed whether the behavior deployed by the parties was adjusted to the uses regularly observed both in the development of the relationship they shared, and as usual to deals as the hereby agreed.”

2.7

CNCom., Chamber A, 16.10.2013, “Sanovo International A/S c/ Ovoprot International S.A. s/ ordinario”

In this case, the court was convened exclusively to determine the amount of compensable damages, in application of the Vienna Convention on Contracts for the International Sale of Goods. And for the purposes of the interpretation of the Convention, the court said that ... It will be a useful source in this work to resort as guidelines of interpretation to the Unidroit Principles of International Commercial Contracts which precisely have as one of their sources the Convention itself and that declare among the objectives of its Preamble its possible use to interpret or to supplement international texts of uniform right, from whose source they have taken. Entering the substantive issue, the court notes that the Convention enshrines as a principle the general right to compensation arising from the simple fact of

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non-performance, so that the buyer shall only prove the seller’s non-performance, without needing to prove, in addition, the non-performance is due to the fault of the seller. Which, the court notes is ... coincident with the idea expressed in the Unidroit Principle (Article 7.4.1) that provides that “any non-performance gives the aggrieved party a right to damages either exclusively or in conjunction with any other remedies except where the non-performance is excused under these Principles.” Adding further that these principles of comprehensive reparation and foreseeability have also been incorporated into Articles 7.4.2 and 7.4.4 of the aforementioned Unidroit Principles, where it is established that the aggrieved party has the right to full compensation for the harm sustained as a result from the non-performance, harm that includes both any loss which it suffered, and any gain of which it was deprived, taking into account any gain to the aggrieved party resulting from its avoidance of cost or harm (Article 7.4.2 (1)) and when it is provided that “the non-performing party is liable only for harm it foresaw or could reasonably have foreseen at the time of the conclusion of the contract as being likely to result from its non-performance (Article 7.4.4).” In relation to the principle of foreseeability in the Principles, some clarification is necessary, since it may not relate to some legal systems, according to which, in the case of intentional or gross negligence non-performance, the compensation of the damage includes the harm that could not be foreseen. As the rule does not include this exception, it is necessary to interpret the concept of foreseeability in a restricted manner. The foreseeability of the damage refers to the nature of the harm and not to its extent, unless it is such that it is transformed to another of a different nature. In any case, the notion of foreseeability is flexible enough to leave the judge a wide margin of discretion. What was foreseeable shall be determined with reference to the moment of conclusion of the contract and with respect to the non-performing party itself. The determining criterion is to identify what could reasonably have been expected by a normally diligent person as consequences of non-compliance in the ordinary course of events and in accordance with the circumstances peculiar to the contract, such as the information disclosed by the parties or the previous businesses they have concluded; and then cites Articles 7.4.2 and 7.4.4 Unidroit Principles 2010. The Court had yet to understand what is meant by “current market price” and for this it resorts to Article 7.4.6 Unidroit Principles 2010 which define this concept by saying that “the current price is the price generally charged for goods delivered or services rendered in comparable circumstances at the place where the contract should have been performed or, if there is no current price at that place, the current price at such other place that appears reasonable to take as a reference.” Considering the aforementioned holdings this decision is probably the most relevant application of the Unidroit Principles to a specific case.

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CNCom., Chamber A, 1.4.14, “Murex Argentina S.A. c/ ABBOTT Laboratories y otro s/ Ordinario” and “International Murex Technologies Corp. c/ Murex Argentina S.A. y otros s/ Ordinario”

Again, Chamber A of the Commercial Court of Appeals uses the Principles to confirm the application of a rule of domestic law on the interpretation of contracts to an international contract. Specifically, the Argentine court said that “... Article 4.8 of the UNIDROIT Principles of International Commercial Contracts establishes that when the parties have not agreed with respect to a term which is important for the determination of their rights and duties, the contract will be integrated with a term appropriate to the circumstances, taking into account for its determination the intention of the parties, the nature and purpose of the contract, good faith and fair dealing and reasonableness, in line with a modern concept of contract interpretation they are bound not only for what was expressly agreed upon but, in addition, in accordance with what the parties probably understood or could understand by acting with care and foresight according to the guideline of Article 1198 of the Civil Code.”9

2.9

CNCom., Chamber A, 28.6.13, “D.G. Belgrano S.A. c/ Procter & Gamble Argentina S.R.L.”

In addition to repeating the concepts on standard clauses, in this case the court refers to the dominant position in negotiations and in this regard says: “... the greatest bargaining power is not related to the position of the strong party in the market, but rather in relation to the situation in which the parties are facing the contract. It implies that this relationship between the parties is translated into provisions that, unjustifiably, at the time of celebration give one contracting party an excessive advantage over the other. Usually, it is required that a party has unjustifiably taken advantage of the dependence, economic distress or pressing needs of the other, or of their lack of foresight, ignorance, inexperience or lack of skill in the negotiation; and of the nature and purpose of the contract (see the guidelines set forth in Principle 3.10 a) and b) of the Unidroit Principles of International Commercial Contracts, p. 260).”

9 It refers to the Civil Code in force since 1871, which today is replaced by the Civil and Commercial Code of 2015. In any case, the current law preserves the rule of the old Article 1198, stipulating that “Contracts must be celebrated, interpreted and executed in good faith. They oblige not only what is formally expressed, but all the consequences that may be considered included in them, with the scope in which a careful and forward-looking contractor would reasonably have been obliged.” (Article 961).

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3 Provisions of the UNIDROIT Principles of International Commercial Contracts with a Counterpart in Argentine Contract Law 3.1

Article 2.1.15 (Negotiations in Bad Faith)

Argentine private patrimonial law is absolutely compatible with the provision set forth in Article 2.1.15 of the Principles. On the point the CCC establishes the same general principle in Article 990: the parties are free to promote negotiations aimed at concluding a contract, and to abandon them at any time.10 But the duty to act in good faith is also imposed during the negotiation stage, for which responsibility is attributed to those who frustrate the negotiation unjustifiably (Article 991, second paragraph11). It should be understood that “unreasonably frustrating” is equivalent to doing it in bad faith as the Principles provide. It should be noted that the CCC imposes on anyone who has acted in bad faith to repair the damages, without any established limitation. The previous jurisprudence limited the liability to the so-called “damage to negative interest” which exclusively included the expenses incurred by the party. However Article 991 does not mention negative interest and the category of damage to negative interest is not present in the CCC in force so compensation could include the loss of profit and chance. Legal opinions suggest a reform should be introduced to this precept in order to exclude lost profit and chance. Article 2.1.10 (3) is not reproduced in the CCC, but it is a case that the Argentine doctrine considers as a paradigmatic example of bad faith in negotiation that risks liability of the person acting this way.

10

Article 990: Freedom of negotiation. The parties are free to promote negotiations aimed at forming the contract, and to abandon them at any time. 11 Article 991.—Duty of good faith. During preliminary negotiations, and even if no offer has been made, the parties must act in good faith so as not to frustrate them unjustifiably. The breach of this duty generates the responsibility to compensate the damage suffered by the affected party for having entrusted, without their fault, the conclusion of the contract.

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Article 2.1.20 (Surprising Terms)

The CCC contains a chapter on contracts by adhesion to general predisposed clauses and Article 988c)12 considers as abusive clauses which because of their content, wording or presentation, are not reasonably foreseeable. Therefore the CCC is perfectly compatible with the Principles.

3.3

Article 4.1 (Intention of the Parties)

The CCC establishes, as did the repealed code, that the contract must be interpreted in accordance with the common intention of the parties (Article 1061).13 The other precepts of the chapter that the CCC devotes to the rules of interpretation give the interpreter guidelines to find or unravel that common intention.

3.4

Article 4.2 (Interpretation of Statements and Other Conduct)

Article 4.2 of the Principles does not have an equivalent in the CCC. However, it cannot be omitted that this precept of the Principles is an almost literal reproduction of Articles 8.1 and 8.2 of the Vienna Convention (1980), which is part of Argentine law. Moreover, the prevailing doctrine criterion is consistent with the solution of the Principles. In this regard, we have said that “Receptive statements must be analyzed in terms of their validity and interpreted, in principle, according to what is effectively wanted by the declarant. But as they are addressed to another subject, this inquiry of the real will shall be made through the statement. So... what the parties, could probably understand, acting in good faith and according to the uses of the trade shall be taken into account towards interpretation.”14

12 Article 988.—Abusive clauses. In the contracts provided in this section, the clauses detailed herein shall be considered not written:... c) those that due to their content, writing or presentation, are not reasonably foreseeable. 13 Article 1061.—Common intention. The contract must be interpreted according to the common intention of the parties and the principle of good faith. 14 Rivera (2013), p. 1134.

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Article 4.3 (Relevant Circumstances)

The CCC contains several rules of interpretation that take into consideration similar circumstances to those stated in the Principles. Thus, it has been said that the interpreter must adopt the interpretation that conducts to achieve the economic purpose of the transaction (Article 1065, section c), a rule that obviously existed in the repealed code and that was applied by the jurisprudence of the courts in a great many precedents.15 Article 1065 itself alludes to the circumstances in which the contract was entered into, including the preliminary negotiations (paragraph a), and the conduct of the parties, including the subsequent conduct (paragraph b). Regarding the latter, in many cases jurisprudence has pointed out that the conduct of the parties in the execution stage of the contract is an inescapable guideline as it reflects how the parties themselves have understood the contract. Article 1063 also concurs with the Principles, since it provides that “the words used in the contract must be understood in the sense that the general use gives them”, unless they have a specific meaning that arises from the law, from the agreement of the parties, from the uses or practices of the place of conclusion of the contract. In addition, uses, practices and customs are a source of law (Article 1), and are part of the contract (Article 964, c).

3.6

Article 4.4 (Reference to Contract or Statement As a Whole)

Article 1064 CCC16 contains an essentially identical rule.

3.7

Article 4.5 (All Terms to Be Given Effect)

Article 1066 CCC, second paragraph17 establishes the same solution as the Principles.

15

Rivera (2002a, b), p. 1163. Article 1064.—Contextual interpretation. The clauses of the contract are to be interpreted by each other, and by attributing them the appropriate meaning of the act as a whole. 17 Article 1066.—Principle of conservation. If there is doubt about the effectiveness of the contract, or any of its clauses, it must be interpreted in the sense of giving them effect. If this results from several possible interpretations, it must be understood with the scope most appropriate to the object of the contract. 16

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Article 4.7 (Linguistic Discrepancies)

The CCC does not contain a rule equivalent to that of Article 4.7 of the Principles. Surely this is because in domestic contracts it is rare to have versions in two different languages.

3.9

Article 6.1.9 (Currency of Payment)

The matter of compliance with obligations in a foreign currency in the Argentine Republic has gone through different stages. The Code of 1869 established that obligations in foreign currency were treated as obligations to give quantities of things and the debtor could always comply by equivalent, that is, in national currency, having been decided by jurisprudence that the exchange rate of the day of the payment was applicable, but when in default, the creditor could opt for the exchange rate of the due date of the obligation. The Convertibility Law modified Article 617 of the Civil Code, providing that the debtor in foreign currency had to pay in the agreed currency. The Draft CCC maintained this last solution, but the text of Article 765 finally sanctioned—and now in force—provides that the debtor is released “giving the equivalent in legal tender.”18 Article 765 has given rise to some controversy; essentially around the issue of whether it is a default or mandatory rule. Legal opinion has been mainly inclined by the idea that it is a default rule and the few judicial precedents that exist since the entry into force of the CCC have the same orientation. However, it should be noted that some doctrine considers—in our opinion rightly so—that a rule that refers to the cancellation power of the national currency and that was expressly included by the National Congress to modify a preliminary draft that was almost approved without observations, must be considered a mandatory rule. Moreover it is a rule that according to prevailing criterion in Argentine doctrine and jurisprudence, will be considered as protection of the weaker party of the contract— the debtor—so in my opinion when there is a devaluation or any other exchange market disruption whereby the payment in foreign currency “harms” the debtor in some way, the courts will be decidedly inclined to “protect” that party authorizing compliance by the equivalent in national currency.

18

Article 765.—Concept. When the debtor owes a certain amount of currency, determined or determinable, at the moment of constitution of the obligation it is an obligation to give money. If in the act of constitution of the obligation, it was stipulated to give currency that is not legal tender in the Republic, the obligation must be considered as to give quantities of things and the debtor can be released giving the equivalent in legal tender.

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Article 7.3.1 (Right to Terminate the Contract)

The CCC regulates the termination of the contract due to non-compliance in an ad hoc chapter titled “Extinction, modification and adaptation of the contract” (Articles 1076 to 1091). The termination for non-performance is provided for in Article 1083; the following Article states the circumstances in which non-performance is considered to be configured; its five subparagraphs cover practically the same cases as Article 7.3.1. of the Principles. This sets forth a rule that comes from jurisprudence previous to the new CCC that always demanded that the non-performance be “important”; but with the addition that now the CCC requires that the non-performance be “of essence under the purpose of the contract” which adopts the formula of the Principles.

3.11

Article 7.4.9 (Interest for Failure to Pay Money)

In this section the Principles approach what in Argentine law the doctrine studies as the effects of non-performance of monetary obligations and that under the Code of the nineteenth century gave rise to great controversy.

3.12

Article 7.4.10 (Interest on Damages)

Pursuant to Article 886 CCC the rule of principle is that “the default of the debtor occurs solely by the passing of the period set for compliance with the obligation” One of the effects of default is that the debtor owes interest (Article 768).19 So it must be understood that the rule referring to obligations to give money or obligations to give, default interest accrues as from the time of non-performance, as established in section 7.4.10 of the Principles.

References Medina G (2013) Argentina on the eve of a new civil and commercial code. In: Rivera JC (ed) The scope and structure of civil codes. Springer, Dordrecht

19 Article 768.—Default interest. From its default the debtor owes the corresponding interest. The rate is determined:

a) as agreed by the parties; b) according to the special laws; c) by default, applying fees that are set according to the regulations of the Central Bank.

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Rivera JC (1999) Le droit comparé et le droit uniforme dans l’élaboration du projet de code civil argentin (1998). Revue de Droit Uniforme 4:863 Rivera JC (2002a) Economía e interpretación jurídica. La Ley F Rivera JC (2002b) La recodificación. Un estudio de derecho comparado. Rev. Jurídica del Perú Rivera JC (2013) Instituciones de Derecho Civil – Parte General, vol II (1094), 6th edn. Abeledo Perrot, Buenos Aires, p 1134 Rivera JC (2014a) Codificación, descodificación y recodificación del derecho privado argentino a la luz de la experiencia comparada. In: Rivera JC, Medina G (eds) Código Civil y Comercial Comentado. Thomson Reuters, Buenos Aires Rivera JC (2014b) Significación del nuevo Código Civil y Comercial de la Nación. Revista de Derecho de Familia y de las Personas noviembre:1 Rivera JC (2015) En defensa de los Códigos (el viejo y el nuevo). La Ley E

The UNIDROIT Principles As Reference for the Uniform Interpretation of National Laws: National Report Austria Andreas Schwartze

Abstract After presenting a general rule enabling Austrian courts to refer to the UPICC the relevance of the use of the UNIDROIT Principles in court and arbitration practice is shown, with a focus on possibly complementing other rules of uniform law. Then selected provisions of the UPICC are compared with potential counterparts in Austrian contract law, in order to identify similarities facilitating the reference to UPICC rules or disparities making it more difficult for dispute settlers to use this soft law. Finally, conclusions are summarizing the results of the study.

1 Introduction International legal rules especially in the area of private law need some period of time to be accepted within the national legal systems, as could be observed for example with the CISG. This is even more the case if a unified system of rules is based on voluntariness, like the UPICC. A basic requirement for the acceptance of legal rules is legal certainty, especially predictability of legal decisions. Therefore concerning the UPICC an international discourse on their content, with a comparative view to national legal rules, is necessary. This IACL-Panel with its various illuminating national reports as a basis for a well-informed general report contributes a lot to the essential discussion.

A. Schwartze (*) University of Innsbruck, Department of Civil Law, Innsbruck, Austria e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_3

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2 Legal Source Allowing the Use of the UPICC to Interpret or Supplement Austrian Contract Law The Austrian Civil Code (ABGB1) contains a general rule for the judge how to deal with a gap in the rules on private legal relationships: Following § 7 and 2 ABGB2 the judge, if no other suitable rule is available, has to decide the case by applying the natural principles of law (natürliche Rechtsgrundsätze).3 These principles may be developed by comparative studies, and especially by referring to the outcomes of comprehensive international unification attempts based on intensive comparison of national rules like the UPICC.4 There are no indications in Austrian jurisprudence and literature that the UPICC may represent trade usages. Though § 346 Austrian Business Code5 (UGB6) requires to take into account trade usages to determine the meaning and effect of conduct as between commercial entities, the UPICC are never mentioned in this respect.

3 UPICC Used As Evidence of a General Consensus on the Law Applicable to Contracts Until now no Austrian court decisions resorting to the UPICC are visible. There is only one decision7 reported where literature on the UPICC is cited.8 Published arbitral awards on the other hand are very rare: The unilex-database9 contains only four decisions of Austrian arbitral tribunals with a reference to the UPICC. Two awards10 point in addition (“stated also”) to Art 7.4.9 UPICC (Interest

Allgemeines Bürgerliches Gesetzbuch, in the following referred to as “ABGB”. § 7 s 2 ABGB: “If the matter still remains ambiguous, it has to be decided based on diligently gathered and thoroughly considered facts in line with the natural legal principles”. [all translations of the Austrian Civil Code from Eschig and Pircher-Eschig (2013)]. 3 § 7 ABGB is named by Bonell (2005), p. 238, as one example for general clauses to close gaps in civil law rules by referring to general principles of law. 4 Kramer (2011), p. 1186 f; confirming Kodek in Rummel and Lukas (2015), para 84; comparative analysis from Meyer (2007), p. 252 ff. 5 Due consideration shall be given among businessmen in view of the meaning and the effect of acts and omissions to accepted customs and usages. [unofficial translation]; the UNIDROIT Principles themselves contain a similar provision in Art. 1.9 (2) UPICC. 6 Unternehmensgesetzbuch, in the following referred to as “UGB”; until 2007 Commercial Code (Handelsgesetzbuch, HGB). 7 OGH 29.06.2016, 8 Ob 104/16a, JBl 2017, 805. 8 Here: Janssen (2004), pp. 194, 199. 9 http://www.unilex.info/. 10 Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft – Wien, 15.06.1994, Unilex cases 635, 636. For the content see Bonell (1997a, b), p. 247. 1 2

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for failure to pay money)11 to determine the interest rate for delayed payment under Art 78 CISG. This can be seen as a supplement of the Vienna Sales Convention.12 Another arbitral decision from 200613 referred to the UPICC as an example of “internationally accepted principles”, which concerning set-off are in line with the Austrian law (Art. 9.1.10 (1) and 9.1.13 (2) UPICC 2004 compared to § 1396 ABGB;14 Art 9.2.1 and 9.2.5 (3) UPICC 2004 compared to § 1406 ABGB15). The fourth arbitral verdict16 quoted Art. 1.7 (1) UPICC 2004 on “Good faith and fair dealing” to underline the duty to perform contracts in good faith established in Austrian law. Like in most cases on Art 1.7 UPICC this rule is invoked as an aside to confirm the conclusion reached on the basis of the domestic law.17 The two decisions from 2006 to 2007 are only supporting the legal findings under national law,18 not supplementing or interpreting Austrian law in the sense of Preamble para 6 UPICC.

4 References to the UPICC in Combination with Other Instruments of Uniform Law The arbitral awards from 199419 mentioned above both referred to Art 7.4.9 UPICC to support the interpretation of Art 74 and 78 CISG in favour of an interest rate practiced in the buyer’s country, mentioning the principle of “full compensation” as a guiding idea in the CISG as well as in the UPICC.20 In these cases the UPICC are applied to interpret international uniform law21 in the sense of Preamble paragraph 5 UPICC.

11

See below under Art. 7.4.9. See more below under Sect. 4. 13 Internationales Schiedsgericht der Wirtschaftskammer Österreich – Wien, 11.05.2006, Unilex case 1148. 14 § 1396 ABGB: “The debtor cannot do this [to pay to the first creditor] any longer as soon as he has been notified of the assignee; . . .”. There is some discussion in Austria if the receipt of the notice is enough, like stated in Art 9.1.10 (1) UPICC, or if knowledge of the assignee is necessary. 15 § 1406 ABGB: “(1) A third party can also assume the debt by agreement with the creditor even without agreement with the debtor. (2) If in doubt, the assumption declared towards the creditor is to be understood as liability in addition to the existing debtor, not in his place.” 16 Internationales Schiedsgericht der Wirtschaftskammer Österreich – Wien, 19.03.2007, Unilex case 1178. 17 Vogenauer and Kleinheisterkamp (2009), Article 1.7 para 24 (Austrian award cited in n 249). 18 See Piers and Erauw (2012), p. 465 f (Fn 132). 19 Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft—Wien, 15.06.1994, Unilex cases 635, 636. 20 See Bonell (1997a, b), p. 602. 21 Bonell (1997a, b), p. 246 f. 12

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The before mentioned decision of the Austrian Supreme Court (OGH)22 refers to the article on the relevance of the UPICC to clarify the incorporation of standard terms into a contract under the CISG. Again the reference to the UPICC is made in combination with the CISG.

5 Selected Provisions of the UPICC with a Counterpart in Austrian Contract Law The following selected provisions of the UNIDROIT Principles are compared with their counterparts in Austrian contract law to analyze if Austrian courts may rely on the UPICC to interpret or supplement the domestic rules.

5.1

Art. 2.1.15 UPICC (Negotiations in Bad Faith)

The general rule stating the freedom to negotiate in Art. 2.1.15 (1) UPICC seems to be similar to § 861 s 2 ABGB,23 although the latter only makes clear that there is no valid contract until negotiations are finished and until that the other party is investing on his own risk.24 The UPICC rule in addition clarifies that normally there is even no non-contractual liability for the failure to reach an agreement.25 The liability for breaking off negotiations written down in Art 2.1.15 (2) UPICC corresponds to the doctrine of culpa in contrahendo, which is not expressly regulated in the Austrian Civil Code. But settled Austrian case law has established this principle, especially if one party is acting against good faith.26 Bad faith is particularly assumed where a party continues negotiations but knows that it will not conclude a contract,27 expressly regulated in Art 2.1.15 (3) UPICC.28 As a consequence of Art 2.1.15 (2) UPICC the party acting against good faith is liable “for the losses caused to the other party”, that is the reliance or negative interest.29 This is in line with the Austrian civil law, where similarly culpa in contrahendo in the vast majority of cases gives a remedy for the compensation of expenses incurred in

22

OGH 29.06.2016 8 Ob 104/16a, JBl 2017, 805. § 861 s 2 ABGB: “As long as the negotiations are pending and the promise has not yet been made or has neither been accepted in advance nor afterwards, no contract is established”. 24 OGH 31.01.2007, 3 Ob 7/07m, RdW 2007,535. 25 With nearly the same wording Art II.-3:301 (1) DCFR. 26 Wiebe in Kletečka and Schauer, ABGB-ON1.03 (2018) § 861 para 30; see Von Bar et al. (2009), Art II.-3:301 Notes 3. 27 OGH 22.03.2005 10 Ob10/05a, JBl 2005, 716. 28 Schwenzer et al. (2012), p. 24.10, citing OGH 5 Ob 626/76. 29 Zuloaga Rios, in Commentary on PICC (2009), Article 2.1.15 para 42 f. 23

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reliance on a contract,30 generally following § 1295 para 1 ABGB.31 Thus Austrian courts could use Art. 2.1.15 UPICC to provide support for their arguments in an area not expressly regulated by the legislator.

5.2

Art. 2.1.20 UPICC (Surprising Terms)

Since 197932 the Austrian Civil Code in contains a provision expressly forbidding “unusual provisions” which the other party “would not have to expect” (§ 864a ABGB33). The similarity to Art. 2.1.20 UPICC is obvious,34 even if there are variations in the wording. The inclusion of more formal surprising effects like the presentation of the clause (Art. 2.1.20 (2) UPICC) is expressly formulated in § 864a ABGB (“due to the formal appearance of the contract”). In the DCFR there is no rule of the same kind,35 but whether a clause is surprising is included in the fairness test.

5.3

Interpretation

The Austrian norms for the interpretation of contracts are much less elaborated than the corresponding UPICC rules, but—as it is explained below—Austrian case law is often complementing the written provisions with legal rules similar to what is laid down in the UNIDROIT Principles.

Wiebe in Kletečka and Schauer, ABGB-ON1.03 (2018) § 861 para 47. § 1295 par 1 ABGB: “Everyone is entitled to claim compensation for damages from the damaging party who caused the damage to him at his fault; the damage may have been caused by breach of a contractual obligation or without reference to a contract”. 32 Since 1979 there has been case law, Rummel in Rummel and Lukas, ABGB4 (2014), § 864a ABGB para 16, mainly on surprising effects by virtue of presentation. 33 § 864a ABGB: “Unusual provisions used by a contractual party in general terms and conditions or standard forms do not become part of the contract if they are detrimental for the other party and he would not have to expect these provisions due to the circumstances, in particular due to the formal appearance of the contract; unless one contractual party has expressly made the other aware thereof”. 34 Schwenzer et al. (2012), 12.20 n 51. 35 Following Directive 93/13/EEC on unfair terms in consumer contracts of 5 April 1993, OJ 1993 L 95/29, likewise without such a rule. 30 31

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Art. 4.1 UPICC (Intention of the Parties)

§ 914 ABGB36 as the central provision regarding the interpretation of contracts in the Austrian legal system focuses on the intention of the parties as Art. 4.1 (1) UPICC does.37 But the Austrian rule is not stating priority of the first mentioned subjective approach (“intention of the parties”) over the subsequent objective approach (“understood in line with common usage”). In contrast the UNIDROIT Principles are expressly reducing the latter to an exception,38 but in practice the cases where only the intention of the parties is counting are extremely rare.39 The principle of objective interpretation in Austrian law refers to the understanding of a reasonable person,40 like expressly stated in the UPICC.41 Intentional the Austrian legislator has made no reference to “good faith” in § 914 ABGB, contrary to its model from the German Civil Code, § 157 BGB.42

5.3.2

Art. 4.2 UPICC (Interpretation of Statements and Other Conduct)

Following Art. 4.2 (1) UPICC the real intention of a party is only relevant if the other party “knew or could not have been unaware of” that intention.43 This receiver’s perspective is not visible from the text of the ABGB, but established case law takes the positive or constructive knowledge of the addressee into account if a declaration of will has to be interpreted.44

5.3.3

Art. 4.3 UPICC (Relevant Circumstances)

A non-exhaustive list of factors and aspects with relevance for the interpretation of contracts is named in Art 4.3 UPICC.45 § 914 ABGB only refers to “common usage § 914 ABGB: “When interpreting contracts, one shall not adhere to the literal meaning of an expression but has to determine the intention of the parties and the contract to be understood in line with due commercial practice [or: fair dealing / common usage ¼ Verkehrssitte].” 37 With a similar wording Art II.-8:301 (1) DCFR, adding “even if this differs from the literal meaning of the words”, like in § 914 ABGB “shall not adhere to the literal meaning of an expression”. 38 Not as obvious Art II.-8:301 (3) (a) DCFR. 39 Vogenauer and Kleinheisterkamp (2009), Article 4.1 para 8 ff. 40 see Von Bar et al. (2009), Art II.-8:801 Notes 16. 41 Similar Art II.-8:301 (3) DCFR. 42 Heiss in Kletečka and Schauer, ABGB-ON1.02 (2017) § 914 para 4. 43 Similar Art II.-8:101 (2) DCFR. 44 “Empfängerhorizont”, see OGH 17.01.1978 4 Ob 161/77, JBl 1978, 387. 45 There are some differences to the list in Art. II.-8:102 DCFR, where established practices (Art 4.3 (b) UPICC) are described more elaborated and “good faith and fair dealing” (Art. II.-8:102 (1) (g) DCFR) is added. 36

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[or: fair dealing/due commercial practice]”, close to “usages” in Art 4.3 (f) UPICC. But the courts regularly apply other criteria like the nature and purpose of the contract46 (similar to Art 4.3 (d) UPICC) or other statements of the parties, even in preliminary negotiations, the situation at the conclusion of the contract47 and even subsequent circumstances48 (corresponding approximately to Art 4.3 (a), (c) UPICC).

5.3.4

Art. 4.4 UPICC (Reference to Contract or Statement As a Whole)

There is no separate provision in the Austrian civil law requiring a systematic interpretation of contracts49 like Art 4.4 UPICC.50 But the context of the contract as a whole is seen as a very relevant aspect of interpretation51 and the courts are using this argument.52

5.3.5

Art. 4.5 UPICC (All Terms to Be Given Effect)

The principle of favor contractus is not visible from the wording of the Austrian provisions concerning the interpretation of contracts.53 However, the courts are regularly holding individual contracts terms valid rather than invalid,54 like Art 4.5 UPICC requires.55

5.3.6

Art. 4.7 UPICC (Linguistic Discrepancies)

There is no provision regarding the language problem of contracts in Austrian civil law, the same as in nearly all other European legal orders.56 The courts are mainly prioritizing the language used for the negotiations,57 especially when interpreting to

Heiss in Kletečka and Schauer, ABGB-ON1.02 (2017) § 914 para 30. Heiss in Kletečka and Schauer, ABGB-ON1.02 (2017) § 914 para 71 f. 48 Vonkilch in Klang3 (2011) § 914 ABGB para 157 ff. 49 But it is mentioned regarding the interpretation of statutory law in § 6 ABGB, a provision cited in the version of § 914 ABGB until 1916. 50 Very similar Art. II.-8:105 DCFR. 51 Vonkilch in Klang3 (2011) § 914 ABGB para 164 f. 52 See OGH 17.01.1978 4 Ob 161/77, JBl 1978, 387. 53 But is has been a part of § 914 ABGB until 1916, Vonkilch in Klang3 (2011) § 914 ABGB para 164 f. 54 E.g. OGH 4.12.1985 3 Ob 573/85, JBl 1987, 378; Rummel in Rummel and Lukas, ABGB4 (2014) § 914 ABGB para 10. 55 Same meaning but different wording in Art. II.-8:106 DCFR. 56 Von Bar et al. (2009), Art II.-8:807 Notes 1. 57 OGH 1 Ob 30/04z, JBl 2004, 716. 46 47

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standard forms.58 In most cases the language in which the parties have negotiated will be the same language, in which the contract was “originally drawn up”—with preference for the interpretation following Art. 4.7 UPICC.59

5.4

Art. 6.1.9 UPICC (Currency of Payment)

The option of the obligor to pay either in the agreed (foreign) currency or in the legal currency at the place of payment stated by Art. 6.9 (1) UPICC is in the same way regulated in § 907b para 1 ABGB.60 Also the restriction disallowing this choice if the parties have agreed on an exclusive payment in the currency of the contract is contained in the Austrian norm as well:61 The agreement has to be made expressly, while under the UNIDROIT Principles it need not be explicit but may result from the circumstances, but despite the wording even in Austria an implied consensus is valid. If the currency at the place of payment is not freely convertible, such payment is not possible, as Art. 6.9 (1) (a) UPICC is expressly stating62—Austrian courts are arguing in this direction if there are restrictive currency regulations.63 Hence Art. 6.9 (1) UPICC may be used by Austrian courts to supplement national law. The time to determine the exchange rate for the currency at the place of payment is different in the UNIDROIT Principles and in Austrian civil law: Following Art. 6.9 (3) UPICC it should be the rate “when payment is due”, while under § 907b para 2 s 1 ABGB64 is has to be the rate “at the time of payment”.65 This difference is mitigated in cases of late payment, because then the oblige may elect between both exchange rates under Art. 6.9 (4) UPICC66 and under § 907b para 2 s 2 ABGB67 as well to prevent a profit of the obligor in delay from volatile currency rates. But in this respect Austrian courts will find no grounds to apply the UNIDROIT Principles.

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E.g. OGH 10.9.2014, 7 Ob 97/14m, VersE 2515. Similar Art. II.-8:107 DCFR. 60 § 907b para 1 ABGB: “If a monetary debt expressed in a foreign currency has to be paid in the country, payment can be effected in domestic currency unless payment in a foreign currency has been expressly agreed.” 61 For a comparative view see Schwenzer et al. (2012), p. 36.24. 62 This question is not addressed Art III.-2:109 DCFR, see Von Bar et al. (2009), Art III.-2:109 Comments F. 63 Dullinger in Rummel and Lukas, ABGB4 § 907b ABGB (2014), para 3. 64 § 907b para 2 s 1 ABGB: “The currency exchange is determined in accordance with the relevant exchange rate at the time of payment at the place of payment.” 65 Both of these two approaches are used in different European legal systems, Von Bar et al. (2009), Art III.-2:109 Notes 7. 66 Similar provision in Art. III.-2:109 (3) DCFR. 67 § 907b para 2 s 2 ABGB: “If the debtor delays the payment, the creditor has the choice between the relevant exchange rate at the due date and the time of the payment.” 59

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Art. 7.3.1 (Right to Terminate the Contract)

The unitary approach to breach of contract as used in the CISG was followed by the UNIDROIT Principles with its concept of non-performance. But the Austrian Civil Code is based on a cause-oriented approach,68 differentiating between impossibility (§§ 920, 1447 ABGB), delay (§ 918 f ABGB) and improper performance (§§ 918, 922 ff ABGB). In addition Austria does not apply the doctrine of fundamental non-performance, as prescribed in Art. 7.3.1 (1) UPICC.69 Under the warranty rules concerning one type of improper performance (defective goods) termination is only possible if the defect of the good is not only minor (§ 932 para 4 s 1 ABGB), but this is a very low barrier only exempting bagatelles. Under Austrian law termination in cases of non-performance is possible in the following groups of cases: In cases of impossibility70 if subsequent impossibility is caused by fault of the obliged party (§ 920 s 1 ABGB71). Under the UNIDROIT Principles a termination of the contract is not necessary because the obligee cannot require performance (Art. 7.2.2 (a) UPICC).72 In cases of delay if performance is insufficient, concerning the time of performance, and the additional period of time for performance has expired (§ 918 para 1 ABGB73). This is in line with Art. 7.3.1 (3) UPICC,74 whereas the aspect of reasonableness regarding the length of the Nachfrist is stated in Art. 7.1.5 (3) UPICC.75 In cases of qualified delay if the definite time of performance has not been met (§ 919 s 1 ABGB76). The UNIDROIT Principles classify delay when timely

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For a comparative view see Schwenzer et al. (2012), 41.05 ff. Following Art 49 (1) (a) CISG; with different wording Art. III.-3:502 (1) DCFR. 70 General on avoidance in cases of impossibility, frustration and impracticability Schwenzer et al. (2012), p. 47.32 ff. 71 § 920 s 1 ABGB: “If the performance is frustrated due to the fault of the obliged party or a coincidence for which he is responsible, the other party can either demand damages due to non-performance or rescind from the contract.” 72 Termination is not necessary under Austrian law in cases of initial impossibility, because the contract is void (§ 878 ABGB), for a comparative view on this ipso facto avoidance see Schwenzer et al. (2012), p. 47.183, and in cases of accidental or excused impossibility without any fault of either parties (§ 1447 ABGB), see Von Bar et al. (2009), Art III.-3:502 Notes 5. 73 § 918 para 1 ABGB: “If a contract for consideration is not performed by one party either at the due time, . . . the other party can request either performance and damages due to the delay or declare rescission from the contract subject to a reasonable period of time to deliver performance.” 74 Similar rule in Art. III.-3:503 (1) DCFR. 75 The extension of a shorter period to a reasonable length is established in Austrian case law, see Schwenzer et al. (2012), p. 47.57. 76 § 919 s 1 ABGB: “If the performance has been agreed at a certain time or within a specified period of time subject to rescission, the party entitled to rescission has to notify the other party without undue delay upon expiry of the period of time if he wants to insist on performance; if he omits this, he cannot insist on performance at a later date.” 69

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performance is of an essential nature as a case of fundamental non-performance, because strict compliance is of essence (Art. 7.3.1 (2) (b) UPICC).77 In cases of improper performance if performance is insufficient, concerning the place or the stipulated manner of performance, and the additional period of time for performance has expired (§ 918 para 1 ABGB78). Here Art. 7.3.1 (3) UPICC is not applicable, because it is limited to cases of delay, therefore a fundamental insufficiency is necessary. In cases of a defective good if it is not replaced or repaired by the debtor (§ 932 para 4 s 1 ABGB79). Under Art. 7.3.1 UPICC a fundamental defect is required, unless a loss of reliance “on the other party’s future performance” (Art. 7.3.1 (2) (d) UPICC) leads to a fundamental non-performance. The last scenario gives the right to terminate the contract in Austria as well, even if the obligor offers replacement or repair.80 The diverse structure of the UPICC rules for the termination of the contract makes it difficult for Austrian courts to rely on them.

5.6 5.6.1

Damages Art. 7.4.9 UPICC (Interest for Failure to Pay Money)

The compensation to be paid when a party has failed to pay a sum of money is qualified as “damage”81 in the Austrian Civil Code (§ 1333 para 1 ABGB82),83 the same is made clear in the UNIDROIT Principles by the heading of Section 7.4 “Damages”.84 Under Austrian law, although normally requiring fault for damages,

77

For a comparative view see Schwenzer et al. (2012), p. 47.61 ff. § 918 para 1 ABGB: “If a contract for consideration is not performed by one party either at . . ., the due place or in the agreed way, the other party can request either performance and damages due to the delay or declare rescission from the contract subject to a reasonable period of time to deliver performance.” 79 § 932 para 4 s 1 ABGB: “If the improvement as well as the replacement are impossible or would constitute unreasonable efforts for the transferor, the transferee is entitled to price reduction or, if it is not only an immaterial defect, the right of redhibition.” 80 See § 932 para 4 s 2 Alt 4 ABGB: “The same [price reduction or the right of redhibition] applies . . . if these remedies . . . are unacceptable for him due to material reasons based on the person of the transferor.” 81 Arguing with the function of delay charges Schwartze (2010), p. 198. 82 § 1333 para 1 ABGB: “The damage, which the debtor has caused to his creditor by delay of the payment of a monetary claim, is compensated with legal interest (§ 1000 para 1).” 83 Reischauer in Rummel and Lukas, ABGB4 § 1333 ABGB (2004), para 18; Harrer/Wagner (2016) § 1333 ABGB para 3. 84 Even if the default charges are not like ordinary damages, visible from the heading of Book III. Chapter 3 Section 7: “Damages and interest”, see Von Bar et al. (2009), Art III.-3:708 Comments B. 78

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no fault is required, the delay itself (“objective delay”) is sufficient.85 Art. 7.4.9 (1) UPICC is more rigorous, because payment of interest has to be paid even if the non-performing party is excused (“. . . whether or not the non-payment is excused.”).86 In Austria the interest rate is generally a fixed rate87 of 4% (§ 1000 para 1 ABGB88), but within the scope of the UPICC, that is between business parties in commercial transactions (§ 455 UGB), a special provision (§ 456 UGB89) applies a fixed rate added to a variable rate,90 stemming from the Late payment EU-Directive.91 Art. 7.4.9 (2) s 1 UPICC prescribes a very different benchmark, searching for a concrete rate close to the credit market in every individual case.92 This rule is not compatible with the abstract calculation of delay interest in Austria.93

5.6.2

Art. 7.4.10 UPICC (Interest on Damages)

Austrian civil law regulates interest on interest in § 1000 (2) ABGB: Parties may agree on it, but if they have not done this only since a proceeding concerning the interest to be paid is pending. In addition following Austrian case law there is no right to interest on damages as long as the damages are not ascertained. Therefore the precise amount owed has to be claimed by a reminder or a legal action to get default interest.94 This is a very diverse solution compared to Art. 7.4.10 UPICC, a provision awarding interest much earlier, that is from the time of non-performance. Thus Austrian courts will have big difficulties to rely on the UPICC rule.

Größ in Kletečka and Schauer, ABGB-ON1.02 (2018) § 1333 para 5. In this regard the same wording in Art. III.-3:708 (1) DCFR. 87 For a comparative view see Schwenzer et al. (2012), 46.83. 88 § 1000 para 1 ABGB: “Interest . . . which is due pursuant to law amounts to four percent per year unless otherwise determined by law.” 89 § 456 UGB: “If a payment of a pecuniary claim is delayed the statutory interest rate is 9.2 percentage points over the basic interest rate. The basic interest rate for the relevant half-year period is the one which was valid on the first calendar day of that period. . . .” [own translation]. 90 For a comparative view see Schwenzer et al. (2012), p. 46.87. 91 Directive 2011/7/EU on combating late payment in commercial transactions of 16 February 2011, OJ 2011 L 48/1. See the similar provision for commercial contracts in Art. III.-3:710 DCFR. 92 This is the solution outside B2B contracts in Art. III.-3:708 (1) DCFR. 93 For a comparison of both models see Schwartze (2010), p. 205 ff. 94 OGH 25.10.1994, 1 Ob 32/94, RdW 1995, 99. 85 86

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6 Conclusion In Austria the UNIDROIT Principles are very rarely used by courts,95 although there is a central provision (§ 7 s 2 ABGB) allowing the reference to general principles of law including international systems of rules. Austrian arbitration panels seem to be reluctant regarding the consideration of the UPICC,96 too, even if commonly used legal literature is showing possibilities to do so.97 One reason could be that the UPICC are not known very well in Austria, mainly because they are not integrated in the mandatory courses of legal education and there is no leading Austrian law journal informing about this matter. On the other hand judges and even more arbitrators and lawyers specialized in arbitration in Austria may well know about the UNIDROIT Principles but they do not think they need them: Parties are seldom implementing the UPICC in their contract, may be because there is no case law giving them evidence, how a court or an arbitration panel will apply or interpret the Principles. Courts and arbitration panels are used to the elaborated rules of the ABGB with a lot of case law, leaving little room for gaps to bring in the UPICC. Often the Principles are only used to strengthen an argumentation, similar to references to other legal systems. To foster the use of the UPICC they should be promoted more to the general legal audience and legal literature may integrate them in detail into the discussion of national contract law problems.

References Bonell MJ (1997a) Erste Entscheidungen zu den UNIDROIT principles. ASA Bull 15(4):600 ff Bonell MJ (1997b) An international restatement of contract law, 2nd edn. Transnational, Irvington Bonell MJ (2005) An international restatement of contract law, 3rd edn. Transnational, Irvington Eschig P, Pircher-Eschig E (2013) Das österreichische ABGB – The Austrian civil code. LexisNexis, Wien Fasching HW, Konecny A (2016) Kommentar ZPO3 IV/2 Fenyves, Kerschner, Vonkilch (2011) Klang3 ABGB Janssen A (2004) Die Einbeziehung von Allgemeinen Geschäftsbedingungen in internationale Kaufverträge und die Bedeutung der UNIDROIT- und der Lando-Principles, IHR, pp 194, 199 Kletečka, Schauer (2017/2018) ABGB-ON1.02 Kramer (2011) Die “natürlichen Rechtsgrundsätze” des § 7 ABGB heute. In: Fischer-Czermak e.a. (Hrsg) Festschrift 200 Jahre ABGB, p 1169 ff Meyer D (2007) Principles of contract law und nationales Vertragsrecht Piers M, Erauw J (2012) Application of the Unidroit principles of international commercial contracts in arbitration. J Private Int Law 8:441 ff Rummel, Lukas (Hrsg) (2004/2014/2015) ABGB4

95

See above Sect. 3. See above Sect. 3. 97 E.g. Hausmaninger in Fasching and Konecny3 IV/2 (2016) § 603 ZPO para 48. 96

The UNIDROIT Principles As Reference for the Uniform Interpretation of National. . .

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Schwartze (2010) Der Anspruch des Gläubigers auf Verzinsung gegenüber säumigen Geldschuldnern in einem entstehenden Europäischen Privatrecht. In: Barta e.a. (Hrsg.) Festschrift für Martin Binder, p 195 ff Schwenzer I, Hachem P, Kee C (2012) Global sales and contract law. Oxford University Press, Oxford Vogenauer S, Kleinheisterkamp J (eds) (2009) Commentary on the UNIDROIT Principles of International Commercial Contracts-PICC. Oxford University Press, Oxford Von Bar C, Clive E, Schulte-Nölke H (2009) Principles, definitions and model rules of European Private Law (DCFR) - Full Edition. Walter de Gruyter, Berlin

General Considerations on the Interaction of the UPICC and the Brazilian Law Lauro Gama

Abstract Taking into account one of the multiple functions of the UNIDROIT Principles, namely applying them in order to “interpret or supplement domestic law”, this chapter deals with the potential interaction between selected provisions of the UNIDROIT Principles and Brazilian contract law. First, this chapter addresses situations where the UPICC have been used by the Brazilian courts or arbitral tribunals to interpret or supplement domestic law. Second, it focuses on specific principles and rules of the UPICC, and indicates where they may interact productively with Brazilian domestic rules on contract law. In conclusion, the UPICC is considered to be a useful tool to interpret or supplement Brazilian domestic contract law.

1 Introduction This National Report, prepared for the XXI Congress of the International Academy of Comparative Law, convened in 2018 in Fukuoka, Japan, focuses on the interaction between the UNIDROIT Principles on International Commercial Contracts (UPICC) and Brazilian law. Its structure follows a questionnaire prepared by the General Reporters concerning the different ways in which the UPICC and domestic law may interact. The preamble to the UPICC states, in a non-exhaustive list, several functions of the Principles, among which the possibility of applying them in order to “interpret or supplement domestic law. . .”. First, this Report addresses situations where the UPICC have actually been used by the Brazilian courts or arbitral tribunals. Second,

This Report could not have been developed without the assistance of Agatha Brandão de Oliveira, Senior Research Assistant at University of Lucerne, to whom I am deeply grateful. L. Gama (*) Pontifical Catholic University of Rio de Janeiro, Department of Law, Rio de Janeiro, Brazil e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_4

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it focuses on specific principles and rules of the UPICC, and indicates whether there is any incompatibility between such rules and those found in domestic rules on contract law. Brazilian law belongs to the civil law tradition and its sources are mostly of legislative origin. This Report will refer extensively to the provisions contained in the 2002 Civil Code and to the 1942 Law of Introduction to the Norms of the Brazilian Law (LINDB1). In addition, this Report will refer to case law, both arbitral and judicial, concerning the application of the UPICC.

2 Domestic Source Allowing the Use of the UPICC This topic indicates the provision in Brazilian legal system that authorizes the use of the UPICC to interpret or supplement domestic contract law. In the case of Brazil, such authorization exists by way of reference to “general principles of law” and “customs.” Brazilian contract law has evolved from classic principles (i.e., formal equality between the parties, freedom of contract, privity of contract and intangibility of the contractual substance) to assimilating modern principles, relevant both in theory and practice, such as objective good faith, equilibrium of the contractual obligations and the social function of the contract. The contractual system has thus become more permeable to metalegal values, which enables the system to adapt to social change without necessarily requiring or involving a legislative change in the positive law.2 Article 4 LINDB is the domestic legal source that may be invoked to allow the use of the UPICC to interpret or supplement national contract law. This provision reads as follows: Art. 4. When the legislation is silent, the judge shall decide the case according to analogy, customs and the general principles of law (emphasis added).3

While Article 4 LINDB refers to the application of customs (usages) and general principles of law where there is “omission within the law”, the case for applying the UPICC as subsidiary law is not exactly a case of “omission within the law”. In practice, the UPICC are applied in such situations to clarify, to support, to strengthen or to illuminate the solution reached by the means of applying a national law. A narrow approach to Article 4 LINDB has been adopted in an ICC arbitration in respect of the application of the UPICC. In a dispute governed by Brazilian law one of the parties invoked the application of general principles of international trade law and trade usages, and therefore pleaded its arguments on the basis of the UPICC. 1

Originally the Law of Introduction to the Civil Code, enacted by Decree-law No. 4657 of September 4, 1942, whose title has changed to the—Law No. 12.376 of September 30, 2010. 2 Gama (2011), pp. 613–656. 3 Art. 4o LINDB: Quando a lei for omissa, o juiz decidirá o caso de acordo com a analogia, os costumes e os princípios gerais de direito.

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Invoking Article 4, LINDB, the Arbitral Tribunal rejected the application of the UPICC stating that: “in accordance with art. 4o of the Law of Introduction to the Civil Code, trade usages and general principles of law may only be adopted to reason (base) a decision “where there is a gap in the law.”4 We believe that a more liberal approach to Article 4 LINDB would warrant the application of the UPICC to interpret or supplement domestic contract law. To our knowledge, except the case above mentioned, no other case law has invoked Article 4 LINDB to support the application of the UPICC.

3 The UPICC As a General Consensus on the Law Applicable to Contracts This topic addresses situations where the UPICC have been used as evidence of a general consensus on the law applicable to contracts (i.e., on the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.). It also indicates which specific provision of the UPICC has been used in this way, referring also to the respective factual context of the dispute.

3.1

Favor Contractus

The Superior Court of Justice (STJ), which is the highest Brazilian Court dealing with contract law has mentioned the UPICC in two similar occasions to evidence a general consensus in favor of the principle of favor contractus. The first case5 dealt with an acknowledgment of debt concluded after the debtor’s failure to honor a loan agreement, while the second6 dealt with failure to pay a check. In both cases the debtor alleged the illegality of her debt, due to usurious practice on the part of the creditor. Both STJ decisions read as follows with respect to the UPICC: Regarding non-compliance with articles 104, II and III, 166, II, of the Civil Code and 11 of Decree 22.626/1933, the practice of usury and moneylending must be indeed rejected, but it

4

C-16424/JRF, ICC, Number 16398/JRF, 17.01.2011. Luiz Carlos Reali e outros v. Álvaro Guerra Filho, REsp 1244217, Superior Court of Justice, 25.09.2017. Keywords: Acknowledgment of debt—Loan agreement—Allegation of usurious practice—Lending of money at unlawful rate of interest (6% per month)—The interest rate shall be reduced to the legal standard (Article 1, I, of the Provisional Measure No. 2172-32/2001)— Recovery of the main part of the loan can be pursued. 6 Waldir Wottrich—Espólio v. Rodrigo Schumann Franzen, AREsp 899035, Superior Court of Justice, 17.05.2016. Keywords: Defense in debt recovery proceedings—Check—Moneylending between private parties at unlawful rate of interest (2%)—Usurious practice. 5

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L. Gama is not feasible to declare the nullity of the whole legal transaction, if the borrower was benefited by the valid part of the loan. Thus, if the borrower duly received the loan, it cannot be avoided, as a debtor, to honor its obligation to pay the amount effectively adjusted, plus legal interest, provided that the amount unduly paid - charged as usury - is excluded. (. . .) Furthermore, the principle of objective good faith must be taken into account, which, in the words of Justice NANCY ANDRIGHI, refers to the ‘requirement of loyalty, an objective model of conduct, a social archetype which imposes the duty that each person adjust their own behavior to this model, acting as an honest, straightforward and loyal person would act’ (REsp 783.404/GO, Terceira Turma, DJ 13.8.2007). In addition, other legal provisions guarantee the preservation of the annullable act, such as the adaptation of contracts tainted by partial nullity (Article 153, CC/1916, Article 184, CC/2002) or the conversion of invalid transactions (Article 170, CC/2002), thus giving applicability and effectiveness to the principle of preservation of legal acts – favor contractus. (...) On this subject, it is noteworthy the Latin principle ‘utile per inutile non vitiatur’, according to which ‘the useful does not vitiate the useless’ or ‘the vices of one part do not affect the others’. (. . .) And this idea governs the whole theory of juridical transactions. In the Principles of European Contract Law, developed by the European Commission for Contract Law, it has been established that ‘An interpretation which renders the terms of the contract lawful, or effective, is to be preferred to one which would not.’ (Article 5:106). The principle of the preservation of contracts, moreover, had already been present in several normative bodies: in the French Civil Code (Article 1.157), in the Italian Civil Code (Article 1.367), in the Spanish Civil Code (Article 284), in the Portuguese Civil Code (Article 237) and in German, Austrian and English case law as well. This principle is also adopted by the International Institute for the Unification of Private Law (UNIDROIT), in the Principles of International Commercial Contracts (Article 4.5): Contract terms shall be interpreted so as to give effect to all the terms rather than to deprive some of them of effect. (. . .) (MATTIETTO, Leonardo. Invalidade dos atos e negócios jurídicos. In: A parte geral do Novo Código Civil: Estudos na Perspectiva Civil-Constitucional, Gustavo Tepedino, coord., 3a ed., Rio de Janeiro: Renovar, 2007, pp. 352-353).

3.2

Anticipatory Breach

The doctrine of anticipatory breach has been introduced in Brazil by case law in the early 1980’s without referring to the expression “anticipatory breach”.7 By early 2000s, the doctrine had been adopted nationwide under its popular expression “anticipatory breach of the contract”, with a strong support from doctrinal authorities. While in early works8 doctrinal authorities referred mostly to English and US Law, the modern doctrine of anticipatory breach in Brazil now refers to Article 72 CISG and Article 7.3.3 UNIDROIT Principles as evidence of a general consensus on the possibility of terminating the contract for anticipatory non-performance.9

7

Maria de Serpa Lopes (1959), pp. 291–295. Azulay (1977); Becker (1994), pp. 68–78. 9 Martins-Costa (2009), pp. 30–48; Santarelli and Sagarna (2009), pp. 255–272; Tavares de Azevedo Cardoso (2014). 8

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Fundamental Non-performance

The notion of fundamental non-performance has been unknown to Brazilian law until recently. Article 475 of the Brazilian Civil Code authorizes the termination of the contract for any type of breach.10 However, the incorporation of the CISG into Brazilian law and the wider knowledge of the UPICC among Brazilian scholars, judges, arbitrators and practitioners has progressively introduced the use of “fundamental breach” as a limitation to the right to terminate the contract for breach.11 At least one Brazilian court has cited12 the UPICC as an evidence of a general consensus on the doctrine of fundamental breach. Please find below a summary of the judgment: Two Brazilian companies entered into a sales contract. Subsequently Buyer brought an action against Seller for breach of the contract due to late delivery and defects of the goods, claiming termination of the contract and the restitution of the price paid together with the payment of a penalty corresponding to 10% of the contract price. The Court of First Instance decided only in part in favor of Buyer, awarding a price reduction and payment by Seller of the penalty. The Court of Appeal upheld the decision, arguing that in the case at hand termination of the contract was not justified in view of the non-fundamental nature of the Seller’s breach. According to the Court, even Buyer, by retaining the goods for a period of six months after delivery during which it attempted to negotiate with Seller a price reduction, showed that its main interest was to uphold the contract. In support of its reasoning the Court pointed out that Buyer, being a commercial enterprise, could not have been unaware of what is generally accepted by businesses and confirmed, among others, by Article 7.3.1 of the UNIDROIT Principles, i.e. that a party may terminate the contract only if the other party’s breach is fundamental.

Please see p. 15, Statement 361 CJF: The notion of “fundamental performance” derives from the general principles of contract law, and aims at enforcing the social function of the contract and the principle of objective good faith, limiting the application of Article 475. The approved statements from the Brazilian Council of Federal Justice constitute an indication for the interpretation of the Brazilian Civil Code and are known as a Restatement of Brazilian Law. All statements are directly related to a provision of the Code and represent the majority understanding of the respective commissions of legal scholars and practitioners, which not always correspond to the original proposition presented by the congressional representatives. Nor do they express the understanding of the Superior Court of Justice, nor of the Federal Justice Council, which is only the promoter and sponsor of the event. 11 Gama (2017), pp. 72–97. 12 Matrisul Equipamentos de Precisão Ltda. v. LOHR Sistemas Eletrônicos Ltda., Tribunal de Justiça do Rio Grande do Sul, Number 70047331723, Brazil, 04.04.2012, available at UNILEX http://www.unilex.info/case.cfm?id¼1681. 10

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4 The UPICC As Applied by Brazilian Courts This topic addresses the application of the UPICC in contexts other than supplementing and/or interpreting the Brazilian law. While in these contexts the UPICC may be referenced specifically to some of its provisions or as a general body of contract law, or in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”)13 or a more diffuse body of state laws (i.e., lex mercatoria), in the case of Brazil the UPICC have been applied only in the latter situations.

4.1

Application of the UPICC in the Context of the CISG

The UPICC have been applied in conjunction with the CISG in two cases, both of which decided by the Court of Appeal of the State of Rio Grande do Sul (TJRS).14 While in the first case the UPICC have been applied in conjunction with CISG as the proper governing law, in the second it has been applied to supplement an external gap of the CISG regarding the validity of a payment made by the Buyer. The first case dealt with an international sales contract between a Brazilian Seller and a Danish Buyer. Art. 100(2) CISG15 prevented the application of the Convention to the case at hand. However, the Court of Appeal decided to avoid the designation of the applicable law in accordance with Art. 9 (lex loci celebrationis) LINDB and, instead, applied the CISG and the UPICC to the case, on the basis of the principle of proximity, as expressions of the “new lex mercatoria”. The case can be summarized as follows: Claimant, a Danish multinational Food Company, and Defendant, a Brazilian trading company, entered into a contract according to which Defendant was to deliver to Claimant in Hong Kong a certain amount of frozen chicken. Claimant made the down payment, but Defendant failed to deliver the goods at the agreed time. Claimant repeatedly tried to contact Defendant but Defendant did not even answer its messages. Claimant then fixed an additional period of time requesting Defendant to deliver the goods within that period of time,

13

United Nations Convention on Contracts for the International Sale of Goods (1980) [CISG]. On January 14, 2018, a jurisprudential research was conducted in four case law databases. The selected courts were the Superior Court of Justice, STJ (two cases from 2016 and 2017 related to Question No. 2); Tribunal de Justiça de São Paulo, TJSP (there were cases referring to the UNIDROIT Convention on International Financial Leasing, not the UPICC); Tribunal de Justiça do Rio de Janeiro, TJRJ (there was no mention to the UNIDROIT nor the UPICC); and Tribunal de Justiça do Rio Grande do Sul, TJRS (there are three important cases, one from 2012, related to Question No. 2, and two from 2017 in which the UPICC were applied in conjunction with CISG as the proper governing law). 15 Art. 100(2) CISG: This Convention applies only to contracts concluded on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1) (a) or the Contracting State referred to in subparagraph (1)(b) of article 1. 14

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but since Defendant did not deliver even within the additional period of time Claimant terminated the contract and claimed damages. The court of first instance decided in favor of Claimant and on appeal the Court of Appeal of Rio Grande do Sul confirmed the decision. As to the law governing the contract the Court of Appeal noted that according to Art. 9 (2) of the Introductory Law to Brazilian Civil Code Danish law as the law of the place of the conclusion of the contract would be applicable. However, the Court held that, whenever as in the case at hand the contract is pluri-connected, the traditional lex loci celebrationis rule should be disregarded in favor of a more flexible approach leading to the application of the CISG and the UNIDROIT Principles as an expression of the so-called “new lex mercatoria”. Admittedly the CISG was ratified by Brazil only after the conclusion of the contract and was therefore not applicable by virtue of Art. 1(1)(a), but according to the Court the Convention, also in view of the great number of countries that have already ratified it and its regular observance by businesspeople worldwide, may be considered the expression of the most widespread “practice” in the international trade of goods and as such become relevant according to Article 113 of the Brazilian Civil Code which provides that the interpretation of legal transactions must be in accordance with usages and customs. As to the UNIDROIT Principles, the Court found that their content coincided to a large extent with new lex mercatoria, i.e. the principles and rules, model contracts and clauses, usages and customs, which have been developed independently from the States by international trade practice and may therefore be considered “an authentic transnational commercial law”. Moreover, the CISG and the UNIDROIT Principles, far from being antagonistic or mutually exclusive, on the contrary complement each other (see Michael Joachim Bonell, “The CISG and the UNIDROIT Principles of International Commercial Contracts: two complementary instruments,” in International Law Review of Wuham University, vol. 10, 2008-2009, p. 100/117). Finally, the Court also cited Lauro Gama Jr, “Os Princípios do Unidroit relativos aos contratos do comércio internacional: una nova dimensão harmonizadora dos contratos internacionais”, in XXXIII Curso de Derecho Internacional. Washington, D.C.: OEA, Secretaría General, 2007, p. 95/142, stating that “the use of the UNIDROIT Principles – as well the application of the CISG even if not part of the Brazilian domestic law – reaffirms a flexible, non-positivist approach to disputes as is required in the field of international commercial law.” As to the merits, the Court rejected Defendant’s objection that there was no valid contract between the parties since it was not concluded in writing. According to the Court there was sufficient other evidence to demonstrate the existence of a contractual relationship, and in support of this it invoked Article 11 of the CISG and Article 1.2 of the UNIDROIT Principles, both stating the principle of freedom of form with respect to international Commercial contracts. Moreover, the Court found that Claimant’s termination of the contract was justified not only on the basis of Article 49 of the CISG, but also because Defendant by its conduct committed a major violation of the general duty to act in good faith in the performance of contracts, which constitutes one of the greatest canons established by the “new lex mercatoria” and can be inferred from Article 1.7 UNIDROIT Principles and Article 7(1) of the CISG.

The second case dealt with an international sales contract between a Brazilian Seller and a Venezuelan Buyer. Since the CISG did not cover the disputed matter— i.e., invalidity of the payment for breach of mandatory provision of Venezuelan

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law—by virtue of Art. 4, CISG,16 the Court of Appeal applied the UPICC to supplement the CISG external gap. The case can be summarized as follows: Claimant, a Venezuelan company bought 16 engines from Defendant, a Brazilian company, for US$ 73,996.44. Since the Venezuelan import-export and exchange regulations only permitted the purchase by Claimant of the required amount of US dollars once the goods had already been delivered at a port in Venezuela, Claimant anticipated the price to Defendant through a U.S. bank in order to make the sale possible. Once the goods arrived at the Venezuelan port of delivery, Claimant had to comply with the Venezuelan import-export exchange regulations and paid a second time the purchase price to Defendant. However, Defendant refused to restitute the payment made in excess by Defendant, despite having previously promised to do so. Claimant brought an action before the Brazilian Courts requesting from Defendant the restitution of the first payment. Defendant objected that the Claimant had not proven the bis in idem payment made and argued that it had only received one payment made in accordance with the Venezuelan exchange regulations. Alternatively, Defendant argued that any restitution in favor of Claimant would be against the law, because the first payment was made in violation of the Venezuelan import-export and exchange regulations and therefore illegal. Moreover, Defendant asked the Court to declare the sales contract as a whole null and void and to reject Claimant’s claims. The first instance Court ordered Defendant to restitute to Claimant the payment made in excess, plus interests and costs. On appeal, as a preliminary matter, the Court of Appeal determined the law applicable to the merits of the dispute. First of all the Court asked the parties to clarify the place of conclusion of the contract so that it could properly identify the law applicable to the dispute. Claimant asserted that the sales agreement had been concluded in Venezuela, while Defendant, on the contrary, asserted that it had been concluded in Brazil. The Court found that the parties’ submissions concerning the place of the conclusion of the contract were inconclusive so that the locus actus could not be used as connecting factor. The Court therefore decided to apply the “principle of proximity” or “the most significant relationship rule” and, following a recent precedent of the same Court [see UNILEX, Court of Appeal State of Rio Grande do of Sul of 14 February 2017], found that the laws applicable to the substance of the dispute were the 1980 Vienna Sales Convention (“CISG”) and the UNIDROIT Principles. And since the validity of the sales contract is not a matter governed by the CISG, the Court decided that in accordance with the criteria for the interpretation of the Convention set forth in Art. 7(1) CISG it would base its decision of the issues at stake on the UNIDROIT Principles, in particular on the provisions set forth in Chapter 3, Section 3 on illegality. As to the alleged invalidity of the sales contract or at least of the first payment of the purchase price made in violation of the Venezuelan import-export and exchange regulations, the Court of Appeal found that such argument had no merit under Chapter 3 of the UNIDROIT Principles. Citing the official commentary on Articles 3.3.1 and 3.3.2 of the UNIDROIT Principles the Court noted that the domestic mandatory rules referred to in these provisions are those which bear a status of public policy provisions, and Defendant had not proved that the violated Venezuelan exchange regulations were mandatory rules of this kind. Yet even if the violation of the Venezuelan exchange regulations fell within the scope of

16 Art. 4 CISG: This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with:

(a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold.

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Article 3.3.1, restitution of the first payment would be justified under Article 3.3.2. Indeed, considering the purpose of the mandatory rules in question and the seriousness of the alleged violation the Court concluded that restitution would be reasonable under the circumstances.

4.2

Application of the UPICC As an Expression of the lex mercatoria

The UPICC have been mentioned by the Brazilian Court of Auditors (“Tribunal de Contas da União”) in a case involving the revision of a contract signed by the national oil company, Petrobras. In that decision, the Court of Auditors mentioned Articles 6.2.1 to 6.2.2 UPICC (hardship) as an expression of lex mercatoria: Petrobras, a Brazilian oil company, entered into a series of agreements with foreign companies for the construction of oil platforms off the coast of Brazil (the “Agreements”). Under the Agreements the foreign companies were required to allocate a portion of the work to Brazilian companies (“conteúdo nacional mínimo”). The portion was calculated in Brazilian reals while the contract price was expressed in U.S. dollars. When subsequently there was a substantial appreciation of the Brazilian real against the U.S. dollar, the foreign companies claimed that this was causing a substantial decrease in their profits and requested Petrobras to re-negotiate the contract price. Petrobras agreed to revise the price so as to restore the original proportion between it and the portion of the work allocated to Brazilian companies, but after having done so the Brazilian tax authorities brought an action before the Brazilian Court of Accounts claiming that in the case at hand the conditions for hardship as set out in Article 478 of the Brazilian Civil Code17 were not met. The Court pointed out that, in view of the fact that the parties had chosen English law as the law governing their agreements, it had to be decided first of all whether to apply the national public order, i.e. Article 478 of the Brazilian Civil Code, or the international public order as expressed by the lex mercatoria. Without taking a definite position on this point, the Court found that even if it applied the lex mercatoria – and in particular Articles 6.2.1 – 6.2.2 of the UNIDROIT Principles which represent one of its main sources – the decision would be the same, i.e. that in the case at hand the requirements for hardship were not met. In particular the Court pointed out that the appreciation of the Brazilian real against the U.S. dollar was foreseeable at the time of the conclusion of the Agreements and that therefore the risk of such an event must have been assumed by the foreign companies. As a result the Court ordered the foreign companies to pay Petrobras a sum corresponding to the increase in profit it obtained on account of the revision of the contract price.

17 Art. 478 CC. In contracts with continuing or deferred performance, if the obligation of one of the parties becomes excessively onerous, with extreme advantage for the other, by virtue of extraordinary or unforeseeable events, the debtor may apply for dissolution of the contract. The effects of the judgment that declares dissolutions shall be retroactive to the date of citation.

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Table 1 The UPICC vis-à-vis Brazilian contract law Negotiations in bad faith Surprising terms Intention of the parties Interpretation of statements and other conduct Relevant circumstances Reference to contract or statement as a whole All terms to be given effect

Linguistic discrepancies Currency of payment Right to terminate the contract Interest for failure to pay money Interest on damages

UPICC Art. 2.1.15 Art. 2.1.20 Art. 4.1 Art. 4.2

Brazilian Contract Law Art. 422 CC – Art. 112 CC Art. 113 CC

Art. 4.3 Art. 4.4

Art. 112 and Art. 113 CC Art. 131 Commercial Codea

Art. 4.5

Implicit rule deriving from the preservation of the contract principle – Decree-law No. 857/1969 Art. 475 CC Art. 389 CC and Art. 395 CC Art. 405 CC

Art. 4.7 Art. 6.1.9 Art. 7.3.1 Art. 7.4.9 Art. 7.4.10

a

The 1850 Brazilian Commercial Code has been derogated by the 2002 Brazilian Civil Code, which promoted the unification of civil and commercial obligations under the Brazilian Law. However, its rules on contract interpretation, mostly contained in Art. 131 still remain authoritative

5 Selected Provisions in the UPICC and Their Counterpart in Brazilian Law This topic indicates selected provisions in the UPICC and the corresponding provisions in Brazilian contract law, mainly found in the Civil Code (CC), see in this respect Table 1. The UPICC provisions have been previously selected in the Questionnaire made by the General Reporter.

5.1

Negotiations in Bad Faith

In the UPICC, Article 2.1.15 addresses, in other words, the parties’ substantive obligation to negotiate in good faith. Therefore, a party who negotiates or breaks off negotiations in good faith is liable for the losses caused to the other party.18 Under Brazilian law, Article 422 establishes an overarching principle of good faith, which is deemed to reach all phases of the contract life as well as pre-contractual negotiations19 and post-contractual events:

18

Official comments, UNIDROIT Principles, p. 60. In 2014, the STJ has decided that article 422 also applies to pre-contractual negotiations (REsp 1.367.955/SP). 19

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Art. 422. The contracting parties are bound to observe the principles of probity and good faith, both in entering into the contract and in its performance.20

As a result, the provision of Article 422 CC also serves the purpose of rendering a party who negotiates or breaks off negotiations in bad faith liable for the losses caused to the other party.

5.2

Surprising Terms

Article 2.1.20 UPICC addresses the fairness of surprising terms contained in standards terms. It states that such terms, surprising by virtue of their content, language or presentation, are not effective unless they have been expressly accepted by the adhering party.21 There is no counterpart in the Brazilian Civil Code to this UPICC provision. However, as the Brazilian Consumer Defense Code22 invalidates abusive clauses contained in consumer contracts, the relevant provision in that Code may also invalidate abusive surprising terms.

5.3

Intention of the Parties

Article 4.1(1) UPICC lays down a rule of contract interpretation which highlights the importance of the intention common to the parties in determining the meaning to be attached to the terms of a contract.23 In accordance with Article 4.1(2),24 if such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances. Under Brazilian law, Article 112 CC25 only partially corresponds to Article 4.1 UPICC in that it gives preference to the parties’ common intent in interpreting the contract:

20 Art. 422 CC. Os contratantes são obrigados a guardar, assim na conclusão do contrato, como em sua execução, os princípios de probidade e boa-fé. 21 Official comments, UNIDROIT Principles, p. 69. 22 Art. 51 Brazilian Consumer Defense Code: São nulas de pleno direito, entre outras, as cláusulas contratuais relativas ao fornecimento de produtos e serviços que: IV—estabeleçam obrigações consideradas iníquas, abusivas, que coloquem o consumidor em desvantagem exagerada, ou sejam incompatíveis com a boa-fé ou a equidade. 23 Official comments, UNIDROIT Principles, p. 137. 24 Official comments, UNIDROIT Principles, p. 138. 25 Art. 112 CC. Nas declarações de vontade se atenderá mais à intenção nelas consubstanciada do que ao sentido literal da linguagem.

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L. Gama Art. 112. In declarations of will, more heed shall be given to the intention revealed through the declaration than to the literal meaning of the language.

Article 112 provides that a contract shall be interpreted in accordance with the stated intent of the parties, which should be analyzed objectively. However, this provision does not expressly authorize recourse to the understanding of reasonable persons in situations where the common intention of the parties established, which is only achieved with the application of Article 113 CC examined below.

5.4

Interpretation of Statements and Other Conduct

Article 4.2(1) UPICC states in the interpretation of the unilateral statements or conduct preference is to be given to the intention of the party concerned, provided that the other party knew or could not been unaware of that intention. Article 4.2 (2) provides that in all other cases such statements or conduct are to be interpreted to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.26 While Article 4.2 does not find an exact correspondence in the Brazilian Civil Code, its objective criteria for the interpretation of statements and other conduct may be found, at least in part, in Article 113 CC,27 which reads as follows: Art. 113. Juridical transactions shall be interpreted in conformity with good faith and the practice of the place in which they are made.

It is commonly understood that the parties’ intent as embodied in unilateral statements or conduct, or in the terms of the contract, is to be interpreted in light of what a business person in the industry would reasonably understand.28

5.5

Relevant Circumstances

Article 4.3 UPICC sets out the circumstances relevant in the interpretation process under both the subjective test and the reasonableness test provided for in Articles 4.1 and 4.2.29 While all the circumstances listed in Article 4.3 UPICC cannot be found in Article 113 CC, abovementioned, this provision of the Brazilian Civil Code contains at least two relevant circumstances for the interpretation of contracts and unilateral

26

Official comments, UNIDROIT Principles, p. 139. Art. 113 CC. Os negócios jurídicos devem ser interpretados conforme a boa-fé e os usos do lugar de sua celebração. 28 Marino (2011), pp. 187–192. 29 Official comments, UNIDROIT Principles, pp. 140–141. 27

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statements or conduct, namely: “usages and customs” and the practices habitually established between the parties.30

5.6

Reference to Contract or Statement As a Whole

According to Article 4.4 UPICC, terms and expressions used by one or both parties are not intended to operate in isolation, but have to be seen as an integral part of their general context. Therefore, they should be interpreted in the light of the whole contract or statement in which they appear.31 Although the 1850 Brazilian Commercial Code has been for the most part derogated by the 2002 Brazilian Civil Code, its interpretation rules contained in Article 131,32 including the reference to a contract or statement as a whole, remain authoritative and invoked by Courts and arbitrators: Art. 131. Should it be necessary to interpret the clauses of the contract, the interpretation, in addition to the abovementioned rules, shall be regulated as follows: 2 - the doubtful clauses shall be understood by those which are not doubtful, and have been admitted by the parties; and the precedent and subsequent clauses which are according shall explain those which are ambiguous;

5.7

All Terms to Be Given Effect

Article 4.5 UPICC lays down the rule that unclear contract terms should be interpreted so as to give effect to all the terms rather to deprive some of them of effect.33 While the Brazilian Civil Code does not contain an express provision similar to Article 4.5 UPICC, it contains an implicit contract interpretation rule according to which where the term is doubtful, it must be interpreted in such a way as to have some effect rather than not. Such rule derives from the principle of the preservation of the contract.

30

The Council of Federal Justice approved the following statement (V Jornada de Direito Civil in November 2011), based on Article 9 CISG: Statement 409—Legal transactions must be interpreted not only in accordance with good faith and the usages of the place of their execution, but also in accordance with the practices habitually established between the parties. (emphasis added). 31 Official comments, UNIDROIT Principles, p. 145. 32 Art. 131, Commercial Code: Sendo necessário interpretar as cláusulas do contrato, a interpretação, além das regras sobreditas, será regulada sobre as seguintes bases: 2—as cláusulas duvidosas serão entendidas pelas que o não forem, e que as partes tiverem admitido; e as antecedentes e subseqüentes, que estiverem em harmonia, explicarão as ambíguas. 33 Official comments, UNIDROIT Principles, p. 146.

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Linguistic Discrepancies

Concerning international commercial contracts drawn up in two or more language versions, which may diverge on specific points, Article 4.7 UPICC indicates that preference should be given to the version in which the contract was originally drafted, or should it have been drafted in more than one original language version, to one of those versions.34 Brazilian contract law has no counterpart to Article 4.7 UPICC.

5.9

Currency of Payment

Where the monetary obligation is expressed in a currency different from that of the place of payment, Article 6.1.9(1) UPICC establishes a general rule that the obligor is given the alternative of paying in the currency of the place for payment. If it is impossible for the obligor to make payment in the currency in which the obligation is expressed, in accordance with Article 6.1.9(2), the obligee may require payment in the currency of the place for payment.35 Contrary to Article 6.1.9, the general rule under Brazilian law is the prohibition to contract in foreign currency. Decree-law No. 857, of September 11, 1969,36 sets out the exceptional circumstances in which there may be payments in foreign currency of obligations enforceable in the national territory. It reads as follows:

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Official comments, UNIDROIT Principles, p. 147. Official comments, UNIDROIT Principles, pp. 199–200. 36 Art. 1. Decree-law No. 857/1969: São nulos de pleno direito os contratos, títulos e quaisquer documentos, bem como as obrigações que exeqüíveis no Brasil, estipulem pagamento em ouro, em moeda estrangeira, ou, por alguma forma, restrinjam ou recusem, nos seus efeitos, o curso legal do cruzeiro. Art. 2. Não se aplicam as disposições do artigo anterior: 35

I—aos contratos e títulos referentes a importação ou exportação de mercadorias; II—aos contratos de financiamento ou de prestação de garantias relativos às operações de exportação de bens e serviços vendidos a crédito para o exterior; III—aos contratos de compra e venda de câmbio em geral; IV—aos empréstimos e quaisquer outras obrigações cujo credor ou devedor seja pessoa residente e domiciliada no exterior, excetuados os contratos de locação de imóveis situados no território nacional; V—aos contratos que tenham por objeto a cessão, transferência, delegação, assunção ou modificação das obrigações referidas no item anterior, ainda que ambas as partes contratantes sejam pessoas residentes ou domiciliadas no país. Parágrafo único. Os contratos de locação de bens móveis que estipulem pagamento em moeda estrangeira ficam sujeitos, para sua validade a registro prévio no Banco Central do Brasil.

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Art. 1. Contracts, securities and any documents as well as the enforceable obligations in Brazil, which stipulate payment in gold, foreign currency, or in any way restrict or refuse, in its effects, the legal tender of the cruzeiro shall be deemed null and void. Art. 2. The provisions of the preceding article are not applied to: I – contracts and securities relating to import or export markets, II – funding agreements or collaterals related to export markets of domestically manufactured goods sold on credit abroad, III – exchange, purchase and sale contracts in general, IV – loans and any other obligations in which the creditor or debtor is a person resident and domiciled abroad, except for lease contracts of real estate located within the national territory, V – contracts in which the purpose is the assignment, transfer, delegation, assumption or modification of the obligations referred to in the previous item, even if both contracting parties are resident or domiciled in the country. Sole paragraph. The lease contracts of movable property in which payment is provided for in foreign currency are subject to a prior registration in the Central Bank of Brazil in order to confirm its validity.

5.10

Right to Terminate the Contract

Article 7.3.1 UPICC sets out rules that govern termination of a contract in two circumstances: (a) where the non-performing party is liable for the non-performance, and (b) where the non-performance is excused so that the aggrieved party can claim neither specific performance nor damages for non-performance. In the case of non-performance, the aggrieved party’s rights to terminate the contract depends on the occurrence of a fundamental non-performance by the other party. In determining whether a failure to perform an obligation amounts to a fundamental non-performance, a number of circumstances listed in Article 7.3.1(2) must be weighted by the adjudicator.37 The language of Article 475 CC38 authorises termination of the contract either in case of fundamental non-performance or other minor non-performance. The relevant provision reads as follows: Art. 475. A party injured by non-performance may apply for dissolution of the contract, if he does not prefer to demand performance of it, and in either case the injured party has the right to indemnification for losses and damages.

37

Official comments, UNIDROIT Principles, pp. 253–256. Art. 475 CC. A parte lesada pelo inadimplemento pode pedir a resolução do contrato, se não preferir exigir-lhe o cumprimento, cabendo, em qualquer dos casos, indenização por perdas e danos. 38

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However, in accordance with the prevailing case law and doctrinal authorities, the performing party’s right to terminate the contract under Article 475 has been limited in situations where the obligor has fundamentally performed the contract.39

5.11

Interest for Failure to Pay Money

Article 7.4.9 UPICC expresses the widely accepted rule according to which the harm resulting from delay in the payment in a sum of money is compensated by interest accruing between the time when payment was due and the time of actual payment. This provision also deals with the rate of interest to be applied.40 Under Brazilian law, Articles 38941 and 39542 CC govern the party’s right to interest upon the other party’s failure to pay a sum of money. While Article 389 CC applies to situations in which the party has totally failed to perform its obligation under the contract, Article 395 CC applies to situations where the party has merely retarded the performance of its obligations. The aforementioned provisions read as follows: Art. 389. If the obligation is not fulfilled, the obligor is liable for losses and damages, plus interests and monetary adjustment according to official indexes regularly established, and lawyer’s fees. Art. 395. The debtor is liable for the losses that his default causes, together with interest and inflation adjustment according to duly established official indices as well as attorney’s fees.

5.12

Interest on Damages

Article 7.4.10 UPICC determines the time on which interest on damages accrues in cases of non-performance of obligations other than monetary obligations. As the amount of damages will usually not yet have been assessed in monetary terms, this

39

Enunciado 361 CJF: O adimplemento substancial decorre dos princípios gerais contratuais, de modo a fazer preponderar a função social do contrato e o princípio da boa-fé objetiva, balizando a aplicação do art. 475. 40 Official comments, UNIDROIT Principles, pp. 284–285. 41 Art. 389 CC. Não cumprida a obrigação, responde o devedor por perdas e danos, mais juros e atualização monetária segundo índices oficiais regularmente estabelecidos, e honorários de advogado. 42 Art. 395 CC. Responde o devedor pelos prejuízos a que sua mora der causa, mais juros, atualização dos valores monetários segundo índices oficiais regularmente estabelecidos, e honorários de advogado.

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provision fixes as the starting point for the accrual of interest the date of the occurrence of the harm.43 Article 405 CC44 establishes the date of service of process (or of arbitration proceedings) as the starting point for the accrual of interest on damages for non-performance of non-monetary obligations. This provision reads as follows: Art. 405. Late-payment interest accrues from the initial service of process.

In conclusion, we can affirm that some of the selected provisions of the UPICC may productively interact with provisions of the Brazilian Civil Code regarding contract law: • Article 2.1.5 UPICC may be relied upon for the purpose of supplementing gaps in the application of Article 422 CC in respect of liability for negotiations in bad faith. • Given the scarcity of interpretation rules under the Brazilian Civil Code, Articles 4.1, 4.2, 4.3, 4.4 and 4.5 UPICC may be relied upon for the purpose of supplementing gaps in Articles 112 and 113 CC. • The rule on fundamental non-performance in Article 7.3.1 UPICC may supplement the gap in Article 475 CC in respect of the right to terminate the contract. • Article 7.4.9 UPICC may be relied upon for the purpose of supplementing gaps in the application of Articles 389 and 395 CC in respect of the payment of interest for failure to pay monetary obligation.

6 Other UPICC Provisions Used in Case Law for Interpreting or Supplementing Brazilian Contract Law Further to the UPICC provisions mentioned in the previous topic, the UPICC provisions on hardship and those related to the favor contractus principle may be successfully invoked for interpreting or supplementing Brazilian contract law. At least three reported decisions issued in Brazil have mentioned the relevant UPICC provisions regarding hardship. In 2005, an arbitral tribunal sitting in Brazil referred to the UPICC in support of the solution reached under Brazilian law. The dispute involved a cabotage contract of carriage by sea concluded between two Brazilian companies. The agreement contained a hardship clause but had no criteria for adapting its terms and conditions. One of the parties alleged hardship in light of a Brazilian currency devaluation. The

43 44

Official comments, UNIDROIT Principles, p. 286. Art. 405 CC. Contam-se os juros de mora desde a citação inicial.

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arbitral tribunal asserted the existence of hardship under Article 478 of the Brazilian Civil Code and referred also to Article 6.2.2 of the UPICC.45 In 2009, an arbitral tribunal sitting in São Paulo decided a dispute between two Brazilian energy traders and, besides invoking the application of Brazilian law, also invoked the UNIDROIT Principles (Article 6.2.1) to state that the mere fact that contract performance entailed a higher economic burden for one of the parties did not amount to hardship.46 In 2011, the Brazilian Federal Court of Auditors invoked Articles 6.2.1 and 6.2.2 UPICC to reject a claim based on hardship under the Brazilian law.47 As to favor contractus, please see Sect. 3.1 above.48

7 Conclusion In Brazil, the UPICC have been increasingly used by arbitrators, judges and administrative authorities as a means to interpret or supplement Brazilian contract law. Among scholars and law students, one can note a growing awareness of the usefulness of the UPICC, not only as a means to interpret or supplement Brazilian contract law but also as a model for legal reform and a checklist for contract drafting.

References Azulay F (1977) Do inadimplemento antecipado do contrato. Brasilia/Rio, Rio de Janeiro Becker A (1994) Inadimplemento antecipado do contrato. Revista dos Tribunais 12:68–78 Gama L (2011) Prospects for the UNIDROIT principles in Brazil. Unif Law Rev 16(3):613–656 Gama L (2017) Contract validity in the PICC (and their potential interplay with the CISG). Unif Law Rev 22(1):72–97 Maria de Serpa Lopes J (1959) Exceções Substanciais: exceção de contrato não cumprido (exceptio non adimpleti contractus). Freitas Bastos, Rio de Janeiro, pp 291–295 Marino F (2011) Interpretação do Negócio Jurídico. Saraiva, São Paulo, pp 187–192 Martins-Costa J (2009) A recepção do incumprimento antecipado no direito brasileiro: configuração e limites. Revista dos Tribunais 98:30–48 Santarelli F, Sagarna F (2009) Responsabilidad civil y seguros. Homenaje al Prof. Atilio Anibal Alterini. La Ley, Buenos Aires, pp 255–272 Tavares de Azevedo Cardoso L (2014) O Inadimplemento antecipado do contrato no Direito civil brasileiro. Doctoral Thesis, Universidade de São Paulo

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Ad hoc Arbitration in Brazil, 21.12.2005, available at UNILEX http://www.unilex.info/case.cfm? id¼1532. 46 Delta Comercializadora de Energia Ltda. v. AES Infoenergy Ltda, Câmara FGV de Conciliação e Arbitragem, 09.02.2009, available at UNILEX http://www.unilex.info/case.cfm?id¼1530. 47 See p. 12, “Application of the UPICC as an expression of the lex mercatoria.” 48 Please see pp. 3–4.

The UNIDROIT Principles As Reference for the Uniform Interpretation of National Laws: Chile Rodrigo Momberg

Abstract The author starts by illustrating that the use of the UPICC for interpretative and supplementary purposes is viable through several dispositions of Chilean law. Following, the author reviews several provisions of the UPICC and performs an analysis of whether they have counterparts in Chilean contract law. The author concludes by signaling several aspects of the domestic contract law that could be complemented with the UPICC in the years to come. 1. Is there any legal source in your legal system allowing the use of the UPICC to interpret or supplement national contract law (either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source)? If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law). There are a couple of legal provisions that could lead to the application of the PICC as a mean of interpreting or supplementing Chilean national contract law. Article 24 of the Chilean Civil Code provides, as a subsidiary rule, that when the other rules on statutory interpretation cannot be applied, obscure or contradictory terms shall be interpreted in the most consistent sense to the “general spirit of the law” (espíritu general de la legislación) or the “natural equity” (equidad natural). Article 4 of the Chilean Commercial Code states that, under certain circumstances, trade usages shall be used to fill the gaps of the law. Article 6 of the same Code provides that trade usages shall be used to ascertain the meaning of technical commercial terms and to interpret commercial contracts. Article 170 N 5 of the Code of Civil Procedure provides that judicial decisions (sentencias definitivas) must include, among other requirements, the indication of

R. Momberg (*) Pontificia Universidad Católica de Valparaíso, Valparaíso, Chile e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_5

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the legal provisions, or failing that, the principles of equity (principios de equidad) on which the decision has been founded. 2. Have the UPICC been used as evidence of a general consensus on the law applicable to contracts (for example, on the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.)? If so, please indicate which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner. An exhaustive revision of legal databases that report decisions from Chilean courts, shows that the PICC has been ignored by judges to found or support their findings. Only two reported decisions mention the PICC as part of the arguments of the claimant, but they are not referred later in the ratio decidendi of the judgement. The decisions are attached in the Annex. A revision of the arbitral decisions which are publicly available shows the same results, with no mention of the PICC to support the findings. However, it has to be considered that a number of decisions are not available because of confidentiality agreements. 3. Assuming that the UPICC have been not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a general body of contract law or to some of its provisions in particular; whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria). Please refer to the previous answer. 4. Please indicate whether any of the following selected provisions of the UPICC have a counterpart in your national (domestic) contract law: 4.1 Article 2.1.15 (Negotiations in Bad Faith) The Chilean Civil Code does not regulate precontractual liability nor formation of contract. The Commercial Code provide the rules on formation of consent, following the classic system of offer and acceptance. The principle in Chilean private law is that an offer is not binding, and therefore, the offeror is free to withdraw it. However, art. 100 of the Commercial Code provides that, in that case, the offeror may be liable for the losses the offeree has incurred in reliance of the withdrawn offer. 4.2 Article 2.1.20 (Surprising Terms) Standard terms are not a subject regulated in the Civil or the Commercial Chilean Codes. The subject is only regulated for consumer contracts in a special statute, the Ley 19.496 sobre protección de los derechos de los consumidores.

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4.3 Article 4.1 (Intention of the Parties) Art. 1560 of the Chilean Civil Code provides which has been considered traditionally as the main rule on contract interpretation. The rule states that, when the intention of the parties is clear, it must prevail over the literal meaning of the words used by them (Art. 1560: Conocida claramente la intención de los contratantes, deberá estarse a ella más que a lo literal de las palabras). On the other hand, there is not a rule as art. 4.1(2) in the provisions on contract interpretation. 4.4 Article 4.2 (Interpretation of Statements and Other Conduct) There are no rules on the interpretation of unilateral statements on the Chilean Civil Code. However, art. 1560 could be applied by analogy. Please refer to the comment on art. 4.1. 4.5 Article 4.3 (Relevant Circumstances) Some of the circumstances listed in art. 4.3 are also considered in the provisions on interpretation of the Chilean Civil Code. Thus, art. 1563 states that, unless otherwise agreed, a contract must be interpreted according to its nature. Art. 1564(2) provides that the terms of a contract can be interpreted referring to another contract concluded by the same parties over the same matter, and art. 1564(3) states that contract terms can be interpreted by the practical implementation of such terms by both parties, or by one of them with the other party’s authorization. As mentioned above, art. 6 of the Commercial Code provides that trade usages shall be used to ascertain the meaning of the technical commercial terms and to interpret commercial contracts. 4.6 Article 4.4 (Reference to Contract or Statement As a Whole) Art. 1564 of the Civil Code provides a rule similar to art. 4.4, stating that the clauses of a contract shall be interpreted one by another, so as to give them the meaning that most conforms to the contract in its entirety. 4.7 Article 4.5 (All Terms to Be Given Effect) Similar to art. 4.5 PICC, art. 1562 of the Civil Code provides that the interpretation of a clause that is able to produce some effect shall be preferred to the interpretation of a clause that is not capable of producing any effect. 4.8 Article 4.7 (Linguistic Discrepancies) There is no rule as art. 4.7 in the Chilean Civil Code. 4.9 Article 6.1.9 (Currency of Payment) Art. 20(1) of the Ley 18.010 sobre operaciones de crédito de dinero, provides that obligations expressed in a foreign currency must be paid in Chilean currency, according to the exchange rate prevailing the day of the payment. Exceptionally, only by express authorization of the law or the Central Bank, payment of obligations expressed in a foreign currency can be required to be paid in such currency (art. 20 (2)).

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4.10 Article 7.3.1 (Right to Terminate the Contract) Contract termination for non-performance has not a systematic treatment in the Chilean Civil Code. The essential rule is art. 1489, which is included in the title of conditional obligations. Therefore, traditional legal doctrine refers to the right to terminate a contract for non-performance as an ‘implicit resolutive condition’ (condición resolutoria tácita). Only recently, modern legal doctrine has stressed that termination is a remedy granted to the obligee in case of fundamental non-performance, and therefore, a right that can be exercised by the obligee in that situation. Art. 1489 provides that in bilateral contracts, a resolutive condition is implicit in case of breach of one of the parties. The provision adds that, in that case, the complying party may request (to the judge) termination or specific performance, with damages. (Art. 1489. En los contratos bilaterales va envueltala condición resolutoria de no cumplirse por uno de loscontratantes lo pactado. Pero en tal caso podrá el otro contratante pedir a su arbitrio o la resolución o el cumplimiento del contrato, con indemnización de perjuicios). 4.11 Article 7.4.9 (Interest for Failure to Pay Money) Art. 1559 of the Chilean Civil Code provides that if the obligation entails the payment of a sum of money, damages for delay involves the payment of a lump sum corresponding to the interest accruing between the time when payment was due and the time of actual payment. The rate of interest is that agreed by the parties (limited by special legislation) or, if no rate has been agreed, the legal rate interest (interés corriente). 4.12 Article 7.4.10 (Interest on Damages) There is no similar provision in the Chilean Civil Code. 5. If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or case-law rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law. 5.1 Article 2.1.15 (Negotiations in Bad Faith) As stated above, precontractual liability is not a subject expressly regulated in Chilean private law, with the exception of art. 100 of the Commercial Code. However, based on the general duty of good faith, the courts have developed a consistent case-law establishing liability for negotiations in bad faith, particularly in cases of breaking off negotiations. The rationale on which the court decisions are based is analogous to that of art. 2.1.15, allowing the use of that provision, as a mean of support, on future decisions.

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5.2 Article 4.1 (Intention of the Parties) As mentioned before, art. 1560 of the Chilean Civil Code provides the general rule for the interpretation of contracts, conferring prevalence—at least in principle—to the common intention of the parties. In this sense, art. 4.1 is perfectly compatible with Chilean private law, and therefore, it could be used by the courts as a manifestation of a general principle of law. 5.3 Article 7.3.1 (Right to Terminate the Contract) As stated above, termination has not been systematically regulated in the Chilean Civil Code. The basic provision is art. 1489, which has been reproduced above. Traditionally, the courts and legal doctrine constructed such provision merely as an ‘implicit resolutive condition’, which operated in case of breach of contract. Contemporary doctrine has articulated a more coherent model, defining termination as one of the available remedies for the obligee in case of non-performance. The essential condition that contemporary legal doctrine requires for termination is that non-performance has to be fundamental. In the construction of the concept of fundamental non-performance, the analysis of comparative law has played a major role. In this context, art. 7.3.1 PICC has been widely cited by Chilean legal doctrine to support the notion of “fundamental non-performance”. 6. If there is no such a rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law Please see the previous answer.

The UNIDROIT Principles As Reference for the Uniform Interpretation of National Laws: China Chin-Fa You and Chia-Te Hsiao

Abstract The author begins by stating that in Taiwan, the UPICC are applicable either as usages or by applying them as general principles of law, due to their universal acceptance. The author then proceeds to enumerate several dispositions of the UPICC and compares said provisions with their counterparts in Taiwanese contract law. The author also grants an extensive exemplification in particular of the right to terminate the contract, by comparing the illustrated cases of the 2010 version of the UPICC to various provisions in Taiwanese contract law. The author concludes by pointing out several domestic case-law rules that are consistent with the UPICC. 1. Is there any legal source in your legal system allowing the use of the UPICC to interpret or supplement national contract law (either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source)? If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law). First of all, article 1 of Taiwan Code of Civil provides that the customary law and the principle of law are also source of law. Foreign laws and soft laws are both not consequentially a part of source of law in Taiwan Code of Civil. On the contrary, if and only if the particular legal norm from foreign law and soft law have been universally accepted as a general principle of law, they could be considered as a doctrine of law in civil law legal system of Taiwan. As a result, in light of article 1 of the Taiwan Civil Code, the UPICC could be applied as general principles of law, when they are universally acceptable. However, so far it has not enough evidence to prove that the UPICC has already been considered as doctrine of law in civil law

C.-F. You (*) National Taipei University, New Taipei City, Taiwan (R.O.C.) C.-T. Hsiao Master of Law, National Taipei University, New Taipei City, Taiwan (R.O.C.) © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_6

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legal system of Taiwan in terms of our legal practicing (especially Supreme Court) and it also has nothing to suggest that the UPICC has been one of the customary laws in Taiwan. Second, some article of Taiwan Code of Civil provide that judges should be also notice of the trade usages case by case between parties, e.g. article 161, 369 and 378 of Taiwan Code of Civil. It means that in some cases judges have to especially take trade usages between parties into account. According to article 283 of the Taiwan Code of Civil Procedure, the court may investigate whether these trade usages exist on its own initiative. When the UPICC are widely regarded as international trade usages, in Taiwan, the UPICC could also be considered as trade usages on a case by case basis. 2. Have the UPICC been used as evidence of a general consensus on the law applicable to contracts (for example, on the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.)? If so, please indicate which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner. Yes, the UPICC have been used as the definition of standard terms (Article 2.1.19 of UPICC 2010) in (2015) Taiwan Supreme Court Hualien Branch Court No. 19 Civil Judgement (Original text, 臺灣高等法院花蓮分院104年度上字第 19號民事判決). 3. Assuming that the UPICC have been not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a general body of contract law or to some of its provisions in particular; whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria). As previously mentioned, when the UPICC are universally qualified as general principles of law, we shall accept the UPICC as a kind of principle of law in our civil law. Furthermore, if the UPICC has accepted as customary laws by the merchant community because of its international acceptability and appropriateness of its legal justification in each of its provisions, it would be lex mercatoria besides state law in Taiwan. 4. Please indicate whether any of the following selected provisions of the UPICC have a counterpart in your national (domestic) contract law: 4.1 Article 2.1.15 (Negotiations in Bad Faith) Article 245-1

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Even though the contract is not constituted, one of the parties is responsible for the injury caused to the other party who without his own negligence believed in the constitution of the contract when he, in order to prepare or negotiate for the contract, has done either of the following: (1) Hidden in bad faith or dishonestly explained the gravely relevant matter of the contract when the other party inquired. (2) Intentionally or gross negligently spilt out the other party’s secret known or held by himself which the other party has explicitly expressed to be kept in secret. (3) Any other matter obviously against good faith. The claim for the injury in the preceding paragraph shall be extinguished by prescription if not exercised within 2 years. 4.2 Article 2.1.20 (Surprising Terms) Article 247-1 If a contract has been constituted according to the provisions which were prepared by one of the parties for contracts of the same kind, the agreements which include the following agreements and are obviously unfair under that circumstance are void. (1) To release or to reduce the responsibility of the party who prepared the entries of the contract. (2) To increase the responsibility of the other party. (3) To make the other party waive his right or to restrict the exercise of his right. (4) Other matters gravely disadvantageous to the other party. 4.3 Article 4.1 (Intention of the Parties) Article 98 In the interpretation of an expression of intent, the real intention of the parties must be sought rather than the literal meaning of the words. 4.4 Article 4.2 (Interpretation of Statements and Other Conduct) Article 98 In the interpretation of an expression of intent, the real intention of the parties must be sought rather than the literal meaning of the words. 4.5 Article 4.3 (Relevant Circumstances) Article 98 In the interpretation of an expression of intent, the real intention of the parties must be sought rather than the literal meaning of the words. 4.6 Article 4.4 (Reference to Contract or Statement As a Whole) Article 98 In the interpretation of an expression of intent, the real intention of the parties must be sought rather than the literal meaning of the words. 4.7 Article 4.5 (All Terms to Be Given Effect) Article 111

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If a part of a juridical act is void, the whole juridical act is void; however, if the juridical act could exist excluding the void part, the other part remains valid. 4.8 Article 4.7 (Linguistic Discrepancies) Article 98 In the interpretation of an expression of intent, the real intention of the parties must be sought rather than the literal meaning of the words. 4.9 Article 6.1.9 (Currency of Payment) Article 202 When the object of the prestation is expressed in a foreign currency in vogue, the debtor may make prestation in currency of the Republic of China at the market rate of the place and time of prestation, except it has been agreed upon by the parties that prestation shall be made in the foreign currency in vogue. 4.10 Article 7.3.1 (Right to Terminate the Contract) The right to terminate the contract in the Taiwan Civil Code is structurally different from the provisions of the UPICC, yet, it would be accurate to indicate similar provisions found in the Taiwan Civil Code in connection to the following illustrated cases, which are from the 2010 version of the UPICC. 4.10.1 A, a Company Located in Country X, Buys Wine from B in Country Y. The Government of Country X Subsequently Imposes an Embargo upon the Import of Agricultural Products from Country Y. Although the Impediment Cannot Be Attributed to A, B May Terminate the Contract Article 234 If the creditor refuses or fails to accept the performance tendered to him, he is responsible for the default from the moment when the performance has been tendered. Article 254 When a party to a contract is in default, the other party may fix a reasonable period and notify him to perform within that period. If the party in default does not perform within that period, the other party may rescind the contract. In addition, we have the case law that the debtor can also terminate the contract in these situation (64年台上字第2367號; English trans, 1975 Supreme court No. 2367 civil judgement). 4.10.2 On 1 May, A Contracts to Deliver Standard Software Before 15 May to B Who Has Requested Speedy Delivery. If A Tenders Delivery on 15 June, B May Refuse Delivery and Terminate the Contract Article 229 When there is a definite period fixed for the performance of an obligation, the debtor is responsible for the default from the moment when such period expires. When there is no definite period fixed for the performance of the obligation, and when the creditor may demand the performance, but the debtor failed to perform the same after the creditor has notified him of the demand, the debtor is responsible for the default from the moment when he has been notified. The effect of instituting an

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action for performance and the service of the complaint, or the service of an order for payment according to the hortatory process, or any other similar act is equivalent to a notice. If there is a period fixed for the performance in the notice of the preceding paragraph, the debtor is responsible for the default from the moment when such time expires. Article 230 The debtor is not being responsible for the default if the prestation has not been made by reason of circumstances to which he is not imputed. Article 255 If according to the nature of the contract or the expression of intent of the parties, the purpose of the contract cannot be accomplished if not performed within the fixed period, and if one of the parties does not perform the contract within that period, the other party may rescind the contract without giving the notice specified in the preceding article. 4.10.3 A Undertakes to Remove Waste from B’s Site Within 30 Days Without Specifying the Exact Date of Commencement. B Fails to Inform A That B Has Hired Excavators at High Cost to Begin Work on the Site on 2 January. B Cannot Terminate Its Contract with A on the Ground That A Had Not Cleared the Site on 2 January Article 229 When there is a definite period fixed for the performance of an obligation, the debtor is responsible for the default from the moment when such period expires. When there is no definite period fixed for the performance of the obligation, and when the creditor may demand the performance, but the debtor failed to perform the same after the creditor has notified him of the demand, the debtor is responsible for the default from the moment when he has been notified. The effect of instituting an action for performance and the service of the complaint, or the service of an order for payment according to the hortatory process, or any other similar act is equivalent to a notice. If there is a period fixed for the performance in the notice of the preceding paragraph, the debtor is responsible for the default from the moment when such time expires. Article 230 The debtor is not being responsible for the default if the prestation has not been made by reason of circumstances to which he is not imputed. Article 254 When a party to a contract is in default, the other party may fix a reasonable period and notify him to perform within that period. If the party in default does not perform within that period, the other party may rescind the contract.

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4.10.4 A, the Agent of B, Who Is Entitled to Reimbursement for Expenses, Submits False Vouchers to B. Although the Amounts Claimed Are Insignificant, B May Treat A’s Behavior As a Fundamental Non-performance and Terminate the Agency Contract Article 227 If a debtor incompletely performs his obligation by reason of a circumstance to which the debtor is imputed, the creditor may execute his right according to the provisions of the default or the impossibility of the performance. In addition to the injury arising from the incomplete performance in the preceding paragraph, the creditor may claim compensation for other injuries arising therefrom, if any. Moreover, there is a case law that indicates that the obligor has the right to terminate the contract even when the non-performance happens in a collateral obligation. It is applicable when the non-performance of a collateral obligation is considered as the hinder to reach the purpose of the contract. (最高法院104 年度台 上 字第799號判決; English trans, 2015 Supreme court No.799 civil judgement. 最 高法院100年度台上字第2號判決; English trans, 2011 Supreme court No. 2 civil judgement.) 4.10.5 On 1 May A Undertakes to Deliver Software Which Is to Be Produced Specifically for B. It Is Agreed That Delivery Shall Be Made Before 31 December. A Tenders Delivery on 31 January, at Which Time B Still Needs the Software, Which A Cannot Sell to Other Users. B May Claim Damages from A, but Cannot Terminate the Contract Article 229 When there is a definite period fixed for the performance of an obligation, the debtor is responsible for the default from the moment when such period expires. When there is no definite period fixed for the performance of the obligation, and when the creditor may demand the performance, but the debtor failed to perform the same after the creditor has notified him of the demand, the debtor is responsible for the default from the moment when he has been notified. The effect of instituting an action for performance and the service of the complaint, or the service of an order for payment according to the hortatory process, or any other similar act is equivalent to a notice. If there is a period fixed for the performance in the notice of the preceding paragraph, the debtor is responsible for the default from the moment when such time expires. Article 230 The debtor is not being responsible for the default if the prestation has not been made by reason of circumstances to which he is not imputed. Article 254 When a party to a contract is in default, the other party may fix a reasonable period and notify him to perform within that period. If the party in default does not perform within that period, the other party may rescind the contract.

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4.11 Article 7.4.9 (Interest for Failure to Pay Money) Article 233 When the object of an obligation which is in default is the payment of money, the creditor may claim interest for the default, which is to be calculated at the statutory rate. But if the agreed rate of interest is higher, this higher rate shall apply. There is no need to pay interest for the interest of default. In cases specified in the preceding two paragraphs, if the creditor can prove other injuries sustained, he may claim compensation for the same. 4.12 Article 7.4.10 (Interest on Damages) Article 213 Unless otherwise provided by the act or by the contract, a person who is bound to make compensation for an injury shall restore the injured party to the status quo before the injury. If the restoration of the status quo ante shall be paid in money, interest shall be added from the time of the injury. Under the circumstances of the first paragraph, the creditor may claim the necessary expenses for restoration instead of the restoration. 5. If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or case-law rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law. 5.1 Interpretation of the Intention of Parties In our case law, if the intent of the parties is literally clear in the contract, it should not be understood differently(最高法院17年上字1118號判決; English trans, 1928 Supreme court No. 1118 civil judgement). Furthermore, if the intent of the parties cannot be established, then it should be interpreted according to the occurrence the parties intended, the economic purpose of the contract, the understanding of reasonable person, rule of thumb, and the purpose of the parties; needless to say, the conduct of interpretation must be made in good faith (最高法院96年度台上字286 號判決; English trans, 2007 Supreme court No. 286 civil judgement. The usage is also a criterion of interpretation (院字第1897號; English trans, Judiciary Interpretation No. 1879. 5.2 Liability for Breaking Off Negotiations in Bad Faith The liability for breaking off negotiations has not been regulated in Article 245-1 of the Taiwan Code of Civil, but there is a case law that states such as, “both parties are commonly free whether to reach an agreement or not and can break off negotiations freely before concluding a contract unless one party breaks off the negotiation in bad faith, which depends on the type of contract, the process of negotiation, the reliance

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of aggrieved party, and the usage.” (台灣高等法院104年度勞上易字第124號判 決; English trans, 2015 Taiwan Supreme Court No. 124 civil judgement.) 6. If there is no such a rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law: Indeed, there are many identical or similar provisions in the Taiwan Code of Civil, as well as case law, relating to the provisions of the UPICC. Although the Taiwan Civil Code is structurally different from the UPICC, it provides almost the same consequence in cases such as the selected provisions in question 4. In fact, without the UPICC as a source of interpretation or a gap filler, there could be the same consequence. Regarding to case laws mentioned in question 4, contract law in Taiwan has already developed by case laws and general principle of law in legal system of Taiwan to solve the modern problems in contract law. So, the question of whether the UPICC could be the source of interpretation or a gap filler to the Taiwan Civil Code is dependent of whether the provisions of the UPICC are viewed as a general principle of contract law.

UNIDROIT Principles As Reference for Uniform Interpretation of National Laws: Czech Republic Monika Pauknerová and Magdalena Pfeiffer

Abstract The article analyses the extent to which the UNIDROIT Principles of International Commercial Contracts (UPICC) are used to interpret and supplement Czech contract law. Under Czech legal doctrine the UPICC are part of lex mercatoria and not considered as a generally binding set of legal rules. However, contracting parties are free to make them part of their contract. The authors carry out a comparative analysis of selected UPICC rules and their counterparts in the Czech national law (Czech Civil Code) relating to negotiations in bad faith, surprising terms, currency of payment, right to terminate the contract and interest for failure to pay money.

1 The UPICC and Legal Sources in the Czech Republic To date, the UNIDROIT Principles (“UPICC”) have not been very well-known in the Czech legal environment and have only been used to a very limited extent. They can be understood as soft law, modern ius commune and a source of inspiration for the codification of law of contracts. In the Czech doctrine of private international law and international trade law the UPICC and other principles of soft law forming a part of lex mercatoria are strictly separated from the international codification of law of contracts, i.e. from the regulation contained in international treaties and EU regulations.1 Lex mercatoria can be applied only within the normative framework of the

The Report was drafted with the support of the Research Programme of Charles University Progres Q 03. 1 This part is based on Pauknerová (2016), pp. 1583–1592. See also Pauknerová (2008), pp. 775–787 with further references. See also Rozehnalová (2008).

M. Pauknerová (*) · M. Pfeiffer Department of Commercial Law, Faculty of Law, Charles University, Prague, Czech Republic e-mail: [email protected]; [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_7

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law that is applicable to a particular contract. From the perspective of the Czech Republic the Rome I Regulation on the law applicable to contractual obligations2 constitutes the basis for determining the law applicable to international commercial contracts. In this respect, the Czech legal theory does not differentiate substantially from traditional theories of private international law in Europe. Lex mercatoria is a fuzzy term, and it is in our opinion impossible to accept that the rules arising from lex mercatoria could be regarded as having the nature of generally binding legal norms. As sometimes mentioned in literature, lex mercatoria is not a “lex”. Only states adopt generally binding legal norms. However, nothing prevents contracting parties from making lex mercatoria a part of their contract. Such contract is based on a certain law; as matter of fact, practically every law of contracts is based on extensive freedom to contract. The boundaries of freedom to contract are defined by mandatory norms of the applicable law. Within such boundaries the parties may stipulate a specific regulation of their rights and obligations which deviates from non-mandatory norms that apply only if the parties do not agree otherwise.3 In other words, the applicable law is the law relevant for defining the framework for lex mercatoria in general, including the UPICC. The applicable law is determined according to the conflict rules over which unification of substantive law in an international treaty may take precedence as lex specialis. The Czech Private International Law Act (“PIL Act”)4 expressly stipulates precedence of the provisions of promulgated international treaties by which the Czech Republic is bound and of directly applicable provisions of the European Union law (Section 2 PIL Act). Thus, it is in particular the Rome I Regulation or, when appropriate, the provisions of the PIL Act5 supplementing Rome I that apply in judicial proceedings in relation to the question of law applicable to contracts. It is set out in Recital 13 of the Rome I Regulation that the regulation does not preclude parties from incorporating by reference into their contract a non-state body of law or an international convention. This wording is in line with the inherent position of the Czech doctrine that a provision incorporated into a contract by the parties may not go beyond the framework defined by mandatory provisions of the law otherwise applicable under the provisions of the regulation.6

2 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (OJ L 177/6, 4.7.2008), (hereinafter “Rome I Regulation”). 3 Kučera et al. (2015), p. 214. 4 Act No. 91/2012 Coll. on Private International Law (PIL Act). 5 These provisions (Sections 84-101 PIL Act on Law of Obligations, including specific procedural provisions and both contractual and certain non-contractual obligations) apply provided the matter does not fall into the scope of the directly applicable provisions of the European Union law and international treaties, unless an EU law or a treaty allows the application of this Act. 6 Kučera et al. (2015), pp. 215–216.

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The term “trade usages” or “business usages” is known within the context of Czech substantive law. Till 2014 business usages were regulated under the Commercial Code,7 today they are defined in the Civil Code (“CC”)8 in a somewhat modified form. Pursuant to Section 558(2) CC, “in legal transactions among entrepreneurs, account is taken of business usages maintained in general or in a given industry, unless excluded by an agreement between the parties or by a statute. Unless otherwise agreed, a business usage is conclusively presumed to take precedence over non-mandatory provisions of a statute; otherwise, an entrepreneur may invoke a usage if he proves that the other party must have known a given usage and was aware that it would be followed.” To our knowledge the Czech case-law has not dealt yet with this concept pursuant to Section 558(2) CC and no decision has been issued in this respect by the Supreme Court of the Czech Republic. We are of the opinion that in light of the indicated approach to usages, it cannot be assumed that in the future Czech courts would use this provision to apply the UPICC. Such scenario is not likely to take place. For further reflections on Section 558(2) CC see also below.

2 Application of the UPICC to Contracts In general, the Czech legal theory takes a critical stance towards the possibility of directly applying lex mercatoria with one exception—arbitration proceedings in cases where both parties expressly agreed that the case would be decided in accordance with the principles of justice. However, this hardly ever occurs in practice. In other cases, when the parties refer to international rules, the UPICC etc. in their contract, such rules or principles will only be taken into account within the framework of the applicable law and its mandatory provisions. Provided the parties do not perform choice of law, conflict rules which are applicable in the absence of choice of law apply, namely either the conflict rules pursuant to Rome I Regulation, or the conflict rules based on the secondary application of Section 87 PIL Act. There is a special provision that applies to arbitration proceedings in the Czech PIL Act. Its Section 119 sets out that the law governing the substance of a dispute is the law chosen by the parties. Provided the parties do not choose any law, the applicable law is determined by arbitrators on the basis of the provisions of the PIL Act, i.e. on the basis of the conflict rules of lex arbitri. Where expressly authorised by the parties, the arbitrators may decide a dispute in accordance with the principles of justice [. . .]. Therefore, disputes have to be decided in accordance with a “law”, unless the parties expressly agree that disputes shall be decided in accordance with the principles of justice.9 Besides that, in the specific context of arbitration

7

Act No. 513/1991 Coll., Commercial Code, repealed by the new CC. Act No. 89/2012 Coll., Civil Code (CC). 9 Kučera et al. (2015), p. 215. 8

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proceedings the European Convention on International Commercial Arbitration of 1961 should not be neglected.10 It is binding for Czech Republic and when applicable its provisions take precedence over national law. Pursuant to Article VII (1) of the Convention “the parties shall be free to determine, by agreement, the law to be applied by the arbitrators to the substance of the dispute. Failing any indication by the parties as to the applicable law, the arbitrators shall apply the proper law under the rule of conflict that the arbitrators deem applicable. In both cases the arbitrators shall take account of the terms of the contract and trade usages.” It is precisely this formulation from which the possibility of arbitrators to freely determine the applicable law is inferred in cases when the parties failed to determine applicable law. This possibility has been accepted, although not unanimously, by the Czech legal literature.11 There is to our knowledge no direct reference to the UPICC in the caselaw of the Czech Supreme Court: it seems that the courts in the Czech Republic have not dealt yet with the application of this instrument.12 Of course, this does not mean that in the future the courts will not apply the UPICC as a means of interpreting and supplementing the applicable law, either domestic, or foreign (see Model Clause for the use of the UPICC No. 4).13 The judgment of the Constitutional Court of the Czech Republic of 20 April 2005 can undoubtedly be regarded as a sort of a basis for interpretation by Czech courts14 (in details infra 5.8). The mentioned judgment allows judges to take into account unified rules of soft law which include both the Principles of European Contract Law and the UPICC. Thus, the judges have the possibility to consider and interpret legal relations from a wider perspective of general rules which may influence their decision-making. This decision is relevant not only for judicial but also for arbitration proceedings. In arbitration proceedings in the Czech Republic, namely in proceedings before the Arbitration Court attached to the Chamber of Commerce of the Czech Republic and the Agricultural Chamber of the Czech Republic in Prague, practically no awards that have been published, involve the UPICC. In the UNILEX database there is only one reported case at this arbitration court that refers to the UPPIC (Rsp 88/94).15 In this case the arbitration court referred to the Polish law supported by the UPICC to uphold the solution found under the applicable domestic law.16 The authors of this 10 https://treaties.un.org/PAGES/ViewDetails.aspx?src¼ TREATY&mtdsg_no¼XXII-2& chapter¼22&clang¼_en. 11 Kučera et al. (2015), p. 215. Kučera (2009), p. 171. 12 In the Czech Republic, published are only the decisions of the Supreme Court and upper courts, the Supreme Administrative Court and the Constitutional Court. 13 Bonell (2013), Model Clauses for the Use of the UNIDROIT Principles of International Commercial Contracts, pp. 473–489 with further references. 14 Judgment of the Constitutional Court of the Czech Republic No. 625/03 of 20.4.2005, see also http://www.concourt.cz/. 15 See http://www.unilex.info/dynasite.cfm?dssid¼2377&dsmid¼14311. 16 Rsp 88/94 of 17.12.1996. Unif. L. Rev., 1997, 604 – 605. A Polish and a Russian company entered a number of contracts which contained a reference to the Polish law. Requested by the

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paper are aware of only two unpublished awards of the Arbitration Court attached to the Chamber of Commerce of the Czech Republic and the Agricultural Chamber of the Czech Republic in Prague, that involve the UPICC. In one of them (Rsp 235/03)17 the claim was based on a Contract on Exclusive Import, Sales and Distribution (a framework contract), concluded between a Czech exporter (Claimant) and a Polish importer (Defendant). During the proceedings the Polish Defendant invoked the UPICC which the Defendant found appropriate for the interpretation of problematic provisions of the contract which were probably translated into Czech and subsequently into Polish from another language version as a consequence of which the meaning of some provisions was not clear. The parties chose Czech law as the applicable law and there was no reference to the UPICC in the contract. One of the issues was whether a duty of the seller to deliver particular goods can be derived directly from the framework contract, as asserted by the Defendant. The seller (Claimant) objected that it was not obliged to deliver the goods (based on the framework contract) and to confirm the purchase orders of the Defendant, as in the seller’s opinion separate purchase contracts had to be concluded for this purpose. The Defendant argued with reference to Article 4.5. UPICC and Art. 4.6. UPICC (contra proferentem rule). The arbitrators did not accept such arguments and concluded that the applicable law which was expressly chosen did not permit such interpretation, i.e. that the specific duty to supply goods was implied directly by the framework contract and that on this basis the Claimant was obliged to confirm the purchase orders of the Defendant. Rsp 1913/1218 involved an importation agreement concluded between a Czech company (Claimant) and a Slovak entrepreneur (Defendant), the parties chose Czech law as the applicable law. The dispute related to the formal requirements of an Annex to the importation agreement certifying a delivery of returnable pallets. The core of the dispute was the question whether the form and the signature of the document were in conformity with the contractual stipulations. There was a dispute between the arbitrators. Two of them claimed that the form should have been assessed informally as sufficient if corresponding to the practice established between the parties. One arbitrator claimed that such assessment did not correspond to the contract and would not have been acceptable in a court proceedings. In the end he suggested the application of the Article 2.18/2.1.18 UPICC on modification in a particular form: “A contract in writing which contains a clause requiring any modification or termination by agreement to be in a particular form may not be

Polish Claimant to pay the price of the repairs, the Russian Defendant objected that it had delegated one of its own customers, which owed it a corresponding sum of money, to make the payment on its behalf. The Arbitral Tribunal rejected this defence on the ground that, because a delegation of payment does not amount to the substitution of the original obligor by a new obligor, the original obligor is discharged only when the third person actually pays the obligee. In support of its conclusion, the Arbitral Tribunal referred not only to Art. 921(5) of the Polish Civil Code, but also to Art. 6.1.7(2) of the UPICC. See UNILEX, loc. cit. 17 Award dated 17.5.2005. 18 Award dated 25.4.2014.

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otherwise modified or terminated. However, a party may be precluded by its conduct from asserting such a clause to the extent that the other party has acted in reliance on that conduct.” The arbitrators, in majority, however concluded that the contract and the applicable Czech law were sufficient and pertinent, they did not accept such UPICC-conforming argumentation. Thus, to summarize in none of these two cases the UPICC were eventually applied, the arbitrators found norms of the law chosen by the parties sufficient.

3 Use of the UPICC in Other Possible Combinations To our knowledge, the UPICC have not been applied by courts, nor arbitrators to interpret the UN Convention on Contracts for the International Sale of Goods (“CISG”) or any other international instrument of uniform law.

4 The UPICC and Their Possible Counterparts in Czech National (Domestic) Contract Law 4.1

Article 2.1.15 (Negotiations in Bad Faith)

Section 1728 CC (1) Any person may conduct negotiations of a contract freely and is not liable for the failure to conclude it, unless he commences or continues the negotiations of a contract without the intention to conclude it. (2) When negotiating a contract, the contracting parties shall notify each other of all the factual and legal circumstances of which they know or must know, so that each of the parties can verify the possibility to conclude a valid contract and the interest of each party in concluding the contract is evident to the other party. Section 1729 (1) If contract negotiations between parties reach a point where the conclusion of the contract seems highly probable, the party which terminates the negotiations without a just cause despite reasonable expectations of the other party to conclude the contract acts unfairly. (2) A party which acts unfairly shall compensate the other party for the damage, but only to an extent not exceeding the loss from failing to conclude a contract in similar cases.

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Article 2.1.20 (Surprising Terms)

Section 1753 CC A provision of the standard commercial terms which the other party could not have reasonably expected is ineffective, unless expressly accepted by that party; any stipulation to the contrary is disregarded. Whether or not a provision is of such a nature is assessed with regard to its content and the manner in which it is expressed.

4.3

Article 4.1 (Intention of the Parties)

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4.4

Article 4.2 (Interpretation of Statements and Other Conduct)

Section 555 CC (1) A juridical act is assessed according to its content. (2) If a certain juridical act is intended to obscure another juridical act, the former is assessed according to its true nature. Section 556 CC (1) What is expressed by words or otherwise is interpreted according to the intention of the acting person if the other party was aware or must have known of such an intention. If the intention of the acting person cannot be ascertained, the expression of will is attributed the same meaning which would be typically attributed by a person in the position of the person against whom the will was expressed. (2) When interpreting the expression of will, account is taken of the regular dealings of parties in legal transactions, what preceded the juridical act, as well as the manner in which the parties subsequently demonstrated what content and relevance they attach to the juridical act. Section 558 CC (1) In legal transactions with an entrepreneur, a term allowing different interpretations is attributed the meaning customarily used in such transactions. However, if the other party is not an entrepreneur, the person who invokes the meaning must demonstrate that the other party must have been aware of it. (2) In legal transactions among entrepreneurs, account is taken of business usages maintained in general or in a given industry, unless excluded by an agreement

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between the parties or by a statute. Unless otherwise agreed, a business usage is conclusively presumed to take precedence over non-compelling provisions of a statute; otherwise, an entrepreneur may invoke a usage if he proves that the other party must have known a given usage and was aware that it would be followed.

4.5

Article 7.3.1 (Right to Terminate the Contract)

Section 2001 A party may terminate a contract if so stipulated by the parties or provided by a statute. Section 2002 (1) If a party fundamentally breaches a contract, the other party may terminate the contract without undue delay. A fundamental breach means such a breach of which the breaching party, at the conclusion of the contract, knew or should have known that the other party would not have concluded the contract had it foreseen such a breach; in other cases, a breach is presumed not to be of a fundamental nature. (2) A party may terminate a contract without undue delay after the conduct of the other party undoubtedly indicates that the party is about to commit a fundamental breach of contract and fails to provide a reasonable security after being requested to do so by the obligee. Section 1977 If, by its default, a party fundamentally breaches its contractual duty, the other party may withdraw from the contract, if it notifies the party in default accordingly without undue delay after learning of the default. Section 1978 (1) If a default of one of the parties constitutes a non-fundamental breach of its contractual duty, the other party may withdraw from the contract after the defaulting party fails to fulfil its duty even within a reasonable additional time limit expressly or implicitly provided by the other party. (2) If a creditor notifies the debtor that he grants him an additional time limit to perform and that there will be no extension thereof, he is conclusively presumed to have withdrawn from the contract upon the expiry of the additional time limit within which the debtor fails to perform. Section 1979 If a creditor has provided a debtor with an unreasonably short additional time limit to perform and withdraws from the contract after the time limit expires, the withdrawal becomes effective only after the expiry of the reasonable additional period which should have been granted to the debtor within which the debtor fails to

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perform. This also applies, if the creditor withdraws from the contract without providing the debtor with any additional time limit to perform.

4.6

Article 7.4.9 (Interest for Failure to Pay Money)

Section 1970 CC A creditor who has properly fulfilled his contractual and statutory duties may require that a debtor who is in default of payments of a pecuniary debt pay default interest, unless the debtor is not liable for the default. The rate of default interest is determined by a government decree; if the parties do not stipulate the amount of default interest, the rate thus determined is considered to be the one stipulated. Section 1971 CC A creditor is entitled to compensation for damage incurred as a result of the failure to discharge a pecuniary debt only if it is not covered by default interest.

5 Statutory Rules and/or Case-Law Dealing with the Same or Similar Issue Addressed by the Selected Provision of the UPICC 5.1

Article 2.1.15 (Negotiations in Bad Faith)

Art. 2.1.15 UPICC relates to pre-contractual liability, the culpa in contrahendo. Before 2014, Czech law did not provide for pre-contractual liability as a separate legal concept at all. The only exception was liability for misuse of confidential information disclosed during contract negotiations in business dealings. Protection of such information was expressly stipulated in Section 271 of the Commercial Code.19 However, in practice, Czech courts20 kept inferring pre-contractual liability on the basis of extensive interpretation of the general duty to prevent imminent

19

Section 271 Commercial Code: If the parties mutually exchange confidential information when negotiating a contract, then no party to which such information is made available may disclose it to a third party or use it contrary to its purpose for such party’s own needs, regardless of whether the contract is concluded or not. Anyone breaching this duty shall be liable to render compensation for damage in accordance with the provisions of section 373 et seq. 20 Decision of the Supreme Court of the Czech Republic of 11. 10. 2006 (Ref. No. 1166/2004); Decision of the Supreme Court of the Czech Republic of 2. 9. 2008 (Ref. No. 25 Cdo 127/2007); Decision of the Supreme Court of the Czech Republic of 22. 2. 2011 (Ref. No. 25 Cdo 4147/2008).

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damage21 and general liability for causing damage22 or, when appropriate, liability for damage caused by intentional acting violating good morals.23 In 2012 the Czech Republic saw extensive recodification of private law resulting in the adoption of a new civil code which came into effect on 1 January 2014.24 In the new CC pre-contractual liability is expressly regulated under Sections 1728–1729. According to the Explanatory Report on the CC the drafters were inspired by the regulation of pre-contractual liability in Art. 6–8 Code Européen des Contrats25 rather than by the regulation contained in the UPICC.26 The provision of Section 1728(1) CC lays down a general principle of freedom to contract pursuant to which nobody can be forced to conclude a contract against their will. However, liability for a failure to conclude a contract may arise if a party to negotiations commences or continues negotiations of a contract without intending to conclude it. This provision corresponds to the regulation contained in Art. 2.1.15 UPICC. However, unlike the UPICC, Czech law does not use the term good or bad faith, but the term fair or unfair acting. Section 6(1) CC enshrines the general duty to act fairly in legal transactions.27 Thus, the autonomy of will of contracting parties is limited by the duty to act fairly.28 Fair acting pursuant to Section 6 CC should be understood as a certain standard of acting in legal transactions requiring fairness, openness and respect to interests of the other party. It is an objective measure and can be referred to as “objective good will”.29 The above-mentioned provision of Section 1728(1) CC refers to a specific case of a general duty of fair acting. Negotiations of a contract without any intention of concluding it represent one of the examples of a party’s unfair acting and as such contradict the duty to act fairly as stipulated in Section 6 CC. Pre-contractual liability under Czech law constitutes non-contractual liability, pursuant to Section 2910 CC it is considered a breach of a statutory duty. The provision of Section 1728(2) CC lays down the liability for breach of the duty to inform parties participating in contractual negotiations. This is a more specific rule to the general rule to act fairly. When negotiating a contract, the contracting parties should notify each other of all the factual and legal circumstances of which they know or must know, so that each of the parties can assess the probability of concluding a valid contract and so that the interest of each party in concluding the contract is evident to the other party. It primarily implies a duty to inform the other

21

Section 415 Act. 40/1964 Coll., Civil Code (repealed). Section 420 Act. 40/1964 Coll., Civil Code (repealed). 23 Section 424 Act. 40/1964 Coll., Civil Code (repealed). 24 Act. No. 89/2012 Coll., Civil Code. 25 Code Européen des Contrats. Available at: http://www.eurcontrats.eu/site2/newdoc/Norme%20_ Libro%20I-%20francese_.pdf. 26 Explanatory Report on the Civil Code: Sections 1728 to 1730. 27 Section 6(1) CC: Everyone is obliged to act fairly in legal transactions. 28 Lavický et al. (2014b), p. 60. 29 Lavický et al. (2014b), p. 73 and following. 22

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party of any circumstance which might question the possibility of concluding a valid contract without delay.30 The purpose of this provision is to enable each party to responsibly assess the probability of concluding a valid contract.31 Unlike in the UPICC, the provision of Section 1729(1) CC defines an additional specific case of pre-contractual liability, namely liability for interrupting negotiations when a point is reached where the conclusion of the contract seems highly probable. Provided the parties in the contract-making process reach such point, the party which terminates the negotiations without a just cause despite reasonable expectations of the other party to conclude the contract acts unfairly. According to commentaries, just cause shall be understood as a reason which the other party could have anticipated provided the party acted with due prudence, or as a reason of which it was informed.32 If damage is caused due to a failure to conclude a contract in contradiction with the expectations of one party, the other contracting party is obliged to compensate the counterpart for damage as a consequence of a breach of such duty. Under Czech law the damage caused as a consequence of unfair acting in cases where contract was not concluded is limited. In accordance with Section 1729(2) CC a party which acts unfairly shall compensate the other party for the damage, but only to an extent not exceeding the loss from contracts not being concluded in similar cases. According to commentaries on this provision the damage is not limited when caused by unfair acting under Section 1729(1) CC or as a consequence of negotiations of a contract without a party’s intention of concluding it pursuant to Section 1728(1) CC. The purpose of this provision is to prevent speculative increase in the costs of contract negotiations. The aggrieved party should not be in a better position than a position that it would have enjoyed if the contract were concluded.33 However, this provision is regarded as a provision causing interpretation difficulties. The concept of “loss from contract not being concluded” is a vague concept, its only purpose is to define the upper limit of compensation irrespective of how and on what basis incurred loss is quantified.34 According to literature, other indeterminate concepts causing interpretation problems are “loss from contracts not being concluded in similar cases” and “a just cause of failing to conclude a contract”.35 With regard to the relatively short period for which this regulation has been in effect, to the knowledge of the authors Czech courts have not dealt with the interpretation of these concepts yet. It follows from the foregoing that Section 1728(1) CC can be regarded as the Czech counterpart of the principle set out in 2.1.15 UPICC. The basic regulation of this concept is similar despite the fact that the Czech provision is based on the term

Švestka et al. (2014b), p. 23. Rozehnalová et al. (2014), p. 87. 32 Švestka et al. (2014b), p. 25. 33 Lavický et al. (2014b), p. 62. 34 Švestka et al. (2014b), p. 26. 35 Pelikán (2017), pp. 129–132. 30 31

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unfair acting rather than acting in bad faith. Both regulations enshrine liability for damage caused in connection with acting in bad faith in the sense of acting without the intention to conclude a contract. In addition to that in the Czech law there is a special provision regarding liability for damage caused by terminating negotiations which reached a point where the conclusion of the contract seems highly probable except for cases in which the party has a just reason therefore. Unlike the general formulation in Art. 2.1.15 UPICC under Czech law the amount of damage incurred as a consequence of unfair acting is limited.

5.2

Article 2.1.20 (Surprising Terms)

An express regulation of the concept of “surprising terms” was also absent in the Czech contract law until 2014. In the current CC Section 1753 is the Czech counterpart to Art. 2.1.20 UPICC. According to the Explanatory Report on the CC this provision is based on Art. 2.20 UPICC,36 although the drafters most probably had Art. 2.1.20 UPICC in mind. Anyway, it is evident from the wording that the new Czech provision has been inspired by the UPICC. Except for some minor deviations the wording is identical to the wording of Art. 2.1.20 UPICC. In accordance with the first sentence of Section 1753 CC including standard commercial terms which the other party could not have reasonably expected is ineffective, unless expressly accepted by that party. This is a mandatory statutory provision from which no deviation is possible upon an agreement between the parties. Provided parties stipulate to the contrary in a contract, such stipulation will be disregarded. Protection against surprising terms in commercial terms under Section 1753 CC applies, regardless of the nature of the parties, in both B2B and B2C contracts. Under none of these legal regulations a surprising term has legal effects with the exception of cases in which the other party expressly adopted such term. The second sentence of Section 1753 CC, similarly as the second sentence of Art. 2.1.20 UPICC, specifies criteria for assessing whether or not such term can be regarded as surprising. Under the second sentence of Section 1753 CC, whether a provision is of such a nature is assessed with regard to its content and the manner in which it is expressed. Thus, surprising terms may include provisions of unexpected content as well as provisions of unexpected form. As an example of provisions which should be assessed as surprising due to their content the Explanatory Report on the CC mentions provisions excluding liability of a party for the fulfilment of certain obligations under a contract despite that the contract alone leads to a reasonable expectation that liability for the performance of the contract will not be affected. As an example of terms which should be regarded as surprising due to their form the Explanatory Report on the CC mentions provisions which are expressed in a manner that is unclear to the other party, with a poorly legible font, or terms which

36

Explanatory Report on the CC: Sections 1751 to 1754.

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change or amend the content of the contract in a manner which could not have been reasonably expected by the other party.37 Under Czech law a term cannot be regarded as a surprising term provided it is proven that the other party knew or must have known of such term.38 In case of a dispute, assessing whether a term is a term which the other party could or could have not reasonably expected shall be up to the court which should take into consideration specific facts of the case. In assessing the aforementioned the court should take into account, among other things, whether it is a B2B or B2C contract. In particular, the court should assess what terms the other party expected or must have expected while at the same time an average human intellect and average experience of the other party under given circumstances are presumed.39 The content of the pre-contractual communication should also be considered including advertisements which could have given rise to certain expectations in case of the accessing party and thus turn a clause which would not be surprising otherwise into a surprising one.40 The provision of Section 1753 CC provides protection against surprising terms in commercial terms under the condition that the commercial terms became part of the contract.41 The manner in which commercial terms can be validly made part of the contract is set out in Section 1751 CC.

5.3

Article 4.1 (Intention of the Parties)

–

5.4

Article 4.2 (Interpretation of Statements and Other Conduct)

–

5.5

Article 4.3 (Relevant Circumstances)

– 37 Explanatory Report on the CC: Sections 1751 to 1754. http://obcanskyzakonik.justice.cz/images/ pdf/Duvodova-zprava-NOZ-konsolidovana-verze.pdf. 38 Lavický et al. (2014b), p. 171. 39 Lavický et al. (2014b), p. 170. 40 Švestka et al. (2014b), p. 75. 41 Lavický et al. (2014b), p. 170.

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Article 4.4 (Reference to Contract or Statement As a Whole)

–

5.7

Article 4.5 (All Terms to Be Given Effect)

–

5.8

Article 4.7 (Linguistic Discrepancies)

All UPICC Articles stated in the title of this subchapter deal with the interpretation of contracts or unilateral acts. There are no counterparts in Czech law on contracts inspired by these UPICC Articles. The CC only deals with the interpretation of legal acts in its general part, namely in Sections 555 to 558. The provisions on interpretation of the content of legal acts are based on the regulation in the Civil Code and in the Commercial Code effective till 2014 including the desirable special regulation of specific characteristics of business transactions between entrepreneurs that acknowledges the significance of business usages.42 Given their general nature, these interpretation rules are applied also to contracts. The basic interpretation principle is embodied in Section 555(1) CC; under this provision legal acting is assessed by its content. The content of legal acting is the genuine will, i.e. the intent or purpose the parties have to cause legal consequences.43 The basic provision of Section 555 (1) CC is further elaborated on in another interpretation norm in Section 556 CC that sets out interpretation methods in accordance with which it is necessary to interpret legal acts irrespective of the entities taking them and irrespective of the rights they relate to.44 Pursuant to Section 556(1) CC when interpreting an expression of will (whether expressed in words or otherwise) the acting person’s intent must be taken into account. Thus, even under Czech law legal acts (including those performed in contract law) are interpreted primarily on the basis of the acting person’s intent which corresponds to Art. 4.2(1) UPICC. Pursuant to Section 556 (1) CC what is expressed by words or otherwise is interpreted according to the intention of the acting person, provided the other party knew or must have known of such an intention. Although Czech law uses the phrase “must have known of” rather than the phrase “could not have been unaware of” used in Art. 4.2 UPICC, we can

42

Explanatory Report on the CC: Sections 555 to 558. Švestka et al. (2014a), p. 1362. 44 Lavický et al. (2014a), p. 1986 and following. 43

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deem this wording to set the same standard.45 Ascertaining the acting party’s intent has its objective limits given by the use of interpretation rules. Provided the acting party’s intent cannot be ascertained despite of applying these rules, the objective interpretation method pursuant to the second sentence of Section 556(1) CC applies.46 If the intention of the acting person cannot be ascertained, the expression of will is attributed the same meaning which would be typically attributed by a person in the position of the person towards whom the will was expressed. Similarly to the UPICC, Czech law is not based on a general and abstract concept of a third person. Section 556(2) CC contains a regulation similar to that contained in Art. 4.3 UPICC which indicates relevant circumstances that are to be considered when applying Art. 4.1 and 4.2 UPICC. This general provision specifies circumstances to which regard must be given when interpreting an expression of will. The following must be taken into account: (a) the practices established between parties in legal transactions; (b) what preceded the legal act and (c) how the parties subsequently expressed what content and significance they attribute to such legal act. The content of the circumstances stipulated in this provision corresponds to the content of the circumstances specified in Art. 4.3 UPICC under letter a): preliminary negotiations between the parties; letter b): practices which the parties have established between themselves, and letter c): the conduct of the parties subsequent to the conclusion of the contract. Section 556(2) CC as a general provision applied also to interpretation of legal acts between an entrepreneur and a consumer is therefore complemented by a special interpretation rule in Section 558 CC relevant in transactions between entrepreneurs. In accordance with the first sentence of Section 558(1) CC in legal transactions between entrepreneurs if a term can be interpreted in different ways, it is interpreted according to its usual meaning in such transactions. This provision is almost analogous to the circumstance set out in Art. 4.3 UPICC under letter e): the meaning commonly given to terms and expressions in the trade concerned. Provided the other party is not an entrepreneur, the party which invokes a certain meaning must prove that the other party must have been aware of such meaning. Another special interpretation rule applied in legal transactions between entrepreneurs is laid down in Section 558(2) CC. In accordance with this provision account is taken of business usages, unless excluded by agreement between the parties or by statute. Account shall be taken of business usages established both in general and in a given sector. The content of this provision is analogous to the circumstance set out in Art. 4.3 UPICC under letter f) in connection with Art. 1.9 UPICC: usages. Although it does not follow from the Explanatory Report on the CC that the drafters when formulating these interpretation rules were inspired by the UPICC, the above analysis shows that the interpretation rules enshrined in the Czech Civil Code correspond in principal to the UPICC rules for interpretation of contracts. No counterpart to Art. 4.4–4.5 UPICC under which contract terms shall be interpreted

45 46

Rozehnalová et al. (2014), p. 58. Lavický et al. (2014a), p. 1994.

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so as to give effect to all the terms rather than to deprive some of them of effect can be found in the CC, nor does Czech law address potential discrepancies among different language versions, when contracts are concluded in multiple language versions. There is no provision corresponding to Art. 4.7 UPICC in Czech law. Nevertheless, according to commentaries, the list of interpretation criteria under Section 556(2) CC is non-exhaustive and does not exclude other generally accepted interpretation rules to be taken account of, such as the rule that a legal act must be interpreted as a whole or the rule governing interpretation of a legal act in the case of discrepancies among its language versions. In this case, the commentary on the CC expressly mentions the rule under Art. 4.7 UPICC.47 In relation to the interpretation of legal acts there is a relevant judgment of the Constitutional Court of the Czech Republic from 2005 in which the court did not deal with the application of the UPICC, but admitted that in interpretation it is necessary to respect general legal principles such as, in this particular case, the principle that invalidity of a contract should be an exception rather than a principle.48 In the aforementioned judgment the Constitutional Court does not expressly refer to the UPICC, but it expressly mentions Art. 5:106 PECL. In the opinion of the Constitutional Court the general courts’ practice of preferring a completely opposing interpretation thesis leading to invalidity of a contract to an interpretation in favour of its validity, was not consistent with the Czech Constitution and contradicted the principles of rule of law. The in favorem validitatis principal whereby juridical acts are preferably considered as valid rather than invalid is now explicitly provided for in Section 574 CC.49 However the above-cited judgment enabled judges to take into consideration soft law rules, including not only PECL but also the UPICC. Judges have thus been given an opportunity to assess and interpret legal relationships and situations from a broader perspective of general rules, which influenced their decision-making.50

5.9

Article 6.1.9 (Currency of Payment)

Czech law does not contain any provision based on the rules laid down in Art. 6.1.9 UPICC. There is no general regulation in the CC stipulating in which currency a monetary obligation (the principal) is to be paid. An express regulation relating to the currency is enshrined only in provisions on certain types of contracts: an agreement on loan for consumption51 and a loan agreement.52 Where a pecuniary

47

Lavický et al. (2014a), p. 1997. Judgment of the Constitutional Court of the Czech Republic No. 625/03 of April 20, 2005. 49 Section 574 CC: Juridical acts are to be preferably considered valid rather than invalid. 50 Pauknerová (2016), p. 1586 and following. 51 Section 2391(1) CC. 52 Section 2396 CC. 48

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loan for consumption is to be returned in a currency other than that in which it was provided, the loan beneficiary shall repay the loan for consumption so that the value of what he returns equals to what was provided. A loan for consumption is to be repaid in the currency of the place of performance. In the provisions on a loan agreement it is expressly stated that the credit recipient shall repay the funds to the credit provider in the currency in which they were provided. In general, parties may agree on the currency in which the payment is to be made. Unless stipulated otherwise, in intrastate transactions the principal is to be repaid in Czech currency. Czech law, however, contains an express provision relating to the currency of interest. Pursuant to Section 1804 CC interest is payable in the same currency as the principal debt (principal). This general rule is reiterated in special provisions concerning loan agreement under which in the second sentence of Section 2396 CC it is set out that interest is paid in the same currency in which the loaned funds were provided to the loan recipient. Before 2014 the Commercial Code contained an express provision regulating the currency of a monetary obligation in international relations. In accordance with the then-applicable Section 732 of the Commercial Code the debtor was obliged to fulfil his monetary obligation in a currency in which the monetary obligation was agreed upon. Provided the law of the state on the territory of which the debtor had a registered office or a place of business, or other applicable legal regulations prevented payment in a currency in which the monetary obligation was agreed to be paid, the debtor was obliged to compensate the creditor for damage the creditor incurred due to payment in other currency.

5.10

Article 7.3.1 (Right to Terminate the Contract)

Art. 7.3.1 UPICC relates to the right to terminate a contract. Pursuant to Art. 7.3.1 (1) UPICC a party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance. The Czech counterpart to this rule is the first sentence of Section 2002(1) CC. Pursuant to this provision, if a party breaches a contract in a fundamental manner, the other party may withdraw from it without undue delay. This provision applies in conjunction with the general provision of Section 2001 CC, under which a party may withdraw from a contract if so stipulated by the parties or provided by a statute. Similarly to Art. 7.3.1(1) UPICC, under the first sentence of Section 2002(1) CC a fundamental breach of the contract is associated with specific entitlement—withdrawal from the contract. However, unlike the UPICC, Czech law stipulates that withdrawal from the contract as a consequence of its fundamental breach should be exercised without undue delay. The fuzzy term “without undue delay” was commented on by the Constitutional Court of the Czech Republic which

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concluded that the phrase “without undue delay” is vague and needs to be always interpreted with regard to the circumstances of a particular case.53 Section 2002(1) CC and Art. 7.3.1(2) UPICC define differently the term fundamental breach of a contract. Pursuant to Section 2002(1), second sentence, a fundamental breach means such a breach of which the breaching party, at the conclusion of the contract, knew or should have known that the other party would not have concluded the contract had it foreseen such a breach. In other cases, a breach is presumed not to be fundamental. Thus, unlike under Art. 7.3.1(2) UPICC, under the CC the term is not defined by referring to a non-exhaustive list of circumstances which are relevant in considering whether a breach of a contract is fundamental. Section 2002(2) CC further stipulates the possibility to withdraw from a contract provided the other party acts in a such a manner that it becomes apparent that it is about to commit a fundamental breach of the contract and fails to provide a reasonable security upon request by the obligee. Thus, differently from the UPICC, Czech law expressly permits withdrawal from a contract under certain circumstances even on the grounds of a future fundamental breach of the contract. Czech law embodies the principle stipulated in Art. 7.3.1(3) UPICC in Section 1978 CC. If a default of one of the parties constitutes a non-fundamental breach of its contractual duty, the other party may withdraw from the contract after the defaulting party fails to fulfil its duty within a reasonable additional time limit expressly or implicitly provided by the other party. This is a special regulation whereby withdrawing from a contract is permitted in case of a non-fundamental breach of the contract, however, the breach must involve an event of default. Unlike in cases of fundamental breaches, in this case the right to withdraw is conditional on the expiry of an additional time limit for performance provided by the entitled party to the defaulting party. Pursuant to Section 1978(2) CC if a creditor notifies the debtor that he grants him an additional time limit to perform and that there is no further extension thereof, he is deemed to have withdrawn from the contract upon the expiry of the additional time limit within which the debtor fails to perform. As stated in the Explanatory Report on the CC, this provision is a general regulation which relates to a default of both the debtor and the creditor.54 Therefore, despite mentioning the debtor only, Section 1978(2) CC can be applied by analogy also to the creditor’s default.55 Although the UPICC are not expressly mentioned in the Explanatory Report on the CC as a source by which the drafters of the CC were inspired when formulating the concept of withdrawal, it follows from the above comparison that except for the concept of a fundamental or non-fundamental breach the relevant Czech provisions correspond to Art. 7.3.1 UPICC.

53

Judgment of the Constitutional Court of the Czech Republic of 15. 8. 2005 (IV. ÚS 314/05). Explanatory Report on the CC: Sections 1968 and 1979. 55 Lavický et al. (2014b), p. 1102 and following. 54

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Article 7.4.9 (Interest for Failure to Pay Money)

Art. 7.4.9 UPICC lays down a rule which is applied in cases when a debtor defaults on the payment of a pecuniary debt. In such a case the creditor is entitled to receive an interest on a late payment from the debtor. Czech law also contains this widely accepted rule. A general regulation of interest on a debtor’s late payment of a pecuniary debt is embodied in Section 1970 CC. In accordance with the first sentence of this provision a creditor who has properly fulfilled his contractual and statutory duties may require that a debtor who is in default of payments of a pecuniary debt pays default interest, unless the debtor is not liable for the default. This provision can be regarded as the Czech counterpart to Art. 7.4.9(1) UPICC. The creditor is not entitled to require the payment of default interest, provided the debtor is not liable for the default. It is not be possible to require the payment of default interest, if non-payment is caused by the creditor. Pursuant to the second sentence of Section 1968 CC a debtor is not liable for the default if he cannot perform due to the creditor’s default. As regards other cases excluding liability for default, to our knowledge there is no Czech case-law available on the relevant provision. A question remains of whether the creditor would be entitled to default interest in the case of force majeure. According to the interpretation of the principle laid down in Art. 7.4.9 (1) UPICC, interest is due if the delay is the consequence of force majeure. Such interpretation is consistent also with the current Czech legal doctrine under which default is understood as a strictly objective category, the creditor’s default being the only exculpatory cause.56 Pursuant to the second sentence of Section 1970 CC the rate of default interest is determined upon an agreement between the parties. If the parties fail to agree thereupon, the default interest rate set out by Government Decree No. 351/2013 Coll.57 applies. Pursuant to Section 2 of the said decree the annual rate of such interest is consistent with the repo rate valid on the first day of the calendar half-year term in which the default started, increased by 8% points. The amount of default interest is governed by the said government decree, provided the default on payment of a pecuniary debt first occurred on or after 1 January 2014. A creditor is entitled to default interest for the period from the first day of debtor’s default, i.e. from the date following immediately after the due date. The CC does not explicitly address the question of whether default interest accrues only until the date preceding the date of debt repayment or until the repayment date inclusive. The Supreme Court of the Czech Republic has already dealt with the issue and decided that the debtor is obliged to pay the creditor default interest including the day on

56

Lavický et al. (2014b), p. 1056. Decision of the Supreme Court of the Czech Republic of 24. 6. 2013 (Ref. No. 32 Cdo 1861/2012). 57 Government’s Decree No. 351/2013 Coll., on setting of default interest rates and default charges connected with the assertion of claims, on setting the fees of liquidators, liquidation administrators and court-appointed members of bodies of legal entities, an on regulation of certain matters of the Commercial Bulletin and public registered of legal entities and individuals, as amended.

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which the pecuniary debt ceased to exist upon its discharge. Czech law regulating the amount of interest which is primarily intended for intrastate legal transactions differs from the regulation under Art. 7.4.9(2) UPICC. Nevertheless, given the fact that Czech law does not prevent parties to agree on payment in another than the national currency, Section 1804 CC provides for a currency regime for interest which, in compliance with this provision, must be paid in the same currency as the principal debt (principal). This provision is of a general nature and therefore also applicable to default interest. To a certain extent, Section 1971 CC can be regarded as the Czech counterpart of Art. 7.4.9(3) UPICC, according to which the aggrieved party is entitled to recover damages for additional harm sustained as a consequence of delay in payment. Pursuant to this provision a creditor is entitled to compensation for damage incurred as a result of the failure to discharge a pecuniary debt only if it is not covered by default interest. Hence, the creditor can only seek damages, if the damage exceeds default interest. Under Czech law default interest in the case of default on the payment of a pecuniary debt is set off against the damage incurred; if the damage incurred does not exceed the default interest, the creditor is not entitled to compensation for such damage. Pursuant to Section 1971 CC a debtor is only obliged to pay damage exceeding the amount of default interest. This regulation is prevailingly non-mandatory. Thus, it is possible to contractually agree on either exclusion of compensation for damage (within the limits implied by Section 2898 CC) or, as opposed to that, full compensation for damage in addition to default interest.58 In relation to Section 1970 CC the limiting effect of Directive 2011/7/EU on combating late payment in commercial transactions has to be taken into account.59 This Directive which regulates default interest and conditions under which the creditor’s right to default interest must be anchored in the body of law, contains also a partial regulation of compensation for damage consisting of costs incurred as a consequence of a late payment and/or a payment which is not made in a timely manner. It is set out under Art. 3(3) of the Directive that the creditor shall, in addition to the fixed sum referred to in paragraph 1, be entitled to obtain reasonable compensation from the debtor for any recovery costs exceeding that fixed sum and incurred due to the debtor’s late payment. According to the wording in the Directive, these costs could include “in particular, those incurred by creditors in instructing a lawyer or employing a debt collection agency.” It can be assumed that in transactions to which the Directive applies (i.e. transactions between economic operators and transactions between an economic operator and a public authority), it is possible to stipulate that default interest will compensate also damage incurred and, thus preclude any excess of compensation for damage (within the limits of Section 2898 CC), but, as a matter of principle, not in relation to that particular

58

Lavický et al. (2014b), p. 1082. Directive 2011/7/EU of the European parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions (recast). 59

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part of damage which consists of recovery costs, as conceived by the quoted provision of the said Directive.60

5.12

Article 7.4.10 (Interest on Damages)

There is no similar regulation under Czech law. Lump-sum compensation for damage substitutes default interest on non-monetary obligation (the creditor is entitled to compensation for damage).

6 UPICC As a Source for Interpretation of Contract Law in Force or As a Source for Filling Gaps in Czech Contract Law There is no doubt that the UPICC are an interpretation tool with regard to the provisions of the CC, as the UPICC served, together with other sources, as a model for a number of provisions. It is expressly stated in the Explanatory Report on Book Four, Relative Property Rights, Title One, General Provisions on Obligations of the CC, that the draft bill is inspired by the UPICC, Principles of European Contract Law, the Code Européen de Contrats project (Avant-projet) and that it takes into account the current national law as well as a number of foreign laws.61 It is necessary to emphasise that the UPICC are mentioned there as the first source which indicates its relevance for the interpretation of provisions of the CC in judicial and arbitration proceedings. The articles analysed above, in particular Article 2.1.20 UPICC on surprising terms, or Article 2.1.22 UPICC resolving the battle of forms, even if their transposition is not verbatim, are a good example. To a certain extent, the UPICC are reflected also in the general part, i.e. in the interpretation of legal acts (Sections 555 to 558 CC). It is necessary to point out that the CC unifies the regulation of contract law contained in the Civil and the Commercial Codes effective till 2014. According to the Explanatory Report on the CC, the CC is based on the current legal regulation including the desirable special regulation of the specific features of transactions between entrepreneurs in which the significance of business usage needs to be acknowledged. The formal aspect of an expression of will bears no longer such a relevance; in contrast, the aspect of genuine will of the acting persons is accented.62 Also the above-mentioned principle under which “juridical acts are to be preferably considered valid rather than invalid” embodied in the first provision 60

Lavický et al. (2014a, b), p. 1057. Eliáš (2012), p. 704. 62 Eliáš (2012), pp. 252–253. 61

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opening the respective part of the CC which regulates invalidity of legal acts (Section 574 CC) is a new rule which is of a substantial importance for the assessment of legal acts.63 The Explanatory Report on the CC states that the inclusion of a provision granting courts the authority to add a missing but apparently necessary provision to an expression of will was considered during the preparatory works. In the opinion of the drafters, the CC gives contracting parties sufficient space to stipulate the possibility of an expression of will being added by a third party or a court, as there is no reason to give courts (as public authorities) too much space for intervening in persons’ private expressions of will by virtue of authority without any motion and for supplementing or amending the content of such persons’ legal acts.64 The parties could stipulate such possibility for example by reference to the application of the UPICC.65 In general Book One of the CC, General Provisions, Title I, Scope of regulation and its basic principles (Sections 1–14) shall be highlighted. It is apparent that these general provision anchoring such principles as persons’ autonomy of will in stipulating rights and obligations [Section 1(2)], the principle of interpretation and application of private law provisions (Section 2), the principle that contracts are to be executed, and no one may be denied what he is rightfully entitled to (see Section 3), or the principle that everyone is obliged to act fairly in legal transactions and no one may benefit from acting unfairly or unlawfully and no one may benefit from an unlawful situation which the person caused or over which he has control (Section 6), or that evident abuse of a right does not enjoy legal protection (Section 8) and others are fully consistent with the basic ideas governing the UPICC. In general, the General Provisions of the CC being regarded as the most important provisions of the whole CC have a decisive impact on the interpretation of legal acts in private law. It is to be expected in the future that the Czech judges will more and more make use of the UPICC and their interpretation.

7 Other UPICC Rules Relied upon by Courts or Arbitral Tribunals in Interpreting a Similar Provision of National Contract Law or in Supplementing National Contract Law in Force The authors of this article are not aware of such decisions. However, this may change in the future.

63

Eliáš (2012), pp. 258–259. Eliáš (2012), pp. 252–253. 65 Rozehnalová et al. (2014), pp. 60–62. 64

UNIDROIT Principles As Reference for Uniform Interpretation of National Laws:. . .

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References Bonell MJ (2013) Model clauses for the use of the UNIDROIT principles of international commercial contracts. Uniform Law Rev 18:473–489 Eliáš K (2012) Nový občanský zákoník s aktualizovanou důvodovou zprávou a rejstříkem (New civil code with updated explanatory report and index, in Czech). Sagit, Ostrava https://treaties.un.org/PAGES/ViewDetails.aspx?src¼ TREATY&mtdsg_no¼XXII-2& chapter¼22&clang¼_en Kučera Z (2009) Mezinárodní právo soukromé (Private International Law, in Czech), 7th edn. Doplněk/Aleš Čeněk, Brno/Plzeň Kučera Z, Pauknerová M, Růžička K (2015) Mezinárodní právo soukromé (Private international law, in Czech), 8th edn. Doplněk/Aleš Čeněk, Brno/Plzeň Lavický P et al (2014a) Občanský zákoník I: obecná část (§ 1 - § 654) : komentář. C.H. Beck, Praha Lavický P et al (2014b) Občanský zákoník V: závazkové právo: obecná část (§ 1721 - § 2054) : komentář. C.H. Beck, Praha Pauknerová M (2008) The “Contrat Sans Loi” in Czech and European private international law. In: Vers nouveaux équilibres entre ordres juridiques, Mélanges Hélène Gaudemet-Tallon. Dalloz, Paris Pauknerová M (2016) UNIDROIT principles and Czech law. In: Eppur si muove: the age of uniform law, essays in honour of Michael Joachim Bonell to celebrate his 70th birthday, vol 2. UNIDROIT, Rome Pelikán M (2017) K některým otázkám předsmluvní odpovědnosti v praxi (On some issues of pre-contractual liability in practice, in Czech). Obchodněprávní revue Rozehnalová N (2008) Nestátní právo před českými soudy (Non-state law in Czech Courts, in Czech) online http://www.law.muni.cz/sborniky/dp08/files/pdf/mezinaro/rozehnalova.pdf Rozehnalová N et al (2014) Nový občanský zákoník pohledem mezinárodních obchodních transakcí (New Civil Code under the viewpoint of international commercial transactions, in Czech), Masarykova univerzita. Právnická fakulta, Brno Švestka J, Dvořák J, Fiala J et al (2014a) Občanský zákoník. Komentář, vol I. Wolters Kluwer, Praha Švestka J, Dvořák J, Fiala J et al (2014b) Občanský zákoník. Komentář, vol V. Wolters Kluwer, Praha

Les Principes Unidroit comme cadre de référence pour l’interprétation uniforme des droits nationaux : Rapport national Droit français Pascale Deumier

Abstract Unlike many other civil codes modeled after the Napoleonic model, the drafters of the French Civil Code (“FrCC”) chose not to include specific directives on how to interpret or complement it, thus adopting the notion that the purpose of a code is to prescribe a coherent set of rules, rather than setting forth scholarly guidelines. Yet, Article 1194 FrCC (formerly Art. 1135 FrCC), which provides that the meaning and effects of a contract means more than its terms, leaves some room for the UNIDROIT Principles on International Commercial Contracts (“the Principles” or “UPIC”) to play a role in the interpretation or complementation of international commercial contracts, at least in theory and as long as the rules embodied in the UNIDROIT Principles qualify as “usages” or “general principles”. A search of the decisions rendered by France’s highest court (Cour de cassation, also referred to as the “French Supreme Court” or simply as “the Court”) since 1987, however, discloses that the Principles have been rarely invoked. Given the laconic drafting style of the judgments rendered by the French Supreme Court, limited to cite the sources of positive law most relevant to the decision, references to scholarly doctrine and other sources of “soft law” are generally omitted from the Court’s reasoning. But the research included in this report extends to the preparatory reports (travaux préparatoires) authored by the clerk rapporteur (conseiller rapporteur) as well as the supporting authority cited in the opinion issued by the government attorney (avis de l’ avocat general) advising the Court. Both sources of information are most likely to reveal the analysis and supporting legal authorities generally omitted by the more solemn and succinct rationale exposed in the judgments of the Cour de cassation. The report’s search of the preparatory reports, however, revealed only one indirect reference to the UNIDROIT Principles, discussing the type of harm (préjudice réparable) susceptible of monetary compensation in breach of contract cases. A more limited search focusing on a more limited amount of decisions rendered en P. Deumier (*) Université Jean Moulin (Lyon 3), Lyon, France e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_8

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banc by the French Supreme Court (Chambre mixte and Assemblée plénière) also reveals only one reference to the UNIDROIT Principles touching on the tendency of modern contract law towards simplifying and shortening up the periods of limitations (prescription). Further research on the references to the UNIDROIT Principles reveals that they were cited in 9 judgments rendered by French courts of appeals, 4 of which having been invoked by the parties and dismissed by court and 5 of which having applied the Principles either as “usages” or “general principles” of international trade law. The Court of Appeals of Grenoble referred to the binding force conferred by the UNIDROIT Principles to international commercial usages (Art. 1.9(2) UPIC), including the one pointing to the jurisdiction of the court of the place of performance of the contract. The same court in another case relied on the provisions of the Principles referring to the contract interpretation and standard terms in order to interpret a standard term limiting the liability of one of the parties. Another decision by the Court of Appeals of Grenoble also referred to the Principles in order to complement or to fill “internal gaps” in the CISG (art. 7(2) CISG), relying on a “general principle” to the effect that performance of a monetary obligation is due at the obligee’s place of business (Art. 6.1.6(1)(a) UPIC). The Court of Appeals of Reims also resorted to the hardship provisions of the UNIDROIT Principles as a “general principle” arguably pertinent to fill a gap arising under the Vienna Sales Convention (“CISG”). This application of the Principles was subject to criticism by French legal scholars due to the failure of the judgments to elaborate on the rationale for relying on the provisions on hardship adopted by the UNIDROIT Principles as “usages” or as the type of “general principles” referred to by Art. 7(2) CISG. Addressing the questions 4 through 7 posed by the general reporters, the report discusses the influence of the UNIDROIT Principles on the French reform of the law of contracts adopted in 2016, noting the potential use of the Principles as a source to interpret and complement at least some of the provisions recently incorporated into the French Civil Code. It is not always easy to discern the impact of the UNIDROIT Principles on the new provisions given that the reform was not carried out by the French Parliament but by an Executive decree (ordonnance), thus not being accompanied by the drafting research (travaux préparatoires) generally attached to parliamentary bills. Moreover, the UNIDROIT Principles were just one among many other reform projects and international instruments on modern contract law invoked and relied upon in the message to the president (Rapport au president de la République), including the Principles on European Contract Law (1995–2003) (“PECL”), the Draft Common Frame of Reference (2008) (“DCFR”), and the “Principes contractuels communs” published in February 2008 by the Association Henri Capitant des amis de la pensée juridique française (“PCC”). Nevertheless, several articles of the French Civil Code introduced in 2016 recognize a clear counterpart in the UNIDROIT Principles, such as the rule governing pre-contractual liability sanctioning negotiations carried out in bad faith (Art. 1112 FrCC and Art. 2.1.15 UPIC); the understanding attributed to a “reasonable person” as an objective standard for ascertaining the intention of a party to the contract (Art. 1188 FrCC and Art. 4(2) UPIC) and other interpretative criteria such

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as the need to take into account the contract as a whole (Art. 1189 FrCC and Art. 4.4 UPIC), and giving effect to all the terms of the contract (Art. 1191 FrCC and Art. 4.5 UPIC). The influence of the UNIDROIT Principles and the CISG is also revealed in limiting the right to terminate a contract only on account of a breach that is material (inexécution suffisamment grave) and allowing termination of the contract by declaration (une notification du créancier au débiteur) (Art. 1224 FrCC and Art. 7.3.1 UPIC). Despite differences in the way they have been formulated, many provisions of the French Civil Code share some rules with the Principles that are widely accepted in modern contract law, such as the perfection of the parties’ consent when the acceptance reaches the offeror (Art. 1121 FrCC and Art. 2.16(2) UPIC); the freedom of the parties to enter into a contract (Art. 1102 FrCC and Art. 1.1 UPIC), the duty to act in good faith (Art. 1104 FrCC and Art. 1.7 UPIC); the authority of an agent to conclude a contract on behalf of its principal (Art. 1153 et seq. FrCC and Art. 2.2.1 et seq. UPIC); the avoidance of a contract on grounds of “gross disparity” (lésion qualifiée) (Art. 1143 FrCC and Art. 3.2.7 UPIC); and the impossibility of performance on account of force majeure (Art. 1218 FrCC and Art. 7.1.7 UPIC). The new provisions on French contract law, in light of French case-law, provide a more nuanced answer to other provisions such as those on the currency of payment (Art. 1343-3 FrCC and Art. 6.1.9 UPIC), the calculation of interest for the failure to perform monetary obligations (Art. 1231-6 FrCC and Art. 7.4.9 UPIC), and intereston on damages for non-performance of non-monetary obligations (Art. 2131-7 FrCC and Art. 7.4.10 UPIC). In more controversial matters, such as the elimination of the “cause” as an essential ingredient for the enforcement of a contractual obligation, as well as introduction of “hardship” as a ground to terminate or “adapt” the contract, the UNIDROIT Principles and other “international models” are cited in support of such radical innovations of French contract law. The exceptional cases in which the new legal provisions of the French law reform departs from the Principles and other international models are also cited in the report, such as the extra-contractual nature of the offeror’s liability for the untimely withdrawing its offer (Art. 1116 FrCC). In sum, the influence of the UNIDROIT Principles in shaping most of many provisions of French contract law introduced by the 2016 reforms is undeniable, but the potential impact of the Principles in the interpretation of French contract law seems lost among many other auxiliary sources of interpretation such as the many drafts and bills for the reform of the law of obligations that took place since 2005. As noted previously, the UNIDROIT Principles are mentioned together with other relevant international instruments, so that specific provisions of the Principles are generally introduced along with the other instruments so as to confirm that the amendments introduced into the French Civil Code enjoy by and large European and international acceptance as “principle of international commercial law”. Other sources, perhaps more relevant, such as the case-law developed by the Cour de cassation through the years and European projects for the harmonization of contract law at times obscure the relevance of the UNIDROIT Principles, although most of

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those other sources had been in turn influenced by the UNIDROIT Principles that were first adopted in 1994.

1 Structure du rapport Bien que les Principes Unidroit soient par leur nature un outil pouvant œuvrer à l’interprétation uniforme des droits nationaux, le droit français ne s’est pas saisi de cette possibilité. Cette affirmation est la conclusion du bilan de l’utilisation des Principes Unidroit par les juges français, qui sera fait dans un premier temps, en réponse aux questions 1 à 3. Les recherches faites pour recenser ces utilisations aboutissent à un nombre dérisoire de décisions mentionnant les Principes et ils n’ont jamais été utilisés par les juges pour interpréter ou compléter le droit national. Les questions 4 à 7 seront traitées dans un second temps, pour comparer les solutions des Principes Unidroit, particulièrement celles identifiées par les rapporteurs généraux, et celles du droit français. Il est toutefois difficile de déduire de cet exercice de comparaison que les Principes Unidroit pourraient être utilisés pour interpréter ou compléter le droit français, eu égard à l’absence d’intérêt que leur portent les juges français. Le contexte actuel ouvre toutefois une perspective, puisque le droit des contrats français a été réformé par l’ordonnance n
2016-131 du 10 février 2016. Le propos sera dès lors de rechercher si les nouvelles dispositions se sont inspirées des Principes Unidroit : en effet, dans ce cas, ces Principes seraient naturellement appelés à éclairer leur interprétation. Nous constaterons que les Principes Unidroit ont été pris en considération lors de la réforme du droit français mais que leur influence risque d’être éclipsée par les autres sources d’inspiration des nouvelles règles.

2 Questions 1 à 3: Utilisation des Principes Unidroit par les juridictions françaises Nous ferons dans un premier temps un bilan général de cette utilisation (I.) avant d’exposer de façon plus détaillée les décisions identifiées et leur utilisation des Principes (II.).

2.1

Bilan

Les textes du droit français, sans viser expressément les Principes Unidroit, sont suffisamment souples pour permettre, en théorie, leur utilisation pour interpréter ou compléter les solutions nationales. Cependant, en pratique, de telles utilisations par les juges demeurent rarissimes.

Les Principes Unidroit comme cadre de référence pour l’interprétation uniforme. . .

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Souplesse des textes

Liberté d’interprétation et recours aux usages Il n’existe en droit français aucune directive d’interprétation pour le droit des contrats ou pour le droit en général. Le projet de Code civil comportait plusieurs directives d’interprétation de la loi1 mais le Titre préliminaire qui les contenait a été réduit à une poignée de dispositions à la suite de la consultation des juridictions, qui ont estimé qu’un Code devait faire œuvre de législation et non de doctrine. Dès lors, les méthodes d’interprétation sont toutes susceptibles d’être utilisées par les juristes2. Il existe en revanche en droit français des dispositions permettant de compléter les règles du droit national par la référence aux usages. Cette référence existe d’une façon générale à l’article 1194 du Code civil (ex. article 1135) : « Les conventions obligent non seulement à ce qui y est exprimé, mais encore à toutes les suites que l'équité, l'usage ou la loi donnent à l'obligation d'après sa nature » 3. L’article permet en théorie d’utiliser les Principes Unidroit en complément du droit national, si leur nature d’usage est admise. On mentionnera également que le droit français de l’arbitrage international permet, et même ordonne, une telle fonction complémentaire des usages, quel que soit le droit applicable au contrat4. En définitive, les textes ne visent pas spécifiquement l’application des Principes Unidroit mais la liberté d’interprétation comme la fonction complémentaire des usages en matière contractuelle peuvent fournir un fondement juridique aux juges souhaitant y recourir. Il reste à rechercher si cette utilité théorique se traduit en pratique.

1 Par exemple, « dans l'application d'une loi obscure, on doit préférer le sens le plus naturel et celui qui est le moins défectueux dans l'exécution » ; « Dans les matières civiles, le juge, à défaut de loi précise, est un ministre d'équité. L'équité est le retour à la loi naturelle ou aux usages reçus dans le silence de la loi positive » (article 5 et article 11 du Titre 5 du Livre préliminaire du projet de Code civil du 24 thermidor an IX). 2 « la cour d'appel ne saurait se voir reprocher de ne s'être pas livrée à une recherche qui relevait de sa liberté quant aux méthodes d'interprétation de la loi », Cass. Civ. 1re, 29 janv. 2002, n
00-10.788, Bull. civ., I, n
33 : h t t p s : / / w w w . l e g i f r a n c e . g o u v . f r / a f fi c h J u r i J u d i . d o ? o l d A c t i o n ¼r e c h J u r i J u d i & idTexte¼JURITEXT000007043178&fastReqId¼1613420754&fastPos¼1. 3 Sur la fonction de complément de la loi de ces références, v. Philippe Jacques, Regards sur l’article 1135 du Code civil, Dalloz, Nouvelle bibliothèque des thèses, vol. 46, 2005 ; pour une autre thèse, s’appuyant plus sur « les suites » de la « nature » du contrat, Clémence Mouly-Guillemaud, Retour sur l’article 1135 du Code civil, LGDJ, Bibliothèque de droit privé, 2006. 4 Art. 1511 du Code de procédure civile : « Le tribunal arbitral tranche le litige conformément aux règles de droit que les parties ont choisies ou, à défaut, conformément à celles qu'il estime appropriées. Il tient compte, dans tous les cas, des usages du commerce ».

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Rareté des utilisations par les juges

Principes Unidroit et arrêts de la Cour de cassation française La fonction d’interprétation étant assurée par les Hautes juridictions, la recherche a porté dans un premier temps sur les arrêts de la Cour de cassation5. La recherche par mots clés (« principes » et « Unidroit ») a été faite sur la base Légifrance, qui recense l’intégralité des décisions de la Cour de cassation depuis 1987 et donc a fortiori l’intégralité des arrêts rendus depuis la première édition des Principes. L’ensemble est considérable, puisque la Cour de cassation juge entre 20 000 et 30 000 affaires par an. Pourtant, il existe un seul arrêt de la Cour de cassation, rendu par la Chambre commerciale le 17 février 2015, faisant mention des Principes Unidroit, en matière de hardship6. Il faut en outre souligner le fait que cet arrêt ne doit pas se voir accorder une grande importance. D’une part, il est inédit (« non publié au bulletin »), ce qui signifie que la Cour de cassation estime qu’il ne présente pas d’intérêt particulier au-delà du pourvoi7. Son intérêt n’est pourtant pas nul car, en ce qu’il traite d’un sujet très discuté dans la doctrine française, tant pour le droit national que pour l’interprétation de la CVIM, il a fait l’objet de plusieurs commentaires dans les revues juridiques8. D’autre part, la mention intéressante des Principes Unidroit est celle faite par la cour d’appel de Reims, et sera étudiée à ce titre (v. infra “Les principes Unidroit et les cours d’appel françaises”). Devant la Cour de cassation, le demandeur au pourvoi reprochait à la cour d’appel de ne pas avoir recherché si l’augmentation des matières premières n’excédait pas les risques normaux, privant la décision de base légale au regard des articles 1131 et 1134 du Code civil et article 6-2 des Principes Unidroit. La Cour de cassation se contentera de constater que, par leur motivation, les juges d’appel avaient effectué la recherche prétendument omise. Le résultat est donc extrêmement modeste, puisqu’un seul arrêt de la Cour de cassation fait mention des Principes Unidroit et qu’elle ne s’approprie pas l’application de ces Principes mais se contente de vérifier que les juges d’appel ont

5

Plus haute juridiction de l’ordre judiciaire. L’interrogation a également été menée devant les juridictions administratives (aucune mention des Principes Unidroit) et la juridiction constitutionnelle (aucune mention des Principes Unidroit). 6
N de pourvoi 12-29550 13-18956 13-20230. L’arrêt est disponible sur Unilex et sur: h t t p s : / / w w w . l e g i f r a n c e . g o u v . f r / a f fi c h J u r i J u d i . d o ? o l d A c t i o n ¼r e c h J u r i J u d i & idTexte¼JURITEXT000030270329&fastReqId¼1016523951&fastPos¼1. 7 Sur la signification du choix de diffusion par la Cour de cassation au regard de la portée qu’elle veut donner à ses arrêts, v. Alain Lacabarats (conseiller à la Cour de cassation), « Les outils pour apprécier l’intérêt de la Cour de cassation », Recueil Dalloz 2007. 889. 8 Outre les commentaires cités infra notes 23 et 24, il est cité dans une chronique commentant les Principes de La Haye : « si leur nature informelle doit les destiner, dans la pratique mondiale, à un succès pareil à celui des Principes Unidroit sur les contrats du commerce international (V. sur l'invocation de leur art. 6-2, relatif au hardship, dans le contentieux étatique, Com. 17 févr. 2015, n
12-29.550) » : L. d’Avout, chronique de Droit du commerce international, Recueil Dalloz 2015. 2031.

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justifié leur solution. Pour autant, avant d’en conclure à l’absence d’utilité des Principes Unidroit pour l’interprétation et le complément du droit national, il faut rappeler que la tradition de motivation des arrêts de la Cour de cassation n’est pas favorable à la mention de textes de soft law. En effet, du fait de sa tradition de concision, la Cour de cassation mentionne exclusivement le fondement légal de la solution, et éventuellement les principes généraux, à l’exclusion de toute autre source ayant nourri le raisonnement des juges. Elle énonce la seule règle applicable sans jamais indiquer les raisons ou sources d’inspiration l’ayant menée à retenir une interprétation plutôt qu’une autre : dans sa formulation, la règle apparaît comme logiquement déduite des textes de loi. Certes, la Cour de cassation expérimente actuellement des motivations dites enrichies pour ses arrêts les plus importants9. Pour autant, dans la motivation traditionnelle comme dans celles actuellement expérimentées, il reste possible que les Principes Unidroit aient influencé une interprétation du droit national des contrats sans que les arrêts n’en portent la moindre trace. Il faut alors se tourner vers les travaux préparatoires des arrêts : en effet, s’ils ne peuvent totalement expliquer les raisons ayant déterminé la décision, qui resteront dans le secret du délibéré, ils permettent de constater comment la discussion a été préparée et quels arguments ont été mis dans la discussion : les Principes Unidroit s’y retrouveront-ils ? Principes Unidroit et travaux préparatoires des arrêts de la Cour de cassation française Ces travaux préparatoires sont constitués par le rapporteur du conseiller rapporteur et l’avis de l’avocat général. Particulièrement lorsque la question est de principe, ils dressent un état le plus complet possible des arguments juridiques : intention du législateur, précédents nationaux, européens et très occasionnellement étrangers, positions de la doctrine ou encore considérations d’opportunité. Il est raisonnable d’estimer que, si les Principes Unidroit étaient perçus par les magistrats comme un outil d’interprétation du droit, ils en feraient état dans cette riche discussion. Il est possible de rechercher dans un premier temps une telle utilisation là où elle semble la plus naturelle, c’est-à-dire pour l’interprétation du droit des contrats internationaux. Or, la lecture de 106 travaux préparatoires sur des arrêts publiés de 2005 à fin 2016 et portant sur le droit des contrats internationaux10 révèle une seule référence faite aux Principes Unidroit. Il s’agit en outre d’une référence très indirecte car la codification savante utilisée par le magistrat pour discuter du préjudice réparable est celle des « Principes contractuels communs », dont il est dit qu’elle « met en perspective, les principes d’Unidroit, la CVIM (convention de Vienne de 9 Sur cette évolution en cours, voir le rapport de la Commission de réflexion sur la réforme de la Cour de cassation, avril 2017, p. 129 et s. : https://www.courdecassation.fr/IMG///Rapport%20sur% 20la%20r%C3%A9forme%20de%20la%20Cour%20de%20cassation.pdf. 10 Ces travaux préparatoires ont été mis à notre disposition par la Cour de cassation pour une recherche sur « La fabrique de la jurisprudence en droit des contrats internationaux », communication du 24 novembre 2017, Travaux du Comité français de droit international privé, éd. A. Pedone, 2019, p. 205.

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1980), l’avant projet de code européen des contrats. Tous ces textes ont la même approche dans leur définition du préjudice réparable »11. Il est possible de rechercher dans un second temps les références faites par les magistrats aux Principes Unidroit à l’occasion de la discussion de questions de droit interne. Les travaux préparatoires des arrêts rendus par les formations solennelles de la Cour de cassation (Chambre mixte et Assemblée plénière) sont en ligne sur le site de l’institution depuis 2003. Une seule référence aux Principes Unidroit y a été trouvée. Discutant de la prescription extinctive, l’avocat général Main évoque les projets de réforme du droit français et poursuit : « Il faut ajouter que la proposition de simplification et de réduction du délai de la prescription extinctive de droit commun présentée au Garde des sceaux s’est fortement inspirée, selon M. Philippe Malaurie, des règles du droit civil allemand (Bürgerliches Gesetzbuch - B.G.B.) adoptées en 2001 et entrées en vigueur le 1er janvier 2002, comme des propositions contenues dans les Principes du droit européen des contrats, proches à bien des égards des Principes d’Unidroit. Mais, si nous revenons au droit français positif - car c’est évidemment dans ce cadre inchangé, quant à la durée de la prescription de droit commun en particulier, qu’il vous faudra prendre position »12. En définitive, les Principes Unidroit ne se retrouvent pas dans les travaux préparatoires des arrêts, du moins dans ceux que nous avons pu consulter. Les rarissimes références sont souvent de second rang par rapport à l’équivalent européen. En tout état de cause, elles restent un éclairage informatif, sans réellement orienter la décision. Les Principes Unidroit et les cours d’appel françaises C’est devant les cours d’appel que se trouvent les décisions les plus intéressantes quant à l’utilisation des Principes Unidroit. La consultation des bases Légifrance, LexisNexis, Unilex, CISG France (toutes ces bases donnent accès à des sélections d’arrêts ; il n’existe pas encore d’accès à l’intégralité des arrêts rendus par les cours d’appel) et des revues juridiques a permis de récolter 9 décisions. C’est déjà peu. Il faut encore préciser que, dans 4 de ces décisions, les Principes Unidroit sont invoqués par les parties, invocation estimée non pertinente par les juges : ici, alors qu’une partie reproche à un arbitre de s’être prononcé « par référence aux usages du commerce international et aux Principes Unidroit », les juges rappellent que, « contrairement à ce que prétend la société Forasol, l’arbitre ne s’est pas référé à la codification Unidroit qu’il ne cite que pour préciser qu’il n’est pas utile de l’évoquer »13 ; là, dans le cadre d’une procédure d’exequatur, une partie invoque les principes Unidroit comme argument complémentaire (« en outre ») pour la conversion du montant fixé en dollars

11

Rapport sur 09-13.303, Cass. civ. 1e, 1er déc. 2010, cité dans la communication préc. Cass. Mixte, 26 mai 2006, n
03-16.800, disponible sur le site de la Cour de cassation : https://www.courdecassation.fr/jurisprudence_2/chambres_mixtes_2740/main_avocat_8749. html 13 5 mars 1998, Revue de l’arbitrage 1999-1, p. 86. 12

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américains14 mais la cour d’appel rappelle que l’exequatur ne permet pas de réviser au fond et donc de procéder à la conversion15 ; là enfin, dans le cadre d’un licenciement national, une partie invoque « les principes UNIDROIT qui résulteraient d'une jurisprudence européenne qui s'impose aux juridictions françaises » mais la cour d’appel estime que ce précédent européen, rendu dans un litige commercial international, est sans pertinence pour un litige purement interne16. Le quatrième cas d’invocation par une partie non retenue par le juge sera évoqué au numéro suivant (v. infra Synthèse). Il faut avant de l’envisager faire une dernière observation, relative aux 5 arrêts de cours d’appel faisant effectivement application des Principes Unidroit. Ils nous semblent en effet plus marqués par le profil des magistrats ayant présidé à ces arrêts que par un début d’ouverture de la culture judiciaire française aux Principes Unidroit. En effet, les deux arrêts de la Cour d’appel de Reims ont été rendus sous la présidence de Dominique Hascher, qui fut longtemps secrétaire général de la Cour d’arbitrage de la CCI. Les trois arrêts de la Cour d’appel de Grenoble l’ont été sous celle de Jean-Paul Béraudo, qui a été correspondant pour la France et membre du Comité scientifique d’Unidroit. Il est maintenant possible de détailler ce faible bilan.

2.2

Présentation des utilisations recensées

Synthèse Les rares applications faites des Principes sont très peu explicites sur le fondement de leur application : ils sont parfois qualifiés de « principe » du droit du commerce international ou d’ « usages » du commerce international mais sans que les juges n’expliquent comment ils sont parvenus à cette qualification. Seuls les arrêts rendus par la Cour d’appel de Reims vont longuement développer ce titre

14 « en US $, mais qu'il est de principe que la conversion de la dette en monnaie étrangère doit tenir compte du cours de cette monnaie au jour où le paiement aurait dû être fait et que le créancier a le droit de calculer le cours du change, soit au jour de l'échéance, soit au jour du paiement, le retard ne devant pas lui préjudicier ; qu'en outre, l'article 6.1.9 des principes d'Unidroit relatif au droit du commerce international prévoit que la conversion doit se faire 'selon le taux de change qui est fixé à l'échéance ». 15 CA Aix-en-Provence, 1e ch. A, 10 avril 2012, n
11/06741. 16 « concernait un litige à consonance plutôt commerciale transfrontière alors que la procédure pendante devant cette cour n'est régie que par la loi française, sans aucun élément d'extréanité pouvant susciter une discussion à ce propos », CA Orléans, Chambre sociale, 11 juillet 2014, n
13/01552; on n’en saura pas plus sur la « jurisprudence européenne » en question. Relevons que ce même employeur avait déjà invoqué dans un contentieux très proche, ensemble plusieurs dispositions du Code civil et du code du travail, « l’article 1.8 des Principes Unidroit », sans que l’arrêt ne se prononce sur cette invocation, CA Orléans, Ch. Sociale, 12 juin 2012, n
11/00465.

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d’application : les Principes Unidroit y sont présentés comme des « codes des contrats internationaux » devant être utilisés en complément de la CVIM. C’est cette utilisation combinée avec la CVIM qui domine largement : en effet, les Principes Unidroit ne sont pas utilisés par les juges en interprétation ou complément du droit national. Cette fonction a été invoquée une fois par une partie, pour les règles d’interprétation des contrats17, sans que les juges ne reprennent cette référence aux Principes (ou à aucune autre règle de droit, nationale ou transnationale)18.

2.2.1

« Usages » ou « Principes » du commerce international

Application en tant qu’ « usage dans les contrats du commerce international » Une décision de la Cour d’appel de Grenoble utilise les Principes Unidroit pour déterminer le lieu d’exécution afin de désigner la juridiction compétente. Ils sont appliqués en tant qu’ « usages » et à titre principal, à un contrat par ailleurs soumis selon la juridiction à la loi française. Sur la détermination du lieu de rupture de la relation contractuelle, les juges estiment que la solution française venant à titre complémentaire : « La lettre de rupture a été, certes, expédiée [d'Italie] mais qu’il est d'usage dans les contrats du commerce international d'appliquer le système de la réception (. . .) ; que l’usage relatif à la réception est notamment consacré par l'article 1.9.2 des Principes d'UNIDROIT »19. Ainsi, dans ce cas, il nous semble que ce sont les usages qui sont appliqués, les PU venant confortant l’existence de cet usage. Application directe en tant que « principe » du commerce international La Cour d’appel de Grenoble20 a, en 1996, fait une application directe des Principes Unidroit aux fins d’interprétation du contrat : ayant considéré la clause compromissoire nulle et reconnu la compétence des juridictions françaises, les juges doivent se prononcer sur l’interprétation d’une clause limitative de responsabilité, insérée dans le contrat et renvoyant aux conditions générales d’une partie. Après avoir relevé l’absence de signature de ces conditions générales, de preuve de sa connaissance, son graphisme minuscule et le montant dérisoire, la Cour d’appel ajoute en tant que « il est de principe, en droit du commerce international » et cite les articles 2.21 et 4.6 des Principes Unidroit, pour conclure que la référence aux conditions générales est privée d’effet. 17

« Aux termes de ses dernières conclusions déposées le 13 décembre 2011, la société Lilbuddy soutient en premier lieu que le contrat dont la SAS V.B.S.A. revendique le bénéfice a été rédigé par elle-même en langue anglaise ; que cependant les parties sont en désaccord sur le sens, après traduction, de certains termes portant sur la nature des engagements réciproques issus de l'accord du 26 juillet 2003 ; qu'en conséquence, ces termes doivent être interprétés selon les dispositions des articles 1135 et 1156 à 1162 du code civil, ainsi que les principes Unidroit, qui prévoient notamment qu'en cas d'ambiguïté, les clauses d'un contrat s'interprètent contre celui qui les a proposées ». 18 CA Nancy, 2e ch. Commerciale, 28 mars 2012, n
09/02908. 19 CA Grenoble, Chambre commerciale, 7 mai 1997, RG 00000355/97. 20 24 janvier 1996, Journal de droit international 1997, p. 115, note Ph. Kahn, qui relève que l’arrêt ne recherche pas le droit applicable et ne prend pas position sur la force obligatoire des Principes. L’arrêt est également accessible sur le site Unilex.

Les Principes Unidroit comme cadre de référence pour l’interprétation uniforme. . .

2.2.2

135

Interpréter ou compléter la CVIM

Un « code des contrats internationaux » Dans deux arrêts rendus par la Cour d’appel de Reims le 4 septembre 2002, dans la même affaire, et ayant donné lieu à l’arrêt de la Cour de cassation (v. supra Principes Unidroit et arrêts de la Cour de cassation française), une société s’était engagée à livrer des appareils de chauffage à une société polonaise puis a refusé de les livrer aux prix convenus au motif d’une augmentation du coût des matières premières. Le vendeur demande des dommages et intérêts à son acheteur pour avoir refusé d’entrer en négociation pour préserver l’équilibre contractuel, en fondant cette demande sur l’article 6-2 des Principes Unidroit. Les juges de la cour d’appel vont soigneusement justifier l’application des Principes Unidroit. L’un de ces deux arrêts en donne une version synthétique : « au sens de l'article 6-2-2 des Principes d'Unidroit relatifs aux contrats du commerce international dont la société D2I réclame à juste titre l'application, s'agissant d'un code des contrats internationaux qui peut être utilisé afin d'interpréter ou de compléter la Convention de Vienne du 11 avril 1980, laquelle précisément n'exclut pas le hardship »21. Les mêmes considérations se retrouvent, mais longuement développées, dans le second arrêt, qui insiste plus particulièrement sur le rôle prépondérant des « principes généraux » pour l’interprétation de la CVIM22. Cet arrêt a fait l’objet de commentaires doctrinaux critiques sur cette utilisation des Principes Unidroit. Claude Witz estime que « l'application sans condition des Principes d'Unidroit par une juridiction étatique encourt la critique », les juges n’ayant vérifié ni la nature d’usage des dispositions relatives au hardship ni celle

CA Reims, ch. Civile, 1e section, 4 sept. 2012, RG n
11/01602. Cet arrêt est également accessible sur le site CISG France, n
281. 22 CA Reims, ch. Civile, 1e section, 4 sept. 2012, RG 11/02698. L’arrêt est également accessible sur Unilex et sur le site CISG France n
276 : « les principes d'Unidroit forment un code des contrats internationaux proposé par une organisation internationale interétatique dont sont membres la France et la Pologne qui leur confère une autorité plus importante que les principes du droit européen des contrats auxquels la société D2I se réfère également dans ses conclusions mais qui ne représentent qu'une œuvre doctrinale en comparaison ; que les Principes d'Unidroit, conçus pour fournir des solutions aux problèmes du commerce international, ont un domaine plus vaste que celui de la Convention de Vienne du 11 avril 1980 limité à la vente internationale qu'ils servent ainsi à interpréter et à compléter comme énoncé dans leur Préambule ; que l'article 7 de la Convention de Vienne, ainsi que le remarque la société D2I, souligne que l'interprétation de la Convention doit se faire, afin de promouvoir l'internationalité de ce texte, selon trois idées, le caractère international de la Convention, son uniformité d'application, le respect de la bonne foi dans le commerce international, et que le comblement des lacunes internes de la Convention doit s'effectuer en premier par recours aux principes généraux dont elle s'inspire, et subsidiairement seulement, par recours au droit international privé ; qu'au regard de ce qui précède, l'application de la loi polonaise pour toutes les questions non réglées par le contrat d'après son article 11 ne remet pas en cause le rôle prépondérant des principes généraux pour toutes les matières qui entrent dans le domaine de la Convention de Vienne bien que non expressément tranchées par elle, l'intervention de la loi nationale étant limitée aux matières exclues de la Convention ». 21

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de principe général au sens de l’article 7 de la CVIM (le hardship n’étant ni l’un ni l’autre selon l’auteur)23. Yves-Marie Laithier estime que « La méthode tout autant que la solution à laquelle elle aboutit ont de quoi surprendre, encore que l’une et l’autre aient été suggérées dès la parution de la première édition des Principes au milieu des années 1990 » (citant l’étude de A.M. Garro à la Tulane Law Review), avant de contester à son tour cette applicabilité des Principes Unidroit à défaut de choix, au titre d’usage comme au titre des principes généraux de l’article 7 CVIM24. Hardship L’un des deux arrêts de la Cour d’appel de Reims du 4 septembre 2012 (RG 11/02698), après avoir rappelé la définition du hardship retenue à l’article 6.2.2 des Principes Unidroit, et l’ouverture de renégociations prévue à l’article suivant, va soigneusement vérifier son application à l’espèce pour conclure que la preuve du hardship n’était pas rapportée. Si l’applicabilité des Principes Unidroit a été contestée par la doctrine, Yves-Marie Laithier a en revanche souligné la fidélité de la position de la cour d’appel aux critères de ces Principes en matière de hardship. L’arrêt poursuit ensuite sur l’interprétation tout aussi soigneuse d’une clause du contrat au regard de la seule Convention de Vienne, confirmant l’usage complémentaire des Principes Unidroit, qui ne sont pas mobilisés lorsqu’existent des stipulations conventionnelles. C’est cette même utilisation en comblement de lacunes qui est illustrée par l’autre arrêt rendu dans la même affaire. Indemnité établie au contrat L’arrêt de la Cour d’appel de Reims du 4 septembre 2012 (RG 11/01602) fait mention des Principes Unidroit, outre la question du hardship, pour répondre à la demande de dommages et intérêts dus au titre de la clause contractuelle prévoyant des pénalités de 10 % du fait des retards dans la livraison. Selon la cour d’appel, « cette clause par laquelle les parties évaluent forfaitairement et d'avance l'indemnité à laquelle donnera lieu l'inexécution par la société D2I de son obligation de livraison constitue une clause pénale non traitée par la Convention de Vienne mais envisagée à l'article 7-4-13 des Principes d'Unidroit ». Les intérêts ne seront pas accordés par la cour, la société n’établissant pas la preuve du retard pour les livraisons antérieures à la résolution du contrat et la demande de pénalités de retard de la société Gabo pour la période postérieure faisait double emploi avec celle de dommages-intérêts au titre du refus d'honorer les commandes passées à compter du 4 février 2005. Cette partie de l’arrêt a également été contestée devant la Cour de cassation, en vain, étant précisé que tant le moyen des parties que la réponse de la Cour de cassation se concentrent sur le respect des règles de procédure et de preuve du droit français, sans faire la moindre allusion au droit applicable au fond et, dès lors, aux Principes Unidroit ou à la CVIM25.

23 Chronique Droit uniforme de la vente internationale de marchandises, Recueil Dalloz 2017. 613, III, C. 24 Revue des contrats 2015, n
3, p. 458. 25 Com., 17 fév. 2015, examiné supra Principes Unidroit et arrêts de la Cour de cassation française.

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Détermination du lieu du paiement La Cour d’appel de Grenoble a également eu recours aux Principes Unidroit en complément de la CVIM, sans être toutefois très diserte sur le titre auquel les Principes Unidroit étaient utilisés. Pour déterminer la juridiction compétente, et après avoir constaté l’application de la CVIM, qui fixe le lieu du paiement du prix de vente à l'établissement du vendeur (article 57-l), l’arrêt ajoute : « Que l'interprétation habituellement donnée de cette règle est qu'elle exprime le principe général que le paiement s'exécute au domicile du créancier (cf. MASKOW dans BIANCA et BONELL, article 57, 3-2 et OBERLANDESGERICHT DÜSSELDORF 2 juillet 1993 UNILEX, D.1993-21) étendu aux autres contrats du commerce international par l'article 6.1.6 des Principes d'Unidroit »26. Le bilan des utilisations des Principes Unidroit pour interpréter ou compléter le droit français est donc nul. Cette indifférence des juges pour les Principes (hors leur fonction de complément de la CVIM) rend un peu vaine la recherche de l’équivalence ou des différences des solutions du droit des contrats français et des solutions d’Unidroit, sauf à considérer que la réforme récente du droit national est à même de modifier les réflexes interprétatifs des juges français. C’est dès lors dans cette optique que nous allons envisager les questions 4 à 7.

3 Questions 4 à 7 : Comparaison des solutions nationales et des Principes Unidroit Recherche de l’influence des Principes Unidroit sur la réforme du droit des contrats français La comparaison entre les Principes Unidroit et les solutions du droit français des contrats est a priori peu révélatrice d’une éventuelle utilisation des premiers pour interpréter et compléter les secondes : en effet, peu importe qu’il existe une concordance ou une divergence, et peu importe que cette divergence puisse se résoudre par l’interprétation, car dans tous les cas, comme nous l’avons vu, les juges français ne recourent pas à une telle utilisation des Principes Unidroit. Afin toutefois de tenter d’ouvrir des perspectives en la matière, ce rapport se concentre sur le contexte particulier de la réforme par l’ordonnance n
2016-131 du 10 février 2016 portant réforme du droit des contrats, du régime général et de la preuve des obligations, entrée en vigueur le 1er octobre 201627. Il est possible d’y rechercher les traces d’une autre utilisation des Principes Unidroit, qui peuvent « servir de modèles aux législateurs nationaux ». Cette recherche ne modifie pas l’objet du thème retenu pour le Congrès. En effet, si certaines nouvelles dispositions françaises

26

CA Grenoble, 23 octobre 1996, site Unilex. https://www.legifrance.gouv.fr/affichTexte.do?cidTexte¼JORFTEXT000032004939& categorieLien¼id.

27

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ont été inspirées par les Principes Unidroit, ces principes pourraient alors devenir une source naturellement privilégiée pour leur interprétation. Il reste toutefois difficile de rechercher si les Principes Unidroit ont servi de modèle au législateur français. En effet, la réforme a été opérée par voie de législation déléguée, c’est-à-dire par ordonnance. Elaboré par le gouvernement, habilité à cette fin par le Parlement, le texte n’est pas précédé de travaux préparatoires aussi riches que ceux accompagnant le vote d’une loi. Seul est accessible le « Rapport au président de la République » accompagnant la publication de l’ordonnance au Journal officiel (ci-après le « Rapport au président de la République »)28. Dans le cadre du présent papier, ce document, qui est le seul travail préparatoire officiel de la réforme, sera complété par le passionnant ouvrage « Aux sources de la réforme du droit des contrats », publié pour faire part du « souvenir personnel (et forcément subjectif) de certains des acteurs de la réforme » et témoigner « de ce qui s’est dit, ou s’est passé, dans les coulisses » (ci-après « l’ouvrage sur les sources de la réforme »)29. Bien qu’il s’agisse d’une œuvre doctrinale et d’un témoignage, et non d’un travail préparatoire officiel, la participation de ses auteurs à l’élaboration de la réforme, et l’objectif affiché de rendre compte de cette élaboration, en fait une source privilégiée pour tenter de repérer d’éventuelles influences des Principes Unidroit. D’une façon générale, les Principes Unidroit sont évoqués par le Rapport au président de la République, avec d’autres arguments (réformes de droits nationaux étrangers, rapports Doing Business), pour étayer le besoin de moderniser le droit français. Ils sont alors cités dans une liste énumérant différents projets d’harmonisation du droit des contrats, par la suite mentionnés par leur acronyme : PDEC, DCFR et PCC30. Ils sont encore cités par le Rapport au président de la République, avec les PDEC, pour justifier le nouveau plan adopté pour le sous-titre

28

https://www.legifrance.gouv.fr/affichTexte.do?cidTexte¼JORFTEXT000032004539. F. Ancel, B. Fauvarque-Cosson et J. Gest, Aux sources de la réforme du droit des contrats, Dalloz, 2017, sp. p. 5 ; également, « des auteurs étroitement impliqués dans l’élaboration de cette réforme et dans celle des modèles européens ou internationaux qui l’ont inspirée (. . .). C’est donc un témoignage unique de ce qui s’est dit, ou s’est passé, dans les coulisses. Il révèle d’où sont venues les impulsions majeures (. . .) » (4e de couverture). 30 « Dans le même temps, au cours de ces vingt dernières années, les projets européens et internationaux d'harmonisation du droit des contrats se sont multipliés : les principes Unidroit relatifs aux contrats du commerce international publiés en 1994 et complétés en 2004, les principes du droit européen des contrats (PDEC) élaborés par la commission dite Lando, publiés entre 1995 et 2003, le projet de code européen des contrats ou code Gandolfi, publié en 2000, le projet de cadre commun de référence (DCFR), qui couvre tout le droit privé et a été remis officiellement au Parlement européen le 21 janvier 2008, et enfin les travaux menés par la société de législation comparée et l'association Henri Capitant des amis de la pensée juridique française qui ont abouti à la rédaction de principes contractuels communs (PCC) publiés en février 2008. Il est donc apparu nécessaire, conformément au vœu émis non seulement par la doctrine, mais également par de nombreux praticiens du droit, non pas de refondre totalement le droit des contrats et des obligations, mais de le moderniser (. . .) ». 29

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dédié au contrat31. Ils sont enfin cités, avec les PDEC et le DCFR, pour justifier le nouveau standard en matière d’interprétation du contrat, celui de « personne raisonnable »32. La citation systématiquement combinée des Principes Unidroit et d’autres textes d’harmonisation témoigne moins de l’influence intrinsèque de ces principes que de la volonté du législateur français de se rapprocher de certaines tendances partagées dans l’harmonisation internationale et européenne. Or, dans cet équilibre entre ces multiples sources d’inspiration, il est possible que les projets européens aient plus fortement pesé sur la réforme. C’est l’impression qui se dégage à la lecture de l’ouvrage sur les sources de la réforme. Selon les auteurs, « Si l’ambition de moderniser le droit des contrats fut un moteur incontestable de la réforme, une autre raison, souvent perçue come une menace, a aussi joué un rôle essentiel : il s’agit de la formation d’un droit européen des contrats sous l’impulsion de l’Union européenne ». Tout l’ouvrage va dès lors replacer la réforme française « dans le contexte plus général des débats sur le droit européen des contrats »33, étant toutefois rappelé que les Principes Unidroit avaient été pris en considération lors de l’élaboration des projets européens34 ou nationaux35. En dépit de cette attention plus forte portée au contexte européen, lorsque l’ouvrage va examiner une à une les nouvelles règles du droit des contrats français, il fera souvent une référence cumulée aux projets européens et internationaux. C’est dès lors dans ce contexte et avec ces outils que nous comparerons dans un premier temps le nouveau droit des contrats français aux articles des Principes Unidroit identifiés par les rapporteurs généraux avant de mentionner les autres Principes Unidroit qui ont été évoqués dans le cadre de la réforme.

3.1 3.1.1

Principes retenus par les rapporteurs généraux Art. 2.1.15 (Negotiations in bad faith)

Article 1112 du Code civil français :

31 « A l'instar des PDEC et des principes Unidroit, ce plan chronologique, qui reflète l'entière vie juridique du contrat, de sa formation à sa fin, facilite également la compréhension et l'application des règles énoncées. » ; l’ouvrage sur les sources de la réforme insiste : « il est apparu important de proposer pour le nouveau Titre III un plan permettant de s’inscrire dans la direction choisie par les principaux projets d’harmonisation disponibles sur la place », v. n
21.32 – en revanche, le projet d’indiquer un intitulé pour chaque article, sur le modèle d’Unidroit et des PDEC n’a pas été retenu. 32 « Le second alinéa, inspiré des PDEC, du DCFR et des principes Unidroit, précise qu'à défaut de pouvoir déterminer la commune intention des parties, le sens du contrat s'interprète selon un standard, celui du contractant moyen dénommé « personne raisonnable » ; v. également, n
33.33. 33 Sp. n
00.11. 34
N 12.24, 12.33. 35
N 13.12.

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« L'initiative, le déroulement et la rupture des négociations précontractuelles sont libres. Ils doivent impérativement satisfaire aux exigences de la bonne foi. En cas de faute commise dans les négociations, la réparation du préjudice qui en résulte ne peut avoir pour objet de compenser la perte des avantages attendus du contrat non conclu. »

Le texte a été introduit dans le code civil à l’occasion de la réforme mais il consacre des solutions acquises en jurisprudence sur le fondement des articles 1382 et 138336. La jurisprudence invoquait pour une telle sanction aussi bien la bonne foi37 que le devoir de loyauté38 ou l’abus de droit39 et il a été relevé par la doctrine que, dans ces diverses configurations, la faute réside souvent dans un comportement de mauvaise foi40. L’arrêt le plus connu en la matière retient la mauvaise foi d’une partie ayant poursuivi des négociations sans intention de conclure le contrat41, se rapprochant ainsi de l’hypothèse visée par les principes Unidroit. Le Rapport au président de la République donne comme unique source d’inspiration de l’article 1112 la jurisprudence, que la réforme a entendu codifier42. L’ouvrage sur les sources de la réforme reconnaît pour sa part une inspiration des

36 Devenus 1240 et 1241, ils fondent la responsabilité délictuelle. Les nouveaux textes ne se prononcent pas sur la nature délictuelle ou contractuelle et le rapport précise « Cette responsabilité sera en principe de nature extracontractuelle, sauf aménagement conventionnel de cette phase de négociation et de sa rupture. » 37 V. Philippe Le Tourneau et Mathieu Poumarède, « Bonne foi », Répertoire Dalloz de droit civil, n
35. Cette même rubrique offre un panorama de la jurisprudence française en matière de bonne foi dans la négociation du contrat, n
27 s. 38 Civ. 1e, 14 juin 2000, n
98-17.494, non publié au Bulletin : h t t p s : / / w w w . l e g i f r a n c e . g o u v . f r / a f fi c h J u r i J u d i . d o ? o l d A c t i o n ¼r e c h J u r i J u d i & idTexte¼JURITEXT000007412900&fastReqId¼7039895&fastPos¼1. 39 « seul l'abus dans l'exercice du droit de rompre les pourparlers peut donner lieu à indemnisation », Com., 16 février 2016, n
13-28.448, non publié au Bulletin : h t t p s : / / w w w . l e g i f r a n c e . g o u v . f r / a f fi c h J u r i J u d i . d o ? o l d A c t i o n ¼r e c h J u r i J u d i & idTexte¼JURITEXT000032088638&fastReqId¼1463705019&fastPos¼1. Ex. Com., 21 juin 2017, n
15-29.127, publié au Bulletin : https://www.legifrance.gouv.fr/ affichJuriJudi.do?idTexte¼JURITEXT000035003245&fastReqId¼1327383927&fastPos¼2& oldAction¼rechJuriJudi. 40 Ou d’un manque de motif légitime, v. Jacques Ghestin, « La responsabilité délictuelle pour rupture abusive des pourparlers », La Semaine juridique, édition générale, 2007 doctrine 155. 41 Com., 26 nov. 2003, Manoukian, 00-10.243, Grands arrêts de la jurisprudence civile, Dalloz, Tome 2, 13e éd., 2015, n
142 : h t t p s : / / w w w . l e g i f r a n c e . g o u v . f r / a f fi c h J u r i J u d i . d o ? o l d A c t i o n ¼r e c h J u r i J u d i & idTexte¼JURITEXT000007049778&fastReqId¼1720563656&fastPos¼1. 42 « Cette sous-section vise en premier lieu à fixer les principes régissant la phase précontractuelle, en codifiant les solutions jurisprudentielles établies : principe de liberté des négociations précontractuelles jusque dans leur rupture, fondé sur le principe de liberté contractuelle ; principe de bonne foi devant gouverner ces négociations précontractuelles (et rappel de son caractère d'ordre public) ; sanction de la faute commise dans l'initiative, le déroulement ou la rupture des négociations par l'engagement de la responsabilité de son auteur (article 1112). »

Les Principes Unidroit comme cadre de référence pour l’interprétation uniforme. . .

141

Principes : « l’article 1112 du Code civil consacre un article aux négociations précontractuelles, inspiré des projets européens et internationaux »43.

3.1.2

Art. 2.1.20 (Surprising terms)

Il n’existe pas en droit français de disposition ou de jurisprudence spécifique aux clauses inhabituelles au sein de clauses types. D’ailleurs, il n’existe en droit français que quelques indications de jurisprudence sur l’utilisation des conditions générales des parties dans la conclusion du contrat, qui viennent d’être consacrées par la réforme dans un article unique44.

3.1.3

Art. 4.1 (Intention of the parties)

Les règles relatives à l’interprétation du contrat ont été modifiées par la réforme, qui a supprimé d’anciennes directives dont les juges ne faisaient pas application et introduit de nouvelles méthodes. Il s’agit probablement de l’évolution la plus marquée par les projets européens et internationaux et, dès lors, la plus porteuse de futures utilisations des Principes Unidroit pour interpréter le droit national. Art. 1188 du Code civil français : « Le contrat s'interprète d'après la commune intention des parties plutôt qu'en s'arrêtant au sens littéral de ses termes. Lorsque cette intention ne peut être décelée, le contrat s'interprète selon le sens que lui donnerait une personne raisonnable placée dans la même situation ».

La « personne raisonnable » des Principes Unidroit fait ainsi son apparition comme standard de comportement, quand le « bon père de famille » du Code civil de 1804 disparaît. La « personne raisonnable » n’avait pas la faveur de la Cour de cassation : dans un avis rendu sur un projet de réforme antérieur qui introduisait le même standard, la Cour de cassation y voyait un concept de common law au sens (la personne dotée de bon sens) distinct de celui pratiqué en France sous l’égide du « bon père de famille » (le gestionnaire avisé)45. Pour autant, selon certains auteurs, le changement de standard désormais consacré par la loi ne modifiera pas la pratique

N
22.31. Le texte ne renvoie à cet endroit qu’aux textes européens. Le chapitre 2 des Principes Unidroit est en revanche mentionné plus généralement, avec les textes européens, pour justifier l’ajout dans le code civil d’un chapitre dédié au processus de conclusion du contrat. 44 Art. 1119 : « Les conditions générales invoquées par une partie n'ont effet à l'égard de l'autre que si elles ont été portées à la connaissance de celle-ci et si elle les a acceptées. En cas de discordance entre des conditions générales invoquées par l'une et l'autre des parties, les clauses incompatibles sont sans effet. En cas de discordance entre des conditions générales et des conditions particulières, les secondes l'emportent sur les premières ». 45 Jean Richard de la Tour, avocat général à la Cour de cassation, « Les principes, les directives et les clauses relatives à l’interprétation », Revue des contrats 2016. 392. 43

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actuelle des magistrats, qui parvenaient à des solutions analogues sans employer la notion de « personne raisonnable » 46. Le rapport au président de la République précise la source de chaque alinéa de la nouvelle disposition : « l'article 1188 reprend en son premier alinéa l'actuel article 1156, qui rappelle que le contrat doit d'abord s'interpréter d'après la commune intention des parties plutôt qu'en s'arrêtant à sa lettre. Le second alinéa, inspiré des PDEC, du DCFR et des principes Unidroit, précise qu'à défaut de pouvoir déterminer la commune intention des parties, le sens du contrat s'interprète selon un standard, celui du contractant moyen dénommé « personne raisonnable » (. . .), placé dans les mêmes circonstances de temps et de lieu ». Il s’agit du seul article des Principes Unidroit directement reconnu par les travaux préparatoires officiels comme source d’inspiration de la nouvelle règle de droit français. L’ouvrage sur les sources de la réforme tire certaines conséquences de cette filiation : « cette source d’inspiration pourrait aussi conduire le juge à s’y référer pour y trouver quelques guides d’interprétation. Ainsi par exemple, l’article 4.3 des Principes Unidroit (PU) mentionne, au titre des circonstances pertinentes à prendre en considération, « les négociations préliminaires entre les parties » (l’absence de négociation des termes du contrat serait ainsi un facteur à prendre en considération) » (n
33.33). Il s’agit ainsi de la règle du droit français qui présente l’un des plus forts potentiel de recours aux Principes Unidroit pour son interprétation.

3.1.4

Art. 4.2 (Interpretation of statements and other conduct)

Il n’existe pas de disposition équivalente en droit français mais il est possible d’arriver aux mêmes solutions du fait de l’application large du principe d’interprétation subjective.

3.1.5

Art. 4.3 (Relevant circumstances)

Le Code civil français ne comporte pas d’indications sur les circonstances pertinentes pour l’application des directives d’interprétation. Il est possible de relever que deux articles d’interprétation pouvant être rapprochés de ces circonstances47 ont été supprimés à l’occasion de la réforme, du fait de leur faible utilisation pratique. Les circonstances pertinentes des Principes Unidroit pourraient être utilisées désormais pour concrétiser le standard de « personne raisonnable » nouvellement

46

François Chénedé, 24.33 : « Si la règle est nouvelle, elle se contente de rendre compte de l’attitude habituelle des magistrats ». 47 1158 : « Les termes susceptibles de deux sens doivent être pris dans le sens qui convient le plus à la matière du contrat » et 1159 : « Ce qui est ambigu s’interprète par ce qui est d’usage dans le pays où le contrat est passé ».

Les Principes Unidroit comme cadre de référence pour l’interprétation uniforme. . .

143

consacré en droit français, comme il a été suggéré par les auteurs de l’ouvrage sur les sources de la réforme (v. supra Art. 4.3). Il faut cependant observer que les juges français recourent déjà à de telles circonstances, sans avoir besoin de s’en référer à une source de soft law et qu’il est tout à fait possible qu’ils continuent à faire de même. Ainsi, sans avoir besoin des indications des Principes Unidroit, les juges font référence aux négociations préliminaires48, aux comportements postérieurs des parties49, aux pratiques établies par les parties50 ou aux usages de la profession51.

3.1.6

Art. 4.4 (Reference to contract or statement as a whole)

Art. 1189 du Code civil français : « Toutes les clauses d'un contrat s'interprètent les unes par rapport aux autres, en donnant à chacune le sens qui respecte la cohérence de l'acte tout entier. Lorsque, dans l'intention commune des parties, plusieurs contrats concourent à une même opération, ils s'interprètent en fonction de celle-ci »

48 Civ. 1e, 18 février 1986, n
84-12.347 (interprétation selon la proposition préalable de contrat eu égard à l’ambiguïté des termes des écrits) : https://www.legifrance.gouv.fr/affichJuriJudi.do? oldAction¼rechJuriJudi&idTexte¼JURITEXT000007016776&fastReqId¼115332538& fastPos¼1. 49 Pour déterminer quelle a été la commune intention des parties à un acte, il n'est pas interdit aux juges du fond de relever le comportement ultérieur des contractants, Civ. 1e, 13 déc. 1988, n
86-19.068, Bull. civ., I, n
352 : https://www.legifrance.gouv.fr/affichJuriJudi.do? oldAction¼rechJuriJudi&idTexte¼JURITEXT000007021826&fastReqId¼390190867& fastPos¼1. V. aussi Com. 4 mars 1997, n
95-10.507 : https://www.legifrance.gouv.fr/affichJuriJudi.do? oldAction¼rechJuriJudi&idTexte¼JURITEXT000007037072&fastReqId¼2103818361& fastPos¼1. 50 « recherchant la commune volonté des parties, (la cour d’appel) a, interprétant leur comportement et les termes de leur correspondance, souverainement retenu que, malgré la dénonciation intervenue, elles avaient entendu soumettre aux règles stipulées en 1983 les rapports d'affaires provisoirement maintenus par elles en 1987 dans des conditions identiques à celles des années précédentes », Civ. 1e, 9 octobre 1991, n
90-12.476, Bull. civ., I, n
253 : https://www.legifrance. gouv.fr/affichJuriJudi.do?oldAction¼rechJuriJudi&idTexte¼JURITEXT000007027162& fastReqId¼1764265612&fastPos¼1. Civ. 1e, 30 mars 1999, n
97-11.994, Bull. civ., I, 118 : https://www.legifrance.gouv.fr/ affi chJ uri Ju di. do ?ol dAc tio n¼re chJuri Judi&i dTexte¼JUR I T E X T 0 00 00 70 40 8 34 & fastReqId¼12884980&fastPos¼1. 51 « pour apprécier la portée de cette clause dont elle relève l'ambiguïté quant au point de savoir si elle s'appliquait ou non en cas d'erreur sur la variété de la marchandise fournie, la cour d'appel se réfère à l'usage établi dans la profession », Civ. 1e, 20 déc. 1988, n
87-16.369, Bull. civ., I, n
373 : h t t p s : / / w w w . l e g i f r a n c e . g o u v . f r / a f fi c h J u r i J u d i . d o ? o l d A c t i o n ¼r e c h J u r i J u d i & idTexte¼JURITEXT000007021322&fastReqId¼1745408068&fastPos¼1.

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L’article reprend l’ancien article 1161, qui consacrait déjà la règle de la cohérence du contrat52, et l’étend aux ensembles contractuels, « conformément à la jurisprudence », selon le rapport au Président de la République.

3.1.7

Art. 4.5 (All terms to be given effect)

Art. 1191 Code civil : « Lorsqu'une clause est susceptible de deux sens, celui qui lui confère un effet l'emporte sur celui qui ne lui en fait produire aucun. »

Il s’agit de la reprise de l’ancien article 115753 du Code civil, « dans une rédaction légèrement simplifiée » selon le rapport au Président de la République. Certains auteurs se sont toutefois demandé si ce changement de formulation ne donnait pas plus d’autorité à la directive d’interprétation54.

3.1.8

Art. 4.7 (Linguistic discrepancies)

Il n’existe pas de règle spécifique aux divergences linguistiques en droit interne.

3.1.9

Art. 6.1.9 (Currency of payment)

Art. 1343-3 du Code civil français : « Le paiement, en France, d'une obligation de somme d'argent s'effectue en euros. Toutefois, le paiement peut avoir lieu en une autre devise si l'obligation ainsi libellée procède d'un contrat international ou d'un jugement étranger. »

Le texte reprend la position de la jurisprudence française. Il est interprété par les auteurs comme relevant des lois de police et s’impose donc à chaque fois que le paiement doit avoir lieu en France55. Il semble dès lors difficile de concevoir un recours aux Principes Unidroit aux fins d’interprétation ou de complément du droit français, du fait de l’incompatibilité des solutions.

52 Pour une illustration, la cour d’appel « s'étant livrée à une interprétation rendue nécessaire par une rédaction ambiguë et s'étant référée au contrat pris dans son entier », Civ. 1e, 5 févr. 2002, n
00-10.250, Bull. civ., I, n
43 : https://www.legifrance.gouv.fr/affichJuriJudi.do? oldAction¼rechJuriJudi&idTexte¼JURITEXT000007044946&fastReqId¼1998303206& fastPos¼1. 53 « Lorsqu’une clause est susceptible de deux sens, on doit plutôt l’entendre dans celui avec lequel elle peut avoir quelque effet, que dans le sens avec lequel elle n’en pourrit produire aucun ». 54 G. Chantepie et M. Latina, La réforme du droit des obligations, Dalloz, 2016, n
506. 55 D. Carreau et C. Kleiner, « Monnaie », Répertoire de droit international, Dalloz, juin 2017, n
126. Ces mêmes auteurs soulignent la position isolée de la France, citation des Principes Unidroit à l’appui.

Les Principes Unidroit comme cadre de référence pour l’interprétation uniforme. . .

145

Les Principes Unidroit pourraient en revanche être mentionnés lorsqu’un tel paiement procède de contrats internationaux, qui sont expressément exclus de l’obligation de paiement en euros. La monnaie de paiement peut alors être une devise étrangère56. Si le paiement prévu dans une devise étrangère doit être exécuté en euros, la jurisprudence estime que la conversion se fait au jour du paiement, sauf si le retard est imputable à l’une des parties57, se rapprochant des Principes Unidroit. Le paiement peut également se faire dans la monnaie du lieu de paiement lorsque la monnaie prévue contractuellement n’est pas librement convertible58.

3.1.10

Art. 7.3.1 (Right to terminate the contract)

Art. 1224 du code civil français : « La résolution résulte soit de l'application d'une clause résolutoire soit, en cas d'inexécution suffisamment grave, d'une notification du créancier au débiteur ou d'une décision de justice »

Antérieurement à la réforme de 2016, le Code civil ne connaissait pas la résolution par notification. Lorsque la première édition des Principes Unidroit a été publiée, l’écart avec le droit français sur ce point avait été souligné par la doctrine59. Depuis, l’écart s’était toutefois resserré, la jurisprudence ayant introduit cette possibilité en 199860. La loi d’habilitation avait expressément donné au gouvernement l’objectif, dans le cadre de la réforme du droit des contrats, d’ « introduire la possibilité d’une résolution unilatérale par notification »61. Selon le

Ex. pour un paiement un yen, Com.11 oct. 2005, n
03-17.637, non publié au Bulletin : https:// w w w . l e g i f r a n c e . g o u v . f r / a f fi c h J u r i J u d i . d o ? o l d A c t i o n ¼r e c h J u r i J u d i & idTexte¼JURITEXT000007503824&fastReqId¼1791307802&fastPos¼1. 57 « la contre-valeur en euros d'une dette libellée en monnaie étrangère doit être fixée au jour du paiement, sauf si le retard apporté à celui-ci est imputable à l'une des parties », Civ. 1e, 20 mai 2009, n
07-21.847, Bull. civ., I, n
101 : h t t p s : / / w w w . l e g i f r a n c e . g o u v . f r / a f fi c h J u r i J u d i . d o ? o l d A c t i o n ¼r e c h J u r i J u d i & idTexte¼JURITEXT000020656561&fastReqId¼1670701174&fastPos¼1. 58 Com., 4 juillet 1995, n
93-14595, Bull. civ., IV ; n
200 : https://www.legifrance.gouv.fr/ affi chJ uri Ju di. do ?ol dAc tio n¼re chJuri Judi&i dTexte¼JUR I T E X T 0 00 00 70 33 1 90 & fastReqId¼2009005660&fastPos¼1. 59 « une vraie différence » avec le droit français, sp. n
26, B. Fauvarque-Cosson, « Les contrats du commerce international, une approche nouvelle : les principes d’Unidroit relatifs aux contrats du commerce international », Revue internationale de droit comparé, 1998/2, vol. 50, p. 463 : http://www.persee.fr/doc/ridc_0035-3337_1998_num_50_2_1172. 60 « Mais attendu que la gravité du comportement d'une partie à un contrat peut justifier que l'autre partie y mette fin de façon unilatérale à ses risques et périls, et que cette gravité, dont l'appréciation qui en est donnée par une autorité ordinale ne lie pas les tribunaux, n'est pas nécessairement exclusive d'un délai de préavis », Civ. 1e, 13 octobre 1998, Tocqueville, n
96-21485, Recueil Dalloz 1999. 197, note C. Jamin ; Les grands arrêts de la jurisprudence civile, préc., n
181 : h t t p s : / / w w w . l e g i f r a n c e . g o u v . f r / a f fi c h J u r i J u d i . d o ? o l d A c t i o n ¼r e c h J u r i J u d i & idTexte¼JURITEXT000007038939&fastReqId¼327037831&fastPos¼1. 61 Loi n
2015-177 du 16 février 2015, art. 8. 56

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rapport au Président de la République, « Ce texte constitue une nouveauté qui vise à consacrer un mécanisme absent du code civil mais reconnu par la jurisprudence et les projets d'harmonisation européens ». Il est également justifié dans le même rapport par « une perspective d'efficacité économique du droit », permettant à la victime de l’inexécution de conclure au plus vite un nouveau contrat. L’ouvrage relatif aux sources de la réforme explique que « en raison de sa triple assise, doctrinale, jurisprudentielle et européenne, cette consécration n’a guère suscité d’oppositions lors des consultations ». Le droit français ne donnant aucun critère permettant d’évaluer la gravité de l’inexécution, les Principes Unidroit pourraient être utilisés pour l’interpréter. Là encore, il ne faut pas surestimer cette possibilité, la jurisprudence pratiquant antérieurement une telle résolution et un critère de « gravité suffisante »62, sans recourir à l’éclairage des Principes Unidroit.

3.1.11

Art. 7.4.9 (Interest for failure to pay money)

Art. 1231-6 du Code civil français : « Les dommages et intérêts dus à raison du retard dans le paiement d'une obligation de somme d'argent consistent dans l'intérêt au taux légal, à compter de la mise en demeure. Ces dommages et intérêts sont dus sans que le créancier soit tenu de justifier d'aucune perte. Le créancier auquel son débiteur en retard a causé, par sa mauvaise foi, un préjudice indépendant de ce retard, peut obtenir des dommages et intérêts distincts de l'intérêt moratoire. »

Il s’agit de la reprise, en termes simplifiés, de l’ancien article 1153 du Code civil.

3.1.12

Art. 7.4.10 (Interest on damages)

Art. 1231-7 du Code civil français : « En toute matière, la condamnation à une indemnité emporte intérêts au taux légal même en l'absence de demande ou de disposition spéciale du jugement. Sauf disposition contraire de la loi, ces intérêts courent à compter du prononcé du jugement à moins que le juge n'en décide autrement. En cas de confirmation pure et simple par le juge d'appel d'une décision allouant une indemnité en réparation d'un dommage, celle-ci porte de plein droit intérêt au taux légal à compter du jugement de première instance. Dans les autres cas, l'indemnité allouée en appel porte intérêt à compter de la décision d'appel. Le juge d'appel peut toujours déroger aux dispositions du présent alinéa »

Il s’agit de la reprise de l’ancien article 1153-1 du Code civil. 62 Que ne présente pas, par exemple, une inexécution pendant les deux mois précédant la résolution, Civ. 1e, 28 oct. 2003, n
01-03.662, Bull. civ., I, n
211 : h t t p s : / / w w w . l e g i f r a n c e . g o u v . f r / a f fi c h J u r i J u d i . d o ? o l d A c t i o n ¼r e c h J u r i J u d i & idTexte¼JURITEXT000007047570&fastReqId¼1656047558&fastPos¼1.

Les Principes Unidroit comme cadre de référence pour l’interprétation uniforme. . .

3.2

147

Autres références aux Principes Unidroit

Mentions de la conformité des solutions du droit français D’autres références aux Principes Unidroit se trouvent dans l’ouvrage sur les sources de la réforme (rappelons que la seule filiation explicitement reconnue par le Rapport au président de la République est l’introduction du standard de la personne raisonnable pour l’interprétation du contrat). Ces références sont presque systématiquement faites aux différents projets internationaux et européens : c’est la conjonction de ces projets d’harmonisation qui semble significative. Une exception peut être relevée, dans laquelle seuls les Principes Unidroit sont évoqués, lorsque la réforme a envisagé de consacrer l’interdiction de se contredire : « non seulement cette interdiction de se contredire existe à l’article 1.8 des PU, mais elle constitue un principe général du droit du commerce international ». Cette consécration a toutefois finalement été abandonnée, en tout cas sous cette forme de principe général63. Pour le reste, il est possible de faire un rapide panorama des nouvelles dispositions dont la conformité aux projets européens et internationaux est soulignée dans cet ouvrage. L’article 1124 modifie le droit français de la promesse unilatérale afin que le contrat soit formé même si la promesse a été révoquée et l’ouvrage mentionne, outre la sécurité juridique et les critiques doctrinales, l’article 7.2.1 des PU et les PDEC64. L’article 1121 retient pour l’acceptation le système de l’émission réception, les auteurs soulignent sa conformité aux projets internationaux (dont l’article 2.1.6 des PU) et à la CVIM65. L’article 1102 consacre le principe de liberté contractuelle : les projets européens et internationaux, dont l’article 1.1 des PU, ainsi que les anciens projets nationaux sont cités, car « C’est sur le fondement de tous ces précédents qu’il a été décidé d’inscrire ce principe dans le Code civil, à l’article 1102 »66. L’art. 1.7 PU est également cité pour la consécration du principe général de bonne foi (art. 1104) mais la rédaction du nouvel article a été plus particulièrement inspirée par les PPC puis remaniée pour tenir compte des observations doctrinales67. Les articles 1153 et suivants consacrent des règles sur les contrats conclus par les représentants, « s’inspirant des [PDEC, DCFR] mais aussi des PU » (PU, art. 2.2.1 s.)68. L’article 1143 qui consacre l’abus de faiblesse et a fait l’objet de nombreuses discussions ; l’article insiste sur le déséquilibre des prestations « ce qui rapproche ce

63


n 23.45. n 22.50. 65
n 22.52. 66 v. n
23.22. Le principe était déjà celui du droit français, la question étant celle de savoir s’il était utile de l’inscrire dans le Code civil. 67 v. n
23.42. 68 v. n
23.71. 64


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vice des mécanismes adoptés dans d’autres pays et des codifications de droit européen des contrats ayant recours à la lésion qualifiée » (l’art. 3.2.7 des PU étant cité en note avec ces codifications européennes69). Plus nettement, après avoir consacré le principe de l’exécution en nature, les auteurs précisent qu’ « une exception importante, qui ne figurait pas dans l’avantprojet de réforme Catala et qui est empruntée aux projets européens et internationaux [dont l’article .71.5 PU], y est ajoutée »70. Encore, « une définition de la force majeure en matière contractuelle est proposée, comme le font aussi les PU (PU, art. 7.7.1) et le DCFR » (art. 1218)71. La très débattue disparition de la « cause » au profit « de la notion de « contenu » du contrat, adoptée par les PDEC, le DCFR (. . .) et les PU », est notamment justifiée ainsi : « lorsque les experts de pays différents se sont rassemblés pour élaborer des modèles internationaux ou même européens, la « cause » n’a tout simplement pas été reprise (PU, PDEC, DCFR, PCC). (. . .) La suppression de la référence à la cause, si elle est donc apparue comme un signe fort en faveur de l’ouverture vers le droit comparé et les projets d’harmonisation du droit européen des contrats a d’abord aussi été portée par la volonté de renforcer la sécurité juridique »72. Pour une autre grande innovation de la réforme, en matière d’imprévision, les PDEC sont particulièrement mis en avant, étant seulement ajouté ensuite que « Les Principes Unidroit adoptent une solution identique (art. 6.2.1 à 6.2.3 dans le chapitre consacré à l’exécution) »73. Mentions de la divergence des solutions françaises A l’inverse, quelques cas de maintien d’une position contraire aux projets européens et internationaux sont identifiés par l’ouvrage sur les sources de la réforme. Ainsi, la sanction de la rétractation de l’offre sans respect des conditions légales demeure de nature extra contractuelle (art. 1116) : « Sur ce point, l’ordonnance s’éloigne des solutions consacrées par les projets européens et internationaux (. . .) mais est conforme à la position de la jurisprudence »74. Egalement, et contrairement à la jurisprudence française antérieure, le juge ne dispose pas du pouvoir de fixer le prix, solution « qui s’écarte ici des solutions retenues par de nombreux droits étrangers (. . .). C’est aussi la voie choisie par les projets et sources de droit européen et internationaux », l’article 5.7 PU étant cité75.

v. n
24.23.. impossibilité ou disproportion manifeste, n
24.91. 71
n 24.131. 72
n 25.71, 25.73 et 25.74. 73
n 25.141. 74
n 22.51. 75
n 24.41 – le n
24.44 enseigne que ces projets ont été mis en avant par la Chambre de commerce et d’industrie de Paris et le notariat pour servir de modèle, ce qui n’a pas été retenu. 69 70

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4 Conclusion En définitive, les Principes Unidroit ont été pris en considération lors de la réforme du droit français et particulièrement pour justifier certaines innovations. Il faut toutefois relativiser ce constat car les PU ne sont pas la source exclusive de l’influence : outre les autres considérations (critiques de la doctrine, des praticiens, incertitudes jurisprudentielles), ils sont systématiquement évoqués en ce qu’ils rejoignent les projets européens et la logique d’ensemble ayant animé les acteurs de la réforme semble avoir prêté plus d’attention à cet échelon d’harmonisation. En outre, ces projets d’harmonisation ne sont pas les seules sources d’interprétation des nouvelles règles du droit des contrats, comme en témoignent déjà les commentaires publiés76 : elles seront probablement également interprétées à la lumière de la jurisprudence antérieure de la Cour de cassation, très largement consacrée par la réforme, et des projets de réforme du droit des contrats qui se sont succédés en France depuis 2005. Certes, certains de ces projets ont été influencés par les Principes du droit européen des contrats, qui avaient eux-mêmes tenu compte des Principes Unidroit et ces influences en cascade participent au phénomène plus général de rapprochement des droits nationaux : elles rendent seulement moins visible, voire invisible, le rôle d’impulsion qu’auront joué les Principes Unidroit.

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V. ex. les ouvrages précités de F. Chénedé et G. Chantepie et M. Latina.

The Use of the UPICC in Order to Interpret or Supplement German Contract Law Katharina Erler and Martin Schmidt-Kessel

Abstract German courts and arbitral tribunals, apart from two cases, until now did not use the UPICC for the purpose of interpreting or supplementing German contract law. Furthermore, for the matter of interpretation or supplementation of German contract law, only few German commentaries on the German Civil Code, which play an important role for the decision-making practice in Germany, even mention the UPICC. German legal literature rather focuses on the theoretical question whether German law allows the application of the UPICC and which particular legal sources allow this application. As a result, we found three reasons for the reluctant position of German courts in applying the UPICC: First, European International Private Law rules only allow to choose a national law in the sense of a state-based law, which leads to uncertainties for the UPICC-choosing parties. Second, the UPICC do not comply with the strict requirements to the applicability of international usages in commerce as established by the transformation rule § 346 of the German Commercial Code. Third, German general contract law turns out to provide for a comprehensive and also conclusive system, which usually is developed autonomously. Additionally, apart from UPICC’s provision on linguistic discrepancies, German law provides for counterpart rules to all articles of the UPICC considered in the questionnaire.

1 National Legal Interfaces for the UPICC In general, there is no explicit or specific legislation under German Law, which allows the use of the UPICC to interpret or supplement German contract law. However, even without explicit legislation and as a matter of principle, the principles under certain conditions may be used in various ways for the supplementation or

K. Erler (*) · M. Schmidt-Kessel University of Bayreuth, Research Center for Consumer Law, Bayreuth, Germany e-mail: [email protected]; [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_9

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interpretation of German contract law. First, the UPICC may be utilized for the interpretation of commercial contracts. Second, the UPICC may be used for the interpretation of German national provisions on contract law. Third and less relevant for the matter in consideration, the UPICC may influence the legislative process regarding the development of German national provisions. Some provisions under German contract law, indeed, refer to trade usages or customs. With regard to contract interpretation, Section 157 of the German Civil Code1 (BGB) states that contracts are to be interpreted as required by good faith, taking customary practice into consideration. Especially for commercial contracts Section 346 of the German Commercial Code2 sets forth that all acts and omissions as between mercantile traders must be interpreted regarding their significance and effect with reference to mercantile usage and customs. Moreover, Section 242 BGB provides the famous good faith principle which implies that an obligor has a duty to perform according to the requirements of good faith, taking customary practice into consideration. However, whether the UPICC represent trade usages or customs as referred to in these provisions had not been yet the object of German court decisions. As for the interpretation and supplementation of German contract law, German courts focus on the domestic legal system and its interpretation methods. Frequent references to the UPICC in German courts’ decisions are currently not recognizable. As judicial practice is concerned, in recent practice only one case of this type is known in Germany:3 The Landgericht Frankfurt am Main (District Court) dealt with the interpretation of the nomination principles for the Olympic Games in Peking 2008.4 It referred to the famous rule of interpretation contra proferrentem, which is well known under German contract law and states that ambiguous contract terms, which are proposed by one of the contract parties, shall be interpreted to the detriment of this party.5 Particularly remarkable is the fact that as a central source for reference to the contra proferrentem rule the Landgericht referred to the previous decision of the German arbitration court for sports,6 which applied the contra proferrentem rule by explicitly referring to Article 4.6 of the UPICC. German literature on the contra proferrentem rule was quoted by the Landgericht too, but subsequently. It, therefore, appears that the UPICC were at least one of several elements from which the Landgericht drew its conclusions. The subsequent decisions of the Oberlandesgericht Frankfurt a.M.7

1

German Civil Code, Bürgerliches Gesetzbuch. German Commercial Code, Handelsgesetzbuch. 3 This picture may be derived from the UNILEX information database (www.unilex.info) as well as German database sources, such as juris, Das Rechtsportal and beck online, Die Datenbank. 4 Landgericht Frankfurt a.M. BeckRS 2012, 06785. 5 Busche (2015b) Section 157 BGB, in: Münchener Kommentar zum BGB, m.n. 8. 6 German Arbitration Court for Sports, DIS-SV-SP-02/08 (10). 7 OLG Frankfurt a.M. SpuRt 2014 (74 f.). 2

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(Higher regional court) and of the Bundesgerichtshof8 (Federal court), however, did not draw on the UPICC. For the European stage, the opinion of Advocate General Geelhoed submitted to the Court of Justice of the European Union, however, referred to the UPICC already: in its observations on the case Tacconi v. HWS he explicitly referred to Article 2.15 of the UPICC, which introduces a pre-contractual liability where negotiations on a contract are broken off in bad faith.9 Advocate General Geelhoed, in fact, tried to supplement and fill a gap of the EU-Brussels I Convention—a predecessor of what today is known as the Brussels Ia-Regulation (EU) 1215/2012—, which did not (as the Regulation does not) recognize a particular concept of pre-contractual liability. By using Article 2.15 of the UPICC as a starting point of analysis, Advocate General Geelhoed seemed to invoke the Principles as a source of general principles of law.10 In contrast CJEU in its following decision did not integrate these observations and, indeed, did not refer to the UPICC. As for German arbitral tribunals, at least one (published) decision did already apply the UPICC, but apart from this also no significant numbers of application do exist.11 This singular published German arbitral decision was rendered even before the final version of the UPICC was released.12 As in that case, a radical change of circumstances existing at the time of the conclusion of the contract was invoked, the arbitral tribunal referred inter alia to the draft provisions on hardship13 contained in the UPICC as an additional argument and especially to prove that the principle of hardship is accepted on an international level.14 Whereas, on international level, the by far largest portion of arbitral decisions listed in the UNILEX database are those, in which the UPICC are applied for interpretation and supplementation of domestic law (78 out of total 194 arbitral decisions).15 Furthermore, as another example of analysis of unpublished arbitral decisions shows, any type of reference to the UPICC appears in only 5.5% of all proceedings for the years 2002 to 2004.16 Moreover, only few authors of the legal literature even mention the UPICC as for the matter of interpretation or supplementation of German contract law. Regarding matters of interpretation the major part of German commentaries on the BGB, which

8

BGHZ 207 (144 f.). CJEU Tacconi v. HWS, C-334/00, m.n. 55. Cf. the case note by Schmidt-Kessel (2004), pp. 1019–1033. 10 Meyer (2002), p. 1223. 11 See Berlin Arbitration Court, Wirtschaftsrecht 1991 (161). 12 Bonell (1997), p. 40. 13 See Article 6.2.2 of Unidroit Principles of International Commercial Contracts 2010. 14 Maskow (1992), p. 666. 15 http://www.unilex.info/dynasite.cfm?dssid¼2377&dsmid¼13621&x¼1, accessed 23 Oct 2017. 16 Jolivet (2008), p. 129. 9

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play an important role for the decision-making practice in Germany, is not referring to the UPICC.17 As a possible reason for missing references to the UPICC, the German legal system in general is presumed to be complete, so that interpretation or supplementation by German courts would normally be drawn entirely on material within the national system.18 However, under certain circumstances German courts or arbitral tribunals may refer to the UPICC. This is, of course, only possible if German courts or arbitral tribunals are generally allowed to refer to the UPICC for these purposes. Within the German legal system, it is highly disputed whether the UPICC may be applied by courts or arbitral tribunals and which legal effects might arise from their character as international “soft law”.19 This is particularly true for cases, in which parties did not choose the UPICC as governing law—a situation, where it is, indeed, doubtful whether this would be accepted before German courts at all20—and the courts themselves apply the UPICC for interpretation and supplementation of German contract law. It is important to emphasize that the influence that the UPICC may have on the matters of interpretation and supplementation in general differs considerably depending upon whether their application is used by a German court or a German arbitral tribunal.21 Due to the general possibility for arbitral tribunals to decide ex aequo et bono under certain circumstances, the application of soft law may, indeed, be possible for arbitral tribunals while the situation before state courts might differ.22 As a starting point, however, the traditional theory on trade usages, which stands behind the recognition of the UPICC under German law, justifies the effects of trade usages in two ways directly on grounds of German national contract law: on one hand, one may argue that trade usages may only take effects by including them as “implied terms” in a contract, on the other hand,23 one may refer to customary (trade) 17

Do not mention the UCIPP at all: Busche (2015b) Section 157 BGB, in: Münchener Kommentar zum BGB; Wendtland (2017a) Section 133 BGB and Wendtland (2017b) Section 157 BGB, in: BeckOK BGB; Hefermehl (2012) Section 133 BGB, in: Soergel Kommentar zum BGB; Wolf (2012b) Section 157 BGB, in: Soergel Kommentar zum BGB; Singer (2012) Section 133 BGB, in: Staudinger J, BGB; Roth (2010) Section 157 BGB, in: Staudinger J, BGB. But see Busche (2015a) Section 133 BGB, in: Münchener Kommentar zum BGB, m.n. 14, quoting Article 4 of the UPICC with regard to the “falsa demonstratio non nocet” principle. 18 Michaels (2009a) Preamble I: Purposes of the PICC m.n. 111, in: Vogenauer S, Kleinheisterkamp J, Commentary on the Unidroit Principles of International Commercial Contracts (PICC), m.n.111. 19 The Governing Council of UNIDROIT, in: Introduction to the 1994 Edition p. xiv, itself stated that the UPICC are “not a binding instrument and that in consequence their acceptance will depend upon their persuasive authority”. 20 See infra, footnote 28. 21 As discussed for the German legal system by Canaris (2000), p. 18 f.; Wichard (1996), p. 276; from an international perspective: Michaels (2009b), p. 866; Bonell (2005), p. 241. 22 Herber (2003), p. 8. 23 Spickhoff (1992), p. 130; According to Oser (2008), p. 77, this view has also internationally been adopted by Article 9(2) of the UN Convention on Contracts for the Sale of Goods (CISG).

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law generally recognized by German courts.24 It is of crucial importance that the legal effects of trade usages under Section 346 HGB and customary (trade) law differ: Customary law as a source of law independently raises mandatory legal effects on its own, whereas trade usages under Section 346 HGB themselves cannot obtain the status of a source of law and may not displace mandatory German law.25 The UPICC, however, were explicitly introduced as “soft law” by its authors.26 Furthermore, it requires coincidental development of trade customs or a general strengthening of the Principles by trade practice in other ways to consider the UPICC as elements of the customary trade law.27 It is worth mentioning that this traditional way to determine the legal character and the effects of the UPICC on grounds of national laws is consistent with the traditional conflicts-of-laws approach.28 It should be only mentioned as a margin note that German scholarship strongly disputes whether parties may choose the UPICC as governing law at all.29 Some authors, however, refer to the UPICC as international general principles or the lex mercatoria to justify their application.30 First, by German courts the UPICC may be applied directly as trade usages under Section 346 HGB. In general, local usage under German law may both, first, serve as an argument for interpretation of contracts and, second, complement the contract by implying terms under Section 346 HGB.31 Assuming German law governs the contract under conflict-of-laws rules, Section 346 HGB may, as a transformation rule transforming the usage into legally relevant norms,32 introduce the possibility to apply the UPICC as trade usages beyond the simple use as an argument for interpretation under Section 157 BGB as a special form of customary practice.33 Section 346 HGB also applies to international trade usages and customs, admittedly with the limits of German mandatory law.34 It is worth mentioning that no Court

24

Blaurock (1993), p. 258. Schmidt (2013) Section 346 HGB, in: Münchener Kommentar zum HGB, m.n. 16; Canaris (2006) Section 22, m.n. 34. 26 Bonell (2005), p. 231; Drobnig (1990), p. 1151; Canaris (2000), p. 15; Riesenhuber (2003), p. 47. 27 Oser (2008), p. 80. 28 Blaurock (1993), p. 258. 29 The majority view argues clearly against such an option for the parties as far as understood in a real conflicts of law sense: see Martiny (2015) Art. 3 Rom I-VO, in: Münchener Kommentar zum BGB, m.n. 32–35. For the opposing view see McGuire (2011), p. 257. 30 Cf. infra sub 3. 31 BGH NJW 1990 (1724): A local usage or custom which is followed for some period of time may serve as an argument in the interpretation, if the local usage concerns the branch or activity of the parties. 32 Blaurock (1993), p. 258. 33 BGH NJW 1966 (502); Schmidt (2013), Section 346 HGB, in: Münchener Kommentar zum HGB, m.n. 8. 34 BGHZ 62 (71); BGH NJW 1993 (1798), especially referring to “international trade usages”, which may be directly applied without further requirements: BGH, Monatsschrift für Deutsches Recht 1985 (50 m.n. 55). 25

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decisions are reported which refer to the UPICC as trade usages citing Section 346 BGB. However, these findings do not surprise because of the particular prerequisites for pleading and proving trade usages.35 A party referring to a trade usage has to present and, if necessary, prove concrete facts from which the establishment of a concrete trade usage may be drawn. The mere reference to a catalogue like the UPICC would not suffice and usually not really help in fulfilling these prerequisites. Most of German legal literature on Section 346 BGB does usually not refer to the Principles.36 Second, the UPICC as trade usages may subsequently be applied within the supplementary interpretation of contracts, i.e. the implication of terms in fact by the judge. The supplementary function of trade usages for contract interpretation under German law is based on both, the explicit reference to customs in Section 157 BGB and the commonly known principle of good faith under Section 242 BGB.37 This intervention, however, by the judge into the contract requires the determination of a gap within the contract.38 By these means, the UPICC may be applied if there is a gap within the contractual agreement, and, therefore may even replace non-mandatory law.39 Third, German Courts may also apply the UPICC with regard to the interpretation of the law of contracts itself, i.e. provisions of the BGB. Where the German legal system contains a provision, which governs the relevant situation but is incomplete or vague, the UPICC may be used for the interpretation of that rule. Above all, this is especially true for the principle of good faith under Section 242 BGB since many rules of the UPICC may be considered as an elaboration of good faith also under national law.40 Especially where domestic law refers to transnational or comparative law, the UPICC may serve as interpretative material.41 However, there is no general principle of interpretation of statutes in the light of such international (or common European) principles. German contract law does not entail an explicit reference of provisions to transnational or comparative law. The UPICC, however, may also be applied without explicit reference when using the German methods of interpretation of law. In general, these methods contain four classical arguments which suggest that a term may be interpreted: (1) literally, (2) historically, (3) systematically, and by

See in particular BGH, ZIP 2018 (81) ¼ Beck-Rechtsprechung 2017 (136793). Exception, but only referring to the Principes merely in the context of lex mercatoria: Schmidt (2013) Section 346 HGB, in: Münchener Kommentar zum HGB, m.n. 18. 37 Wolf (2012b), Section 157 BGB, in: Soergel Kommentar zum BGB, m.n. 69. 38 Busche (2015b), Section 157 BGB, in: Münchener Kommentar zum BGB, m.n. 38 with further references. 39 Wolf (2012b), Section 157 BGB, in: Soergel Kommentar zum BGB, m.n. 73. From a comparative perspective see Schmidt-Kessel (1997), pp. 101–155. 40 Hartkamp (1995), p. 259. 41 Michaels (2009a) Preamble I: Purposes of the PICC m.n.114. 35 36

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(4) the purpose of the provision.42 Furthermore, as a fifth method, which was originally referred to for the interpretation of constitutional law43 and which was transferred to the methods of contract law interpretation too, the comparative interpretation of law was discussed in academic writing but also by Judges.44 Hence, the UPICC may play a role for interpretation of German contract law at least on two stages of interpretation: for interpreting vague terms by their purpose and from a comparative perspective. To deal with cases with foreign relation properly, the UPICC might serve as available means of knowledge for judges, who may apply those in the context of the interpretation of vague terms as to their purpose.45 More importantly, the idea of using comparative law for interpretation of the law may lead to an indirect application of UPICC. Where German contract law should be interpreted on a comparative basis, the UPICC may deliver material for interpretation. However, under German contract law international conformity, besides the conformity with European law where national provisions implement European law, is generally assumed to be less important.46 It this respect, it is worth mentioning that the UPICC result from the so-called analyzing comparison of laws, which tries not to just represent the lowest common denominator but to improve the law by adopting what is thought to be the best solution.47 This raises the doubts whether this source of the UPICC is well fitted for the purposes of comparative law interpretation of domestic norms. However, until now, there is no decision of German Courts existent which applies the UPICC that way. As already mentioned above, the situation differs as to the use of the UPICC before German arbitral tribunals. Arbitral tribunals are not necessarily bound to apply a particular domestic law, but may also base their decision on international principles.48 For the international stage, Article 28 para. 1 of the 2006 UNCITRAL Model Law states that the “arbitral tribunal shall decide the dispute in accordance with [. . .] rules of law”, which introduces the opportunity to apply also rules of law with supranational or international character.49 Furthermore, Article 21 of the ICC rules of Arbitrations also refers to “rules of law” rather than domestic laws. It needs to be emphasized, that arbitral tribunals under Article 21 para. 2 are especially encouraged to take into account any relevant trade usages. Moreover, arbitral

42

Lüderitz (1966), p. 10. For a critical review see Schmidt-Kessel, McNamee (2017), pp. 405–434. Häberle (1989), p. 916. 44 See e.g. the former President of the Bundesgerichtshof, Odersky (1994), pp. 1–4. 45 Wichard (1996), p. 299 with reference to Sonnenberger (1993) Einleitung IPR, in: Münchener Kommentar zum BGB, Einleitung IPR m.n. 442; see also Michaels (2009a) in: Vogenauer S, Kleinheisterkamp J. 46 That is true for many jurisdictions: Michaels (2009a) in: Vogenauer S, Kleinheisterkamp J. 47 Basedow (2000), p. 130; Grundmann (1999), p. 156. 48 Bonell (2005), p. 241. 49 Brödermann (2004), p. 726. This possibility was also enacted in many domestic arbitration laws worldwide already in 2004: Bonell (2005), p. 241 with further references. 43

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tribunals are allowed to decide ex aequo et bono, which gives them more flexibility to apply the UPICC. From a German perspective, German arbitral tribunals are less flexible than those on an international level. Article 23 of the German DIS arbitration rules of 199850 contains in its paragraph 1 and 2 explicit conflict-of-law rules, which restricts the latitude of flexibility of the arbitral tribunals. As an exception, the tribunal may decide ex aequo et bono (paragraph 3). However, in all cases, the tribunals according to paragraph 4 shall take in account the usages of trade applicable to the transaction. For this reason, without the parties choosing the governing law it is necessary for German arbitral tribunals to justify the application of the UPICC on grounds of German contract law.51 Therefore, the situation before German arbitral tribunals with regard to the material reasoning of the application of the UPICC does not differ.52 Finally, the UPICC may play a role as model for German legislators. In fact, the UPICC together with the Uniform Nations Convention on Contracts for the International Sale of Goods (CISG) played an important role as to the reform of the law of obligations of the BGB in 2002.53

2 UPICC as Evidence of a General Consensus on German Law There is no decision of a German Court or arbitral tribunal which used the UPICC as evidence of a general consensus on the law applicable for contracts. So far, arguing with a general consensus on common principles apart from those dealt with in the civil law codification (like the principle of good face in Section 242 BGB) does not form part of the German tradition of contract law. Lawyers usually seek for a basis within the codification like they do with the so-called fault principle in Section 276 BGB. However, as already mentioned above, the UPICC through trade usages under Section 346 HGB may be applied for the interpretation and supplementation of vague terms and provisions of German contract law.

50 On 1 March 2018 the new 2018 DIS Arbitration Rules came into force and provides the same conflict-of-law rules in Article 24. 51 Brödermann (2004), p. 727. 52 See above. However, the application of conflict-of-law issues, in fact, might differ before arbitral tribunals, see the conflict-of-law rule in Section 1051(1) and (3) of the German Civil Procedure Code and McGuire (2011), p. 257. 53 Schlechtriem (2001), p. 12 ff.; from an international perspective: Michaels (2014), p. 656.

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3 Other Cases of Use of the UPICC German courts and arbitral tribunals, apart from two cases of little relevance,54 did not use the UPICC for the purpose of interpreting or supplementing German contract law. However, German courts and arbitral tribunals did not refer to the UPICC as a general body of contracts law or in combination with the CISG or as the so called lex mercatoria either. The same holds true for other sets of principles like the Principles of European Contract Law or the Draft Common Frame of Reference. Although courts or arbitral tribunals until now did not make use of it, German legal scholarship discusses the possibility to apply the UPICC as general principles of law or lex mercatoria extensively.55 Some scholars are taking the view, that the UPICC may be applied as general principles, which are effective or, at least, compatible with the law in the relevant states.56 This approach sometimes relies on Article 38 para. 1 of the Statute of the International Court of Justice, which also poses general principles of law recognized by civilized nations, and is based on the argument, that by using the methods of comparative law the solutions of most of the important legal systems will be detected and applied.57 Some authors advocate, indeed, that independently from any national law an international commerce law has been developed.58 Under this view, Courts may, hence, not rely on any national law provisions or rules to apply the UPICC, but may use the UPICC directly as part of the lex mercatoria. Arguing against the application of the UPICC, some authors emphasize that soft law does not comply with legal and legislative minimum requirements and courts and arbitral tribunals would be overstrained by comparing law systems and thereby detecting general principles.59 Furthermore, legal academics stress that the UPICC might be applied by German courts and arbitral tribunals for the interpretation or supplementation of the CISG. CISG itself is regarded as being domestic60 and object to German court/arbitral decisions autonomously as an international treaty (Article 1 para. 1 let. a) or through conflict-of-law rules as national German law (Article 1 para. 1 let. b).61 There is a broad discussion in German academic writing as to, whether Article 7 CISG could serve as a legal basis for the application of the Principles. Article 7 states that when interpreting CISG regard is to be had to its international and uniform character and the observance of good faith in international trade. Furthermore, Article 7 refers to general principles, which CISG is based on, for issues that are not expressly settled 54

Cf. supra sub 1. Cf. supra sub 1. 56 Langen (1969), p. 360; Blaurock (1993), p. 260 w.f.r. 57 Blaurock (1993), p. 261. 58 Schmidt (2013), Section 346 HGB, in: Münchener Kommentar zum HGB, m.n. 16; Hoffmann (1984), p. 106; Rietlewski (2007), p. 131 with further references. 59 Wichard (1996), p. 285. 60 Zeller (2006), p. 123. 61 Brödermann (2004), p. 728. 55

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in it. In this context, German academics discuss not only whether the UPICC are such “general principles”, but also whether CISG is “based on them”. Some authors emphasize that the UPICC were introduced after CISG and, therefore, cannot be the basis of CISG.62 Many scholars argue that the UPICC pursue different objectives than CISG and may not be consulted as general principles for neither the interpretation nor supplementation of CISG.63 However, Article 9 of CISG requires the supplementary application of trade usages and practices and, especially, unless otherwise agreed, usages of international trade.64 Therefore, the UPICC might be applied for the interpretation and supplementation of CISG through the good faith principle as general principles or international trade usages.65 On the other hand, where contract law provisions of the German codification are analyzed within larger commentaries like the most famous Staudinger-Commentary, many authors refer to the well-known sets of principles of contract law like the UPICC as part of their comparative introduction to the respective parts of their commentary. So far, these references have neither been criticized nor significantly influenced the discussion within German law. However, the UPICC share this fate with all considerations based on comparative law.

4 The Rules of UPICC and Their Counterparts in German Contract Law German law provides a concrete counterpart for the large majority of the provisions of the UPICC. German participants in the several groups, which drafted the principles and influenced the emergence of the rules in the international discussion, might have played a significant role in establishing rules answering most policy questions dealt with in the German codification also within the principles.

4.1

Negotiations in Bad Faith

The German counterpart to ARTICLE 2.1.15 (Negotiations in bad faith), Section 311 para. 2 BGB, establishes a pre-contractual relationship between the

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Drobnig (1992), p. 635. Michaels (1998), p. 606; Herber (2003), p. 8; Drobnig (1992), p. 635; with doubts: Ferrari (1998), p. 16; for the application of the UPICC: Basedow (1998), p. 25; Magnus (1959), p. 492; Bonell (1997), p. 37; Brödermann (2004), p. 729; Bonell (2010), p. 181. 64 According to Ferrari (1998), p. 16, Article 9 serves as a conflict-of-laws rule rather than introducing the possibility to apply the UPICC in an objective way. 65 Brödermann (2004), p. 729. 63

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parties negotiating including an obligation to negotiate in good faith, breach of which leads to a quasi-contractual liability for culpa in contrahendo. The text of the German provision in Section 311 para. 2 BGB reads as follows: (2) An obligation with duties under section 241 (2) also comes into existence by 1. the commencement of contract negotiations 2. the initiation of a contract where one party, with regard to a potential contractual relationship, gives the other party the possibility of affecting his rights, legal interests and other interests, or entrusts these to him, or 3. similar business contacts.66

In general, the parties are also free to cancel the negotiations under German law. However, the party which cancels the negotiations may be liable for the expenses of the other party, if the closing of the contract was deemed to be save and the other party canceled the negotiations without any valid reason.67 This rule also follows from the general principle of good faith under Section 242BGB. Loss which was incurred by relying on the negotiations has to be compensated. However, as a difference to the UPICC under German law there is no explicit example of bad faith as in Article 2.1.15 para. 3. Therefore, German law remains open for different cases of bad faith.

4.2

Interpretation and Content of the Contract

As German law neither did take over nor develop strong rules on interpretation from previous codifications or the different instances of reception of the Roman law, but mainly formulates some broader principles dealt with mainly by the first instance judges, there is no surprise, that court practice and legal writing mirrors nearly the whole range of the rules on interpretation of the UPICC. Sections 133, 157 BGB—as combined and understood by courts and academic writers68—cover both, the interpretation of the statements and conduct (ARTICLE 4.2 (Interpretation of statements and other conduct)) and the interpretation of the Contract concluded (ARTICLE 4.1 (Intention of the parties)). Section 133 BGB. Interpretation of a declaration of intent When a declaration of intent is interpreted, it is necessary to ascertain the true intention rather than adhering to the literal meaning of the declaration.

66

The translation (as all the translations following) is provided by the Langenscheidt Translation Service (regularly updated by Neil Mussett) and published by juris GmbH, Saarbrücken, on the official web page of the German Federal Ministry of Justice. 67 For the long tradition in case law starting with the Reichsgericht see i.a. RGZ 104 (267); RGZ 151 (359); BGHZ 76 (349); BGHZ 92 (175 f.). 68 See Wolf (2012a) Section 133 BGB, in: Soergel Kommentar zum BGB, m.n. 15 and Busche (2015a) Section 133 BGB, in: Münchener Kommentar zum BGB, m.n. 12 with further references.

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Section 157 BGB. Interpretation of contracts Contracts are to be interpreted as required by good faith, taking customary practice into consideration.

Courts and legal writers also derive from the combination of both provisions the two layers of interpretation which—in theory at least—start with the intention of the party (statement) or parties (contract) before opening an objective approach referring to reasonable persons “in the shoes” of the parties.69 Section 133 BGB expressly refers to the true intention rather than adhering to the literal meaning of the declaration. The interpretation of the declaration of intent needs to take into account the protection of legal transactions in general. For this reason, the interpretation as taken from Section 157 BGB may not only depend on the intention of one party, but on the horizon and the possible understanding of the recipient. The range of relevant circumstances under Sections 133, 157 BGB is not a closed list and encompasses all the cases expressly named in ARTICLE 4.3 (Relevant circumstances). The wording of a clause may be overcome by the content of the whole contract and the behaviour of the parties while and after concluding the contract.70 Furthermore, German law does not exclude material, which is not found in the four corners of the contractual deed. There is a rebuttable presumption that the deed containing the contract mirrors the contract completely and correctly (Vermutung der Vollständigkeit und Richtigkeit einer Urkunde).71 However, the history of the conclusion of the contract may also be relied on by the judge. Therefore, this presumption may be rebutted by reference to proven circumstances in the time of conclusion of the contract.72 Therefore, Article 4.3 only proposes more explicit examples of circumstances, to which one might refer. There are no explicit counterparts in the German codification for ARTICLE 4.4 (Reference to contract or statement as a whole) and ARTICLE 4.5 (All terms to be given effect). However, both principles of interpretation are well accepted for German law: First, courts and legal writing have developed a general principle, that no interpretation of isolated terms will take place but rather an interpretation within the whole context of the contract.73 There is also no general hierarchy among contract terms under German law, if there is no explicit established hierarchy by the parties.74 This general principle under German law seems to be consistent with Article 4.4 of the UPICC. Similarly, it is important for contract interpretation under German law not to neglect terms of the contract when establishing its meaning in court. The appeal to the Bundesgerichtshof is open, where appellate courts or courts of first instance do not take all the contract clauses into account when interpreting the

69

Busche (2015a) Section 133 BGB, in: Münchener Kommentar zum BGB, m.n. 12. Busche (2015a) Section 133 BGB, in: Münchener Kommentar zum BGB, m.n. 55. 71 BGH NJW 2002 (3164). 72 Wolf (2012b) Section 157 BGB, in: Soergel Kommentar zum BGB, m.n. 36. 73 BGH NJW-RR 1990 (613). 74 Schmidt-Kessel (2013) Article 8 CISG, in: Schlechtriem P, Schwenzer. 70

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contract. On the other hand, judges are not prevented to find as a result of contract interpretation, that clauses of the contract are superfluous and without any legal effect in the light of the contract as a whole. As from ARTICLE 2.1.20 (Surprising terms) it is clear from Section 305c(1) German Civil Code that surprising terms are not only interpreted to the detriment of the party which introduced them,75 but that those clauses are forbidden by law, when used in standard terms and conditions: Section 305c BGB. Surprising and ambiguous clauses (1) Provisions in standard business terms which in the circumstances, in particular with regard to the outward appearance of the contract, are so unusual that the other party to the contract with the user need not expect to encounter them, do not form part of the contract. (2) Any doubts in the interpretation of standard business terms are resolved against the user.

Such clauses might also contravene the general clause on unfair contract terms in Section 307 BGB. In so far, no great differences are to be noticed. However, one may recognize that German law introduces explicit objective standards of reference for determining the surprising character of terms like “circumstances”, “outward appearance of the contract” and “so unusual”.

4.3

Currency of Payment

The German Civil code also contains a counterpart to ARTICLE 6.1.9 (Currency of payment), which reads: Section 244 BGB. Foreign currency obligation (1) If a money debt stated in a currency other than the euro is payable within the country, then payment may be made in euros unless payment in the other currency has been expressly agreed. (2) Conversion occurs at the rate of exchange in effect in the place of payment at the time of payment.

Deviating from Article 6.1.9 para. 1 UPICC the German rule only privileges the German currency, i.e. the Euro, and does not apply for other currencies and countries.76 The introduction of the Euro led to a broader territorial scope of application, which now covers all territories where the Euro is established as legal tender.77 Whether the provision presupposes German law being lex contractus is much

75 For the German version of the principle of an interpretation contra proferentem see Section 305c (2) German Civil Code. 76 Schmidt-Kessel and Kramme (2017a), Section 244 BGB, in: Prütting H, Wegen G, Weinreich G (eds), BGB Kommentar, m.n. 14. 77 Schmidt-Kessel and Kramme (2017a) Section 244 BGB, in: Prütting H, Wegen G, Weinreich G (eds), BGB Kommentar, m.n. 16.

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debated. The rules on conversion rates are more in parallel. Article 6.1.9 para. 4 UPICC is usually covered by way of damages.

4.4

Rights to Terminate for Breach

German law also provides for counterparts to the general right to terminate for breach under ARTICLE 7.3.1 (Right to terminate the contract). The respective rules in the General law of obligations read: Section 314 BGB. Termination, for a compelling reason, of contracts for the performance of a continuing obligation (1) Each party may terminate a contract for the performance of a continuing obligation for a compelling reason without a notice period. There is a compelling reason if the terminating party, taking into account all the circumstances of the specific case and weighing the interests of both parties, cannot reasonably be expected to continue the contractual relationship until the agreed end or until the expiry of a notice period. (2) If the compelling reason consists in the breach of a duty under the contract, the contract may be terminated only after the expiry without result of a period specified for relief or after a warning notice without result. Section 323 (2) applies with the necessary modifications. (3) The person entitled may give notice only within a reasonable period after obtaining knowledge of the reason for termination. (4) The right to demand damages is not excluded by the termination. Section 323 BGB. Revocation for nonperformance or for performance not in conformity with the contract (1) If, in the case of a reciprocal contract, the obligor does not render an act of performance which is due, or does not render it in conformity with the contract, then the obligee may revoke the contract, if he has specified, without result, an additional period for performance or cure. (2) The specification of a period of time can be dispensed with if 1. the obligor seriously and definitively refuses performance, 2. the obligor does not render performance by a date specified in the contract or within a specific period and the obligee, in the contract, has made the continuation of his interest in performance subject to performance being rendered in good time, or 3. there are special circumstances which, when the interests of both parties are weighed, justify immediate revocation. (3) If the nature of the breach of duty is such that setting a period of time is out of the question, a warning notice is given instead. (4) The obligee may revoke the contract before performance is due if it is obvious that the requirements for revocation will be met. (5) If the obligor has performed in part, the obligee may revoke the whole contract only if he has no interest in part performance. If the obligor has not performed in conformity with the contract, the obligee may not revoke the contract if the breach of duty is trivial.

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(6) Revocation is excluded if the obligee is solely or very predominantly responsible for the circumstance that would entitle him to revoke the contract or if the circumstance for which the obligor is not responsible occurs at a time when the obligee is in default of acceptance. Section 324 BGB. Revocation for breach of a duty under section 241 (2) If the obligor, in the case of a reciprocal contract, breaches a duty under section 241 (2), the obligee may revoke the contract if he can no longer reasonably be expected to uphold the contract. Section 326 BGB. Release from consideration and revocation where the duty of performance is excluded (1) – (4) omitted (5) If, under section 275 (1) to (3), the obligor does not have to perform, the obligee may revoke; section 323 applies with the necessary modifications to the revocation, subject to the proviso that it is not necessary to specify a period of time.

The general rule may be found in Section 323 BGB to which Sections 324, 326 para. 5 BGB add two special cases. The Rücktritt dealt with in these provisions is functionally of retroactive effect (Sections 346–348 BGB) similar to the consequences of termination under Article 7.3.6 UPICC without nullifying the contract,78 which might be the reason for the somewhat uneasy official translation of Rücktritt by the word revocation. It is important to stress, that dogmatically under Sections 323, 324, 326 para. 5 BGB the contract as such remains intact but changes the “direction” of performances in to a restitutionary relationship. The prerequisites of Rücktritt are mainly enshrined in the classical German Nachfrist-Lösung in Section 323 para. 1 BGB making time of the essence, from which Sections 323 para. 2, 324, 326 para. 5 BGB provide for some exceptions which come close to the list in Article 7.3.1 para. 2 UPICC. These rules are slightly modified by some rules for specific contracts like Section 440 BGB (lack of quality in sales contracts) and Section 635 BGB (lack of quality in certain service contracts, i.e. construction contracts). For long term relationships Section 314 BGB provides for a separate remedy for termination, the Kündigung, which in its consequences comes very close to the restitutionary consequences dealt with in Article 7.3.7 UPICC. The provision not only applies to cases of breach of contract but to all cases of serious reasons to bring the contract to an end. It is flanked by several similar provisions for special contracts, e.g. Section 543 BGB (lease and hosing) and Sections 626, 648a BGB (services). Termination for breach under Section 314 BGB also presupposes a Nachfrist, Section 314 para. 2 BGB, which is not necessary where one of the cases of Section 323 para. 2 BGB applies or the breach leads to another serious reason to end the contractual relationship. The Kündigung produces no restitutionary effects apart from counterbalancing advance performances not provided with consideration before the contract ends.

78 This would have led to restitution under the rules of unjustified enrichment (Sections 812–822 BGB) instead of the “contractual restitution” under Sections 346–348 BGB.

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Interest

The German counterparts to ARTICLE 7.4.9 (Interest for failure to pay money) and ARTICLE 7.4.10 (Interest on damages) form part of the general regime of delayed (contractual and non-contractual) performance in Sections 286–289 BGB and the general rule on interest in commercial contracts in Section 353 of the HGB and read: Section 247 BGB. Basic rate of interest (1) The basic rate of interest is 3.62%. It changes on 1 January and 1 July each year by the percentage points by which the reference rate has risen or fallen since the last change in the basic rate of interest. The reference rate is the rate of interest for the most recent main refinancing operation of the European Central Bank before the first calendar day of the relevant six-month period. (2) The Deutsche Bundesbank announces the effective basic rate of interest in the Federal Gazette without undue delay after the dates referred to in subsection (1) sentence 2 above. Section 286 BGB. Default of the obligor (1) If the obligor, following a warning notice from the obligee that is made after performance is due, fails to perform, he is in default as a result of the warning notice. Bringing an action for performance and serving a demand for payment in summary debt proceedings for recovery of debt have the same effect as a warning notice. (2) There is no need for a warning notice if 1. a period of time according to the calendar has been specified, 2. performance must be preceded by an event and a reasonable period of time for performance has been specified in such a way that it can be calculated, starting from the event, according to the calendar, 3. the obligor seriously and definitively refuses performance, 4. for special reasons, weighing the interests of both parties, the immediate commencement of default is justified. (3) The obligor of a claim for payment is in default at the latest if he does not perform within thirty days after the due date and receipt of an invoice or equivalent statement of payment; this applies to an obligor who is a consumer only if these consequences are specifically referred to in the invoice or statement of payment. If the time at which the invoice or payment statement is received by the obligor is uncertain, an obligor who is not a consumer is in default at the latest thirty days after the due date and receipt of the consideration. (4) The obligor is not in default for as long as performance is not made as the result of a circumstance for which he is not responsible. Section 288 BGB. Default interest (1) Any money debt must bear interest during the time of default. The default rate of interest per year is five percentage points above the basic rate of interest. (2) In the case of legal transactions to which a consumer is not a party the rate of interest for claims for payment is eight percentage points above the basic rate of interest. (3) The obligee may demand higher interest on a different legal basis. (4) The assertion of further damage is not excluded.

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Section 289 BGB. Prohibition of compound interest Default interest is not to be paid on interest. The right of the obligee to compensation for damage caused by the default remains unaffected.” Section 353 HGB. Merchants may claim interest from each other on claims under bilateral commercial contracts from the day on which the claim is due. Interest on interest may not be claimed under this article.79

German law differentiates between interest on the basis of a payment due and interest for delayed payment. As a rule, interest for failure to pay money under German contract presupposes a qualified delay as defined by Section 286 BGB. For most commercial contracts80 the duty to pay interest only depends on the money being due only, cf. Section 353. In both cases interest does not prevent the creditor from claiming damages for delay, see Section 288 para. 4 BGB. Qualified delay under Section 286 para. 1 BGB does not only presuppose a payment due but usually also a specified demand for performance, the so-called Mahnung translated with “warning notice” by the official translation of the German Civil Code. Moreover, Section 286 para. 4 BGB states a fault requirement also for interest organized as a no-fault defense to be pleaded and proven by the debtor. However, with monetary obligations German courts are very reluctant to accept a no-fault defense and has established a significantly high threshold for reasonable care in the sense of Section 276 para. 2 BGB.81 For B2B-contracts this standard has to be concretized with a view to the standards of responsibility under Article 3 para. 1 let. b and Article 4 para. 1 let. b Late-Payment-Directive 2011/7/EU which originally had been built on the famous force majeure defense in Article 79 CISG. Some German authors argue that errors of law would not excuse the debtor in those cases.82 Important exceptions to the requirement of Mahnung are dealt with in Sections 286 para. 2 and para. 3 BGB. First exception in Section 286 para. 2 no. 1 BGB contains the classical rule of dies interpellat pro homine: Where the time for performance within the contract is determined by an exact date, Mahnung is not needed. The second exception (Section 286 para. 2 no. 2 BGB) refers to the case that time for performance depends on a certain event, e.g. the declaration to bring the contract to an end. However, German academics discuss whether the qualified delay is established with the event itself or only after a reasonable period starting with the event. A serious refusal to perform under Section 286 para. 2 no. 3 BGB also 79

Our Translation. Section 355 HGB presupposes merchants in the formal sense of Sections 1–6 HGB (usually obliged to register under Section 14 HGB), which follows a more traditional, nineteenth century approach of commodity trade and does by far not apply to all professionals. 81 See Schmidt-Kessel and Kramme (2017b) Section 286 BGB, in: Prütting H, Wegen G, Weinreich G, (eds) BGB Kommentar, m.n. 24. 82 See Schmidt-Kessel and Kramme (2017b) Section 286 BGB, in: Prütting H, Wegen G, Weinreich G (eds), BGB Kommentar, m.n. 25. 80

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replaces the Mahnung requirement because such specified demand would be a superfluous formality only. Based on the Late-Payment-Directive 2011/7/EU Section 286(3) BGB establishes a fourth particular exception to the Mahnungrequirement, which mainly applies to commercial contracts: The delay starts to be qualified (and interest becomes due without Mahnung) if a price due, i.e. a monetary counter performance, has not been paid within thirty days after invoice.83 Finally, Section 286 para. 2 no. 4 BGB provides of a general clause as the most general exception to the Mahnung requirement; it applies in case of particular reasons, which, weighing the interests of both parties, justify the immediate qualified default. The standard default interest rate under German law is a flexible one referring to certain European Central Bank interest rates as defined in Section 247 BGB, the so-called basic rate, which for the first half of 2018 is fixed to 0.88%. For interest for qualified delay of payment in B2B contracts Section 288 para. 2 BGB adds a span of 8% to the basic rate. For the first half of 2018 a debtor in qualified delay has to pay a rate of 7.12%. The interest rate due under Section 353 HGB is fixed to 5%, see Section 352 para. 2 HGB. In case of conflict of Section 288 BGB and Section 353 HGB the higher rate prevails. Therefore, the particular rule for interest under a commercial contract is not of a significant practical relevance for the time being. Sections 286, 288 BGB also apply to damages claims and, therefore, also form the counterpart to ARTICLE 7.4.10 (Interest on damages). Section 353 HGB as well applies to claims for damages.

5 Linguistic Discrepancies as an Exceptional Gap Unlikely to be Filled by UPICC German law does not provide for an explicit rule similar to ARTICLE 4.7 (Linguistic discrepancies). Apart from Section 184 of the Courts Constitutions Act84 (GVG), the act generally organizing the courts and courts structure for civil and criminal matters, provisions as to language are only exceptionally found in German law.85 There is only little case law and academic writing on language risks altogether86 where

83 When the time of the invoice reaching the price debtor remains uncertain in court, the 30 days period starts when the performance the price has to be paid for has been rendered, see 2nd sentence of Section 286(3) BGB. 84 Courts Constitution Act, Gerichtsverfassungsgesetz (GVG). 85 The provisions, which could found usually transpose EU Directives into German law, like Sections 356a(3) and (4), 483, 484 (3) BGB or articles 241, 242 Section 2, 246b Section 1 I Nr. 17, 246c Nr. 4, 248 Section 2 EGBGB. Bus see Section 2250(3) BGB for particular types of wills. 86 See i.a. BAG NZA 2014 (1076) (on the conclusion of an employment contract with an employee of a foreign mother tongue). Moreover Maier-Reimer (2010) NJW 2010 (2545) and Armbrüster (2011) NJW 2011 (814).

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publications do not deal with international contracts.87 However, filling this gap by referring to ARTICLE 4.7 (Linguistic discrepancies) is very unlikely: A rule providing the general preference of the drafting language would contravene the very open German approach to contract interpretation.

6 Courts Using Other Parts of UPICC So far there have been only two published decisions in Germany, which refer to the UPICC, one of a German local court and one of a German arbitral tribunal.88 As mentioned above, in the first decision the Landgericht Frankfurt am Main (District Court) dealt with the interpretation of the nomination principles for the Olympic Games and referred to the contra proferrentem rule, which is well known under German contract law and states that ambiguous contract terms, which are proposed by one of the contract parties, shall be interpreted to the detriment of this party.89 By reference to the previous (and unpublished) decision of the German arbitration court for sports,90 which applied the contra proferrentem rule quoted Article 4.6 of the UPICC in an indirect manner. In the second decision the Berlin arbitral tribunal referred in its decision inter alia to the draft provisions on hardship91 contained in the UPICC as an additional argument and especially to prove that the principle of hardship is accepted on an international level.92

7 Reasons for the Limited Relevance of UPICC in German Court Practice It has become clear from the previous sections of this national report that the UPICC are of no significant importance in German court practice. This is astonishing to a certain extent because the UPICC are at least discussed in general by several major commentaries to the BGB and are therefore—compared to other international instruments—rather well-known in Germany. A first important reason for the reluctant position of German courts in applying the UPICC follows from private international rules. Art. 3 para. 1 Rome I-Regulation

87

See e.g. Schmidt-Kessel (2013) Art. 8 CISG, in: Schlechtriem P, Schwenzer I. Cf. supra sub 1. 89 Busche (2015b) Section 157 BGB, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch, m.n. 8. 90 German Arbitration Court for Sports, DIS-SV-SP-02/08 (10). 91 See Article 6.2.2 of Unidroit Principles of International Commercial Contracts 2010. 92 Berlin Arbitration Court, Wirtschaftsrecht 1991 (161); Maskow (1992), p. 666. 88

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regulating the choice of law for contracts only allows to choose a national law in the sense of a state-based law. Following the nearly unanimous view of European and in particular legal academics a non-national instrument may not be opted for by the parties. A “choice of law” for the UPICC would be treated like a simple referral to standard contract terms. UPICC would then be object to the German rules of unfair contract terms, which also apply to B2B-contract. The uncertainty, which follows from this fairness control, makes choice of UPICC not very attractive. The UNIDROIT Principles do—at least usually but probably always—not comply with the strict requirements to the applicability of international usages in commerce as established by Section 346 HGB. So far, nor rule of the UPICC had come close as being plead or proven as being or mirroring international contract practice in general or at least of a certain branch. Finally, German general contract law turns out to provide for a comprehensive and also conclusive system, which usually is developed autonomously. Apart from ARTICLE 4.7 (Linguistic discrepancies) German law provides for counterpart rules to all articles of the UPICC considered here. In the only gap case found here for German law the application of the UPICC would contravene general principles of contract interpretation under Sections 133, 157 BGB. Without a gap German legal methodology would be open theoretically to have the interpretation of provisions like in the BGB and the HGB inspired by the models established by the UNIDROIT Principles. However, such openness so far has not been taken over in court practice.

References Armbrüster C (2011) Fremdsprachen in Gerichtsverfahren. NJW 2011:814 Basedow J (1998) Die Unidroit Prinzipien der Internationalen Handelsverträge und die Übereinkommen des einheitlichen Privatrechts. In: Basedow J, Hopt KJ, Kötz H (eds) Festschrift Drobnig. Mohr-Siebeck, Tübingen, p 19 Basedow J (2000) Uniform Law Conventions and the Unidroit Principles. Unif Law Rev 2000:129 Blaurock U (1993) Übernationales Recht des Internationalen Handels. ZEuP 1993:248 Bonell MJ (1997) The UNIDROIT principles in practice: the experience of the first two years. Unif Law Rev n.s 2:34, 45 Bonell MJ (2005) Soft law and party autonomy: the case of the UNIDROIT principles. Loy Law Rev 51:229, 252 Bonell MJ (2010) Symposium Paper: the Unidroit principles of international commercial contracts: achievements in practice and prospects for the future. Aust Int Law J 17:117, 181 Brödermann E (2004) Die erweiterten UNIDROIT Principles 2004. RIW 2004:721 Busche J (2015a) § 133 BGB. In: Säcker FJ, Rixecker R, Oetker H, Limperg B (eds) Münchener Kommentar zum Bürgerlichen Gesetzbuch, 7th edn. C. H. Beck, München Busche J (2015b) § 157 BGB. In: Säcker FJ, Rixecker R, Oetker H, Limperg B (eds) Münchener Kommentar zum Bürgerlichen Gesetzbuch, 7th edn. C. H. Beck, München Canaris CW (2000) Die Stellung der “Unidroit Principles” und der “Principles of European Contract Law” im System der Rechtsquellen. In: Basedow J (ed) Europäische Vertragsvereinheitlichung und deutsches Recht. Mohr Siebeck, Tübingen Canaris CW (2006) Handelsrecht, 24th edn. C. H. Beck, München

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Drobnig U (1990) Ein Vertragsrecht für Europa. In: v. Baur JF, Hopt KJ, Mailänder KP (eds) Festschrift für Ernst Steindorff zum 70. Geburtstag, de Gruyter, Berlin Drobnig U (1992) Substantive validity in the Unidroit principles for international commercial contracts. Am J Comp Law 40:635 Ferrari F (1998), Das Verhältnis zwischen den Unidroit Grundsätzen und den allgemeinen Grundsätzen internationaler Einheitsprivatrechtskonventionen. JZ 1998:11 Grundmann S (1999) Law merchant als lex lata Communitatis – insbesondere die UnidroitPrinciples. In: Diederichsen U, Fischer G, Medicus D, Pirrung J, Wagenitz T (eds) Festschrift für Walter Rolland zum 70. Geburtstag, Bundesanzeiger-Verlag, Köln, p 145 et seq Häberle P (1989) Grundrechtsgeltung und Grundrechtsinterpretation im Verfassungsstaat. JZ 1989:913 Hartkamp A (1995) The use of the Unidroit principles of international commercial contracts by National and Supranational Courts. In: Unidroit principles for international commercial contracts: a new Lex Mercatoria?, ICC Publication n. 490/1:253, 259 Hefermehl W (2012) § 133 BGB. In: Soergel HT, Bürgerliches Gesetzbuch mit Einführungsgesetz und Nebengesetzen: BGB, 12th edn. W. Kohlhammer GmbH, Stuttgart Herber R (2003) “Lex mercatoria” und “Principles” – gefährliche Irrlichter im internationalen Kaufrecht. Internationales Handelsrecht 2003:1 Hoffmann B (1984) “Lex mercatoria” vor internationalen Schiedsgerichten. IPrax 1984:106 Jolivet E (2008) L’harmonisation du droit OHADA des contrats: l’influence des Principes d’UNI DROIT en matière de partique contractuelle et d’arbitrage. Rev Dr Unif 2008:127 Langen E (1969) Vom internationalen Privatrecht zum Transnationalen Recht. NJW 1969:358 Lüderitz A (1966) Auslegung von Rechtsgeschäften. C.F. Müller, Heidelberg Magnus U (1959) Allgemeine Grundsätze im UN-Kaufrecht. RabelsZ 1959:469 Maier-Reimer G (2010) Vertragssprache und Sprache des anwendbaren Rechts. NJW 2010:2545 Martiny D (2015) Art. 3 Rom I-VO. In: Säcker FJ, Rixecker R, Oetker H, Limperg B (eds) Münchener Kommentar zum Bürgerlichen Gesetzbuch, 6th edn. C. H. Beck, München Maskow D (1992) Hardship and Force Majeure. Am J Comp Law 40:657 McGuire MR (2011) Grenzen der Rechtswahlfreiheit im Schiedsverfahren? – Über das Verhältnis zwischen der Rom-I-VO und § 1051 ZPO. SchiedsVZ 2011:257 Meyer O (2002) The Unidroit principles and their impact on European private law. Unif Law Rev 2002/4:1223 Michaels R (1998) Privatautonomie und Privatkodifikation – Zu Anwendbarkeit und Geltung allgemeiner Vertragsrechtsprinzipien. RabelsZ 1998:580 Michaels R (2009a) Preamble I: purposes of the PICC. In: Vogenauer S, Kleinheisterkamp J (eds) Commentary on the Unidroit principles of international commercial contracts (PICC). Oxford University Press, Oxford Michaels R (2009b) Umdenken für die UNIDROIT-Prinzipien – Vom Rechtswahlstatut zum Allgemeinen Teil des transnationalen Vertragsrechts. RabelsZ 2009:866 Michaels R (2014) The UNIDROIT principles as global background law. Unif Law Rev 19:643, 668 Odersky W (1994) Harmonisierende Auslegung und europäische Rechtskultur. ZEuP 1994:1–4 Oser D (2008) The Unidroit principles of international commercial contracts: a governing law? Martinus Nijhoff Publishers, Leiden Riesenhuber K (2003) System und Prinzipien des Europäischen Vertragsrechts. de Gruyter, Berlin Rietlewski K (2007) Die Lex mercatoria in der schiedsrichterlichen Praxis. SchiedsVZ 2007:131 Roth H (2010) § 157 BGB. In: Staudinger J, Kommentar zum Bürgerlichen Gesetzbuch, Sellier – de Gruyter, Berlin Schlechtriem P (2001) 10 Jahre CISG – Der Einfluss des UN-Kaufrechts auf die Entwicklung des deutschen und internationalen Kaufrechts. Internationales Handelsrecht 2001:12 et seq Schmidt K (2013) § 346 HGB. In: Ebke WF, Schmidt K (eds) Münchener Kommentar zum Handelsgesetzbuch, 3rd edn. C. H. Beck, München Schmidt-Kessel M (1997) Implied Term – auf der Suche nach dem Funktionsäquivalent. Zeitschrift für vergleichende Rechtswissenschaft 96:101–155

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Schmidt-Kessel M (2004) Zur culpa in contrahendo im Gemeinschaftsprivatrecht. ZEuP 4/2004:1019 Schmidt-Kessel M (2013) Art. 8 CISG. In: Schlechtriem P, Schwenzer I (eds) Kommentar zum Einheitlichen UN-Kaufrecht – Das Übereinkommen der Vereinten Nationen über Verträge über den internationalen Warenkauf (CISG), 6th edn. C. H. Beck, München Schmidt-Kessel M, Kramme M (2017a) § 244 BGB. In: Prütting H, Wegen G, Weinreich G (eds) BGB Kommentar, 12th edn. Hermann Luchterhand Verlag, München Schmidt-Kessel M, Kramme M (2017b) § 286 BGB. In: Prütting H, Wegen G, Weinreich G (eds) BGB Kommentar, 12th edn. Hermann Luchterhand Verlag, München Schmidt-Kessel M, McNamee S (2017) European contract law. In: Riesenhuber K (ed) European legal methodology, 1st edn. Intersentia, Cambridge Singer R (2012) § 133 BGB. In: Staudinger J, Kommentar zum Bürgerlichen Gesetzbuch, Sellier – de Gruyter, Berlin Sonnenberger HJ (1993) Einleitung IPR. In: Säcker FJ, Rixecker R, Oetker H, Limperg B (eds) Münchener Kommentar zum Bürgerlichen Gesetzbuch, 7th edn. C. H. Beck, München Spickhoff A (1992) Internationales Handelsrecht vor Schiedsgerichten und staatlichen Gerichten. RabelsZ 1992:116 Wendtland H (2017a) § 133 BGB. In: Bamberger HG, Roth H, Hau W, Poseck R (eds) Beck’scher Onlinekommentar BGB, 43rd edn. C. H. Beck, München Wendtland H (2017b) § 157 BGB. In: Bamberger HG, Roth H, Hau W, Poseck R (eds) Beck’scher Onlinekommentar BGB, 43rd edn. C. H. Beck, München Wichard JC (1996) Die Anwendung der UNIDROIT-Prinzipien für internationale Handelsverträge durch Schiedsgerichte und stattliche Gerichte. RabelsZ 1996:269 Wolf C (2012a) § 133 BGB. In: Soergel HT, Bürgerliches Gesetzbuch mit Einführungsgesetz und Nebengesetzen: BGB, 12th edn. W. Kohlhammer GmbH, Stuttgart Wolf C (2012b) § 157 BGB. In: Soergel HT, Bürgerliches Gesetzbuch mit Einführungsgesetz und Nebengesetzen: BGB, 12th edn. W. Kohlhammer GmbH, Stuttgart Zeller B (2006) The Unidroit principles of contract law; is there room for their inclusion into domestic contracts. J Law Commer 2006:115

Judicial References Reichsgericht (Germany), 4 Feb 1922 – I 307/21 Reichsgericht, 22 June 1936 – IV 75/36 Berlin Arbitration Court (Germany), Wirtschaftsrecht 1991 (161) Bundesgerichtshof (Germany), 22 Nov 1965 – II ZR 189/63 Bundesgerichtshof (Germany), 21 Dec 1973 – IV ZR 158/72 Bundesgerichtshof (Germany), 07 Feb 1980 – III ZR 23/78 Bundesgerichtshof (Germany), 20 Sept 1984 – III ZR 47/83 Bundesgerichtshof (Germany), 22 Jan 1990 – II ZR 15/89 Bundesgerichtshof (Germany), 30 Mar 1990 – V ZR 113/89 Bundesgerichtshof (Germany), 3 Dec 1992 – III ZR 30/91 Bundesgerichtshof (Germany), 5 July 2002 – V ZR 143/01 Bundesgerichtshof (Germany), 13 Oct 2015 – II ZR 23/14 Bundesarbeitsgericht (Germany), 19 Mar 2014 – 5 AZR 252/12 (B) European Court of Justice, 17 Sept 2002 – C-334/00 (Tacconi SpA vs HWS) German Arbitration Court for Sports, 17 Dec 2009 – DIS-SV-SP-02/08 Landgericht Frankfurt a.M. (Germany), 15 Dec 2011 BeckRS 2012, 06785 OLG Frankfurt a.M. (Germany), 06 May 2014 – 10 U 291/12

Questionnaire on the Use of the UPICC in Order to Interpret or Supplement National Contract Law: Greece Eugenia Dacoronia

Abstract The research regarding the use of the UPICC in order to interpret or supplement contract law in Greece has shown that there is no invocation of the UPICC as representing “trade usages” or “customs” in the field of contract law. However, it has to be noted that many provisions of the UPICC have a counterpart in the provisions of the Greek Civil Code. It can be also considered that Article 2.1.20 (Surprising terms) has a counterpart in L. 2251/1994 for the protection of the Consumer, as subsequently amended and codified. Also, those provisions of the UPICC that have no counterpart can be used to show that international common usages indicate that the contract should be interpreted in the same way in Greece as well.

1. Is there any legal source in your legal system allowing the use of the UPICC to interpret or supplement national contract law (either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source)? If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law). To start with, as, according to art. 1 of the Greek Civil Code (GCC) on sources of law, the rules of law are contained in the statutes of law and in the customs, there is no field in principle to consider the provisions of the UPICC, which constitute soft law, as sources of law. Also, though good faith, good morals (bonos mores) and trade usages constitute, secondary sources of law in the Greek legal system,1 we

1

See, among many others, Georgiades (2012), p. 24.

E. Dacoronia (*) School of Law, National and Kapodistrian University of Athens, Athens, Greece © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_10

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have found no reference in the Greek bibliography mentioning that the UPICC represent “trade usages” or “customs” in the field of contract law. There are, to our knowledge, no Court cases either in Greece where the UPICC have been invoked as representing “trade usages” or “customs” in the field of contract law and, accordingly, no relevant decision. 2. Have the UPICC been used as evidence of a general consensus on the law applicable to contracts (for example, on the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.)? If so, please indicate which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner. The Greek jurisprudence, though scarcely, does not negate the recognition of the validity of terms in the contract that express the lex mercatoria. So, the decision no. 7952/1980 of the Athens Court of Appeal,2 recognizing the lex mercatoria3 in contracts,4 has held, on the basis of art. 25 GCC,5 that the parties having been voluntarily submitted to the text of the International Convention on the Contract for the International Carriage of Goods by Road (CMR) which was not still in force in Greece, had opted for the application of the Convention itself as applicable law and not for a particular internal law6 and that this is allowed by law. However, the vast majority of the decisions that dealt with the issue apply the lex mercatoria as part of the applicable law that the rules of conflict of the forum indicate.7 We have found no Court decisions, however, where the UPICC have been particularly used as evidence of a general consensus on the law applicable to contracts. It has been only mentioned in the Greek legal doctrine that: (i) if the contracting parties choose the UPICC as governing their contract without a further direct or indirect reference to the applicable law, the basic question that arises is whether the UPICC will be autonomously applied by the judge or the arbitrators, i.e. as the applicable law (autonomous application) or if they are going to be applied as part of the applicable law that the rules of conflict of the

2

NoV (¼ Nomiko Vima, Legal Tribune) 29, 562. Pamboukis (1993), pp. 261, 266, characterizes the lex mercatoria as “a modern artillery against the regulatory state”. 4 Bernitsas (1986), pp. 315, 357–359. 5 Article 25 GCC. Obligations arising from a contract. Obligations arising from contracts are governed by the law in which the interested parties have been submitted. If there is not such a law, the law which is appropriate in regard to the contract considering the whole of the special circumstances applies. 6 Contra Pamboukis (1994), p. 1151, note 47, according to whom the Greek substantive law is tacitly applied. 7 Pamboukis (1996), p. 191 ff., where also the relevant jurisprudence is mentioned. Voulgaris (2001), pp. 113, 118, 119 also considers said approach as more correct. 3

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forum indicate (heteronomous application),8 in which case the national court or the arbitrators will judge the force of the provisions of the UPICC under the prism of the mandatory rules of the applicable law. It is further mentioned that the answer depends on whether the issue arises before a national court or an arbitral one; in the first case, when the issue arises before a national court, it prevails that the applicable law will be the one indicated by the rules of conflict of the forum, independently from the fact that the parties chose the UPICC as applicable law, whilst, when the litigation is before an arbitral court, the answer is different given that it is accepted9 that the arbitrators are not tied up by the rules of conflict of the place where the arbitration takes place, which has as a consequence that they have the possibility to apply rules that are not linked to a particular national law.10 (ii) in cases where the parties agree on the application of the general principles of law or the rules of lex mercatoria or the like, a contractual choice which is permissible when the litigation is before an arbitral court, the basic question that arises is whether the arbitrators when specifying the content of said principles of law will have to prefer the use of the UPICC against other international conventions or in general against the international uniform law.11 After presenting the three opinions expressed in relation to this matter to the international bibliography,12 i.e.: a) that the arbitrators shall favour the application of the UPICC in order to avoid the uncertainty as to which is the applicable law or the applicable set of rules. This particular view, although appearing extreme at first sight, has been nonetheless followed by plenty arbitral tribunals. b) that the contracting parties’ reference to the ‘generally accepted principles of law’ or to similar expressions cannot be regarded as an implicit will to apply the UPICC. This view draws its main argument from the text of the Introduction where it is stated that the UPICC adopt the best solutions for the purposes of international trade, even if they are not universally accepted. Furthermore, the UPICC have been created by scholars who were acting in their personal capacity and as a result they do not have regulatory power and their utilization is exclusively left to the businessmen or the arbitrators. Furthermore, the meaning

8

For the distinction between the autonomous and the heteronomous application see Pamboukis (1996), p. 131 f. 9 See, in the Greek bibliography, Beis (1994), p. 388; Bernitsas (1986), pp. 315, 357; Maridakis (1970), p. 121; Pamboukis (1994), p. 125; Perakis (2011), p. 161 and pp. 67, 68, who mentions that the Greek Code of Civil Procedure explicitly provides in art. 890 that the arbitrators apply the provisions of substantial law “if it is not otherwise stipulated in the arbitration agreement”, which means that they can judge on the basis of the general principles of law or of the lex mercatoria. 10 Flambouras (2001), pp. 217, 226–228; Voulgaris (2001), pp. 113, 123. See also Gazis (1998), p. 1004. 11 Flambouras (2001), pp. 229–231. 12 See Flambouras (2001), pp. 231–234.

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of lex mercatoria is much broader and more flexible than that of the UPICC and as a result it cannot be accepted that a reference to lex mercatoria is equivalent to an automatic application of the UPICC.13 c) that the question is not focused on whether the UPICC can be directly applied as incorporating the general principles of law or as including in a more authentic way the rules of lex mercatoria, but on whether, in cases where the contracting parties have referred to those terms, the arbitrators can resort to the UPICC as one of the available sources of international uniform law in order to specify those terms, the Greek author, is of the view14 that taking into consideration the conclusions of the jurisprudence of the arbitral tribunals in other countries, the third (under c) intermediate opinion seems more correct, because, if it becomes accepted, the arbitrators who adopt it will have the possibility of specifying the aforementioned notions, resorting not only to the UPICC, but also to other texts of international uniform law such as to international conventions or to the uniform regulation of trade (Vienna Convention on the International Sales of Goods), to international texts of non-binding nature on the unification of commercial law (Principles of European Contract Law) as well as to Laws-Models or Texts of international organizations which include uniform rules and practices (International Trade Rules of the International Chamber of Commerce on international sale, Incoterms); therefore, in this way, the arbitrators can avoid possible problems that arise in cases where the scope of the UPICC will coincide with the scope of an international convention (e.g. the Vienna Convention on the International Sales of Goods in sales contracts), while, at the same time, having the possibility of using more legislative texts of international uniform law, they could provide a solution that better corresponds to the needs of international trade. Furthermore, it can be made clear from the text of the UPICC itself that the UPICC can only be applied based on the contractual will of the parties (art 1.4. UPICC) and only if their rules integrate prevailing commercial practices. It is further mentioned15 that the decision of the arbitrators of the International Chamber of Commerce is characteristic,16 where the rule on hardship (art. 6.2.3 § 4 UPICC) was not applied, as the arbitrators considered that it did not correspond to the broadly accepted principles of the international trade. 3. Assuming that the UPICC have not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a general body of contract law or to some of its provisions in particular;

13 Cf., however, Voulgaris (2008), p. 29, according to whom the UPICC constitute an unofficial codification of the lex mercatoria in the relevant matters. 14 Flambouras (2001), pp. 234, 235. 15 Flambouras (2001), p. 235. 16 ICC 8873/1998 CLUNET (1998), p. 1017.

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whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria). Though Greek jurisprudence has not dealt with the issue, Greek doctrine has taken position to the proposal17 that the provisions of the UPICC which are relevant to the renegotiation and the readjustment in case of change of circumstances (hardship) could be used in order to fill the relevant gap appearing in the Vienna Convention, which in article 79 excuses a party from liability to a claim of damages where a failure to perform is attributable to an impediment beyond the party’s, or a third party sub-contractor’s, control that could not have been reasonably expected, without, however, including a relevant provision regarding the matter of change of circumstances. In particular, it has been argued in legal doctrine in Greece that this opinion must not be followed for the following, inter alia, reasons:18 Firstly, the UPICC cover all contracts and as a result it is necessary that they provide for the readjustment in cases of change of the facts in long-term contracts (on the contrary a contract of sale is not characterized by a long duration and as a result the readjustment provisions are not considered necessary). Furthermore, by the proportionate application of the relevant readjustment rules of the UPICC, the contractual will of the parties is circumvented, as the parties had the possibility of inserting renegotiation or price variation clauses (hardship clauses) in the sale contract, if they so wished. 4. Please indicate whether any of the following selected provisions of the UPICC have a counterpart in your national (domestic) contract law: Most of the selected provisions of the UPICC with the exception of: – ARTICLE 4.4 (Reference to contract or statement as a whole) – ARTICLE 4.5 (All terms to be given effect) and – ARTICLE 4.7 (Linguistic discrepancies) have a counterpart in the provisions of the GCC. It can be considered that Article 2.1.20 (Surprising terms) has a counterpart in L. 2251/1994 for the protection of the Consumer (as subsequently amended and codified) (article 2 §§ 1, 6 and 10), the provisions of which have as follows:19 Article 2 § 1. Terms which have been drafted in advance for future contracts (general terms of contracts), are not binding on the consumer, when at the conclusion of the contract he ignored them without fault and, especially, when

17

See Perillo (1997), p. 5; Bund (1998), p. 389. Flambouras (2001), p. 239; idem, Exemption of Liability for non - Execution of the Contract of Sale in the Vienna Convention on Contracts for the International Sale of Goods, (in Greek), EempD (¼ Epitheorissi Emporikou Dikaiou, Commercial Law Revue) 2000, 679, 710. 19 The translation in English of the provisions of L. 2251/1994 has been found in Karakostas (2012). 18

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the supplier did not indicate to him their existence or deprived him of the possibility of becoming actually aware of their content. Article 2 § 6. General terms of contracts which result in a substantial disturbance of the balance of rights and obligations of the parties to the detriment of the consumer are prohibited and they are invalid. The unfair character of a term which was incorporated in a contract is judged taking into account the nature of the goods or services which concern the contract, its purpose, the entirety of the special circumstances at its conclusion and all the other terms of the contract or of another contract on which it depends.20 Article 2 § 10. The provisions of this article apply also for any term of a contract which did not constitute the object of individual negotiation. It shall be considered that a term did not constitute the object of an individual negotiation when the consumer was not able to affect its content. The fact that there was an individual negotiation for certain elements of a term or for an individual term does not exclude the application of this article to the rest of the contract, if from the entirety of the circumstances it derives that there is a pre-formulated standard contract. The supplier bears the burden of proof that there has been an individual negotiation.21 The provisions of the GCC that are a counterpart of the vast majority of the selected provisions of the UPICC have as follows:22 4.1 ARTICLE 2.1.15 (Negotiations in Bad Faith) Article 197. Liability in the course of negotiations. At the stage of negotiations for the conclusion of a contract, the parties must deal with each other according to the dictates of good faith and common usages. Article 198. A person who in the course of negotiations for the conclusion of a contract has through his fault caused prejudice to the other party shall be liable for compensation even if the contract has not been concluded. 4.2 ARTICLE 4.3 (Relevant Circumstances) Article 200. Construction of contracts. Contracts shall be interpreted according to the requirements of good faith, after consideration also of common usages. 4.3 ARTICLE 6.1.9 (Currency of Payment) Article 291. Performance in foreign currency. If it is about currency performance in foreign currency, which has to be paid in Greece, the debtor, if there is not an agreement to the contrary, has the right to make payment in indigenous (national)

As the first sentence of § 6, which had been replaced by virtue of § 24 of art. 10 of L. 2741/1999 (Greek Official Gazette A’, 199), was replaced by virtue of § 2 of art. 2 of L. 3587/2007 (Greek Official Gazette A’, 152). 21 As § 10 was added by virtue of § 24 of art. 10 of L. 2741/1999 (Official Gazette A’ 199). 22 When translating in English the provisions of the GCC, the translation of said provisions in: Agallopoulou (2005), Kerameus and Kozyris (2014), and Stathopoulos and Karampatzos (2008), has been taken into consideration. 20

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currency at the current exchange rate of the foreign currency in the time and in the place of the payment. 4.4 ARTICLE 7.3.1 (Right to Terminate the Contract) Article 383. Default of performance by one of the parties. If one of the contracting parties is in default as regards the performance due, the other (contracting party) has the right to set a reasonable time limit for the fulfillment of the performance, stating at the same time that after the expiry of this period, he will refuse the performance. If the period passes without effect, the last is entitled either to claim damages for non-performance or to withdraw from the contract, but not to seek the performance. 4.5 ARTICLE 7.4.9 (Interest for Failure to Pay Money) Article 345. Default in the payment of a monetary debt. In monetary obligations, in case of the debtor’s default, the creditor has the right to claim on default interest as determined by the law or the deed (of agreement) without having to prove prejudice. The creditor, if he can prove that he suffered from further positive damage, unless otherwise provided in the law, shall also be entitled to claim compensation in respect thereof. Article 346. The debtor of a monetary debt, even if he is not at default, owes legal interest from the time initiating legal action is served on the debtor for the debt in arrears. 4.6 ARTICLE 7.4.10 (Interest on Damages) Article 347. The debtor of a thing if he is obliged to pay its value due to an event which occurred in the period during which the debtor was in default, he owes legal interest on the amount of such value as from the time fixed for the computation of the value of the thing. 5. If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or case-law rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law. There are differences in ARTICLES 4.1 (Intention of the parties) and 4.2 (Interpretation of statements and other conduct) on one hand and Arts. 173 GCC (Interpretation of declaration. When interpreting a declaration of the will the true intention shall be sought without adherence to the words) and 200 GCC (Construction of contracts. Contracts shall be interpreted according to the requirements of good faith, after consideration also of common usages), on the other. It is not mentioned in the Greek provisions that a contract shall be interpreted according to the common intention of the parties and that statements and other conduct of a party shall be interpreted according to that party’s intention if the other party knew or could not have been unaware of that intention.

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6. If there is no such a rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law. There are no express rules of contract law such as ARTICLE 4.4 (Reference to contract or statement as a whole), ARTICLE 4.5 (All terms to be given effect) and ARTICLE 4.7 (Linguistic discrepancies) in Greece but the same solutions would be given when interpreting a contract on the basis of arts. 173 and 200 GCC and in particular on the basis that the contract should be interpreted according to the requirements of good faith after consideration also of common usages. As there are explicit provisions in the UPICC, these provisions can be invoked to show that international common usages indicate that the contract should be interpreted in this way. 7. Please include those rules of the UPICC (other than those included in the given list) which have been relied upon by courts or arbitral tribunals for the purpose of interpreting a similar provision of your national contract law or in order to supplement (thus serving as a gap-filler) the national contract law in force in your jurisdiction: No jurisprudence has been found where rules of the UPICC have been relied upon for the purpose of interpreting a similar provision of the national contract law or in order to supplement (thus serving as a gap-filler) the national contract law in force in Greece.

References Agallopoulou P (2005) Basic concepts of Greek civil law. Athens Beis K (1994) Civil Procedure (Arbitration) (in Greek) Bernitsas P (1986) New methodological approach of the applicable law in contractual obligations (in Greek). EEEvrD (Elliniki Epitheorissi Evropaikou Dikaiou, Greek Revue of European Law) Bund J (1998) Force majeure clauses: drafting advice for CISG practitioner. J Law Commerce 17:381 Flambouras D (2001) The UPICC: introductory elements - field of application - private international law issues (in Greek). Critical Review of Legal Theory and Praxis Gazis A (1998) Thoughts about the future of the science of law (in Greek), in Gazis A (1998), Studies and articles, vol II Georgiades AP (2012) General principles of law (in Greek), 4th edn. Athens Karakostas I (2012) Consumer protection law. Athens Kerameus K, Kozyris Ph (2014) Introduction to Greek law, 3rd rev. edn Maridakis I (1970) The execution of foreign decisions (in Greek) Pamboukis C (1993) Lex Mercatoria: an international régime without state? Revue Hellénique de Droit International

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Pamboukis C (1994) Observations sur le rôle de la jurisprudence quant à l’ élaboration du droit international privé hellénique moderne, in Tribute to the Memory of F. Frantzeskakis. EEEvrD Pamboukis C (1996) The Lex Mercatoria as applicable law in the international contractual obligations (in Greek). Athens – Komotini Perakis E (2011) General part of commercial law (in Greek), 1st edn. Athens Perillo JM (1997) Force Majeure and Hardship under the UPICC. Tulane J Int Comp law 5 Stathopoulos M, Karampatzos A (2008) Contract law in Greece, 3rd edn Voulgaris I (2001) The applications of the UPICC in the frame of private international law (in Greek). EEEvrD Voulgaris I (2008) General introduction: concise comparative overview. In: The cross-border operation of the capital market in the era of globalization and the internet. Athens- Komotini

The Unidroit Principles of International Commercial Contracts (UPICC) as Reference for the Uniform Interpretation of Guatemalan Law Pedro Mendoza Montano and Enrique Martínez Guzmán

Abstract Guatemalan law distinguishes the applicability of non-State law to govern international contracts depending on the agreed-upon dispute resolution mechanism, as State Courts interpret the domestic law as restrictive in favor of State Law. The use of instruments such as the UPICC, however, is allowed to both judges and arbitrators for supplementary or interpretative purposes. Yet, there are no reported cases of Guatemalan courts having used the UPICC. The authors continue by comparing several provisions of the UPICC with their counterparts in Guatemalan legislation. The authors conclude by emphasizing the potential use of the UPICC in Guatemala while acknowledging that the conditions for its use are more favorable in Arbitration than in a Judicial setting.

1 Introduction The Preamble of the UPICC states, as one of its uses, that “They may be used to interpret or supplement domestic law.”1 This use was not included in the first edition of the UPICC in 1994. Notwithstanding, because a wide practice developed to employ them in such way, this provision was included in the 2004 edition of the UPICC.2 Regarding this use of the UPICC, the official comments to the Preamble of the UPICC state: “In applying a particular domestic law, courts and arbitral tribunals may be faced with doubts as to the proper solution to be adopted under the law, either because different alternatives are available or because there seem to be no specific

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Unidroit Principles of International Commercial Contracts (2016). Vogenauer et al. (2009), p. 13.

P. Mendoza Montano (*) · E. Martínez Guzmán Francisco Marroquin University, Law Faculty, Guatemala, Guatemala e-mail: [email protected]; [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_11

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solutions at all. Especially where the dispute relates to an international commercial contract, it may be advisable to resort to the Principles as a source of inspiration. By so doing the domestic law in question would be interpreted and supplemented in accordance with internationally accepted standards and/or the special needs of crossborder trade relationships.”3 Thus, using the UPICC facilitates the adjudicators task of interpreting and supplementing domestic law, in cases where it is not clear or sufficient to resolve the dispute. Furthermore, using the UPICC is especially convenient for disputes arising of international commercial contracts, because they have been developed with the needs and experiences of those contracts in mind. An important question to be answered is whether national laws allow judges and arbitrators to use the UPICC to interpret and supplement national contract law, and if it does allow them, a follow up question is whether there are any differences between judges and arbitrators on how they may use the UPICC to interpret and supplement domestic law. This National Report, prepared for the XXI Congress of the International Academy of Comparative Law, which convened in Japan, in 2018, analyzes the Guatemalan legal system to answer these questions. It further compares some provisions of the UPICC with national legislation. It does so, by answering a questionnaire prepared by the General Reporters4 (hereinafter, the “Questionnaire”).

2 UPICC as Applicable Law to an International Contract Modern rules of international law allow parties to choose instruments of soft law, such as the UPICC, as the applicable law to their contract.5 However, this has not always been the case, and still is not in many national legal systems, particularly when parties to a contract do not agree to solve their disputes through arbitration.6 Thus, an interesting comparative law question is whether the legal system of a State allows parties to choose instruments of soft law as the law applicable to a contract, and whether the dispute resolution mechanism the parties choose has any relevance to answer that question. 3

Paragraph 6 of the official comments to the Preamble of the Unidroit Principles of International Commercial Contracts (2016). 4 The Questionnaire prepared by the General Reporters Alejandro Garro and José A. Moreno Rodríguez can be accessed at the following site: https://aidc-iacl.org/general-congress. 5 See: Article 28 of the UNCITRAL Model Law on International Commercial Arbitration with amendments as adopted in 2006; Article 3 of the Hague Principles on Choice of Law in International Commercial Contracts. 6 In Paragraph 4 of the Comments to the Preamble of the UNIDROIT Principles of International Commercial Contracts 2016, the following suggestion is made: “Parties who wish to choose the Principles as the rules of law governing their contract are well advised to combine such a choice of law clause with an arbitration agreement. The reason for this is that the freedom of choice of the parties in designating the law governing their contract is traditionally limited to national laws (but see now Article 3 of the 2015 Hague Conference on Private International Law’s Principles on Choice of Law in International Commercial Contracts, subject to certain limitations).”

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In Guatemala, the dispute resolution mechanism the parties to a contract choose determines if they can designate an instrument of soft law to govern their contract, or whether such freedom of choice is limited to national laws. The Guatemalan Arbitration Law is based on the UNCITRAL Model Law on International Commercial Arbitration (hereinafter, “Model Law)”. Article 28 (1) of the Model Law stipulates that the arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. As is mentioned in the Explanatory Note by the UNCIT RAL Secretariat on the Model Law, “by referring to the choice of ‘rules of law’ instead of ‘law’, the Model Law broadens the range of options available to the parties as regards the designation of the law applicable to the substance of the dispute.”7 This broader range of options includes not only national laws, but also instruments of soft law that have been elaborated by an international forum, but have not yet been incorporated into any national legal system, such as the UPICC. Following the Model Law, article 36 (1) of the Guatemalan Arbitration Law provides: “In international arbitrations, the arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute”. Consequently, by using the term “rules of law” the Guatemalan Arbitration Law allows parties, who agree to solve their disputes through arbitration, to choose non-State law as the law governing the contract.8 On the other hand, if parties do not agree to solve their disputes through arbitration, and have to solve them in national courts, their freedom of choice to designate the applicable law is limited to national laws. In such cases, in which the Arbitration Law has no application, Article 31 of the Law of the Judicial Branch would apply, which provides that “Legal acts and contracts are governed by the law chosen by the parties, unless such choice is contrary to prohibitive rules or public order”. This provision uses the term “law”, instead of the term “rules of law” used in the Model Law. According to the rules of interpretation governing in Guatemala, the term “law” should be interpreted narrowly and refers only to a State law, i.e., one issued by the corresponding legislative authority of a State, and not an instrument of soft law.

3 Guatemalan Sources Allowing the Use of the UPICC to Interpret or Supplement National Contract Law A different question is whether national legislation allows judges and arbitrators to use the UPICC to interpret or supplement national contract law, i.e., when national contract law governs the contract, but needs to be interpreted or supplemented

7 See Explanatory Note by the UNCITRAL secretariat on the 1985 Model Law on International Commercial Arbitration as amended in 2006. 8 For further developments on the subject, see: Martinez Guzman (2016).

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because its application is not clear or because it does not solve the issue at hand. To address this particular matter, the Questionnaire asks if there is any legal source in the legal system allowing the use of the UPICC to interpret or supplement national contract law, either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source. Although not in an explicit manner, Guatemalan law does allow judges and arbitrators to use the UPICC to interpret or supplement national contract law. However, once again, a difference has to be made between the legal regime applicable to arbitrations, and the legal regime applicable in national courts, and more specifically between the powers granted to arbitrators and those granted to national judges.

3.1

Arbitration

Article 36 of the Guatemalan Arbitration Law provides as follows: “Law applicable to the substance of the dispute. (. . .) (2) In international arbitrations, the arbitral tribunal may consider the usages and principles of International Commercial Law, as well as the trade usages and commercial practices that are of general acceptance. (3) In national and international arbitrations, the arbitral tribunal shall decide in accordance with the terms of the contract and shall consider the usages of the trade applicable to the particular case.” As was mentioned before, the Guatemalan Arbitration Law is based on the UN CITRAL Model Law on International Commercial Arbitration. For this reason, paragraph (3) of Article 36 of the Guatemalan Arbitration Law is almost identical to paragraph (4) of Article 28 of the Model Law. On this last provision, the Explanatory Note by the UNCITRAL Secretariat on the 1985 Model Law on International Commercial Arbitration as amended in 2006, indicates that “However, paragraph (4) makes it clear that in all cases where the dispute relates to a contract (including arbitration ex aequo et bono) the arbitral tribunal must decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.” From the interpretation of Article 36 of the Guatemalan Arbitration Law, it can be determined that: (i) when making its decisions in international arbitrations, the arbitral tribunal is at liberty to take into account the usages and principles of International Commercial Law, as well as the trade usages and commercial practices that are of general acceptance; and (ii) in national and international arbitrations, the arbitral tribunal is obliged to decide in accordance with the terms of the contract and to take into account the trade usages applicable to the particular case. In paragraph (2) of Article 36 of the Guatemalan Arbitration Law, reference is made to “the usages and principles of International Commercial Law” and to “trade usages and commercial practices that are of general acceptance”; and, in paragraph (3), reference is made to “usages of the trade applicable to the particular case”. The

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main difference between the two provisions is that paragraph (2) is optative for the arbitral tribunal, while paragraph (3) is mandatory. Paragraphs (2) and (3) of Article 36 of the Guatemalan Arbitration Law do not expressly state that the UPICC may be used to interpret or supplement national contract law. However, both enable the arbitral tribunal to consider “trade usages” or “general principles of commercial law” in order to make its decision. Hence, if the UPICC represent “trade usages” and “general principles of commercial law”, an arbitral tribunal is allowed to take them into consideration and, consequently, use them to interpret or supplement national contract law.

3.2

National Courts

Article 10 of the Guatemalan Judicial Branch Law stipulates that: “The law shall be interpreted in accordance with its text, the meaning of its words, its context and in accordance with the Constitutional provisions. When the interpretation of a law is clear, its text shall not be disregarded with the pretext of consulting its spirit. The whole statute shall be used to illustrate the contents of each of its parts, but its passages shall be clarified, according to the order of the following: (a) (b) (c) (d)

The objectives and spirit of the law. The reliable history of the law. The provisions of other laws regarding similar cases or analogous situations. With what seems in most accordance with equity and the general principles of law.”

Furthermore, article 15 of the Guatemalan Judicial Branch Law stipulates that: “(. . .) In cases of gaps, obscurity, ambiguity or insufficiency of the law, judges shall resolve in accordance with the rules established in article 10 of this law (. . .).” So, Article 10 contains the rules of interpretation of the laws, and article 15 the rules that shall be used to supplement the law. However, in accordance with article 15, the rules contained in article 10 shall be used for both the interpretation and supplementation of the law. The last subsection of Article 10 refers to the “general principles of law”. Thus, “general principles of law” can be used as a means to interpret or supplement the law. However, article 10 establishes a hierarchy of the methods of interpretation and supplementation, and in such hierarchy, “general principles of law” occupy the last place. Therefore, Articles 10 and 15 allow judges and arbitral tribunals to rely upon the UPICC to interpret and supplement the law, if they argue that they reflect the “general principles of law”. Notwithstanding, they would first have to consider the other methods of interpretation and supplementation, before relying upon the UPICC. In Guatemala, there are no reported cased in which national courts have used the UPICC to interpret or supplement national laws, nor in any other way.

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4 Counterparts of the UPICC in Guatemalan Contract Law 4.1

Negotiations in Bad Faith (Article 2.1.15 of the UPICC)

Article 2.1.15 of the UPICC does not have a counterpart in the Guatemalan domestic contract law. Notwithstanding, the obligation to pay damages when a negotiation is terminated in bad faith could be derived from article 1645 of the Guatemalan Civil Code, which contains the general rule that all damages shall be indemnified by the person who causes them. In Guatemala, there is neither case law nor prevailing scholarly doctrine for applying the UPICC in order to interpret or supplement this issue.

4.2

Surprising Terms (Article 2.1.20 of the UPICC)

Article 2.1.20 of the UPICC does not have a counterpart in the Guatemalan domestic contract law. In Guatemala, there is neither case law nor prevailing scholarly doctrine for applying the UPICC in order to supplement the surprising terms issue.

4.3

Intention of the Parties (Article 4.1 of the UPICC)

Article 4.1 (1) of the UPICC does have a counterpart in the Guatemalan domestic contract law. Its counterpart is article 1593 of the Guatemalan Civil Code, which stipulates that: “When the terms and concepts of a contract are clear and do not leave doubt about the intention of the parties, it shall be interpreted according to its literal meaning. If the words were different or contrary to the evident intention of the parties, the latter shall prevail”. Article 4.1 (1) of the UPICC and article 1593 of the Guatemalan Civil Code are compatible in the sense that, in the rules for interpreting a contract, they both give preference to the intention of the parties over the literal meaning of the words used in the contract. As the commentary to article 4.1 of the UPICC state, “a contract term may be given a meaning which differs both from the literal sense of the language used and from the meaning which a reasonable person would attach to it (. . .)”. Guatemalan contract law does not provide a specific rule for the situation regulated in Article 4.1 (2) of the UPICC, and there is neither case law nor prevailing scholarly doctrine for applying the UPICC in order to supplement the issue.

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Interpretation of Statements and Other Conduct (Article 4.2 of the UPICC)

Article 4.2 of the UPICC does not have a counterpart in the Guatemalan domestic contract law. In Guatemala, there is neither case law nor prevailing scholarly doctrine for applying the UPICC in order to supplement the issue of how to interpret statements and other conduct of a party.

4.5

Relevant Circumstances (Article 4.3 of the UPICC)

This Article indicates the circumstances that have to be taken into consideration when applying both the “subjective” test and the “reasonableness” test in Articles 4.1 and 4.2. In the Guatemalan domestic contract law, there is no specific provision that provides a list of these circumstances. However, some provisions of the Civil Code do stipulate that, when interpreting a contract, a particular circumstance must be taken into consideration. Article 1595 of the Guatemalan Civil Code stipulates that: “The phrases and words that may be interpreted in different senses shall be understood in the meaning that is most conforming with the subject area of the contract”. Article 1596 of the Guatemalan Civil Code stipulates that: “If a provision permits diverse or contrary interpretations it shall be understood in the most adequate for it to produce effects, according to the nature of the contract.” In some way, both of these rules are similar to the one contained in Article 4.3 (d) that indicates that “the nature and purpose of the contract” may be taken into consideration when apply the aforementioned test. However, the scope of application of the interpretation rules contained in Article 4.3 is broader than the ones in articles 1595 and 1596 of the Guatemalan Civil Code, because the first apply to all cases of interpretation of a contract and to the interpretation of statements and conducts of the parties, whereas the second only apply to particular cases. For example, the rule contained in article 1595 of the Guatemalan Civil Code will only apply when the phrases and words of the contract may be interpreted in diverse or contrary meanings, and the rule contained in article 1596 will only apply when a provision permits diverse or contrary interpretations. Article 1599 of the Guatemalan Civil Code stipulates: “Ambiguous clauses shall be interpreted in accordance with what the usages and customs determine in the place where the contract was executed”. As well as Article 4.3 (e) and (f), this rule refers to the usages and customs of the trade concerned. Notwithstanding, its application is also limited to the specific case when the clauses of the contract are ambiguous.

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Reference to Contract or Statement as a Whole (Article 4.4 of the UPICC)

Article 4.4 of the UPICC does have a counterpart in the Guatemalan domestic contract law. Its counterpart is Article 1598 of the Guatemalan Civil Code, which stipulates that: “The provisions of contracts shall be interpreted with the rest of them and giving the dubious ones the meaning that results of the whole.” This rule is consistent with the one contained in Article 4.4 of the UPICC, since both require a contract to be interpreted as a whole, and not only its isolated clauses or terms.

4.7

All Terms to be Given Effect (Article 4.5 of the UPICC)

Article 4.5 of the UPICC does have a counterpart in the Guatemalan domestic contract law. Its counterpart is article 1596 of the Guatemalan Civil Code, which stipulates that: “If a provision permits diverse or contrary interpretations it shall be understood in the most adequate for it to produce effects, according to the nature of the contract.” Article 4.5 of the UPICC and article 1596 of the Guatemalan Civil Code are compatible in the sense that they both provide the same rule that indicates that unclear contract terms or provisions should be interpreted so as to give effect to all the terms, rather than to deprive some of them of effect.

4.8

Linguistic Discrepancies (Article 4.7 of the UPICC)

Article 4.7 of the UPICC does not have a counterpart in the Guatemalan domestic contract law. In Guatemala, there is neither case law nor prevailing scholarly doctrine for applying the UPICC in order to supplement the issue of how to interpret statements and other conduct of a party.

4.9

Currency of Payment (Article 6.1.9 of the UPICC)

Paragraph (1) of Article 6.1.9 of the UPICC stipulates that: “If a monetary obligation is expressed in a currency other than that of the place for payment, it may be paid by the obligor in the currency of the place for payment unless (a) that currency is not freely convertible; or (b) the parties have agreed that payment should be made only in the currency in which the monetary obligation is expressed.” As it can be seen, this article gives preeminence to party autonomy to choose the currency of payment. Article 6 of the Guatemalan Monetary Law is compatible with article 6.1.9 (1) of the

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UPICC, because it states that, unless the parties have expressly agreed otherwise, the Guatemalan Quetzal shall be used as a means of payment in any act of monetary content. As well as article 6.1.9 (1) of the UPICC, article 6 of the Guatemalan Monetary Law allows the parties to choose the currency of payment. The rules contained in paragraphs (2), (3) and (4) of Article 6.1.9 of the UPICC do not have a counterpart in the Guatemalan domestic contract law.

4.10

Right to Terminate the Contract (Article 7.3.1 of the UPICC)

Article 7.3.1 of the UPICC introduces the concept of “fundamental non-performance”, which is derived from the concept of “fundamental breach” contained in Article 25 of the CISG. As paragraph (1) of Article 7.3.1 of the UPICC indicates, only when the failure of a party to perform an obligation amounts to a fundamental non-performance, the aggrieved party may terminate the contract. Guatemalan domestic contract law does not distinguish between a “fundamental non-performance” and a non-performance that does not amount to a “fundamental non-performance”. Article 1535 of the Guatemalan Civil Code stipulates that in case of any non-performance, the interested party may terminate the contract or request specific performance. Therefore, Guatemalan domestic contract law and the UPICC are incompatible in the sense that the first does not distinguish between a “fundamental non-performance” and a non-fundamental non-performance, and the latter does.

4.11

Interest for Failure to Pay Money (Article 7.4.9 of the UPICC)

Article 7.4.9 of the UPICC does have a counterpart in the Guatemalan domestic contract law. Its counterpart is Article 1435 of the Guatemalan Civil Code, which stipulates that: “If the obligation consists of an obligation to pay a sum money and the obligated party fails to pay, the indemnification of damages, in the absence of a different agreement, will be equivalent to the payment of the agreed interest rate, and in the absence of such an agreement, of the legal interest until the effective payment is made.” These rules are compatible in the sense that they both recognize the widely accepted rule according to which the harm resulting from delay in the payment of a sum of money is subject to a special regime and is calculated by a lump sum corresponding to the interest accruing between the time when payment of the money was due and the time of actual payment. These rules are also compatible because

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they allow parties to agree on what the rate of interest should be, and only when there is an absence of such an agreement, the legal interest rate should be applied. Notwithstanding, the formula to calculate the rate of interests is not the same in the UPICC than it is in the Guatemalan domestic contract law. According to Article 1947 of the Guatemalan Civil Code, the legal interest rate is: “equal to the weighted average of the active interest rates published by the banks of the system on the day before its publication, reduced by two points. In defect of such publication or if there is doubt or discrepancy, the opinion of the Bank Superintendence shall be required, which shall be definitive.” Paragraph 3 or Article 7.4.9 of the UPICC stipulates that: “The aggrieved party is entitled to additional damages if the non-payment caused it a greater harm.” Guatemalan domestic contract law does not allow the aggrieved party to claim additional damages if the non-payment caused it a greater harm.

4.12

Interest on Damages (Article 7.4.10 of the UPICC)

Article 7.4.10 of the UPICC does not have a counterpart in the Guatemalan domestic contract law. In Guatemala, there is neither case law nor prevailing scholarly doctrine for applying the UPICC in order to supplement the issue of whether interest should be paid on damages for non-performance of non-monetary obligations.

5 Conclusions Guatemalan courts have not relied on any rules of the UPICC for the purpose of interpreting or supplementing a provision of Guatemalan contract law. Notwithstanding, there are provisions in Guatemalan law that would allow judges and arbitrators to use the UPICC to interpret or supplement national contract law. The legal regime applicable to arbitrations is more favorable, than the legal regime applicable to court adjudications, for using the UPICC to interpret or supplement national laws. The Guatemalan Arbitration Law allows arbitrators, when rendering their award, to consider “the usages and principles of International Commercial Law” and the “trade usages and commercial practices that are of general acceptance”, and obliges them to consider the trade usages applicable to the particular case. Since it is widely accepted that the UPICC represent “trade usages” and “general principles of commercial law”, then arbitral tribunals, in Guatemala, are allowed to use the UPICC to interpret and supplement national contract law. When national courts are adjudicating a dispute, a different legal regime is applicable. According to the provisions contained in the Guatemalan Judicial Branch Law, to interpret and supplement national laws judges could refer to the “general principles of law”. However, since such provisions set a hierarchy of methods of

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interpretation and the “general principles of law” occupy the last place of such hierarchy, then it is more complicated for a judge to use the UPICC to interpret and supplement national laws, as they first have to consider other methods of interpretation and supplementation, before relying on the “general principles of law”.

References Martinez Guzman E (2016) La aplicación de los Principios de UNIDROIT en el derecho contractual guatemalteco. Universidad Francisco Marroquín, Guatemala, available at: http://www.tesis. ufm.edu.gt/pdf/527428.pdf UNIDROIT Principles of International Commercial Contracts (2016) Vogenauer S, Kleinteisterkamp J et al (2009) Commentary on the Unidroit Principles of International Commercial Contracts (PICC). Oxford University Press, UK

The UNIDROIT Principles as Reference for the Uniform Interpretation of National Laws: Report on Hungarian Law Miklós Király

Abstract The report is mainly based on the provisions of the new Hungarian Civil Code (hereafter HCC) which was enacted in 2013. The influence and inspiration of UPICC was expressly admitted by the Editorial Committee preparing the original draft of the HCC. The HCC Section on usages may become a gateway towards the inclusion of UPICC into contracts having an international dimension or can serve as an interpretative background. Despite of the above described influence of UPICC on law-making, we do not find express references to UPICC—as applicable rules of law or interpretative tool—in Hungarian jurisprudence. The HCC does not use expressly the term negotiations in bad faith, however it covers the situation described in UPICC. The HCC contains a general duty of good faith amongst its introductory provisions and the obligation to cooperate is a fundamental principle of contracts. There is a strong conceptual resemblance between UPICC and the HCC Section on standard contract terms becoming part of the contract. The HCC is less detailed on issues of interpretation, the UPICC may become an inspiring source of interpretation in this respect. Regarding the terms of payment of monetary debts, the approach of HCC is close to that of UPICC, focusing on the currency of the place for payment, although the Hungarian rules are again less detailed. The HCC does not use the concept of fundamental non-performance. However, the sophisticated rules of UPICC like the analysis whether the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract could enrich Hungarian jurisprudence. Besides the general provisions on late payments there are special, stricter rules applicable to undertakings implementing Directive 2011/7/EU in HCC—demonstrating the strong impact of EU law in this field. Regarding the interest on damages HCC follows the same approach and leads to the same result as UPICC, however, it is necessary to take into consideration several provisions of HCC in order to establish this conclusion.

M. Király (*) Faculty of Law, Eötvös Loránd University (ELTE), Budapest, Hungary e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_12

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1 Introduction This report is based on the provisions of the new Hungarian Civil Code1 (hereafter HCC or Code) which was enacted in 2013. Its Book Six is devoted to the Law of Obligations, including several titles covering contracts. However, the analysis timetime has to go beyond the parts on contracts and refers to the introductory provisions of the HCC or to certain rules on non-contractual liability following the internal context and cross-references of the Code. The jurisprudence of the Hungarian courts is mainly related to the former Hungarian Civil Code, however, since there are many identical or at least similar provisions in the old and in the new Code, the former judgements of the courts remained as point of reference for the analysis. Moreover, in many instances the jurisprudence of the courts was crystallised in the black letter rules of the new HCC as well.

2 Is There Any Legal Source in Your Legal System Allowing the Use of the UPICC to Interpret or Supplement National Contract Law (Either by Way of Explicit and Specific Legislation, by Way of Reference to “Trade Usages”, “General Principles of Law”, or Based in Any Other Source)? If So, Please Refer to Such Legal Source, Explaining How the Court Has Reached Such a Decision (Indicating, for Example, Whether and How the Courts Reached the Conclusion That the UPICC Represent “Trade Usages” or “Customs” in the Field of Contract Law) Section 6:63 HCC introduces a new provision on usages, obviously inspired by Article 9 CISG and Article 1.9 UPICC. This Section is devoted to the conclusion and contents of contracts, while its subsection (5) specifically deals with usages and practices: “Under the contract the parties shall be bound by any usage which they have agreed on in prior business dealings and by any practice they have established between themselves. Furthermore, the parties shall be bound by a usage which would be considered generally applicable and widely known in the given sector by parties to similar contracts, unless such usages and practices are likely to conflict with contract terms which have been previously negotiated between the parties.” This provision reflects to an embryonic Hungarian case law as well, which started to accept that usages may become part of a contract without an express reference. Since UPICC or several provisions of it can be considered as a codification of usages and 1

Act V of 2013.

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Lex Mercatoria, according to an optimistic scenario Section 6:63 HCC may become a gateway towards the inclusion of the Principles into contracts having an international dimension or can serve as an interpretative background. However, the possible restrictive interpretation of the term “given sector” in the above quoted subsection of HCC may pose obstacles against this line of development.

3 Have the UPICC Been Used as Evidence of a General Consensus on the Law Applicable to Contracts (for Example, on the Existence of a Duty of Good Faith, the Obligation to Pay Interest, the Requirement That a Breach of Contract Must Be “Fundamental” in Order to Allow for the Termination of the Contract, Etc.)? If So, Please Indicate Which Specific Provision of the UPICC Has Been Used in This Way, Referring Also to the Factual Context of the Dispute in Which the UPICC Have Been Used in This Manner The UPICC was translated into Hungarian, first the complete edition of UPICC 1994,2 then later only the black-letter rules of UPICC 2010.3 As a result of these efforts the Principles became well known for the Hungarian academic community. During the preparation of the HCC several instruments of unification of contract law were taken into account, as a source of inspiration, especially the United Nations Convention on Contracts for the International Sale of Goods (CISG), the UNIDR OIT Principles of International Commercial Contracts (UPICC) and the Principles of European Contract Law (PECL). This influence and inspiration was expressly admitted by the Editorial Committee preparing the original draft of the HCC.4 So, it is not surprising, that the sections on contracts of the HCC fairly often contain similar or compatible norms to that of the UPICC.

2

Nemzetközi Kereskedelmi Szerződések Alapelvei (Principles of International Commercial Contracts) Budapest, Közgazdasági és Jogi Könyvkiadó, 1996. Fordította: Gehér József, Réczei László és Katona Péter. 3 Király (2014), p. 121. 4 Vékás (2008), p. 1281

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4 Assuming that the UPICC Have Not Been Used by Courts in Your Country for the Purpose of Interpreting or Supplementing National or Local Rules on Contract Law, Indicate Whether They Have Been Used in any Other Way and How. Discuss, for Example, Whether References to the UPICC Were Made as a General Body of Contract Law or to Some of Its Provisions in Particular; Whether References to the UPICC Were Made in Combination with Other Instruments of Uniform Law Such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a More Diffuse Body of State Laws (e.g., the So Called lex mercatoria) Despite of the above described influence of UPICC on law-making, we do not find express references to UPICC—as applicable rules of law or interpretative tool—in Hungarian jurisprudence. The reasons are probably manifold: During the so-called ‘socialist’ era of law (1949–1990) the attitude was rather hostile against usages, they were considered as sources of uncertainty and inherently dangerous for the protection of weaker parties. This approach has been infiltrated even to the provisions of the Act on Arbitration, although it was passed after the change of the social and legal system and followed the patterns of UNCITRAL Model Law. However—unlike the UNCITRAL or ICC rules—, it did not allow the choice of non-state laws or at least it was rather ambiguous in this respect. On one hand according to Article 28 of UN CITRAL Modell Law “The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. . .”, Section 49 (1) of Act LXXI of 1994 on Arbitration—due to a false translation or intentionally—facilitated only the choice of state law or legal system of a state.5 Curiously enough, this provision was imported into the new Hungarian law on arbitration, passed in 2017.6 In addition, even the Rome I Regulation7— diverging from its original concept—shows a reserved attitude towards non-national soft law instruments, like the different Principles on contract law. According to its Article 3 on freedom of choice a “contract shall be governed by the law chosen by

Act LXXI of 1994 on Arbitration, Section 49 (1) “The arbitration tribunal shall decide the dispute in accordance with the provisions of the governing law selected by the parties as applicable to the substance of the dispute. Any designation of the law or legal system of a particular State shall be construed - unless the parties have agreed otherwise - as one referring to the law of the State in question, having a direct bearing on the points in issue.” 6 Act LX of 2017, Section 41 on the applicable law. 7 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I). 5

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the parties.” In this context, the term law clearly refers to domestic laws, promulgated by the states.8 This strict approach is slightly cushioned by the Preamble of the Rome I Regulation which allows substantive law designation confirming that it “does not preclude parties from incorporating by reference into their contract a non-State body of law or an international convention.”9 However, this is not a major achievement, actually it directly comes from the contractual freedom of the parties.

5 Please Indicate Whether Any of the Following Selected Provisions of the UPICC Have a Counterpart in Your National (Domestic) Contract Law 5.1

Negotiations in Bad Faith (UPICC Article 2.1.15)

The Hungarian Civil Code (HCC) does not use expressly the term negotiations in bad faith, however it covers the situation described in UPICC Article 2.1.15. First of all the HCC contains a general duty of good faith amongst its introductory provisions. According to its Section 1:3, subsection (1) “in exercising rights and in fulfilling obligations the requirements of good faith and fair dealing shall be observed. (2) The requirements of good faith and fair dealing shall be considered breached where a party’s exercise of rights is contradictory to his previous actions which the other party had reason to rely on.” Besides this general principle the HCC reinforces the obligation to cooperate as a fundamental principle of contracts as well in its Section 6:62. According to its subsection (1) “the parties shall be required to cooperate during pre-contractual negotiations, at the time of the conclusion and termination, and during the life of the contract, and shall be duty bound to communicate information to each other on circumstances relevant to the contract.” On one hand the parties are free to negotiate and the following subsection (4) expressly declares that “If conclusion of the contract fails, the parties shall not be liable for payment of compensation.” On the other hand subsection (5) makes clear that “If the contract is not concluded, the party who breaches the obligation referred to in subsection (1) during pre-contractual negotiations shall be subject to liability for damages in accordance with the general provisions of non-contractual liability.” Unlike in UPICC, there is no express reference on the consequences of entering into or continuing negotiations without the intention to reach an agreement with the other party, however the general duty of good faith and the requirement of the duty to co-operate are applicable to this situation. It is obvious from the jurisprudence of the Hungarian courts that the duty to cooperate covers the period of negotiations before

8 This is clearly supported by Article 4 of Rome I Regulation, which provides rules on applicable law in the absence of choice, consequently refers to the “law of the country”. 9 Rome I Regulation, Preamble (13).

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conclusion of the contract.10 The HCC does not enlist the different elements of cooperation between the parties, it mentions only the requirement to give information relevant to the contract. In case EBD 2013. P.12 a Hungarian court expressed that the party who enters into negotiations or breaks them against the principle of good faith and fair dealing will be liable to pay partial or full compensation.11 At this point Article 2.1.15 (3) UPICC could be used as an inspiring source of interpretation, supporting the argument that negotiations in bad faith are against the duty to cooperate and against the general principle of good faith and fair dealing and leads to liability for damages. Finally, it is worthwhile to mention that in the reasoning of an arbitral award delivered in case VB/04093, in 2005, the Tribunal expressly referred to a similar provision included in Article 2:301 of the Principles of European Contract Law (PECL), according to which a party who has negotiated or broken off negotiations contrary to good faith and fair dealing is liable for the losses caused to the other party.

5.2

Surprising Terms (Article 2.1.20 UPICC)

There is a strong conceptual resemblance between UPICC and Section 6:78 HCC on standard contract terms becoming part of the contract. According to its subsection (1) “Contract terms which have not been individually negotiated shall become part of a contract only if they have previously been made available to the other party for consideration before the conclusion of the contract, and if the other party has accepted those terms.” Then subsection (2) contains provisions on “surprising terms”, requiring that “The other party shall be explicitly informed of any standard contract terms that differs substantially from the relevant legislation and from usual contractual practice, except if they are in line with any practice the parties have established between themselves. The other party shall be explicitly informed of any standard contract terms that differs substantially from any stipulations previously applied by the same parties.” This provision is strictly in line with the decisions of the Hungarian Supreme Court (BH2013. 128) and of other high courts (BDT2013. 2875) Finally subsection (3) of Section 6:78 HCC makes the application of these terms expressly conditional upon the acceptance of the other party: “The terms defined in Subsection (2) shall form part of the contract only if the other party has expressly accepted them after being informed about them.” This provision is echoed by the jurisprudence of Hungarian courts. It has gained a special importance in relation to the so-called foreign exchange credit contracts, when the position of consumers was especially volatile, due to the fluctuations of exchange rate and the specific technical terms included into the contracts but not understandable for average consumers. The judgements of the Hungarian courts underlined that without

10 11

Vékás (2016) p. 380, p. 86. Referring to Court cases BH 2007. 48; BH 1997. 48. Vékás and Gárdos (2014), p. 2587, p. 1392.

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providing explicit information to the consumers and their acceptance these terms did not become part of their contract (BH2012. 265; BDT2011. 2407).12

5.3

Interpretation

Several parts of the questionnaire are related to the interpretation. The UPICC contains a separate, comprehensive chapter on this issue. The HCC is less detailed, we have to analyse basically two sections: Section 6:8 on the Interpretation of legal statements and Section 6:86 on Interpretation of contracts. Both Sections are relevant, and it is necessary to cite them repeatedly, although they offer even together a less sophisticated answer to the problems of interpretation than Chapter 4 of the UPICC.

5.4

Intention of the Parties (Article 4.1 UPICC)

Somewhat surprisingly we do not find in the HCC a provision similar to that of Article 4.1 UPICC—referring to the common intention of the parties or to the understanding of a reasonable person. Section 6:86 HCC simply states in its subsection (1) that “Contract terms and statements are to be interpreted in accordance with the contract as a whole”, while subsection (2) introduces the in dubio contra proferentem rule: “If the meaning of a standard contract term or the contents of the contract term which has not been individually negotiated cannot be clearly established by the application of the provisions set out in Subsection (1) for the interpretation of the legal statement, the interpretation that is more favourable to the party entering into a contract with the person imposing such contract term shall prevail. In connection with a contract that involves a consumer and a business party, this provision shall also apply to the interpretation of any contract term.” In addition, it is necessary to recall Section 6:8 HCC on the interpretation of legal statements, which is applicable in case of contractual statements as well. Especially its subsection (1) according to which “In the event of a dispute, the statements shall be construed as the addressee shall have interpreted them in light of the presumed intent of the person issuing the legal statement and the circumstances of the case, in accordance with the generally accepted meaning of the words.” This rule contains reference to the will of the party, counterbalanced by a strong emphasis on the circumstances of the case and the generally accepted meaning of the words. It means that a certain equilibrium has been created between the subjective and objective interpretation of the statements, although commentaries tend to favour the literal meaning of the declarations referring for the interest of legal certainty of

12

Vékás and Gárdos (2014), pp. 1416–1417.

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transactions.13 Although there is no separate provision prescribing the quest for the common intention of the parties, this is logically unavoidable, since according to the definition of Section 6:58 HCC “A contract is concluded upon the mutual and congruent expression of the parties’ agreement intended to give rise to obligations to perform services and to entitlements to demand services.” This concept presupposes the seeking of the common intention of the parties at least when the courts have to decide on the existence of the contract.

5.5

Interpretation of Statements and Other Conduct (Article 4.2 UPICC)

As it is obvious from the previous part, Article 4.2 UPICC has its counterpart— although not a literally identical one—in the above quoted Section 6:8 HCC. This Section contains a reference to the intention of the party and besides this subjective element more objective factors should be taken into account, like the “circumstances of the case” and the “generally accepted meaning of the words”. But—unlike in the UPICC—the “reasonable person” test is not mentioned.

5.6

Relevant Circumstances (Article 4.3 UPICC)

There is no direct provision in HCC containing a similar list to Article 4.3 UPICC. However, the above quoted Section 6:8 HCC on the interpretation of legal statements contains a general reference to the circumstances of the case. Moreover, the careful consideration of the factors enumerated by UPICC is a standard practice in the jurisprudence of Hungarian courts. The commentaries on Section 6:87 HCC on merger clauses may serve as an indirect evidence. On one hand, according to its subsection (1) “Where a contract in writing includes a term stating that the document contains all contract terms agreed upon by the parties, any prior agreements which are not contained in the document do not form part of the contract.” On the other hand subsection (2) refers to interpretation, confirming that despite of the merger clause “Prior statements of the parties may be used for the interpretation of the contract.” This possibility was emphasized by the Expert Proposal of HCC with an express reference to PECL and UPICC.14 The jurisprudence seems to be even closer to UPICC, since in a decision (BH2004. 150) of the Supreme Court it is clearly stated that besides the statements of the parties, it is necessary to take into

13 14

Vékás (2016), p. 103. Expert Proposal, 2008, p. 774. Similarly, Vékás and Gárdos (2014), p. 1424.

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account “the processes leading to the conclusion of the contract and the subsequent conduct of the parties”.15 Moreover, usages emerge unavoidably during the process of interpretation, since according to Section 6:63 HCC, subsection (5) “Under the contract the parties shall be bound by any usage which they have agreed on in prior business dealings and by any practice they have established between themselves. Furthermore, the parties shall be bound by a usage which would be considered generally applicable and widely known in the given sector by parties to similar contracts, unless such usages and practices are likely to conflict with contract terms which have been previously negotiated between the parties.” Logically, usages are relevant not only from the point of formation and content of the contract but should be considered as one of the relevant circumstances for consideration. The provisions of UPICC on relevant circumstances may put the above cited scattered provisions of HCC into proper context.

5.7

Reference to Contract or Statement as a Whole (Article 4.4 UPICC)

According to Section 6:86 HCC subsection (1) “Contract terms and statements are to be interpreted in accordance with the contract as a whole.” This new rule of HCC is identical to Article 4.4 UPICC, so the case law and commentaries related to this section of UPICC may provide a further inspiration for Hungarian Courts.

5.8

All Terms to Be Given Effect (ARTICLE 4.5 UPICC) and Linguistic Discrepancies (ARTICLE 4.7 UPICC)

The UPICC provisions on all terms to be given effect and linguistic discrepancies are obviously missing from HCC. UPICC could be a source of information and inspiration for Hungarian courts confronting with situations leading to these legal problems.

5.9

Currency of Payment (Article 6.1.9 UPICC)

Regarding the terms of payment of monetary debts the approach of HCC is close to that of Article 6.1.9 UPICC, focusing on the currency of the place for payment, although the Hungarian rules are less detailed. Section 6:45 HCC subsection (1) prescribes that “A monetary debt shall be settled in the currency at the place and time of the settlement.” The parties are naturally free to agree otherwise, subsection 15

Vékás and Gárdos (2014), pp. 1422–1423.

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(2) provides rules for this situation: “If the monetary debt is recorded in another currency, it shall be converted at the exchange rate specified by the central bank of the place of settlement in effect at the time of settlement, or failing this, based on the money market rate. If a monetary debt is to be repaid in a foreign currency, and at the time of settlement the debt cannot be repaid in that foreign currency, the monetary debt shall be settled as under Subsection (1).” This solution does not tackle the problem of convertibility and does not offer the choice for the obligee to require payment according to the applicable rate of exchange prevailing either when payment is due or at the time of actual payment.

5.10

Right to Terminate the Contract (UPICC Article 7.3.1)

The HCC does not use the concept of fundamental non-performance included in Article 7.3.1 UPICC. According to Article 6:137 HCC Non-performance of an obligation is any failure to perform that obligation. This is essentially identical to Article 7.1.1 UPICC. In order to get a comprehensive picture on the right to terminate a contract it is necessary to recall the general provisions of HCC on termination of a contract by mutual consent or unilaterally, due to the crossreferences included in the relevant Sections. According to Section 6:212 HCC “(1) The parties may terminate a contract by mutual consent for the future, or may dissolute the contract with retroactive effect to the date when it was concluded. (2) In the case of termination of a contract, the parties shall not owe further services and they shall settle accounts with respect to services performed before the time of termination. (3) In the case of dissolution of a contract, the services already performed shall be returned. If no restitution in kind is possible, dissolution of the contract is not allowed.” The rules on unilateral termination and the applied legal terminology are related to the above cited provisions, since Section 6:213 HCC reads as follows: “(1) Any person who has the right of cancellation or avoidance according to law or on the basis of a contract may terminate the contract by making a statement to the other party. If the contract is cancelled the provisions relating to termination, whereas in the case of avoidance the provisions relating to dissolution shall apply, under the condition that the party may avoid the contract if he offers to return the services received.” In sum: a party may cancel a contract for the future or avoid a contract with retroactive effect if this right is provided by the contract or by law. The HCC offers different grounds for such a unilateral act—breach of contract is one of them. It is necessary to recall the general provisions of HCC relating to non-performance as well as the specific provisions on delay and lack of conformity. According to Section 6:140. HCC “(1) If in consequence of non-performance the obligee’s interest in contractual performance has ceased, he may avoid the contract, or if restitution cannot be provided in kind, he may cancel the contract, unless this Act contains provisions to the contrary. (2) The obligee’s statement shall be considered valid if the reason of avoidance or cancellation is properly indicated, if that

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right exists for a number of reasons. The obligee shall be entitled to switch from the reason indicated for avoidance or cancellation to another.” The jurisprudence of Hungarian courts emphasizes the importance of proportionality between the harm caused by non-performance and exercising the right of avoidance or cancellation. A minor breach of contract—e.g. insignificant delay in payment—does not justify avoidance for example in case of credit contracts (BDT 2011. 2571) At this point the case law is getting relatively close to the idea of fundamental non-performance, although this concept is not expressly introduced in HCC. However, the sophisticated rules of UPICC Article 7.3.1—like the analysis whether the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract unless the other party did not foresee and could not reasonably have foreseen such result–, could enrich the Hungarian courts to strike the right balance. Regarding the specific provisions allowing unilateral avoidance or cancellation several Sections of HCC are relevant, like Section 6:154 on legal consequences of delay by obligor: (1) In the event of the obligor’s delay, the obligee shall be entitled to require performance or, if performance no longer serves his interest, he shall be entitled to avoid the contract. (2) It shall not be necessary to prove the cessation of an interest in performance for the obligee’s avoidance if: (a) according to the agreement of the parties or due to the imminent purpose of the service, the contract had to be performed at a definite time and none other; or. (b) the obligee has stipulated a reasonable deadline for subsequent performance and this period too elapsed without result. (3) The obligor shall reimburse the obligee for damages caused by his delay, if it is in excess of the interest on late payment in the case of a monetary claim, unless the delay is excused.

The above cited provision on stipulating reasonable deadline has the same goal as UPICC Article 7.1.5 on additional period for performance, however the latter is more detailed. So, certain rules of the UPICC may serve again as a source of inspiration, like subsection (4) which covers the situation “where the obligation has not been performed is only a minor part of the contractual obligation of the non-performing party.” This proportionality test is not expressly included into the corresponding Hungarian provision. In case of non-performance before the date of delivery—Section 6:151 HCC—the obligee is allowed to exercise his rights provided for delay, including avoidance as well: (1) If it becomes obvious before the stipulated date of delivery that the obligor will not be able to effect performance as due, on account of which performance is no longer in the obligee’s interest, the obligee shall be entitled to enforce his rights stemming from delay. (2) If it becomes obvious before the stipulated date of delivery that performance cannot be effected as contracted, the obligee shall be entitled to enforce his rights stemming from lack of conformity following non-compliance with the deadline for repair or replacement.

Furthermore, the right of avoidance the contract is expressly provided in Section 6:159 HCC on warranty for lack of conformity: (1) On the basis of a contract in which the parties owe mutual services to one another, the obligor shall be liable to provide warranty for lack of conformity.

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(2) On the basis of warranty rights, the obligee shall have the option: (a) to choose either repair or replacement, unless compliance with the chosen warranty right is impossible or it results in disproportionate expenses on the part of the obligor as compared to the alternative remedy, taking into account the value the service would have had there been no lack of conformity, the significance of the non-performance, and the harm caused to the obligee upon compliance with the warranty right; or. (b) to ask for a proportional reduction in the consideration, repair the defect himself or have it repaired at the obligor’s expense, or to avoid the contract if the obligor refuses to provide repair or replacement or is unable to fulfill that obligation under the conditions described in Subsection (4), or if repair or replacement no longer serves the obligee’s interest. (3) The obligee is not entitled to avoid the contract if the lack of conformity is minor. (4) Any repair or replacement shall be completed within a reasonable time and without any significant inconvenience to the obligee, taking account of the nature of the goods and the purpose for which the obligee required the thing.

Finally, Section 6:175 HCC on Warranty of title deals specifically with avoidance in the following provisions: (1) In connection with an obligation for the transfer of ownership, a right or claim for consideration, if the acquisition of ownership, other right or claim is hindered by a right of a third party, the obligee shall request the obligor to eliminate such hindrance within the prescribed time limit, or to provide adequate guarantees. In the event of non-compliance within said time limit the obligee shall be entitled to avoid the contract and to claim damages. (2) If the obligor has acted in good faith, he shall cover only the damages incurred by the conclusion of the contract.

5.11

Interest for Failure to Pay Money (UPICC Article 7.4.9)

According to Hungarian law the debtor shall pay interest in case of late payment. The rate of interest is attached to the base rate of the central bank issuing the foreign currency, unlike in UPICC, where short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment is relevant. The creditor cannot demand compound interests in respect of interest for failure to pay money, such a contractual clause is invalid according to the case law. (BDT 2012. 2701). However the creditor may demand compensation for damages not covered by the interests.16 Section 6:48 HCC on interest on late payments provides the following rules (1) In respect of a monetary debt, the debtor shall pay interest on late payment from the time of default calculated by the central bank base rate in effect on the first day of the calendar half-year to which it pertains, or - if the monetary debt is to be satisfied in a foreign currency, by the base rate of the issuing central bank, or failing this, by the money market rate -, even if the debt is otherwise free of interest.

16

Vékás (2016), p. 217.

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(2) If interest up to the date of default is due to the creditor, the debtor shall pay interest on late payment in addition to the interest due, as of the date of default at a rate of one-third of the central bank base rate in effect on the first day of the calendar half-year to which it pertains, or - if the monetary debt is to be satisfied in a foreign currency, by one-third of the base rate of the issuing central bank, or failing this, one-third of the money market rate -, but not less than the default interest specified in Subsection (1) on the aggregate. (3) For the purposes of calculating the interest, the central bank base rate in effect on the first day of the calendar half-year affected shall apply to the entire period of the given calendar half-year. (4) The obligation to pay interest shall be effective even if the obligor justifies his default.

Besides the above introduced general provisions on late payments there are special, stricter rules applicable to undertakings. They implement Directive 2011/ 7/EU on late payments.17 According to Article 2 (6) of the Directive “statutory interest for late payment’ means simple interest for late payment at a rate which is equal to the sum of the reference rate and at least eight percentage points;” This provision was implemented in Hungary too, by the fairly complex Section 6:155 HCC on delay in payments in contracts between undertakings: (1) In connection with contracts between undertakings, interest on late payment shall be calculated as the sum of the central bank base rate in effect on the first day of the calendar half-year affected by the default - if the monetary claim is to be satisfied in a foreign currency, the base rate of the issuing central bank, or failing this the money market rate - plus eight percentage points. For the purposes of calculating the interest, the central bank base rate in effect on the first day of the calendar half-year affected shall apply for the entire period of the given calendar half-year. (2) In the event of the obligor’s delay, in contracts between undertakings the obligor shall be required to pay the sum specified in the Directive on combating late payment in commercial transactions to the obligee. Fulfilling the above-specified obligation shall not bring immunity from other legal consequences of late payment. Any contract term excluding these provisions shall be treated as a contract term that is deemed contrary to good faith and fair dealing and as such regarded as unilaterally and unjustifiably unfair to the obligee. (3) In contracts between undertakings, any contract term that is in derogation from this Section deemed contrary to good faith and fair dealing and as such regarded as unilaterally and unjustifiably unfair to the obligee, shall be null and void. (4) In contracts between undertakings, any contract term which excludes interest on late payment shall be considered null and void, except if the debtor is liable to pay contractual penalty when in delay.

The directive was implemented in all Member States of the EU, so the regional harmonisation of laws prevails in this field.

5.12

Interest on Damages (UPICC Article 7.4.10)

Hungarian law follows the same approach and leads to the same result as Article 7.4.10 UPICC, however, it is necessary to take into consideration several provisions 17 Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions.

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of HCC in order to establish this conclusion. This is due to the fact, that some rules on liability for damages are common in contractual and non-contractual (delictual) liability. The two fields are interlocked by certain provisions of HCC.18 This relationship is expressly emphasized by Section 6:144 HCC on complementary application of the principle of non-contractual liability: (1) The aggrieved party’s obligation relating to damage control and to the prevention and mitigation of damages, and the division of liability among parties bearing joint liability for damages shall be governed by the principle of non-contractual liability. (2) As regards the definition of damage and the mode of compensation, in matters not regulated in this Chapter the provisions of non-contractual liability shall apply, with the exception that compensation may not be reduced for reasons of equitable considerations.

This is supplemented by Section 6:146 HCC on liability for damages caused during performance, according to which “The obligee may demand compensation for damages caused to his assets in the course of performance of the contract in accordance with the provisions on liability for damages for loss caused by non-performance of an obligation.” The above demonstrated interface between the contractual and non-contractual regulatory areas of HCC establishes the reference to Section 6:532 HCC on the due date of compensation: “Compensation shall be due immediately upon the occurrence of the damage.’ At this point we have to recall briefly the already cited Section 6:48 HCC as well, which prescribes that “the debtor shall pay interest on late payment from the time of default.” and section 6.153 HCC on the obligor’s delay, stating that “An obligor shall be in delay if he does not perform his obligation when due.” The joint impact of all these provisions of HCC is that the party liable for non-performance of the contract will be in delay from the occurrence of damages related to the breach of contract and has to pay interest. The date of submitting the claim for damages—if it is made within the prescription period—is not relevant in this respect, as it is confirmed by jurisprudence (BH2000. 153).19

References Király M (ed) (2014) UNIDROIT Nemzetközi Kereskedelmi Szerződések Alapelvei, Principles of International Commercial Contracts 2010. ELTE Eötvös Kiadó Kft., Budapest Vékás L (2008) Szakértői Javaslat az új Polgári Törvénykönyv tervezetéhez (Expert Proposal to the New Hungarian Civil Code). Complex – Wolters Kluwer Group, Budapest Vékás L (2016) Szerződési jog, Általános rész (Law of Contracts, General part) ELTE Eötvös Kiadó, Budapest Vékás L, Gárdos P (2014) Kommentár a Polgári Törvénykönyvhöz, (Commentary to the Civil Code), Vol. 1–2. Wolters Kluwer, Budapest

18 19

Vékás (2016), p. 240. Vékás and Gárdos (2014), pp. 1416–1417.

Italian National Report on the Use of the UPICC in Order to Interpret or Supplement National Contract Law Anna Veneziano and Eleonora Finazzi-Agrò

Abstract The authors point out that while there is no legislative provision mandating the use of instruments such as the UPICC to interpret or supplement national contract law in the Italian legal system, Italian courts have resorted to the UPICC for said purposes. The authors add that the use of the UPICC by Italian courts had mainly the aim of favoring the adoption of one of several possible solutions under the applicable domestic law or filling in a veritable gap. For said purpose, the authors provide an analysis of several Court decisions that used the UPICC. Following, the authors compare the UPICC with Italian law, concluding that almost all selected provisions of the UPICC do have a counterpart in Italian law and highlighting convergences and divergences.

A. Veneziano (*) UNIDROIT, Rome, Italy e-mail: [email protected] E. Finazzi-Agrò Studio Valensise, Rome, Italy © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_13

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1 Is There Any Legal Source in Your Legal System Allowing the Use of the UPICC to Interpret or Supplement National Contract Law (Either by Way of Explicit and Specific Legislation, by Way of Reference to “Trade Usages”, “General Principles of Law”, or Based in Any Other Source)? If So, Please Refer to Such Legal Source, Explaining How the Court Has Reached Such a Decision (Indicating, for Example, Whether and How the Courts Reached the Conclusion That the UPICC Represent “Trade Usages” or “Customs” in the Field of Contract Law) 1.1

UPICC Before Italian Courts

In the Italian legal system there is no legislative (or legislative-like) provision mandating or allowing the use of the UPICC to interpret or supplement national contract law, nor could we find other sources of law expressly authorising such use. As to trade usages, this expression is unknown to the Italian Civil Code. Art. 1374 C.C. refers to the so-called “usi normativi”, which are a source of law but only in the absence of an act of the government or a statute enacted by the parliament.1 According to the prevailing view, however, trade usages are not to be considered as “usi normativi”, but must be considered as implied terms of the contract (so-called “usi negoziali” or “clausole d’uso”, referred to in Art. 1340 of the Italian Civil Code2) or as an instrument of contract interpretation in the case of ambiguous contract provisions (so-called “usi interpretativi” regulated by Art. 1368 of the Italian Civil Code3).4 This formalistic approach to the role of trade usages in the hierarchy of laws has been challenged by part of the legal literature on international commercial law.5 Recent case law, however, still seems to share the traditional

Art. 1374 Italian Civil Code: “Il contratto obbliga le parti non solo a quanto è nel medesimo espresso, ma anche a tutte le conseguenze che ne derivano secondo la legge, o, in mancanza, secondo gli usi e l’equità”. 2 Art. 1340 Italian Civil Code: “Le clausole d’uso si intendono inserite nel contratto, se non risulta che non siano volute dalle parti”. 3 Art. 1368 Italian Civil Code, par. 2: “Nei contratti in cui una delle parti è un imprenditore, le clausole ambigue s’interpretano secondo ciò che si pratica generalmente nel luogo in cui è la sede dell’impresa”. 4 Bonell (1988); Bernardini (1991), p. 82 ss.; Scognamiglio (2006), p. 1112; Marrella (2003), pp. 238–239; Franzoni (1999), p. 93; Franzoni (1999), 824 e in Ferri (1997), p. 148; Ruggeri (1994), p. 24; Galgano (1993), p. 82; Genovese (1994), p. 430. 5 In particular, see Bonell (1976), Sacerdoti (1991), p. 151 ss.; Galgano and Marrella (2011), pp. 279–280. 1

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opinion,6 despite an isolated decision of the Corte di Cassazione, which goes in the opposite direction.7 In any case, we could not find any court decision8 expressly considering the UPICC as international trade usages, either as a veritable source of law or as an instrument of contract interpretation or integration. As for the possibility of resorting to UPICC as an expression of “general principles of law”, we must point out that Italian legislator, for the purpose of interpreting domestic law, expressly admits only the reference to the general principles of the Italian legal system (Art. 12 Preleggi).9

See Cassazione civile, judgment no. 11263 of 31 May 2016: “La disciplina del credito documentario è regolata da un complesso normativo sorto dalle prassi del commercio internazionale, stratificatosi nel tempo, adottato a livello internazionale da numerose associazioni bancarie e formalizzato in un testo soggetto a periodiche revisioni e denominato “norme ed usi uniformi relativi ai crediti documentari. Le norme e gli usi uniformi relativi ai crediti documentari non sono usi giuridici o normativi, ma costituiscono clausole d’uso, integrative della volontà negoziale dei contraenti, ai sensi dell’art. 1340 cod. civ., e sono dirette a regolare in maniera uniforme le operazioni di apertura di credito documentario; con la conseguenza che la loro interpretazione, compiuta dal giudice del merito con motivazione esauriente ed immune da vizi logico-giuridici, risolvendosi in indagine di fatto, non è censurabile in sede di legittimità”. The situation is (or, at least, should be) different for matters governed by international conventions, such as CISG, in which the court should refer to the relevant provisions of the convention dealing with the relevance and validity of trade usages (see Bortolotti 2009). 7 See Cassazione civile, judgment no. 722 of 8 February 1982: “La convenzione sull’arbitrato mercantile transnazionale (c.d. arbitrato commerciale internazionale) adottata a Ginevra il 21 aprile 1961 e resa esecutiva in Italia con l. 10 maggio 1970, n. 418, è entrata a far parte degli ordinamenti giuridici degli stati ratificanti, formando diritto comune; essa, pertanto, deve ritenersi implicitamente richiamata nelle clausole contrattuali stipulate da operatori economici appartenenti a detti stati (nella specie: Italia e repubblica federale tedesca), le quali deferiscano ad istituzioni arbitrali permanenti (nella specie: collegio arbitrale permanente dell’associazione fra i mercanti di zucchero raffinato di Londra) la risoluzione di controversie riguardo a vicende commerciali tra essi insorte, disciplinate dalla lex mercatoria (insieme di regole osservate con convinzione di cogenza dai suddetti operatori, a prescindere dal vincolo della loro appartenenza ad uno stato e dall’ubicazione della loro attività in uno stato), a nulla rilevando la collocazione della istituzione arbitrale designata in uno stato che non abbia ratificato la menzionata convenzione, poiché l’incidenza effettuale di questa è operante a prescindere dall’appartenenza del collegio arbitrale ad uno stato ratificante”. 8 For arbitral tribunals see however para. b). 9 “Nell’applicare la legge non si può ad essa attribuire altro senso che quello fatto palese dal significato proprio delle parole secondo la connessione di esse, e dalla intenzione del legislatore. Se una controversia non può essere decisa con una precisa disposizione, si ha riguardo alle disposizioni che regolano casi simili o materie analoghe; se il caso rimane ancora dubbio, si decide secondo i principi generali dell’ordinamento giuridico dello Stato”. For a different guideline, see Art. 1 of the Swiss Civil Code. 6

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UPICC Before Arbitral Tribunals Having Their Seat in Italy

The issue of the role of trade usages in arbitration deserves separate attention. Until 2006, the Italian Code of Civil Procedure expressly provided that arbitrators should take into account trade usages, irrespective of whether the parties had or had not chosen the law applicable to the merits of the dispute.10 However, this rule was repealed when the Italian legislator decided to reform the law on arbitration in order to harmonise the rules on domestic arbitration with those applicable to international arbitration.11 Today, for purely domestic arbitration, the more general issue of the law applicable to the merits of the dispute is regulated by Art. 822 of the Code of Civil Procedure,12 which states that arbitrators decide according to the rules of law (“norme di diritto”), unless parties have agreed that the dispute should be solved according to “equity”.13 The reference to “rules of law”, however, should not mislead: according to leading legal literature,14 in the event that the arbitral tribunal has its seat in Italy reference should be made to the conflict of law rules in force in Italy, i.e. the “Rome I” Regulation which, as is well known, is interpreted as precluding the choice of a non-State body of law as lex contractus.15 As a corollary, and according to a prevailing view, UPICC could be used to interpret and supplement Italian contract law in this specific context only if such use is expressly

10 Art. 834 C.C.P.: “Le parti hanno facoltà di stabilire d’accordo tra loro le norme che gli arbitri debbono applicare al merito della controversia oppure di disporre che gli arbitri pronuncino secondo equità. Se le parti non provvedono, si applica la legge con la quale il rapporto è più strettamente collegato. In entrambi i casi gli arbitri tengono conto delle indicazioni del contratto e degli usi del commercio”. In this respect, see Ad hoc Arbitration (Rome) of 4 December 1996 (in Unilex), in which the Arbitral Tribunal, by applying Art. 834 of the Italian Code of Civil Procedure, repeatedly referred to the UNIDROIT Principles—which it defined as a parameter of the principles and usages of international trade—in order to prove that the solutions provided by Italian law were in conformity with international standards; on the contrary, see ICC Award n. 9029 of March 1998 (in Unilex), according to which “[. . .] although the UNIDROIT Principles constitute a set of rules theoretically appropriate to prefigure the future lex mercatoria[. . .], at present there is no necessary connection between the individual [provisions of the] Principles and the rules of the lex mercatoria, so that recourse to the Principles is not purely and simply the same as recourse to an actually existing international commercial usage”. See Biavati (2001), pp. 739, 760. 11 D.Lgs. n.40/2006. 12 “Gli arbitri decidono secondo le norme di diritto, salvo che le parti li abbiano autorizzati con qualsiasi espressione a pronunciare secondo equità”. 13 Please note that the term “equity” in Italian law has a very different meaning from that used in common law and refers to an exceptional solution founded on grounds other than the legal framework. 14 See Marongiu Bonaiuti (2009), pp. 914–915; Bernardini (2006), p. 244; Briguglio (2005), p. 682. 15 See Arts. 3 and 4 of the EC Regulation n. 593/2008, which always use the term “law” instead of “rules of law”. On the role of soft law in the Regulation, see Recital 13.

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authorized by the parties and within the limits imposed by the applicable domestic law.16 Quite different is the situation when the European Convention on International Commercial Arbitration (Geneva, 1961) applies. Art. VII of the Convention, although it only refers to a State law as applicable law, expressly provides reference to international trade usages.17 Moreover, we should bear in mind that the rules of leading arbitral institutions allow the arbitrators to apply both trade usages and rules of law as the law applicable to the merits of the dispute, even in the absence of a parties’ choice in this respect.18 In practice, as we will see, arbitrators resort to trade usages without raising the problem of the hierarchy in relation to the applicable law. The same applies to the UPICC, which, for example, have often been mentioned by arbitrators in support of the solutions adopted under Italian law, without any further explanation.19

16

Bortolotti (2009), p. 26. “The parties shall be free to determine, by agreement, the law to be applied by the arbitrators to the substance of the dispute. Failing any indication by the parties as to the applicable law, the arbitrators shall apply the proper law under the rule of conflict that the arbitrators deem applicable. In both cases the arbitrators shall take account of the terms of the contract and trade usages”. 18 See Art. 21 ICC Rules of Arbitration: “(1) The parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate. (2) The arbitral tribunal shall take account of the provisions of the contract, if any, between the parties and of any relevant trade usages”. For Italy see Regolamento di Arbitrato della Camera Arbitrale nazionale e internazionale di Milano (Art. 3): “(2) Il Tribunale Arbitrale decide secondo le norme scelte dalle parti. (3) In difetto della concorde indicazione prevista dal comma 2, il Tribunale Arbitrale applica le norme che ritiene appropriate, tenuto conto della natura del rapporto, della qualità delle parti e di ogni altra circostanza rilevante nel caso di specie. (4) In ogni caso, il Tribunale Arbitrale tiene conto degli usi del commercio”. In this case the arbitration rules should prevail on relevant Italian conflict of laws rules: see Marongiu Bonaiuti (2013), p. 928 ss. (with some caution) and Ortolani (2013), pp. 778–779. 19 In this respect, see the answer to Question 2. 17

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2 Have the UPICC Been Used as Evidence of a General Consensus on the Law Applicable to Contracts (for Example, on the Existence of a Duty of Good Faith, the Obligation to Pay Interest, the Requirement That a Breach of Contract Must Be “Fundamental” in Order to Allow for the Termination of the Contract, Etc.)? If So, Please Indicate Which Specific Provision of the UPICC Has Been Used in This Way, Referring Also to the Factual Context of the Dispute in Which the UPICC Have Been Used in This Manner 2.1

Introduction

Notwithstanding the lack of legislative provisions expressly admitting the use of the UPICC to interpret or supplement Italian law, Italian courts have indeed resorted to the UPICC to this purpose. In most of the cases we are aware of, the reference to the Principles was made without any explicit explanation or justification, because it was considered that the solution adopted by the UPICC corresponded to international standards. This does not mean, however, that reference to UPICC was made only ad abundantiam. On the contrary, UPICC appear to play an important role in the resolution of the dispute, favouring the adoption of one of several possible solutions under the applicable domestic law or filling in a veritable gap.

2.2

Court Decisions

The eight decisions to which we will refer—all reported in Unilex database—are all judgments of First Instance Courts (Tribunali), with the exception of a judgment of the Court of Audits (Corte dei Conti) for the Sicily Region. It is interesting to note that all cases deal with domestic contracts, often not even commercial contracts, to which Italian law applies. Those decisions may be divided into two groups: the decisions dealing with the issue of the restitutions, in which reference to Arts. 7.3.6–7.3.7 UPICC was used as a means to choose one of the several possible solutions offered by Italian case law and doctrinal interpretation; and the decisions dealing with the issue of inconsistent behaviour, in which reference to Art. 1.8 UPICC has filled a gap in Italian law (or, to be more precise, it has concretised principle which was already present in the Italian legal system, though in vague and unclear terms).

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First Group

Tribunale di Roma, 28 July 2004 Medical malpractice claim resulting from an unsuccessful dental implant. The patient demanded, in addition to damages, restitution of the fee paid (€ 10,000). The Court, after having ascertained that the medical treatment had not been carried out properly, ordered the dentist to pay damages but rejected patient’s claim for restitution of the fee paid, since in the case at hand restitution in kind of the medical treatment was by its very nature impossible. In support of its decision the Court pointed out that according to a well-established principle accepted in most European legal systems as well as in international instruments such as the UNIDROIT Principles (Article 7.3.6) and the Principles of European Contract Law (Articles 9:307 and 9:309), on termination a party is entitled to restitution of the performance it has rendered under the contract only if that party is in a position to make concurrently restitution of the performance it has received from the other party. The Court conceded that the patient could have been ordered to make an allowance in money for the treatment received but according to the Court “this would not have been reasonable”. Also in this respect the Court expressly referred to Article 7.3.6 of the UNIDROIT Principles without considering Comment 2 to Article 7.3.6 [now Comment 3] which states “the purpose of specifying that allowance should be made in money ‘whenever reasonable’ is to make it clear that allowance should only be made if, and to the extent that, the performance received has conferred a benefit on the party claiming restitution”.20

20 “Secondo una prima impostazione (nota come Zweikondiktionentheorie) le obbligazioni restitutorie (derivanti da caducazione del contratto) sarebbero indipendenti l’una dall’altra, con conseguente irrilevanza dell’eventuale squilibrio cui potrebbero dar luogo le restituzioni nei casi di impossibilità, anche solo parziale, di una delle due obbligazioni. [. . .] Questa impostazione, tuttavia, è stata superata anche in altri paesi europei perché ritenuta non soddisfacente [. . .]. [G]li ordinamenti europei si ispirano [. . .] alla c.d. Saldotheorie secondo cui le obbligazioni restitutorie risultano reciprocamente condizionate, nel senso che ciascuna parte sarà tenuta a restituire quanto ricevuto nella misura in cui la controparte sia in grado di adempiere al suo obbligo restitutorio, cioè il creditore della prestazione restitutoria deve detrarre dal proprio credito un ammontare pari alla prestazione restitutoria divenuta impossibile. Come osservato da autorevole dottrina, quelle restitutorie sono obbligazioni contrattuali con segno invertito governate dal principio di corrispettività. Pertanto, quando una delle due prestazioni è ontologicamente irripetibile (com’è la prestazione professionale resa dal medico), il corrispettivo pecuniario versato dalla controparte é anch’esso irripetibile, pena l’alterazione del vincolo sinallagmatico che governa le obbligazioni restitutorie, a meno che non si voglia riconoscere al professionista, come corrispettivo del compenso (da lui) restituito, il pagamento del tantundem pecuniario della propria prestazione, il che non sembra ragionevole (v. art. 7.3.6 dei Principi Unidroit) né condivisibile sul piano della comprensibilità dei rimedi contrattuali. [. . .] Anche nei Principi Unidroit è previsto il diritto della parte, risolto il contratto, alla “restituzione di tutto ciò che essa abbia fornito, a condizione che a sua volta contestualmente restituisca tutto ciò che ha ricevuto. Se non é possibile o appropriata la restituzione in natura, la restituzione deve essere fatta per equivalente in denaro, sempre che ciò sia ragionevole” (art. 7.3.6). Si estende così, in altri termini, alle obbligazioni secondarie (restitutorie) la regola per cui se la prestazione di una parte diventa impossibile in tutto o in parte anche la controparte è liberata in modo corrispondente (art. 1463-1464 c.c.)”.

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Tribunale di Bergamo, 19 April 2006 Contract between two Italian companies, A and B, for the installation and subsequent use of a billboard alongside a highway outside Milan. After 2 years of use and payment of the agreed rental fee, the owner of the highway requested the removal of the billboard on the ground that it was against the law. Consequently A, invoking the illegality of the contract it had with B, brought an action against B for restitution of the rent it had paid over the 2 years. The Court rejected the claim for restitution on the ground that, since A was not in a position to make restitution of the performance it had received under the contract from B, i.e. the concession of the use of the billboard for 2 years, it could not claim restitution of its own performance, i.e. the rental fee paid, all the more so since it undoubtedly had benefited from B’s performance. The Court admitted that under Italian law it was still an open question as to whether a party’s claim for restitution of the performance(s) it has rendered under an illegal contract was dependent on whether that party was in a position to make restitution of the performance it had received from the other party. However, in opting for the affirmative solution the Court expressly referred to the UNIDROIT Principles and to the CISG (Article 81 (2) which in its view were both in favour of such an approach. (Though not quoting it, the Court apparently referred to Article 7.3.6 [Article 7.3.7(1) of the UNIDROT Principles 2016] of the UNIDROIT Principles dealing with restitution in case of termination of the contract, whereas the dispute at hand concerned a case of an illegal contract. It should be noted that at the time of the Court decision illegality had not yet been included in the UNIDROIT Principles but is now covered by Articles 3.3.1–3.3.2 of the UNIDROIT Principles 2016).21

“È vero, in effetti, che la nullità ha effetto retroattivo, ma il problema è di verificare se tale retroattività debba implicare anche la correlatività delle restituzioni. La risposta negativa muove dall’art. 2033 c.c.: il sistema delle restituzioni sarebbe unitario, e sarebbe improntato ad una considerazione “isolata” di ciascuna prestazione restitutoria. La risposta positiva distingue il sistema delle restituzioni: da un lato, l’art. 2033 c.c., riferibile alle sole condictiones sine causa; dall’altro, le conditiones ob causam finitam: la fonte della restituzione qui è il contratto a prestazioni corrispettive, sicché tale corrispettività vien mantenuta anche per le prestazioni restitutorie. La giurisprudenza tende a questa seconda soluzione (v. a conferma Cass. 4849/91, sulla nullità; sulla risoluzione v. T. Roma, 11.7.04, Corr. Giur., 2004, 1502; v. anche T. Milano, 4.1.99), ed ha ricordato (T. Roma, 4.1.99) che alla stessa si adeguano i più recenti interventi transnazionali (Principi Unidroit; ma v. anche art. 81, co. 2 della Convenzione di Vienna sulla vendita internazionale di beni mobili). Ritiene questo giudice che il codice italiano non porti argomenti testuali così esplicitamente adesivi alla prima costruzione sistematica, da impedire una ricostruzione interpretativa nel secondo senso. [. . .] È dunque evidente (e anzi necessitato) il ritorno al principio di considerazione “isolata” della restituzione, secondo il modello degli artt. 2033 ss. c.c. Detto altrimenti, come la fonte (il contratto) non ha prodotto alcuna corrispettività in fase esecutiva, del pari non potrà quella stessa fonte produrre alcuna corrispettività in fase restitutoria. L’adesione dunque alla seconda impostazione (siccome garante di maggiore equità di effetti pratici: evitare ingiustificati arricchimenti) porta a dire che, nel caso di specie, l’azione di ripetizione non è fondata. La prestazione dell’opposta, infatti, per sua natura (facere) non può essere restituita ex tunc: per il primo biennio di contratto, l’opponente ha comunque tratto profitto dalla controprestazione dell’opposta; un profitto che non è eliminabile retroattivamente”. 21

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Tribunale di Catania, 06 February 2009 Contract for the construction of a water purifying plant concluded between two Italian companies. Once completed the plant proved to be seriously defective prompting the owner to bring an action for termination of the contract. The Court, having found that the plant’s defects were such as to make it absolutely useless for the purpose for which it had been built, declared the contract terminated in accordance with Article 1455 of the Italian Civil Code. Moreover, in accordance with Article 1458 of the Italian Civil Code the Court ordered the parties to return what they had received under the contract. However, since restitution in kind of some parts of the plant was not possible or appropriate because the owner wanted to keep them, the Court granted the contractor an allowance in money corresponding to the value these parts had for the owner. In support of its decision the Court not only pointed out that a similar solution is adopted in both civil law and common law systems but expressly referred to Article 7.3.6(1) [Art. 7.3.6(2) of the 2016 edition] of the UNIDROIT Principles stating that “[i]f restitution in kind is not possible or appropriate allowance should be made in money whenever reasonable”.22 Tribunale di Verona, 30 June 201023 The co-owners of a building entered into an agreement with construction company for the renovation of the building. When work had almost been completed and the co-owners had already paid part of the price, the latter discovered serious defects in the work. Notwithstanding repeated requests to have the defects remedied, the construction company failed to do so, prompting the co-owners to bring an action against the construction company claiming, among others, restitution of the payments made. The Court, after ascertaining that the defects existed, terminated the contract and decided that the co-owners were entitled to restitution of the payments they had made. However, the Court did not follow the principle developed by Italian case law according to which the party entitled to

22 “La risoluzione comporta (non vertendosi in ipotesi di contratto di durata) gli effetti restitutori di cui all’art. 1458 c.c. Per le opere già eseguite che il committente intende utilizzare ovvero che a lui ormai appartengono iure accessionis per esser state incorporate nell’immobile di sua proprietà compete tuttavia all’appaltatore (pur se in colpa) un diritto ad ottenere l’equivalente economico delle stesse. [. . .] A ben vedere tuttavia sul piano dogmatico quel diritto dell’appaltatore va affermato come conseguenza diretta degli effetti restitutori di cui allo stesso art. 1458 c.c., convertendosi il valore delle opere non restituibili nel loro equivalente economico secondo il principio pretium succedit in locum rei (cfr. Cass. n. 3827/82). [. . .] Soluzione questa che trova del resto aggancio nei Principi Unidroit sui contratti commerciali internazionali (art. 7.3.6) secondo cui se non è possibile la restituzione in natura questa deve esser fatta per equivalente in denaro, sempre che ciò sia ragionevole. In tal modo anche sul piano restitutorio si applicano i principi dell’arricchimento ingiustificato che tengono conto dell’eventuale squilibrio che verrebbe altrimenti a crearsi (nei paesi di common law che non seguono la regola della corrispettività, il principio della causa giustificativa opera anche sul terreno delle restituzioni) e che sono alla base della cd “saldo theorie” di ispirazione tedesca secondo cui, essendo le obbligazioni restitutorie reciprocamente condizionate, il creditore della prestazione restitutoria dovrà detrarre dal proprio credito un ammontare pari a quella posta a suo carico (per effetto della risoluzione) ma divenuta di fatto impossibile”. 23 N.B.: In this decision the reference to the UPICC was used as argumentum a contrario.

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restitution of what it has performed must accept a deduction of the value of the performance it has received but cannot return (so-called “Saldotheorie” in German law). Moreover the Court expressly declared that it would not accept the solution provided by the UNIDROIT Principles (Article 7.3.6) according to which “either party may claim restitution of whatever it has supplied under the contract provided that such party concurrently makes restitution of whatever it has received under the contract”. The Court explained its refusal to follow the UNIDROIT Principles in this respect with the argument that not only were the UNIDROIT Principles a non-binding instrument but their content represented a compromise between conflicting national solutions that is not always acceptable at domestic level. Ultimately the Court decided to proceed to a sort of “set-off” between the two performances notwithstanding the fact that the performance rendered by the construction company not only could not be returned not even in form of an allowance in money as it had no market value. The Court awarded the co-owners a sum corresponding to the difference between the payment made and the economic benefit (i.e. savings on expenditure) they received from the retention of the work done.24

“Esclusa la possibilità di attribuire alle restituzioni valenze risarcitorie (. . .), una parte della giurisprudenza di merito (v. ad esempio Trib. Roma 1 /7/04), nel tentativo di porre rimedio all’iniquità del sistema delle restituzioni nell’ipotesi in cui una delle due prestazione derivanti dal contratto non sia ripetibile, e sulla scorta di isolati precedenti di legittimità (Cass. n. 638/90 e Cass. 4849/91), ha affermato l’applicabilità del “diritto dei contratti”, e in primo luogo del principio di corrispettività, alle obbligazioni restitutorie, giungendo ad applicare nell’ordinamento interno la c.d. “teoria del saldo” di derivazione tedesca (Saldotheorie), secondo cui il creditore di una prestazione restituenda, in virtù del legame funzionale che caratterizza le obbligazioni restitutorie, deve calcolare a suo carico il valore della controprestazione che non può più restituire. Questa impostazione trova riscontro in numerose opinioni dottrinarie, anche risalenti nel tempo, non classificabili unitariamente se non dal punto di vista della conclusione sostenuta. Gli argomenti richiamati da tali opinioni sono diversi e, secondo una ricostruzione necessariamente esemplificativa, sono riassumibili nella valorizzazione del contratto caducato quale fonte “invertita” delle obbligazioni restitutorie (con conseguente estensione a quest’ultima della disciplina contrattuale), nel recupero della distinzione tra condictio sine causa e condictio ob causam finitam, nell’evidenziazione della corrispondenza tra la conclusione su indicata ed il fine ultimo della disciplina della ripetizione dell’indebito, ossia quello di evitare l’arricchimento senza causa, nel richiamo dell’art. 1464 c.c. quale indice normativo della rilevanza di un legame funzionale tra le obbligazioni restitutorie conseguenti alla caducazione del contratto ed infine nel richiamo delle codificazioni di diritto uniforme europeo, ove le obbligazioni restitutorie sono disciplinate in modo da garantire il ripristino delle situazioni patrimoniali dei contraenti nei limiti e nel modo in cui ciò risulti ragionevole, in relazione alla natura del contratto risolto (ed infatti, secondo i Principi Unidroit, ed in particolare l’art. 7.3.6, a seguito della risoluzione del contratto, ciascuna delle parti può pretendere la restituzione di quanto abbia fornito, a condizione che, a sua volta, restituisca quanto ricevuto, e, qualora ciò non sia possibile, o non sia appropriata la restituzione in natura, la stessa dovrà avvenire, se ragionevole, per equivalente in denaro, mentre secondo i Principi di diritto europeo dei contratti, ed in particolare l’art. 9.309, qualora la prestazione non sia suscettibile di restituzione, la parte che l’ha eseguita deve ricevere una somma ragionevolmente corrispondente al valore che la prestazione aveva per la controporte). Tuttavia gli argomenti di volta in volta richiamati, per quanto suggestivi, non appaiono idonei a giustificare la fondatezza della tesi”. 24

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Tribunale di Nola, 06 December 2010 Medical malpractice claim resulting from an unsuccessful dental implant. The patient demanded, in addition to damages, restitution of the fee paid. The Court, after having ascertained a diagnostic error of the dentist, ordered the latter to pay damages but rejected client’s claim for restitution of the fee paid. In support of its decision the Court pointed out that according to a well-established principle accepted in most European legal systems as well as in international instruments such as the UNIDROIT Principles and the CISG (Article 81(2)), on termination a party is entitled to restitution of the performance it has rendered under the contract only if that party is in a position to make concurrently restitution of the performance it has received from the other party. In the case at hand, since restitution in kind of the medical treatment was by its very nature impossible, the client could not claim restitution of the fee paid. Consequently, the dentist was condemned only to pay compensatory damages.25

2.2.2

Second Group

Tribunale di Torino, Sezione Lavoro, 2 February 2011 A, an Italian company, received a request from B, the Italian National Pension Institute (INPS), to remedy its failure to pay the entire amount of the obligatory contributions due. In particular B alleged that A had been late in communicating the amount of the salaries paid to its employees. A objected that its delay was due to B’s inconsistent behaviour: indeed, after the expiry of the prescribed time limit, B invited A to communicate certain information previously not required and after receiving the information objected that such information was late. The Court decided in favour of A. In its opinion B’s conduct violated the principle of prohibition of venire contra factum proprium according to which private as well as public subjects must behave consistently

“[Q]uando una delle due prestazioni è ontologicamente irripetibile (com’è la prestazione professionale resa dal medico), il corrispettivo pecuniario versato dalla controparte è anch’esso irripetibile, pena l’alterazione del vincolo sinallagmatico che governa le obbligazioni restitutorie, a meno che non si voglia riconoscere al professionista, come corrispettivo del compenso (da lui) restituito, il pagamento del tantundem pecuniario della propria prestazione (v. infra), il che non sembra ragionevole né condivisibile sul piano della comprensibilità dei rimedi contrattuali. Si estende così, in altri termini, alle obbligazioni secondarie (restitutorie) la regola per cui se la prestazione di una parte diventa impossibile in tutto o in parte anche la controparte è liberata in modo corrispondente (art. 1463–1464 c.c.). [. . .] L’orientamento opposto, viceversa, distingue nell’ambito del sistema delle restituzioni due ipotesi: da un lato l’art. 2033 c.c., riferibile alle sole condictiones sine causa; dall’altro le condictiones ob causam finitam. La fonte della restituzione, in questo secondo caso, è il contratto a prestazioni corrispettive, sicché tale corrispettività vien mantenuta anche per le prestazioni restitutorie. La giurisprudenza tende a questa seconda soluzione (v. a conferma Cass. 4849/91, sulla nullità; sulla risoluzione v. T. Roma, 11.7.04, Corr. Giur., 2004, 1502; v. anche T. Milano, 4.1.99), ed ha ricordato (T. Roma, 4.1.99), che alla stessa si adeguano i più recenti interventi transnazionali (Principi Unidroit; ma v. anche art. 81, co.2 della convenzione di Vienna sulla vendita internazionale di beni mobili). Ritiene, allora, questo giudice che il codice italiano non porti argomenti testuali così esplicitamente adesivi alla prima costruzione sistematica, da impedire una ricostruzione interpretativa nel secondo senso”. 25

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with the consequence that if they fail to do so they are allowed no remedy. In support of its conclusion the Court referred among others to Article 1.8 of the UNIDROIT Principles which affirms the prohibition of venire contra factum proprium at international level.26 Tribunale di Varese, Sezione distaccata di Luino, 5 January 2012 Contract for the sale of some apartments concluded between an Italian construction company and seven Italian nationals. Soon after having taken possession of the apartments, the new owners discovered a number of defects of construction of the swimming pool and the tennis court they had acquired in common, and gave immediately notice thereof to the constructor. The latter acknowledged the existence of the defects in question and promised to cure them promptly, but in fact eliminated only part of the defects. Therefore, the owners of the apartments brought an action against the

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II principio risale ad un passo contenuto nel Libro VI opinionum di Eneo Domizio Ulpiano, giure-consulto Tirese del II-III secolo d.C. riportato nei Digesta di Giustiniano (1, 7, 25), che così suona: “. . . adversus factum suum. . . movere controversiam prohibeatur. . . ”. [. . .] Un fondamentale studio dell’inizio del “900 (E. Riezler, Venire contra factum proprium. Studien im römischen, englischen und deutschen Zivilrecht, Leipzig, Verlag von Duncker & Humblot, 1912) ha chiarito e dimostrato che il principio enunciato da Ulpiano, attraverso l’opera dei glossatori del XII - XIII secolo ed i Consilia juris del XVI-XVIII secolo, è divenuto comune - oggi - alle tradizioni giuridiche sia di common law che di civil law, riverberandosi negli istituiti inglese dell’Estoppel, (preclusione) e tedesco della Verwirkung (perdita del diritto). [. . .] In Italia - ove la dottrina è unanime nel ritenere che il divieto di venire contra factum proprium si fondi sull’art 1175 c.c. (obbligo per le parti del rapporto di comportarsi secondo le regole della correttezza) e che la sua violazione comporti, a seconda del contesto in cui si inserisce, la perdita del diritto ovvero l’improponibilità dell’eccezione (su ciò cfr. La buona fede contrattuale, Padova, Cedam, 1988, pp. 523-602) - il principio ha trovato la seguente formulazione: “una parte non può esercitare il suo diritto, o comunque invocare una disposizione ad essa favorevole, quando ciò sia in contraddizione con un comportamento da essa tenuto in precedenza nel corso dell’esecuzione del rapporto”, con la precisazione che in tal modo “viene sanzionato il disinganno dell’affidamento creato dal fatto proprio, non il fatto proprio in sé che anzi risulta essere perfettamente lecito” (ivi, p. 547). A tale orientamento si è implicitamente richiamata la giurisprudenza della Corte di Cassazione a partire dagli anni “70 (ivi, p. 526 e ss.): richiamo che è divenuto esplicito nelle sentenze del Supremo Collegio a partire dagli anni “90: cfr. sent. 12 febbraio 1992, n 1715; 25 settembre 1996, n. 8453; 12 maggio 1999, n. 4724; 11 dicembre 2000, n. 15592; 4 settembre 2004, n. 17888; 10 ottobre 2007. n. 21265; 20 novembre 2007, n. 2404; 17 settembre 2008, n 23739; 17 dicembre 2008, n. 29480; 28 aprile 2009, n 9924; 5 maggio 2010, n. 10833. [. . .] Per completezza va segnalato che da anni, a partire dalla sentenza 5 aprile 1979, Ratti (in Foro it. 1979, IV. 277), la Corte di Giustizia dell’Unione Europea applica nei confronti degli Stati membri, inadempienti all’obbligo di attuare le direttive comunitarie, il principio dell’Estoppel, impedendo loro di eccepire ed opporre il proprio inadempimento all’azione diretta ad ottenerne la giudiziale applicazione (sull’argomento cfr. Le direttive comunitarie, Milano, Ed. Giuffré, 1983, pp 372-388); principio, questo, che ha trovato riconoscimento anche da parte della Corte Costituzionale italiana, con sentenza 18 aprile 1991, n 168. Il principio in questione è ora sancito dall’art. 1.8 (Venire contro factum proprium) delle Disposizioni generali dei Principi Unidroit 2004, adottati dall’autorevole Istituto Internazionale per l’Unificazione del Diritto Privato, con che così recita: “Una parte non può agire in modo contraddittorio rispetto ad un intendimento che ha ingenerato nell’altra parte, e sul quale questa ha ragionevolmente fatto affidamento a proprio svantaggio”.

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constructor requesting cure of all defects or, alternatively, payment of damages resulting from the defects not eliminated. The constructor objected that the claim was time barred because brought before the court after the expiry of the time limit of 1 year provided for by Article 1669 of the Italian Civil Code. In rejecting the exception raised by the constructor, the Court pointed out that by acknowledging the construction defects and promising to cure them after receiving proper notice thereof, the constructor had caused the owners reasonably to believe that no further action on their part was required. In support of this solution the Court invoked the general principle of good faith stated in Article 1175 of the Italian Civil Code and the application thereof consisting in the prohibition of inconsistent behaviour, and in this respect expressly referred to Article 1.8 of the UNIDROIT Principles.27 Corte dei Conti, Sezione Giurisdizionale per la Regione Siciliana, 24 January 2012 An Italian national brought an action against the Regional Government of Sicily, claiming payment of the part of its pension the latter had failed to pay. The Regional Government objected that the claim was time-barred. The Court decided in favour of the pensioner. Although the limitation period had indeed expired, the Public Administration could not raise this objection because by its behaviour it had led the pensioner to believe that there had been no change in the law. In fact, even though a new law imposing certain limitations with respect to the revaluation of pensions had come into force, the Regional Government had failed to properly inform the pensioner of it. In support of its decision the Court expressly referred to Article 1.8 of the UNIDROIT Principles according to which “[a] party cannot act inconsistently with an understanding it has caused the other party to have and upon which that other party reasonably has acted in reliance to its detriment28”. “[I]l venditore non può denunciare all’acquirente di non aver rispettato i termini di legge, durante la fase attuativa dell’impegno, proprio in virtù della clausola di buona fede citata dalla Sezioni Unite. Sotto questo profilo, infatti, il comportamento del venditore è chiaramente idoneo ad ingenerare nell’acquirente la convinzione che il suo partner negoziale interverrà a suo favore, non frapponendo, a sorpresa, tra il diritto riconosciuto e la sua attuazione, l’eccezione di prescrizione, al riguardo, il principio sotteso al cd. venire contra factum proprium – risvolto applicativo della clausola generale di buona fede – vuole che una parte non possa agire in modo contraddittorio rispetto ad un intendimento che ha ingenerato nell’altra parte, e sul quale questa ha ragionevolmente fatto affidamento a proprio svantaggio (così, anche, i Principi UNIDROIT 2004)”. 28 “[L]a Cassazione, con la sentenza n. 9924/2009 è ritornata sull’argomento, affermando la sussistenza del principio nemo venire contra factum proprium determinante il legittimo affidamento, anche nell’ambito del nostro ordinamento, quale espressione delle clausole generali di correttezza e buona fede, arrivando a considerare assorbita in esso anche la Verwirkung, intesa come inerzia nell’esercizio del proprio diritto, tale da ingenerare un legittimo affidamento nella controparte. Il passaggio della Corte è importante, poiché sottende necessariamente, per la sua interpretazione ed applicazione, la specifica previsione così come contenuta nell’art. 1.8 dei principi UNIDROIT: “dall’art. 1175, che assoggetta il creditore alla regole della correttezza, e dall’art. 1375 c. c., che impone alle parti di eseguire il contratto secondo buona fede, nonché dalla comparazione con ordinamenti prossimi al nostro, la giurisprudenza di questa Corte da tempo valuta il comportamento del contraente titolare di una situazione creditoria o potestativa, che per lungo tempo trascuri di esercitarla e generi così un affidamento della controparte nell’abbandono della relativa pretesa, come idoneo a determinare la perdita della situazione soggettiva. La 27

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Other Decisions

A standout decision is that of the First Instance Court (Tribunale) of the city of Terni, which deals with the particular problem of avoidance of the contract in the event that one of the parties ceases to exist: Tribunale di Terni, 22 March 2010 Contract for construction works between an Italian company and a Jordanian company. The Italian company asked to its bank to issue in favour of the Jordanian company performance bonds to guarantee satisfactory performance of the contract. The bank, after paying the bonds, requested from the Italian company reimbursement of the amount it had paid to the other party. The Italian company objected that the bank should have refused to pay the Jordanian company for a number of reasons. First, because, as the bank well knew, the real counterpart of the export transactions was the Ministry of Industry of Iraq, whereas the company’s role was merely a formal one designed to hide the transactions with Iraq which at the time of conclusion of the contract were illegal due to an international embargo on Iraq. Moreover, the real beneficiary of the performance bonds, i.e. the former Ministry of Industry of Iraq, at the time of the payment no longer existed, since after the invasion of Iraq by the U.S. a new political regime in Iraq was established. The Court decided in favour of the bank. First of all, it recalled that the embargo was no longer in force when the Jordanian company requested payment of the bond. Moreover, the Court held that the mere fact that the real counterpart of the Italian company no longer existed after a new government had come into power in Iraq did not constitute a sufficient reason for invalidating the contract as the new government was in fact the successor of former government. In support of its conclusion the Court referred to the UNIDROIT Principles (2004 edition) according to which avoidance of a contract was possible only in case of mistake, fraud, threat and gross disparity but not when one party ceases to exist and is succeeded by another.29

dottrina tedesca parla in questi casi di Verwirkung come di una sorta di decadenza derivante dal divieto, più familiare agli ordinamenti latini, di venire contra factum proprium. Si ha così la preclusione di un’azione o eccezione, o più generalmente di una situazione soggettiva di vantaggio, non per illiceità o comunque per ragioni di stretto diritto, ma a causa del comportamento del titolare, prolungato, non conforme ad essa e perciò tale da portare a ritenere l’abbandono”. In effetti, tale considerazioni si basano quindi sulla rilettura dell’art. 1175 e 1375 c.c. secondo l’interpretazione datane dall’art. 1.8 dei Principi UNIDROIT “nemo venire contra factum proprium”, che rientra specificamente in questa fattispecie: una parte non può agire in modo contraddittorio rispetto ad un intendimento che ha ingenerato nell’altra parte, e sul quale questa ha ragionevolmente fatto affidamento a proprio svantaggio. In questo caso, l’inerzia dell’amministrazione nel mancato aggiornamento dei cedolini, non si può negare che abbia ingenerato un legittimo affidamento nel pensionato sull’applicazione dell’art. 36 della L.R. 6/1997 oltre il 1/1/2001.” 29 “[I]n forza dei principi di diritto privato internazionale deve escludersi che il mutamento del regime di governo costituisca una condizione sufficiente per invalidare un contratto, verificandosi piuttosto una mera successione nel rapporto negoziale in corso (in questo senso può argomentarsi dai Principi UNIDROIT dei Contratti Commerciali Internazionali, i quali subordinano

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Evaluation of Court Decisions

The case-by-case analysis suggests the following considerations on the use of the UPICC by Italian courts to interpret and supplement national contract law: – UPICC are referred to and recognized by Italian judges as an expression of principles of law that reflect a general consensus at international level; however, they are not yet expressly considered as “trade usages” or “customs” in the field of contract law; – in the cases discussed above, the reference to the UPICC has served to fill real gaps (lacunae) in Italian law, even though such use was not made explicit by the courts. This because Italian judges are still reluctant to admit the existence of gaps in their own national legal system; – in the judgments dealing with the problem of restitutions after termination of the contract (first group), the reference to UPICC helped the Court to choose one of the possible solutions proposed by case law and scholars. The fact that the solution adopted by the Court was in line with international legal standards was therefore a decisive argument for the judge.

2.4

Arbitral Awards

To the list of court decisions we must add a number of arbitral awards that have referred to the UPICC in order to confirm that the solution adopted on the basis of applicable Italian law was in line with international standards, without explicit reference to their formal role in this respect: Award of an ad hoc Arbitration in Rome, 4 December 1996 Contract for the sale of fuel oil between an Italian company and an English company, containing an express reference to Italian law as the law governing the contract. On the basis of Art. 834 of the Italian Code of Civil Procedure (repealed in 2006), which stated that in an international arbitration the arbitrators are required to take into account the terms of the contract and the trade usages, the Arbitral Tribunal repeatedly referred to the UNIDROIT Principles, which it defined as a parameter of the principles and usages of international trade in order to prove that the solutions provided by Italian law were in conformity with international standards. In particular, Arts. 1.2, 2.1, 2.6 and 2.12 [Arts. 2.1.1, 2.1.6 and 2.1.12 of the 2016 edition] were cited to demonstrate the possibility of the valid conclusion of a contract even without an ascertainable sequence of offer and acceptance; Arts. 3.4, 3.5 and 3.8 with respect to the extent to l’annullamento del contratto alle sole ipotesi in cui lo stesso sia oggetto di errore, di dolo, di violenza o di eccessivo squilibrio nelle condizioni previste tra le parti, senza riconoscere a tal fine alcuna rilevanza al venir meno di uno dei contraenti in corso di rapporto, soccorrendo in tal caso i meccanismi successori)”.

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which a party may avoid the contract for mistake or fraud [Arts. 3.2.1, 3.2.2 and 3.2.5 of the 2016 edition]; Art. 1.7 to demonstrate the duty of the parties to act in good faith throughout the life of the contract; and Arts. 7.4.1 7.4.5, 7.4.7 7.4.9 and 7.4.12 for the determination of damages.30 “A conclusioni identiche si perverrebbe comunque anche riconducendo la fattispecie ai principi e agli usi del commercio internazionale; in coerenza con il disposto dell’art. 843 u.c. c.p.c., il Collegio si è dato carico di esaminare la problematica secondo i parametri di recente elaborazione dettati in materia; (cfr. Principi Unidroit), secondo i quali, come è noto, un contratto validamente concluso è vincolante per le parti e la prova della conclusione può esser data con ogni mezzo, compresi i testimoni (art. 1.2); ciascuna parte deve agire in conformità alla buona fede nel commento internazionale (art. 1.7); il contratto può essere concluso sia con l’accettazione dell’offerta, sia con un comportamento delle parti che dimostri con sufficiente certezza il raggiungimento dell’accordo (art. 2.1); una dichiarazione od altro comportamento tenuto dal destinatario dell’offerta indicante il suo consenso costituisce accettazione e l’accettazione produce effetto dal momento in cui il consenso perviene al proponente; se in virtù della offerta o in conseguenza delle pratiche che le parti hanno instaurato tra loro o degli usi, il destinatario della offerta può manifestare il suo consenso compiendo un atto, l’accettazione produce effetto nel momento del compimento dell’atto (art. 2.6); se entro un periodo di tempo ragionevole dopo la conclusione del contratto viene spedita una lettera di conferma con clausole aggiuntive queste divengono parte del contratto (art. 2.12); l’errore è un erroneo convincimento relativo alla situazione di fatto o di diritto esistente al momento della conclusione del contratto e può costituire causa di annullamento del contratto solo nel caso in cui sia ditale importanza che una persona ragionevole, nella stessa situazione della parte in errore, avrebbe concluso il contratto a condizioni differenti o non lo avrebbe concluso e l’altra parte sia intercorsa nello stesso errore o lo conosceva o non ha agito con correttezza; in ogni caso una parte non può annullare il contratto se è stata in colpa grave nel commettere l’errore (art. 3.4 e 3.5); una parte può annullare il contratto quando sia stata indotta a concluderlo dall’inganno della controparte, attuato anche con parole o comportamenti o nascondendo dolosamente alla parte stessa circostanze che in base ai criteri ordinari di correttezza nel commento avrebbe dovuto comunicarle (art. 3.8)”. “I principi che sotto questo profilo paiono applicabili al caso, sono quelli, generalissimi, di buona fede e correttezza e di diligenza nell’adempimento; la disciplina internazionale (si veda il richiamo ai Principi Unidroit di cui sopra) trova puntuale corrispondenza in quella stabilita nel nostro ordinamento: il debitore e il creditore devono comportarsi secondo le regole della correttezza (art. 1175 c.c.); nell’adempiere l’obbligazione il debitore deve usare la diligenza del buon padre di famiglia (art. 1176 c.c.); il contratto deve essere eseguito secondo buona fede (art. 1375 c.c.)”. “Alle medesime conclusioni si perviene anche in applicazione dei principi che governano il commercio internazionale; sempre assumendo a parametro di riferimento i Principi Unidroit, si ha che ogni inadempimento non scusabile comporta il risarcimento del danno, eventualmente anche insieme ad altri rimedi (art. 7.4.1); il danno comprende la perdita sofferta ed il mancato guadagno, tenuto conto dei vantaggi economici che il creditore ha ottenuto (art. 7.4.2); il risarcimento è dovuto solo per il danno che sia stabilito con un ragionevole grado di certezza e può esser rimesso, nell’incertezza, alla discrezionalità del giudice (art. 7.4.3); vige il principio della risarcibilità del danno prevedibile (art. 7.4.4); in caso di stipula di contratto sostitutivo, il creditore ha diritto alla differenza di prezzo e al risarcimento di ogni ulteriore danno (art. 7.4.5); se il danno è imputabile in parte al danneggiato, il risarcimento è in proporzione ridotto, tenuto conto del rispettivo comportamento delle parti (art, 7.4.7); la parte inadempiente non risponde del danno sofferto dal danneggiato nella misura in cui questo poteva essere ridotto da quest’ultimo adottando misure ragionevoli (art. 7.4.8); sulla somma liquidata il creditore ha diritto agli interessi (art. 7.4.9); il risarcimento va determinato nella moneta in cui era espressa l’obbligazione pecuniaria o in quella in cui è stato subito il danno (art. 7.4.12)”. 30

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ICC Award No. 8908, September 1998 Settlement agreement between an Italian manufacturer and a Liechtenstein distributor governed by Italian law. However, when deciding the merits of the case, the Arbitral Tribunal repeatedly referred, in addition to the relevant provisions of the Italian Civil Code, to provisions contained in CISG and the UNIDROIT Principles, defining both as “normative texts that can be considered helpful in their interpretation of all contracts of an international nature”. In particular, in order to determine the scope of the settlement agreement, the Arbitral Tribunal applied the rules of interpretation contained in Arts. 1362–1371 of the Italian Civil Code, stressing above all the principle of good faith. In support, it referred to the corresponding rules contained in Arts. 1.7 and 4.1–4.8 of the UNID ROIT Principles. Moreover, in finding that a modified acceptance amounts to a counter-offer which the original offeror may tacitly accept by not objecting to the varying terms contained in the acceptance and by starting performance of its own obligations, the Arbitral Tribunal referred not only to Art. 1326(5) of the Italian Civil Code, but also to the relevant provisions contained in CISG (Art. 19(1) (2)) and the UNIDROIT Principles (Art. 2.11 [Art. 2.1.11 of the 2016 edition]).31 ICC Award No. 11051, July 2001 Distributorship agreement between an Italian manufacturer and two Californian companies governed by Italian law. In deciding in favour of the manufacturer, the Arbitral Tribunal ordered the distributors to pay interest on the amounts due as from the time they were due to manufacturer, and in support of this ruling referred to the relevant provision of the Italian Civil Code (Article 1282) adding that “such solution is consistent with the relevant custom of international trade of which the UNIDROIT Principles are an expression”. In particular the Arbitral Tribunal referred to Article 7.4.9 of the UNIDROIT Principles which it quoted in extenso. Award of the Camera Arbitrale Nazionale e Internazionale di Milano, 28 November 2002 Contract for the purchase of a business between a U.S. company and a Luxembourg company governed by Italian law. A dispute arose as to the proper meaning of the price adjustment clause contained in the contract. The Arbitral Tribunal confirmed that the provision in question was to be considered a so-called merger clause. However, it held that such a clause simply indicates that there are no binding agreements between the parties other than those “This method of interpretation is entirely consistent with the specific rules of Italian law (Articles 1362-1371 of the Italian Civil Code) [. . .]. The rules relating to interpretation and good faith are contained in the Unidroit Principles (in particular, Articles 1.7 and from 4.1 to 4.8), which are in all events a useful reference framework for applying and judging a contract of an international nature, also confirm what has been said”. “Respondent’s acceptance without reserve of the bank guarantee [. . .] and the alleged start-up of production of the ordered pipes amount to a tacit acceptance by Respondent of the modified/ counter-proposed acceptance by Claimant, according to the principle derived a contrario from Article 1326, last paragraph, of the Italian Civil Code. Moreover, reference should be made to Article 19, (1) and (2) of the Vienna Convention with regard to the formation of international sales contracts, and Article 2.11 of the Unidroit Principles, which are both normative texts that can be considered helpful in the interpretation of all contracts of an international nature [. . .]”.

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contained in the contract but does in no way affect the rules of interpretation established under the applicable law (in the case at hand, Art. 1362 of the Italian Civil Code). In reaching this conclusion the Arbitral Tribunal expressly referred, along with legal writings, to Art. 2.17 [Art. 2.1.17 of the 2016 edition] of the UNI DROIT Principles, as well as to the Comments which state “the effect of such a clause is not to deprive prior statements or agreements of any relevance: they may still be used as a means of interpreting the written document”. Award of the Camera Arbitrale Nazionale e Internazionale di Milano, March 2008 Supply agreement governed by Italian law. The Arbitral Tribunal had to decide, among others, whether the Supplier—as argued by the Purchaser— was under a duty to cooperate with Purchaser in order to allow it to fulfil its annual minimum purchase commitments (1); whether the Purchaser—as argued by the Supplier—by continuing the business relationship with Purchaser despite the delayed deliveries by the latter, was prevented by estoppel to terminate the Agreement for that very reason (2); whether the Purchaser was entitled to claim damages for alleged breaches by Supplier of the Agreement requesting that the amount be assessed by the Arbitral Tribunal at its discretion, without providing sufficient proof that a loss had actually been suffered (3). In deciding the first and the second issue in favour of the Purchaser and the third against it, the Arbitral Tribunal based itself primarily on Italian law (and in particular on Arts. 1375 and 1226 of the Italian Civil Code as well as on relevant case law and legal writings), but also referred—as “a confirmation of the same principles at international level”—to Arts. 5.1.3, 1.8 and 7.4.3 of the UNIDROIT Principles 2004.

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3 Assuming That the UPICC Have Not Been Used by Courts in Your Country for the Purpose of Interpreting or Supplementing National or Local Rules on Contract Law, Indicate Whether They Have Been Used in Any Other Way and How. Discuss, for Example, Whether References to the UPICC Were Made as a General Body of Contract Law or to Some of Its Provisions in Particular; Whether References to the UPICC Were Made in Combination with Other Instruments of Uniform Law Such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a More Diffuse Body of State Laws (e.g., the So Called Lex Mercatoria) Moving to the other forms of use of the UPICC before Italian courts, we should first consider two decisions, one of a First Instance Court32 and one of the Supreme Court of Cassation,33 in which the reference to the Principles was used to interpret autonomously (without reference to national law) the text of the EC Regulation no. 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgements in Civil and Commercial Matters. In particular, the two Courts mentioned art. 6.1.6 (1) UPICC, together with Art. 31 CISG, in order to interpret the notion of the place of delivery under Art. 5(1)(b) of the EC Regulation.34

32

Tribunale di Padova, Sezione distaccata di Este, 10 January 2006. Corte Suprema di Cassazione, Sezioni Unite, 5 October 2009. 34 “Anche con riferimento al contratto di compravendita di beni da “piazza a piazza” rileva, per stabilire se il giudice abbia giurisdizione, il luogo dell’effettiva consegna. In questa ipotesi ci si deve però domandare se il luogo della consegna sia da considerarsi sempre quello della destinazione finale dei beni (ammesso che i beni giungano effettivamente a destinazione), come suggerito da parte della dottrina e della giurisprudenza, oppure quello in cui i beni sono stati consegnati al primo trasportatore, come previsto ad esempio dal codice civile all’art. 1510, 2 comma. [. . .] In mancanza di accordo delle parti, la soluzione non deve essere rinvenuta nel diritto nazionale applicabile: al quesito occorre piuttosto dare una risposta “autonoma”, svincolata dal diritto nazionale. La risposta non può però evincersi dal Regolamento, che non offre suggerimenti in proposito. E’ invece necessario ricorrere alla disciplina prevista dalla Convenzione delle Nazioni Unite, in quanto rappresenta un insieme di norme che – come già osservato – è stato utilizzato dallo stesso legislatore comunitario come modello normativo, attesa la larga condivisione a livello internazionale e la capacità di suggerire soluzioni interpretative autonome ed uniformi. In base alla Convenzione, in particolare al suo art. 31, “se il venditore non è obbligato a consegnare i beni in un altro luogo determinato”, il venditore adempie il proprio obbligo di consegna “(a) se il contratto di vendita implica il trasporto dei beni, nel rimettere i beni al primo vettore per la trasmissione al compratore”. Giova poi ricordare che questa soluzione trova conferma nelle disposizione di altri due strumenti altrettanto “autonomi” (a differenza, però, della Convenzione delle Nazioni non vincolanti), ossia i Principi Unidroit dei contratti commerciali 33

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Subsequently, in relation to the choice of the UPICC as the law applicable to the contract where the dispute is decided by a state court, we have to report a decision of the Tribunale di Padova, Sezione distaccata di Este, in which the Court expressly affirmed that a reference by the parties to non-State rules of supranational or transnational character such as the lex mercatoria, the UNIDROIT Principles or CISG (in cases where the Convention as such is not applicable) cannot be considered a veritable choice of law by the parties but amounts to an incorporation of such rules into the contract with the consequence that they will bind the parties only to the extent that they do not conflict with the mandatory rules of the applicable domestic law.35

internazionali (v. l’art. 6.1.6., 1 comma, lett. b)) ed i Principi europei dei contratti (art. 7:101, 1 comma, lett. b))”. “Sempre in tema di vendita di beni da trasportare da un luogo all’altro, altre sentenze di merito hanno ritenuto apertis verbis che il luogo dell’effettiva consegna debba essere individuato non già in quello in cui i beni sono stati consegnati al primo trasportatore, bensì in quello di destinazione finale, non potendosi fare riferimento alla disciplina materiale uniforme dettata dalla Convenzione di Vienna proprio in considerazione delle esigenze di certezza e prevedibilità che il legislatore comunitario ha inteso soddisfare mediante la formulazione dell’art. 5 del Regolamento n. 44/01, mentre altre, non meno argomentate decisioni hanno opinato che, qualora le parti non abbiano stabilito contrattualmente a quale dei due predetti momenti debba farsi riferimento ai fini della liberazione del venditore dalla propria obbligazione, il luogo dell’adempimento non possa essere desunto né dal diritto nazionale, del quale il Regolamento ha inteso escludere l’applicazione, né dal Regolamento stesso, il quale non reca alcuna precisazione al riguardo, traendone così la conseguenza che, a tal fine, possa invece soccorrere proprio la Convenzione di Vienna, quale insieme di disposizioni utilizzate dallo stesso legislatore comunitario come modello normativo, attesa la larga condivisione a livello internazionale e la capacità di suggerire soluzioni interpretative autonome ed uniformi: il luogo della consegna andrebbe quindi individuato in base all’art. 31 della Convenzione stessa (il quale offre una soluzione conforme a quella emergente da altri strumenti giuridici autonomi, anche se non vincolanti, quali i Principi Unidroit dei contratti commerciali internazionali ed i Principi europei dei contratti: così, Trib. Bolzano 18.9.2006; Trib. Vicenza, ord. 27.2.2009), soluzione cui è altresì pervenuta la stessa giurisprudenza di questa corte, a mente della quale «non potendosi allo scopo utilizzare definizioni proprie del diritto nazionale (quale potrebbe essere, per il caso in questione, quella di cui all’art. 1510 cod. civ., comma 2), dalla cui applicazione rischierebbe di essere vanificata la finalità del Regolamento di introdurre, anche sul punto, l’autonoma ed unificante disciplina della materia, è necessario fare ricorso, in tema di contratto di compravendita, alla Convenzione di Vienna sui contratti di vendita internazionale di beni mobili, adottata l’11 aprile 1980 e resa esecutiva con la L. 11 dicembre 1985”. 35 “[L]a scelta operata dalle parti con l’art. 7 del contratto non equivale alla scelta internazionalprivatistica di un diritto, ed è dunque inidonea a determinare la prevalenza della disciplina richiamata rispetto alle norme imperative del diritto altrimenti applicabile (ciò varrebbe, peraltro, anche se la scelta fosse caduta sulla c.d. lex mercatoria, sui Principi Unidroit dei contratti commerciali internazionali oppure sulla stessa Convenzione delle Nazioni Unite nei casi in cui essa non è applicabile). [. . .] Quanto detto non esclude tuttavia che la scelta di un insieme di regole non statali possa avere una qualche efficacia. Potrebbe infatti sostenersi che tale scelta abbia l’effetto di una determinazione per relationem del contenuto contrattuale, cioè di una regolamentazione dall’interno del rapporto negoziale. In altri termini, scegliendo regole non statali, e richiamandole quali clausole contrattuali, le parti potrebbero derogare alle norme dispositive del diritto applicabile, e dunque anche alle disposizioni della Convenzione delle Nazioni

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Of course, a different situation arises when the UPICC are chosen as lex contractus in a dispute before an arbitral tribunal: for example, we are aware of two cases in which the UPICC have been applied to the merits of the dispute, together with Italian law, on the express choice of the parties.36 Lastly, it should be noted that arbitrators may resort to the UPICC even in the absence of an express choice of the parties in this respect: for example, in an ad hoc arbitration of 4 December 2001, the Arbitral Tribunal, in relation to a series of contract referring to “general principles of law, to the exclusion of any single national system of law”, decided to apply the UPICC and, in case of lacunae, “the principles of Italian law concerning public contracts”, provided that they were not incompatible with the former.37

4 Please Indicate Whether Any of the Following Selected Provisions of the UPICC Have a Counterpart in Your National (Domestic) Contract Law ARTICLE 2.1.15 (Negotiations in bad faith). ARTICLE 2.1.20 (Surprising terms). ARTICLE 4.1 (Intention of the parties). ARTICLE 4.2 (Interpretation of statements and other conduct).

Unite (questa, pur dovendo essere applicata ex officio dal giudice [. . .], ha pacificamente natura dispositiva: eccezion fatta per gli artt. 12, 28 e 89-101)”. 36 See ICC Award no. 11739 of 2002, in which the parties agreed that the law applicable to the substance of the dispute was the UNIDROIT Principles supplemented, if necessary, by Italian law. The disputed issues concerned the nature of the contract, its interpretation, liability for non-performance, the amount of damages, right to interest and the applicable rate, and the currency of payment. The arbitral tribunal decided all these issues on the basis of the UNIDROIT Principles. See ICC Award no. 11880 of 2004, relating to a “Guaranty” contract containing a choice-of-lawclause according to which “The arbitrators shall apply the principles of UNIDROIT and the laws of Italy as to all matters not expressly covered by this Guaranty [. . .]”. When a dispute arose as to the meaning to be given to the notion of “non-conforming goods” referred to in the “Guaranty” contract, the Sole Arbitrator decided to refer to Arts 4.1 to 4.8 UNIDROIT Principles, not only because the relevant rules of contract interpretation of Italian law does not substantially differ from them, but also because the UNIDROIT Principles “represent [. . .] a kind of summary of the generally commonly accepted principles on interpretation developed in the Western countries and deriving from the main civil law codes and case law in the international trade”. 37 “Contract No. [. . .] was clearly an international contract, concluded between an Italian company and an international organization and concerning the provision of services in the headquarters of that international organization. In addition, the provisions [. . .] excluded the application of Italian law as such. Consequently, the Arbitration Tribunal concluded that the substance of the dispute should be considered in accordance with the UNIDROIT Principles of International Commercial Contracts. In the event that specific matters were not covered or dealt with by those principles, it would apply the principles of Italian law concerning public contracts, provided, however, that they were not incompatible with the UNIDROIT Principles of International Commercial Contracts”.

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ARTICLE 4.3 (Relevant circumstances). ARTICLE 4.4 (Reference to contract or statement as a whole). ARTICLE 4.5 (All terms to be given effect). ARTICLE 4.7 (Linguistic discrepancies). ARTICLE 6.1.9 (Currency of payment). ARTICLE 7.3.1 (Right to terminate the contract). ARTICLE 7.4.9 (Interest for failure to pay money). ARTICLE 7.4.10 (Interest on damages).

5 If There Is a Statutory or Case-Law Rule (Such as a Code Provision or Jurisprudential Line of Decisions) Dealing with the Same or Similar Issue Addressed by Those Selected Provision of the UPICC, Please Reproduce the Full Text of Such a Provision or Case-Law Rule, Indicating any Relevant Difference You Find Between the Domestic Rule of Contract Law and the Selected Rule of the UPICC, Also Indicating Whether the UPICC May Be Relied Upon by the Courts of Your Country as a General Principle of Contract Law Interpreting and Supplementing National Contract Law Almost all selected provisions of the UPICC have a counterpart in Italian contract law, with some differences that we will highlight below.

5.1

Art. 2.1.15 UNIDROIT Principles ⇒ Arts. 1337 and 1338 Civil Code

Pursuant to Art. 1337 C.C. parties negotiating a contract must behave according to good faith.38 This means that they must act seriously and loyally to one another, although this does not imply any duty to conclude a contract, which would intolerably limit contractual freedom. The obligation of good faith and fair dealing during negotiations provided by the Italian Civil Code is certainly wider than the one contained in the UPICC. Pre-contractual liability is considered by Italian case law as an appropriate cause of action especially in three cases: unjustified breakdown of negotiations, previous actual or constructive knowledge of contract invalidity (see

38 “Le parti, nello svolgimento delle trattative e nella formazione del contratto, devono comportarsi secondo buona fede”.

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Art. 1338 C.C.) and, most recently, conclusion of a valid and effective contract, but unfavourable to the other party, lacking appropriate disclosure.39 As far as damages are concerned, in case of unjustified withdrawal or conclusion of an invalid/ineffective contract the aggrieved party may recover the expenses incurred and may be compensated for the lost opportunity to conclude another contract with a third person (so called reliance or negative interest), but may not recover the profit which would have resulted if the original contract had been concluded (so called expectation or positive interest). In the event of a valid/effective contract being concluded, the amount of the damages recoverable will be determined taking into account the loss or the additional costs caused to the injured party by the unfair conduct.

5.2

Art. 2.1.20 UNIDROIT Principles ⇒ Art. 1341 Civil Code

Pursuant to Art. 1341(2) C.C. standard conditions are ineffective, unless specifically approved in writing, when they establish, in favour of the party who has prepared them in advance, limitations on liability, the power to withdraw from the contract or suspend its performance, or when they impose on the other party time limits involving forfeitures, limitations on the power to raise defences, restrictions on contractual freedom in relation to third parties, tacit extension or renewal of the contract, arbitration clauses, or derogations from the competence of courts.40 Thus, the party receiving the standard terms is protected from surprising terms through an element of formality (requirement of signature). Moreover, Art. 1342(2) provides a list of “surprising terms” which are those the 1942 Italian legislator considered were more often used to the detriment of the other party. The list is regarded by case law as exhaustive.41 The difference between the Italian Civil Code and the UPICC is the more general formulation of the latter: Art. 2.1.20 UPICC leaves to the arbitrator (or to the judge) the power to determine whether a standard term may be considered surprising because of its content, language or presentation. According to the UPICC, terms which are commonly found in standard contracts used in a particular trade are not surprising. This may well include subject matters expressly listed in Art. 1341(2) C. C.

39 Three decisions of the Court of Cassation (no. 19024 of 2005 and no. 26724 and 26725 of 2007)—all relating to the consequences of the violation of the duty of disclosure imposed on financial intermediaries, gave way to this new approach. 40 “In ogni caso non hanno effetto, se non sono specificamente approvate per iscritto, le condizioni che stabiliscono, a favore di colui che le ha predisposte, limitazioni di responsabilità, facoltà di recedere dal contratto o di sospenderne l’esecuzione, ovvero sanciscono a carico dell’altro contraente decadenze, limitazioni alla facoltà di opporre eccezioni, restrizioni alla libertà contrattuale nei rapporti coi terzi, tacita proroga o rinnovazione del contratto, clausole compromissorie o deroghe alla competenza dell’autorità giudiziaria”. 41 See most recently Cass. 4 June 2013 no. 14038.

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Arts. 4.1, 4.2, 4.3, 4.4 and 4.5 UNIDROIT Principles ⇒ Arts. 1362, 1363, 1366, 1368 and 1369 Civil Code

The relevant rules of contract interpretation in the Italian Civil Code do not substantially differ from those contained in the UPICC.42 The first paragraph of Art. 1362 C. C.43 outlines—as Art. 4.1(1) UPICC does—the most generally accepted principle of contract interpretation, i.e. the interpretation according to the common intention of the parties, complemented by the warning that one should not simply take the words of the contract in their literal meaning. The circumstances which are to be taken into consideration in order to ascertain the common intention of the parties (see Art. 4.3 UPICC) are indicated in Arts. 1362(2) (parties’ behaviour),44 1368 (usages and practices)45 and 1369 C.C. (nature and purpose of the contract).46 The Italian Civil Code does not provide for a specific rule on the interpretation of unilateral acts as the UPICC do (Art. 4.2), but it is not disputed that, on the basis of Art. 1324 C.C.,47 they are subject mutatis mutandis to the rules laid down for the interpretation of contract. As for the “reasonableness test” laid down in paragraph 2 of Arts. 4.1 and 4.2, we can assume that it is included in the general principle of good faith which, according to Art. 1366 C.C., must be observed in the interpretation of the contract. Finally, Arts. 4.4 and 4.5 UPICC essentially correspond to Arts. 136348 and 136749 C.C.

42

In this respect see ICC Award no. 11880 of 2004. “Nell’interpretare il contratto si deve indagare quale sia stata la comune intenzione delle parti e non limitarsi al senso letterale delle parole”. 44 “Per determinare la comune intenzione delle parti, si deve valutare il loro comportamento complessivo anche posteriore alla conclusione del contratto”. 45 “Le clausole ambigue s’interpretano secondo ciò che si pratica generalmente nel luogo in cui il contratto è stato concluso. Nei contratti in cui una delle parti è un imprenditore, le clausole ambigue s’interpretano secondo ciò che si pratica generalmente nel luogo in cui è la sede dell’impresa”. 46 “Le espressioni che possono avere più sensi devono, nel dubbio, essere intese nel senso più conveniente alla natura e all’oggetto del contratto”. 47 “Salvo diverse disposizioni di legge, le norme che regolano i contratti si osservano, in quanto compatibili, per gli atti unilaterali tra vivi aventi contenuto patrimoniale”. 48 “Le clausole del contratto si interpretano le une per mezzo delle altre, attribuendo a ciascuna il senso che risulta dal complesso dell’atto”. 49 “Nel dubbio, il contratto o le singole clausole devono interpretarsi nel senso in cui possono avere qualche effetto, anziché in quello secondo cui non ne avrebbero alcuno”. 43

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Art. 6.1.9 UNIDROIT Principles ⇒ Arts. 1277, 1278 and 1279 Civil Code

The Italian Civil code regulates the currency of payment in Arts. 1277, 1278 and 1279. According to Art. 1277 C.C.,50 an obligation to pay a sum of money must be performed with money which is legal tender in the State at the time of payment, at its face value; however, according to Art. 1278 C.C.,51 the parties may agree that the obligation be performed in a foreign money. In this case, the debtor is entitled to pay in legal money at the rate of exchange on the day when the sum is due and at the place agreed for payment. Therefore, according to Art. 1278 C.C., the debtor may always convert the debt expressed in a foreign currency into a debt in Italian currency, but the parties may derogate from this rule if they decide to limit the right of conversion by indicating as “actual” the foreign currency (see Art. 1279 C. C.).52 The rule laid down in Art. 6.1.9 UPICC is not incompatible with the provisions set forth in the Italian Civil Code: the differences between the provisions are justified by the fact that the UPICC take into account the special needs of international trade contracts.

5.5

Art. 7.3.1 UNIDROIT Principles ⇒ Art. 1455 Civil Code

According to Art. 1455 C.C. termination is not justified for a non-performance which has only “minor” importance with respect to the interest of the other party.53 As interpreted by Italian case law, this provision represents a compromise between an objective evaluation of contractual balance and the subjective interest of the aggrieved party in obtaining performance.54 Instead of defining when the 50 “I debiti pecuniari si estinguono con moneta avente corso legale nello Stato al tempo del pagamento e per il suo valore nominale”. 51 “Se la somma dovuta è determinata in una moneta non avente corso legale nello Stato, il debitore ha facoltà di pagare in moneta legale, al corso del cambio nel giorno della scadenza e nel luogo stabilito per il pagamento”. 52 “La disposizione dell’articolo precedente non si applica, se la moneta non avente corso legale nello Stato è indicata con la clausola “effettivo” o altra equivalente, salvo che alla scadenza dell’obbligazione non sia possibile procurarsi tale moneta”. 53 “Il contratto non si può risolvere se l’inadempimento di una delle parti ha scarsa importanza, avuto riguardo all’interesse dell’altra”. 54 See Court of Cassation n. 1773 of 7 February 2001: “Lo scioglimento del contratto per inadempimento — salvo che la risoluzione operi di diritto — consegue ad una pronuncia costitutiva, che presuppone da parte del giudice la valutazione della non scarsa importanza dell’inadempimento stesso, avuto riguardo all’interesse dell’altra parte. Tale valutazione viene operata alla stregua di un duplice criterio, applicandosi in primo luogo un parametro oggettivo, attraverso la verifica che l’inadempimento abbia inciso in modo apprezzabile nell’economia complessiva del rapporto (in astratto, per la sua entità e, in concreto in relazione al pregiudizio effettivamente causato all’altro contraente), sì da dar luogo ad uno squilibrio sensibile del

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non-performance has “minor importance”, Italian courts prefer to talk of a “significant” or “serious” non-performance. Therefore, despite the different wording of the provisions, Italian law and UPICC are actually not too distant in this respect. UPICC, however, are to be preferred because they list a number of circumstances which are designed to help judges in determining whether, in a given case, failure to perform an obligation amounts to fundamental non-performance.

5.6

Art. 7.4.9 UNIDROIT Principles ⇒ Arts. 1219, 1224 and 1284 Civil Code

The Italian Civil Code provides that, in case of non-performance or delayed performance of monetary obligations, the aggrieved party is entitled to damages in the form of default interest at the statutory rate from the date of the notice of non-performance or, when no notice is required, from the date payment was due. The default interest is due even if it was not due before the notice of non-performance or before the expiration of the payment term or the creditor does not prove that he/she has suffered a loss. Moreover, if the parties, before the default, had expressly agreed on interest at a higher rate than the statutory rate, default interest shall be measured at the same rate.55 Default interest is considered as damages; it differs from ordinary damages only because it is due automatically regardless of any proof as to its existence and consists of a lump sum. Apart from this, it is subject to the same rules applicable to ordinary damages; in particular default interest presupposes a delay imputable to the obligee’s fault and cannot be awarded if the delay is excused or in case on non-payment due to withholding of performance.56 As to the applicable interest rate, since 1 January 1997 it is determined each year by the Italian Ministry of Treasury (at present the Ministry of Economics and Finance).57 The parties, however, may derogate from the statutory rate by fixing a sinallagma negoziale; completandosi, poi, l’indagine mediante la considerazione di eventuali elementi di carattere soggettivo, consistenti nel comportamento di entrambe le parti (come atteggiamento incolpevole o una tempestiva riparazione, ad opera dell’una, un reciproco inadempimento o una protratta tolleranza dall’altra), che possano, in relazione alla particolarità del caso, attenuare il giudizio di gravità, nonostante la rilevanza della prestazione mancata o ritardata”. 55 Art. 1224(1) C.C.: “Nelle obbligazioni che hanno per oggetto una somma di danaro, sono dovuti dal giorno della mora gli interessi legali, anche se non erano dovuti precedentemente e anche se il creditore non prova di aver sofferto alcun danno. Se prima della mora erano dovuti interessi in misura superiore a quella legale, gli interessi moratori sono dovuti nella stessa misura”. 56 See Cass. 5 April 1990 no. 2803; Cass. 26 September 1996 no. 8567 and Cass. 21 June 2010 n. 14926. 57 Art. 1284(1) C.C.: “Il saggio degli interessi legali è determinato in misura pari al 5 per cento in ragione d’anno. Il Ministro del tesoro, con proprio decreto pubblicato nella Gazzetta Ufficiale della Repubblica italiana non oltre il 15 dicembre dell’anno precedente a quello cui il saggio si

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specific contractual rate (within the limits imposed by specific statutes58). The stipulation of a higher rate must be in writing; otherwise interest is due at the statutory rate.59 Art. 1224(2) of the Italian Civil Code also provides that the aggrieved party may, in addition to default interest, recover additional damages for any further loss caused by non-performance of the pecuniary obligation.60 However, the possibility of recovering additional damages is excluded when the parties have expressly agreed on the amount of default interest.61 This because it is considered that an express stipulation as to the measure of default interest amounts to a liquidated damages clause with the effect of determining in advance the measure of damages.62 In the light of the above, we can point out some differences between Italian law and UPICC with regard to interest for delay in payment of monetary sums. First of all, UPICC seem to adopt a unified approach applicable in any case of non-payment of money, so that default interest is not subject to the same rules as ordinary damages. On the contrary, Italian law treats default interest for non-performance of monetary obligations as damages subject to a special evidentiary regime: this means that default interest is awarded only if the delay is imputable to the obligee’s fault and as from the date of default by notice of non-performance in writing when necessary,63 two requirements which are not contained in the UPICC. The above differences should now be lessened by the implementation of the EU Directive

riferisce, può modificarne annualmente la misura, sulla base del rendimento medio annuo lordo dei titoli di Stato di durata non superiore a dodici mesi e tenuto conto del tasso di inflazione registrato nell’anno. Qualora entro il 15 dicembre non sia fissata una nuova misura del saggio, questo rimane invariato per l’anno successivo”. For commercial transactions, see Art. 3 lett. (d) of the EC Directive no. 35/2000, which provides that, unless otherwise specified in the contract, the applicable rate is the rate applied by the European Central Bank to its most recent main refinancing operations carried out before the first calendar day of the half-year in question (“the reference rate”), plus at least seven percentage points (“the margin”). 58 Law no. 108 of 7 March 1996, Provisions as to usury. 59 Art. 1284(3) C.C.: “Gli interessi superiori alla misura legale devono essere determinati per iscritto; altrimenti sono dovuti nella misura legale”. 60 In particular, damages for currency devaluation. 61 Art 1224(2) C.C.: “Al creditore che dimostra di aver subito un danno maggiore spetta l’ulteriore risarcimento. Questo non è dovuto se è stata convenuta la misura degli interessi moratori”. 62 See, most recently, Cass. 18 November 2010 n. 23273. 63 Art. 1219 C.C.: “Il debitore è costituito in mora mediante intimazione o richiesta fatta per iscritto. Non è necessaria la costituzione in mora: (1) quando il debito deriva da fatto illecito; (2) quando il debitore ha dichiarato per iscritto di non volere eseguire l’obbligazione; (3) quando è scaduto il termine, se la prestazione deve essere eseguita al domicilio del creditore. Se il termine scade dopo la morte del debitore, gli eredi non sono costituiti in mora che mediante intimazione o richiesta fatta per iscritto, e decorsi otto giorni dall’intimazione o dalla richiesta”.

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no. 2011/7 on combating late payment in commercial transactions,64 which contains a number of rules following an approach more similar to the UPICC.65 However, differences remain with regard to the determination of the applicable interest rate.66

6 If There Is No Such a Rule of Contract Law in Your Jurisdiction, Please Indicate, with Reasons, Whether Any of Those Selected Provision of the UPICC May, in Your View, Be Relied Upon as a Source of Interpretation of the Law of Contracts in Force in Your Country, or for the Purpose of Supplementing Gaps in Your National Contract Law 6.1

Art. 7.4.10 UNIDROIT Principles

The Italian Civil Code does not contain a provision similar to Art. 7.4.10 UPICC. In Italian law, the rules on the award of interest and other additional damages (such as loss through inflation and devaluation of currency) on damages awarded for non-performance are strictly connected to the nature of the non-performed primary obligation, namely whether it is a pecuniary or a non-pecuniary obligation. In fact, only the former is subject to the so-called face value principle embodied in Art. 1277 C.C.,67 while the latter turns into a monetary obligation only after the judicial assessment of damages. There is no express provision on additional damages arising from the failure to perform non-pecuniary obligations; case law is, however, consistent in awarding additional damages in the form of interest and loss caused by devaluation of the currency.68 The specific legal basis for doing so is quite unclear but anyhow connected with the principle that damages are aimed at fully restoring the aggrieved party’s loss. As to the starting point for the accrual of interest, Italian case law is unanimous in its view that interest accrues from the date of the judicial

64

This directive has replaced the previous Late Payment Directive 2000/35/EC, which had been transposed into Italian legislation in 2002. 65 See, in particular, Art. 3 of the Directive, which affirms that the creditor is entitled to interest for late payment without the necessity of a reminder and unless the debtor shows that it is not responsible for the delay (lett. b). 66 See Art. 2, which identifies the ‘reference rate’ as the interest rate applied by the European Central Bank to its most recent main refinancing operations or the marginal interest rate resulting from variable-rate tender procedures for the most recent main refinancing operations of the European Central Bank. 67 On this principle see above pp. 23–24. 68 See Cass. 1 July 2002 no. 9517, recently confirmed by Cass. 5 May 2016 no. 9039.

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claim for non-performance69; therefore, a solution that is very different from the one proposed by the UPICC. Certainly the UPICC respond, better than Italian law, to the needs of commerce70 and, in any case, offer a more equitable solution.71

6.2

Art. 4.7 UNIDROIT Principles

The Italian Civil Code, like many national codes, does not provide any rule on linguistic discrepancies. In this respect, UPICC represent a novelty in the context of national legal systems and will be helpful to national judges facing this type of interpretive problem.

7 Please Include Those Rules of the UPICC (Other Than Those Included in the Given List) Which Have Been Relied Upon by Courts or Arbitral Tribunals for the Purpose Interpreting a Similar Provision of Your National Contract Law or in Order to Supplement (Thus Serving as a Gap-Filler) the National Contract Law in Force in Your Jurisdiction As illustrated in para. 2), Italian case law has resorted to the UPICC in order to interpret and supplement domestic contract law in relation to two different issues: (a) restitution in case of contract termination (or avoidance) and (b) the prohibition of inconsistent behaviour.

7.1

Restitution

The Italian Civil Code does not contain a comprehensive and coherent set of rules dealing with the unwinding of failed contracts in general. There are only few provisions that refer to the problem of restitution: Art. 1422, which states that, unlike avoidance claims, restitutionary claims are subject to limitation period; Art. 1443, which limits restitution to the benefits the party has actually received in case of lack of capacity; Art 1463, according to which the party released from the

69

See Cass. 9 February 2005 no. 2654, confirmed by Cass. 1 April 2015 no. 6614. See Comment to Art. 7.4.10 UPICC. 71 Favorable to the accrual of interest from the time of non-performance, Bianca CM. 70

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contractual obligation for supervening impossibility of performance has to “return” the performance eventually received “in accordance with the rules on undue performance”.72 On the basis of the latter provision, the prevailing Italian case law and legal doctrine73 consider that restitution resulting from contractual invalidity or termination is subject to the regime applicable to undue performance (Art. 2033 et seq. C.C.). Therefore, Italian law provides a single solution for all cases of unwinding of failed contracts, but this unified approach involves a number of inconsistencies.74 The greatest difficulties arise when restitution in kind is not possible nor appropriate, in particular in case of a performance different from money payment or delivery of determined goods. According to the prevailing view, restitutionary obligations (resulting from termination or avoidance of the contract) are not mutually dependent; therefore, termination may be demanded also from the party who cannot return the performance received, thus resulting in a possible imbalance between the parties. However, a different opinion75 is gaining ground in legal literature and case law, in consideration of the difficulty of applying per se the rules on payment of non-existing debt and unjustified enrichment (e.g. the distinction between recipients acting in good faith and those acting in bad faith). It should be noted that the prevailing traditional view is being challenged also in other European countries (e.g. Germany and France), because it is considered unsatisfactory. In order to avoid unfair results in the restoration of the status quo ante, European legal systems resort to the so-called “Saldotheorie” (in France to the expression “contrat à l’envers” or “renversé”), according to which the restitutionary obligations are mutually conditioned, in the sense that each party will have to return the performance received to the extent that the counterparty is able to fulfil its restitutionary obligation. In other words, the party to which the performance should be returned must deduct from his credit an amount equal to the obligation which has

72 “Nei contratti con prestazioni corrispettive, la parte liberata per la sopravvenuta impossibilità della prestazione dovuta non può chiedere la controprestazione, e deve restituire quella che abbia già ricevuta, secondo le norme relative alla ripetizione dell’indebito”. 73 See Rescigno, Ripetizione, 1238; Breccia, La ripetizione, 777; Moscati, Pagamento, 135; Id., Questioni vecchie e nuove in tema di ingiustificato arricchimento e pagamento dell’indebito, in RDC, Atti, 2006, 459; Id., Caducazione degli effetti del contratto e pretese di restituzione, in RDC, 2007, I, 476–479; Albanese, Il pagamento dell’indebito, Padova, 2004, 284, 419, 423, 449. For case law, see Cass. 8564/2009; Cass. 21647/2005; Cass. 10498/2001; Cass. 1252/2000; Cass. 12301/1997; Cass. 11177/1994. 74 Favorable to a special regime for restitution: Leone (1953), p. 215; Stolfi (1961), p. 70; Barcellona, Note critiche in tema di rapporti fra negozio e giusta causa dell’attribuzione, in RTDPC, 1965, I, 11; Bruni (1987), p. 173; Belfiore (1988), p. 243; Gallo (2008), p. 2008; Gallo (1997) p. 203; Gallo (1998), Di Majo (1994), p. 291; Gallo (2011), p. 531; Gallo (2004), p. 13; Gallo (2007), p. 199; Castronovo (1999), p. 793; Bargelli (2008), pp. 87, 101. 75 See Cass. 23 April 1980 no. 2678, in Banca Borsa, 1981, II, 145; Tribunale di Milano, 4 January 1999, in Resp. civ. e prev., 1999, 1349; Tribunale di Roma, 28 July 2004 and Tribunale di Catania, 6 February 2009 in Unilex. Di Majo, Restituzioni e responsabilità, 2291; Gallo (1990), Arricchimento, 239; Id., Obbligazioni restitutorie, 225; Albanese, 351; Pagliatini (2006), p. 166; Sacco (1998), pp. 56, 59.

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become impossible.76 This solution extends to secondary obligations (restitution) the rule that if the performance of a party becomes impossible in whole or in part, the counterparty is also released in a corresponding manner (Article 1463–1464 C.C.). In any event, Italian case law recognises the right to receive the equivalent value of performance also in the case of contracts for services by applying the general principle of unjust enrichment (Art. 2041 C.C). This remedy, however, restricts restitution of the detriment suffered by claimant to the extent of the value of the benefits received by the other party. According to reported case law, the reference to UPICC has served to support the modern trend. More generally, although both the UPICC and the Italian Civil Code provide a restitution remedy applicable in the case of avoidance or termination of the contract and although both systems favour restitution in kind as long as it is feasible, the solution provided by the UPICC is simpler and clearer than the one offered by Italian law. First of all, there are individual provisions devoted to each case in which restitution remedies apply (avoidance, termination, illegality, fulfilment of a resolutive condition). Moreover, the UPICC pay special attention to the issue of restitution with respect to long-term contracts (see Art. 7.3.7). In this regard, it must be recalled that, according to the UPICC, and unlike Italian law, termination is a remedy with prospective effect only (see Art. 7.3.5); restitution can, therefore, only be claimed in respect of the period after termination, since it may be inconvenient to unravel performances that were made over a long period of time. Last but not least, when restitution in kind is not the applicable remedy, a monetary remedy will apply under both systems; however, while the UPICC only refer to a general principle of reasonableness in order to define whether, and to what extent, a monetary sum should be paid, the Italian Civil Code provides a set of criteria that are in practice very difficult to apply.

7.2

Inconsistent Behaviour

In the Italian legal system, case law is crucial in defining the meaning and the scope of the principle of good faith and fair dealing. Until the 1970s, however, case law was rather reluctant to make extensive use of this principle and required the violation of a specific legal rule in order to trigger liability.77

76 S sold a used car to B for € 10,000. The value of the car is € 7000 due to some defects. The contract is avoided on account of mistake. Before the car is redelivered to S, it is stolen or destroyed without any fault being attributable to B. According to the prevailing view, the buyer B can claim back the purchase price (€ 10,000), while seller S will not receive anything because the car does not exist anymore. Otherwise, according to the Saldotheorie, the seller S will have to return to buyer B only € 3000, which correspond to its “enrichment”, while the rest of the received purchase price can be retained by the seller. 77 See Cass. 16 February 1963 no. 357, which states as obiter dictum: “i doveri generici di lealtà e di correttezza sono bensì entrati nel nostro ordinamento giuridico, specialmente in materia

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Once this position was overcome, the use of the good faith principle increased significantly. Now both case law and legal writings recognise that good faith in its objective meaning amounts to a general principle applying to all contractual matters and may supplement existing legal provisions. As far as the reference to Art. 1.8 UPICC is concerned, Italian case law has repeatedly resorted to the doctrine of venire contra factum proprium—which follows from the duties of good faith and fair dealing—but—if you can pardon the wordplay—not in a consistent manner.78 This is because the Italian Civil Code does not provide for a clear enunciation of the prohibition of inconsistent behaviour such as the UPICC do. The clarity and coherence of the UPICC on this point were (and may be in the future) helpful to Italian judges in the application of the principle.79

References Bargelli (2008) Sinallagma rovesciato e ripetizione dell'indebito. L’impossibilità della restituito in integrum nella prassi giurisprudenziale. RDC Belfiore (1988) Risoluzione per inadempimento e obbligazioni restitutorie. Studi Auletta, II, Milano Bernardini (2006), Ancora una riforma dell’arbitrato in Italia. Dir. Comm. Int Bernardini P (1991) L'applicazione degli usi del commercio internazionale ai contratti internazionali. In: AA.VV. Fonti e tipi del contratto internazionale, Milano Bianca CM, Diritto civile Biavati (2001) Commento all’art. 834 c.p.c. CARPI (a cura di), Arbitrato, Bologna Bonell MJ (1976) Le regole oggettive del commercio internazionale. Clausole tipiche e condizioni generali, Milano Bonell MJ (1988) voce Commercio. Usi e termini del commercio internazionale. Enc. giur. Treccani, Roma Bortolotti F (2009), Manuale di Diritto commerciale internazionale. Vol. I: Diritto dei contratti internazionali, Padova Briguglio (2005) La dimensione transnazionale dell’arbitrato. questa Rivista Bruni (1987) Contributo allo studio dei rapporti tra azione di caducazione contrattuale e ripetizione dell'indebito. RTDPC Castronovo (1999) La risoluzione del contratto nella prospettiva del diritto italiano. EDP Di Majo (1994) Restituzioni e responsabilità nelle obbligazioni e nei contratti. RCDP

contrattuale, ma la violazione di tali doveri, quando la legge non ne faccia seguire una sanzione autonoma, costituisce solo n criterio di valtazione e di qualificazione di un comportamento. Essi non valgono a creare, di per se stessi, un diritto soggettivo tutelato erga omnes dall’osservanza del precetto neminem laedere quando tale diritto non sia riconosciuto da una espressa disposizione di legge; pertanto, un comportamento contrario ai doveri di lealtà, correttezza e solidarietà sociale non può essere reputato illegittimo o colposo, né può essere fonte di responsabilità per danni quando non concreti la violazione di un diiritto altrui già riconosciuto in base ad altre norme”. 78 This principle has been applied in the field of procedural law (Cons. Stato, Sez. IV, 29/02/2016, n. 856), family law (Trib. Milano, 02/04/2015), labour law (Trib. Torino, Sez. lavoro, 02/01/2015; Cass., 20/11/2007 no. 24044), insolvency law (Cass., Sez. I civ, 04/09/2004, n. 17888), administrative law (T.A.R. Puglia Lecce, Sez. II, 12/04/2006, n. 1918) and, of course, contract law (Cass., Sez. I civ., 23/07/1997, n. 6900; Cass. 12/6/2001 no. 7879). 79 See the case law illustrated at pp. 11–13.

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Ferri A (1997) Studi sull'autonomia dei privati. Torino Franzoni (1999) Degli effetti del contratto, I. Comm. Schlesinger, Milano Galgano (1993) Degli effetti del contratto. Della rappresentanza. Del contratto per persona da nominare. Comm. Scialoja, Branca, Bologna-Roma Galgano F, Marrella F (2011) Diritto del commercio internazionale, 3 ed. Padova, 2011 Gallo P (1990) Arricchimento senza causa, Padova Gallo P (1997) I rimedi restitutori, 203 Gallo P (1998) Obbligazioni restitutorie e teoria del saldo. Studi Rescigno, III, Milano Gallo P (2004) Recesso e risoluzione del contratto nella riforma dello schuldrecht: al di là dell'inadempimento colpevole. EDP Gallo P (2007) La responsabilità contrattuale. Torino Gallo P (2008) Arricchimento senza causa e quasi contratti, 2a ed. Milano Gallo P (2011) Il regime delle restituzioni contrattuali nel diritto comparato ed europeo. EDP Genovese A (1994) Usi negoziali e interpretativi (dir. priv.). Enc. giur. Treccani, Roma Leone (1953), Delle restituzioni ex negotio e delle restituzioni ex indebito. GCCC, IV, 215 Marongiu Bonaiuti (2009) Commento all’art. 822 c.p.c. BRIGUGLIO - CAPPONI (a cura di), Commentario alle riforme del processo civile, Padova, III, 2 Marrella (2003) La nuova lex mercatoria: Principi Unidroit ed usi dei contratti del commercio internazionale. Tratt. Galgano, XXX, Padova Ortolani P (2013) L’individuazione e l’applicazione delle norme di merito nell’arbitrato internazionale. Riv. dell’arbitrato Pagliatini (2006) La risoluzione dei contratti di durata. Milano Ruggeri (1994) La prassi mercantile nella contrattazione internazionale. Napoli Sacco R (1998) Risoluzione per inadempimento. Digesto, civ., XVIII, 4a ed. Torino Sacerdoti G (1991) la codificazione degli usi del commercio internazionale a cra degli organismi governativi in AA.VV. Fonti e tipi del contratto internazionale, Milano Scognamiglio C (2006) L'integrazione, in Gabrielli E. (a cura di), I contratti in generale, II, 2a ed. Tratt. Rescigno-Gabrielli, Torino Stolfi (1961) Teoria del negozio giuridico, Padova, 70; Barcellona

The UNIDROIT Principles as Reference for the Uniform Interpretation of National Laws: The Case of Japan Hiroo Sono and Tetsuo Morishita

Abstract The UPICC has never been explicitly used by Japanese courts in interpreting or supplementing Japanese law. There is no institutional or legal barrier for using the UPICC for that purpose as far as the principles in the UPICC can be viewed as representing “customs” or “trade usages”. Nonetheless, that has not happened. One possible explanation for this is the general reluctance (or style of drafting judgments) of judges to refer to foreign laws in their judgments. Another possible explanation may be the lack of familiarity of judges with the UPICC, although this may change once the 2017 Revision of the Civil Code, which took into account modern contract law rules including the UPICC, comes into effect in 2020. Another possibility is the general consistency of Japanese law with the UPICC on the one hand, and the lack of ambiguity of Japanese law when they differ from the UPICC on the other. Many principles of the UPICC concerning interpretation, termination, interest etc. are largely compatible with Japanese contract law rules found either in the Codes or developed by case law.

This report also appeared in the Japanese Reports for the XXth International Congress of Comparative Law (ICCLP Publications No.14) (2019) pp. 13-35. This work was supported by JSPS KAKENHI Grant Number JP15H01908. Japanese law analyzed in this report is current as of November 2018. The 2017 revision of the Civil Code entered into force on April 1, 2020. H. Sono (*) Hokkaido University, Sapporo, Japan e-mail: [email protected] T. Morishita Sophia University, Tokyo, Japan e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_14

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Abbreviations Minroku Minshu

Taishinin Minji Saiban Roku (Report on civil cases of the Great Court of Cassation) Saiko-Saibansho Minji Hanreishu (Report on civil cases of the Supreme Court)

1 Introduction This national report of Japan is a response to the questionnaire provided by the general reporters on the topic of the use of the UNIDROIT Principles of International Commercial Contracts (UPICC) in order to “interpret or supplement domestic law”. At the outset, it should be noted that there has been a recent overhaul of the Japanese Civil Code [Minpo] (Act No. 89 of 1896) which resulted in a major reform of the law of obligations. The new Civil Code (hereinafter referred to as the “2017 Revised Code” for ease of reference) was enacted in June 2017 and came into force on 1 April 2020. However, strictly speaking, the 2017 Revised Code is not a new Code. It is a reform of the Civil Code of 1896 (hereinafter referred to as the “1896 Code”) of which the law of obligations has been left almost intact during the past 120 years. It should also be noted that prior to the 1896 Code, there was another Civil Code, known as the “old Civil Code” [Kyu Minpo] (Act No. 28 of 1890) (hereinafter referred to as the “1890 Code”) which was enacted and promulgated but was withdrawn before it entered into force. The 1890 Code was drafted by a French law professor Gustave Boissonade, and was, not surprisingly, under heavy influence of the French Civil Code. On the other hand, the 1896 Code was drafted by some Japanese professors and was influenced by both German and French laws. The following national report covers the developments up to the new 2017 Revised Code, and will compare these three Codes where necessary. As for the 2017 Revised Code, the influence of or affinity with UPICC is evident in various aspects.1 To some extent, this is natural because, in the course of its drafting, extensive comparative study was conducted, including studies of international and regional instruments such as the CISG, UPICC, PECL, DCFR, CESL and also recent domestic law reforms in various countries. It should also be pointed out that the reform process that officially began in 2009 immediately followed Japan’s accession to the CISG in 2008. The 1890 Code and the 1896 Code pre-dates the UPICC by a very large margin, and therefore UPICC had no impact on those Codes. However, in later academic 1

The Japanese version of the UPICC 2016 is published as Shiho Toitsu Kokusai Kyokai (2020). UPICC 2010, also published as Shiho Toitsu Kokusai Kyokai (2013), is listed in a collection of comparative law materials that were consulted during the process of the revision of the Civil Code. See Homusho Minjikyoku Sanjikanshitsu (Sanyoshitsu) [Ministry of Justice, Bureau of Civil Affairs, Counsellor’s Office/Advisor’s Office] (ed) (2014).

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writings on the 1896 Code, some influence of the UPICC (or more strictly speaking, the influence of recent development of contract law in line with the CISG and UPICC collectively) or re-interpretation of the 1896 Code in line with UPICC or CISG can be detected after the 1990s. This will be explained where relevant. The report also covers special legislation, most notably the Consumer Contract Act [Shohisha Keiyaku Ho] (Act No. 61 of 2000) which applies to B2C contracts (“consumer contracts”). A collection of English or French translations of relevant statutory provisions can be found in the Appendix at the end of this report. English translations are taken from the Japanese Law Translation website , which is operated by the Ministry of Justice, where available. The translation of the 2017 Revised Code in this report is ours as it was not available in that website as of this writing (in November 2018).2 As for the 1890 Civil Code, the official French translation is provided.3

2 Use of the UPICC in Order to Interpret or Supplement National Contract Law 2.1

Customs and Usages Under Japanese Law

The questionnaire (in Question 1) asks if there is any legal source in the legal system allowing the use of the UPICC to interpret or supplement national contract law, either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source.4 In the Japanese legal system, there is no explicit legislation that allows the use of foreign or international contract rules, such as the UPICC, to interpret or supplement national contract law. Regarding the reference to “customs” [kanshu] in general, Article 92 of the 1896 Code and the 2017 Revised Code provides that customs prevail over non-mandatory provisions of the Civil Code, if the parties intend such customs to be binding between themselves. This is a matter of incorporation of customs by agreement.

2

A German language translation of the 2017 Revised Code was published after the completion of this report. See Yamamoto et al. (2018). 3 Code civil de l’Empire du Japon: accompagné d’un exposé des motifs. Traduction officielle Tome 1, Imprimerie Kokubunsha, Tokio, 1891. 4 Question 1 further asks: “If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law).” In addition, Question 6 of the questionnaire asks if the provisions of the UPICC may be relied upon as a source of interpretation of the law of contracts or for the purpose of supplementing gaps in national contract law, when counterpart provisions of the UPICC do not exist in national contract law. The answers to Question 1 in 2.1 and 2.2 is also a reply to Question 6.

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What is more relevant here, however, is the use of customs to interpret or supplement national contract law in the absence of parties’ agreement to that effect. Concerning the supplementation of national contract law by customs, Article 3 of the Act on General Rules for Application of Laws [Ho no Tekiyo ni kansuru Tsusoku Ho] (Act No. 78 of 2006)5 provides: Customs which are not against public policy shall have the same effect as laws, to the extent that they are authorized by the provisions of laws and regulations, or they relate to matters not provided for in laws and regulations.

There are two other provisions in Japanese laws that refer to “trade usages” or “commercial customs” [shokanshu]. The first is Article 1 (2) of the Commercial Code [Shoho] (Act No. 48 of 1899) that provides: A commercial matter not provided for in this Code is governed by commercial custom, and if there is no commercial custom, it is governed by the provisions of the Civil Code (Act No. 89 of 1896).

Courts have not easily found the existence of customs, trade usages, commercial customs. However, there are some judgements holding that customs are applicable under these provisions. They include the customs on interpretation of contract terms relating to sales transactions of soybeans in a specific region6 and customs relating to the responsibility of banks in letter of credit transactions.7 Also, in relation to arbitration, Article 36 (4) of the Arbitration Act [Chusai Ho] (Act No. 138 of 2003) provides that: An Arbitral Tribunal shall decide in accordance with the terms of the contract pertaining to the civil dispute which has been referred to the arbitral procedure, if said contract exists, and take into account the usages applicable to the relevant civil dispute, if any usages exist.

Therefore, if courts or arbitral tribunals find that the UPICC restates “customs” or “trade usages” in international contracts and if relevant “customs” or “trade usages” could be found in the UPICC, there may be room for courts or arbitral tribunals to refer to the UPICC. However, the UPICC had not been well known among Japanese practitioners, and it had been difficult for courts and arbitral tribunals to make such findings. In fact, as far as we know, there has been no reported court case in Japan that refers to the UPICC in any way. The same applies to arbitral awards of the Japan Commercial Arbitration Association (“JCAA”).8 The receptivity toward the UPICC, however, may have gradually changed during the course of the past few years, as it has been frequently referred to as an important legislative model in the recent amendment of the Japanese Civil Code. This may have some positive impact on

5 The Act on General Rules for Application of Law of 2006 is the current private international law statute which replaces an older statute: Horei (Act No. 10 of 1898). As its name suggests, it includes some rules on application of laws in general. Article 3 cited in the text is one of such rules and is carried over from Article 2 of the Horei. 6 Supreme Court Decision, June 2, 1921, Minroku, Vol. 27, p. 1038. 7 Osaka District Court Decision, February 8, 1990, Hanrei Jiho Vol. 1351, p. 144. 8 There is no arbitral awards of the JCAA in the UNILEX database for the UPICC.

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the courts and arbitral tribunals, but it is still yet to be seen if the courts and arbitral tribunals in Japan are prepared to find that UPICC is a restatement of “customs” or “trade usages” in international contacts.

2.2

The UPICC as Customs or Usages in Japanese Courts

The questionnaire (in Question 2) asks if the UPICC been used as evidence of a general consensus on the law applicable to contracts,9 and requests to indicate which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner. Though comparative studies of foreign laws have significant influence on academic studies, and attorneys might refer to foreign laws in their memorandum, it is rare for judgements in Japanese courts to refer to foreign laws in their judgments,10 and the same could be said in relation to the UPICC. So, the simple answer to the question is “No”, but the answer might be affected by the elements mentioned above.11 Regarding arbitral awards, we do not know of any arbitral awards of the JCAA that mentions the UPICC.12

3 Counterparts in Japanese Law The questionnaire (in Question 4) asks to indicate whether some selected provisions of the UPICC have a counterpart in Japanese national (domestic) contract law. This will be answered in Sects. 3.1–3.6. The questionnaire (in Question 5) also requests reproduction of the full text of counterpart provisions.13 English or French 9 Question 2 poses as examples of such general consensus, the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc. 10 Igarashi (1984), p. 99. 11 The questionnaire (in Question 3) asks: “Assuming that the UPICC have been not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a general body of contract law or to some of its provisions in particular; whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria).” As mentioned in text in Sects. 2.1 and 2.2, as far as we know, there is no court case or arbitral award that refers to the UPICC in any way. 12 See, supra note 8. 13 Question 5: “If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the

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translations of the most relevant provisions will be set out in the relevant parts below, and a fuller set of provisions will be reproduced in the Appendix at the end of this report. The English translations of statutory provisions, except those of the 2017 Revised Code, are taken from the Japanese Law Translation website operated by the Ministry of Justice. As for the 1890 Civil Code, the official French translation is provided.14

3.1

Negotiations in Bad Faith (Article 2.1.15 UPICC)

Though there is no explicit provision on the pre-contractual relationship between parties in any of the Japanese Codes, there are case laws with the same content as Article 2.1.15 UPICC. First, case laws have established that a negotiating party should be liable for the breach of the general duty of good faith, if he/she terminates the negotiation without justifiable reason after giving the other party strong expectation that a contract will be concluded.15 Also, case laws have established that a negotiating party should be liable for the breach of general duty of good faith, when he/she fails to provide the other party with important information that affects the counterparty’s decision to conclude the contract in a manner that conflicts with the general duty of good faith.16

3.2

Surprising Terms (Article 2.1.20 UPICC)

There is no counterpart provision under Japanese law that regulates standard terms based on the element of “surprise”. This is in contrast to the development under Japanese law on policing of contracts from the viewpoint of substantive “unfairness” or “abuse of circumstances”.17 The 2017 Revised Code includes legal provisions on policing of standard terms from the viewpoint of “content control” (Art 548-2, para 2, 2017 Revised Code): (Agreement on Standard Terms) Article 548-2

UPICC, please reproduce the full text of such a provision or case-law rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law.” 14 See supra note 3. 15 For example, Supreme Court Decision, September 18, 1984, Hanrei Jiho Vol. 1137, p. 51; Supreme Court Decision, February 27, 2007, Hanrei Jiho Vol. 1964, p. 45. 16 For example, Supreme Court Decision, November 18, 2004, Minshu, Vol. 58, No. 8, p. 2225; Supreme Court Decision, April 22, 2011, Minshu Vol. 65, 1405. 17 Okino (2012), pp. 10–14; Sono (2012), pp. 70–72.

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(1) Parties that agreed to enter into standardized transactions (hereinafter meaning transactions, entered into by a specific person with more than one unspecific persons, in which it is reasonable for both parties that the terms are wholly or partially uniform) are deemed to have agreed to the individual clauses of the standard terms (hereinafter meaning a set of terms prepared by a party with the purpose of constituting the content of a contract in a standardized transaction), if (i) they agreed to incorporate the standard terms as a whole into their contract; or (ii) the party who prepared the standard terms indicated to the other party before entering into the contract that the standard terms will be incorporated into the contract. (2) Notwithstanding para 1, it is deemed that there is no agreement on any standard clause that restricts the rights or expands the duties of the other party, and that unilaterally impairs the interests of the other party, in violation of the fundamental principle provided in the second paragraph of Article 1 of the Civil Code in light of the manner and circumstances of the standardized transaction and the general sense of trade.

Although such provision, which is applicable to standard terms in general, did not exist in prior Civil Codes, for consumer contracts, there has been a similar provision that applies not only to standard terms but also to non-standard terms as well (Art 10 Consumer Contract Act). It provides: Any Consumer Contract clause that restricts the rights or expands the duties of the Consumer more than the application of provisions unrelated to public order in the Civil Code, the Commercial Code (Act No. 48 of 1899) and any other laws and regulations laws and regulations, and that unilaterally impairs the interests of the Consumer, in violation of the fundamental principle provided in the second paragraph of Article 1 of the Civil Code, is void.

There is also development of case law on “abuse of circumstances” or “gross disparity”. However, there is no provision that is triggered by the element of “surprise” alone. Note, however, that there are regulatory (i.e., administrative) responses to “surprising terms” under the “Act against Unjustifiable Premiums and Misleading Representations” [Futo Keihinrui oyobi Futo Hyoji Boshi Ho] (Act No. 134 of 1962). The consequence of that regulation does not affect the interpretation of the contract, but only results in cease and desist orders or administrative monetary penalties (Arts 5, 7 & 8, Act against Unjustifiable Premiums and Misleading Representations).

3.3 3.3.1

Interpretation Interpretation of Contracts and Statements (Articles 4.1 & 4.2 UPICC)

The following reply relates to both Articles 4.1 and 4.2 UPICC. There is a general consensus that contracts should be interpreted according to the common intention of the parties. There is also a consensus that, in principle,

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“declaration of will” (Willenserklärung) should be interpreted objectively, i.e., from the viewpoint of a reasonable person. Further, there is a consensus that if the objective interpretation deviates from the true intention of the declaring party, and if the other party knew or should have known such intention, the declaration should be interpreted according to that subjective intention. These understandings all conform to Articles 4.1 and 4.2 UPICC. However, there is no express provision to such effect in the 2017 Revised Code or in the 1896 Code. This is in contrast to the “old Civil Code of 1890” which had an express provision corresponding to Article 4.1 UPICC: i.e., Article 356 of the Livre des Biens of the 1890 Code was modelled after Article 1156 of the French Code Civil of 1804 (the Code Napoleon). The reason why these provisions were not carried over to the 1896 Code is not specifically documented. However, the 1896 Code adopted a drafting approach to make it short and concise, and not to include provisions that provide only matters of course (i.e., those that go without saying). It is generally understood that this approach resulted in the non-existence of provisions that correspond to Arts 4.1 and 4.2 UPICC. In the course of the drafting of the 2017 Revised Code, several proposals were made to include provisions that correspond to Arts 4.1 and 4.2 UPICC. However, this did not materialize due to lack of consensus on the desirability of providing such rule. Reasons given, mostly by practitioners, in opposition to such rules were twofold. One view was that an express provision on contract interpretation will diminish the flexibility granted to judges, and would result in undesirable interpretation of contracts. Another view questioned the suitability of having such rule in the Civil Code because there was doubt regarding whether contract interpretation belonged to a matter of substantive law, or whether it was a question of factfinding.18

3.3.2

Specific Rules of Interpretation (Articles 4.3, 4.4, 4.5 & 4.7 UPICC)

The following reply relates to Articles 4.3, 4.4, 4.5 and 4.7 UPICC. Article 358 of the Livre des Biens of the 1890 Code corresponds to Article 4.4 and 4.5 UPICC. They were modelled after Articles 1161 and 1157 of the French Code Civil. However, as in the case of Articles 4.1 and 4.2 UPICC, neither the 2017 Revised Code nor the 1896 Code has or had provisions that correspond to the more specific rules of contract interpretation in Articles 4.3, 4.4, 4.5, and 4.7 UPICC. With respect to Article 4.3 UPICC, however, it should also be noted that there is no provision that “limits” the circumstances that may be taken into account in interpreting a declaration or a contract. For example, “parol evidence rule” does

18

Yamamoto (2013), p. 732.

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not exist under Japanese law. It is also safe to say that there is a consensus that any circumstances should be taken into account in interpreting a contract. With respect to Articles 4.4 and 4.5 UPICC, there is little explicit discussion on these matters, but it would be safe to assume that the rules expressed in Articles 4.4 and 4.5 is a matter that goes without saying. Lastly, with respect to Article 4.7 UPICC, this is an issue that is not widely discussed, and there is no consensus on this issue.

3.4

Currency of Payment (Article 6.1.9 UPICC)

Article 403 of both the 2017 Revised Code and the 1896 Code provides: When the amount of the claim is specified in the currency of a foreign state, the obligor may make the payment in the legal currency of Japan using the foreign exchange rate current in the place of the performance.

Although there is no provision providing when and with which exchange rate such exchanges should be made, when it is necessary to convert foreign currencies to Japanese yen in court proceedings, court practices use exchange rates available in Japan when the oral arguments in the proceedings are concluded.

3.5

Termination of the Contract (Article 7.3.1 UPICC)

The rules of termination of contract due to breach underwent extensive revision in the Civil Code reform which resulted in the 2017 Revised Code. The revision is heavily influenced by the concept of restricting termination of contracts to situations of “fundamental breach” (Arts 49(1)(a) and 64(1)(a) CISG) or “fundamental non-performance” (Art 7.3.1 UPICC). The following paragraphs explain the 1896 Code provisions, the doctrinal and case law developments under the 1896 Code, and the most recent 2017 Revised Code.

3.5.1

1896 Code Provisions19

The General Rule on Termination The general rule of termination under the 1896 Code is the rule of Nachfrist termination (Art. 541, 1896 Code). In order to terminate a contract in case of

19

This part of the report is an adaptation of Sono (2011).

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non-performance, the aggrieved party must first set a reasonable period of time for performance, and only if the breaching party does not perform within that period of time may the aggrieved party terminate the contract by giving notice to that effect. Another point that is worth mentioning is that traditionally, “fault” on the part of the breaching party was considered to be a requirement for termination. Although Article 541 does not explicitly require fault, this requirement was considered necessary because termination was regarded as a “sanction” imposed upon the breaching party. Given this characterization, it was natural to bring the rules on termination into conformity with the fault principle for contractual liability to which the 1896 Code adhered.

Exceptions However, this general rule is subject to two groups of exceptions. The first exception consists of a group of provisions in the 1896 Code that allow “immediate termination” without resort to the Nachfrist procedure. The second exception is a case law development which has limited the availability of Nachfrist termination in situations of breach of ancillary obligations. Immediate Termination There are three categories of provisions which allow “immediate termination” under the 1896 Code. The first category relates to the case of subsequent impossibility.20 In case of subsequent impossibility, the aggrieved party may terminate the contract provided that the impossibility is caused by the breaching party’s fault (Art. 543, 1896 Code). It certainly would be futile to require adherence to the Nachfrist procedure where performance is impossible. The second category is when time is of essence, and the purpose of the contract cannot be accomplished if performance is late (Art. 542, 1896 Code). In case of sales transactions between merchants, Article 525 of the Commercial Code stipulates that such contracts is deemed to be canceled, if one of the parties fails to perform the obligation before the due date and time or period passes, unless it immediately demands that the non-performing party perform the obligation. The third category appears in provisions of sellers’ and contractors’ “warranty” or “guaranty liability” (Guarantiehaftung, Garantie) regarding conformity of the subject matter of transactions. For example, if the buyer is deprived of ownership because the subject matter of the sale belonged to a third party or because a third The 1896 Code adheres to the “impossibilium nulla obligatio est” principle although there is no explicit provision to that effect. Thus, a contract is void in case of initial impossibility. Accordingly, the consideration of termination for “impossibility” under the 1896 Code is limited to cases of subsequent impossibility. This has changed, however, in the 2017 Revised Code. Initial impossibility will be treated no different from subsequent impossibility (cf. Article 412-2, para 2, 2017 Revised Code).

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party has enforced a security right attached to the subject matter, the buyer may terminate the contract without use of the Nachfrist procedure (e.g., Arts. 561 and 567, 1896 Code). The buyer may also terminate the contract if the purpose of the contract cannot be accomplished because the buyer is unable to use the subject matter due to a third party’s proprietary right of use (e.g., easement) attached to the subject matter (Art. 566, 1896 Code), or because of latent defect of the subject matter (Art. 570, 1896 Code). Limitation of Termination for Breach of Ancillary Obligations A second exception developed by case law is a limitation on the availability of Nachfrist termination. The language of Article 541 of the 1896 Code allows Nachfrist termination for any non-performance. However, in its judgment in 1961, the Supreme Court of Japan decided to impose a limitation on Nachfrist termination for non-performance of ancillary obligations.21 It related to a contract for the sale of land in which the transfer of property rights in the land as well as its possession and payment of price were performed in full. The parties agreed, however, to leave the registration of ownership of the land with the seller for the time being, pending resale of the land by the buyer.22 The purpose of this arrangement was to save the registration fee by making it possible to transfer the registration of ownership directly from the seller to a third party to whom the buyer was to later resell the land. However, since land taxes are levied on the person who appears as the owner in the land registry, the seller paid the taxes and claimed reimbursement from the buyer in accordance with the prevalent trade practice. The existence of the buyer’s obligation to reimburse was not disputed. The buyer failed to reimburse the seller, and the seller declared the contract terminated under Art. 541. The buyer in turn sued the seller and sought registration of transfer of ownership. The issue was whether the buyer’s failure to perform its obligation to reimburse the seller for tax payments could be a cause for termination of the contract. The Supreme Court held that it was not a sufficient ground for termination. It held as follows: The reason why law allows termination of contract in case of non-performance of an obligation is to provide a remedy for cases where the purpose of the contract cannot be accomplished due to non-performance of a core obligation of the contract; unless there are special circumstances, an aggrieved party may not terminate its contract if the non-performance is only that of an ancillary obligation which is not indispensable for accomplishing the primary purpose for which the parties entered into the contract.

Since both parties in this case had already performed their primary obligations, i.e., transfer of ownership and payment of price for the land, the court did not allow termination of the contract and held in favor of the buyer. Hence the court narrowed

21

Supreme Court Decision, November 21, 1961, Minshu, Vol. 15, p. 2507. It should be noted that under Japanese law, the transfer of ownership is severed from the registration of ownership. E.g., see Art 176, 1896 code (and the 2017 Revised Code). 22

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the availability of Nachfrist termination to non-performance of primary obligations, and ancillary obligations only if they are indispensable for the accomplishment of the purpose of the contract.

3.5.2

Impact of the CISG and the UPICC

Against that backdrop came the impact of the CISG and the UPICC. In addition to those who were committed to the promotion of the CISG and interested in the CISG as such, civil law scholars in Japan started to write about the CISG in the 1990s. This was soon after the entry into force of the CISG in 1988, but long before Japan’s accession to the CISG in 2008. Therefore, their interest was not in development of the CISG, but instead in the use of the CISG as a source of inspiration in developing domestic civil law. This interest was ignited by the legal scholarship in Germany where the CISG was ratified in 1989 and entered into force in 1990. German civil law scholarship traditionally has had a strong influence in Japan.23 The flourishing of CISG scholarship in Germany as well as the many imprints of the CISG upon the debates surrounding reform of the BGB, has affected Japanese scholarship yet again. What captured the interest of Japanese civil law scholars most was the limitation of the contract termination (or avoidance)24 to cases of fundamental breach. Examination of the CISG rules on fundamental breach led to a re-evaluation of the function of termination. First, it led to a shared understanding that the function of termination is not to sanction the breaching party, but rather to release the aggrieved party from the contract. This in turn led to the opinion that “fault” should be abandoned as a requirement of termination.25 Second, it became widely understood that release from the contract is only necessary when the purpose of the contract is frustrated.26 The time was ripe for a re-interpretation of the Japanese rules of termination.27 The revised explanation centers on the concept of failure of the purpose of the contract. First of all, among the rules that allowed immediate termination as exceptions to the general requirement of Nachfrist termination, there were rules that explicitly required failure of purpose for termination. These are the rules found in Arts. 542 (time of essence) and 570 (guarantee against latent defects [kashi tanpo sekinin]) of the 1896 Code. Furthermore, among the exceptions to the general requirement of Nachfrist termination, there were rules which did not explicitly require failure of purpose, but which by definition required failure of purpose.

23

See, generally, Kitagawa (1970, 2007). Although the terminology under the CISG for “termination” is “avoidance”, this national report will use the term termination also for the CISG, for the sake of simplicity. 25 Tatsumi (1993), p. 331; Shiomi (1994), p. 430; Goto (1994), p. 1. 26 Watanabe (1991–1992); Yamada (1994); Shiomi (1994), p. 429ff. 27 See, e.g., Shiomi (2003), pp. 431–432 for an expanded explanation of Shiomi (1994), p. 261; Sono (2005), p. 76; Kagayama (2007), pp. 279–287. 24

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These were the rules in Arts. 543 (impossibility), 561 (eviction) and 567 (enforcement of security right) of the 1896 Code. Also, the above-mentioned case law, which limited termination due to non-performance of ancillary obligations, could also be interpreted in the same way: by denying termination when there is only breach of ancillary obligations, termination is limited to situations where the purpose of the contract fails. This re-interpretation of the 1896 Code was an attempt to replace the traditional general rule with what used to be the exceptions to it: termination of contracts, including Nachfrist termination, is allowed only when the purpose of the contract cannot be accomplished.

3.5.3

2017 Revised Code

Under the 2017 Revised Code, rules on grounds for termination are conveniently provided in two provisions: Articles 541 and 542. The general rule on termination under the 2017 Revised Code, in essence, requires that the breach is of a serious nature. First of all, “immediate termination” (i.e., termination without giving additional period of time to the obligor) is allowed under Article 542, of the 2017 Revised Code. It provides: (1) The obligee may immediately terminate the contract without demanding performance under the preceding Article: (i) if performance has become impossible in whole; (ii) if the obligor has clearly expressed his/her intention to repudiate performance in whole; (iii) in cases where performance has become partially impossible or where the obligor has clearly expressed his/her intention to partially repudiate the performance, if the purpose of the contract cannot be achieved by the remaining portion alone; (iv) in cases where, due to the nature of the contract or a manifestation of intention by the parties, the purpose of the contract cannot be achieved unless the performance is carried out at a specific time and date or within a certain period of time, if the obligor has failed to perform at the time that period lapses; or (v) in cases other than those provided in subparagraphs (i) to (iv), if the obligor has not performed, and if it is clear that there is little prospect of a performance sufficient to achieve the purpose of the contract will be given even when the obligee demands performance in accordance with the preceding Article. (2) [omitted]

One will notice that subparagraphs (i)–(iv) are all situations where, by definition, it has become clear that the purpose of the contract cannot be achieved any more. Thus, subparagraph (v) is the catch-all provision, and signifies that the criterion for the availability of termination is whether the “purpose of the contract” is achievable or not. Secondly, the 2017 Revised Code provides for a Nachfrist termination (Art 541, 2017 Revised Code). Under this provision, the party terminating the contract does not need to demonstrate that the purpose of the contract is frustrated. Instead,

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there is a proviso that denies termination if the non-performance after the additional period of time has expired is considered “minor” in light of the contract and the general sense of trade. The burden of proof that the particular non-performance is minor is on the breaching party. It is not clear if the drafters intended to differentiate the criteria of “minor” non-performance which appears in Art 541 with the criteria of “frustration of the purpose of the contract” in Article 542. These dual grounds for termination are very similar to Article 7.3.1 UPICC. However, one important difference relates to the requirement of “foreseeability”. UPICC requires foreseeability, at the time of the contract, of substantial deprivation of the aggrieved party’s contractual interest (Art 7.3.1(2)(a) UPICC). The lack of foreseeability requirement under the Japanese 2017 Revised Code means that the 2017 Revised Code focuses purely on “frustration of the purpose of the contract”. If the purpose fails, termination of contract is allowed, irrespective of whether or not it was foreseeable at the time of the contract that the purpose by the contract will fail if an obligation is breached.28 A second difference is the treatment of “intentional or reckless” non-performance. Article 7.3.1(2)(c) UPICC considers such non-performance to be fundamental, while the Japanese 2017 Revised Code is silent on this point. A third difference is the treatment of “disproportionate loss” the non-performing party will suffer if the contract is terminated. Under Article 7.3.1(2)(e) UPICC, this is a factor that works in favor of the non-performing party. Here, too, the Japanese 2017 Revised Code is silent on this point.

3.6 3.6.1

Interests Interests for Failure to Pay Money (Article 7.4.9 UPICC)

Regarding the creditor’s right to claim interest when debtors fail to pay money, Article 419 of the 1896 Code provides as follows: (1) The amount of the damages for failure to perform any obligation for the delivery of any money shall be determined with reference to the statutory interest rate; provided, however, that, in cases the agreed interest rate exceeds the statutory interest rate, the agreed interest rate shall prevail. (2) The obligee shall not be required to prove his/her damages with respect to the damages set forth in the preceding paragraph. (3) The obligor may not raise the defense of force majeure with respect to the damages referred to in paragraph 1.

It should be noted that it is the established court practice in Japan that for non-performance of monetary obligations, the only loss the obligee may recover is the interest for the period of delay under Article 419 (1). In principle, no additional

28

See, Sono (2011), pp. 177–178.

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losses are recoverable even if the obligee proves that there was loss that exceeds the interest.29 Nothing in the 2017 Revised Code changes this practice. The only revision to Article 419 in the 2017 Revised Code is an addition of languages to clarify the statutory rate to be used: (1) The amount of the damages for failure to perform any obligation for the delivery of any money shall be determined with reference to the statutory interest rate of the time when the obligor has become liable for non-performance for the first time; . . . . (the part in italic is newly added)

Regarding the statutory interest rate for civil claims, Article 404 of the 1896 Code provides: Unless the parties otherwise manifest their intention with respect to a claim which bears interest, the rate of such interest shall be 5% per annum.

For commercial claims, Article 514 of Commercial Code provides: The statutory interest rate applicable to obligations arising from commercial transactions is 6% per annum.

Under the current situation of economies, this level of statutory interest was severely criticized as unreasonably high, and Article 404 was amended in the 2017 Revised Code as follows: (1) Unless the parties otherwise manifest their intention with respect to a claim which bears interest, the rate of such interest shall be the statutory interest rate of the time when the interest has accrued. (2) The statutory interest rate shall be 3% per annum. (3) Notwithstanding with the provisions of the preceding paragraph, the statutory interest rate shall fluctuate in each interest period according to the provisions of the next paragraph. An interest period shall be for a period of 3 years as determined by the provisions of an ordinance of the Ministry of Justice. (4) The statutory interest rate in each interest period shall be the rate obtained by adding (i) the difference of (a) the Standard Interest Rate in the most recent interest period in which the change of the statutory interest rate occurred according to the provisions of this paragraph (the “Most Recent Interest Period with Fluctuation”) and (b) the Standard Interest Rate in the current interest period (a fraction smaller than 1% is truncated) to (ii) the statutory interest rate of the Most Recent Interest Period with Fluctuation (in case (a) is lower than (b)), or by deducting (i) from (ii) (in case (a) is higher than (b)). (5) The Standard Interest Rate in the preceding paragraph shall be the rate announced by the Ministry of Justice as the rate obtained by dividing the sum of the average interest rate of short term lending of each month (the average of interest rate of bank loans that are newly made in the month and whose loan period is less than one year) from January of 6 years prior to the first year of the interest period to December of the year prior to the first preceding year by 60, which is calculated pursuant to the provisions of an ordinance of the Ministry of Justice.

Under the amended Article 404, the statutory interest for both civil and commercial claims shall be set at 3% initially (Article 514 of the Commercial Code was

29

E.g., Supreme Court Decision, October 11, 1973, Hanrei Jiho, Vol. 723, p. 44.

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deleted in conjunction with the 2017 Revision of the Civil Code), and will be reviewed every 3 years (this 3 years period is referred to as an “Interest Period” for the purpose of the calculation of the statutory interest). The concrete way to review the statutory interest is complicated, but in essence, in every 3 years, the Standard Interest Rate (i.e., the average interest rate of short term bank loans in the preceding 5 years) for the current Interest Period and the Standard Interest Rate for the Interest Period in which the most recent change of the statutory interest rate occurred is compared,30 and if the difference is equal or more than 1%, the statutory interest rate will be revised to reflect such difference. This new method is adopted to make the change of the statutory interest more modest by comparing average interest rates for 5 years.

3.6.2

Interest on Damages (Article 7.4.10)

There is no explicit provision corresponding to Article 7.4.10 UPICC. However, Article 412 of the 1896 Code provides as follows: (1) If any specified due date is assigned to the performance of an obligation, the obligor shall be responsible for the delay on and after the time of the arrival of such time limit. (2) If any unspecified due date is assigned to the performance of a claim, the obligor shall be responsible for the delay on and after the time when he/she becomes aware of the arrival of such time limit. (3) If no time limit is assigned to the performance of an obligation, the obligor shall be responsible for the delay on and after the time he/she receives the request for performance.

In the 2017 Revised Code, paragraph (2) is amended as follows to clarify that “becoming aware” of the arrival of time limit includes situations where the obligor receives demands for performance: (2) If any unspecified due date is assigned to the performance of a claim, the obligor shall be responsible for the delay on and after the time when he/she receives demand to perform after the due date has come or when he/she becomes aware of the arrival of such time limit, whichever comes first. (the part in italic is newly added)

Claims for damages in case of breach of contract are considered to be claims with no time limit,31 to which Article 412 (3) applies. So, under Japanese law, interest on damages for non-performance of non-monetary obligations starts to accrue when requests for damages are made, and it is different from the rule of Article 7.4.10 of the UPICC. Please note that the damages in case of torts are considered to become due when the tortious act was made and interest on damages shall accrue from the date of the tortious act. 30

For example, if the current Interest Period starts from April 1, 2023, the Standard Interest Rate for that Interest Period is the average interest rate of short term bank loans in the period from January 2017 to December 2021. 31 Supreme Court Decision, December 18, 1980, Minshu, Vol. 34, p. 888.

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Other Rules of the UPICC

The questionnaire (in Question 7) asks to include rules of the UPICC, other than those discussed in Sects. 3.1–3.6, which have been relied upon by courts or arbitral tribunals for the purpose of interpreting a similar provision of national contract law or in order to supplement (thus serving as a gap-filler) the national contract law. As mentioned in Sects. 2.1 and 2.2, as far as we know, there is no court case or arbitral award that refers to the UPICC in interpreting or supplementing Japanese laws.

4 Concluding Remarks As we have seen, the UPICC has never been explicitly used by Japanese courts in interpreting or supplementing Japanese law. There is no institutional or legal barrier for using the UPICC for that purpose as far as the principles in the UPICC can be viewed as representing “customs” or “trade usages”. Nonetheless, that has not happened. One possible explanation for this is the general reluctance (or style of drafting judgments) of judges to refer to foreign laws in their judgments. Another possible explanation may be the lack of familiarity of judges with the UPICC, although this may change once the 2017 Revision of the Civil Code, which took into account modern contract law rules including the UPICC, comes into effect in 2020. However, another possibility is the general consistency of Japanese law with the UPICC on the one hand, and the lack of ambiguity of Japanese law when they differ from the UPICC on the other. As we have also seen, many principles of the UPICC discussed above are largely compatible with Japanese contract law rules found either in the Codes or developed by case law. Although it is encouraging to Japanese law that its rules are compatible with internationally developed principles, and also encouraging to the UPICC that it has solid grounds in well-developed national law, ironically, it may have the effect of diminishing the urge of Japanese judges to rely on the UPICC. The same can be said for rules which are clearly inconsistent, for example the role of “foreseeability” in determining the availability of termination (see Sect. 3.5.3). In such situation, there is little room for invoking the UPICC in supporting the decisions under Japanese law. What this suggests is that the UPICC may have some role to play in the future in developing case law in areas where Japanese law is not settled. Among the principles discussed above, such areas include regulation of surprising terms (Art. 2.1.20 UPICC) and the solution of linguistic discrepancies in contract interpretation (Art. 4.7 UPICC). Interpretation and supplementation of the CISG, which is part of the

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Japanese legal system since 2008, may also be such area. Ample room for development lies ahead.

Appendix: Texts of Relevant Code Provisions The questionnaire (in Question 5) requests reproduction of the full text of counterpart provisions. English translations of some provisions are already set out in the relevant parts of Sects. 3.1–3.6 above. They are also reproduced here again for ease of reference. English translations of statutory provisions, except those of the 2017 Revised Code, are taken from the Japanese Law Translation website . As for the 1890 Civil Code, the official French translation is provided.32

1890 Civil Code (the Old Civil Code [Kyu minpo]) (Act No. 28 of 1890) Article 356 Dans l’interprétation des conventions, les tribunaux doivent rechercher l’intention commune des parties, plutôt que s’attacher au sens littéral des termes par elles employés. Article 358 Toutes les clauses de la convention s’interprètent les unes par les autres, en donnant à chacune le sens qui s’accorde le mieux avec l’acte entier. Si une clause peut s’interpréter de deux manières don une seule lui donne un effet utile, on doit l’entendre de cette manière et non de celle qui ne lui donne aucun effet.

1896 Civil Code [Minpo] (Act No. 89 of 1896) (Fundamental Principles) Article 1 (1) Private rights must conform to the public welfare. (2) The exercise of rights and performance of duties must be done in good faith. (3) No abuse of rights is permitted. (Custom Inconsistent with Default Rules)

32

See supra note 3.

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Article 92 In cases there is any custom which is inconsistent with a provision in any law or regulation not related to public policy, if it is found that any party to a juristic act has the intention to abide by such custom, such custom shall prevail. (Creation and Transfer of Real Rights) Article 176 The creation and transfer of real rights shall take effect solely by the manifestations of intention of the relevant parties. Article 403 When the amount of the claim is specified in the currency of a foreign state, the obligor may make the payment in the legal currency of Japan using the foreign exchange rate current in the place of the performance. (Statutory Interest Rate) Article 404 Unless the parties otherwise manifest their intention with respect to a claim which bears interest, the rate of such interest shall be 5% per annum. (Time for Performance and Delay in Performance) Article 412 (1) If any specified due date is assigned to the performance of an obligation, the obligor shall be responsible for the delay on and after the time of the arrival of such time limit. (2) If any unspecified due date is assigned to the performance of a claim, the obligor shall be responsible for the delay on and after the time when he/she becomes aware of the arrival of such time limit. (3) If no time limit is assigned to the performance of an obligation, the obligor shall be responsible for the delay on and after the time he/she receives the request for performance. (Special Provisions for Monetary Debt) Article 419 (1) The amount of the damages for failure to perform any obligation for the delivery of any money shall be determined with reference to the statutory interest rate; provided, however, that, in cases the agreed interest rate exceeds the statutory interest rate, the agreed interest rate shall prevail. (2) The obligee shall not be required to prove his/her damages with respect to the damages set forth in the preceding paragraph. (3) The obligor may not raise the defense of force majeure with respect to the damages referred to in paragraph 1. (Right to Cancel33 for Delayed Performance)

The terms “cancel” and “cancellation” are used in the translations of the Code instead of the terms “terminate” and “termination”, which this national report uses in the text. These are simply different translations and there is no intention to distinguish these two sets of terms.

33

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Article 541 In cases where one of the parties does not perform his/her obligations, if the other party demands performance of the obligations, specifying a reasonable period and no performance is tendered during that period, the other party may cancel the contract. (Right to Cancel for Delayed Performance where Time is of the Essence) Article 542 In cases where, due to the nature of the contract or a manifestation of intention by the parties, the purpose of the contract cannot be achieved unless the performance is carried out at a specific time and date or within a certain period of time, if one of the parties has failed to perform at the time that period lapses, the other party may immediately cancel the contract without making the demand referred to in the preceding Article. (Right to Cancel for Impossibility of Performance) Article 543 If performance has become impossible, in whole or in part, the obligee may cancel the contract; provided, however, that this shall not apply if the failure to perform the obligation is due to reasons not attributable to the obligor. (Seller’s Warranty when Selling Rights of Others) Article 561 In the cases set forth in the preceding Article, if the seller cannot acquire and transfer to the buyer the rights the seller has sold, the buyer may cancel the contract. In such cases, if the buyer knew, at the time of the contract, that the rights did not belong to the seller, the buyer may not demand compensation for damages. (Seller’s Warranty in cases of Superficies or Other Rights) Article 566 (1) In cases where the subject matter of the sale is encumbered with for the purpose of a superficies, an emphyteusis, an easement, a right of retention or a pledge, if the buyer does not know the same and cannot achieve the purpose of the contract on account thereof, the buyer may cancel the contract. In such cases, if the contract cannot be cancelled, the buyer may only demand compensation for damages. (2) The provisions of the preceding paragraph shall apply mutatis mutandis in cases where an easement that was referred to as being in existence for the benefit of immovable property that is the subject matter of a sale, does not exist, and in cases where a leasehold is registered with respect to the immovable property. (3) In the cases set forth in the preceding two paragraphs, the cancellation of the contract or claim for damages must be made within one year from the time when the buyer comes to know the facts. (Seller’s Warranty in cases of Mortgage or Other Rights)

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Article 567 (1) If the buyer loses his/her ownership of immovable property that is the object of a sale because of the exercise of an existing statutory lien or mortgage, the buyer may cancel the contract. (2) If the buyer preserves his/her ownership by incurring expenditure for costs, he/she may claim reimbursement of those costs from the seller. (3) In the cases set forth in the preceding two paragraphs, the buyer may claim compensation if he/she suffered loss. (Seller’s Warranty against Defects) Article 570 If there is any latent defect in the subject matter of a sale, the provisions of Article 566 shall apply mutatis mutandis; provided, however, that this shall not apply in cases of compulsory auction.

Revised Civil Code [Minpo] (Revision of Act No. 89 of 1896) Article 1 (Fundamental Principles) No change from the 1896 Code. Article 92 (Custom Inconsistent with Default Rules) No change from the 1896 Code. Article 176 (Creation and Transfer of Real Rights) No change from the 1896 Code. Article 403 No change from the 1896 Code. (Statutory Interest Rate) Article 404 (1) Unless the parties otherwise manifest their intention with respect to a claim which bears interest, the rate of such interest shall be the statutory interest rate of the time when the interest has accrued. (2) The statutory interest rate shall be 3% per annum. (3) Notwithstanding with the provisions of the preceding paragraph, the statutory interest rate shall fluctuate in each interest period according to the provisions of the next paragraph. An interest period shall be for a period of 3 years as determined by the provisions of an ordinance of the Ministry of Justice. (4) The statutory interest rate in each interest period shall be the rate obtained by adding (i) the difference of (a) the Standard Interest Rate in the most recent interest period in which the change of the statutory interest rate occurred according to the provisions of this paragraph (the “Most Recent Interest Period with Fluctuation”) and (b) the Standard Interest Rate in the current interest period (a fraction smaller than 1% is truncated) to (ii) the statutory interest rate of the Most Recent Interest Period with Fluctuation (in case (a) is lower than (b)), or by deducting (i) from (ii) (in case (a) is higher than (b)).

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(5) The Standard Interest Rate in the preceding paragraph shall be the rate announced by the Ministry of Justice as the rate obtained by dividing the sum of the average interest rate of short term lending of each month (the average of interest rate of bank loans that are newly made in the month and whose loan period is less than one year) from January of 6 years prior to the first year of the interest period to December of the year prior to the first preceding year by 60, which is calculated pursuant to the provisions of an ordinance of the Ministry of Justice. (Time for Performance and Delay in Performance) Article 412 (1) If any specified due date is assigned to the performance of an obligation, the obligor shall be responsible for the delay on and after the time of the arrival of such time limit. (2) If any unspecified due date is assigned to the performance of a claim, the obligor shall be responsible for the delay on and after the time when he/she receives demand to perform after the due date has come or when he/she becomes aware of the arrival of such time limit, whichever comes first. (3) If no time limit is assigned to the performance of an obligation, the obligor shall be responsible for the delay on and after the time he/she receives the request for performance. (Impossibility) Article 412-2 (1) If, in light of the contract [. . .] and general sense of trade, it is impossible to perform an obligation, the obligee may not demand performance. (2) The fact that a contractual obligation was impossible to perform at the time of contract does not prevent a claim of damages under the provisions of Article 415 for loss caused by such impossibility to perform. (Special Provisions for Monetary Debt) Article 419 (1) The amount of the damages for failure to perform any obligation for the delivery of any money shall be determined with reference to the statutory interest rate of the time when the obligor has become liable for non-performance for the first time. (2) The obligee shall not be required to prove his/her damages with respect to the damages set forth in the preceding paragraph. (3) The obligor may not raise the defense of force majeure with respect to the damages referred to in paragraph 1. (Termination after Demand for Performance) Article 541 In cases where one of the parties does not perform his/her obligations, if the other party demands performance of the obligations, specifying a reasonable period and no performance is tendered during that period, the other party may

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terminate the contract. However, this does not apply if the non-performance at the time of expiration of such period is minor in light of the contract [. . .] and general sense of trade, (Termination without Demand for Performance) Article 542 (1) The obligee may immediately terminate the contract without demanding performance under the preceding Article: (i) if performance has become impossible in whole; (ii) if the obligor has clearly expressed his/her intention to repudiate performance in whole; (iii) in cases where performance has become partially impossible or where the obligor has clearly expressed his/her intention to partially repudiate the performance, if the purpose of the contract cannot be achieved by the remaining portion alone; (iv) in cases where, due to the nature of the contract or a manifestation of intention by the parties, the purpose of the contract cannot be achieved unless the performance is carried out at a specific time and date or within a certain period of time, if the obligor has failed to perform at the time that period lapses; or (v) in cases other than those provided in subparagraphs (i) to (iv), if the obligor has not performed, and if it is clear that there is little prospect of a performance sufficient to achieve the purpose of the contract will be given even when the obligee demands performance in accordance with the preceding Article. (2) The obligee may immediately partially terminate the contract without demanding performance under the preceding provision: (i) if performance has become impossible in part; or (ii) if the obligor has clearly expressed his/her intention to repudiate performance in part. (Agreement on Standard Terms) Article 548-2 (1) Parties that agreed to enter into standardized transactions (hereinafter meaning transactions, entered into by a specific person with more than one unspecific persons, in which it is reasonable for both parties that the terms are wholly or partially uniform) are deemed to have agreed to the individual clauses of the standard terms (hereinafter meaning a set of terms prepared by a party with the purpose of constituting the content of a contract in a standardized transaction), if (i) they agreed to incorporate the standard terms as a whole into their contract; or

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(ii) the party who prepared the standard terms indicated to the other party before entering into the contract that the standard terms will be incorporated into the contract. (2) Notwithstanding para 1, it is deemed that there is no agreement on any standard clause that restricts the rights or expands the duties of the other party, and that unilaterally impairs the interests of the other party, in violation of the fundamental principle provided in the second paragraph of Article 1 of the Civil Code in light of the manner and circumstances of the standardized transaction and the of general sense of trade.

Act Against Unjustifiable Premiums and Misleading Representations [“Futo Keihinrui oyobi Futo Hyoji Boshi Ho”] (Act No. 134 of 1962) (Prohibition of Misleading Representations) Article 5 No Entrepreneur may make a Representation as provided for in any one of the following items in connection with the transaction of goods or services which the Entrepreneur supplies: (i) Any Representation where the quality, standard or any other particular relating to the content of goods or services is portrayed to general consumers as being significantly superior to that of the actual goods or services, or are portrayed as being, contrary to fact, significantly superior to those of other Entrepreneurs who supply the same kind of or similar goods or services as those supplied by the relevant Entrepreneur, thereby being likely to induce customers unjustly and to interfere with general consumers’ voluntary and rational choice-making; (ii) Any Representation by which price or any other trade terms of goods or services could be misunderstood by general consumers to be significantly more advantageous than the actual goods or services, or than those of other Entrepreneurs who supply the same kind of or similar goods or services as those supplied by the relevant Entrepreneur, thereby being likely to induce customers unjustly and to interfere with general consumers’ voluntary and rational choice-making; or (iii) Beyond what is listed in the preceding two items, any Representation by which any particular relating to transactions of goods or services is likely to be misunderstood by general consumers and which is designated by the Prime Minister as such, and considered likely to induce customers unjustly and to interfere with general consumers’ voluntary and rational choice-making.

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Article 7 (1) The Prime Minister may, in the event that an Entrepreneur acts in violation of the limitations or prohibition under the provisions of Article 4 or the provisions of Article 5, order the relevant Entrepreneur to cease committing the violation, or to take the measures necessary to prevent the reoccurrence of the violation, or to take any other necessary measures including public notification of the particulars relating to the implementation of the measures. Such an order may be issued to the following persons even when the violation has already ceased to exist: (i) The Entrepreneur who committed the violation; (ii) Where the Entrepreneur who committed the violation is a corporation and has ceased to exist as a result of a merger: the corporation which continues to exist after the merger takes place or the corporation which becomes incorporated upon the merger taking place; (iii) Where the Entrepreneur who committed the violation is a corporation: another corporation which has taken over the whole of or part of the business pertaining to the violation from the corporation as a result of a split; and (iv) the Entrepreneur who has acquired the whole or part of the business pertaining to the violation from the Entrepreneur who committed the violation. (2) With regard to the order prescribed in the preceding paragraph, when the Prime Minister finds it necessary in order to evaluate whether any Representation falls under Article 5, item (i), the Prime Minister may designate a period of time and require the relevant Entrepreneur to submit data as reasonable grounds for the Representation the Entrepreneur has made. In such cases, if the Entrepreneur fails to submit the data, the Representation concerned is deemed to fall under the same item for the purpose of applying the provisions of the same paragraph. (Payment Order for Surcharge) Article 8 (1) If an Entrepreneur has acted in violation of the provisions of Article 5 (excluding acts pertaining to Representations that fall under item (iii) of the same Article; hereinafter referred to as the “Acts Subject to Surcharge”), the Prime Minister must order the Entrepreneur to pay to the National Treasury a surcharge equivalent to three percent of proceeds from sales, which is calculated by a method prescribed by Cabinet Order pertaining to the Acts Subject to Surcharge, for goods or services transacted during the subject period when the Acts Subject to Surcharge are committed; provided, however, the Prime Minister may not order the payment if it is determined that the Entrepreneur was unaware that their Representations pertaining to Acts Subject to Surcharge fell under any of the following items throughout the time period when the Acts Subject to Surcharge were committed, and that they did not fail to exercise due caution about their lack of awareness, or if the amount of the surcharge is one million five hundred thousand yen or less:

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(i) Any Representation where the quality, standard or any other particular relating to the content of goods or services is portrayed as being significantly superior to that of the actual goods or services, or are portrayed as being, contrary to fact, significantly superior to those of other Entrepreneurs who supply the same kind of or similar goods or services as those supplied by the relevant Entrepreneur; or (ii) Any Representation indicating that the price and other trade terms for goods or services are significantly more favorable to the other party in a transaction than they actually are, or that, contrary to fact, they are significantly more advantageous to the other party in a transaction than those of other Entrepreneurs who supply the same kind of or similar goods or services as the relevant Entrepreneur. (2) The “Subject Period” as prescribed in the preceding paragraph means the period during which the Acts Subject to Surcharge are committed (if the Entrepreneur makes transactions of goods or services through the Acts Subject to Surcharge between the day when the Acts Subject to Surcharge are discontinued and the day on which a period of six months has elapsed after the discontinuation thereof (or the day on which the Entrepreneur takes measures prescribed by Cabinet Office Order as measures to eliminate the risk of Representations pertaining to the Acts Subject to Surcharge, unjustly inducing customers and interfering with general consumers’ voluntary and rational choice-making, if the Entrepreneur does so prior to the day), the time period from the time when the Acts Subject to Surcharge are discontinued to the day when the last of the transactions is made is to be added to the Subject Period and if this period exceeds three years, the Subject Period is to retroactively start three years from the last day of this period.). (3) When the Prime Minister finds it necessary in order to evaluate whether any Representation falls under Article 5, item (i) with regard to the order prescribed under paragraph (1) (hereinafter referred to as the “Payment Order for a Surcharge.”), the Prime Minister may designate a period of time and require the relevant Entrepreneur to submit data as reasonable grounds for the Representation the Entrepreneur has made. In such cases, if the Entrepreneur fails to submit the data, the Representation is presumed to fall under the same item for the purpose of applying the provisions of the same paragraph.

Act on General Rules for Application of Laws [Ho no Tekiyo ni kansuru Tsusoku Ho] (Act No. 78 of 2006) (Customs Having the Same Effect as Laws)

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Article 3 Customs which are not against public policy shall have the same effect as laws, to the extent that they are authorized by the provisions of laws and regulations, or they relate to matters not provided for in laws and regulations.

Arbitration Act [Chusai Ho] (Act No. 138 of 2003) (Applicable Law to be Applied in Arbitral Award) Article 36 (1) The law which the Arbitral Tribunal should comply with in making an Arbitral Award shall be as provided by the agreement of the parties. In this case, if laws and regulations of a given State have been designated, such designation shall be deemed as designating the laws and regulations of the State which shall be directly applied to the case and not the laws and regulations of the State providing the application of conflicting domestic and foreign laws and regulations, unless a contrary intention has been clearly indicated. (2) If an agreement set forth in the preceding paragraph has not been reached, the Arbitral Tribunal shall apply the laws and regulations of a State which has the closest relationship to the civil dispute that has been referred to the arbitration procedure and which should be directly applied to the case. (3) Notwithstanding the provisions of the preceding two paragraphs, if a clearly indicated request has been made by both of the parties, the Arbitral Tribunal shall decide ex aequo et bono. (4) An Arbitral Tribunal shall decide in accordance with the terms of the contract pertaining to the civil dispute which has been referred to the arbitral procedure, if said contract exists, and take into account the usages applicable to the relevant civil dispute, if any usages exist.

Commercial Code [Shoho] (Act No. 48 of 1899) (Purpose, etc.) Article 1 (1) The business of Merchants, commercial transactions, and other commercial matters are governed by the provisions of this Code, except as otherwise provided by other laws. (2) A commercial matter not provided for in this Code is governed by commercial custom, and if there is no commercial custom, it is governed by the provisions of the Civil Code (Act No. 89 of 1896). (Statutory Interest Rate for Commercial Matters)

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Article 514 The statutory interest rate applicable to obligations arising from commercial transactions is six percent per annum. (Cancellation Due to Delay in Performance in Sales Transaction if Time is of the Essence) Article 525 In a sales transaction between Merchants in which, due to the nature of the sale or the manifestation of intention of the parties, the purpose of the contract cannot be achieved unless the obligation is performed at a specified date and time or within a fixed period of time, if one of the parties fails to perform the obligation before the date and time or period passes, the other party is deemed to have canceled the contract unless it immediately demands that the non-performing party perform the obligation.

Consumer Contract Act [Shohisha Keiyaku Ho] (Act No. 61 of 2000) (Nullity of Clauses that Impair the Interests of Consumers Unilaterally) Article 10 Any Consumer Contract clause that restricts the rights or expands the duties of the Consumer more than the application of provisions unrelated to public order in the Civil Code, the Commercial Code (Act No. 48 of 1899) and any other laws and regulations, and that unilaterally impairs the interests of the Consumer, in violation of the fundamental principle provided in the second paragraph of Article 1 of the Civil Code, is void.

List of Cases Supreme Court Decision, June 2, 1921, Minroku, Vol. 27, p 1038 Supreme Court Decision, November 21, 1961, Minshu, Vol. 15, p 2507 Supreme Court Decision, October 11, 1973, Hanrei Jiho, Vol. 723, p 44 Supreme Court Decision, December 18, 1980, Minshu, Vol. 34, p 888 Supreme Court Decision, September 18, 1984, Hanrei Jiho, Vol. 1137, p 51 Supreme Court Decision, November 18, 2004, Minshu, Vol. 58, No. 8, p 2225 Supreme Court Decision, February 27, 2007, Hanrei Jiho, Vol. 1964, p 45 Supreme Court Decision, April 22, 2011, Minshu, Vol. 65, p 1405 Osaka District Court Decision, February 8, 1990, Hanrei Jiho, Vol. 1351, p 144

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References Code civil de l’Empire du Japon: accompagné d’un exposé des motifs. Traduction officielle Tome 1, Imprimerie Kokubunsha, Tokio, 1891 Goto M (1994) A Memorandum on the raison d’etre of Termination of Contracts [Keiyakukaijo no Sonzaiigi ni kansuru Oboegaki]. Hikaku Hogaku 28:1–24 Homusho Minjikyoku Sanjikanshitsu (Sanyoshitsu) [Ministry of Justice, Bureau of Civil Affairs, Counsellor’s Office/Advisor’s Office] (ed) (2014) Comparative Law Materials relating to the Revision of Civil Code (Obligations Law Related), Separate Edition of NBL No. 146 [Minpo (Saikenkankei) Kaiseini kansuru Hikakuho Shiryo, Bessatsu NBL No. 146]. Shoji Homu, Tokyo Igarashi K (1984) Civil law and comparative law [Minpo to Hikaku-Ho]. Ichiryusha, Tokyo Kagayama S (2007) Lectures on contract law [Keiyakuho Kogi]. Nihonhyoronsha, Tokyo Kitagawa Z (1970) Rezeption und Fortbildung des europäischen Zivilrechts in Japan. Alfred Metzner, Frankfurt a. M. Kitagawa Z (2007) Japanese civil law and German law: from the viewpoint of comparative law. In: Kitagawa Z, Riesenhuber K (eds) The identity of German and Japanese law in comparative perspectives. Walter de Gruyter, Berlin, pp 11–56 Okino M (2012) Recent developments in consumer protection in Japan. UT Soft Law Rev 4:10–18 Shiho Toitsu Kokusai Kyokai (UNIDROIT) (2013) UNIDROIT Principles of International Commercial Contracts 2010 [Yunidorowa Kokusai Shoji Keiyaku Gensoku 2010] (trans: Uchida T, Sono H, Morishita T, Okubo K). Shoji Homu, Tokyo Shiho Toitsu Kokusai Kyokai (UNIDROIT) (2020) UNIDROIT principles of international commercial contracts 2016 [Yunidorowa Kokusai Shoji Keiyaku Gensoku 2016] (trans: Uchida T, Sono H, Morishita T, OkuboK). Shoji Homu, Tokyo Shiomi Y (1994) Obligations in general [Saiken Soron], vol 1. Shinzansha, Tokyo Shiomi Y (2003) Obligations in general [Saiken Soron], vol 1, 2nd edn. Shinzansha, Tokyo Sono H (2005) Termination of contracts [Keiyakukaijo no Yoken-Koka]. In: Kamata K et al (eds) Private law [Minjiho], vol 3. Nihonhyoronsha, Tokyo Sono H (2011) The Diversity of Favor Contractus: the impact of the CISG on Japan’s Civil Code and its reform. In: Schwenzer I, Spagnolo L (eds) Towards uniformity. Eleven International Publishing, Utrecht, pp 169–175 Sono H (2012) Private enforcement of consumer law: a sketch of the Japanese landscape. Hokkaido J New Global Law Policy 16:63–80 Tatsumi N (1993) Termination of contracts and attributability [Keiyaku Kaijo to Kiseki Jiyu]. In: Hayashi R, Kai M (eds) In memoriam Tomohei Taniguchi [Taniguchi Tomohei Sensei Tsuito Ronbunshu], vol 2. Shinzansha, Tokyo, pp 331–359 Watanabe T (1991–1992) Achievement of the purpose of the contract and release from the contract under the Vienna Sales Convention (CISG) (1) & (2) [‘Wiin Baibai Joyaku’ (CISG) ni okeru Keiyakumokuteki no Jitsugen to Keiyaku karano Ridatsu (1) & (2)]. Otaru Shoka Daigaku Shogaku Tokyu 42:177–199 & 43:131–155 Yamada T (1994) ‘Fundamental breach’ in avoidance of contracts and attributability (1) & (2) [Keiyaku Kaijo ni okeru “Judai na Keiyakuihan” to Kisekijiyu (1) & (2)]. Minshohozasshi 110:273–292 & 110:462–497 Yamamoto K (2013) Contract interpretation and challenges of the civil code reform [Keiyakuno Kaishakuto Minpo Kaiseino Kadai]. In: Ito M et al (eds) (Festschrift for Tadashi Ishikawa) Economic society and the role of law [Keizaishakaito Hono Yakuwari]. Shoji Homu, Tokyo, pp 701–759 Yamamoto K et al (trans) (2018) Übersetzung des novellierten Zivilgesetzes 2020 (Allgemeiner Teil, Schuldrecht). J Jpn Law 45:184–305

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Hiroo Sono is Professor of Law at Hokkaido University, Japan. His main fields of research interest are in contract law and international commercial law. He is one of the founding members of the CISG Advisory Council (CISG-AC) since 2001 and the Global Private Law Forum (GPLF) of Japan since 2014. Since 2015 he is a correspondent to UNIDROIT. Tetsuo Morishita is Professor of Law at Sophia University Law School, Tokyo Japan. He formerly worked for The Sumitomo Bank, Limited (Japan) from 1989 to 1999. In April 1999, he moved to Sophia University, where he has been teaching international business law, banking and finance law and negotiation.

The UNIDROIT Principles of International Commercial Contracts (UPICC) as Reference for the Uniform Interpretation of Paraguayan Law José Antonio Moreno Rodríguez

Abstract The UNIDROIT Principles found in Paraguay a fertile ground for application by the local Courts. Several decisions from the Supreme and Appeals Court recur to them for interpretative purposes. The Paraguayan Civil Code predates the UNIDROIT Principles; however, its provisions align with them, which creates conditions ripe for their use. Writers and Academia in the country have also shown a favorable attitude towards them. Regarding international contracting, Paraguay recently adopted a law implementing the Hague Principles, open, in turn, to the application of non-State law, in particular, the UNIDROIT Principles.

1 Introduction Latin America has been referred to as “a comparatist’s dream”,1 and Paraguay is no exception. A clear example can be found in private law, in which legislation, case law, and doctrine receive the heavy influence of multiple foreign sources.2 The apparition of the UPICC in 1994 contributed to further enhance this cosmopolitan scenario in the region. These Principles have, in fact, influenced legislation enacted thereafter, such as, for instance, the Argentine Civil and Commercial Code,3 and scholars in many countries of the region are well aware of their existence and

This article was prepared with the assistance of María Belén Moreno Bendlin, Lucía Cazal Zaldívar and José A. Moreno Bendlin. 1

See in Kleinheisterkamp (2006), p. 300. See also Moreno Rodríguez (2015). López Medina (2004), p. 13, comparing it to Plato’s mimesis and allegory of the cave. 3 See official texts and foundations and sources of the Civil and Commercial Code in: www. nuevocodigocivil.com. 2

J. A. Moreno Rodríguez (*) National University of Asuncion, Asuncion, Paraguay e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_15

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potential.4 Moreover, increasingly, the UPICC are being invoked in case law of several Latin American jurisdictions, among them Paraguay. This National Report, prepared for the XXI Congress of the International Academy of Comparative Law, convened in 2018 in Fukuoka, Japan, focuses on the developments in Paraguay in relation to the UPICC. In doing so, answers to a questionnaire prepared by the General Reporters will be provided,5 preceded by a brief introduction of the Paraguayan legal system and its Private Law, to finally conclude that developments in the country prove the conditions ripe for extensive use of the UPICC in many matters, and in particular for the interpretation of its national rules in case law and doctrine.

2 Legal Framework In Paraguay, a written National Constitution stands at the pinnacle of legal norms hierarchy, following—as other countries in the region—the model pioneered in the USA. Enacted in 1992, the Constitution enshrines the classical separation of legislative, executive and judicial powers. Constitutional norms prevail over lower order norms in cases of contradiction. At the same time, ratified treaties and other international instruments take precedence over laws enacted by Congress, which in turn prevail over normative bodies promulgated by other authorities, such as decrees, resolutions, ordinances, etc. (Article 137 of the Constitution). The Constitution has a strong cosmopolitan flavor, reflected for instance in the Preamble, where it states that Paraguay is ‘part of the international community’. In addition, Article 143(4) expressly espouses the principle of ‘solidarity and international cooperation’ while Article 145 stipulates that Paraguay ‘admits a supranational legal order.’ In this way, the Constitution endorses modern international trends away from largely nineteenth Century Chauvinistic conceptions of the nation-state. This pluralistic spirit is apparent in statutes and rules enacted post-Constitution, such as, in private law matters, the new Paraguayan law on International Contracts (Law 5393 of 2015), drawn upon prestigious international sources,6 and the Paraguayan Arbitration Law (1879 of 2002) which almost entirely replicates the Model Law proposed by UNCITRAL. These laws are open, for instance, to non-national sources as applicable law.7

4

For instance, Gama Jr. (2006); Pizarro Wilson and Vidal Olivares (2010); Moreno Rodríguez (2017), etc. 5 The Questionnaire prepared by the General Reporters Alejandro Garro and José A. Moreno Rodríguez can be accessed at the following site: https://aidc-iacl.org/general-congress. 6 The Hague Principles on Choice of Law in International Contracts (accessible at the site www. hcch.net); and the Inter-American Convention on the Applicable Law to International Contracts (accessible at the site http://www.oas.org/dil/private_international_law.htm). 7 See Moreno Rodríguez (2016), pp. 1146 and following.

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The Paraguayan Civil and Commercial Code (the Civil Code), approved by law 1183 of 1985, and in force since 1987, contains the basic regulation on private law. The Code unified Civil and Commercial law, abolishing a distinction traceable to the Middle Ages that had survived in nineteenth-century Civil Law codifications, particularly the Argentine Civil Code previously in force in Paraguay from 1871 to 1986. The Paraguayan Civil Code comprises five ‘Books’, preceded by a ‘Preliminary Title’ and ending with ‘Transitory Provisions’, including Article 2810 which derogates the 1891 Code of Commerce while effectively retaining its provisions in matters of Maritime Law and related conflict rules (Articles 871, 1091, 1121 and 1222). Other matters closely linked are distributed through several special laws dealing with specific matters, such as antitrust (Article 3 of Law 4956 of 2013), capital markets (Articles 10 and 11 of Law 1284 of 1994), bankruptcy (Article 90, Law 169 of 1969), adoption (Article 3 of Law 1136 of 1997), among others. Paraguay has also ratified international conventions in commercial law, such as the United Nations Commission on International Trade Law (UNCITRAL) Convention on the International Sales of Goods (CISG), approved by Law 2611 of 2005.8 Paraguay has been active in UNCITRAL since its first membership in 1998. Regarding UNCITRAL’s sister organization, the International Institute for the Unification of Private Law (UNIDROIT), Paraguay has been a member state since 1940.9 Only one UNIDROIT instrument has been ratified by the country, that is, the 1995 Convention on Stolen or Illegally Exported Cultural Objects (Law 1048 of 1997). However, judicial developments have proven favorable to the reception of the UPICC for interpretative purposes. Moreover, Paraguay became the first country in the world to implement the so-called “Hague Principles” regarding the applicable law to international commercial contracts, which openly allows the application of non-State law, such as the UPICC. In Paraguay, international instruments emanating from private institutions are widely used in practice as ‘soft law’, such as the International Chamber of Commerce (ICC) INCOTERMS, Rules and Uses on Documentary Credits, among others.10 Notably, Law 861 of 1996, which regulates banking activities, subjects documentary credits to the rules established on this matter by the International Chamber of Commerce (Article 82). 8

The Vienna Convention regarding Prescription in Matter of International Sales of Goods of 1974, amended by the Protocol of 1980, was ratified by Paraguay (Law 2136 of 2003). Furthermore, Paraguay acceded in 2005 (in force since 2006) to the United Nations Convention on the Carriage of Goods by Sea of 1978, and also ratified the United Nations Convention on the Liability of Operators of Transport Terminals in International Trade of 1991 (not in force). Moreover, Paraguay ratified in 2007 the United Nations Convention on the Use of Electronic Communications in International Contracts. Paraguay also adopted legislation drawn upon the UNCITRAL Model Law on Electronic Signatures of 2001 (Law 4017 of 2010) and the UNCITRAL Model Law on Electronic Commerce of 1996 (Law 4868 of 2013). Paraguay also recently ratified the United Nations Convention on the Use of Electronic Communications in International Contracts (Law 6055 of 2018). 9 In December 2013, for the first time in history a Paraguayan national, José A. Moreno Rodríguez, was elected to the Governing Council of the institution. 10 See in www.iccwbo.org.

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In private law matters, Paraguayan law is heavily influenced by the so-called Civil Law System originated in continental Europe. In principle, court decisions do not bind Paraguayan judges, at least not to the degree as in common law jurisdictions. However, precedents can be considered a persuasive factor in predicting the outcome of potential legal issues. Article 6 Civil Code provides criteria for judicial interpretation, stating that the judges should take into account the law and its spirit, and that interpretation and supplementation should be made taking into account provisions of analogous cases or disciplines and general principles of law. A similar provision is found in Article 9 Code of Organization of the Judiciary, which expressly provides that judges will have regard to judicial precedents. Doctrinal writings are not formally recognized as primary legal sources in Paraguayan law. However, doctrine is highly influential among judges and the legal community. Several seminal court decisions are based on doctrinal writing.11

3 UPICC as Applicable Law in Paraguayan International Contracting Paraguay expressly recognizes the possibility of choosing the application of non-State law to international contracts. By Law 1879 of 2002, Paraguay adopted the UNCITRAL Model Law of Arbitration of 1985, reproducing it almost entirely, and transcribing its Article 28 (Article 32 in the Paraguayan Law) which admits the application of rules of law to the substance of the dispute, a term considered equivalent to non-State law.12 The UPICC are clearly comprised under this concept.13 Article 5 of Law 5393 of 2015, “regarding the applicable law to international contracts”,14 grants formal status to non-State law, becoming the first law in the

11 For instance, the decision in Reconstitución del Expte. Hans Werner Bentz c. Cartones Yaguareté S.A. s. Incumplimiento de contrato, Acuerdo y Sentencia 82 of 2013, Supreme Court. This landmark decision recognized party autonomy in international contracts. Referring to the doctrine advanced by José A. Moreno Rodríguez, the Supreme Court declared that the parties’ choice of law in the contract gives normative content to the agreement in question to regulate the parties’ rights, provided these comply with public policy rules and principles of national law. See discussion in: Moreno Rodríguez (2013) The issue became moot with the new Paraguayan Law on International Contracts, discussed above, which openly admits party autonomy. 12 See Official Comment of UNCITRAL to Article 28. See also the report of the WG of UNCITRAL, 18 meeting, March 1985 (A/CN.9/264, pp. 60–63). See in Moreno Rodríguez (2014), p. 333. 13 See, for instance, in: Berger (1998), p. 2; Lew (2002), p. 88; Farnsworth (2002), p. 22; Mayer (2002), p. 105. 14 The title in Spanish is the following: “Sobre el derecho aplicable a los contratos internacionales”.

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world to do so openly for the purpose of court proceedings.15 The provision was drawn upon Article 3 of the Hague Principles. When this rule was discussed, the Working Group projecting the Hague Principles pondered the question whether it should confine itself to admitting non-State law in arbitration or whether it should go beyond the status quo.16 The latter view triumphed, thereby “leveling the playing field”17 or “bridging the gap”18 between arbitration and litigation, at least in countries that have adopted the UNCITRAL Model Law. Therefore, it will no longer be necessary to include an arbitral clause to assure that the choice of non-State law will be respected. Replicating the Hague Principle’s norm almost literally, Article 5 of the Paraguayan Law states the following: “In this law, a reference to law includes rules of law of a non-State origin that are generally accepted as a neutral and balanced set of rules.”19 The requirement of neutrality calls for a body of rules capable of resolving problems commonly encountered in transnational contracts, whereas the prerequisite of balance was established to address the problem of unequal bargaining power leading to the application of unfair or inequitable rules of law. In turn, the formula of a set of rules generally accepted seeks to dissuade parties from choosing vague or uncertain categories of rules of law.20 Both the UPICC and the CISG (the latter even if not applicable to the case at hand under its own terms) are expressly mentioned as examples of rules meeting these requirements by the official commentary to the Hague Principles.21

15 The Paraguayan Law on international contracts comprises 19 Articles. Its first part (Articles 1–10, as well as Articles 13–14), regarding choice-of-law, basically reproduces the Hague Principles, with minor modifications. The following provisions (Articles 11–12, 15–16) mostly deal with the applicable law in the absence of choice, reproducing almost literally the above-mentioned Mexico Convention of 1994. Finally, the Law incorporates norms regarding public policy (Article 17, which is in line with the Hague Principles) and derogations (Article 18). The law is accessible at the site http://www.gacetaoficial.gov.py. 16 Gama Jr. and Saumier (2011), pp. 62–63. 17 Pertegás and Marshall (2014), p. 979. 18 Saumier (2012), p. 547. 19 Article 3 of the Hague Principles states: “The law chosen by the parties may be rules of law that are generally accepted on an international, supranational or regional level as a neutral and balanced set of rules, unless the law of the forum provides otherwise.” The general acceptance of an international, supranational or regional level requirement was deleted as a requirement in Paraguayan law to avoid controversies as to which bodies of law fulfill it. The final part of the article was deleted, of course, because it only makes sense as a text in ‘Principles’ and not in a law. 20 See Pertegás and Marshall (2014), pp. 997–998. 21 Comment to Article 3 of the Hague Principles.

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4 Paraguayan Sources Allowing the Use of the UPICC to Interpret or Supplement National Contract Law A different matter is the application of the UPICC in the domestic context. Can they be interpreted in reference to trade usages, or general principles of law? To address this issue, the Questionnaire asks22 if there is any legal source in the legal system allowing the use of the UPICC to interpret or supplement national contract law, either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source.

4.1

General Principles of Law

Article 6 of the Paraguayan Civil Code stipulates that in the absence of a response in accordance with the words and spirit of the norm or analogy, the adjudicator may recur to the general principles of law. Velázquez Argaña has addressed specifically the topic of the UPICC and its correspondence to “general principles of law” in Paraguay, concluding in the affirmative.23 This interpretation leads to its supplementary applicability. Moreover, the Manzoni case24 expressly references that the UPICC are understood as a means of interpretation in legal systems that consider “general principles of law” a source of law, as does Article 6 of the Paraguayan Civil Code.25

4.2

Usages, Custom and Practices

Article 7 of the Civil Code states that usages, custom or practices cannot create rights, except when the law refers to them. In turn, Article 2 of the Law 1034 of 1983 (which regulates mostly formal obligations of Merchants) expresses that the Civil Code is suppletive, and that commercial usages and custom can only apply when the law refers to them to determine the sense of words or technical phrases of commerce and to interpret acts and conventions of the same nature.

22 Question 1. If so, the Reporter is requested to refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law). 23 Velázquez Argaña (2017), pp. 79–115, and in particular in pp. 114–115. 24 José Luis Andrés Manzoni Wasmosy c. Inderet s. obligación de hacer escritura pública y otros, Acuerdo y Sentencia 95 of 2014, Civil and Commercial Court of Appeals, Fourth Chamber, accessible at: (http://www.unilex.info/case.cfm?pid¼2&id¼1866&do¼case). 25 It mentions that in Paraguayan doctrine there has been advocate to be applied by Paraguayan tribunals, citing Moreno Rodríguez (2014), p. 305).

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One may interpret these provisions literally (particularly Article 7 of the Civil Code), admitting at the most incorporation by reference of certain usages and practices.26 However, a leading book on Paraguayan Commercial Law goes beyond.27 It distinguishes between usos interpretativos, usos técnicos and costumbre. The usos interpretativos (or contractual practices of the parties or in business) serve to interpret the will deficiently declared in contracts, operating as an implied condition (claúsula sobreentendida). It is not necessary for them to be extensively accepted—it will suffice for them to be understood as an habitual way of dealing.28 In turn, the usos técnicos (or technical usages) are objective rules of conduct practiced in commerce as norms of law. At times the parties adopt them, as when incorporating the INCOTERMS (usos técnicos incorporated by the parties). Other times the law has a blank permitting it to be filled by usages (usos términos invoked by the law). For instance, Article 2 of Law 1284 of 1998 of capital markets expresses that capital market usages and customs are of suppletive application to the laws and regulations governing capital markets.29 A third category is custom (costumbre), or usages generally accepted.30 Which usages qualify as such is another matter of discussion. Escobar recognizes that terminology is confusing in this matter.31 Regarding Article 7 of the Civil Code, he considers that usages by implied terms (contractuales) and invoked by law (invocados por ley) are sources of law that prevail over provisions of the Civil Code and not mere auxiliary of interpretation.32 An ample interpretation has also been strongly advocated in contractual matters invoking several norms, such as the ones referring to the good faith principle of Article 714 of the Civil Code, which in concordance with Article 715 and Article 301, consider that contracts oblige to the expressed as well as to the implied consequences (“las consecuencias virtualmente comprendidas”), and Article 6 that derive dubious interpretative matters to analog rules “disposiciones que regulan casos o materias análogas”, of consuetudinary character in commercial matters.33

26 See note 24, p. 101. A more open interpretation in hand with the dynamic of commercial law is suggested in Moreno Ruffinelli (2013), p. 102. 27 Escobar (2014). 28 Escobar (2014), p. 58. 29 See Escobar (2014), pp. 58–59. 30 See Escobar (2014), p. 60. 31 See Escobar (2014), p. 60. 32 Escobar cites in Support Zavala Rodríguez. See Escobar (2014), p. 63. 33 See in Moreno Rodríguez (2017), chapters 3 and 8. Moreover, several particular provisions of the Civil Code refer to usages, such as Article 786, 787 in sales contracts, 952 in brokerage contracts, etc.

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Case Law and Its Correspondence to Uniform Law

Ofelia is a remarkable recent decision invoking the UPICC and CISG regarding usages and practices.34 The parties orally concluded a sales commission agreement. Sometime after the conclusion of the contract, one of the parties withdrew from the deal, while the other filed a lawsuit claiming damages for non-performance. The Court of Appeals examined the contractual obligations of the parties, and found that despite the original agreement which provided that the goods had to be collected at the seller’s premises, a different practice had been established between the parties according to which the seller delivered the goods directly to the customers. In order to determine the relevance of this practice in the contractual relationship, the Court of Appeals referred both to Article 9 of the CISG and Article 1.9 of the UPICC. The Court then concluded the existence of an implied obligation of the seller to deliver the goods to customers, as set forth by Article 5.1.2 (b) of the UPICC, which considers the practices between the parties a source of implied obligations. The decision expressly refers to Article 7 of the Civil Code, according to which practices do not create rights except when the law refers to them. It further invokes Article 715 and party autonomy and the good faith principle emerging thereof, concluding that practices appear precisely as a product of conduct voluntarily accepted by the parties. In the Gómez Vaezken case,35 the Court of Appeals also relied on the UPICC to interpret unilateral declaration of the parties, invoking Article 4.3 of the UPICC and its reference to usages and practices as implied obligations. The Supreme Court dealt with two other cases on related matters. In the Haywood case,36 a victim’s heirs filed a lawsuit claiming for damages resulting from a traffic accident which led to the decease of their father. The Supreme Court concluded that the heirs were entitled to damages and, in doing so, referred to Articles 5.1.1. and 5.1.2 of the UPICC, which deal with express and implied obligations (deberes secundarios de conducta, emerging from practices, usages, and good faith.) In the decision of the Court, even though the heirs were not part of the contractual relationship between the deceased father and the transport company, the implied obligations of safety (also based on the good faith principle) gave them a legitimate claim for damages. However, the Supreme Court rejected the claim since the claimants failed to prove the other party’s responsibility for the accident.

34

Ofelia Valenzuela Fernández c. Paraguay Granos y Alimentos S.A. s. indemnización de daños y perjuicios por incumplimiento contractual, Acuerdo y Sentencia 66 of 2016, Civil and Commercial Court of Appeals of Asunción, Sixth Chamber (http://www.unilex.info/case.cfm?id¼2134). 35 José Carlos Gómez Vaezken c. LJP S.A. s. reconocimiento de crédito y otros, Acuerdo y Sentencia 90 of 2016, Civil and Commercial Court of Appeals of Asunción, Second Chamber (http://www.unilex.info/case.cfm?id¼2104). 36 Engracia Marina Haywood de Balbuena y otro c. Empresa de Transporte Nueva Asunción S.A. y otros s. indemnización de daños y perjuicios, Acuerdo y Sentencia 1074, Supreme Court (http:// www.unilex.info/case.cfm?id¼2140).

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Another Supreme Court case also referred to express and implied obligations (Garófalo case).37 A cooking expert entered into a contract with a film producer, by which she accepted to participate in a TV series. In the course of the performance of the contract, the cooking expert complained about the unsafe working conditions on the set, prompting the other party to terminate the agreement. The cooking expert filed a lawsuit objecting to the termination and sustaining its unlawfulness and claimed damages for the other party’s failure to fulfill its implied obligation of security on the set. In deciding in favor of the claimant, the Supreme Court confirmed the existence of such an implied obligation, and in so doing referred not only to the general principle of good faith in the performance of contracts as stated in Article 715 of the Civil Code, but also to Articles 5.1.1 and 5.1.2 of the UPICC dealing with implied obligations.

5 Use of the UPICC Principles in Paraguay 5.1

The UPICC in the Legal Discourse

The UPICC have been used in the above-mentioned cases. But there is much more. The UPICC are part of the legal discourse of Paraguayan practice and academia.38 A contract law textbook which compares the UPICC with the Civil Code’s solutions is used in regular Contract Law courses in major universities.39 The 2010 version of the Principles were published in Asunción by Intercontinental Editora. There is a specific subject in the Judicial School (Escuela Judicial) which deals with the interpretation of the Civil Code aided by UPICC.40 Teams of the National and Catholic Universities of Asunción have participated in Arbitration Moot Competitions involving the application of the UPICC such as the Vis Moot, the Moot Madrid and the Moot jointly organized by the University of Buenos Aires and Rosario of Bogotá. Moreover, as stated, the UPICC are being used by courts for interpreting and supplementing national contract law.41

37 Sara Garófalo Benza c. Alejandro Mainero Maivolo y Dena S.A s. indemnización de daños y perjuicios, Acuerdo y Sentencia 1478 of 2016, Supreme Court (http://www.unilex.info/case.cfm? id¼2030). 38 When doing comparative law one must go beyond the positive rules and take into account component of legal discourse—Sacco referred to them as legal formants. See, for instance, in: Mattei (1997), p. 15. 39 Moreno Rodríguez (2017). 40 www.ej.org.py. 41 The following principles were used by state courts: Article 5.1.3 (cooperation between the parties); Article 2.1.21 (conflict between standard terms and non-standard terms); Article 4.4 (reference to contract or statement as a whole); Article 4.6 (contra proferentem); Article 7.1.3 (withholding performance); Article 5.1.1, 5.1.2 (express and implied obligations); Article 1.2

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Recognition of the UPICC by the Supreme Court

The Supreme Court has established a powerful precedent in favor of the UPICC as an interpretative tool in the Etcheverry case.42 An application had been filed alleging that because a ruling of a Court of Appeals invoked the UPICC, which do not have binding force in Paraguay, it violated Paraguayan legislation. The Court of Appeals had invoked Article 5.1.3 of the UPICC, which refers to the principle of cooperation between the parties, affirming that this provision complements the principle of good faith in contractual relations recognized in Paraguayan law. Precisely, the other party pointed out that the Court of Appeals clearly indicated that the use of the UPICC was not of a binding nature, but was instead supplementary or complementary to provisions included in the Paraguayan legislation. Since the Court of Appeals used the UPICC as an interpretative tool regarding national legislation, the Supreme Court considered the reference to them as correct. The decision, however, was revoked on other grounds. This precedent is key. The Supreme Court confirmed that the UPICC can be used to complement or supplement provisions of Paraguayan domestic law. Other two cases of the Supreme Court have also applied the UPICC.43

5.3

How It All Started

Duarte Torres is the pioneer case invoking the UPICC, dated from 2013.44 In this case, the parties entered into a contract for the sale of a parcel of land which had to be chosen by the buyer, out of a larger tract which belonged to the sellers. The dispute initiated five months after the conclusion of the contract when the buyer presented a claim requesting the performance of the contract and subsequently offering full payment of the purchase price. The sellers submitted their counterclaim seeking the termination of the contract, considering that their obligation to conclude the

(freedom of form); Article 7.1.1 (non-performance); Article 1.9 (usages and practices); Article 3.2.7 (gross disparity); Article 1.8 (inconsistent behavior): Article 1.7 (good faith and fair dealing); Article 2.1.4 (revocation of offer); Article 2.1.18 (modification in a particular form); Article 2.1.20 (surprising terms); Article 2.2.5 (agent acting without or exceeding its authority); Article 10.4 (new limitation period by acknowledgement); Article 2.2.10 (termination of authority); Article 2.1.2 definition of offer; Article 4.3 (relevant circumstances); Article 1.3 (binding character of contract); and Article 5.1.4 (2) duty of best efforts. 42 Jorge Moises Etcheverry Alí c. Rosa María Ramona Etcheverry de Brizuela s. obligación de hacer escritura pública, Acuerdo y Sentencia 62 de 2015, Civil and Commercial Court of Appeals of Asunción, Sixth Chamber (http://www.unilex.info/case.cfm?id¼1971). 43 Haywood and Garófalo (see notes 37 and 38). 44 Ramón Duarte Torres c. José Manuel Acevedo Oviedo y otros s. pago por consignación, cumplimiento de contratos y otros, Acuerdo y Sentencia 11, Civil and Commercial Court of Appeals of Asunción, Sixth Chamber (http://www.unilex.info/case.cfm?id¼1692).

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administrative procedure to divide the land within sixty days had become impossible since the buyer failed to select the portion of the property which had to be transferred. The Court of Appeals dismissed the buyer’s claim and decided in favor of the sellers’ counterclaim, therefore deciding in favor of the termination of the contact. This decision was mainly based on the buyer’s duty of cooperation which was not complied with. The buyer had a duty to cooperate, which consisted in pointing out the portion of land he wished to buy within a reasonable time period within the sixty days after the conclusion of the contract. This would allow the seller to comply with his obligation to provide the necessary documents for the transfer of the land and the completion of the administrative procedures to fractionate the property. The duty of cooperation is not expressly contemplated in Paraguayan domestic laws. However, the Court of Appeals sustained that it is derived from the duty of good faith in contractual relations, which, in turn, is contemplated by Paraguayan domestic laws. The Court supported its conclusion in the UPICC, relying on its Article 5.1.3, and also referring to its explanatory notes. Further cases also applied the UPICC in regards to the duty of cooperation. In the already mentioned Etcheverry case,45 a dispute arose when a party accused the other of non-performance of the contract by refusing to grant a public deed necessary to comply with the legal formalities required for an effective transfer of property. The defendant objected the contract did not count with the signature of all the parties on every page and that the entire contract was false and therefore invalid. However, subsequently, the defendant recognized the signature written on the last page as her own. The Court of Appeals noted a clear inconsistency in the behavior of the defendant and found that the burden of proof regarding the alleged falsification of the contract was on the respondent, since she was in a better position to demonstrate that, even though the last page of the contract presented by the claimant was authentic, the first two were not. According to the Court, this burden of proof laid on the defendant was also due to the general duty of cooperation existing between the parties as laid down in Article 5.1.3 of the UPICC. On these grounds, the Court overruled the lower court’s ruling and decided that the contract presented by the claimant should be considered authentic and valid. In the Ayala Zalazar case,46 the dispute conflict arose from a real estate sales contract. The plaintiff filed a suit claiming the performance of the contract by the defendant and the granting of a public deed to comply with the legal formalities required to transfer the property of land effectively. The Court determined that the defendant had acted in bad faith and did not comply with the duty of cooperation that should have been observed in the course

45

See note 43. Edgar Alberto Ayala Zalazar c. Carlos Tomas González Figueredo s. cumplimiento de contrato y obligación de hacer escritura pública, Acuerdo y Sentencia 51 of 2016, Civil and Commercial Court of Appeals of Asunción, Fourth Chamber (http://www.unilex.info/case.cfm?id¼1957). 46

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of the performance of the contract.47 The Court cited Article 5.1.3 of the UPICC and further stated that though Paraguayan Law does not expressly contemplate this duty, it is encompassed within the good faith principle. A dissenting opinion in the Compasa case48 also invoked the duty of cooperation of Article 5.1.3 of the UPICC. The case will be discussed further below.

6 The UPICC as Evidence of a General Consensus on the Comparative Law of Contracts49 The UPICC have been used as an evidence of general consensus on contract law by Paraguayan Courts. In the Duarte Torres case,50 the Court states, in Spanish, that the UPICC are “amply accepted principles in International Commercial Law targeting to propose uniform law responses to juridical problems, and as such, are an instrument that, among other uses, can serve to interpret and complement national law.”51 In the two similar Dirección General de Aduanas cases,52 the same Court of Appeals refers to its first decision in the Duarte Torres case, stating that even if the UPICC do not have binding force, they are amply accepted principles in international commercial law with uniform solutions to similar legal problems, and as such

47 In fact, at the time of the sale, the property was already mortgaged in favor of a third party (CITIBANK). A previous owner had sold the property to the current defendant with the mortgage, which the latter had agreed to lift by fully paying the debt to CITIBANK. Nevertheless, the defendant had resold the property to the claimant without having cancelled the debt, and therefore, with the mortgage. Claimant was not aware of this circumstance, since the contract specifically stated that the property was being sold without any encumbrances. Based on the above mentioned, the Court overruled the lower court’s ruling, and established a ninety days’ period in which Defendant should pay the debt, lift the mortgage and grant the public deed to effectively transfer the property to Claimant. 48 Compañía de Petróleo y Asfalto (COMPASA) c. Petrobras Distribuidora S.A. s. indemnización de daños y perjuicios, Acuerdo y Sentencia 36 of 2016, Civil and Commercial Court of Appeals, Fourth Chamber (http://www.unilex.info/case.cfm?id¼1958). 49 Question 2 of the Questionnaire, posing as examples, the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.? If so, the Questionnaire requests indicating which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner. 50 See note 45. 51 In Spanish: “. . .principios ampliamente aceptados en el Derecho Comercial Internacional que propenden a proponer soluciones uniformes a los problemas jurídicos, y que como tal, fungen como un instrumento que, entre otras funciones, permite interpretar y complementar el Derecho nacional”. 52 Dirección General de Aduanas c. El Comercio Paraguayo S.A. de Seguros Generales s. ejecución de resoluciones administrativas, Acuerdo y Sentencias 17 and 18 of 2013, Civil and Commercial Court of Appeals of Asunción, Sixth Chamber (http://www.unilex.info/case.cfm? id¼1695) (http://www.unilex.info/case.cfm?id¼1696).

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can be used to interpret and complement national law. The same was expressed in the Manzoni53 and the Nitschke cases.54 The Ofelia case55 reaffirmed that the UPICC, even though not binding, can be used to interpret and complement national law as they constitute a compendium of the international development in the field, reflecting the principal legal systems. In footnote 18 of the decision, Ofelia cites a ruling in this sense of the Supreme Court of Colombia.56 The Yacyretá case again includes similar reasoning and the same reference to the Supreme Court of Colombia.57 Other cases reaffirm that the UPICC are principles amply recognized (Etcheverry),58 principles accepted by the community of international commercial law (Ayala Zalazar),59 and norms of non-binding character but general rules of international commercial contracts accepted by great part of legal scholars (Ozorio).60 In the Compasa case, it was stated that even though the UPICC have non-binding character, they have been applied in several legal systems of the world as complementary or soft law.61

53

See note 25. Amanda Teofila Nitschke De Fayard c. Jose Domingo Vallena Balbuena, Acuerdo y Sentencia 15 of the year 2015, Civil and Commercial Court of Appeals of Asunción, Sixth Chamber (http:// www.unilex.info/case.cfm?id¼2143). 55 See note 35. 56 Corte Suprema de Justicia de Colombia, Fallo N 11001-3103-040-2006-00537-01, Rafael Alberto Martínez Luna y María Bernal Cancino c. Granbanco S.A. (www.unilex.info/case.cfm? id¼1709) “‘los principios, simbolizan el esfuerzo significativo de las naciones para armonizar y unificar disímiles culturas jurídicas, patentizan la aproximación al uniforme entendimiento contemporáneo de las relaciones jurídicas contractual superan las incertidumbres sobre la ley aplicable al contrato, los conflictos, antinomias, incoherencias, insuficiencia, ambigüedad u oscuridad de las normas locales al respecto. Indispensable aclarar que las partes pueden regular 1 contrato mercantil internacional por sus reglas, en cuyo caso, aplican de preferencia a la ley nazilan31 no imperativa, y el juzgador en su discreta labor hermenéutica de la ley o del acto dispositivo, podrá remire a ellos para interpretar e integrar instrumentos internacionales y preceptos legales internos.” 57 El Faro Producciones S.R.L. c. Entidad Binacional Yacyretá, Acuerdo y Sentencia 48 of 2017, Civil and Commercial Court of Appeals of Asunción, Sixth Chamber (http://www.unilex.info/case. cfm?id¼2141). 58 See note 43. 59 See note 47. 60 “. . . reglas generales de los contratos mercantiles internacionales aceptados por una gran parte de los estudiosos del Derecho”. Nathalia Elizabeth Ozorio Ruíz Díaz c. Empresa Automotores Guaraní S.A.E.C. E I. (A.G.S.A.) y otros s. indemnización de daños y perjuicios por responsabilidad extracontractual, Acuerdo y Sentencia 54 of 2017, Civil and Commercial Court of Appeals of Asunción, Sixth Chamber (http://www.unilex.info/case.cfm?id¼2151). 61 “. . .han encontrado su aplicación en diversos sistemas jurídicos del mundo como derecho complementario o soft law”. The statement is found in the dissenting opinion. The majority decision does not deal with the matter. (See note 49). 54

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7 How Paraguayan Courts Have Used the UPICC with Other International Instruments The Questionnaire (Question 3) asks, inter alia, if references to the UPICC were made in combination with other instruments of uniform law such as the CISG or a more diffuse body of state laws (e.g., the so-called lex mercatoria).62 The Ofelia case63 refers to the UPICC and CISG regarding usages and practices, as seen above. Also, in deciding whether or not a contractual relationship between the parties existed, it referred not only to national law on freedom of form concerning contract formation but also to Article 1.2 of the UPICC and Article 2:101 PECL (Principles European Contractual Law). Then the decision refers also to the rule of Article 74 CISG, regarding foreseeable recoverable damages, including loss of profits. When referring to gross disparity (laesio), the Pavetti case64 alludes not only to the UPICC but also to the PECL which uses the phrase “excessive benefit or unjust advantage” (beneficio excesivo o ventaja injusta).

8 Counterpart of the Selected Provisions in the Paraguayan Domestic Contract Law and Other Related Matters The Questionnaire (in Question 4) refers to specific provisions of the UPICC requesting, if so, a report on their counterpart in the countries’ domestic contract law.65

62 “Assuming that the UPICC have been not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a general body of contract law or to some of its provisions in particular; whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria)”. 63 See note 35. 64 Sindulfo Ruiz Pavetti c. Maria Esther Recalde de Aliendre y Policarpo Ramón Aliendre, Acuerdo y Sentencia 77 of the year 2016, Civil and Commercial Court of Appeals of Asunción (http://www. unilex.info/case.cfm?id¼2105). 65 The Questionnaire further requests the following: If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or caselaw rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law. (Question 5). If there is no such a rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be

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Negotiations in Bad Faith (Article 2.1.15)66

A Paraguayan Supreme Court judgment has referred to good faith as the cornerstone of contract (piedra angular del contrato).67 Good faith is contemplated in Articles 372, 689 and 714 in fine and 715 of the Civil Code. Article 372, moreover, goes on to also include as a derivation of the principle of good faith the theory of abus de droit, prescribing that abusive conduct will not be allowed. It is an express provision against negotiations in bad faith. In the Ayala Zalazar case,68 the duty of cooperation of the UPICC was upheld. Furthermore, the Court of Appeals determined that the defendant had acted in bad faith not complying with this duty that should be observed in the course of the performance of the contract. In a dissenting opinion in the Compasa case,69 the duty of cooperation of the UPICC (Article 5.1.3) was also invoked, and it was stated that Compasa did not cooperate and acted in bad faith. The Etcheverry case70 mentions that good faith must be observed throughout the contractual relationship, from the stages of negotiation to conclusion and performance, and as means of interpretation of contracts, mentioning several Articles such as 372 (good faith in the exercise of rights), 689 (good faith in negotiations), 715 (good faith in performance) and 714 in fine (good faith in interpretation) of the Civil Code.71 It states that duty to cooperate emerging from the UPICC, although not explicitly enunciated in the Civil Code is a derivation of the duty of good faith throughout the contractual relationship. The Nitschke case72 again refers to the duty of cooperation as including not only the duty of not posing an obstacle to the performance of the other party but also of active collaboration between parties. As seen before, the pioneer case invoking the UPICC (Duarte Torres) also declares that the duty of cooperation is a derivation of the principle of good faith.73 relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law. (Question 6) 66 “ARTICLE 2.1.15 (Negotiations in bad faith) (1) A party is free to negotiate and is not liable for failure to reach an agreement. (2) However, a party who negotiates or breaks off negotiations in bad faith is liable for the losses caused to the other party. (3) It is bad faith, in particular, for a party to enter into or continue negotiations when intending not to reach an agreement with the other party.” 67 Leandro Sanabria c. Coterra S.A., Acuerdo y Sentencia 3, Supreme Court, cited in Moreno Rodríguez: see note 34, p. 130. 68 See note 47. 69 See note 49. 70 See note 43. 71 The decision of the Court of Appeals cites in this regard J. A. Moreno Rodríguez, “Buena Fe, Equidad y Favor Debitoris en la Interpretación” in Moreno Rodríguez JA, pp. 836–837. 72 See note 55. 73 See note 45.

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Venire contra factum propium, another derivation of the principle of good faith, has not been enunciated as such in the Civil Code.74 In the Manzoni case, it has been expressly so declared, invoking the UPICC.75 This case involved a dispute between a Paraguayan citizen and Indert (the governmental institution on land), regarding payment of land adjudication. The Indert refused to receive payment arguing that they had reversed their previous decision, in which they had granted the land to the buyer, and determined a new and higher price for the property in dispute. In its decision, the Third Court of Appeals concluded that it was contrary to good faith that the institution firstly fixed one price, and later refused to recognize it. By stating so, the Court cited the principle of venire contra factum proprium, established in Article 1.8 of the UPICC.

8.2

Surprising Terms (2.1.20)76

A doctrinal work expressly states that the UPICC can serve for interpretative purposes when evaluating if the terms have been surprising and therefore abusive.77 Article 691 regulates standard terms in contracts, adopting the terminology of contratos de adhesión, and states that when agreements contain restrictive abusive clauses (cláusulas restrictivas de carácter leonino), the aggrieved party may be dispensed of complying them or request their modification to the adjudicator. The same norm includes a listing of clauses that should be particularly valued by the adjudicator but does not exclude others in which according to his discretion, abuse could be determined. These clauses can relate to an exclusion or limitation of liability, to discretion to modify or unilaterally terminate the contract, or to the unilateral selection of jurisdiction, among others. Consumer Protection Law 1334 of 1998 has a regulation against abusive clauses as well, providing a list of them. The difference is that the sanction imposed in Consumer Protection Law is the invalidity of the clause, with no discretion to decide otherwise or to analyze the possibility of modification of the contract by the adjudicator (Article 28). This law also states that adhesion contracts presented in standard form, in series or in a similar manner, must be written in legible texts and with legal terms clear and

74 However, from the outset it has been considered incorporated, as was mentioned in a symposium organized at the time when the Civil and Commercial Code was enacted. Documentos del Simposio sobre el Nuevo Código Civil, Edición de la Corte Suprema de Justicia, p. 32, Asunción, 1987. 75 See note 25. 76 ARTICLE 2.1.20 (Surprising terms) (1) No term contained in standard terms which is of such a character that the other party could not reasonably have expected it, is effective unless it has been expressly accepted by that party. (2) In determining whether a term is of such a character regard shall be had to its content, language and presentation. 77 See note 34, pp. 303–304.

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understandable to the consumer (Article 25).78 Otherwise they will be interpreted in favor of the consumer (Article 27). The Civil Code has a more precise norm, according to which clauses in general conditions of contracts or in forms drafted by one party will be interpreted, in case of doubt, in favor of the other (Article 713). The Banco Itaú case79 applied this contra proferentem principle and also invoked the UPICC in relation to partial payment alleged by the defense. The decision in favor of the plaintiff was appealed, arguing that the Judge did not adequately examine the proof presented, which demonstrated partial payments of the agreed sum. The Court of Appeals reviewed whether the account statements proved that a partial payment of the debt was indeed performed. The Court paid particular attention to the fact that the parties had agreed that if payment was not made, the Bank was entitled to deduct the indebted amount from the customer’s account. To interpret the agreement of the parties the Court of Appeals referred to the contra proferentem rule found in Article 4.6 of the UPICC. Since the respondent was a consumer, and thus the weak party in the agreement who had accepted the standard terms set by the other party, the Court considered that a certain degree of flexibility was necessary while examining the proof presented. After the Court deemed that the evidence was valid, it accepted the defense of partial payment submitted. In the two similar Dirección General de Aduanas cases,80 the Paraguayan Customs office initiated claims against an insurance company requesting payment of the insured sum that guaranteed the unpaid import taxes of merchandise which entered the country with a temporary tax suspension. The respondent argued that payment of the insured sum could not be claimed via an expedited procedure. The Court ruled that Paraguayan law permitted such procedure when the insurance policy covered taxes in favor of the Paraguayan Customs and when this institution met the conditions set forth in the policy. The Court of Appeals analyzed the policy terms in order to determine if the Paraguayan Customs fulfilled them. The Court noted that the policy contemplated standard and non-standard terms, determining that the latter prevailed over the former, as recognized by Article 2.1.21 of the 2010 UPICC. The Court then determined that the standard terms in the insurance policy have a diverse hierarchy by considering that the “particular and specific” terms had to be preferred over the “particular terms”. The Court relied on the official commentary of Article 4.4 of the UPICC. This commentary expresses that the parties may establish a hierarchy between the different provisions of the contract. The Court then noted that the particular and specific terms which the Paraguayan Customs had to comply with were ambiguous and that therefore, they should be 78

Article 14.2 of Law 827 of Insurance states that insurance policies must be drafted in clear and legible form. Resolution 2, Act 206 of 1997 of the Central Bank relative to Trusts and Resolution 6, Act 18 of 2014 of the Central Bank also has provisions in the same line. 79 Banco Itaú Paraguay S.A. c. S. & S. Construcciones S.A., S. H., E. y S. H., O. E., Acuerdo y Sentencia 106 of 2017, Civil and Commercial Court of Appeals of Asunción, Fourth Chamber (http://www.unilex.info/case.cfm?id¼2150). 80 See note 53.

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interpreted applying the contra proferentem principle. To do so, the Court of Appeals leaned on Article 713 of the Civil Code recognizing the principle, and reinforced this decision by stating it is also recognized by Article 4.6 of the UPICC.

8.3

Intention of the Parties (Article 4.1)81 and Interpretation of Statements and Other Conduct (Article 4.2)82

The Preamble (Exposición de Motivos) of the Civil Code expresses that in contract interpretation the real intention of parties must prevail over their literal manifestation, based on party autonomy. In this sense, the Code has several norms orienting the interpreter to arrive to the real intention, some of which will be discussed below. Article 708 of the Code states that to determine the real intention, the total behavior of the parties must be observed, even after the celebration of the contract.83 The rule is ampler than the traditional position of the common law of not considering for interpretation purposes the prior negotiations. In the same line, according to Article 300 of the Code, the erroneous characterization of the contract will not affect its efficacy and the act must be judged according to its real content. The Nitschke case,84 which invokes the UPICC in relation to the duty of cooperation, cites Article 708 of the Code, stating that the common intention of the parties must be established, understanding as such what they desired when celebrating the contract, how they wanted their contractual relationship to unfold and what the finality pursued with the agreement was.

81 ARTICLE 4.1 (Intention of the parties) (1) A contract shall be interpreted according to the common intention of the parties. (2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances. 82 ARTICLE 4.2 (Interpretation of statements and other conduct) (1) The statements and other conduct of a party shall be interpreted according to that party’s intention if the other party knew or could not have been unaware of that intention. (2) If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances. 83 This norm has been invoked many times in case law, such as for instance in the Intertec case. Intertec Paraguay S. R. L. c. 3M Uruguay S. A., Acuerdo y Sentencia 127, Civil and Commercial Code of Appeals, Third Chamber. See note 34, p. 272. 84 See note 55.

The UNIDROIT Principles of International Commercial Contracts (UPICC) as. . .

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Relevant Circumstances (Article 4.3)85

The Gómez Vaezken case86 alludes expressly to Article 4.3 of the UPICC. According to this norm, relevant circumstances in the interpretation process are preliminary negotiations, practices established between the parties and their ulterior conduct, the nature and purpose of the contract, the meaning commonly given to terms and expressions in the trade concerned and usages. In this case, a Paraguayan architect had filed a lawsuit against a Venezuelan construction company, seeking to receive payment of professional fees for work performed in relation to three buildings. The respondent alleged that the agreement between the parties only referred to the obligation to pay professional fees for work related to one building, while there was no reference to the other two. Further, it sustained that the professional fees agreed upon for the first building had already been paid. In order to determine what the actual intent of the parties was, the Court of Appeals had to determine whether an “offer” was ever made in regards to the other two buildings. In this context, the Court referred not only to Article 674 of the Paraguayan Civil Code but also to Article 2.1.2 of the UPICC for a precise definition of an offer. Further, the Court referred to the rule of interpretation provided by Article 4.3 of the UPICC. In particular, the Court found that from the previous conduct of the respondent it could be inferred that the latter used to comply with certain formalities when contracting. One of the members of the Court voted in the sense that claimant failed to prove that a concrete offer was made by the respondent, and concluded that respondent was not obliged to make any additional payments to claimant. However, the other two members of the Court voted on the contrary. According to the majority, the claimant had proved that it was entitled to payment for professional fees he was requesting.

85

ARTICLE 4.3 (Relevant circumstances) In applying Articles 4.1 and 4.2, regard shall be had to all the circumstances, including (a) preliminary negotiations between the parties; (b) practices which the parties have established between themselves; (c) the conduct of the parties subsequent to the conclusion of the contract; (d) the nature and purpose of the contract; (e) the meaning commonly given to terms and expressions in the trade concerned; (f) usages. 86 See note 36.

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Reference to Contract or Statement as a Whole (Article 4.4)87

Article 709 of the Civil Code rules that the clauses of the contract are to be interpreted by means of the other clauses, and the dubious ones must be given the meaning emerging from the general context. In the two similar Dirección General de Aduanas cases88 the Paraguayan National Customs Agency, filed a lawsuit against an insurance company, aimed at enforcing an administrative resolution. Timeliness of the lawsuit was discussed. After having established that the limitation period applicable to the present case was the one usually applied to insurance relationships (of one year), the Court of Appeals moved on to the question of the starting point of the limitation period. On this matter, the Court noted that the contract presented a contradiction. While addressing the contract’s interpretation issue, the Court of Appeal referred to Article 4.4 of the UPICC, quoting in extenso the official comment, which affirms that “provisions of a specific character prevail over provisions laying down more general rules.” By applying this principle, the Court held that the parties intended to give full effect to the contract starting from midnight of the date of its signature. As a consequence, the claim of the National Customs Agency could not be considered as time-barred.

8.6

All Terms to Be Given Effect (Article 4.5)89

Article 712 of the Civil Code norms that if a clause that can be interpreted in two ways, one of which will derive in its validity and the other in its invalidity, the former should prevail. If both derive to the validity of the clause, the nature of the contract and equity must prevail.90

87 ARTICLE 4.4 (Reference to contract or statement as a whole) Terms and expressions shall be interpreted in the light of the whole contract or statement in which they appear. 88 See note 53. 89 ARTICLE 4.5 (All terms to be given effect) Contract terms shall be interpreted so as to give effect to all the terms rather than to deprive some of them of effect. 90 Equity was applied in the case Alfredo Lebrón Paradeda c. Rodolfo Valentino, Acuerdo y Sentencia 111 of 2001, Civil and Commercial Court of Appeals, Fourth Chamber. In this case, Article 714 and its allusion to “armonización equitativa de intereses” were applied. See note 34, p. 271.

The UNIDROIT Principles of International Commercial Contracts (UPICC) as. . .

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Linguistic Discrepancies (Article 4.7)91

There is no equivalent rule in Paraguayan law. The UPICC can be used to supplement national legislation, in line with what has been decided in many cases regarding other matters.

8.8

Currency of Payment (Article 6.1.9)92

Article 39 of Law 489 of 1993 declares the Guaraní the currency of payment in the national territory. Article 51 recognizes the validity of contracts in foreign currencies and that their performance can be claimed in the agreed upon currency. A leading Paraguayan book on the Law of Obligations compares this rule to Article 6.1.9 of the UPICC, that can be used to supplement it.93

8.9

Right to Terminate the Contract (Article 7.3.1)94

Similarly to this rule, Article 724 of the Paraguayan Civil Code states that termination cannot be requested if the non-performance is not fundamental. The rule has 91 ARTICLE 4.7 (Linguistic discrepancies) Where a contract is drawn up in two or more language versions which are equally authoritative there is, in case of discrepancy between the versions, a preference for the interpretation according to a version in which the contract was originally drawn up. 92 ARTICLE 6.1.9 (Currency of payment) (1) If a monetary obligation is expressed in a currency other than that of the place for payment, it may be paid by the obligor in the currency of the place for payment unless (a) that currency is not freely convertible; or (b) the parties have agreed that payment should be made only in the currency in which the monetary obligation is expressed. (2) If it is impossible for the obligor to make payment in the currency in which the monetary obligation is expressed, the obligee may require payment in the currency of the place for payment, even in the case referred to in paragraph (1)(b). (3) Payment in the currency of the place for payment is to be made according to the applicable rate of exchange prevailing there when payment is due. (4) However, if the obligor has not paid at the time when payment is due, the obligee may require payment according to the applicable rate of exchange prevailing either when payment is due or at the time of actual payment. 93 R Silva Alonso (notas de actualización: J. A. Moreno Rodríguez), Derecho de las Obligaciones, 15 Edición, Intercontinental Editora, 2017, p. 402. 94 ARTICLE 7.3.1 (Right to terminate the contract) (1) A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance. (2) In determining whether a failure to perform an obligation amounts to a fundamental non-performance regard shall be had, in particular, to whether (a) the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract unless the other party did not foresee and could not reasonably have foreseen such result; (b) strict compliance with the obligation which has not been performed is

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been applied many times. For instance, the Supreme Court held that in a property transfer, the designation of the Public Notary cannot be considered fundamental, and can provoke at the most a damages claim for the delay. It also held that termination requires that no performance of one of the parties deprives the other of the economic interest pursued when contracting.95 In the Yacyretá case,96 the Court of Appeals had to determine whether there was a breach of the contractual relationship. The Court stated that even though the Civil Code distinguishes between fundamental and not fundamental non-performance (cumplimiento e incumplimiento esencial) it does not establish the criteria to take into account for the matter. In this respect, the Court referred to the definition of non-performance provided by the UPICC (Article 7.1.1) and decided in favor of the claimant. In the opinion of the Court, by accepting and using the vehicles provided by the claimant the other party had agreed the terms of the car lease agreement by conduct and therefore had to be considered liable for its for non-performance. In the Ofelia case,97 after determining the existence of a contractual relationship, the Court of Appeals examined the respondent’s liability for non-performance of its obligations. In doing so, the Court once again resorted to the UPICC, specifically to Article 7.1.1 on non-performance. Also in the Compasa case,98 the dissenting opinion mentioned Article 7.1.3 of the UPICC regarding termination for non-performance. Rescission (rescisión) and resolution (resolución) are terms not clear in Paraguayan law. In fact, they are not clear in many other systems, and this is the reason why the UPICC use the neutral term “termination”. In principle, rescission is the termination by a new agreement of the parties, that cannot affect the rights acquired by third parties (Article 718, Civil Code). However, at times the Code uses rescission when referring to unilateral termination.99

The Civil Code states in Article 726 that the contract is extinguished at the moment of termination. According to Article 729, resolution will only have retroactive effects between the parties, not affecting rights acquired by third parties in of essence under the contract; (c) the non-performance is intentional or reckless; (d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance; (e) the non-performing party will suffer disproportionate loss as a result of the preparation or performance if the contract is terminated. (3) In the case of delay the aggrieved party may also terminate the contract if the other party fails to perform before the time allowed it under Article 7.1.5 has expired. 95 Pierre Yves Turbaux c. Gloria del Carmen Ayala de Giménez s. Resolución de contrato y cobro de Dólares Americanos, Acuerdo y Sentencia 1595 of 2012 (see note 34, p. 363). 96 See note 58. 97 See note 35. 98 See note 49. 99 Such as when the tenant in a rent contract is turbado para el uso y goce. (Article 824, a, f, g) and in other situations (Articles 837, 841); in insurance contracts (556, 1562, 1563 y 1564); in deposit (article 1250) or in commodatum (Article 1281), among others in which the inefficacy, contrarily to resolution which is retroactive, operates for the future (ex nunc). The same happens with Article 59 of Law 2051 of 2003 de “Contrataciones Públicas” which refers to administrative rescission of the administration (rescindir administrativamente) by non-compliance of the other party.

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successive tract contracts (contratos de tracto sucesivo). The Code does not define this category nor does it determine its differentiation with contracts of immediate effects.100 According to a Paraguayan writer, contrary to simultaneous performance contracts, successive tract contracts prolong their effects in time, such as occurs in leases or in construction contracts.101 In instantaneous performance contracts, there is a unique solution (and not necessarily an immediate performance) whereas in successive performance contracts the agreement only achieves its purpose by the duration of the performance of its obligations. In the latter, the matter is not that the performance differs, but that for it to be useful to the creditor, it must be distributed or repeated in time.102 Court precedents leave doubts. The majority, in a divided Supreme Court decision, held that the difference between rescission and resolution is based on the effects of these forms of termination over the obligations performed. Restitution does not depend on this distinction, but on the question of whether the contract is of successive tract, in which case the obligations performed cannot be retroactive, whereas on the contracts of instantaneous effects, even with deferred obligations, termination will have retroactive effects.103 Therefore, the difference will depend on the type of contract (of instantaneous or successive effect) and not on the distinction between rescission or resolution. However, another decision of the Supreme Court differentiated the effects of rescission and resolution. It ruled that termination operates as a general rule with retroactive effect in resolution, according to Article 729 of the Civil Code. On the contrary, rescission operates towards the future, and can be done bilaterally via distacto (Article 718 of the Civil Code), or unilaterally, when a clause authorizes any of the parties to terminate the contract. Finally, rescission can be declared in accordance with the law, when it so provides.104 Following this Supreme Court decision, restitution cannot be claimed in cases of rescission, in which the effects of termination extend to the future—ex nunc—and do not affect prior performed obligations. In turn, resolution is retroactive to the moment of formation (ex tunc), due to supervening circumstances established in the contract (or at times in the law). An example is the pacto comisorio, or termination by non-compliance by the other party, which can be express or tacitly inferred (Articles 725 and 726 of the 100

The Code does not define nor establish the difference with contract of immediate effects (contratos de efecto inmediato). The Code also uses this terminology, with no further characterization, in Article 1467, regarding suretyships. 101 Martyniuk Barán (2011), pp. 39–40. 102 Mélich-Orsini (2009), pp. 49–50. 103 Luis Fernando Camperchioli Estrago c. Gilberto Palacios Acosta s. rescisión de Contrato por incumplimiento, Acuerdo y Sentencia 22, 2009, Supreme Court of Justice, see note 34, p. 360. 104 Selva Graciela Silvera de Gaona c. Club Deportivo Sajonia s. rescisión de contrato e indemnización de daños y perjuicios, Acuerdo y Sentencia 157 of 2012, Supreme Court of Justice. See note 34, p. 361.

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Civil and Commercial Code). A party requesting performance of the contract can afterward change its claim for termination or request both at the same time in subsidiary arguments (ius variandi). However, performance cannot be claimed once the termination was requested. According to Article 728, unless otherwise agreed, the party opting for termination may notify the other to perform its obligation in a timeframe not inferior to fifteen days, after which it can claim performance or declare termination by sole reliable communication.105 The rule is inspired in German law, differing from other French, Spanish and Italian sources of the Civil Code, which require judicial intervention for termination.

8.10

Interest for Failure to Pay Money (Article 7.4.9)106 and on Damages (Article 7.4.10)107

In monetary obligations, interest can be established as a penalty clause, in which case no other damages can be claimed (Article 454 of the Civil Code). Article 475 of the Civil Code states that interest may not exceed the maximum rates established by the Paraguayan Central Bank, under sanction of invalidity of the clause. It does not matter the way the parties name the obligation. Interests are due by the mere delay, with no necessity to prove damage and cannot exceed the maximum rate determined by the Central Bank.108

105

The procedure is not necessary when the debtor has manifested its decision to not perform the contract (Article 728 of the Civil and Commercial Code, concordant with Article 7.3.3 of the UPICC). 106 ARTICLE 7.4.9 (Interest for failure to pay money) (1) If a party does not pay a sum of money when it falls due the aggrieved party is entitled to interest upon that sum from the time when payment is due to the time of payment whether or not the non-payment is excused. (2) The rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by the law of the State of the currency of payment. (3) The aggrieved party is entitled to additional damages if the non-payment caused it a greater harm. 107 ARTICLE 7.4.10 (Interest on damages) unless otherwise agreed, interest on damages for non-performance of non-monetary obligations accrues as from the time of nonperformance. 108 Article 44 of Law 489 of 1995 (modified by Law 2339 of 2003), which regulates the Central Bank, establishes that the compensatory interest (interés compensatorio) is converted, after delay in payment, into default interest (interés moratorio) which must be paid at the originally established rate. Such interest shall be calculated over the remaining amount of the debt and the capitalization of interests over the default or compensatory interest will not be allowed in any situation. Additionally, creditors may receive punitive interests which cannot be superior to the original established rate. The punitive interest to be perceived will be calculated solely over the remains of the expired debt. Compensatory and punitive interests will be considered usurious when the imposed rate exceeds by

The UNIDROIT Principles of International Commercial Contracts (UPICC) as. . .

8.11

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Other Rules of the UPICC Used in Case Law for Interpreting or Supplementing Paraguayan National Contract Law109

The following UPICC principles and rules have also been invoked by Paraguayan courts:

8.11.1

Binding Character of Contract

In the Nitschke case,110 the Court of Appeals affirmed that the contract had to be correctly performed by both parties, invoking Article 1.3 of the UPICC.

8.11.2

Freedom of Form

The Court of Appeals in the Yacyretá case,111 by recalling the principle of freedom of form, which is predominant in the Paraguayan legal system as well as in international uniform law instruments such as the UPICC (Article 1.2), decided that the claimant provided sufficient evidence to demonstrate the existence of a contractual relationship between the parties. Again in the Ofelia case,112 the Court of Appeals relied on the freedom of form principle recognized in the Civil Code and also invoked Article 1.2 of the UPICC and Article 2:102 of the PECL in this regard.

8.11.3

Definition of an Offer

In the Gómez Vaezken case,113 in order to determine what the actual intent of the parties was, the Court of Appeals had to determine whether an “offer” was ever made in regards to the other two buildings. In this context the Court referred not only to Article 674 of the Paraguayan Civil Code, but also to Article 2.1.2 of the UPICC for a precise definition of an offer.

thirty percent (30%) the annual effective rates perceived by banks and financial institutions over consumer credits, in accordance with the deadlines and currency in which those credits are granted. 109 Question 7 of the Questionnaire. 110 See note 55. 111 See note 58. 112 See note 35. 113 See note 36.

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Duty of Best Efforts

In the Ozorio case,114 claimant filed a civil lawsuit against a public transportation company and the driver of a bus owned by the company, seeking compensation for the losses suffered from an accident. The Court of Appeals examined the nature of the public transportation service. In that regard, the Court considered that the lawsuit derived from a contractual responsibility and not from an extra-contractual liability or tort. A public transportation service contract implies an obligation of the transportation company to provide security measures, which constitute in itself a duty of best efforts in relation to its passengers. To determine the extent of the duty of best efforts, the Court of Appeals mentioned Article 5.1.4(2) of the UPICC. After deciding that the transportation company failed to comply with its duty of best efforts, the Court determined that respondents were indeed liable for the damages claimed.

8.11.5

Gross Disparity (laesio)

In Pavetti case,115 a lawsuit was filed claiming that the transaction through which he sold a plot of land was invalid. He argued that the sale price was low compared to the value of the plot of land and thus, invoked gross disparity. The Court of Appeals applied the provision of the Paraguayan Civil Code which introduced the concept of gross disparity (lesión contractual) and referred to Article 3.2.7 UPICC and to Article 4:109 PECL to affirm that there was an unjustified disproportion between the obligations of the parties. However, the Court considered that the claimant was an experienced businessman and could not invoke his lack of experience at the time of the conclusion of the contract. Hence, the Court of Appeals decided that there was no gross disparity or excessive advantage and dismissed the appeal.

8.11.6

Withholding Performance

In the Compasa case,116 a civil claim was brought forth against Petrobras, requesting damages from an alleged breach of contract caused by the non-delivery of the agreed upon goods. The majority vote confirmed the decision of the First Instance Judge, in favor of Compasa. In a dissenting opinion, a Judge of the Court of Appeals analyzed the fulfillment of the distribution contract between the parties. Pursuant to the distribution contract, he stated that Compasa had an obligation to maintain a permanent stock of asphalt products sufficient to satisfy the demand in the

114

See note 61. See note 65. 116 See note 49. 115

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Paraguayan market and that this obligation was breached. Petrobras managed to hold its part of the agreement by delivering the goods agreed upon in the contract until Compasa decided to voluntarily stop paying, which led Petrobras to suspend further deliveries. The Judge analyzed the parties’ conduct in the performance of the contract in light of the duty of cooperation (Article 5.1.3 of the UPICC) and the right of withholding performance (Article 7.1.3 of the UPICC). Based on the above mentioned, he voted for the rejection of the request for damages brought forth by Compasa. In the Manzoni case,117 a Paraguayan citizen advanced a civil claim against the governmental institution on land issues (Instituto Nacional de Desarrollo Rural y de la Tierra—Indert), regarding payment of a land adjudication made in his favor by a decision of the President of said institution. The institution refused to receive the payment because it afterward reversed the decision and established a new and higher price for the adjudicated land. Amongst several arguments sustained by the Third Court of Appeals regarding the invalidity of the second decision, it was indicated that the fact that the institution firstly offered a price and later refused to recognize the fixed amount was contrary to good faith. The ruling states that the institution cannot rely on a new President’s pronouncement disregarding the former decision on the principle of “venire contra factum proprium” established by Article 1.8 of the UPICC, also citing other articles such as the 1.7; 2.1.4(2)(b); 2.1.18; 2.1.20; 2.2.5 (2) and 10.4. In the Ofelia case,118 when faced with the issue of the right to withdraw from the agreement, the Court of Appeals affirmed that the rules on agency govern the sales commission contract. Therefore, it quoted Article 2.2.10 UPICC, according to which termination of authority is not effective in relation to the third party unless the third party knew or ought to have known of it. In the case at hand, although the respondent was free to revoke the authority given to the agent, this revocation was ineffective until it was disclosed to third parties. Therefore, the respondent was required to pay commission to the agent until that date.

9 Conclusion Three cases of the Paraguayan Supreme Court recognize the UPICC’s value in the interpretation of domestic contract law rules. At least fifteen other decisions of appellate courts do the same. A wide range of topics have been addressed in this regard, from the binding character of contracts to good faith, effects of obligations and termination of contracts, among others.

117 118

See note 25. See note 35.

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The ambiance in Paraguay proves ripe for the continuation of the flow of cases invoking the UPICC. The cosmopolitan scenario of its National Constitution added to ratified treaties and modern laws regarding international contracting and arbitration can only continue to foster a fertile land to harvest the benefits of developments of comparative contract law, in particular as expressed in the UPICC. It is a comparatist’s dream.

References Berger KP (1998) International Arbitral Practice and the UNIDROIT Principles of International Commercial Contracts. Am Comp Law J 46:129 Escobar JH (2014) Derecho Comercial, Segunda Edición, La Ley Paraguaya, Asunción Farnsworth EA (2002) The role of the UNIDROIT Principles in International Commercial Arbitration (2): a US perspective on their aims and application – Special Supplement 2002. ICC International Court of Arbitration Bulletin Gama L Jr (2006) Contratos Internacionais a luz dos Principios do UNIDROIT 2004, Río de Janeiro y otras, Editora Renovar Gama L Jr, Saumier G (2011) Non-state law in the (proposed) Hague principles on choice of law in international contracts. In: El Derecho internacional Privado en los procesos de integración regional, Jornadas de la ASADIP 2011, San José, Costa Rica, 24–26 November, ASADIP y Editorial Jurídica Continental, San José Kleinheisterkamp J (2006) Development of comparative law in Latin America. In: The Oxford handbook of comparative law. Oxford University Press, Oxford/New York Lew JDM (2002) The UNIDROIT Principles as lex Contractus chosen by the parties and without an explicit choice-of-law clause: the perspective of counsel – Special Supplement 2002. ICC International Court of Arbitration Bulletin López Medina DE (2004) Teoría impura del derecho, La transformación de la cultura jurídica latinoamericana, Editorial Legis Martyniuk Barán S (2011) Lecciones de Contratos Derecho Civil, Intercontinental Editora S.A., Asunción Mattei U (1997) Three patterns of law: taxonomy and change in the world’s legal system. Am J Comp Law 45:5 Mayer P (2002) The role of the UNIDROIT Principles in ICC Arbitration Practice – Special Supplement 2002. ICC International Court of Arbitration Bulletin Mélich-Orsini J (2009) Doctrina General del Contrato, 5ª edición, Caracas Academia de Ciencias Políticas y Sociales, Centro de Investigaciones Jurídicas Moreno Rodríguez JA (2013) Autonomía contractual transfronteriza. In: Libro homenaje a Roberto Ruíz Díaz Labrano, CEDEP Moreno Rodríguez JA (2014) Derecho Aplicable y Arbitraje, Thomson, Madrid, 2014 Moreno Rodríguez JA (2015) Le droit et l’Amérique Latine: Un terrain de rêve pour le comparatiste. In: Journées Internationales de la Société de Législation Comparée, París Moreno Rodríguez JA (2016) The new Paraguayan law on international contracts: back to the past? In: Eppur si muove: the age of uniform law essays in honour of Michael Joachim Bonell to celebrate his 70th birthday, vol II. UNIDROIT, Rome Moreno Rodríguez JA (2017) Curso de Contratos, Segunda Edición, Intercontinental Editora, Asunción Moreno Rodríguez JA, Buena Fe, Equidad y Favor Debitoris en la Interpretación. In: J. A. Moreno Rodríguez, Contratos. Obra Colectiva, Editorial CEDEP, Intercontinental Editora Moreno Ruffinelli JA (2013) Derecho Civil, Parte General, 13th edn. Intercontinental Editora

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Pertegás M, Marshall BA (2014) Harmonization through the draft Hague principles on choice of law in international contracts. Brooklyn J Int Law 39 Pizarro Wilson C, Vidal Olivares A (2010) Incumplimiento contractual, resolución e indemnización de daños, Editorial Universidad del Rosario Saumier G (2012) Designating the Unidroit Principles in International Dispute Resolution. Uniform Law Rev 17 Velázquez Argaña E (2017) El Derecho Comercial Internacional y su Influencia en el Desarrollo del Derecho de Contratos. In: Código Civil de la República del Paraguay Comentado, Third edition, Thomson Reuters La Ley, Asunción

THE UNIDROIT Principles As Reference for the Uniform Interpretation of National Laws: National Report for Russian Federation Andrey M. Shirvindt

Abstract The UNIDROIT Principles of International Commercial Contracts have been warmly received in Russia by both legislature and judiciary. The courts as well as arbitral tribunals have made ample and multifaceted use of the Principles. In particular, the UPICC have been many times referred to in order to help interpret or supplement Russian domestic law. They have been invoked for this purpose in almost three hundred judgements, several decisions by the highest courts among them. References have been made to over forty different articles of the Principles.

1. Introduction The UPICC have been widely used by both legislature and judiciary in Russia. 1.1 Impact on the Civil Code It is not unlikely that the Civil Code of the Russian Federation (hereinafter—CCRF) that has been adopted and entered into force in four different parts in the years 1994–2008 has been influenced by and there is much proof that the recent large-scale reform thereof that started in 2008 has largely drawn inspiration from the UPICC. The travaux préparatoires to the reform stress that the UPICC were one of the main models1 and explicitly invoke their provisions many times.2 The (final version of the) Concept for the Development of Civil Legislation in the Russian Federation makes three references to the UPICC (the only reference to 1

Koncepcija razvitija graždanskogo zakonodatel’stva Rossijskoj Federacii [Concept for the Development of Civil Legislation of the Russian Federation] (2009), p. 28. For a similar attitude from the head of the working group on obligations in regard to the rules on assignment of rights, transfer of obligations etc. cf Vitrjanskij (2018), p. 242. 2 For a discussion in detail cf. Shirvindt (2016), pp. 57–59. A. M. Shirvindt (*) Lomonosov Moscow State University, Faculty of Law, Moscow, Russia Private Law Research Centre under the President of the Russian Federation named after S.S. Alexeev, Moscow, Russia © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_16

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non-state law above that being the one to the ICC Uniform Customs and Practice for Documentary Credits (UCP 600)). The much more detailed draft Concept of the working group on obligations has built mainly upon soft law and international instruments: the ‘international principles of contract law’, generally meaning the UPICC and the like, were referred to 10 or 11 times, the UPICC specifically—14 times (whereas the PECL—only 5 times and the DCFR—not a single time). The real number of inspirations from the UPICC might have been higher if one suggests that there were cases where the drafters have made use of the UPICC with no specific reference to the Principles. It is worth mentioning that Alexander S. Komarov, a member of the working groups for the preparation of the first three editions of the UPICC (1994, 2004, 2010), has participated in the drafting of the original text of the Code as well as of the amendments to it during the reform.3 1.2 Impact on the Case Law 1.2.1 Research Method In view of the purposes of this research the present paper takes a descriptive approach and seeks to depict the use of the UPICC by Russian courts and arbitral tribunals as it has been actually practiced by them regardless of its validity. In some cases, the use of the UPICC might have been normatively indefensible. To be sure, there are much more instances where references to the UPICC were in fact unnecessary, expendable or just formal. Yet another issue is that the UPICC have not necessarily been always understood correctly in substance. Finally, while reading the judgements one cannot shake the feeling that the UPICC were sometimes invoked not because the judge considered it appropriate to refer to a soft law instrument but rather because the judge simply did not realize in full what kind of source she was dealing with. Considered that the study aims at reviewing the actual impact of the UPICC on case law and at revealing the patterns of courts’ reasoning involving references to the UPICC the paper cites judgments with references to the UPICC irrespective of whether they have been overruled by a higher court. Yet the overruled judgements form but a fraction of the total. No judgement has been overruled for referring to the UPICC. For the same reason the paper embraces all the judgements that refer to the UPICC with no regard to the weight they carry in the legal system. The strongest authority are of course the rulings of the Supreme Court of the Russian Federation (hereinafter—the Supreme Court) and of the Higher Arbitrazh (Commercial) Court of the Russian Federation4 (hereinafter—the Higher Arbitrazh Court). Additionally, there are judgements by these two courts (called ‘pre-rulings’ in this paper) that give an answer to the question only, whether an assessment of the merits of the case 3 4

Cf. Alekseev (1998), p. 24; Makovskij (2016), pp. 27, 100. Abolished in 2014.

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should take place (so that a ruling could be issued). Even though the weight of the pre-rulings is not to be compared with that of the rulings, in fact, the pre-rulings exert some influence in practice. The ten (federal) arbitrazh courts of cassation (arbitrazh courts of districts) enjoy considerable authority over arbitrazh courts. The numbers of cases where the UPICC have been invoked by the court or the tribunal undoubtedly attest to a warm reception of the Principles by the Russian judges and arbitrators. However, a cautious attitude is appropriate. It is noteworthy that judges and their assistants frequently tend to borrow phrasing from previous decisions in similar cases, thus generating series of judgements with similar structures and wording. An array of such series may be identified within the body of cases with references to the UPICC. Therefore, it can be assumed sometimes that there was just one case, where the UPICC was actually consulted and consciously invoked by the judge, followed by dozens of decisions more or less mechanically overtaking the lucky formulation. On the other hand, 41 Article of the UPICC has been referred to by the courts and tribunals which means that there were at least dozens of cases where the Principles were consulted directly. For the research of the commercial (‘arbitrazh’) courts case law one of the most representative databases ‘Konsul’tantPljus’ was used. It includes also many reported awards of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (hereinafter—ICAC). The general courts case law was studied with help of the State Automated System of Russian Federation ‘Pravosudie’ [‘Justice’] (https://sudrf.ru/), which encompasses only a fraction of judgements but is the best we have at moment.5 All the numbers mentioned in this paper result from double-checked manual counting. This operation entailed some value judgments and is surely not immune to mistakes but the figures provided will hardly be materially misleading. 1.2.2 A General Account Russian courts and arbitral tribunals have used the UPICC in different ways.6 The UPICC have served as applicable rules of law in a few cases—not only in the international commercial arbitration,7 but in (mainly first instance) state courts as well (the reasoning in favor of their applicability not being necessarily tenable).8 5

For a similar research limited to the period 2006–2016, Oleg Malkin and V. Domračev have used another database (‘Rospravosudie’) that does not exist anymore. The total numbers they give are comparable to those provided in the present paper (Malkin and Domračev (2016), pp. 3–19). 6 As the research underlying the present paper has shown the impact of the UPICC on the Russian case law as evidentiated by the UNILEX database at www.unilex.info (48 judgements in Russia out of the worldwide total of 266 as by the end of 2018) is in fact much stronger. 7 Awards of the ICAC of May 24, 2013 in case No. 166/2012; of January 20, 1997 in case No. 116/1996 (in both cases there was an agreement of the parties that their contracts be governed by the UPICC; in the latter case the parties agreed on that during the arbitration proceedings); of June 5, 2002 in case No. 11/2002 (agreement of the parties that their contract be governed by ‘general principles of the lex mercatoria’). 8 Ruling of the 13th Arbitrazh Appellate Court of October 12, 2005 in case No. А56-25065/2004 (the court applied Art. 7.4.3(1) UPICC as a rule of an international treaty thus prevailing over Russian national law); decisions of the Arbitrazh Court of Saint-Petersburg and Leningrad Oblast of

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The UPICC have been used to interpret or supplement international uniform law instruments (the CISG9 and the Kiev Convention on the Procedure for Settling Disputes Connected with Economic Activity of 1992).10 In a vast number of cases Art. 1.1 UPICC (sometimes together with Art. 1.2 and 1.3) has been invoked as an evidence that parties to international commercial transactions are free to determine content of their contracts. The total of such judgements, the absolute majority of which have been rendered by the courts of the East Siberia District and Far East District, is 318 (203 first instance and 115 appellate courts’ judgments).11 In most of these cases the courts have dealt with controversies between a contracting party and a public agency responsible for customs, taxes or currency control. While deciding whether the respective agency, who considered the value of the goods to be under declared or otherwise challenged the contractual framework of the parties, acted wrongfully, judges indiscriminately invoke the UPICC parallel to the CISG and the CCRF to endorse the principle that the price and other issues of the transaction can be freely determined by the contract. In this context the courts rarely if ever specify what law actually governs the contract and seem to reason that the agency may not expect an international commercial contract to comply with requirements which are not raised by any relevant (or potentially applicable) authoritative set of rules. The wording of the decisions suggest that the UPICC were consulted and

June 6, 2017 in case No. А56-38822/2016 and of December 21, 2016 in case No. А56-32510/2016 (in both cases the same court (represented by two different judges though) dealt with controversies between the same parties (from Italy and Russia) arising from the same contract; the court arrived to the applicability of the UPICC on the basis that the parties had not chosen any law to govern their contract and that both Italy and Russia are members of the UNIDROIT); decision of the Arbitrazh Court of Tyumen Oblast of August 7, 2012 in case No. А70-1319/2011 (the court inferred from the agreement of the parties that they had chosen Russian law and the UPICC as the laws applicable to the contract and kept referring throughout the judgement to the respective provisions of the UPICC next to the rules of the Russian law as if it were applying both of them at the same time). In its brand new guidelines the Supreme Court clarifies that the UPICC, the PECL, the DCFR and alike may be chosen as applicable law and that they don’t apply unless there is an explicit agreement of the parties (the Resolution of the Plenum of the Supreme Court of July 9, 2019 [No. 24]). 9 Awards of the ICAC of June 30, 2009 in case No. 11/2009; of February 1, 2007 in case No. 23/2006; of June 6, 2003 in case No. 97/2002; of July 27, 1999 in case No. 302/1996; of April 16, 1999 in case No. 152/1998; of June 5, 1997 in case No. 229/1996. See also Komarov (2011), pp. 661–664. 10 Decision of the Arbitrazh Court of Sverdlovsk Oblast of March 11, 2012 in case No. А60-44985/ 2011. 11 East Siberia District: Arbitrazh Courts of Zabaykalsky Krai (95, years 2011–2016) and of Irkutsk Oblast (10, years 2014–2016) and the 4th Arbitrazh Appellate Court, responsible for both of them (65 and 7 respectively, years 2010–2017) despite occasional objection by a party (as evidenced by the ruling of the 4th Arbitrazh Appellate Court of November 15, 2013 in case No. А78-5882/2013). Far East District: Arbitrazh Court of Primorsky Krai (74, years 2012–2018) and the 5th Arbitrazh Appellate Court (2, year 2016); Arbitrazh Court of Khabarovsk Krai (15, year 2012) and the 6th Arbitrazh Appellate Court (4, year 2012).

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cited as ratio scripta or as evidence of a general consensus rather than as a (possibly) applicable law. The use of the UPICC that falls within the scope of the present study, i.e. their use to interpret or supplement domestic law, has been intense and manifold (see Table 1).12 At least 268 judgements of state courts and 8 reported arbitral awards have invoked the UPICC for this purpose. As many as 41 article thereof has been explicitly referred to (the respective numbers for the DCFR and the PECL are 73, 0, 5 and 20, 0, 5). Both general and arbitrazh (commercial) courts have availed themselves of this tool. The references can be found in judgements rendered by courts of all instances. Except for a few cases where the UPICC were invoked in general, that is with no specification as to what provision was meant, the references usually name the concrete article(s) or even paragraphs. There were even a couple of cases where the official commentary was explicitly referred to.13 In some instances the courts specify the edition of the UPICC they use or invoke all the existing editions. In an overwhelming majority of cases the courts have invoked the UPICC to just additionally endorse the conclusion following from the relevant provisions of the Russian law. The courts introduce references to the UPICC with help of expressions like ‘besides, it should be noted that’,14 ‘based on a similar premise’,15 ‘the normative basis . . . is not only Art. . . . of the Civil Code, but . . . the UPICC as well’,16 or support their statements with lists of different authoritative texts, which include the UPICC alongside with the Civil Code, the CISG, the PECL etc.17 Cases where the court explicitly states that the UPICC were used as a gap-filler are extremely rare.18

12 The Russian law is not the only national law that has been interpreted in Russia in light of the UPICC. An arbitral tribunal supported its reasoning based on the applicable Algerian law with a reference to the generally accepted principle of good faith as entrenched in Arts. 7(1) CISG and 1.7 UPICC (award of the ICAC of January 26, 1998 in case No. 76/1997). 13 Decision of the Arbitrazh Court of Novosibirsk Oblast of December 12, 2014 in case No. А456801/2014; decisions of the Arbitrazh Court of Belgorod Oblast of May 23, 2007 in case No. А081403/07-12 and of April 20, 2007 in case No. А08-9855/06-12. 14 Decision of the Arbitrazh Court of the Karachay-Cherkess Republic of August 18, 2014 in case No. А25-2310/2013. 15 Decision of the Arbitrazh Court of Volgograd Oblast of June 17, 2013 in case No. А12-30996/ 2012; award of the ICAC of January 25, 2001 in case No. 88/2000. 16 Decision of the Arbitrazh Court of Kemerovo Oblast of May 13, 2015 in case No. А27-2291/ 2015. 17 Decisions of the Arbitrazh Court of Kaliningrad Oblast of March 22, 2010 in case No. А2113179/2009, of March 19, 2010 in case No. А21-881/2010, of March 18, 2010 in case No. А2113753/2009 (CISG, UPICC, PECL, ‘international legislation as well as the Russian one’: fundamental breach of contract); rulings of the 10th Arbitrazh Appellate Court of September 11, 2018 in case No. А41-28999/16 and of August 30, 2018 in case No. А41-27072/16 (Civil Code, UPICC, the 1974 Convention on the Limitation Period in the International Sale of Goods (which has not entered into force for Russia) etc.: limitation period shall be taken into consideration only if invoked by a party). 18 Decision of the Leninsky District Court of Tambov of January 23, 2013 [No. 2-209/2013].

UPICC article 1.3 (sometimes with 1.1) 1.7 1.8 2.1.11, 4.1, 4.2, 4.3 2.1.14 2.1.19 2.6 3.2.9 3.2.12, 7.4.8 4.1, 4.5 4.6 4.7 5.1.4 5.1.8 6.1.1 6.1.6 6.1.8 6.1.11 6.1.12 6.2.1-6.2.3 – – – – – – – – – 2 – 1 – – – – – – –

1 1 –

– – – 1 – – 16 – 2 – – – – 1 – –

First instance arbitrazh courts 3

4 2 –

2 1 1 – – – 15 – 5 1 – 1 – – 1 1

Arbitrazh courts of cassation 1

Appellate arbitrazh courts –

– – – – – – – – 1 – – – – – – –

1 – – – – – – – – – – 1 – – – – – – –

– – –

Higher Arbitrazh court Prerulings Rulings – –

Table 1 Illustrative table of the use of UPICC in Russian Courts and Arbitration Courts

– 1 – – – 1 4 – – – 1 – – – 7 –

– – –

General courts –

– – – – – – 1 – – – – – – – – –

– – – – – – – – – 1 – – – – – – – – –

– – –

Supreme court Prerulings Rulings – –

2 2 1 1 – 1 39 – 10 1 1 1 – 1 8 1

6 3 –

Total 4

– – – – 1 – – 1 – – – – 1 – – –

– – 1

International commercial arbitration court –

308 A. M. Shirvindt

6.2.2 7.1.7 7.2.1 7.2.2 7.2.4 7.3.1 7.4.1 7.4.3 7.4.4 7.4.9 7.4.13 [8.1] 9.2.1, 9.2.3 10.9 41

– 66 – 6 9 [3] 1 4 – 3 1 2 – 2

– 36 – 8 1 – 1 2 – – – – – – 1 5 – 2 – – – – – – – – – –

– 2 – – – – – – 1 – – – – –

– – – – – – – – – – – – – –

– 19 – – 1 1 – 1 – 8 – – – –

– – – – – – – – – – – – – –

– – – – – – – – – – – – – – 1 128 – 16 11 4 2 7 1 11 1 2 – 2 268

– – 1 – – – – 2 – 1 – – 1 – 9

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2. Question 1) Is there any legal source in your legal system allowing the use of the UPICC to interpret or supplement national contract law (either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source)? If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law). Article 15(4) of the Constitution of the Russian Federation and—redundantly— article 7(1) CCRF declare that ‘generally accepted principles and norms of international law’ form part of the Russian legal system and enjoy precedence over statutory law. According to the common understanding, the provisions refer to the ius cogens of (public) international law19 and thus may not be considered as allowing for the application of the UPICC.20 Only a couple of fairly exotic judgments of lower courts follow a much broader concept stating that the Incoterms (incorporated into the contract)21 and the prohibition of venire contra factum proprium22 can also be seen as such principles. There exist, however, a judgement rendered by a first instance court that has qualified the pacta sunt servanda principle as acknowledged by Art. 1.7, 2.1.15, 3.2.7, 4.8, 5.1.2, 5.3.3 and 5.3.4 UPICC as belonging to generally accepted principles and norms of international law23 and another one that may be argued to have done so in respect of the principle of freedom of contract as acknowledged by Art. 1.1 UPICC.24 A first instance general court has straightforwardly arrived to applicability of the UPICC under reference to the provisions of the Constitution and the Code in question.25

19

Resolution of the Plenum of the Supreme Court No. 5 of October 10, 2003, para 1; Èbzeev (2013), pp. 160–162. Cf. also an older Resolution of the Plenum of the Supreme Court still in force speaking of ‘generally accepted principles and norms of international law entrenched in international covenants, conventions and other instruments (inter alia in the Universal Declaration of Human Rights, International Covenant on Civil and Political Rights and International Covenant on Economic, Social and Cultural Rights)’ as distinguished from international treaties (Resolution of the Plenum of the Supreme Court No. 8 of October 31, 1995, para 5). 20 For a judgement explicitly denying the applicability of the UPICC on the ground of Art. 7 (1) CCRF cf. the ruling of the Federal Arbitrazh Court of the Central District of July 19, 2011 in case No. А68-7105/10-441/3. For similar (although not particularly clear) reasoning against the PECL cf. the decision of the Aritrazh Court of Tula Oblast of April 20, 2006 in case No. А68ГП-127/2-06. 21 The decision of the Arbitrazh Court of Moscow of January 31, 2005 in case No. А40-63571/0490-666. 22 The ruling of the 3rd Arbitrazh Appellate Court of September 4, 2012 in case No. А33-395/2012. 23 The decision Arbitrazh Court of Samara Oblast of June 5, 2015 in case No. А55-3416/2015. 24 The decision of the Arbitrazh Court of Moscow of August 30, 2006 in case No. А40-42490/06151-219. 25 Decision of the Blagoveshchensk City Court of Amur Oblast of March 10, 2017 in case No. 2-1710/2017. For similar reasoning in respect of the DCFR cf. the decisions of the Kalininsky District Court of Saint-Petersburg of September 30, 2014 in cases No. 2-512/2014 and 2-513/2014.

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The Civil Code recognizes customs as a source of civil law (Art. 5, 6(1), 309 and 421(5) CCRF et al.). The original version of the Code of the 1990s has spoken of ‘customs of commerce’ but the recent reform has dropped the latter part of the term in order to broaden it, thus making it cover all kinds of customs. I could find no state court judgements that would apply the UPICC as a restatement of customary law. There is, however, a group of reported awards of the ICAC that do so.26 An arbitral tribunal while applying Russian law has argued that Art. 2.1, 4.1, 4.2 and 4.3 UPICC 2004 entrench international trade customs that according to Art. 431 CCRF must be taken into account for the purpose of contractual interpretation.27 Referring to the same Art. 431 CCRF another tribunal invoked Art. 4.7 UPICC [1994], explaining that the rules of contract interpretation contained in the UPICC were widely applied in the international commercial turnover and were ‘acquiring the character of customs of commerce’. ‘The application of this instrument in international commercial practice is constantly being reported on in foreign and Russian literature and has been evidenced by an array of published awards of the ICAC’.28 In another case the tribunal invoked Art. 3.15 UPICC [1994], stating that the UPICC ‘are progressively acquiring the status of international trade customs’.29 Another tribunal arrived to the applicability of Art. 7.4.13 UPICC 1994 through Art. 9(2) CISG.30 Finally, a tribunal has refused to apply the UPICC on the sole ground that no issues have arisen that would make it necessary to consult provisions of the UPICC as customs of commerce.31 However, in one case the tribunal considered the CISG and Russian law applicable but refused to apply the UPICC pointing out that there was no party agreement that the Principles should apply and one party objected to the application thereof.32 One of the fathers of the Civil Code has stressed shortly after its’ entering into force that neither Incoterms, nor PICC, nor other similar nonbinding instruments were covered by Art. 7(1) CCRF but that they may play the role of customs (of commerce) if the prerequisites were met.33 In a small group of cases courts arrived to the application of the UPICC by way of legal analogy (analogia iuris), a method of gap-filling on the basis of general principles which is officially recognized by Russian Civil Code (Art. 6(2)). Thus, the 4th Arbitrazh Appellate Court invoked Art. 7.2.4 UPICC arguing that the analogy of law allows the court to refer to ‘universal principles and rules of dispute

26 The fact that has been often stressed in the literature. Cf. e.g. Vilkova (2016) and Rozenberg (2012). 27 Award of the ICAC of December 22, 2008 in case No. 83/2008. 28 Award of the ICAC of September 6, 2002 in case No. 217/2001. 29 Award of the ICAC of July 27, 1999 in case No. 302/1996. 30 Award of the ICAC of June 5, 1997 in case No. 229/1996. 31 Award of the ICAC of September 5, 2014 in case No. 33/2014. 32 Award of the ICAC of November 12, 2004 in case No. 174/2003. 33 Braginskij (1997), pp. 36–37.

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resolution’.34 A judge of the Kemerovo Oblast Arbitrazh Court has applied Art. 7.2.4 UPICC in several decisions with similar reasoning.35 Over ten judgements explicitly state inapplicability of the UPICC to the case in response to a contrary opinion of a party or a lower court. Most of them argue that the UPICC can only be applied if there is a respective party agreement.36 A few judgements consider the applicability issue in more detail and list the ways of use of the UPICC recommended in the preamble thereto silently omitting, however, their possible relevance for interpretation and supplementation of domestic law.37 Almost 30 judgements of the arbitrazh courts referring to the UPICC stress that the UNIDROIT is an intergovernmental organization.38 This way of framing the reference might have been chosen in order to lend credence to the UPICC as an authoritative text. In an overwhelming majority of cases the UPICC are referred to with no justification at all.39 3. Question 4) Please indicate whether any of the following selected provisions of the UPICC have a counterpart in your national (domestic) contract law. Question 5) If there is a statutory or case-law rule (such as a code provision or

Ruling of the 4th Arbitrazh Appellate Court of March 4, 2015 in case No. А19-21433/2011. Decisions of the Arbitrazh Court of Kemerovo Oblast of May 13, 2015 in case No. А27-2291/ 2015; of May 13, 2015 in case No. А27-1526/2015; of May 5, 2015 in case No. А27-3408/2015; of April 29, 2015 in case No. А27-3942/2015; of April 24, 2015 in case No. А27-3006/2015; of April 17, 2015 in case No. А27-2519/2015; of April 17, 2015 in case No. А27-1471/2015; of April 15, 2015 in case No. А27-1321/2015; of April 13, 2015 in case No. А27-1325/2015. 36 Cf. e.g. the decision of the Arbitrazh Court of the Moscow District of October 7, 2016 in case No. А40-119204/2015 and the rulings of the Arbitrazh Court of the Central District of July 19, 2011 in case No. А68-7105/10-441/3, of the 13th Arbitrazh Appellate Court of May 12, 2011 in case No. А56-38206/2010, of the Federal Arbitrazh Court of the North-West District of June 4, 2007 in case No. А52-3668/2006. But see for instance the ruling of the 4th Arbitrazh Appellate Court of November 15, 2013 in case No. А78-5882/2013, where the court ignored the objection of the appellant to the application of the UPICC in the absence of party agreement by the lower court and invoked the UPICC as well. In another case the appellate court dismissed a similar objection because the lower court had just pointed out that the approach of the Russian law ‘doesn’t contravene the international practices’ as represented by the UPICC (the ruling of the 19th Arbitrazh Appellate Court of July 25, 2007 in case No. А08-9855/06-12). 37 The rulings of the Arbitrazh Court of the Moscow District of February 2, 2015 in case No. А4126400/14; the decision of the the Arbitrazh Court of Ivanovo Oblast of December 25, 2009 in case No. А17-8326/2009. 38 Cf. e.g. the rulings of the Arbitrazh Court of the Moscow District of August 20, 2014 in case No. А41-67682/13, of the Federal Arbitrazh Court of the Volga Vyatka District of December 10, 2010 in case No. А82-1970/2010, of the Federal Arbitrazh Court of the East Siberia District of July 24, 2003 [No А19-6862/01-13-48-Ф02-2202/03-С2], of the Federal Arbitrazh Court of the West Siberia District of May 22, 2007 in case No. А45-8249/2006-5/249. 39 According to Oleg Malkin and V. Domračev over 97% of judgements lack any justification of the use of the UPICC (see n 5). 34 35

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jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or case-law rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law. Question 6) If there is no such a rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law 3.1 Article 2.1.15 (Negotiations in Bad Faith) The Civil Code in its Art. 434.1 ‘PreContractual Negotiations’ contains a set of newly introduced rules (in force since June 1, 2015) on negotiations and culpa in contrahendo.40 The Explanatory Note to the draft amendments indicates the CISG and the UPICC as two models for the

40

Article 434.1. Pre-Contractual Negotiations.

1. Unless otherwise provided by a statute or an agreement, citizens and legal persons are free to negotiate contracts, shall themselves bear expenses connected with such negotiation and are not liable for failure to reach an agreement. 2. When entering pre-contractual negotiations, during such negotiations and after the termination thereof the parties are bound to act in good faith; they shall not, in particular, enter into or continue pre-contractual negotiations when a priori not intending to reach an agreement with the other party. To act in bad faith is presumed who: 1) provides incomplete or misleading information to the other party, inter alia while non-disclosing circumstances which, according to the nature of the contract, shall be brought to notice of the other party; 2) abruptly and unjustifiably breaks off pre-contractual negotiations under circumstances under which the other party to the negotiations could not reasonably expect it. 3. A party which negotiates or breaks off pre-contractual negotiations in bad faith, is liable for the damages caused by that to the other party. As damages to be paid by the party in bad faith are considered expenses, incurred by the other party in connection with pre-contractual negotiations, as well as in connection with the loss of opportunity to contract a third party. 4. If in the course of pre-contractual negotiations a party receives information which is given by the other party as confidential, the former party is bound not to disclose that information and not to use it improperly for that party’s own purposes, whether or not a contract is subsequently concluded. In case of a breach of that duty the breaching party must recover damages of the other party caused by disclosure of the confidential information or by use thereof for purposes of the breaching party. 5. Parties can make an agreement on the negotiations procedure. Such an agreement can specify the requirements of negotiating in good faith, can set the rules on compensation of the expenses on negotiations and make provisions on other similar rights and duties. The agreement on the negotiations procedure can include penalty clauses for the breach of the provisions stipulated in it. Terms of the negotiations agreement limiting liability for parties’ acting in bad faith are void.

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proposed rules on pre-contractual duties.41 It is often stressed in the literature that the new rules follow closely Art. 2.1.15 and 2.1.16 UPICC.42 Accordingly, many authors interpret the provisions of the Code in light of the UPICC.43 There are no reported cases so far where a court or a tribunal would invoke the UPICC in this context. 3.2 Article 2.1.20 (Surprising Terms) The Russian law uses a set of various tools to combat unfair contract terms (semi-mandatory rules of consumer contract law, general provisions on adhesion contracts and others). Many relating issues have become topical over past decade. However, the concept of surprising terms is unknown to the legislation and has hardly gained any importance in case law and scholarly writings. 3.3 Article 4.1 (Intention of the Parties) The approach to contractual interpretation taken by the Civil Code differs drastically from that of the UPICC. Article 431 CCRF stipulates that the literal meaning of the language used shall have the main say and only if it is unclear the common intention of the parties shall be explored.44 This understanding of the Code is in line with the intentions of its drafters45 and the general opinion of legal writers today.46 The courts often declare

6. The provisions of the paras 3 and 4 of the present article concerning one party’s duty to pay damages, caused to the other party, do not apply to citizens considered to be consumers according to the legislation on consumer rights protection. 7. The rules of the present article apply whether or not a contract is concluded as a result of the negotiations. 8. The rules of the present article do not exclude application of those of Chapter 59 of the present Code [i.e. the law of delict] to the relationships that have arose during the establishment of contractual obligations. 41 Explanatory Note. P. 34 (available on the official website of the State Duma of the Russian Federation: http://asozd2.duma.gov.ru/main.nsf/(ViewDoc)?OpenAgent&work/dz.nsf/ByID& 205D56A126366E2E432579D6002D6C73). It seems noteworthy that the reference to the models appears only on the last stage of the preparatory work. Neither the detailed draft Concept for the Improvement of the General Provisions of the Russian Law of Obligations (http://privlaw.ru/wpcontent/uploads/2015/11/koncep_OPOP.rtf), nor the (final) Concept for the Development of Civil Legislation in the Russian Federation (n 1 above) (p. 122) which served as the template of the Explanatory Note disclosed their sources of inspiration in this case. The final Concept makes only a vague reference to ‘the respective rules of a number of foreign legal systems’ (p. 122). 42 See e.g. Gajdaenko-Šer (2016), pp. 55, 57; Demkina (2016), pp. 31–34. 43 cf. e.g. the previous note. 44 Article 431 Interpretation of a Contract While interpreting the terms of a contract the court shall take into account the literal meaning of the words and expressions contained in it. The literal meaning of a term of a contract, in case the term is unclear, shall be established by way of comparison with other terms and the sense of the contract as a whole. If the rules contained in the first part of the present Article do not allow determining the content of the contract, the actual common will of the parties shall be explored with account taken of the purpose of the contract. In such a case, all the relevant circumstances shall be taken into account, including the negotiations and correspondence preceding the contract, the practices, established in the mutual relationships of the parties, customs, and the subsequent conduct of the parties. 45 Braginskij (1997), p. 216; Vitrjanskij (1999), p. 559. 46 Karapetov (2017), Suhanov (2016) and Iljušina (2016).

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their adherence to this strict hierarchy of interpretation methods.47 Whether or not the actual interpretation in every case complies with this general rule is another question not sufficiently studied (if accessible for study at all) so far. One might argue that the Higher Arbitrazh Court has at some point started to drift towards another approach putting more weight on the intention of the parties.48 In December 2018 the Supreme Court has issued its factually binding interpretations of the Code according to which the courts shall be free to depart from or at least to go beyond any statutory or customary rules on contractual interpretation, Art. 431 CCRF included.49 To be sure, it is hard to say at the present moment, whether this step will bring about a paradigm shift in the contractual interpretation by Russian courts. Be it as it may, the UPICC have not played any prominent role in this respect as far as the case law is concerned. There are two cases, where a court (together with Art. 4.5)50 and an arbitral tribunal (together with Arts. 2.1.11, 4.1, 4.2, 4.3) have invoked Art. 4.1 UPICC—both times next to the Art. 431 CCRF.51 In neither case is it clear what exact role did the reference to the UPICC play in the line of court’s reasoning. In neither case have discrepancies between the literal meaning of the contract’s language and the intention of the parties become a clear-cut issue. 3.4 Article 4.2 (Interpretation of Statements and Other Conduct) The Russian law does use the general concept of juridical act (in the sense of the German Rechtsgeschäft, Arts. 153—181 CCRF) and a newly introduced concept of juridically relevant notices (Art. 165.1, in force since September 1, 2013). However, it does not provide for general rules on interpretation of juridical acts, notices or the like. Instead, the Civil Code contains provisions on contractual (Art. 431) and testamentary (Art. 1132) interpretation and stipulates that the rules on contractual interpretation shall be applicable mutatis mutandis to the unilatory juridical acts (Art. 156). It is impossible to say now whether the courts will extend this later provision to make it comprise notices other than those serving as a means of a juridical act. As yet, the issue of the interpretation of various forms of conduct seems to have attracted scarcely any attention.52 The emergence of the new general concept of juridically relevant notices makes it plausible that there will be a search for answers as to the rules on interpretation thereof. The Art. 4.2 UPICC may have good prospects of being taken into consideration by judiciary or academia.

47

cf. e.g. the ruling of the Supreme Court of March 20, 2018 [No. 4-КГ17-70]. cf. the resolution of the Presidium of the Higher Arbitrazh Court of June 10, 2014 [No. 2504/14] in case No. А40-79875/2013. 49 The resolution of the Plenum of the Supreme Court of December 25, 2018 [No. 49], para 46. 50 Decision of the Ukhta City Court of the Komi Republic of November 14, 2017 in case No. 2-3685/17. 51 Award of the ICAC of December 22, 2008 in case No. 83/2008. 52 But see a recent case where the Supreme Court explicitly extended the substantial scope of Art. 431 CCRF by way of analogy: ruling of the Supreme Court of October 8, 2018 [No. 308-ЭС189823]. 48

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In one case the arbitral tribunal had a good reason to invoke Art. 4.2 UPICC (alongside with Arts. 2.1.11, 4.1, 4.3, 4.5 UPICC and Art. 431 CCFR).53 The reasoning was that the parties had modified their contract through an order for goods, a submission of an invoice and a following payment. To qualify these acts as an offer and an acceptance for a modification agreement one has to construe them and as there is no explicit rule in the Russian law as to how to do it the use of the UPICC is comprehensible. 3.5 Article 4.3 (Relevant Circumstances) The circumstances relevant for contractual interpretation non-exhaustively listed in Art. 431(2) CCRF are similar to those of Art. 4.3 UPICC.54 The main difference is that the Russian Civil Code does not mention ‘the meaning commonly given to terms and expressions in the trade concerned’ among the relevant circumstances. 3.6 Article 4.4 (Reference to Contract or Statement As a Whole) Article 431 (1) CCRF does stipulate that reference shall be made to the contract as a whole, but does not address the issue of interpreting particular words or expressions in light of the whole statement they make part of. 3.7 Article 4.5 (All Terms to Be Given Effect) There is no equivalent to Art. 4.5 UPICC in the Russian legislation. One of the fathers of the Civil Code strongly recommended applying this particular rule (as well as other rules of the UPICC on interpretation) irrespective to whether there was a parties’ agreement on applicability of the Principles.55 The only judgement that invoked Art. 4.5 UPICC obviously dealt with a case where the core problem was much more a drastic change of circumstances rather than ambiguity or lack of clarity of the term under attack.56 The court refused to ignore the controversial term with a reference to Art. 4.5 UPICC. 3.8 Article 4.7 (Linguistic Discrepancies) There are no explicit rules on linguistic discrepancies between different language versions of the same contract. The Supreme Court has recently considered57 to give a factually binding recommendation to the courts that would follow in substance the same approach as the Art. 4.7 UPICC, but has remained silent on this issue. Some years ago, an arbitral tribunal invoked Art. 4.7 UPICC and gave preference to the original Russian version of the contract over the unclear English translation thereof (the tribunal arrived to the applicability of Art. 4.7 UPICC through Art. 431 CCRF which allows for taking customs into consideration while interpreting a

53

Award of the ICAC of December 22, 2008 in case No. 83/2008. See note 44. 55 Braginskij (1997), pp. 220–221. 56 Decision of the Ukhta City Court of the Komi Republic of November 14, 2017 in case No. 2-3685/17. 57 While preparing what became the resolution of the Plenum of the Supreme Court of December 25, 2018 [No. 49]. 54

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contract).58 It is not unlikely that the recent guidelines by the Supreme Court had taken this famous case (and accordingly Art. 4.7 UPICC) as a source of inspiration. 3.9 Article 6.1.9 (Currency of Payment) The Russian legislation specifically addresses only the case where the parties have agreed that a monetary obligation expressed in a currency other than ruble should be payable in rubles. The Civil Code provides for a rule as to what exchange rate shall be applied (Art. 317(2) CCRF).59 This rule is similar to the one of Art. 6.1.9(3) UPICC. The Higher Arbitrazh Court and the Supreme Court have given to the courts factually binding recommendations that supplement the statutory provisions with rules largely similar to those of Art. 6.1.9(1) and (2). If a monetary obligation is expressed in a currency other than ruble and there is no agreement that the payment should be made in the currency in which the monetary obligation is expressed the payment should be made in rubles (Art. 317(2) CCRF applies). If a monetary obligation is expressed in a currency other than ruble and there is an agreement that the payment should be made in that currency the creditor may claim in court a payment in that currency provided that such a payment is allowed under currency regulations. If a monetary obligation is expressed in a currency other than ruble and there is an agreement that the payment should be made in that currency but such a payment would be contrary to currency regulations the payment should be made in rubles (Art. 317(2) CCRF applies). If a monetary obligation is expressed in a currency other than ruble and there is an agreement that the payment should be made in that currency but that agreement is void the rules on partial invalidity (Art. 180 CCRF) shall apply.60 3.10 Article 7.3.1 (Right to Terminate the Contract) According to a general rule, ‘a party to a contract may claim in court alteration or termination thereof only (1) in case of a fundamental breach by another party, (2) in other cases provided by the present Code, other statutes, or contract. A breach of contract by one of the parties is considered to be fundamental if it results in such a detriment to another party as substantially to deprive him of what he is entitled to expect at the conclusion of the contract’ (Art. 450(2) CCRF). This provision was inspired by Art. 25 CISG but deviates from it insofar as it is applicable to any type of contract, does not set the foreseeability requirement, and provides for judicial alteration or termination.61 The latter two aspects make Art. 450(2) differ from Art. 7.3.1(1) and (2)(a) UPICC.

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Award of the ICAC of September 6, 2002 in case No. 217/2001. In a monetary obligation it may be provided, that it shall be paid in rubles in a sum equivalent to a certain sum in a foreign currency or in artificial monetary units (ECU, Special Drawing Rights’ etc.). In this case the sum to be paid in rubles shall be determined at the official exchange rate of the respective currency or artificial monetary units on the day of payment, unless another exchange rate or another date for determining it is established by a statute or agreement of the parties. 60 Resolution of the Plenum of the Supreme Court of November 11, 2016 [No. 54], paras 31 and 32; the Informational Circular of the Presidium of the Higher Arbitrazh Court of November 4, 2002 [No. 70], paras 3 and 4. 61 As pointed out by the fathers of the Code: Makovskij (2007), p. 14; Braginskij (2002), pp. 15–16. 59

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There are neither obvious equivalents to other elements of Art. 7.3.1 UPICC in Russian law, nor is the flexible approach of Art. 7.3.1(2) acknowledged by it. Even though Art. 450(2) CCRF reproduces the text of Art. 25 CISG virtually word for word except for the foreseeability requirement and accordingly in this part coincides with Art. 7.3.1(2)(a) as well, in some cases the courts have referred to the CISG and the UPICC after having cited the Code.62 In one case the court supported its conclusion that the breach in question had been fundamental by extensive citation of Art. 7.3.1(2) UPICC (together with Art. 25 CISG).63 The court referred to almost all criteria of the Article and found that they were met in the case. 3.11 Article 7.4.9 (Interest for Failure to Pay Money) The provisions of Art. 395 (1) and (2) CCRF are and have been largely similar to those of Art. 7.4.9(1) and (3). However, there is no clause equivalent to the one in Art. 7.4.9(1) that the interest should be paid whether or not the non-payment is excused. The interest payment under Art. 395 CCRF is considered as a way to recover damages64 and the respective rules apply. The interest rate rules of Art. 395(1) CCRF in all its numerous historical versions have differed and do differ now from those of Art. 7.4.9(2) UPICC. Neither version of the Article has been specifically designed to cope with the case where the monetary obligation is expressed in currency other than ruble. The courts had to jump in. The factually binding guidelines by both the Supreme Court and the Higher Arbitrazh Court in force until March 24, 2016 have entrenched a rule largely similar to the first alternative in the first sentence of Art. 7.4.9(2) UPICC.65 There was a time when Art. 395(1) CCRF stipulated that the interest rate should be determined on the basis of the rates of short-term deposits of natural persons (from June 1, 2015 until July 31, 2016). Accordingly, the old guidelines have been abolished by the Supreme Court. Now that the legislator has changed his mind and has returned to the previous version of the provision the Supreme Court has in substance restored the older guidelines.66

62 The decisions of the Arbitrazh Court of Kaliningrad Oblast of March 22, 2010 in case No. А2113179/2009, of March 19, 2010 in case No. А21-881/2010, of March 18, 2010 in case No. А2113753/2009 (‘The fundamental character of the breach is required by the Vienna Convention of 1980, the UNIDROIT Principles, and by the Principles of European Contract Law as well. International legislation (sic!) as well as the Russian one provides for termination of contract only in case of a fundamental breach of contract by another party’). See also Shirvindt (2017), pp. 389–390. 63 Decision of the Pravoberezhny District Court of Lipetsk of November 18, 2011 in case No. 2-2195/2011. 64 Resolution of the Plenum of the Supreme Court [No. 13] and of the Plenum of the Higher Arbitrazh Court [No. 14] of October 8, 1998, para 4. 65 Resolution of the Plenum of the Supreme Court [No. 6] and of the Plenum of the Higher Arbitrazh Court [No. 8] of July 1, 1996, para 52. 66 Resolution of the Presidium of the Supreme Court of February 16, 2017, question No. 3.

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Article 7.4.9 UPICC has been invoked in 11 judgements by state courts67 and in some arbitral awards.68 Considered that Art. 395 CCRF had no provisions as to what interest rate should be used when the monetary obligation is expressed in a currency other than ruble a court invoked Art. 7.4.9(2) UPICC (and surprisingly not the guidelines mentioned above) and applied a rate of European Central Bank to an obligation in euros.69 For the same reason and with explicit reasoning in favor of a need for gap-filling in respect to Art. 395 CCRF an arbitral tribunal applied a rate of the Reserve Bank of India.70 3.12 Article 7.4.10 (Interest on Damages) The issue of interest on damages is not addressed by the legislator. The rule followed by the courts is that interest on damages accrues only as from the time when the court decision awarding damages becomes effective. This rule applies to damages for non-performance of a non-monetary contractual obligation71 and delictual damages.72

Decisions of the Arbitrazh Court of Belgorod Oblast of May 23, 2007 in case No. А08-1403/0712 and of April 20, 2007 in case No. А08-9855/06-12 (Art. 7.4.9(1) UPICC with an extensive citation of the official commentary thereto has been invoked with no obvious reason alongside Art. 1107(2) CCRF, which stipulates that interest is to be paid in accordance with the rules of Art. 395 CCRF upon the sum of the monetary unjustified enrichment from the time when the debtor has learned or should have learned that his enrichment was unjustified); decisions of the Krasnogvardeysky District Court of the Republic of Crimea of October 21, 2016 in case No. 2-931/2016, of September 15, 2016 in case No. 2-2069/2016, of September 14, 2016 in case No. 2-2064/2016, of August 16, 2016 in case No. 2-2046/2016, of June 15, 2016 in case No. 2-1864/2016, of May 31, 2016 in case No. 2-1694/2016, of February 25, 2016 in case No. 2-938/2016, of November 18, 2015 in case No. 2-2697/2015 (in this series of decisions a judge has used the reference to Art. 7.4.9 UPICC alongside various domestic sources of law as a part of standard formula. The reason for using the UPICC is not clear). 68 According to Alexander S. Komarov, the then president of the ICAC, the Article had been applied by the ICAC ‘rather often’ (in: Principy meždunarodnyh kommerčeskih dogovorov UNIDRUA 2004 [Principles of International Commercial Contracts UNIDROIT 2004] / transl. by Alexandr S. Komarov. Moscow: Statut, 2006). Among the reported cases of the ICAC there is one in respect to which it is hard to say whether it qualifies as a case where the UPICC were used to interpret or supplement the Russian law. An arbitral tribunal has invoked Art. 7.4.9 UPICC alongside the relevant provisions of the CISG and the CCRF to support its view that both the interest and the late payment penalty can be claimed at the same time (award of the ICAC of May 13, 2008, reported as ‘case No. 34’ in: Rozenberg (2010), pp. 327–328). But see criticisms by Sadikov (2012) who points out that Art. 7.4.9 UPICC does not address the issue of penalties. It is hard to say whether this case qualifies as one where the UPICC were used to interpret or supplement the Russian law. 69 Decision of the Arbitrazh Court of Saint-Petersburg and Leningrad Oblast of February 22, 2007 in case No. А56-42348/2006. 70 Award of the ICAC of May 19, 2004 in case No. 100/2002. 71 Resolutions of the Presidium of Higher Arbitrazh Court of May 22, 2007 [No. 420/07] and of June 8, 2010 [No. 904/10]. 72 Resolution of the Plenum of the Supreme Court of March 24, 2016 [No. 7], para 57; resolution of the Plenum of the Supreme Court of the Russian Federation [No. 13] and of the Plenum of the Higher Arbitrazh Court [No. 14] of October 8, 1998, para 23 (in force until March 24, 2016). 67

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4. Question 7) Please include those rules of the UPICC (other than those included in the given list) which have been relied upon by courts or arbitral tribunals for the purpose interpreting a similar provision of your national contract law or in order to supplement (thus serving as a gap-filler) the national contract law in force in your jurisdiction: 4.1 Article 4.6 (Contra proferentem Rule) There is no statutory provision that would explicitly acknowledge the contra proferentem rule. The Higher Arbitrazh Court introduced it as recently as in 2014.73 In 2015 the Supreme Court invoked Art. 4.6 UPICC next to the resolution of the Higher Arbitrazh Court: ‘A similar rule as being generally recognized applies when international commercial contracts are to be interpreted [. . .]’.74 In this particular case the reason for seconding the Higher Arbitrazh Court with help of the authority of the UPICC might be that both the Court’s resolution No. 16 ‘On Freedom of Contract and Its Limits’ of 2014 and the abolition of the Court in the same year were highly controversial and thus the reference to them might appear insufficient. Several judgements reproduce verbatim the relevant passage of the ruling of the Supreme Court (references to the resolution of the Higher Arbitrazh Court and the UPICC included),75 one ruling of a general court among them.76 There are couple of judgments of arbitrazh courts77 and one of a general court78 which although delivered after the above developments invoke the UPICC with no references to the resolution of the Higher Arbitrazh Court and with wording different from that of the ruling of the Supreme Court. One judgement had invoked Art. 4.6 UPICC before the above developments.79 4.2 Article 5.1.4 (Duty to Achieve a Specific Result. Duty of Best Efforts) The Russian law makes no systematic distinction between two types of obligations depending on whether the debtor is bound to achieve a specific result or to make best efforts in performing a duty. This is not to say that problems addressed by this 73

Resolution of the Plenum of the Higher Arbitrazh Court of March 14, 2014 [No. 16], para 11. Ruling of the Supreme Court of May 20, 2015 [No. 307-ЭС14-4641]. The references and the wording stem from the respective pre-ruling of June 2, 2015 No. 304-ЭС15-4108. 75 Rulings of the Arbitrazh Court of the West Siberia District of June 10, 2016 in case No. А459847/2015, of the Arbitrazh Court of the Moscow District of December 28, 2017 in case No. А403175/2017; rulings of the 8th Arbitrazh Appellate Court of July 8, 2016 in case No. А70-1120/ 2016, of July 1, 2016 in case No. А75-9969/2015; decisions of the Arbitrazh Court of Novosibirsk Oblast of June 22, 2016 in case No. А45-6859/2016, of the Arbitrazh Court of Moscow of September 24, 2018 in case No. А40-138828/18-55-1107, of September 3, 2018 in case No. А40-98958/18-25-710 and in case No. А40-111124/18-55-822, of July 13, 2018 in case No. А40-3175/17-137-26, of December 18, 2017 in case No. А40-164477/17-182-1517, of July 28, 2017 in case No. А40-24836/17-43-229. 76 Ruling of the Court of Nizhny Novgorod Oblast of February 8, 2018 in case No. 33-2788/2018. 77 Ruling of the 8th Arbitrazh Appellate Court of December 6, 2015 in case No. А70-13943/2014; decision of the Arbitrazh Court of Tyumen Oblast of August 3, 2015 in case No. А70-13943/2014. 78 Decision of the Ukhta City Court of December 28, 2016 in case No. 2-6025/2016. 79 Decision of the Arbitrazh Court of Moscow of January 27, 2012 in case No. А40-6426/11-43-51. 74

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distinction are completely unknown to Russian law. Thus, it is common to make a similar distinction when drawing a line between the work contract (Chapter 37 CCRF) and the contract for services (Chapter 39 CCRF) and particularly when dealing with the issue of success fee. In a controversy concerning the remuneration of an agent that parties had made depend on the achievement of a certain result the Higher Arbitrazh Court invoked Art. 5.1.4 UPICC (alongside Art. IV.C.-2:106 DCFR).80 Although the wording of the judgement is not perfectly clear it seems that the references to the UPICC and the DCFR were meant to endorse the idea that service contracts and the like can give birth to obligations to achieve result, which is by no means evident for the Russian legal tradition. Several judgements reproduce verbatim the relevant passage of the ruling of the Higher Arbitrazh Court (references to the UPICC and the DCFR included) arguing that in the case at stake one of the parties has or has not earned the price of services because the party has made best efforts or has not achieved the result respectively.81 4.3 Article 7.1.7 (Force Majeure) Article 401(3) CCRF states as a general rule applicable to commercial debts that the party in breach of an obligation is not liable only if it was prevented from (proper) performance by force majeure, i.e. circumstances that are extraordinary and unavoidable under the given conditions. For no obvious reason the courts have started at some point to cite Art. 7.1.7 UPICC next to the relevant provision of the Civil Code.82 The Higher Arbitrazh Court had issued two pre-rulings with references to Art. 7.1.7 UPICC in 2011 and 2012.83 A part of judgements that followed cites the UPICC together with the Higher Arbitrazh

80 Ruling of the Higher Arbitrazh Court of April 8, 2014 [No. 17984/13]. The references were borrowed from the respective pre-ruling of January 17, 2014 [No. ВАС-17984/13]. 81 Rulings of the Arbitrazh Court of the North Caucasian District of September 3, 2015 in case No. A32-1846/2014; of the 9th Arbitrazh Appellate Court of October 12, 2016 in case No. А40138800/12; decisions of the Arbitrazh Court of Moscow of April 25, 2016 in case No. А40-26256/ 16-10-219 and of January 16, 2015 in case No. А40-43078/14; decisions of the Arbitrazh Court of Sverdlovsk Oblast of November 23, 2016 in case No. А60-39471/2016, of October 19, 2016 in case No. А60-34127/2016 and of June 8, 2015 in case No. А60-15566/2015. 82 Rulings of the Federal Arbitrazh Court of the Volga Vyatka District of December 10, 2010 in case No. А82-1970/2010; of the Federal Arbitrazh Court of the East Siberia District of October 9, 2003 in case No. А58-1784/02-Ф02-3313/03-С2; of June 27, 2003 in case No. А33-10697/02-с2-Ф021865/03-С2; of the Federal Arbitrazh Court of the West Siberia District of May 22, 2007 in case No. Ф04-3060/2007(34304-А45-30); of the 2nd Arbitrazh Appellate Court of January 29, 2010 in case No. А82-7125/2009-8; of December 22, 2009 in case No. А82-4506/2009-8; of September 16, 2009 in case No. А82-2078/2009-43. 83 Pre-rulings of the Higher Arbitrazh Court of May 3, 2012 [No. ВАС-3352/12] and of December 28, 2011 [No. ВАС-14316/11] (the latter judgement refers to the UPICC alongside with Art. 8:108 PECL and ICC Force Majeure Clause 2003). The references to the UPICC were dropped in the (final) resolutions on these cases issued by the Presidium of the Court.

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Court cases84 (which is true even for some judgements of general courts),85 whereas others make word for word quotations from these cases without explicit references to them.86 The total of such judgements is 128. There is hardly any clear explanation of this trend. At least in an overwhelming majority of cases the courts seem to just automatically reproduce the widely used formula with no specific purpose. One might suggest that the wording of the UPICC (“an impediment beyond its control” etc.) appears to the courts more self-explanatory than the abstract language of the Civil Code (“extraordinary and unavoidable”). 4.4 Article 7.2.2 (Performance of Non-monetary Obligation) There is no direct equivalent to Art. 7.2.2(b) UPICC in the Russian law. In a considerable amount of judgements (16) courts supported their reasoning in favor of dismissing the claims for specific performance with references to this provision of the Principles.87 4.5 Article 7.2.4 (Judicial Penalty) The judicial penalty has been first introduced into the Russian law by the Plenum of the Higher Arbitrazh Court on April 4, 201488 (not in force since March 24, 2016). It has been afterwards entrenched in statutes— Art. 308.3(1)(2) CCRF89 (for claims arising from an obligation, in force since June 1, 2015) and with virtually the same wording Art. 206(3) of the Code of Civil Procedure and Art. 174(4) of the Code of Arbitrazh Procedure (for any claim for specific performance, in force since August 4, 2018).

84 Decision of the Arbitrazh Court of the Republic of Buryatia of April 23, 2014 in case No. А105458/2013. 85 Decision of the Kirillov District Court of Vologda Oblast of May 6, 2015 in case No. 2-314/2014. 86 Decisions of the Arbitrazh Court of Moscow of February 14, 2017 in case No. А40-159744/16180-1396; of July 19, 2013 in case No. А40-26581/12; of August 13, 2012 in case No. А40-26581/ 12-30-200; of the Arbitrazh Court of Novosibirsk Oblast of June 30, 2014 in case No. А45-3425/ 2014. 87 Rulings of the Federal Arbitrazh Court of the Volga District of May 15, 2018 in case No. А5716399/2017; of the Arbitrazh Court of the West Siberia District of March 5, 2015 in case No. А4512354/2014; of the 7th Arbitrazh Appellate Court of March 13, 2015 in case No. А45-11869/2014; decisions of the Arbitrazh Court of the Republic of Sakha (Yakutia) of April 1, 2016 in case No. А58-6822/2015; of the Arbitrazh Court of Kemerovo Oblast of April 13, 2015, in case No. А27-1540/2015; of the Arbitrazh Court of Moscow of September 26, 2018 in case No. А40120157/18-55-891; of the Arbitrazh Court of Volgograd Oblast of July 3, 2017 in case No. А1268392/2016 etc. 88 Resolution of the Plenum of the Higher Arbitrazh Court of April 4, 2014 [No. 22], paras 3–5. 89 Art. 308.3(1) CCRF: In case of non-performance of an obligation by the debtor, the creditor is entitled to claim specific performance in court, unless otherwise provided for by the present Code, other statutes or an agreement or results from the essence of the obligation. The court may upon a request by the creditor award him with a sum of money (Art. 330(1)) for the case of non-performance of the abovementioned judicial act in an amount that shall be determined by the court on the basis of the principles of fairness, proportionality and inadmissibility of gaining profit from a behavior that is contrary to a statute or good faith (Art. 1(4)).

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In several judgements two courts derived the existence of judicial penalty in Russian law from Art. 7.2.4 UPICC.90 Some of these judgements contain also references to the relevant Resolution of the Plenum of the Higher Arbitrazh Court and to a couple of cases of the Court but even here the reference to the UPICC goes first. All the judgements in question were issued during the period of uncertainty after the Higher Arbitrazh Court was abolished with effect from August 6, 2014 and before the respective amendments to the Civil Code entered into force (June 1, 2015). Accordingly, the same explanation for the use of the UPICC suggests itself as in the case with Art. 4.6 (see supra). The Resolution of the Plenum [No. 22] that introduced the judicial penalty had no statutory ground and belongs to the most controversial guidelines of the Higher Arbitrazh Court. After the Court had been abolished the lower courts might have started to perceive references to its notorious resolution as insufficient and, thus, began to seek for additional authority. 4.6 Article 7.4.3 (Certainty of Harm) An equivalent to the rule of Art. 7.4.3 (3) UPICC has been introduced into Russian law by the reform of the Civil Code (Art. 393(5)(2,3), in force since June 1, 2015).91 The proposal to make this step has been supported inter alia with a reference to the UPICC.92 But even before the amendment the courts have sometimes applied the rule invoking Art. 7.4.3 (3) UPICC together with the resolution of the Presidium of the Higher Arbitrazh Court of September 6, 2011 [No. 2929/11] in case No. А56-44387/2006 which virtually word for word cites the abovementioned preparatory work of the reform93 or together with the Concept for the Development of Civil Legislation itself.94

90 Ruling of the 4th Arbitrazh Appellate Court of March 4, 2015 in case No. А19-21433/2011; decisions of Kemerovo Oblast Arbitrazh Court of May 13, 2015 in case No. А27-2291/2015; of May 13, 2015 in case No. А27-1526/2015; of May 5, 2015 in case No. А27-3408/2015; of April 29, 2015 in case No. А27-3942/2015; of April 24, 2015 in case No. А27-3006/2015; of April 17, 2015 in case No. А27-2519/2015; of April 17, 2015 in case No. А27-1471/2015; of April 15, 2015 in case No. А27-1321/2015; of April 13, 2015 in case No. А27-1325/2015. 91 Art. 393(5) CCRF: The amount of damages shall be established with a reasonable degree of certainty. The court may not dismiss a creditor’s claim for damages resulting from non-performance or improper performance of an obligation for the sole reason that the amount of damages cannot be established with a reasonable degree of certainty. In this case the amount of damages to be reimbursed shall be determined by the court with regard to all the circumstances of the case basing on the principles of fairness and of proportionality of liability to the committed breach of the obligation. 92 cf. draft Concept of the working group on obligations (n 41), para V.1.2. 93 Ruling of the 15th Appellate Court of September 25, 2012 in case No. А53-7668/2012; decisions of the Arbitrazh Court of Kostroma Oblast of May 23, 2014 in case No. А31-11830/2013; of July 29, 2013 in case No. А31-4356/2013; of July 25, 2012 in case No. А31-1235/2012; of July 25, 2012 in case No. А31-1235/2012; of July 16, 2012 in case No. А53-7668/12. 94 Decision of the Rudnichny District Court of Kemerovo of January 31, 2012 in case No. 2-169/ 2012 (‘analogy’).

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The above analysis covers case law until the end of 2018. Later developments could not be taken into consideration. However, two recent rulings of the Supreme Court cannot remain unmentioned. In one case, the Court invoked Art. 10.6 UPICC in a long line of reasoning to fill the gap in the Russian law concerning the way the arbitral proceedings in a dispute that was later considered to be non-arbitrable affect the running of the limitation period (ruling of September 10, 2019 [No. 305-ЭС1911815]). It was decided that in such a case the running of the limitation period should be suspended by analogy with the rules applicable when judicial proceedings take place before a court lacking jurisdiction and alike. In another case, the Supreme Court argued that no exemption clause can protect a guarantor whose breach of contract is intentional (ruling of June 11, 2020 [No. 305-ЭС19-25839]). This statement was backed by a lengthy list of references introduced with “it is noteworthy that”: Art. 14(2) of the United Nations Convention on Independent Guarantees and Stand-by Letters of Credit (to which Russia is not a party) was cited as an example of an international instrument and Art. 7.1.6 UPICC was mentioned among the provisions of “non-state codifications of civil law”, i.e. Art. 8:109 PECL and Art. III.-3:105 DCFR.

References Alekseev SS (1998) In: Makovskij AL (ed) Graždanskij kodeks Rossii. Problemy. Teorija. Praktika: Sbornik pamjati Stanislava A. Hohlova [The civil code of Russia. Problems. Theory. Practice. A collection of works in memoriam of Stanislav A. Hohlov]. Meždunarodnyj centr finansovo-èkonomičeskogo razvitija [International Centre of Financial and Economical Developement], Moscow, pp 21–42 Braginskij MI (1997) In: Braginskij MI, Vitrjanskij VV (eds) Dogovornoe pravo. Obščie položenija [Contract Law. General Provisions]. Statut, Moscow Braginskij MI (2002) Venskaja konvencija 1980 g. i GK RF [The Vienna convention of 1980 and the CCRF]. In: Venskaja konvencija OON 1980 g. o dogovorah meždunarodnoj kupli-prodaži tovarov. K 10-letiju ee primenenija Rossiej [The UN Vienna convention of 1980 on contracts for the international sale of goods. To the decennial of its application in Russia]. Statut, Moscow, pp 14–17 Demkina AV (2016) O preddogovornoj otvetstvennosti v graždanskom prave [On precontractual liability in civil law]. Graždanskoe pravo [Civil Law] (1):31–34 Èbzeev BS (2013) In: Zor’kin VD (ed) Kommentarij k Konstitucii Rossijskoj Federacii [Commentary to the constitution of the Russian Federation]. Norma, Moscow Gajdaenko-Šer NI (2016) Al’ternativnye mehanizmy razrešenija sporov kak instrument formirovanija blagoprijatnoj sredy dlja predprinimatel’skoj deajatel’nosti (opyt Rossii i zarubežnyh stran) [Alternative mechanisms of dispute resolution as an instrument to create a business friendly environment (russian and foreign experiences)]. IZiSP, INFRA-M, Moscow Iljušina MN (2016) In: Sannikova LV (ed) Graždanskij kodeks Rossijskoj Federacii. Postatejnyj kommentarij k razdelu III ‘Obščaja čast’ objazatel’nogo prava’ [CCRF. A paragraph-to-paragraph commentary to the division III ‘General Part of the Law of Obligations’]. Statut, Moscow Karapetov AG (2017) In: Karapetov AG (ed) Dogovornoe i objazatel’stvennoe pravo (obščaja čast’): postatejnyj kommentarij k stat’jam 307 - 453 Graždanskogo kodeksa Rossijskoj Federacii [Contract law and law of obligations (General Part). A paragraph-to-paragraph commentary to arts. 307 – 453 CCRF]. Statut, Moscow

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Komarov AS (2011) Reference to the UNIDROIT Principles in International Commercial Arbitration Practice in the Russian Federation. Uniform Law Review: 657–667 Koncepcija razvitija graždanskogo zakonodatel’stva Rossijskoj Federacii [Concept for the Development of Civil Legislation of the Russian Federation] (2009) Statut, Moscow Makovskij AL (2007) O vlijanii Venskoj konvencii 1980 g. na formirovanie rossijskogo prava [On the influence of the Vienna Convention of 1980 on the formation of Russian law]. Meždunarodnyj kommerčeskij arbitraž [Int Commercial Arbitr] (1):9–15 Makovskij AL (2016) In: Issledovatel’skij centr častnogo prava pri Prezidente Rossijskoj Federacii. 25 let [The Research Centre for Private Law under the President of the Russian Federation. 25 years]. Statut, Moscow Malkin OJU, Domračev VI (2016) Primenenie principov meždunarodnyx kommerčeskix kontraktov UNIDRUA dlja tolkovanija i vospolnenija nacional’nogo zakonodatel’stva [The use of the UNIDROIT principles of international commercial contracts to interpret and supplement domestic law]. Žurnal meždunarodnogo častnogo prava [J Int Private Law] (4):3–19 Principy meždunarodnyh kommerčeskih dogovorov UNIDRUA 2004 [Principles of International Commercial Contracts UNIDROIT 2004] / transl. by Alexandr S. Komarov (2006) Statut, Moscow Rozenberg MG (ed) (2010) Praktika Meždunarodnogo kommerčeskogo arbitražnogo suda pri TPP RF za 2007 - 2008 gg. [Cases of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation. Years 2007–2008]. Statut, Moscow Rozenberg MG (2012) In: Kostin AA (ed) Meždunarodnyj kommerčeskij arbitraž: sovremennye problemy i rešenija [International commercial arbitration: current problems and solutions]. Statut, Moscow Sadikov OS (2012) In: Kostin AA (ed) Meždunarodnyj kommerčeskij arbitraž: sovremennye problemy i rešenija [International Commercial Arbitration: Current Problems and Solutions]. Statut, Moscow Shirvindt AM (2016) Reforming the Russian Civil Code – A Search for Better Law-Making. In: Basedow J, Fleischer H, Zimmermann R (eds) Legislators, Judges, and Professors. Mohr Siebeck, Tübingen, pp. 41–62 Shirvindt AM (2017) Russian federation. In: Sikirić H, Jakšić T, Bilić A (eds) 35 Years of CISG – present experiences and future challenges. University of Zagreb; UNCITRAL, Zagreb, pp 387– 407 Suhanov EA (2016) In: Krašeninnikov PV (ed) Graždanskij kodeks Rossijskoj Federacii. Obščie položenija o dogovore. Postatejnyj kommentarij k glavam 27 – 29 [CCRF. General provisions on contract. A paragraph-to-paragraph commentary to chapters 27 – 29]. Statut, Moscow Vilkova NG (2016) In: Komarov AS (ed) Aktual’nye pravovye aspekty sovremennoj praktiki meždunarodnogo kommerčeskogo oborota [Topical legal aspects of the current practice of the international commerce]. Statut, Moscow Vitrjanskij VV (1999) In: Karpovič VD (ed) Naučno-praktičeskij kommentarij k časti pervoj Graždanskogo kodeksa Rossijskoj Federacii dlja predprinimatelej [An academic and practical commentary to the Part I of the CCRF for businessmen], 2nd edn. Spark; Hozjajstvo i pravo, Moscow Vitrjanskij VV (2018) Reforma rossijskogo graždanskogo zakonodatel’stva: promežutočnye itogi [The reform of Russian civil legislation: interim results], 2nd edn. Statut, Moscow

Questionnaire on the Use of the UPICC in Order to Interpret or Supplement National Contract Law: South Africa Sieg Eiselen

Abstract Although the Constitution of South Africa provides the basis for the use of the UNIDROIT Principles in developing the law, this has not yet been argued or proposed in any reported case. The obligation to negotiate in good faith has not yet been clearly established in South African law, but the recent Makate case may provide the impetus for such a development. The Consumer Protection Act has introduced remedies for some problems such as surprising terms, but does not find application in commercial contracts. The interpretational approach to contracts has also significantly evolved from a textual to a contextual approach. The right to terminate a contract due to breach under South African law is comparable that under the UNIDROIT Principles. The right to claim interest after breach under South African law is similar to that under the UNIDROIT Principles. The Prescribed Rate of Interest Act makes provision for determining the interest rate.

1. Is there any legal source in your legal system allowing the use of the UPICC to interpret or supplement national contract law (either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source)? If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law) The Constitution of the Republic of South Africa, Act 1996 provides that where the common law (generally applicable law) is in conflict with the Bill of Rights contained in the Constitution, it may develop the common law to be consistent with the Bill of Rights (section 8(3)). The Constitution also provides that in interpreting the Bill of Rights, courts must use international law and may use foreign law. Although UPICC is neither international law, nor foreign law, courts may S. Eiselen (*) University of South Africa, Pretoria, South Africa © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_17

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nevertheless rely on it in terms of these broad principles since UPICC embodies internationally acceptable principles of contract law. South African courts also have a long tradition of using comparative law to develop the common law and since such comparative law only has persuasive and not binding value, there are no real restrictions in using an instrument like UPICC. 2. Have the UPICC been used as evidence of a general consensus on the law applicable to contracts (for example, on the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.)? If so, please indicate which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner. UPICC has not yet been used by any South African court or published arbitral award in this manner. 3. Assuming that the UPICC have been not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a general body of contract law or to some of its provisions in particular; whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria). UPICC has not been used in any of the way mentioned above. The only use of UPICC has been by academic discussions in some text books or journal articles. 4. Please indicate whether any of the following selected provisions of the UPICC have a counterpart in your national (domestic) contract law: 4.1 ARTICLE 2.1.15 (Negotiations in Bad Faith) In Makate v Vodacom (Pty) Limited 2016 (4) SA 121 (CC) the Constitutional Court recognized such a right and provided a remedy to the plaintiff. Generally no such right had previously been recognized or applied. The law is in a state of development as the Makate judgment did not provide very clear guidelines on the development of this area of the law. ARTICLE 2.1.20 (Surprising Terms) In general contract law surprising terms are excluded where it is clear that there was no consensus between the parties. This applies generally to commercial contracts. It will usually be dealt with as a form of misstatement by not drawing the attention of the party to such a clause and therefore excluding it. In terms of sections 48 to 52 of the Consume Protection Act 68 of 2008 courts are empowered to exclude surprising terms in a consumer contract.

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4.2 ARTICLE 4.1 (Intention of the Parties) The common law in regard to consensus, although not expressed in these exact terms, are to the same effect. In recent times the Supreme Court of Appeal has also developed the rules of interpretation of contracts. In Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] 2 All SA 262 (SCA) the Supreme Court of Appeal sums up the present approach to interpretation as follows: [18] Over the last century there have been significant developments in the law relating to the interpretation of documents, both in this country and in others that follow similar rules to our own.13 It is unnecessary to add unduly to the burden of annotations by trawling through the case law on the construction of documents in order to trace those developments. The relevant authorities are collected and summarized in Bastian Financial Services (Pty) Ltd v General Hendrik Schoeman Primary School 2008 (5) SA 1 (SCA) paras 16 – 19. The present state of the law can be expressed as follows. Interpretation is the process of attributing meaning to the words used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence. Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production. Where more than one meaning is possible each possibility must be weighed in the light of all these factors. The process is objective not subjective. A sensible meaning is to be preferred to one that leads to insensible or unbusiness like results or undermines the apparent purpose of the document. Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used. To do so in regard to a statute or statutory instrument is to cross the divide between interpretation and legislation. In a contractual context it is to make a contract for the parties other than the one they in fact made. The ‘inevitable point of departure is the language of the provision itself’,16 read in context and having regard to the purpose of the provision and the background to the preparation and production of the document.

4.3 ARTICLE 4.2 (Interpretation of Statements and Other Conduct) The parol evidence rule has been significantly watered-down in the South African law recently. In KPMG Chartered Accountants (SA) v Securefin Limited and Another 2009 (4) SA 399 (SCA) the Supreme Court of Appeal states: [39] First, the integration (or parol evidence) rule remains part of our law. However, it is frequently ignored by practitioners and seldom enforced by trial courts. If a document was intended to provide a complete memorial of a jural act, extrinsic evidence may not contradict, add to or modify its meaning (Johnson v Leal 1980 (3) SA 927 (A) at 943B). Second, interpretation is a matter of law and not of fact and, accordingly, interpretation is a matter for the court and not for witnesses (or, as said in common-law jurisprudence, it is not a jury question: Hodge M Malek (ed) Phipson on Evidence (16 ed 2005) para 33-64). Third, the rules about admissibility of evidence in this regard do not depend on the nature of the document, whether statute, contract or patent (Johnson & Johnson (Pty) Ltd v KimberlyClark Corp [1985] ZASCA 132 (at www.saflii.org.za), 1985 Burrell Patent Cases 126 (A)). Fourth, to the extent that evidence may be admissible to contextualize the document (since ‘context is everything’) to establish its factual matrix or purpose or for purposes of identification, ‘one must use it as conservatively as possible’ (Delmas Milling Co Ltd v du Plessis 1955 (3) SA 447 (A) at 455B-C). The time has arrived for us to accept that there is no merit in trying to distinguish between ‘background circumstances’ and ‘surrounding

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circumstances’. The distinction is artificial and, in addition, both terms are vague and confusing. Consequently, everything tends to be admitted. The terms ‘context’ or ‘factual matrix’ ought to suffice. (See Van der Westhuizen v Arnold 2002 (6) SA 453 (SCA) paras 22 and 23 and Masstores (Pty) Ltd v Murray & Roberts (Pty) Ltd [2008] ZASCA 94; 2008 (6) SA 654 (SCA) para 7.)

This approach was neatly encapsulated by Unterhalter AJ, in Betterbridge (Pty) Ltd v Masilo and others NNO, 2015 (2) SA 396 (GNP) [8] as ‘a unitary endeavor requiring the consideration of text, context and purpose. Which of the elements of this approach ‘predominates’ in any given instance may vary. 4.4 ARTICLE 4.3 (Relevant Circumstances) See previous 2 points. 4.5 ARTICLE 4.4 (Reference to Contract or Statement as a Whole) See previous 2 points. 4.6 ARTICLE 4.5 (All Terms to Be Given Effect) Covered by the previous 2 points. Bradfield Christies Law of Contract in South Africa 7th ed (2016) states: (e) Presumption against tautology or superfluity In Wellworths Bazaars Ltd v Chandlers Ltd,663 Davis AJA quoted with approval the following passage from the judgment of Knight Bruce LJ in Ditcher v Denison: ‘It is . . . a good general rule in jurisprudence that one who reads a legal document, whether public or private, should not be prompt to ascribe – should not without necessity or some sound reason, impute – to its language tautology or superfluity, and should be rather at the outset inclined to suppose every word intended to have some effect or be of some use.’664 The rule has been applied in Portion 1 of 46 Wadeville (Pty) Ltd v Unity Cutlery (Pty) Ltd,665 and B & E International (Pty) Ltd v Enviroserv Waste Management (Pty) Ltd,666 but Botha JA’s warning in Owsianick v African Consolidated Theatres (Pty) Ltd, is salutary: ‘As in legislation, so in written documents, tautology is not unknown. A specific provision is not infrequently inserted to provide, ex abundante cautela, for a matter already covered by general provisions. In such a case the specific provision is mere surplusage, and care should be exercised that, in an attempt to avoid the tautology, a distorted meaning is not assigned to either the specific or the general provisions.’667 There seems little sense in regarding this as anything more than a contextual consideration.

4.7 ARTICLE 4.7 (Linguistic Discrepancies) To be resolved by applying the general rules. There is no specific rule dealing with such discrepancies. ARTICLE 6.1.9 (Currency of payment) Bradfield (supra) sums the rules up as follows: 11.6 Payment of money 11.6.1 General An obligation to pay money is discharged by payment in coin or notes or both in conformity with the statutory requirements for legal tender. It may happen that both in contracts entered into in this country and, of course, in foreign countries an

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obligation may be created to pay in this country an amount expressed in the contract in foreign currency. If the contract makes clear that payment is to be made in this country in actual foreign currency, not in its equivalent in South African currency, the contract will be unenforceable and the payment will be a criminal offence unless the necessary consent has been obtained under the exchange control regulations, but as a matter of pure contract in the absence of exchange control regulations such a provision in a contract would have to be respected and payment per aequipollens of the equivalent amount in South African currency would not discharge the debtor. After an examination of the Roman-Dutch authorities in Barry Colne & Co (Tvl) Ltd v Jackson’s Ltd 1922 CPD 372 376–7, Gardiner J stated the general rule that, failing any such stipulation [ie that payment must be made in foreign currency], payment may be made in the currency of the place of payment equivalent to the value there of the foreign currency. An agreement, therefore, to pay 100 dollars at Cape Town is satisfied by payment of the value at Cape Town in Cape currency of 100 dollars. At what date must the value be taken, at the date when the contract was entered into, or at the date fixed for payment? . . . In a case where foreign trade and foreign currency is concerned, if one must look at the place of payment and [Page 478] not at the place of contract, I think it is not an unreasonable deduction that as regards time one must look at the time of payment and not at the time of contract – a principle which is in accord with modern commercial usage.

This general rule has been accepted, and it was stressed in Bassa Ltd v East Asiatic (SA) Co Ltd 1932 NPD 386 391–2, that if, for example, the contract provides for payment by 90-day bill the date of payment for the purposes of calculating the exchange rate is the expiration of the 90 days, not their commencement, dicta to the contrary in Barry Colne being disapproved. There is, of course, no reason why the contract should not expressly or impliedly provide to the contrary. The general rule is for the general case. 4.8 ARTICLE 7.3.1 (Right to Terminate the Contract) Bradfield states the rules as follows: 14.5 Cancellation Mora, when time is of the essence, material breach of an essential term, and repudiation all entitle the other party to cancel the contract. The act of cancellation, which is also sometimes described as acceptance of the repudiation, rescission and (less felicitously) repudiation, may be performed by the innocent party, without the assistance of the court, in which case, technically, a subsequent court order would simply confirm the cancellation that had already been carried out, but a claim for cancellation (that is, asking the court to cancel) is normal and the desirability of having an order of cancellation so that the status of the contract is not in doubt is well recognised.199 If the contract lays down a procedure for cancellation, that procedure must be followed or a purported cancellation will be ineffective. In Hano Trading CC v JR 209 Investments (Pty) Ltd, the cancellation clause in the contract provided that if the purchaser failed to remedy any breach on its part within 14 days ‘after receipt of a written notice from the seller calling upon the purchaser to remedy the breach complained of’, the seller could cancel the contract without further notice. The seller’s attorney sent a letter that did not indicate and call on the purchaser to remedy

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any particular breach, to the incorrect entity and incorrect address. The court held that the letter did not comply with the notice provision in the cancellation clause and therefore the seller was not entitled to cancel the contract. In the absence of any contractually agreed procedure, the cancellation is governed by the rules set out in this paragraph. Notice of cancellation must be clear and unequivocal, but need not correctly identify the cause of cancellation. In the words of Nienaber JA in Datacolor International (Pty) Ltd v Intamarket (Pty) Ltd: ‘It is settled law that the innocent party, having purported to cancel on inadequate grounds, may afterwards rely on any adequate ground which existed at, but was discovered after, the time.’ It takes effect from the time it is communicated to the other party, communication by a third party being sufficient. If it has not previously been communicated, it takes effect from service of summons or notice of motion, unless the contract prescribes a particular procedure such as notice, and notice of cancellation may be implied from the service of a summons claiming damages. A forfeiture clause entitling the innocent party to cancel for failure to perform after a specified period of notice does not require him to give that notice before cancelling for repudiation. 4.9 ARTICLE 7.4.9 (Interest for Failure to Pay Money) Hutchison in Hutchison and Pretorius The Law of Contract in South Africa 2nd ed 286 sums up the position as follows: 12.2.3.2 Damages Whether or not he or she eventually performs, the debtor is obliged to compensate the creditor in damages for any losses that the latter suffers in consequence of the delay. In the case of an obligation to pay a liquidated sum of money, interest is payable as from the date of mora (a tempore morae), apart from any other damage that the creditor might suffer. Unless otherwise laid down by agreement, Act of Parliament, trade custom or a court (on the grounds of special circumstances), the rate of interest is the rate prescribed by the Minister of Justice from time to time in terms of s 1 of the Prescribed Rate of Interest Act. Eiselen in Hutchison & Prerorius (supra) sums the position up as follows: 13.2.3 Damages and interest cumulative to other remedies The claims for damages and interest are cumulative to the other remedies, provided that the innocent party can prove that he or she has suffered damage or is entitled to interest. Thus, a party can claim cancellation of the agreement, plus damages, plus interest on the amount owing (including the damages). Similarly, a party can claim specific performance, plus damages, plus interest. 13.6 Interest Where a debtor is in breach of a contractual obligation to pay a sum of money by a certain date—that is, is in mora—the interest that the creditor would have earned on that sum had it been paid on time, is a loss that flows naturally from the breach. The loss thus constitutes general damages, but in practice it is usually not claimed under the heading of damages, but rather as a separate claim.

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4.10 ARTICLE 7.4.10 (Interest on Damages) Eiselen in Hutchison & Prerorius (supra) sums the position up as follows: In terms of the common law, mora interest became payable from the date that a liquidated debt (a debt for a fixed amount or an amount easily calculable) fell due. Where a contract did not contain a date for payment, payment only became due on demand from the creditor. The common law further determined that in the case of a claim for unliquidated damages (where the amount of damages is not fixed or easily determinable and has accordingly to be determined by the court), the debtor could not be in mora until such time as the amount of the damages had been fixed or determined by the court. Interest was therefore only payable from the date of judgment. The common-law provisions have now been replaced by the Prescribed Rate of Interest Act 55 of 1975. The object of the Act, as amended, is to establish certainty in respect of the payment and rate of interest and to make provision for the payment of interest on unliquidated claims. The relevant parts of the Act read as follows: 1 Interest on a debt to be calculated at a prescribed rate in certain circumstances. (1) If a debt bears interest and the rate at which the interest is to be calculated is not governed by any other law or by an agreement or a trade custom or in any other manner, such interest shall be calculated at the rate prescribed under subsection (2) as at the time when such interest begins to run, unless a court of law, on the ground of special circumstances relating to that debt, orders otherwise. (2) The Minister of Justice may from time to time prescribe a rate of interest for the purposes of subsection (1) by notice in the Gazette. (3) No rate of interest shall be prescribed under subsection (2) except after consultation with the Minister of Finance. ... 2A Interest on unliquidated debts.— (1) Subject to the provisions of this section the amount of every unliquidated debt as determined by a court of law, or an arbitrator or an arbitration tribunal or by agreement between the creditor and the debtor, shall bear interest as contemplated in section 1. (2) (a) Subject to any other agreement between the parties and the provisions of the National Credit Act, 2005 the interest contemplated in subsection (1) shall run from the date on which payment of the debt is claimed by the service on the debtor of a demand or summons, whichever date is the earlier.

In terms of s 1, interest at the prescribed rate is payable on any debt that bears interest, unless the rate of interest is determined by the contract itself or by a trade custom. It is therefore open to parties to prescribe the rate of interest in their agreement. The rate of interest, however, is subject to the limitations set by the National Credit Act (if the agreement is subject to that Act) or to the common-law limitation of usury. It is submitted that the National Credit Act may provide a guideline as to what rate of interest should be regarded as usurious in terms of common law. Whether a contractual debt is interest-bearing for the purposes of s 1 will be determined by the contract, and if the contract is silent, it will be determined in terms of the common law rules on mora as set out above. The debt will therefore be interest-bearing if it is due and liquidated. The current rate of interest is 8.75% per annum.

Use of UPICC in Turkish Law: Replies to the Questionnaire on the Use of the UPICC in Order to Interpret or Supplement National Contract Law Selim Ciger

Abstract This report examines the use of the UPICC in Turkish law, by way of considering the potential venues the Principles could be used in order to interpret or supplement national contract law. In particular, the report will, in accordance with ‘the Questionnaire on the use of the UPICC in order to interpret or supplement national contract law’ prepared by the general rapporteurs for the 20th IACL General Congress, focus on issues such as permissibility of using UPICC under Turkish law, whether UPICC had been used to interpret or supplement national contract law or in any other way, as well as providing a concise comparison between selected UPICC rules and their counterparts under Turkish law. Finally the report will conclude with an overview on the relevance of those UPICC rules that do not have a comparable alternative in Turkish law and prospects of their application for the purpose of interpreting or supplementing gaps in domestic law.

1 Permissibility of Using the UPICC Under Turkish Law to Interpret or Supplement the Contract Law Q1: Is there any legal source in your legal system allowing the use of the UPICC to interpret or supplement national contract law (either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source)? If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law). In theory, use of the UPICC to interpret or supplement national contract law may be possible under Turkish contract law, in certain circumstances. Indeed, the Turkish

S. Ciger (*) Suleyman Demirel University, Faculty of Law, Isparta, Turkey e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_18

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Civil Code sets out that the judge may found his/her decision on customary law, in the event that there exist no applicable provision in any relevant code to the case before him/her.1 More pertinently, the Turkish Code of Commerce provides that, in the absence of commercial rules applicable to the case before the court, the customary trade law is to be applied before any other non-commercial rules.2 Whether a custom or trade usage may qualify as customary law within the meaning of this section is subject to a consideration of two things: first, it must be demonstrated that the said custom or practice had been exercised constantly in similar cases throughout the time. Second, it must be shown that the said custom had been strictly adhered to in a certain society, in accordance with a strong belief that doing so was necessary (opinio necessitatis).3 If a certain custom or trade usage is found to be falling short of fulfilling these two conditions, then it could not be regarded as part of customary law and such instruments cannot be referred as a ground for the decision. Regardless, they may still play a limited role to supplement the national law in that the Turkish Code of Commerce sets out that such customs can play a part in construing statements made by the parties in the course of negotiations to determine their true contractual intentions.4 Nevertheless, in order for the UPICC to be applicable in that way, it is essential that the Principles could be regarded as constituting customary law or, at the very least, trade usage. The problem is, not only that there has not been any judicial decision where the UPICC was, in whole or in part, regarded as a codification of customary trade laws or trade usages in Turkish jurisdiction, but there also seems to be little support in legal commentaries for such position in general. Indeed, most commentators agree that the UPICC cannot be regarded as a collection of trade usages and they are not to be confused with such customs originating from the dealings of merchants throughout the years.5 Therefore, it appears highly unlikely for a Turkish Court to rely on the UPICC in this way to interpret or supplement national contract law and in the absence of any provisions allowing applicability of the UPICC, the courts would probably settle the question before them solely with reference to the tools available under the national law. On the other hand, the prospects of the UPICC’s application in arbitral tribunals in Turkey to interpret or supplement national contract laws appear to be higher. Although, there exist no explicit permission for using the UPICC specified in the article 12/c of the Code of International Arbitration, which sets out the principles regarding the law applicable to the dispute and the interpretation of the law chosen, most authors argue that the UPICC may be relied on by the arbitrator in interpreting or supplementing the national laws chosen by the parties to govern the dispute.6

1

Turkish Civil Code, article 1, paragraph 2. Turkish Code of Commerce, article 1, rule 2. 3 Oğuzman and Barlas (2016), p. 108. 4 Turkish Code of Commerce, article 2, rule 1. 5 Kotrusz (2009), p. 148; Ayoglu (2011), p. 225 et seq. 6 Ayoglu (2011), p. 228; Sural (2008), p. 160; also see below n 33. 2

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2 The UPICC as an Evidence of a General Consensus on the Law Applicable to Contract Q2: Have the UPICC been used as evidence of a general consensus on the law applicable to contracts (for example, on the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.)? If so, please indicate which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner No, the research has failed to indicate any example where the UPICC provisions have been used in that way.

3 Further References to the UPICC in Turkish Law Q3: Assuming that the UPICC have been not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a general body of contract law or to some of its provisions in particular; whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria). Not only it appears that there exist no instances where the UPICC have been used by Turkish courts for the purpose of interpreting or supplementing national rules on contract law, it is also difficult to find examples where the UPICC was referred by Turkish Courts in any other way. However, the UPICC, at the very least, seems to have had an indirect effect in the recent modernisation process of certain laws: indeed, the preparatory work detailing the rationale of the (then) draft Code of Obligations count, inter alia, the UPICC as one of the sources that has been found beneficial in preparation of the draft code.7 However, this is not to say that the Principles were regarded as a model by the legislators, as the report makes it specifically clear that the draft was not based on instruments such as the UPICC, but those were, merely, considered as a useful point of reference.8

7

The draft also makes reference to UN Convention of International Sale of Goods (CISG), Principles of European Contract Law (PECL) and Principles of European Tort Law (PETL), see report of Justice Commission (2008) Draft Turkish Code of Obligations and Report of the Justice Commission (1/499). The Grand National Assembly of Turkey. Available via https://www.tbmm. gov.tr/sirasayi/donem23/yil01/ss321.pdf, p. 2. 8 Ibid.

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4 Selected Provisions of the UPICC and the Turkish Law Q4: Please indicate whether any of the following selected provisions of the UPICC have a counterpart in your national (domestic) contract law

4.1

ARTICLE 2.1.15 (Negotiations in Bad Faith)

Yes, there are comparable provisions, often derived from the Civil Code, art. 2.

4.2

ARTICLE 2.1.20 (Surprising Terms)

Yes, there are comparable provisions in the Turkish Code of Commerce, art. 55(1)(f), and the Turkish Code of Obligations, art. 21 and 25.

4.3

ARTICLE 4.1 (Intention of the Parties)

Yes, there are comparable provisions in Code of Obligations art. 19.

4.4

ARTICLE 4.2 (Interpretation of Statements and Other Conduct)

No.

4.5

ARTICLE 4.3 (Relevant Circumstances)

Yes, there are somewhat comparable provisions in the Turkish Code of Commerce, art. 2(1).

4.6

No.

ARTICLE 4.4 (Reference to Contract or Statement as a Whole)

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ARTICLE 4.5 (All Terms to Be Given Effect)

No.

4.8

ARTICLE 4.7 (Linguistic Discrepancies)

No.

4.9

ARTICLE 6.1.9 (Currency of Payment)

Yes, there is a comparable provision in art. 99 of the Code of Obligations.

4.10

ARTICLE 7.3.1 (Right to Terminate the Contract)

Yes, comparable provisions are found in arts. 123–125 of the Code of Obligations.

4.11

ARTICLE 7.4.9 (Interest for Failure to Pay Money)

Yes, comparable provisions are found in both the Code of Obligations and the Code of Commerce.

4.12

ARTICLE 7.4.10 (Interest on Damages)

No.

5 Selected Provisions of the UPICC and Their Counterparts in Turkish Law Q5: If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or case-law rule, indicating any relevant difference you find between the domestic rule

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of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law.

5.1

ARTICLE 2.1.15 (Negotiations in Bad Faith)

Medeni Kanun (Code Civil) Md. (art.) 2: • Translation9 • There exists no explicit provision in Turkish Code of Obligations or any other code, setting out relevant duties enumerated in the UPICC art. 2.1.15, however; existence of the relevant obligations is widely accepted under the overarching duty of fair dealing (or good faith) provided by the Code Civil art. 2, as part of liability for culpa in contrahendo.10 There appears to be no significant difference between the UPICC art. 2.1.15 and the liability for culpa in contrahendo under Turkish law: if anything, the latter can be said to be more comprehensive as it is widely accepted to cover cases of misrepresentation by negligence or fault and tortious liability during the negotiations, as well as liability for entering into or continuing negotiations when intending not to reach an agreement with the other party.11

9

N.b.: all translations are provided by this author; however, I have referred to Özel (2013) in translating certain legal concepts related to the Code of Obligations. 10 Oğuzman and Öz (2016), p. 478; Eren (2012), pp. 1128–1129; cf. Kılicoglu (2006), p. 60; Sural (2008), p. 73; Ayoglu (2011), p. 241; İzmirli (2017), p. 190 et seq and p. 205; also see the Supreme Court (Yargitay) decisions: 13 HD decision no E.1995/9375, K.1995/9860 dated 13 Nov 1995; HGK decision no E. 1996/13-850, K. 1997/186 dated 12 Mar 1997; 19 HD decision no E. 2004/ 4912, K. 2004/11803 dated 30 Nov 2004; 19. HD decision no E. 2004/8077, K. 2005/6842 dated 20 Jun 2005; 19 HD decision no E.2005/2865, K.2005/11959 dated 1 Dec 2005; 13 HD decision no. E. 2010/2762, K. 2010/12361 dated 29 Sep 2010; HGK decision no E. 2012/13-1220, K. 2013/ 239 dated 13 Feb 2013; 23 HD decision no E. 2013/8839, K. 2014/1525 dated 3 Mar 2014. 11 Eren (2012), pp. 1135–1137.

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ARTICLE 2.1.20 (Surprising Terms)

Borçlar Kanunu (Code of Obligations), Md. (art.) 21: • • Translation • • Borçlar Kanunu (Code of Obligations), Md. (art.) 25: • Translation • Ticaret Kanunu (Code of Commerce) Md. (art.) 55(1)(f): • Translation

Comparable provisions to UPICC art. 2.1.20 exist in both Turkish Code of Obligations12 and Turkish Code of Commerce; however, there are certain differences between them. For example, whilst the UPICC art. 2.1.20 principally focus on “surprising terms”, i.e. terms that could not have reasonably expected by the other party, art. 21 and 25 of the Turkish Code of Obligations deal with standard terms that are, in general terms, prejudicial to the other party’s interests, therefore their scope of application appear significantly broader. On the other hand, the art. 55(1)(f) of the Turkish Code of Commerce and the art. 21(2) of Turkish Code of Obligations refer to standard terms that are considerably alien to or inconsistent with the nature of the bargain, so their scope appear to be somewhat more compatible with the ambit of the UPICC art. 2.1.20. However, it is worth noting that the UPICC art. 2.1.20 (2) provides guidelines in determining whether a certain term is surprising, whereas we find no such direction under Turkish law. Finally, another point of difference exists on the remedies available: under the UPICC art. 2.1.20, the term in question is only valid if it is expressly accepted by the other party. The same is true for the terms that can be prejudicial to other party’s interests under the art. 21 of Turkish Code of Obligations. However, the art 21 (2) sets out that the standard terms which are considerably alien to or inconsistent with the nature of the bargain are to be ignored, so it is immaterial whether the other party may accept these or not. Similarly, if the standard term in question is incompatible with the obligation of fair dealing, then it also falls foul of the arts. 25 and 27, which control the validity of contractual terms. Lastly, if the term in question is found in a commercial contract, then this would constitute unfair competition under the art. 55(1)(f)of the Turkish Code of Commerce, and parties who make use of such stipulations in their standard terms could incur both civil and criminal liability.13

5.3

ARTICLE 4.1 (Intention of the Parties)

Borçlar Kanunu (Code of Obligations) Md. (art.) 19(1): • Translation

12 13

Sural (2008), pp. 77–78; cf. Ayoglu (2011), pp. 242–243. The Turkish Code of Commerce, articles 56 and 62.

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• Turkish Code of Obligations art. 19(1) provides a rule comparable to the UPICC article 4.1. There are two main differences between them: whilst, both rules prioritize the common intention of the parties in the interpretation of the contract, the former also refers to the “actual intention” of the parties. Secondly, whilst the UPICC article 4.1 (2) sets out that the contract shall be interpreted according to the meaning that would be given by reasonable persons, if such common intention could not be determined, we find no such direction provided under the art. 19(1) of the Turkish Code of Obligations. Regardless, the same view is widely accepted under Turkish law as part of ‘trust/reliance theory’14 in both judicial decisions15 and by legal commentators.16

5.4

ARTICLE 4.3 (Relevant Circumstances)

Whilst, there is no explicit provision in Turkish law providing such specific guidance regarding the interpretation of the contract, it is widely accepted by legal commentators that circumstances such as negotiations between the parties, conduct of parties, usages and customs in the trade concerned are to be taken into account in interpretation of the contracts.17 Ticaret Kanunu (Code of Commerce) Md. (art.) 2 (1): • Translation • It is also worth noting that the Turkish Code of Commerce art. 2(1) explicitly provides that, even if they fall short of constituting customary law, the customs and

From German, “Vertrauenstheorie”, see Eren (2012), p. 152. See the Supreme Court (Yargitay) decisions, HGK decision no E. 2/93, K.29 dated 3 Apr 1963; 4 HD decision no E. 1977/13113, K. 1978/12134 dated 26 Oct 1978; 13. HD decision no: E. 1994/ 5745, K. 1994/8501 dated 11 Oct 1994; HGK decision no E. 2012/14-606 K. 2013/212 dated 6 Feb 2013; HGK decision no E. 2014/15-2182, K. 2015/1047 dated 18 Mar 2015. 16 Eren (2012), p. 153 et seq; Kılicoglu (2006), pp. 175–176; Oğuzman and Öz (2016), p. 69 et seq; Sural (2008), p. 94. 17 Eren (2012), p. 471; Sural (2008), p. 95. 14 15

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trade usage will be taken into account in the interpretation of the contract, particularly regarding the meaning of the statements made by the parties.18

5.5

ARTICLE 6.1.9 (Currency of Payment)

Borçlar Kanunu (Code of Obligations) Md. (art.) 99: • Translation • Turkish Code of Obligations art. 99 provides a comparable provision to the UPICC art. 6.1.9, though significant dissimilarities exist between two articles.19 First of all, whilst both articles provide that the debt can be paid in the currency of the place for payment unless the parties have agreed that the payment should be made only in the currency stipulated, this is not allowed under the UPICC art. 6.1.9 if the currency of the place for payment is not freely convertible. Secondly, under the UPICC art. 6.1.9(2), if it is impossible for the obligor to make payment in the stipulated currency, he/she can make payment in the currency of the place for payment if it is required by the obligee, even if the parties originally agreed that

18 19

Above, text to n 4. Cf. Ayoglu (2011), p. 262.

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payment should only be made in the currency stipulated. However, art. 99 of the Turkish Code of Obligations provide no such venue. Both instruments set out that the payment in the currency of the place for payment is to be made according to the applicable rate of exchange prevailing there when the payment is due. However, whilst, if the obligor fails to make payment when it is due, the obligee may require payment according to the applicable rate of exchange prevailing either when payment is due or at the time of actual payment under both instruments, this is only possible under Turkish law in the absence of an agreement to only pay in the stipulated currency.

5.6

ARTICLE 7.3.1 (Right to Terminate the Contract)

Borçlar Kanunu (Code of Obligations) Md. (art.) 125: • Translation • Borçlar Kanunu (Code of Obligations) Md. (art.) 123: • Translation

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• Borçlar Kanunu (Code of Obligations) Md. (art.) 124: • Translation • Essentially, the Turkish Code of Obligations do not recognize the concept of fundamental non-performance, and according to the articles 123–125, a(n), additional, reasonable time for performance must be given to the obligor who fails to perform his obligations, before the aggrieved party could use any remedy provided under the article 125. Nevertheless, the Article 125 of the Turkish Code of Obligations is, in a sense, comparable to the UPICC article 7.3.1; however, there are notable differences. From the outset, it could be said that both instruments allow the aggrieved party to terminate the contract subject to certain conditions, in the event that the obligor fails to fulfil its obligations. Whilst, the right to terminate the contract is provided under the UPICC in the event the non-performance constitutes a fundamental non-performance,20 the article 125 of the Turkish Code of Obligations sets out that the right to terminate could only be used when the obligor fails to fulfil his outstanding duty to perform in the reasonable time allowed, under article 123,21 for

20

Also see, UPICC art. 7.3.1.3, where the aggrieved party is entitled to terminate the contract if the other party is given time to perform his outstanding obligations under the UPICC art. 7.1.5, but nevertheless failed to perform in the allowed time. 21 In essence, this article, as well as the article 124, is much similar to the UPICC art. 7.1.5; however, the former requires the aggrieved party to allow an extra time to the obligor before it can use its right to terminate, Eren (2012), p. 1123, whereas, according to the latter, the aggrieved party is not under an obligation to allow the extra time and, it may terminate the contract in the event of a fundamental breach, see UNIDROIT (2016), p. 236.

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inviting him/her to perform the contractual obligations; or in certain circumstances, according to the article 124, where there is no need to afford the obligor any extra time for performance.22 It may be possible to draw some parallels between the concept of fundamental non-performance and the formulation envisioned in the article 125 of the Turkish Code of Obligations in that they both limit the instances where the right to terminate could be used; however, despite some degree of overlap, two categories do not appear to be identical.23 Indeed, article 124(1) provides that there is no need to afford the obligor extra time, if this is, either due to the circumstances relating to the obligor or its conduct, understood to be futile which roughly, corresponds to the UPICC art. 7.3.1 (d). Similarly, under article 124(2), no extra time is regarded to be necessary, if the aggrieved party no longer has any benefit in the performance of the contract and this is comparable to the UPICC art. 7.3.1 (a), except the latter is non-applicable if the other party did not foresee and could not reasonably have foreseen such result. Finally, under article 124(3), there is no need for extra time, if the contract envisions that the obligee could refuse performance had it not been performed in a certain hour or a period of time, which could be likened to the UPICC art. 7.3.1 (b). On the other hand, there is no mention of cases in article 124, where the non-performance is intentional or reckless24 or the non-performing party suffers a disproportionate loss in the event that the contract is terminated.25 There is one last difference concerning the legal effects of the stipulated circumstances in both instruments: the circumstances provided in UPICC art. 7.3.1.2 are, merely, relevant in determining whether the non-performance amounts to a fundamental non-performance, therefore the aggravated party could not automatically use the right to terminate in such a case; however, the Turkish Code of Obligations makes clear that if any of the circumstances listed in the article 124 exist then no additional time is required to be given to the obligor, therefore the aggrieved party may, in such a case, readily use the remedies provided by the article 125.

5.7

ARTICLE 7.4.9 (Interest for Failure to Pay Money)

Ticaret Kanunu (Code of Commerce), Md. (art.) 10: • Translation 22

Oğuzman and Öz (2016), p. 504 et seq. Cf. Sural (2008), at p. 124 n. 517. 24 See UPICC art. 7.3.1 (c); however, the fact that the obligor is not faulty or negligent is to be taken into account when deciding whether the other party is entitled to damages or can terminate the contract, Eren (2012), p. 1114. 25 See UPICC art. 7.3.1 (e). 23

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• Borçlar Kanunu (Code of Obligations) Md. (art.) 120: • Translation • Borçlar Kanunu (Code of Obligations) Md.(art.)122: • Translation • Similar to the UPICC article 7.4.9, the Turkish Code of Obligations article 120 provides that the aggrieved party is entitled to interest for the obligor’s failure to pay money. Generally, it is accepted by the legal commentators that the interest starts accruing from the date following the day the obligor defaulted.26 Regarding 26 Oğuzman and Öz (2016), p. 497, “default” here refers to the legal term ‘temerrüt’ used in Turkish law, see id, p. 458 et seq; Eren (2012), p. 1089 et seq.

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the commercial contracts, the art. 10 of the Turkish Code of Commerce is comparable to the UPICC article 7.4.9 and it provides that, unless the parties agree otherwise, the interest starts accruing from the time when payment is due or following the notice, where no date for payment is set. Regarding the amount of interest, article 2 of the Code No. 3095 provides that, unless the parties agree otherwise, the interest rate is set at the fixed rate provided by the article 1 of Code No. 3095. However, the article 2 also sets out that if the short-term lending rate of the Central Bank of Turkey is higher than the rate set at the article 1, then this rate is to be effective. Finally, similar to the UPICC article 7.4.9.3, the aggrieved party is also entitled to additional damages if the non-payment caused it a greater amount of loss, exceeding the interest under article 122 of the Turkish Code of Obligations.27 However, the obligor could escape from the liability for the exceeding damages, if he/she can prove that there is no fault or negligence.

6 Potential Uses for UPICC Provisions That Do Not Have a Counterpart in Turkish Law Q6: If there is no such a rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law The cited UPICC articles which do not have an equivalent in Turkish law, may, in theory, still play some role in the national contract law. Indeed, where there exists a gap in national law, article 1 of the Turkish Civil Code provides that the judge is to decide based on customary laws and if there is no customary law applicable to the case before him/her either, then the decision is to be made based on the rules and principles professed by the judge as if he/she was the lawmaker. The power of the judge in such cases is described as the judge’s authority to make law and when deciding in this capacity, a judge would make use of analogical reasoning by way of applying comparable articles, spirit of the law, judicial and doctrinal legal authorities as well as rules and regulations in other jurisdictions through comparative law.28 Consequently, whilst it is clear that accepting Unidroit Principles as part of customary trade law and applying them in that capacity is unlikely,29 it should, at the very least, be possible for a judge to rely on the UPICC articles in question, either as an instrument of a comparative law system or as part of doctrinal legal authorities,

27

Ayoglu (2011), p. 284. Oğuzman and Barlas (2016), pp. 119–121. 29 Supra, n.5. 28

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where solutions provided by the relevant UPICC articles to the gaps in the applicable legal framework are also accepted by the legal commentators.30 With this being said, application of UPICC article in this way appears to be very rare in Turkish courts, if not altogether non-existent. While criticising the lack of attention paid to the foreign judicial authorities, though these could be, arguably, considered as part of doctrinal legal authorities, in Turkish courts, one commentator explains that this is probably due to a plethora of reasons such as the modest foreign language skills of most judges, typically hectic work load of many courts and the lack of a database offering translations for selected foreign judicial decisions.31 The same reasons are also valid for explaining the lack of any reference to UPICC in decisions given by Turkish courts and, perhaps, generally low level of awareness and knowledge regarding the Unidroit Principles may also be added to those cited above.32

7 Other Provisions of the UPICC That Has Previously Been Used to Supplement the Contract Law in Turkish Law Q7: Please include those rules of the UPICC (other than those included in the given list) which have been relied upon by courts or arbitral tribunals for the purpose interpreting a similar provision of your national contract law or in order to supplement (thus serving as a gap-filler) the national contract law in force in your jurisdiction: The research has failed to indicate any such rules that have been relied upon by Turkish courts or arbitral tribunals in this context. However, UPICC has previously been used, in at least one instance, to supplement Turkish law by an international arbitral tribunal: in a dispute regarding a series of business transactions, one of the issues before the ICC International Court of Arbitration was whether the arbitral proceedings were of domestic or international character. The applicable law was Turkish law; however, the arbitral tribunal have also referred to the preamble of the UPICC concerning the meaning of ‘international contract’ in this context and cited the Comment 1 to preamble, advocating that whether a contract was international should be broadly interpreted, in support for their verdict that the dispute at hand was, indeed, of international character.33

30

Sural (2008), p. 157. Oğuzman and Barlas (2016), p. 139. 32 Sural (2010), pp. 261–262. 33 ICC International Court of Arbitration (2003), Decision no: 12174. Available via unilex.info. http://www.unilex.info/case.cfm?id¼1406. Accessed 9 Nov 2018; Jolivet (2008), p. 136; Ayoglu (2011), p. 232. 31

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References Ayoglu T (2011) Uluslararası Ticari Sözleşmelere Uygulanan Genel Prensipler, Maddi Hükümler ve Ticari Adet – Teamüller Olarak Lex Mercatoria (Lex Mercatoria as general principles, rules and trade customs applied to International Commercial Contracts). Vedat Kitapçılık, Istanbul Eren F (2012) Borçlar Hukuku: Genel Hükümler (Law of obligations: general principles), 14th edn. Yetkin, Ankara İzmirli LA (2017) Culpa in Contrehendo in the Lex Mercatoria. Public Priv Int Law Bull 37:170–230 Jolivet E (2008) L’harmonisation du droit OHADA des contrats : l’influence des Principes d’UNIDROIT en matière de pratique contractuelle et d’arbitrage. Uniform Law Rev 13:127–150 Justice Commission (2008) Draft Turkish Code of Obligations and Report of the Justice Commission (1/499). The Grand National Assembly of Turkey. Available via https://www.tbmm.gov.tr/ sirasayi/donem23/yil01/ss321.pdf Kılicoglu A (2006) Borçlar Hukuku: Genel Hükümler (Law of obligations: general principles), 7th edn. Turhan Kitabevi, Ankara Kotrusz J (2009) Gap-filling of the CISG by the UNIDROIT Principles of International Commercial Contracts. Uniform Law Rev 14:119–165 Oğuzman K, Barlas N (2016) Medeni Hukuk (Civil law), 22nd edn. Vedat Kitapcilik, Istanbul Oğuzman K, Öz T (2016) Borçlar Hukuku: Genel Hükümler (Law of obligations: general principles), vol I, 14th edn. Vedat Kitapçılık, Istanbul Özel Ç (2013) Turkish code of obligations. Seçkin, Ankara Sural C (2008) Uluslararası Ticari Sözleşmelere Uygulanacak Hukuk Olarak Unidroit (Özel Hukukun Yeknesaklaştırılması için Uluslararası Enstitü) Prensipleri (UNIDROIT Principles as the Law Applicable to the International Commercial Contracts). Dissertation, Dokuz Eylul University Sural C (2010) Respecting the rules of law: the Unidroit Principles in National Courts and International Arbitration. Vindobona J Int Commer Law Arbitr 14:249–266 UNIDROIT (2016) Unidroit Principles of International Commercial Contracts. Available via unidroit.org. https://www.unidroit.org/instruments/commercial-contracts/unidroit-principles2016

Arbitral Awards ICC International Court of Arbitration (2003), Decision no: 12174. Available via unilex.info. http:// www.unilex.info/case.cfm?id¼1406. Accessed 9 Nov 2018

Supreme Court Decisions HGK decision no E. 2/93, K.29 dated 3 Apr 1963 4 HD decision no E. 1977/13113, K. 1978/12134 dated 26 Oct 1978 13. HD decision no: E. 1994/5745, K. 1994/8501 dated 11 Oct 1994 13 HD decision no E.1995/9375, K.1995/9860 dated 13 Nov 1995 HGK decision no E. 1996/13-850, K. 1997/186 dated 12 Mar 1997 19 HD decision no E. 2004/4912, K. 2004/11803 dated 30 Nov 2004 19. HD decision no E. 2004/8077, K. 2005/6842 dated 20 Jun 2005

352 19 HD decision no E.2005/2865, K.2005/11959 dated 1 Dec 2005 13 HD decision no. E. 2010/2762, K. 2010/12361 dated 29 Sep 2010 HGK decision no E. 2012/13-1220, K. 2013/239 dated 13 Feb 2013 HGK decision no E. 2012/14-606 K. 2013/212 dated 6 Feb 2013 23 HD decision no E. 2013/8839, K. 2014/1525 dated 3 Mar 2014 HGK decision no E. 2014/15-2182, K. 2015/1047 dated 18 Mar 2015

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Questionnaire on the Use of the UPICC in Order to Interpret or Supplement National Contract Law: Uruguay Andrés Mariño López

Abstract Uruguayan law allows the use of the UPICC for interpretative or supplementary purposes both as general principles of law as well as in the concept of “uses” that integrate the contract. Uruguayan courts have also considered the UPICC as an expression of the Lex mercatoria. Also, the UPICC have been used as evidence of general consensus on the law applicable to contracts in several cases. Several articles of the UPICC were then compared with their counterparts in the Uruguayan legislation, as well as with case-law rules that reflect similar issues addressed by the UPICC. The authors conclude by selecting a few provisions of the UPICC that may be relied upon in future cases to interpret or supplement the domestic law and also highlighting a few provisions that have been used for said purposes in the past.

1. Is there any legal source in your legal system allowing the use of the UPICC to interpret or supplement national contract law (either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source)? If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law). There are some sources in the Uruguayan legal system that allow the use of the UPICC to interpret or supplement national contract law. Section 332 of Uruguayan National Constitution provides that the rules of it shall be interpreted by general principles of law.1 Section 16 of the Uruguayan Civil Code states that, if there is not any rule that may be relied upon a specific case, the Judge shall consider for his

1 Section 332 National Constitution. The rules of this Constitution that recognize rights to individuals, as well as those that grant powers and impose duties on public authorities will not stop

A. Mariño López (*) Clavijo, Pastorini & Asociados and Universidad de la República, Montevideo, Uruguay © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_19

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decision the general principles of law.2 Beyond that rules related about integration of law system, there are more legal rules that allow the use of the UPICC. Section 1302 of the Civil Code established that the uses—included, obviously, trade uses— integrate the contract. Likewise, Section 1291 Subsection 2 of the Civil Code provides that the contract bounded in accordance with the uses and good faith.3 The indicated rules, referred to integration of the contract, are very important to the application of the UPICC to interpret or supplement the national contract law. Regarding the second part of the question, there are some cases that the Courts have reached such decision based on the UPICC. So, for example, Civil Court of Appeal, Term 1, Decision No. 152/204, August 13, 2014, reaches the conclusion that the UPICC are expression of the Lex mercatoria to admit as valid the exemption clause in a contract grounded on the article 7.1.6 of the UPICC. 2. Have the UPICC been used as evidence of a general consensus on the law applicable to contracts (for example, on the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.)? If so, please indicate which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner. The UPICC are considered as evidence of general consensus on the law applicable to contract for national courts in some few cases. So, the referred decision of Civil Court of Appeals, Term 1, applies the article 7.1.6 of the UPICC as a trade use but also as a general consensus of the law applicable to contracts. One example of this point of view, id est, the use of the UPICC as a general consensus of the law applicable to contracts, is the decision of Supreme Court of Justice No. 680/2012, July 20, 2012, where it refuses the argument of one of the parties that alleges the non-application of the UPICC as the bases of conventions not ratified by Uruguay. 3. Assuming that the UPICC have not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a

applying for lack of regulation, but will be replaced by recourse to analogous laws, general principles of law and doctrines generally admitted. 2 Section 16 Civil Code. Faced with a civil matter that cannot be solved by the words or the spirit of the law of the matter, it has to be solved by using the foundations of analogous law, and, if doubt still remains, the general principles of the law and the most received doctrines, considering the circumstances of the case, have to be used. 3 Section 1291 Subsection 2 Civil Code. All (the contracts) shall be performed in good faith and therefore bound, not only for what is expressed in them, but the consequences that, in accordance with their nature, are consistent with equity, uses or law. Section 209 Subsection 2 of the Commercial Code is similar to Section 1291 Subsection 2 of the Civil Code.

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general body of contract law or to some of its provisions in particular; whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria). The question was, in part, addressed in both previous answers. Indeed, the UPICC have been used as trade uses and as expression of the lex mercatoria. In the last decision referred of the Supreme Court of Justice, it opens the door to consider the UPICC in combination with the conventions ratified and not ratified by Uruguay. 4. Please indicate whether any of the following selected provisions of the UPICC have a counterpart in your national (domestic) contract law: 4.1 ARTICLE 2.1.15 (Negotiations in Bad Faith) This provision has not a counterpart in national contract law, but we have a counterpart rule in the Consumer Protection Act (Section 32). However, there is a case-law rule dealing with the similar issue addressed by the referred provision of the UPICC. 4.2 ARTICLE 2.1.20 (Surprising Terms) This article has not a counterpart in national contract law. 4.3 ARTICLE 4.1 (Intention of the Parties) There is a counterpart rule in national contract law, Section 1298 of the Civil Code.4 4.4 ARTICLE 4.2 (Interpretation of Statements and Other Conduct) There is not a counterpart rule in national contract law. 4.5 ARTICLE 4.3 (Relevant Circumstances) There is partially a counterpart rule in national contract law. Indeed, (a) does not have a counterpart but (b), (c), (d), (e) and (f) have counterparties. 4.6 ARTICLE 4.4 (Reference to Contract or Statement as a Whole) This provision has a counterpart in national contract law: Section 1299 of the Civil Code.5 4.7 ARTICLE 4.5 (All Terms to Be Given Effect) This provision has a counterpart in national contract law: Section 1300 of the Civil Code.6

4

Section 1298 Civil Code. If there is ambiguity in the words, the common intention of the parties shall be sought rather than the literal meaning of the terms. 5 Section 1299 Civil Code. The ambiguous terms shall be interpreted by the clear and precise terms used in another part of the same contract, taking care to give them the meaning that in general could be suitable for them, as the corresponding one for the general context. 6 Section 1300 Civil Code. Terms susceptible of two meanings, one of them which result the validity and the other the void of the act, shall be interpreted with the first meaning.

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4.8 ARTICLE 4.7 (Linguistic Discrepancies) This provision does not have a counterpart in national contract law. 4.9 ARTICLE 6.1.9 (Currency of Payment) This provision does not have a counterpart in national contract law. 4.10 ARTICLE 7.3.1 (Right to Terminate the Contract) This provision has partially a counterpart in national contract law; specifically, the provision of the (1) of this article 7.3.1. 4.11 ARTICLE 7.4.9 (Interest for Failure to Pay Money) There is a partially counterpart in national contract law; specifically, regarding article 7.4.9. (1), but not about (2) and (3). 4.12 ARTICLE 7.4.10 (Interest on Damages) There is not a counterpart in national contract law, but there is a case-law rule, constructed by a scholarly doctrine and a jurisprudential line of decisions that interpret, that states the same rule that the article 7.4.10 UPICC. 5. If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or case-law rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law. 5.1 ARTICLE 2.1.15 (Negotiations in Bad Faith) There are jurisprudence and scholarly doctrine that deem, grounded on several rules of the Civil Code about the offer and the acceptance (Sections 1262,7 12658), such the parties are free to negotiate and such the parties are not liable for failure to reach an agreement. With regard to (2) and (3), even if there are not any legal provisions that specifically establish the obligation to act in good faith to the parties during the negotiations, there is a consolidated jurisprudence that states such it exists a general duty of good faith during the negotiations that is inferred from several rules to 7

Section 1262 Civil Code. There will not be compulsory consent until the offer of one party had been accepted by the other. 8 Section 1265 Civil Code. The contract adjusted by messenger or by correspondence is concluded in the place and in the act in which the answer from who accepted the deal, reaches the offeror. Until that moment, the offeror is free to reject his offer, unless, he would have bounded to wait until the rejection of the offer or until the end of the time that he has fixed. The party that accepts the offer, will have the same freedom that the offeror according to the previous clause. Section 209 Subsection 2 of the Commercial Code is similar to Section 1265 Subsection 2 of the Civil Code.

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specific contracts, as sell, lease, loan, etc., that provide the duty of good faith. Unlike the Civil Code, Section 32 of the Uruguayan Consumer Protection Act states the good faith to the supplier during the negotiation. 5.2 ARTICLE 2.1.20 (Surprising Terms) There is not any rule of Uruguayan legal system nor jurisprudential line of decisions with the same or similar issue that the referred article 2.1.20 of the UPICC. On those national legal systems, there is a rule about unfair clauses in the Consumer Protection Act (Sections 30 and 31 Act 17.250). 5.3 ARTICLE 4.1 (Intention of the Parties) Section 1298 of the Civil Code establishes that, if there is ambiguity in the meanings of the contract terms, it shall be interpreted according with the common intention of the parties. The prevailing scholarly doctrine and a consolidated jurisprudential line of decision states that the contract terms shall be interpreted according the common intention of the parties. With regard article 4.1.(2), Section 1297 of the Civil Code provides that the meanings of the contract terms shall be determine by the “general use” of them. This rule is different than the article 4.1.(2) of the UPICC, but it is not opposite; conversely, Section 1297 of the Civil Code and article 4.1.(2) of the UPICC are compatible.9 5.4 ARTICLE 4.2 (Interpretation of Statements and Other Conduct) There are not any rules in the Uruguayan legal system similar to article 4.2. of the UPICC. From my point of view, it may be applied on the Uruguayan legal system, because, in accordance with Section 1298 of the Civil Code, the statements and other actions of a party shall be interpreted according to its intention on the limits on the reasonableness. 5.5 ARTICLE 4.3 (Relevant Circumstances) There are some provisions of the Civil Code that establish the same rules than those contained in article 4.3 of the UPICC. Principally, 4.3. (a) is similar than Section 1301 of the Civil Code.; article 4.3. (d) is similar to Section 1302 of the Civil Code; specifically, when it refers to the nature of the contract; article 4.3. (f) is similar to Section 1302 of the Civil Code, according to which, the contract terms shall be interpreted in accordance with the usages of the place of the contract.10 There are not any similar provisions in the Uruguayan legal system regard article 4.3. (a) about preliminary negotiations between parties, (b) referred to the practices that the parties have established between themselves, and (e) about the meaning given terms and expressions in the trade concerned.

9 Section 1297 Civil Code. The words of the contract shall be understood in the meaning that gives them the general use of the words, although the one obligated claims that he has understood them another way. 10 Section 1302 Civil Code. The ambiguous terms shall be interpreted by the uses of the place of the contract.

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5.6 ARTICLE 4.4 (Reference to Contract or Statement as a Whole) Article 4.4. of the UPICC is similar to the Section 1299 of the Civil Code: the contract terms shall be interpreted in accordance with the general context of the other terms of the same contract. 5.7 ARTICLE 4.5 (All Terms to Be Given Effect) There is not a specifically similar provision on the Uruguayan legal system. Otherwise, Section 1300 of the Civil Code states that, when there is ambiguity with respect the meaning of a contract term, and one of the meanings gives effect to its and another does not give effect, the interpreter shall prefer the meaning that gives effects to the contract term. 5.8 ARTICLE 4.7 (Linguistic Discrepancies) There are not any rules on the Uruguayan legal system nor jurisprudential line of decisions nor scholarly doctrines similar to article 4.7. of the UPICC. 5.9 ARTICLE 6.1.9 (Currency of Payment) There are not any rules on the Uruguayan legal system nor jurisprudential line of decisions similar that article 6.1.9 of the UPICC. Conversely, Section 9 Act 14.500 establishes that a monetary obligation may be expressed on a foreign currency, the doubter is bounded to perform this monetary obligation in the currency of the foreign country. 5.10 ARTICLE 7.3.1 (Right to Terminate the Contract) There is a provision in our Civil Code—Section 1431 Subsection 2—similar that article 7.3.1. (1). There is not any provision similar to 7.3.1. (2) and 7.3.1 (3).11 However, consolidated jurisprudential line of decisions and prevailing scholarly doctrine consider that the fundamental non-performance is required to terminate the contract and define the fundamental non-performance in the same way that article 7.3.1. (2) (a) and (b) defines it. There is not any case-law nor scholarly doctrine similar that 7.3.1. (2) (c), (d) and 7.3.1. (3). 5.11 ARTICLE 7.4.9 (Interest for Failure to Pay Money) On the Uruguayan legal system, in accordance with Section 1348 of the Civil Code, the aggrieved party is entitled to interest upon that sum from the time (of the file) of

11

Section 1431 Subsections 2 and 3 Civil Code. (2) Where a party does not perform an obligation, the other party may choose between require the performance, when it is possible, or require the termination of the contract. (3) The termination shall be required by a judicial claim.

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the claim of those.12 If the parties do not fix the rate of interest, its is the legal rate of interest that is 6%, established by Section 4 Act 14.500.13 5.12 ARTICLE 7.4.10 (Interest on Damages) The rules provide by Section 1348 of the Civil Law and Section 4 Act 14.500 are applied to interest on damages for non-performance of non-monetary obligations. 6. If there is no such a rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law. For the reasons expressed supra, the indicated provisions of the UPICC that may be deemed as a source of interpretation of the Uruguayan contract law are the following: Article 2.1.15 (Negotiations in bad faith) Article 4.2 (Interpretation of statements and other conduct) Article 7.3.1. (Right to terminate the contract); specifically (2) (a), id est, this definition of non-fundamental performance. On the other hand, articles 4.1., 4.3, 4.4., 4.5. and 7.3.1 (1) have a counterpart in national contract law. And, articles 6.1.9., 7.4.9., and 7.4.10 do not have a counterpart, but there are rules in national contract law with a different solution that each other. Also, articles 2.1.20 and 4.7. are not applicable to national contract law. 7. Please include those rules of the UPICC (other than those included in the given list) which have been relied upon by courts or arbitral tribunals for the purpose interpreting a similar provision of your national contract law or in order to supplement (thus serving as a gap-filler) the national contract law in force in your jurisdiction: As it was indicated supra, the Uruguayan Courts have been relied upon some rules of the UPICC to interpret a similar provision of national contract law and/or supplement it. Indeed, the Civil Court of Appeals, Term 1, has applied article 7.1.6 of the UPICC to admit in national contract law, the exemption clause that may limiter or exclude the liability of one party for non-performance. The referred Uruguayan Civil

12

Section 1348 Civil Code. (1) In the obligations to pay a sum of money, the damages from delay in performance, consist in the legal interests, except the particular rules of the commerce and the bonds. (2) Interest are only due from the day of the claim. Section 225 of the Commercial Code is similar to Section 1348 of the Civil Code. 13 Section 4 Act 14.500. In cases where Sections 1, 2 and 3 of this law apply, the interest stated in Section 2207 of the Civil Code shall be six per cent a year.

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Court has been relied upon that rule of the UPICC to supplement the national contact law. On the other hand, Civil Court of Appeal, Term 2, has applied the article 7.4.4. for the interpretation of a similar provision of national contract law, that is, Section 1346 of the civil Code.14

14 Section 1346 Civil Code. The debtor is only liable for damages which it has been foreseen or could have been foreseen at the time of the conclusion of the contract, except when the non-performance is intentional. Section 223 of the Commercial Code is similar to Section 1346 of the Civil Code.

The UNIDROIT Principles as Reference for the Interpretation of US Law Ralf Michaels

Abstract Countries vary greatly in the extent to which they make use of the UPICC for this purpose. Some countries refer to the UPICC a lot, others very rarely. The United States is in the latter category. The UPICC play a very subordinate role in its law. The number of court opinions referring to them is minuscule, even though both the UCC and the Contracts Restatement were amongst the most-cited references in the drafting of the UPICC. The report demonstrates that there is significant overlap between the UPICC and US contract law and that the UPICC could often serve as welcome models for reform. One reason for which the UPICC are widely rejected is an underlying idea of contract based on good faith that is in tension with a contract paradigm in the United States that is based on the enforcement of a bargain. An additional reason is that the UPICC presume, mostly, an understanding of contract law as separate from procedure and thereby comes in tension with an understanding of the law as closely related to, indeed created in, procedure, as is US law. The most important reason, however, is the lack of internationalization of US law.

1 Introduction When the first edition of the UNIDROIT Principles of International Commercial Contracts (UPICC) was published in 1994, their Preamble suggested a whole array of potential uses for the non-state codification, but the use for interpretation and supplementation of domestic law was not among them.1 That use was added for the

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UNIDROIT, Principles of International Commercial Law (1994), Preamble.

R. Michaels (*) Max Planck Institute for Comparative and International Private Law, Hamburg, Germany Queen Mary University London, London, UK e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_20

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2004 edition, in view of the fact that almost half of the known decisions referring to the Principles use the UPICC for this purpose.2 Today, this describes their most important use.3 The UPICC are rarely applied on their own, but they frequently are used to supplement the applicable law. This is in accordance with the main function they have acquired, namely that of a global background law.4 Countries vary greatly in the extent to which they make use of the UPICC for this purpose. Some countries refer to the UPICC a lot, others very rarely. The United States is in the latter category.5 The UPICC play a very subordinate role in its law. The number of court opinions referring to them is minuscule, as the following analysis will demonstrate. This is so even though both the UCC and the Contracts Restatement were amongst the most-cited references in the drafting of the UPICC.6 This raises the question why that is so. This contribution follows the structure of the questionnaire set out by Profs. Moreno and Garro. It first discusses potential doctrinal openings for the UPICC in domestic law. It then takes a closer look at the few decisions in which the UPICC have actually been used. In the next part, it analyzes in more detail the potential use of select provisions of the UPICC for US law. A final section analyzes possible explanations for the limited use that is made of the UPICC in the United States.

2 US Contract Law Some prior remarks must be made with regard to US law. First, there is no uniform US contract law. There is no general federal contract law, outside of special areas like admiralty law and specific federal statutes. Instead, most contract law is state law. In this sense, to speak of US contract law is to speak of an abstraction. This is somewhat justified, however. Discussion on contract law is often national, both in scholarship and in jurisprudence. Contract law in the United States is more uniform than other areas of the law, because contracts cross borders more easily, and because a model code, the Uniform Commercial Code, has been adopted in many states and plays a unifying force. Second, US contract law is a mixture of common law and statutory law. Historically, most contract law is common law. This common law is found in court decisions, which of course may differ between the courts of the different States. It

UNIDROIT 2003 – Study L – M5isc. 25, para. 594 (Bonell); see also Bonell (2005), p. 234 n 170. See, comprehensively, Michaels (2015), pp. 134–140. For the use by arbitrators, see Scherer (2017), pp. 46–57, in Vogenauer. Similarly Meyer (2017). 4 Michaels (2014); see already Michaels (2009), For discussion, see Vogenauer (2013), pp. 157, 164; – Study L – MC Doc 1 Rev nos 39 (p. 24), 41 (p. 25); Bonell and Lando (2013), p. 23 (Bonell, approving), 30–31 (Lando, critical). 5 Deeb Gabriel (2012), pp. 507, 512, 517. 6 Vogenauer (2015) no 23. 2 3

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can also be found, however, in Restatements published by the American Law Institute.7 The most important such Restatement for purposes of this topic is the Restatement of the law of contracts, which was published, in its second edition, in 1981.8 Several other Restatements deal with specific types of contracts (e.g. employment and consumer contracts) or specific issues within or at the margin of contract law (e.g. Agency and Restitution). The Restatement comes in the form of a codification with comments and reporters’ notes. It is, in this sense, quite similar to the UPICC themselves, and indeed the US Restatement served as a formal model for the UPICC.9 The Restatement is frequently used to guide, interpret, and develop contract law. But it is not binding as such, and not all States have adopted it. In addition to common law, important areas of contract law in the United States have been codified. The most important such codification is a Model Law, namely the Uniform Commercial Code (UCC), which has been adopted, with only minimal changes, in almost all States and dominions of the United States. The UCC does not have rules on a general contract law, but its most important Articles for this area, namely Article 2 (Sales) and 2A (Leases), are influential on contract law generally. These two Articles 2 (Sales) and 2A (Leases) have not been adopted in the mixed jurisdictions of Louisiana and Puerto Rico, which rely insofar on their own civil codes. The Uniform Commercial Code is, in form, comparable to European commercial codes, which indeed served as models.10 However, it is in many ways openended and allows, deliberately, for the development of case law. It served as another important model for the UPICC.11 Far less important was a Uniform Computer Information Transactions Act (UCITA), which has been adopted by only two States. This chapter looks predominantly at these two texts, for three reasons. First, they are representative of US contract law more than other texts. Second, they allow treating US law as relatively uniform. Third, and most importantly, it is easier to assess the potential use of the UPICC for purpose of interpretation with regard to such texts than on areas with unclear case law.

3 Doctrinal Foundations for a Reference (Question 1) Is there any legal source in your legal system allowing the use of the UPICC to interpret or supplement national contract law (either by way of explicit and specific legislation, by way of reference to “trade usages”, “general principles of law”, or based in any other source)? If so, please refer to such legal source, explaining how the court has reached such a decision (indicating, for example, whether and how the

7

See, generally, Michaels (2012). Restatement (Second) of Contracts (Am. Law Inst. 1981). 9 Bonell (2005), p. 9ff; Vogenauer, Introduction, in Vogenauer (2013), no. 12. 10 See also Schlesinger (1959). 11 See, more generally, Boss (2007). 8

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courts reached the conclusion that the UPICC represent “trade usages” or “customs” in the field of contract law).

3.1

No Explicit and Specific Legislation

US law does not provide explicitly for reference to transnational codifications like the UPICC, nor does it contain a general reference to the transnational contract law that the UPICC aim to restate. In this sense, an explicit reference is missing. All official references to the UPICC concern their use as a consequence of choice by the parties. Thus, § 1-302 UCC allows parties to vary the effect of the Code’s provisions, and the official comments, allowing parties to subject their agreement to “recognized bodies of rules or principles applicable to commercial transactions” explicitly name the UPICC as one such body.12 A comparable provision can be found in a comment to Oregon’s Choice-of-Law codification.13 But these provisions allow reference to the UPICC only when parties have chosen them.14

3.2

Law Merchant

This does not mean that an indirect potential reference to the UPICC does not exist. The UCC includes a direct reference to the lex mercatoria in its § 1-103, a provision on its supplementation. According to § 1-103, “the principles of law and equity, including the law merchant,” amongst others, supplement the UCC. UCC § 1-103 Supplementary General Principles of Law Applicable Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.

The hope behind the inclusion of such references was to open up jurisprudence to the “immanent law”15, in other words: to solve cases in accordance with the usages of businessmen in the respective industry rather than some objectively formulated and inadequate legal norms. Llewellyn as the main intellectual force behind the

U.C.C. § 1-302 cmt. 2; Bonell (2005), pp. 186–188; Symeonides (2006), p. 288. Michaels (2015) no. 69. 13 Oregon Revised Statutes 81.100–135 (2001), Cmt 3 to Section 7, reprinted in Nafziger (2002), pp. 397, 421, see also ibid. 400, 403 (also in 3 Y.B. Priv. Int’l L. 391 [2001]); Symeonides (2003), pp. 726, 738, Symeonides (2006), pp. 209, 221; Symeonides (2007), pp. 205, 228; Nafziger (2010), pp. 165, 183–184. 14 See Bonell (2008), pp. 22–23, n 118. 15 See Llewellyn (1960). 12

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Uniform Commercial Code borrowed this idea of an imminent law from nineteenth century German lawyers, in particular Goldschmidt.16 He thereby hoped to join US commercial law with the lex mercatoria.17 The UPICC, of course, present themselves as a codification of the lex mercatoria (though a progressive one that goes beyond merely restating already existing rules and principles).18 This would suggest, in principle, an opening to the UPICC, given that the Preamble suggests reading a reference to the lex mercatoria (or law merchant) as a reference to the UPICC.19 The Official Comment to §1-103 does not, however, mention either the UNIDROIT Principles or more generally transnational contract law as a source and instant references equity and common law. In this sense, the provision appears to have national, not transnational, contract law in mind. Court decisions referring to the UPICC via the reference in § 1-103(2) do not seem to exist. In theory, however, an opening exists here.

3.3

Trade Usages

In addition, trade usages are frequently referenced in the Uniform Commercial Code.20 The UPICC have, in other countries, been used to fill such references.21 However, US Courts do not seem to make use of this theoretical possibility. There are two good reasons for this. First, trade usages are viewed as questions of fact, and the UPICC are not, properly understood, a restatement of trade usage.22 They draw, to a large extent, on official law and represent a universal restatement, whereas trade usage is typically unofficial and specific to a particular trade. Indeed, the UPICC themselves, refer to trade usages in their Art. 1.9. Second, the reference to trade usages in the UCC has come under critique. Lisa Bernstein has suggested that the kind of hat trade usages the drafters envisaged—usages that are widely known across the relevant geographic boundaries, that can be found by courts, and that provide the

16

Whitman (1988), pp. 156, 158. Llewellyn (1960), 25, cited in Whitman (1988), n. 93. 18 See Bonell (2005), pp. 210–211. 19 See Bonell (2005), p. 239 n. 183. Whether the UPICC actually represent a lex mercatoria is a separate question; see Michaels (2015) no. 64–67 with references. 20 Cf. Levie (1965), The UCC defines trade usages as follows, in its § 1-303(c): 17

A “usage of trade” is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law. 21 22

For China and Ukraine, see Michaels (2014), pp. 643, 649 (2014); Michaels (2015) pp. 104–107. Oser (2008), pp. 80–81; Meyer (2017), p. 610.

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default rule from the perspective of business actors—can only rarely be determined.23 Moreover, and more importantly, she suggests that the application of such usages is actually undesirable, because it reduces predictability and certainty for business actors and deprives them of a clear framework against which they can formulate their contracts. As a consequence, trade usages play only a limited role for the UCC.

4 The UPICC as Evidence of General Consensus (Question 2) Have the UPICC been used as evidence of a general consensus on the law applicable to contracts (for example, on the existence of a duty of good faith, the obligation to pay interest, the requirement that a breach of contract must be “fundamental” in order to allow for the termination of the contract, etc.)? If so, please indicate which specific provision of the UPICC has been used in this way, referring also to the factual context of the dispute in which the UPICC have been used in this manner. In constitutional interpretation, the US Supreme Court has, occasionally, looked for a general consensus of foreign laws in order to substantiate its own interpretation of the US Constitution. This is sometimes justified with a need to apply the Constitution as part of a global natural law or ius commune.24 The same is done sometimes in other areas: international law, civil procedure, and to some extent criminal law.25 In contract law, by contrast, such a desire to accord domestic law with a general transnational consensus appears to receive less support. Comparative law is rarely used in US contract law, and the UPICC seem never to have been used in order to demonstrate a global consensus.

4.1

Interpretation of Domestic Law

An isolated case in which a use of the UPICC was rejected is somewhat instructive as to the US courts’ reluctance. In Chien v. Commonwealth Biotechnologies, Inc., the plaintiff invoked the UPICC, especially its rules on freedom of contract and on agency, in order to assert his status as an agent of a certain corporation.26 The Court rightly called the brief “a somewhat nubilous discourse on the law of corporations and his view on the effect of the International Institute for the Unification of Private

23

Bernstein (2015). Waldron (2012). 25 Thus at least Clark (1994). 26 Chien v. Commonwealth Biotechnologies, Inc., 484 B.R. 659 (E.D. Virginia 2012). 24

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Law Principles of International Commercial Contracts (UNIDROIT Principles)”27 Indeed, the general rules of the UPICC were of limited assistance towards the concrete questions to be resolved in the case.28 While Chien’s attempt to integrate the UPICC into his argument was at least mentioned in the Court’s decision, other parties do not even make it that far. In briefs, parties sometimes attempt to substantiate their legal arguments with a reference to the UPICC. For example, in a case from 2004, the appellant pointed to Art. 3.10 UPICC 2004 (Gross disparity) to challenge a class action settlement.29 The Court did not address the argument and rejected the appeal.30 These scarce materials suggest that courts are unwilling to refer to the UPICC as evidence of a global consensus for decisions on domestic law. This seems to be in accordance with the sovereigntist understanding of the common law, as described above. Generally, parties seem to refer to the UPICC only in cases in which they feel that domestic law is not sufficiently supportive of their claims. But courts are unwilling to substitute foreign law, even when expressing a consus, for domestic law, or even to use such a general consensus as guidance for a development of US law.

4.2

Interpretation of the New York Convention

While, therefore, the use of the UPICC to interpret domestic law is practically nil, they have been discussed as evidence of a general consensus in the interpretation of international law, in particular the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The background is as follows. Under the Federal Arbitration Act, seamen’s agreements are exempt from arbitration;31 the Jones Act establishes the seaman’s right to bring a civil action in court.32 In a 2005 opinion, the U.S. Court of Appeals for the Eleventh Circuit US Courts held this seamen’s exception to be inapplicable to international arbitration, which is governed by the New York Convention.33 This led to the question whether an arbitration agreement with a seaman was unenforceable on the ground of unconscionability. In US contract law, unconscionability is a defense, though it leads to invalidation, not to mere limitation of application.34

27

Ibid. at 665. Ibid at 666–667. 29 Jackson v. BellSouth Telecommunications, 2003 WL 23723900 (C.A.11) (Appellate Brief). 30 Jackson v. BellSouth Telecommunications, 372 F.3d 1250 (11th Cir. 2004). 31 9 U.S.C. § 1. 32 46 U.S.C. § 30104. 33 Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005). 34 For brief comparison, see Perillo (1994), pp. 281, 293–294; Perillo (2002), pp. 399–402. 28

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UCC § 2-302. Unconscionable Contract or Clause. (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination. Rest. (2d) Contracts § 208 Unconscionable Contract or Term If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

The question was, however, whether the defense is available under the New York Convention. Pursuant to its Article II(3), arbitration will not be compelled if the court finds the arbitration agreement to be “null and void”. What this means is not defined, and the drafting history gives little guidance. A suggestion in the literature is that the only available defenses against an agreement are “generally-applicable, internationally-neutral contract law defenses that do not impose discriminatory burdens or requirements on the formation or validity of agreements to arbitrate.”35 The U.S. Court of Appeal went further. It required not only the existence of such a defense, but also an internationally universal definition of its scope, declared it “doubtful that there exists a precise, universal definition of the unequal bargaining power defense that may be applied effectively across the range of countries that are parties to the Convention,” and refused to formulate one on its own.36 After the judgment, several plaintiffs tried to convince the court that such a universal definition exists by referring to Art. 3.10 UPICC 2004 (Gross Disparity) (equaling Art. 3.2.7 UPICC 2010 and UPICC 2016).37 They were unsuccessful.38 The U.S. District Court for the Southern District of Florida, in a series of decisions, rejected the argument in a decision from 2007 with the argument that the UPICC are not binding,39 an unconvincing argument given that the UPICC were named as evidence of consensus, not as binding law. The same court relied on that holding in a number of subsequent cases without further discussion.40 35

Born (2014), p. 839. Born (2014), p. 1302 (internal footnote omitted). 37 See, for a similar suggestion, Kurkela et al. (2010), p. 63. 38 See also Gabriel (2004), p. 512. 39 Koda v. Carnival Corporation, 2007 WL 7757994 *1 (Sep 7, 2007, S.D. Florida) (Order denying plaintiff’s motion for rehearing). For excerpts from the plaintiff’s brief, urging consideration of the UPICC, see http://www. unilex.info/case.cfm?id¼1528. 40 Krstic v. Princess Cruise Lines, Ltd. (Corp.), 706 F.Supp.2d 1271, 1277-78, 1282 (S.D. Florida 2010); Cardoso v. Carnival Corporation, 2010 WL 11506093 *1 (S.D. Florida); Rodrigues v. Royal 36

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In a 2013 decision, the Court gave a lengthier reason for its rejection.41 The Court first held that Art. 3.10 could not be a universal principle, because UNIDROIT has only 63 member states. This is, of course, a rather questionable argument. The UPICC are a global Restatement, not a Convention. They derive their Restatement function, if any, from the fact that they accurately describe the content of all or most legal systems,42 not from the fact that states have signed up to them or to the body, UNIDROIT, under which they were made. More important, though not necessarily more convincing, was another argument. The Court argued that neither the Article itself, nor its Official Comments, provide the “universal definition” required by the Bautista decision of the Eleventh Circuit—the mentioning of a “disequilibrium . . . so great as to shock the conscience of a reasonable person” in the Official Comment was not objectively ascertainable across all member States of the New York Convention. This is plausible insofar that no mathematical formula is applicable to define gross disparity.43 But the requirement in the Bautista decision, at least if read like this, also seems unduly demanding. What is required, under the New York Convention, is merely that a general defense under contract law exists virtually everywhere. This is certainly the case for unconscionability.44 Art. 3.10 UPICC 2004 is evidence of the existence of this defense. That should normally be enough. What the provision cannot provide is a universal standard in applying unconscionability. This lies in the nature of Art. 3.10 UPICC 2004, which restates the law as general principles, not as precise mathematical formulas. Principles like unconscionability, or gross disparity, are, almost necessarily, in need of concretization in the concrete case. Such concretization is nearly everywhere in the world a task for judges, not legislators.

5 Other Uses of the UPICC (Question 3) Assuming that the UPICC have not been used by courts in your country for the purpose of interpreting or supplementing national or local rules on contract law, indicate whether they have been used in any other way and how. Discuss, for example, whether references to the UPICC were made as a general body of contract law or to some of its provisions in particular; whether references to the UPICC were made in combination with other instruments of uniform law such as the UN Caribbean Cruises, Ltd., 2010 WL 11519654 *4 (S.D. Florida); Matthews v. Princess Cruise Lines, Ltd., 728 F.Supp.2d 1326, 1331 (S.D. Florida 2010); Escobal v. Celebration Cruise Operator Inc., 2011 WL 13175628 * 3 (S.D. Florida). The UPICC were briefed by amicus curiae, but not referred to in the judgment, in Pysarenko v. Carnival Corp., 2014 WL 1745048 (S.D. Florida), aff’d 581 Fed.Appx. 844 (Mem) (11th Cir. 2014). 41 Singh v. Carnival Corporation, 2013 WL 12139415 (S.D. Florida). 42 See Michaels (2015), no. 3. 43 See Jacques du Plessis, Art. 3.2.7 no. 7, in Vogenauer (2013). 44 Cf. Born (2014), pp. 855–856.

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Convention on Contracts for the International Sale of Goods (“CISG”) or a more diffuse body of state laws (e.g., the so called lex mercatoria). Other use of the UPICC in the United States is rare, despite some attention to the UPICC in scholarship. The U.S. District Court for the Southern District of California decided in 1998 that an arbitral award based on the UPICC was within the tribunal’s terms of reference and therefore subject to recognition under the New York Convention.45 That decision appears unremarkable, it is also outside the scope of this article, as it does not concern the use of the UPICC for the interpretation of US law. Outside of courts, an administrative determination by the Overseas Private Investment Corporation quoted Art. 2.1.1 UPICC for the findings that a contract is concluded through offer and acceptance and that agreement can also be demonstrated on the basis of party conduct. This has rightly been called unremarkable.46 It is also irrelevant for the purpose of this article.

6 Counterparts in US Law (Questions 4–7) Please indicate whether any of the following selected provisions of the UPICC have a counterpart in your national (domestic) contract law: [. . .] If there is a statutory or case-law rule (such as a code provision or jurisprudential line of decisions) dealing with the same or a similar issue addressed by those selected provision of the UPICC, please reproduce the full text of such a provision or caselaw rule, indicating any relevant difference you find between the domestic rule of contract law and the selected rule of the UPICC, also indicating whether the UPICC may be relied upon by the courts of your country as a general principle of contract law interpreting and supplementing national contract law. If there is no such rule of contract law in your jurisdiction, please indicate, with reasons, whether any of those selected provision of the UPICC may, in your view, be relied upon as a source of interpretation of the law of contracts in force in your country, or for the purpose of supplementing gaps in your national contract law. Please include those rules of the UPICC (other than those included in the given list) which have been relied upon by courts or arbitral tribunals for the purpose of interpreting a similar provision of your national contract law or in order to supplement (thus serving as a gap-filler) the national contract law in force in your jurisdiction.

45 Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc., 29 F.Supp.2d 1168 (S.D. Cal. 1998); cf. Gabriel (2004), p. 511. 46 Gabriel (2004), p. 512.

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ARTICLE 2.1.15 (Negotiations in Bad Faith)

Article 2.1.15, especially in its paragraphs 2 and 3, is more in accordance with civil law than with common law.47 In US law, although there is a good faith requirement for the performance of contracts,48 there is, in principle, no similar requirement during the negotiation period, except in special context governed by statute.49 Additional remedies can be found in other doctrines like fraud and duress, torts (misrepresentation) and restitution if the requirements are met,50 but a general doctrine of culpa in contrahendo does not exist. This is different in Puerto Rico.51 An important basis for liability is the doctrine of promissory estoppel: a party who has relied, to her detriment, on a promise made, is entitled to damages if the promise is broken. Restatement (2nd) Contracts § 90(1) Promise Reasonably Inducing Action or Forbearance (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

In principle, this requires that a contractual promise has been made. There is occasional case law suggesting that such promises can be found even in negotiations. In Hoffman v. Red Owl Stores, the plaintiff relied on representations by the defendant that § 18,000 was enough to secure a franchise; the defendant did not subsequently enter into a franchise agreement. The court awarded the plaintiff damages although, it suggested, the representation did not reach the level of a promise. This has sometimes been interpreted as an adoption of a duty to negotiate in good faith.52 But the case has remained, by and large, an outlier.53 Its role may therefore be limited. On the one hand, new research suggests that Ohio v. Red Owl Stores did involve an actual promise (albeit one absent from the judgment, which would make it fall squarely under the doctrine of promissory estoppel).54 On the other hand, the

47

Zuluaga Rios I, Art. 2.1.15 no. 24, in Vogenauer (n 3). Rest. 2d (Contracts) § 205 (Duty of Good Faith and Fair Dealing); UCC § 1-203. 49 For comparison, see Farnsworth (1995), pp. 47, 57–59 (1995). 50 Rest. 2d (Contracts) § 205 cmt. c. 51 Producciones Tommy Muñiz v. COPAN, 113 D.P.R. 517 (1982); Advanced Flexible Circuits, Inc. v. GE Sensing & Inspection Technologies GmbH, 781 F.3d 510 (1st Cir. 2015). 52 E.g. Duhl (2004), pp. 315–321. (1987). But see also Farnsworth (1987), (drawing on comparative law to demonstrate differences between US law and civil law systems). Farnsworth was a US member in the drafting group for the UPICC. 53 See Schwartz and Scott (2007). See, however, Cyberchron Corp. v. Calldata Systems Development, 47 F.3d 39 (2d Cir. 1995). 54 Whitford and Macaulay (2010). 48

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law increasingly accepts preliminary agreements even in the stages of negotiations, which open the way to liability.55 It is therefore possible that Art. 2.1.15 would have an influence on US law.56 The difference in result is not too great,57 Ideologically, a general duty to negotiate in good faith is anathema to American ideals of freedom of contract, of requiring parties to look out for their own interests, and of enabling parties to opt out of relations that are not beneficial to them. Doctrinally, US courts are more likely to seek a ground for liability in the creation of positions, for example through the assumption of preliminary agreements, than an overarching good faith duty.

6.2

ARTICLE 2.1.20 (Surprising Terms)

Under US law, like under Art. 2.1.20, a party is in principle bound by the terms of a contract even if it had no knowledge of them.58 According to the Restatement, this does not apply for surprising terms, under certain conditions: Restatement (2d) Contracts, § 211(3) (Standardized Agreements) (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

The provision, introduced in 1979, has not been very successful—criticized by scholars59 and rarely applied by courts.60 Proposals for similar provisions in the UCC and UCITA were rejected.61 Outside of sec. 211(3), the closest to a protection against surprising terms is the unconscionability doctrine, as codified in UCC § 2-302.62 According to a scholarly proposal, unconscionability can be substantive—concerning the substance of the term—or procedural—concerning the bargaining process.63 (A similar conception underlies Art. 3.2.7 UPICC).64 However, the courts are reluctant to use the doctrine except in extreme cases. Art. 2.1.20 UPICC differs somewhat from these solutions: it does not focus on the user’s “reason to believe” that assent was impossible (like § 211(3) of the 55 Teachers Insurance & Annuity Association of America v. Tribune Co., 670 F. Supp. 491; Schwartz and Scott (2007), p. 664. 56 Perillo (1994), p. 287. 57 Farnsworth (2004), pp. 382–383; see also Bonell (2005). 58 Merit Music Service v. Sonneborn, 245 Md. 213 (1967). 59 For a defense, see Barnes (2007), p. 82. 60 White (1997). 61 See Braucher (2000), p. 1805, 1816 n 47. 62 Supra IV.B. 63 Left (1967). On their relation, see Lonegrass (2012). 64 Bonell (2005).

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Restatement), and it does not apply only in extreme cases, as does UCC § 2-302. In this sense, it is a more straightforward rule, and it is therefore not surprising that its adoption into US law has been proposed.65 However, the unwillingness of US courts to control standard terms in general, combined with an objective understanding of the contract, means that adoption of the rule would signify a significant change.

6.3

ARTICLE 4.1 (Intention of the Parties)

Article 4.1 UPICC adopts, at least on its face, a subjective understanding of contract:66 The content of the contract is determined primarily by the common intention of the parties (para. 1) and only subsidiarily by an objective interpretation of its words (para. 2). U.S. law also aims, in principle, at determining the intention of the parties at the time the contract was made.67 But its way of getting there is different. In U.S. law the goal of contract interpretation is, in principle, not to determine the intention of the parties but instead the meaning of the contract. Rest. (2d) Contracts § 200 Interpretation of Promise or Agreement Interpretation of a promise or agreement or a term thereof is the ascertainment of its meaning.

This focus on the contract’s meaning rather than the parties’ mind leads to a principle of objective interpretation. Rest. (2d) Contracts § 202(3) Rules in Aid of Interpretation (3) Unless a different intention is manifested, (a) where language has a generally prevailing meaning, it is interpreted in accordance with that meaning; (b) technical terms and words of art are given their technical meaning when used in a transaction within their technical field.

Although the rule suggests an objective meaning, US law frequently focuses on a reasonable understanding, taking, like Art. 4.1(2), into account the concrete situation of the parties.68 Only where a diverging common intention can be ascertained, it trumps.69 Rest. (2d) Contracts § 201(1) Whose Meaning Prevails (1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.

65

Murray Jr (2014), pp. 263, 274. But see, for criticism of the subjective/objective dichotomy in this context, Vogenauer, in Vogenauer, Art. 4.1 Nnos 14–16 (n 3). 67 E.g. Kniffin (1998), p. 15. 68 For comparison, see Gabriel (2004), p. 524. 69 Berke Moore Co. v. Phoenix Bridge Co., 98 A.2d 150, 156 (N.H. 1953). Burton (2007), p. 28 ff.; Kniffin (1998), p. 16. For comparison, see Gabriel (2004), p. 524. 66

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However, subjective interpretation typically comes in only to resolve an ambiguity; most courts refuse to let it overrule a clear meaning.70 The case of Art. 4.1 (1) UPICC that both parties intended something other than the objective meaning of their contract terms is usually resolved not through interpretation but through reformation:71 Rest. (2d) Contracts § 155 When Mistake of Both Parties as to Written Expression Justifies Reformation Where a writing that evidences or embodies an agreement in whole or in part fails to express the agreement because of a mistake of both parties as to the contents or effect of the writing, the court may at the request of a party reform the writing to express the agreement, except to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected.

In reality, the difference between US law and the UPICC is smaller than it might appear.72 Although Art. 4.1(1) UPICC prioritizes the subjective meaning, contract interpretation will begin with the objective meaning of the text, simply because it is presumed that the parties intended what they in fact said.73 The case that a common intention will trump the objective meaning of the contract is rare, and the hierarchy in Article 4.1 UPICC between paragraphs 1 and 2 is not of much practical importance.74 The only important difference is that, under US law, a court will let the parties’ common intention supersede a clear meaning not through interpretation but through reformation. It is doubtful that US law would be open to giving more weight to the parties’ attention over the text, even for international contracts. A well-known opinion concerns the meaning of the word chicken, in particular whether it included, beyond broiling and frying chicken also stewing chicken.75 The court ultimately followed a textual approach in favor of the broader meaning, and thus the defendant. Little weight was thereby given to the fact that the buyer was a Swiss German company, and that much of the negotiations had taken place in German. Arguably, in such a multilingual situation, the objective meaning of the terms ultimately used in English should have less weight than in monolingual situations.76 Art. 4.1(1) UPICC is no solution to this problem, however, because it presumes a common intention where the problem is the lack of even a common language.

70

Pinkerton Tobacco Co. v. Melton, 437 S.E.2d 923, 925-6 (Va. 1993). For Louisiana, see Ottinger (2000), pp. 765, 769. 72 Gabriel (2004), p. 54. See also, for a similar argument regarding comparability between US and French law, Bodum USA, Inc. v. La Cafetiere, Inc., 612 F.3d 624 (7th Cir. 2010). 73 Stefan Vogenauer, Art. 4.1 no. 12, in Vogenauer (2013). 74 Ibid. nos. 10, 13. 75 Frigaliment Importing Co. v. B.N.S. International Sales, 190 F. Supp. 116 (S.D.N.Y. 1960). 76 Greenberg (1987), pp. 363, 375–376 (1987). 71

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ARTICLE 4.2 (Interpretation of Statements and Other Conduct)

The principle of Art. 4.2(1) is broadly in accordance with US law; indeed it follows closely the formulation in a US treatise.77 The Restatement provides as follows: Rest. (2d) Contracts § 201(2) Whose Meaning Prevails (2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

Despite the similarity in language, the UPICC were not here influenced by the Restatement.78 The provision also has a different scope than Art. 4(2) UPICC. On the one hand, it extends not only to unilateral statements but also to agreements. On the other hand it does not concern conduct, at least not explicitly. More importantly perhaps, it organizes the solutions differently from Art. 4(2) UPICC. Its starting point is the recipient’s understanding (which art. 4.2 UPICC regulates in its para. 2). Here, the focus is on the actual understanding of the recipient, not the understanding that a reasonable person would have, as in Art. 4.2(2) UPICC. The difference in reality is likely minimal. The case of Art. 4(1) UPICC that the speaker’s meaning prevails is not explicitly regulated as such but expresses a doctrine held in US law.79 It does not appear that the UPICC could contribute much here to US law.

77

See Emor, Inc. v. Cyprus Mines Corp., 467 F.2d 770, 775 (1972) (“[T]he meaning given to the words by one party should be given effect if the other party knew or had reason to know that it was in fact so given.”) (quoting 3 Corbin (1960). The passage is now at Kniffin (1998), p. 18). 78 Farnsworth (1998). 79 Cresswell v. United States, 146 Ct.Cl. 119, 173 F.Supp. 805, 811 (1959) (“If one party to a contract knows the meaning that the other intended to convey by his words, then he is bound by that meaning. The same is true if he had reason to know what the other party intended” (citations omitted.); Perry & Wallis Inc. v. U.S., 427 F.2d 722, 726 (“It is clear that the plaintiff, by reason of its experience in the Seal case, knew or had reason to know the meaning intended by the identical agency of the government in the contract clause involved here. . . . Under these circumstances, we conclude that plaintiff acquiesced in and is bound by the meaning of the clause as intended by the government.”).

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ARTICLE 4.3 (Relevant Circumstances)

Article 4.3 UPICC, in asking an adjudicator to consider “all circumstances” in interpreting a contract, adopts a contextual approach to contract interpretation. On its face, US law does not look dissimilar.80 Rest. (2d) Contracts § 202(1) Rules in Aid of Interpretation (1) Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.

But there are three important differences.81 First, Art. 4.3 UPICC conflicts with the ‘plain meaning’ rule of US law. Under the prevalent “plain meaning” approach, what matters for contract interpretation are the words of the contract: “a court may not, under the guise of interpretation, make a new contract for the parties or change the words of a written contract so as to make it express the real intention of the parties if to do so would contradict the clearly expressed language of the contract.”82 Second, US law, unlike the UPICC, limits extraneous factors (so-called parol evidence) to explanation and supplementation only; the focus of interpretation is on the words of the contract themselves: UCC § 2-202. Final Written Expression: Parol or Extrinsic Evidence. Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented (a) by course of performance, course of dealing, or usage of trade (Section 1-303); and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

As a consequence, circumstances can be used to supplement and interpret, but not to contradict the terms of the contract.83 The UPICC do not contain such a rule, though the parties can agree to something similar (Art. 2.1.17).84 Third, unlike the UPICC,85 US law contains presumptive standards of preference as among the different criteria,86 with a priority for the purpose of the contract (Rest. § 202(1), Art. 4.3(d) UPICC). Rest. 2d (Contracts) § 203(b-d) Standards of Preference in Interpretation In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable: [. . .] Farnsworth (2004), § 7.10, p. 287. Vogenauer, in Vogenauer, Art. 4.3 nos. 28–29, in Vogenauer (2013). 82 Rodolitz v. Neptune Paper Products, Inc., 22 N.Y.2d 383, 386 (N.Y. Court of Appeals 1968). 83 HLO Land Ownership v. City of Hartford, 727 A.2d 1260 (Conn. 1999). 84 See Gabriel (2004), p. 525. For comparison with US law, see also Linzer (2010), p. 53. 85 Vogenauer, in Vogenauer (n 3) Art. 4.3 nos. 25–26. 86 See 2 Farnsworth (2004), § 7.11, pp. 292 ff. 80 81

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(b) express terms are given greater weight than course of performance, course of dealing, and usage of trade, course of performance is given greater weight than course of dealing or usage of trade, and course of dealing is given greater weight than usage of trade; (c) specific terms and exact terms are given greater weight than general language; (d) separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated.

The result is that US law is less willing than are the UPICC to look beyond the text of the contract. First, extrinsic evidence can be used only for explanation or supplementation, but it cannot overcome the objective meaning of the text. Second, the list of factors a US court is allowed to look at, at least under UCC § 2-202, is shorter than that in Art. 4.3 UPICC.

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ARTICLE 4.4 (Reference to Contract or Statement as a Whole)

This rule is in accordance with US law.87 Rest. (2d) (Contracts) § 202 Rules in Aid of Interpretation (2) A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.

This is true also for the priority of specific over general provisions (Art. 44. UPICC cmt. 2, Rest. § 203(c)).88

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ARTICLE 4.5 (All Terms to Be Given Effect)

This rule is in accordance with US law.89 Rest. 2d (Contracts) § 203(a) Standards of Preference in Interpretation (a) an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect;

2 Farnsworth (2004), § 7.11, pp. 295–297. 2 Farnsworth (2004), § 7.11, pp. 297–298. 89 2 Farnsworth (2004), § 7.11, pp. 295–296 with n 13; Equity Lifestyle Props. V. Fla. Mowing & Landscape Serv., 556 F.3d 1232 (11th Cir. 2009); Baldwin Piano v. Deutsche Wurlitzer GmbH, 392 F.3d 881 (7th Cir. 2004). 87 88

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ARTICLE 4.7 (Linguistic Discrepancies)

Art. 4.7 UPICC is an innovative solution to the problem of multiple language versions for a contract.90 US law does not have a clear rule to deal with the problem of contracts in multiple languages, and courts are likely to use their standard instruments of interpretation without specific attention paid to the problem of multiple languages.91 A rule like Article 4.7 could theoretically be of use here in order to increase predictability, but its solution to the problem is contested and questionable.92 Even better would be for the parties to avoid the uncertainty through contractual agreement. The problem is not confined to international contracts, it appears also in states with multiple languages. Several US states have consumer protection statutes requiring translation of English contracts.93 One example is the California Translation Act. Californian Civil Code § 1632 (j) The terms of the contract or agreement that is executed in the English language shall determine the rights and obligations of the parties. However, the translation of the contract or the disclosures required by subdivision (e) in any of the languages specified in subdivision (b) in which the contract or agreement was negotiated shall be admissible in evidence only to show that no contract was entered into because of a substantial difference in the material terms and conditions of the contract and the translation.

Although, therefore, the English version is in principle given priority, differences between original and translation may be to the detriment of the drafter. Thus, where the English original includes an arbitration agreement that is missing from the Spanish translation, the agreement is void.94 The judgment concerned a consumer contract and one in which one party had drafted the agreement. Where a contract is drafted in English but signed in its Spanish translation, the Spanish version is binding.95

90

Vogenauer, in Vogenauer (2013) Art. 4.7 N. 1. One US court applied (under choice of law) Art. 125 (2) of the Chinese Contract Code, which resolves the conflict between language versions with regard to the purpose of the contract: Slinger Mfg. Co., Inc. v. Nemak, S.A., 2008 WL 4425889 *4 (E.D. Wisconsin 2008). 91

Cf. Art. 125(2) Contract Law of the People’s Republic of China: Where a contract is concluded in two or more languages and it is agreed that all versions are equally authentic, the words and sentences in each version are construed to have the same meaning. In case of any discrepancy in the words or sentences used in the different language versions, they shall be interpreted in light of the purpose of the contract. 92

Vogenauer, in Vogenauer (2013) Art. 4.7 no. 7. For an overview, see Lovejoy (2017), p. 437. 94 Ramos v. Westlake Services LLC, 242 Cal.App.4th 674, 687–690 (2015). 95 Torres v. United Staffing Associates LLC, 2015 WL 5752583 *4 (Cal. Super.) (Trial Order). 93

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7 ARTICLE 6.1.9 (Currency of Payment) Historically, US courts were required to render all judgments in US dollars, in accordance with the English Common Law.96 However, after the English courts changed their approach,97 and a statute on which US courts had based their doctrine was abolished, the doctrine was slowly abolished in the United States as well. Today, a Model Law, the Uniform Foreign-Money Claims Act (UFMCA), contains detailed rules on determining the proper currency;98 it has been adopted in about half the States. Its sec. 7 provides that “a judgment or award on a foreign-money claim must be stated in an amount of the money of the claim.” The Restatement (3rd) Foreign Relations urged abolition of the old doctrine in its § 823.99 New York, the most important venue for international litigation, amended its Judiciary Act in 1988 to allow for judgments in foreign currency. The result is, effectively, that the plaintiff can choose whether the judgment is in US dollar or in the proper currency.100 Rest. (3rd) Foreign Relations § 823 Judgments on Obligations in Foreign Currency (1) Courts in the United States ordinarily give judgment on causes of action arising in another state, or denominated in a foreign currency, in United States dollars, but they are not precluded from giving judgment in the currency in which the obligation is denominated or the loss was incurred.

Still, some courts hold that conversion into US dollar remains the rule.101 Independently from this, the question arises as to whether the debtor has a choice of currency. Under Art. 6.1.9(1) UPICC, the debtor is allowed to choose the currency of the place of payment. In US law, the debtor’s choice goes not to the currency of the place of performance, but instead to US Dollars, at least in certain situations. Often, US law will be applicable because the place of performance is in the United

Restatement (2d) Conflict of Laws § 144 Cmt. b; see Beal (1998), pp. 105–111. Miliangos v. George Frank, Ltd., [1976] App. Cas. 443 (1976); for discussion in the US, see, e.g., Becker (1977), Morris (1977) and Brand (1985). 98 Uniform Foreign-Money Claims Act 1989. 99 The Restatement (4th) Foreign Relations law has a more limited provision that deals with the recognition of foreign judgments: 96 97

Restatement (4th) Foreign Relations Law § 420 (Tentative Draft No. 3 – Jurisdiction 2017) § 420. Judgments Denominated in Foreign Currency (1) If a foreign judgment orders payment in a foreign currency, a court in the United States may issue a judgment denominated either in that foreign currency or in U.S. dollars, unless State law requires otherwise. (2) When converting a judgment denominated in foreign currency to U.S. dollars, a U.S. court uses the exchange rate prevailing on the date of the U.S. judgment granting recognition or enforcement. 100 ReliaStar Life Ins. Co. v. IOA Re, Inc., 303 F.3d 875, 882–883 (8th Cir. 2002). 101 Cont’l Transfert Technique Ltd. v. Fed. Gov’t of Nigeria, 932 F.Supp.2d 153, 158 (D.D.C. 2013).

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States. One is the situation that a judgment has been rendered requiring him to pay in a different currency: UFMCA § 7(b). Judgments and Awards on Foreign-Money Claims (b) A judgment or award on a foreign-money claim is payable in that foreign money or, at the option of the debtor, in the amount of United States dollars which will purchase that foreign money on the conversion date at a bank-offered spot rate.

A similar choice is offered for negotiable instruments: UCC § 3-107 Instrument Payable in Foreign Money Unless the instrument otherwise provides, an instrument that states the amount payable in foreign money may be paid in the foreign money or in an equivalent amount in dollars calculated by using the current bank-offered spot rate at the place of payment for the purchase of dollars on the day on which the instrument is paid.

This leaves the question of how to convert the amount, and especially which day should count for the exchange rate. Art. 6.1.9 UPICC provides for a differentiated approach: in principle, the relevant date is the time when payment is due (Art. 6.1.9 (3)), but if the debtor is in delay, the creditor can alternatively choose the rate at the time of the actual payment (Art. 6.1.9(4)). The Foreign Relations Restatement proposed a comparable solution: the conversion rate should be that of the day of the breach if the foreign currency has since depreciated; it should be the rate on the day of the judgment if the foreign currency has appreciated.102 However, most US courts do not allow for such choice. The United States, the US Supreme Court offered two different possibilities: either the day of the breach,103 or the day of the judgment.104 New York Law follows the latter approach.105 The difference rests on the question whether a claim existed under US law (in which case the day of the breach applied) or under foreign law (in which case the day of the judgment matters).106 The reason for the seemingly arcane distinction has to do with procedure: a US judgment on a foreign debt is thought to bring into existence a new obligation. Art. 6.1.9(4) allows the creditor to choose, alternatively, the date on which payment is actually made for the conversion. This date represents the regular date under the UFMCA. Sec. 5(a) requires to determine the amount on the conversion date; this date is defined in Sec. 1(3):

Rest. (3rd) Foreign Relations § 823 cmt. c. Hicks v. Guinness, 269 U.S. 71, 80 (1925). 104 Deutsche Bank Filiale Nurnberg v. Humphrey, 272 U.S. 517, 518–519 (1926). 105 Judiciary Law (New York) § 27 (Computation of Judgments and Accounts) (b) In any case in which the cause of action is based upon an obligation denominated in a currency other than currency of the United States, a court shall render or enter a judgment or decree in the foreign currency of the underlying obligation. Such judgment or decree shall be converted into currency of the United States at the rate of exchange prevailing on the date of entry of the judgment or decree. 106 In re Good Hope Chemical Corp., 747 F.2d 806, 811 (1st Cir. 1984); ReliaStar Life, 303 F.3d 883. 102 103

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Sec. 1(3) UFMCA Definitions In this Act [. . .] (3) “Conversion date” means the banking day next preceding the date on which money, in accordance with this [Act], is: (i) paid to a claimant in an action or distribution proceeding; (ii) paid to the official designated by law to enforce a judgment or award on behalf of a claimant; or (iii) used to recoup, set-off, or counterclaim in different moneys in an action or distribution proceeding.

All in all, US law is confusing and not very predictable on these matters, and clarification would certainly be desirable. The current state of US law can be explained with regard to several peculiarities of US procedural law which the UPICC do not envisage. A solution like that of the UPICC would be useful.

8 ARTICLE 7.3.1 (Right to Terminate the Contract) US law does not contain the concept of “fundamental non-performance,” but uses a comparable concept to determine whether a breach justifies termination of the contract, namely “material failure”.107 The factors to be used are broadly comparable to those of Art. 7.3.1(2) UPICC, though the factors are not exactly the same.108 Rest. (2d) Contracts § 241 Circumstances Significant in Determining Whether a Failure Is Material In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

The factors named are only circumstances, not rules.109 The UPICC could be of use to suggest additional considerations. Moreover, the UPICC are cleaner, avoiding

107

Huber, Art. 7.3.1 no. 17, in Vogenauer (2013). For detailed analysis of Art. 7.3.1 UPICC with occasional comparison with US law, Janse van Vuuren (1998), pp. 583, 620 ff. 109 Rest. 2d (Contracts) § 241 cmt. a. 108

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the confusing distinction in US law between different ways of terminating the contract, and including, in nonperformance, various different concepts of breach.110 Art. 7.3.1(3) UPICC is in some ways only a specification of Art. 7.3.1(2)(b), given that time is often of the essence for commercial contract. Even then, however, immediate termination is not usually allowed unless the delayed party is given a chance to cure.111 Even where time is not of the essence, the party who is not in delay can make time of the essence by requiring performance.112 The solution is thus comparable but somewhat unpredictable; a clear rule like Art. 7.3.1(3) UPICC would be an improvement.113

9 ARTICLE 7.4.9 (Interest for Failure to Pay Money) The U.C.C. does not specifically provide for interests, and there has been some debate as to whether it allows for consequential damages, including interests.114 The Restatement, however, does allow them: Restatement 2d (Contracts) § 354(1) Interest as Damages (1) If the breach consists of a failure to pay a definite sum in money or to render a performance with fixed or ascertainable monetary value, interest is recoverable from the time for performance on the amount due less all deductions to which the party in breach is entitled.

What neither body determines is the rate of interests. That rate (called the “legal rate”) is statutory and differs between jurisdictions, so the applicable law must be determined through a choice-of-law process, like in Art. 7.4.9(2) 2d Sentence UPICC.115 Differences concern both the amount and the calculation: Most states provide a fixed rate somewhere between 5% and 12%. Delaware provides for a market-oriented flexible rate of 5% over the Federal Reserve rate.116 An unresolved question is whether a party can claim damages over and above the legal rate if they can demonstrate a greater loss. In principle, such losses should be recoverable under the principle of full compensation as consequential or incidental damages. All in all, US law displays the kind of fragmentation and uncertainty that the UPICC try to remedy, with specific view to the CISG (which does not address interest rate) and beyond. In this sense, Art. 7.4.9 UPICC would be a welcome influence on US law, at least for international contracts. Whether the provision can 110

Howard Jenkins (2003), pp. 13–14. 2 Farnsworth (2004), § 8.18, pp. 528–529. 112 Am. Jur. 2d Contracts § 466; Janse van Vuuren (1998), p. 603 f. 113 Similarly II Farnsworth § 8.19a, pp. 545–546. 114 See 3 Farnsworth (2004), § 12.9 n 8, p. 207 (2004) Perillo (2002), pp. 354ff. 115 E.g. Associated Metals & Minerals Corp. v. Sharon Steel Corp.590 F.Supp. 18 (S.D.N.Y. 1983). 116 Delaware Code Title 6 § 2301(a) 2d sentence. 111

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be used for this purpose is, however, doubtful, given how diverse legislative responses in the different jurisdictions are. ARTICLE 7.4.10 (Interest on damages) The Restatement deals only, explicitly, with interests on monetary obligations. Interests on damages for the breach of a non-monetary obligation, or a monetary obligation without a fixed sum, are a matter for judicial discretion.117 Restatement 2d (Contracts) § 354(1) Interest as Damages (1) If the breach consists of a failure to pay a definite sum in money or to render a performance with fixed or ascertainable monetary value, interest is recoverable from the time for performance on the amount due less all deductions to which the party in breach is entitled. (2) In any other case, such interest may be allowed as justice requires on the amount that would have been just compensation had it been paid when performance was due.

10

Analysis

The analysis has demonstrated that the UPICC play a minuscule role for the supplementation and interpretation of US law. It is worth discussing why this is the case. To such purpose, it is helpful to look at a list of situations in which foreign law can be made fruitful:118 1. When the Court Has to Discover “Common Principles of Law” 2. When Local Law Presents a Gap, Ambiguity, Or Is in Obvious Need of Modernisation and Guidance Would Be Welcome 3. When a Problem Is Geographically Wide-Spread and it Is Desirable to Have a Harmonised Response. 4. When Foreign Experience (Aided by Empirically Collected Evidence) Can Help Disprove Locally Expressed Fears About the Consequences of a Particular Legal Solution 5. When the Foreign Law Provides “Additional” Evidence That a Proposed Solution Has “Worked” in Other Systems 6. When the Statute That Is Interpreted Comes from Another Legal System or Has Its Origins in an International Instrument 7. When a Court Is Confronted with Law Regulating Highly Technical Matters Rather Than Value-Laden Issues Situation 1 (Common Principles) was discussed earlier in section III. Notably, the UPICC are not always common principles of law,119 but US courts seem unwilling to use them even where they are.

Perillo (2002), § 57.22, pp. 378ff. Markesinis and Fedtke (2005), p. 76ff.; also in Markesinis and Fedtke (2006), p. 109ff. 119 See Bonell (2005) and Michaels (2014). 117 118

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As to situation 2, there can be little doubt that US contract law is in many ways ambiguous and in need of reform, including in some areas discussed in this article. Without a claim for comprehensiveness, one can posit that two aspects are important. The first concerns the need of a legal order for supplementation. This depends on the one hand on how comprehensive the legal system is: The more questions a legal system has already resolved internally, the less likely it is to refer to a background law for supplementation. This explains the specific potential for UPICC provisions dealing with issues specific to international contracts, given that such issues are often ignored in domestic legislation.120 It depends, on the other hand, on how modern the legal system is. Insofar the UPICC restate, or even develop, a modern understanding of contract law. This makes their innovative provisions attractive. And it makes the UPICC attractive for legal orders that try to adapt to modern contract law, in particular formerly socialist legal orders. The frequent reference to the UPICC as evidence of trade usage or custom in China and Ukraine provide evidence of this.121 Insofar, therefore, US law could draw on the UPICC, which present themselves as a modern solution, and it is remarkable that it does not. Gaps include especially those areas where the UPICC deal with specific issues of international contracts, including issues of contract language and currency of performances. Similarly, some issues in contract law would benefit from a harmonized response (Situation 3), especially those having to do with international contracts, like the issues of currency or interest rates. Again, no influence exists. Situations 4 and 5 are mostly inapplicable (the UPICC do not highlight practical experience). Situation 6 has only indirect applicability: the UPICC were not the source of any US law, though of course they draw on sources that influenced US law as well, especially in the UCC. Influence went the other way. Remarkably, one of the most important reasons for the irrelevance of the UPICC may lie in Situation 7. This appears ironic at first sight: contract law, especially general contract law as that of the UPICC, is typically viewed as technical and not value-laden.122 But one reason for which the UPICC are widely rejected is an underlying idea of contract that is in tension with a contract paradigm in the United States. It has to do with the question of good faith in contract law. US law is not as opposed as is English law to ideas of an overarching good faith principle in contract law. Nonetheless, the way in which such a principle permeates the UPICC creates tensions with a US idea of contracts as the result of a bargain between parties who have fewer extracontractual duties towards each other. This is an explanation for why Art. 2.1.15 does not fit well, and why the focus on intention over objective meaning is unattractive (Art. 4.1). There is an additional reason for why the UPICC do not fit perfectly with US law. The UPICC presume, mostly, an understanding of contract law as separate from

120

For a list of such provisions, see Michaels (2015), no. 24. Michaels, Background Law (2012), p. 649. 122 But see Legrand (1998). 121

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procedure. This is quite appropriate for a private codification that offers itself to numerous adjudicators around the world, courts and arbitrators. It comes in tension, however, with an understanding of the law as closely related to, indeed created in, procedure, as is US law. This provides a reason also for rejection of the CISG.123 This relation with procedure explains differences in contract interpretation (because of the parol evidence rule), and with Art. 6.1.19 (because currency is determined by judgment). Both these grounds for rejection appear less relevant than a third one: the lack of internationalization of US law. To some extent this goes to psychology, the almost stereotypical parochialism of US law and US lawyers, who have more difficulty than lawyers elsewhere to think in terms and ways other than those of their own law. The UPICC are not unknown in the United States; leading textbooks discuss them.124 A more interesting aspect is, however, a concept of law that runs counter to an adoption of the UPICC. There was, once, an understanding of law that would have been open to influence. In the nineteenth century, the common law, including especially contract law, was viewed as having a transnational character. Until the middle of the century, courts frequently used comparative law, especially for commercial law issues.125 The reasons were manifold, but they included a desire (by some) of distance from the former colonizing power (England), a general love for the classics and thus for Roman law and its successors, and a dearth for written texts. In Swift v Tyson, the US Supreme Court suggested that “[t]he law respecting negotiable instruments may be truly declared in the languages of Cicero, adopted by Lord Mansfield [. . . .], to be in a great measure not the law of a single country only, but of the commercial world.”126 Such a broad and transnational conception of contract law would allow for inclusion of the (rather ephemeral) lex mercatoria; it would also, more importantly in this context, allow for reference to the Unidroit Principles as a Restatement of transnational contract law.127 But Swift v. Tyson was overruled in the twentieth century and its understanding of law discarded. The common law, Justice Holmes declared, is not a “brooding omnipresence in the sky,” a transnational unmoored body of rules.128 Instead, even the common law is an expression of sovereignty, held in the area of contract law by the individual states.129 In this particular sense, the common law is at least as domestic as is the codified private law of civil law countries.130 In some way, it is even more so: Codifications, although legislative, can be viewed, to a large extent, as

123

See Reimann (2007), pp. 115–129. See, e.g., 1 Farnsworth (2004) § 1.8a, pp. 38–41. 125 Helmholz Richard (1992), pp. 1649, 1658–1659; Stein (1966), pp. 403, 412–413; see also Clark (1994), pp. 637, 674 (2011); Pound (1938); Hoeflich (2002, 2005). 126 Swift v Tyson, 41 U.S. 1, 19 (1842). 127 Cf. Juenger (1998), pp. 1133, 1143–1144 (1998). 128 Southern Pacific Co. v. Jensen, 244 U. S. 205, 222 (1917). 129 Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). 130 Cf. Michaels (2011), pp. 153–154. 124

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restatements of underlying legal principles that are, in some ways, transnational.131 The common law emerges in the concrete case and is viewed as domestic. The limited influence of the UPICC on US law is therefore not surprising. It does not seem inevitable: some UPICC rules could provide a welcome impetus to reform US contract law in places where it is arcane and unpredictable. Maybe this will still happen. As for now, it has not.

Appendix: List of Cases Cardoso v. Carnival Corporation (S.D. Florida 2010)132 III. Analysis Because Plaintiff has failed to demonstrate that the unequal bargaining power complained of in this particular case constitutes a valid defense pursuant to the Convention, reconsideration is not warranted.1 As I noted in my Order Compelling Arbitration, the Eleventh Circuit has previously held that the same type of unequal bargaining power complained of here—i.e., where a multinational cruise line presents a foreign seafarer with an employment contract on a “take it or leave it” basis— does not “fit within the limited scope of defenses” to the enforceability of an arbitration agreement provided for by the Convention. [DE 32, p. 6] (quoting Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005)). Thus, even assuming the existence of a bargaining advantage, Plaintiff has failed to establish that the disparity complained of constitutes a defense under the Convention,2 regardless of whether it implicates the UNIDROIT Principles referenced by Plaintiff. See Bautista, 396 F.3d at 1302; Koda v. Carnival Cruise Lines, Inc., Case No.: 06-CV-21088, [DE 47] at *2 (S.D. Fla. Sept. 7, 2007) (Hoeveler, J.) (noting that UNIDROIT Principles regarding bargaining power are not controlling in cases where enforcement of an arbitration agreement is sought pursuant to the Convention); see also Polychronakis v. Celebrity Cruise Lines, Inc., 2008 WL 5191104, *3 n. 2 (S.D. Fla. Dec. 10, 2008) (King, J.) (concluding that traditional principles of unconscionability and unequal bargaining power were not valid defenses pursuant to the Convention, even where Plaintiff was required to execute the pertinent agreements when he “was well into the voyage, at sea, and in the midst of performing his duties . . . after any opportunity for negotiation or disembarkation had passed.”).

131 132

Michaels (2012), p. 153. 2010 WL 11506093.

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Chien v. Commonwealth Biotechnologies Inc. (E.D. Virginia 2012)133 *664 The issues raised by Chien on appeal are largely unclear. Indeed, Chien’s brief is a somewhat nubilous discourse on the law of corporations and his view on the effect of the International Institute for the Unification of Private Law Principles of International Commercial Contracts (UNIDROIT Principles) on this present proceeding. [. . .] *665 [9] The core of Chien’s challenge to the Bankruptcy Court’s order is the claim that Chien has the right to represent Fornova’s interests before the Bankruptcy Court. While Chien’s brief is, at times, a wandering missive on corporate agency, his position can be distilled to several discrete theories under which Chien claims the right to represent Fornova: (1) that Fornova is not a corporation under United States law and should be treated as an individual, Appellant’s Br. at 2–4; (2) that Chien has been designated the trustee of Fornova for the purposes of pursuing collection on the debt owed it by CBI, Id. at 4–5, and that the agency principles set forth by the International Institute for the *666 Unification of Private Law (UNIDROIT) mandate that this Court recognize Chien’s right to represent Fornova as its agent, Id. at 6–8; and (3) that Chien’s “free contract” rights, protected under the Fifth and Fourteenth Amendments of the United States Constitution, require that he be allowed to represent Fornova. All of these arguments fail. [. . .] [12] Chien places substantial reliance on the UNIDROIT Principles of International Commercial Contracts which he suggests are both informative and binding.4 The sections of the Principles to which Chien refers seem to be little more than a restatement of the general structure of the principal-agent relationship. See Appellant’s Br. at 6–7. The provisions that Chien cites fundamentally acknowledge that a principal can grant authority to an agent and that the agent may or may not be able bind the principal in dealings with a third party, depending on what the third party knew, or should have known, at the time of the interaction. Id. at 7. Chien argues that his designation as the agent of Fornova for the purposes of collecting the CBI debt changed “the direct contract relation between CBI and Fornova.” Id. *667 However, as noted above, the agent-principal relationship between Chien and Fornova does not make Chien the “party in interest” in the proceedings before the Bankruptcy Court. The designation may well permit Chien to engage an attorney on behalf of Fornova, but it does not permit him to represent Fornova before the Bankruptcy Court and circumvent the requirement that corporations appear through qualified counsel. After all, the right to proceed pro se “has never been enlarged to include— by appointment or substitution—an agent.” Heiskell v. Mozie, 82 F.2d 861, 863 (D.C.Cir.1936). Chien cites no law to the contrary. 4

133

484 B.R. 659.

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Chien identifies four decisions that he asserts is evidence that “US District Court adapted [sic] Unidroit.” Appellant’s Br. at 8. None of these decisions supports the general proposition nor do they inform the applicability of the UNIDROIT Principles to the requirement that corporations be represented by counsel. See Matthews v. Princess Cruise Lines, Ltd., 728 F.Supp.2d 1326, 1331 (S.D. Fla.2010) (referencing the UNIDROIT principles in the context of procedural unconscionability and the enforcement of arbitration provisions); Krstic v. Princess Cruise Lines, Ltd., 706 F.Supp.2d 1271, 1277 (S.D.Fla.2010) (same); Ministry of Def. & Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Def. Sys., Inc., 29 F.Supp.2d 1168, 1173 (S.D.Cal.1998) (finding that the Iran–United States Claims Tribunal’s reference to the UNIDROIT principles was proper since the dispute implicated “general principles of international law”).

Escobal v. Celebration Cruise Operator Inc. (S.D. Florida 2011) (Order Denying Plaintiff’s Motion for Rehear’g)134 Further, the Court rejects Plaintiff’s argument that the arbitration provision should be deemed unenforceable because there is a disparity in the parties’ bargaining power. The Eleventh Circuit and other district courts have rejected similar unequal bargaining power arguments on the basis that plaintiffs failed to establish that such an affirmative defense exists under the Convention. Bautista, 396 F.3d at 1303 (compelling arbitration despite argument that plaintiffs were put in difficult “take it or leave it” situations when presented with the terms of employment); Krstic v. Princess Cruise Lines, Ltd., 706 F. Supp. 2d 1271 (S.D. Fla. Mar. 25, 2010). So too here, Plaintiff fails to persuade the undersigned that unequal bargaining power makes for a defense under the Convention. Indeed, cases involving similar facts have rejected unequal bargaining power as a defense under the Convention, regardless of the UNIDROIT Principles that Plaintiff offers as a model for asserting such a defense. See Krstic, 706 F. Supp. 2d at 1277–78; Koda v. Carnival Corp., Case No. 06-CV-21088 (S.D. Fla. Sept. 7, 2007) (declining to adopt UNIDROIT’s definition of unequal bargaining power and compelling arbitration under the principles of Bautista).

134

2011 WL 13175628.

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Koda v. Carnival Corporation (S.D. Florida Sep 2, 2007) (Order Denying Plaintiff’s Motion for Rehearing)135 *1 Plaintiff bases his motion on the allegation that “there are several points which this Court appears to have overlooked which [it] respectfully ask[s] the Court to now address.” (Pl.’s Mot. for Reh’g at 1.) Specifically, Plaintiff directs the Court to UNIDROITS’s definition of unequal bargaining power and the Jones Act, which Plaintiff argues that courts, including Bautista, fail to meaningfully consider. The Court assures Plaintiff that it has considered these arguments when issuing its earlier Order. UNIDROIT does indeed provide a definition of unequal bargaining power; however, it is one that the Court is not bound to adopt when faced with the Eleventh Circuit’s decision in Bautista to compel arbitration in cases such as this. The Court also took into consideration that the UNIDROIT Principles are not binding unless expressly provided for in a contract.

Krstic v. Princess Cruise Lines, Ltd. (Corp.)(S.D. Florida 2010)136 *1277 Thus, even assuming the existence of a bargaining advantage, Plaintiff has failed to establish that the disparity complained of constitutes a defense under the Convention,6 regardless of whether it implicates the UNIDROIT Principles referenced by Plaintiff.7 See *1278 Bautista, 396 F.3d at 1302; Koda v. Carnival Cruise Lines, Inc., Case No.: 06–cv–21088, [DE 47] at *2 (S.D.Fla. Sept. 7, 2007) (Hoeveler, J.) (noting that UNIDROIT Principles regarding bargaining power are not controlling in cases where enforcement of an arbitration agreement is sought pursuant to the Convention);

Matthews v. Princess Cruise Lines, Ltd. (S.D. Florida 2010)137 1331 Thus, even assuming the existence of a bargaining advantage, Plaintiff has failed to establish that the disparity complained of constitutes a defense under the Convention.8 See Bautista, 396 F.3d at 1302; Koda v. Carnival Cruise Lines, Inc., Case No.: 06–CV–21088, [DE 47] at *2 (S.D.Fla. Sept. 7, 2007) (Hoeveler, J.) (noting that UNIDROIT Principles regarding bargaining power are not controlling in

135

2007 WL 7757994. For excerpts from the parties’ submissions, referencing the UPICC, see http://www.unilex.info/case.cfm?id¼152. 136 706 F.Supp.2d 1271. 137 728 F.Supp.2d 1326.

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cases where enforcement of an arbitration agreement is sought pursuant to the Convention)

Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc. (S.D. California 1998)138 [7]

Cubic also disputes the Tribunal’s reference to the Principles of International Commercial Contracts published in 1994 by the Unidroit Institute (“UNIDROIT Principles”) and the Tribunal’s references to principles of fairness such as good faith and fair dealing. Cubic claims that reference to such international and equitable principles also violates Article V(1)(c) because this law exceeds the scope of the Terms of Reference. The reference to the UNIDROIT Principles does not exceed the scope of the Terms of Reference. One of the issues presented to the Tribunal was whether general principles of international law apply to this dispute. That Cubic disagrees with the Tribunal’s response to the question posed by the Parties is not a reason to find that the Tribunal addressed issues beyond the scope of the Terms of Reference. The same is true for Cubic’s assertions with regard to the Tribunal’s references to equitable principles of contract law.4 As stated earlier, this Court’s discretion in reviewing a foreign arbitration award is quite circumscribed. See Ministry of Defense, 969 F.2d at 770. The Tribunal’s reference to and application of the UNIDROIT Principles and principles such as good faith and fair dealing do not violate Article V(1)(c). The Tribunal applied these principles to differences contemplated by and falling within the terms of the submission to arbitration and therefore the Award does not violate Article V(1)(c).

Rodrigues v. Royal Caribbean Cruises, Ltd. (S.D. Florida 2010)139 *4 Indeed, cases involving similar facts have rejected unequal bargaining power as a defense under the Convention, regardless of the UNIDROIT Principles that Plaintiff offers as a model for asserting such a defense. See Kristic, 2010 WL 154083 at *3; Koda v. Carnival Corp., Case No. 06-CV-21088 (S.D. Fla. Sept. 7, 2007) (declining to adopt UNIDROIT’s definition of unequal bargaining power and compelling arbitration under the principles of Baustista).

138 139

29 F.Supp.2d 1168. 2010 WL 11519654.

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Singh v. Carnival Corporation (S.D. Florida 2013)140 *4 Singh asserts that he need only show that the unconscionability defense “can be applied neutrally on an international scale” in order to be permitted to raise the defense under Article II. In his quest to establish this, Singh invokes the UNIDROIT Principles of International Commercial Contracts (“UNIDROIT Principles”), “a collection of black letter commercial laws, list[ing] various internationally recognized defenses to any contract, including unequal bargaining power.” D.E. 11 at 10 (citing Art. 3.10, Gross Disparity).2 Although the Court certainly understands Singh’s efforts to bring the unconscionability defense within the ambit of Article II, the Court is not persuaded by Singh’s argument. First, presently, 148 countries are signatories to the Convention. See Kevin R. Owens, Mayer Brown, Myanmar: Myanmar Agrees to Become a Signatory to the New York Convention, www.mondaq. com/x/228430/Building+Construction/ Myanmar+Agrees+To+Become+A+Signatory+To+The+ New+York+Convention (Mar. 21, 2013). But only sixty-three countries are members of UNIDROIT. See UNIDROIT, http://unidroit.org./dynasite.cfm?dsmid¼103284 (last visited Mar. 25, 2013). Even assuming a 100% crossover between the two universes of signatories,3 fewer than half of the Convention signatories have ascribed to the UNIDROIT Principles. Thus, even if the UNIDROIT Principles set forth an objectively determinable definition of “unconscionability”—which they do not, despite admirable efforts to do so and an improvement over the utter lack of any principles, that construction of “unconscionability” has not been accepted by more than half of the Convention signatories. As a result, Singh has not demonstrated the existence of a “universal definition of the unequal bargaining power defense that may be applied effectively across the range of countries that are parties to the Convention.” See Bautista, 396 F.3d at 1302. *5 Second, as noted above, while the Court admires, respects, and appreciates the diligent efforts of UNIDROIT to develop universal principles of contract interpretation and finds the UNIDROIT Principles to have value, the Gross Disparity provision contained within the UNIDROIT Principles does not provide an objective standard for discerning unconscionability. For example, although the Gross Disparity article prohibits contracts where one party has an “excessive advantage,” in explicating the meaning of this term, the UNIDROIT Principles state, As the term ‘excessive’ advantage denotes, even a considerable disparity in the value and the price or some other element which upsets the equilibrium of performance and counterperformance is not sufficient to permit the avoidance or the adaptation of the contract under this Article. What is required is that the disequilibrium is in the circumstances so great as to shock the conscience of a reasonable person.

UNIDROIT Principles, Art. 3.2.7, Comment 1. Of course, a “disequilibrium . . . so great as to shock the conscience of a reasonable person,” while clothed in the

140

2013 WL 12139415.

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language of an objective standard, is hardly, in practical application, capable of objective ascertainment across the 148 countries who are signatories to the Convention. What shocks the conscience in one country is not necessarily the same as what shocks the conscience in another country. Third, other judges have similarly concluded that the UNIDROIT Principles do not solve Bautista’s concern for a “universal definition of the unequal bargaining power defense that may be applied effectively across the range of countries that are parties to the Convention.” See, e.g., Krstic v. Princess Cruise Lines, Ltd. (Corp.), 706 F. Supp. 2d 1271, 1277-78 (S.D. Fla. 2010) (Gold, J.); Koda v. Carnival Corp., Case No. 06-21088-CIV-HOEVELER (S.D. Fla. Sept. 7, 2007), D.E. 47 at 2. For all of these reasons—and particularly because of the emphasis in international arbitration on the need for universally applicable defenses under Article II of the Convention, the Court concludes that Singh has not established that he may invoke the defense of unconscionability under Article II of the Convention.

References Barnes WR (2007) Toward a fairer model of consumer assent to standard form contracts: in defense of restatement subsection 211(3). Wash Law Rev 82:227 Becker JD (1977) The currency of judgment. Am J Comp Law 25:152 Beal C (1998) Foreign currency judgments: a new option for United States courts, 19 u Pa. J Int’l Econ L 101:105–111 Bernstein L (2015) Custom in the courts. Nortwest Univ Law Rev 110:63 Bonell MJ (2005) An international restatement of contract law: the UNIDROIT Principles of International Commercial Contracts, 3rd ed Bonell MJ (2008) The CISG, European contract law and the development of a world contract law. Am J Comp Law 56:1 Bonell MJ, Lando O (2013) Future prospects of the unification of contract law in Europe and worldwide—a dialogue between Michael Joachim Bonell and Ole Lando on the occasion of the seminar in honour of Ole Lando held in Copenhagen on 29 August 2012. ULR 17 Born G (2014) International Commercial Arbitration, 2nd ed Boss AH (2007) The future of the uniform commercial code process in an increasingly international world. Ohio State Law J 68:349 Brand RA (1985) Restructuring the U.S. approach to judgments on foreign currency liabilities: building on the English experience. Yale J Int Law 11 Braucher J (2000) Delayed disclosure in consumer E-commerce as an unfair and deceptive practice. Wayne Law Rev 46:1805 Burton SJ (2007) Elements of contract interpretation Clark DS (1994) The use of comparative law by American courts (I). Am J Comp Law Supp 42:23 Clark DS (2011) Comparative law in colonial British America. Am J Comp Law 59 Corbin AL (1960) On contracts § 537, at 51 Deeb Gabriel H (2012) The UNIDROIT Principles of International Commercial Contracts: an American perspective on the principles and their use. Uniform Law Rev 17 Duhl G (2004) Red Owl’s legacy. Marquette Law Rev 87:297 Farnsworth EA (1987) Precontractual liability and preliminary agreements: fair dealing and failed negotiations. Columbia Law Rev 87:217 Farnsworth EA (1995) Duties of good faith and fair dealing under the UNIDROIT Principles, Relevant International Conventions, and National Laws. Tulane J Int Comp Law 3

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Farnsworth EA (1998) American provenance of the UNIDROIT Principles. Tulane Law Rev 72 Farnsworth EA (2004) 1 Farnsworth on contracts § 3.26, 3rd ed Gabriel HD (2004) Contracts for the sale of goods: a comparison of domestic and international law Greenberg ME (1987) International contracts: problems of drafting and interpreting, and the need for uniform judicial approaches. Boston Univ Int Law J 5 Helmholz Richard H (1992) The use of the civil law in post-revolutionary American jurisprudence. Tulane Law Rev 6 Hoeflich MH (2002) Translation and the reception of foreign law in the Antebellum of the United States. Am J Comp Law 50:753 Hoeflich MH (2005) Comparative law in Antebellum America. Wash Univ Global Stud Law Rev 4:535 Howard Jenkins S (2003) 13 Corbin on Contract—Discharge, §67.2 Janse van Vuuren E (1998) Termination of international commercial contracts for breach of contract: the provisions of the Unidroit of International Commercial Contracts. Ariz J Int Comp Law 15:583 Juenger FK (1998) The Lex Mercatoria and Private International Law. La Law Rev 60 Kniffin MN (1998) 5 Corbin on Contracts—Interpretation, § 24.5, Rev’d ed Kurkela M et al (2010) Due Process in International Commercial Arbitration 63 Left AA (1967) Unconscionability and the code-the Emperor’s new clause. Univ Pa Law Rev 115:485 Legrand P (1998) Counterpoint: law is also culture. In: The Unification of International Commercial Law 245 Levie JH (1965) Trade usage and custom under the common law and the uniform commercial code. N Y Univ Law Rev 40:1101 Linzer P (2010) 6 Corbin on Contracts—Parol Evidence/Implied Terms, Rev’d ed Llewellyn KN (1960) The Common Law Tradition 122 Lonegrass MT (2012) Finding room for fairness in formalism— the sliding scale approach to unconscionability. Loyola Univ Chic Law J 44:1 Lovejoy E (2017) Taking advantage of laws not people: curbing language discrimination against Texas consumers. Baylor Law Rev 59 Markesinis B, Fedtke J (2005) The judge as comparatist. Tulane Law Rev 80:11 Markesinis B, Fedtke (2006) Judicial recourse to foreign law Meyer O (2017) The UNIDROIT Principles as a means to interpret or supplement domestic law. Uniform Law Rev 21:599, 600 Michaels R (2009) Umdenken für die UNIDROIT-Prinzipien: Vom Rechtswahlstatut zum Allgemeinen Teil des transnationalen Vertragsrechts. Rabels Zeitschrift 73:866 Michaels R (2011) Of islands and the ocean. In: Brownsword R, Niglia L, Micklitz H-W (eds) Foundations of European private law. Hart Michaels R (2012) Restatements. In: Max Planck Encyclopedia of European private law, p 1466 Michaels R (2014) The UNIDROIT Principles as global background law. Uniform Law Rev 19:643 Michaels R (2015) Preamble I, nos. In: Vogenauer S (ed) Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC), nos. 134-40 2d ed. Morris JJC (1977) English Judgments in foreign currency: a “procedural” revolution. Law Contemp Problems 41:44 Murray J Jr (2014) The judicial vision of contract: the constructed circle of assent and unconscionability. Duq. Law Rev 52 Nafziger JAR (2002) Oregon’s conflicts law applicable to contracts. Willamette Law Rev 38 Nafziger J (2010) The Louisiana and Oregon codifications of choice-of-law rules in context. Am J Comp Law Supp 58 Oser D (2008) The Unidroit Principles of International Commercial Contracts: a governing law? Ottinger P (2000) Principles of contractual interpretation. La Law Rev 60 Perillo JM (1994) Unidroit Principles of International Commercial Contracts: the black letter text and a review. Fordham Law Rev 63

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Use of the UPICC in Order to Interpret or Supplement National Contract Law: Venezuela Eugenio Hernández-Bretón and Claudia Madrid Martínez

Abstract The UPICC are acknowledged as a source of law b in Articles 30 and 31 of the 1998 Act on Private International Law, which are based on Articles 9 and 10 the 1994 Mexico Convention. Commentators agree that the UPICC are part of the new Lex mercatoria, and as such they should be useful tools in regulating issues of international contract law. In particular, the UPICC have been accepted by case law and scholars as part of the new Lex mercatoria and as part of the law applicable to international commercial contracts. In respect of domestic contracts, although there are some conspicuous Supreme Court decisions in which the UPICC have been recognized as an indication of modern trends on comparative contract law, Venezuelan courts still have to discover the real use and benefit of the UPICC as a supplement of Venezuelan substantive rules on contracts.

E. Hernández-Bretón (*) · C. Madrid Martínez Universidad Central de Venezuela, Caracas, Venezuela e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2021 A. Garro, J. A. Moreno Rodríguez (eds.), Use of the UNIDROIT Principles to Interpret and Supplement Domestic Contract Law, Ius Comparatum – Global Studies in Comparative Law 51, https://doi.org/10.1007/978-3-030-54322-8_21

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1 Is There Any Legal Source in Your Legal System Allowing the Use of the UPICC to Interpret or Supplement National Contract Law (Either by Way of Explicit and Specific Legislation, by Way of Reference to “Trade Usages”, “General Principles of Law”, or Based in Any Other Source)? If So, Please Refer to Such Legal Source, Explaining How the Court Has Reached Such a Decision (Indicating, for Example, Whether and How the Courts Reached the Conclusion that the UPICC Represent “Trade Usages” or “Customs” in the Field of Contract Law) The first recognition of UPICC made in Venezuelan domestic legislation can be found in Article 30 of the Act on Private International Law (“APIL”),1 which is drafted after Article 9 of the Inter-American Convention on the Law Applicable to International Contracts (CIDIP V-Mexico 1994) (“Mexico Convention”). Article 30 of APIL orders that in the absence of a choice or faced with an ineffective choice of the law applicable the court will apply the law with the closest connection to the contract. For such purposes the Court will take into account all objective and subjective elements arising from the contract and will also take into account the general principles of international commercial law accepted by international institutions.2 In turn, Article 31 of APIL,3 which is drafted after Article 10 of the Mexico Convention, orders the application “where pertinent” of the guidelines, customs and principles of international commercial law, as well as the generally accepted commercial usages and practices in order to effect the demands imposed by justice and equity in the specific case. By its text Article 30 would seem to order the court to take into account said principles to determine the law of the State with which the contract is most closely linked or has the closest relationship. However, as we will emphasize later on, Article 30 refers to the general principles of international commercial law accepted by international institutions. Generally, those principles constitute uniform material

1

Official Gazette No. 36.511, 6 August 1998. Article 30: In the absence of a valid choice, contract obligations are governed by the law with which they are most directly linked. The Court will take into account all objective and subjective elements that can be inferred from the contract in order to determine this law. Also, the general principles of international commercial law accepted by international institutions will be taken into account. 3 Article 31: In addition to the provisions of the foregoing articles, where pertinent, the guidelines, customs and principles of International Trade Law, as well as generally accepted trade usages and practices, will be applied in order to fulfill the requirements of justice and equity in the solution of the specific case. 2

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regulations; they are rules of commercial law materially unified. Their function is not to determine the law applicable to international commercial transactions, but to provide a material answer, that is, a direct and immediate answer to the problem. Again, the question is: what is the role of the general principles of international commercial law accepted by international institutions in determining the law applicable to contracts? To shed light on this matter, we need to examine the opinions of the first commentators of the Mexico Convention. For example, Professor Pereznieto Castro (Mexico) stated that the principles should be taken into account to determine the subjective and objective elements. This obviously also leads to determining the law of the State with which the contract has the closest links. In turn, Professor Juenger (Davis) stated that the current drafting of Article 9 of the Mexico Convention indicates to the interpreter the need to select the law that best satisfies material justice and the demands of international commerce. In this regard, Professor Juenger linked Article 9 with Article 10, which orders the application “where relevant” of the guidelines, customs and principles of international commercial law, as well as the generally accepted commercial usages and practices in order to effect the demands imposed by justice and equity in the specific case. The reference to the general principles of international commercial law accepted by international institutions in Article 9 of Mexico Convention must be understood as a supplementary solution of the conflict system provided for in the first part of that Article. It seeks to endow the interpreter with a highly flexible mechanism that allows selecting the national or non-national regulatory system that is best suited for justice and needs of international commerce in the absence of a choice or faced with an ineffective choice of the law applicable by the contracting parties.4 The question arises: How do we determine the content of the abovementioned general principles of international commercial law? A first definition is that made by the APIL and the Mexico Convention: They are those accepted by international institutions. This was done in order to avoid any uncertainty in the determination thereof, whether regarding government institutions, such as the International Institute for the Unification of Private Law (UNIDROIT) and the United Nations Commission for International Commercial Law (UNCITRAL) or non-governmental, such as the International Chamber of Commerce, the London Corn Trade Association, the International Air Transportation Association (IATA), and even the Institute of International Law, for example. One of the strongest criticisms made regarding the admission of the new Lex mercatoria as the body of law governing international commerce has been its lack of determination, the difficulty that arises in precisely determining its contents. The weight of this task has been lightened regarding international commercial contracts. UPICC, such as the UNIDROIT Principles for International Commercial Contracts, are considered as part of the new Lex mercatoria. That was accepted by the Civil Chamber of the Supreme Court of Justice in Banque Artesia Nederland, N.V. vs.

4

See generally Hernández-Bretón (2001), pp. 325 et seq.

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Corp Banca, Banco Universal, C.A. In this decision, the Civil Chamber characterized the UPICC as those referred to in Article 30 of the APIL.5 It is often said that the UPICC only constitute the scientific opinion of the experts who created them, unrelated to a given national legal system. However, the APIL and the Mexico Convention have endowed them with their own legal force and authority. In any event, given the status of things, the application of the principles and of the new Lex mercatoria requires caution. Such application should be geared toward the specific needs of the case regarding international trade and justice.

2 Have the UPICC Been Used as Evidence of a General Consensus on the Law Applicable to Contracts (for Example, on the Existence of a Duty of Good Faith, the Obligation to Pay Interest, the Requirement That a Breach of Contract Must Be “Fundamental” in Order to Allow for the Termination of the Contract, Etc.)? If So, Please Indicate Which Specific Provision of the UPICC Has Been Used in This Way, Referring Also to the Factual Context of the Dispute in Which the UPICC Have Been Used in This Manner In a decision of the Civil Chamber of the Supreme Court of Justice of 20 May 2010, the Court referred to the UPICC in order to characterize Articles 1151 and 1153 of the Venezuelan Civil Code—dealing with violence as a vice of consent—as “modern trends that inform the principles of commercial contracting”, and as general principles accepted in Comparative Law.6

5

Supreme Court of Justice, Civil Chamber, Decision No. 0738, 2 December 2014 (Banque Artesia Nederland, N.V. vs. Corp Banca, Banco Universal, C.A.), in: http://historico.tsj.gob.ve/decisiones/ scc/diciembre/172223-rc.000738-21214-2014-14-257.html. 6 Supreme Court of Justice, Civil Chamber, Decision No. 0176, 20 May 2010 (Rafael Alfonzo Sotillo vs. Instituto de Clínicas y Urología Tamanaco, C.A. et al.), in: http://historico.tsj.gob.ve/ decisiones/scc/mayo/rc.000176-20510-2010-06-451.html.

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3 Assuming That the UPICC Have Been Not Been Used by Courts in Your Country for the Purpose of Interpreting or Supplementing National or Local Rules on Contract Law, Indicate Whether They Have Been Used in Any Other Way and How. Discuss, for Example, Whether References to the UPICC Were Made as a General Body of Contract Law or to Some of Its Provisions in Particular; Whether References to the UPICC Were Made in Combination with Other Instruments of Uniform Law Such as the UN Convention on Contracts for the International Sale of Goods (“CISG”) or a More Diffuse Body of State Laws (e.g., the So Called lex mercatoria) Case law has resorted to UPICC in a few cases, most notably in the Pepsi-Cola case the Political Administrative Chamber of the Supreme Court,7 where the Court used the UPICC to examine the “internationality” of the underlying contract.8 As was mentioned above, in a more recent decision the Civil Chamber of the Supreme Court considered that the UPICC are part of the general principles of international commercial law accepted by international institutions under Article 30 of the APIL.9 However, none of these two decisions sheds much light on the reasoning why such Principles are part of the “general principles of commercial law”.

7 Supreme Court of Justice, Political Administrative Chamber, Decision of 9 October 1997, (Embotelladora Caracas et al. v. Pepsi Cola Panamericana S.A.), in: Revista de la Facultad de Ciencias Jurídicas y Políticas, Universidad Central de Venezuela, No. 109 (1998), Caracas, p. 150 et seq. 8 See Linnenborn (1999), p. 192 et seq. 9 Supreme Court of Justice, Civil Chamber, Decision No. 0738, 2 December 2014 (Banque Artesia Nederland, N.V. vs. Corp Banca, Banco Universal, C.A.), in: http://historico.tsj.gob.ve/decisiones/ scc/diciembre/172223-rc.000738-21214-2014-14-257.html.

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4 Please Indicate Whether Any of the Following Selected Provisions of the UPICC Have a Counterpart in Your National (Domestic) Contract Law 4.1

ARTICLE 2.1.15 (Negotiations in Bad Faith)

In Venezuela, scholars accept without hesitation that good faith constitutes a general principle of law.10 It represents an ethical and legal value that the community considers valuable and that bases numerous legal rules. Good faith fulfills a key role when interpreting contracts, serving as a guide for legal operators in understanding and applying the rules governing contracts, as well as the particular rules that are created by the parties; and it also fulfills an integrating function, by allowing the adaptation of abstract legal rules to the specific case and extracting from them specific legal duties in the contractual and post and pre-contractual phases.11 Specifically in the pre-contractual phase, from the principle of good faith—in objective sense–, considered in its integrating function, there follows implicit concrete duties, not expressly established in the law. In this sense, scholars emphasize, among other duties, the loyalty in the negotiations, which implies, for example, the non-abusive breaking of the negotiations to the detriment of the other party; the pre-contractual duty of information and the duty of confidentiality.12 Given the silence of the legislator, non-contractual civil liability rules shall applied to the breach of pre-contractual duties.

4.2

ARTICLE 2.1.20 (Surprising Terms)

Currently there is no specific regulation on surprising terms in contracts. The most similar notion appeared in the repealed Act for the Defense of the Persons in the Access to the Goods and Services, which was enacted to secure consumer protection. In accordance with this Act, the competent administrative authority had the broad and general authority to annul, through an administrative act, the clauses that put the persons at a disadvantage or violated their rights.

10

Supreme Court of Justice, Political Administrative Chamber, Decision No. 01423, 6 November 2008 (Ferrostaal Aktiengesselschaft y Howaldtswerke Deutsche Werft Aktiengesellschaft vs. República Bolivariana de Venezuela), in: http://historico.tsj.gob.ve/ decisiones/spa/noviembre/01423-61108-2008-2001-0697.HTML. Supreme Court of Justice, Political Administrative Chamber, Decision No. 03668, 2 June 2005 (Delia Mercedes Escobar de Vivas vs. Contraloría General de la República), in: http://historico.tsj.gob.ve/decisiones/spa/ junio/03668-020605-2004-1514-7.HTM. 11 Maduro Luyando and Pittier Sucre (2001), pp. 804–805. 12 Rodríguez Matos (2004), pp. 430–453.

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Thus, the repealed Act characterized as prohibited contract clauses that: 1. Exonerate, mitigate or limit the liability of suppliers for defects of any nature of the goods or services provided. 2. Involve the waiver of the rights that current legislation recognizes to the persons, or limit their exercise. 3. Revert the burden of proof to the detriment of persons. 4. Impose the mandatory use of arbitration. 5. Allow the supplier to unilaterally modify the price or other contract conditions. 6. Authorize the supplier to terminate the contract unilaterally. 7. Establish unfair burdensome contract conditions for persons, or which renders them defenseless or are contrary to public order and good faith. 8. Establish as a special domicile for the resolution of disputes and claims by administrative or judicial means a venue different from the place where the contract was concluded, or from the persons’ place of residence. 9. Set the price in a foreign currency, as a mechanism likely to undermine the application of the rules issued in defense of the public welfare or social interest. Today, in accordance with Article 7.10 of the Act on Fair Pricing,13 consumers have the right to protection in respect of standard form contracts that are disadvantageous or harm their rights or interests.

4.3

ARTICLE 4.1 (Intention of the Parties)

Within the Venezuelan system, Article 12 in fine of the Code of Civil Procedure is the rule establishing the criteria to be considered in the interpretation of the contracts. According to that rule, “In the interpretation of contracts or acts that present darkness, ambiguity or deficiency, the judges shall conform to the purpose and intent of the parties or grantors, having in view the demands of the law, of truth and of good faith”. Regarding this rule, it should be clarified that it does not enshrine the principle in claris non fit interpretatio, since just admitting that a contract is clear in its formulation requires a prior process of interpretation. Therefore, the actual will of the parties is established as the main criterion of interpretation of the contract, giving preference over the declared will. However, the legislator did not establish the guidelines that the judge will follow to apply this postulate,14 but rather established three criteria that would come to place objective limits on the search for the real intention of the parties: The law (ley), truth (verdad) and good faith (buena fe). Professor Mélich Orsini described the functioning of the law, the truth and good faith guidelines in interpreting contracts.15 The function of the law in the interpretation of the contract has to be appreciated from two points of view. Firstly, in the sense of respecting the interpretative guidelines established by the law and,

13

Official Gazette No. 40.787 (2015). Barrios (1982), pp. 15 ss., particularly pp. 123–124. 15 Mélich-Orsini (2006), pp. 416–417. 14

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secondly, in what is called the integrating interpretation of the contract, that is, the content of the contract must be interpreted in conciliation with the legal system. To take into account the demands of the truth implies that the approach of the judge to what was the purpose and intention of the parties must appear as the result of a transparent and impartial attitude. In relation to good faith, the author states that the interpreter, in his search for the common intention of the parties, must start from the assumption that each of them has acted with reciprocal spirit of loyalty, by choosing the sensitive signs directed to express their common intent.

4.4

ARTICLE 4.2 (Interpretation of Statements and Other Conduct)

There is no specific rule in this regard, but Article 12 of the Code of Civil Procedure applies as the general rules on the interpretation of any declaration of will.

5 ARTICLE 4.3 (Relevant Circumstances) There are no guidelines for courts in determining the common intent of the parties. From a comparative study, scholars16 explained some guidelines to be considered by judges to arrive at the truth in the search for the common will of the parties. In first place, the grammatical interpretation of the parties’ statements, without subordinating it to the principle of pre-eminence of subjective interpretation. Second, the systematic interpretation, which postulates the necessary coherence between the plurality of clauses contained in a contract. Third, the interpretation that leads to the preservation of the contract should be favored. Fourth, when in a contract the terms are susceptible of two or more meanings, the one that best suits the nature of the contract shall be preferred. The so-called extratextual interpretation appears in fifth place, according to which it is necessary taking into account the circumstances that have surrounded the conclusion of the contract, the profession of the parties, their degree of culture, etc., which will clarify conventional, idiomatic or jargon expressions. The sixth guideline refers to interpretative usages. Favoring the debtor’s release when in doubt, is mentioned in seventh place. In the case of adhesion contracts, scholars recommend applying the principle contra proferentem, in order to privilege the interpretation unfavorable to the one who has drafted the contract. Scholars stated that these criteria are not legally mandated, but they may be derived from the truth as a guiding principle in order to determine the real intention of the parties. 16

Mélich-Orsini (2006), pp. 408–416.

Use of the UPICC in Order to Interpret or Supplement National Contract Law:. . .

5.1

403

ARTICLE 4.4 (Reference to Contract or Statement as a Whole)

This criterion is not established by an express rule, but Venezuelan scholars admit it when reference is made to the systematic interpretation of the contract as a whole, which postulates the necessary coherence among all the contract clauses.

5.2

ARTICLE 4.5 (All terms to be Given Effect)

This criterion is not established by an express rule. However, scholars are of the view that in searching for the real intention of the parties, the interpretation that leads to the preservation of the contract shall be favored.

5.3

ARTICLE 4.7 (Linguistic Discrepancies)

There is no rule on this issue. Scholars have not dealt with this issue. According to certain scholars, the factual nature of the terms used by the contract must be taken into account and thus courts should use their good judgment, taking into account the law of the State whose language is used in the drafting of the contract or the law of the place of performance, when some terms are used in the sense that that law gives them. Scholars also admit the application of the law of the place of contracting, when the nature of the contract so requires, and even of some components of the Lex mercatoria.17

5.4

ARTICLE 6.1.9 (Currency of Payment)

The issue of the currency of payment of contract obligations is treated in respect of pricing in a foreign currency. Thus, according to Article 128 of the Act of the Central Bank of Venezuela,18 “Payments stipulated in foreign currencies are to be made, except for a special convention, with the delivery of the equivalent in legal tender, at the exchange rate prevailing at the place of payment at the payment date”. The reference to a special convention is understood as the decision of the parties in order to consider the foreign currency as currency of payment and not only as currency of account. Consider a foreign currency as currency of payment implies that the foreign

17 18

Barrios (1982), pp. 15 et seq., at p. 174. Special Official Gazette No. 6.211 (2015).

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monetary species are in obligatione and that they also are in solutione: the debtor is required to pay in foreign currency and is only released by paying in that foreign currency. However, the debtor has always the right to be released from the obligation by paying in legal tender at the place of payment since Article 128 of the Act of the Central Bank of Venezuela does not seem to recognize the right of the creditor to demand payment in a foreign currency when the debtor decides to enforce the benefit enshrined in the rule and which is based on the principle of favor debitoris. Since 2003 to 2018, a strict foreign exchange control regime has been in force in Venezuela, and it had an important impact on performance of foreign currency obligations. Thus, if the foreign currency was agreed as a currency of account, the lack of access to the foreign currency did not make the performance impossible or more expensive, since the obligation can be performed in the equivalent of legal tender at the time of payment. However, according to case law if the foreign currency was agreed upon as a currency of payment, the limitation imposed on the debtor to access the foreign exchange market could make it more difficult or impossible. If performance becomes more onerous, the solution would depend on the provisions of the Lex Contractus on the hardship doctrine. If, on the other hand, it becomes impossible, the debtor would be released by delivering the equivalent in legal tender.19 Some decisions of the Supreme Court of Justice, without going into the issue of the type of currency in which the parties have agreed to perform the obligation, ordered the payment of foreign currency obligations in their equivalent in bolivars. Even the Supreme Court deduced the will of the parties to pay in bolivars, from the fulfillment of the obligation imposed by Article 130 of the Act of the Central Bank of Venezuela, rule according to which, “All the memorials, writings, entries or documents submitted to the courts and other public offices related to international exchange transactions in which securities are expressed in foreign currency, must at the same time contain their equivalence in bolivars”.20 In 2018, the Exchange Agreement No. 121 restored the free convertibility of the currency, with which the aforementioned solution of Article 128 of the Act of the Central Bank is perfectly applicable. The problem has arisen in relation to the applicable exchange rate, because since 2003 several “official” exchange rates have been in effect.

19

Rodner (1983), pp. 186–187. Supreme Court of Justice, Civil Chamber, Decision No. 0180, 13 May 2015, (Edith López Gil vs. Sete Silva Albo Lasry) in: http://historico.tsj.gob.ve/decisiones/scc/abril/176275-RC. 000180-13415-2015-14-586.HTML. 21 Special Official Gazette No. 6.405 (2018), 7 September 2018. 20

Use of the UPICC in Order to Interpret or Supplement National Contract Law:. . .

5.5

405

ARTICLE 7.3.1 (Right to Terminate the Contract)

In accordance with Article 1167 of the Civil Code, “In bilateral contracts, if one of the parties does not perform its obligation, the other may at its election judicially claim the performance of the contract or the resolution thereof, with the damages in both cases if applicable”. This provision reaffirms the recourse to forced performance of the contract as one of the possibilities available to the creditor in the event of default by the debtor and the only element required by the rule is precisely the breach of the contract. That same breach is required for the resolution action. In addition to the breach, writers22 have referred that it is necessary, in the first place, the bilaterality of the obligation, secondly, the voluntary nature of the breach, even though it is admitted that it may be a partial breach. It is necessary, thirdly, that the party that files the complaint has fulfilled or offers to fulfill its obligation. Although the rule requires the intervention of the judge to declare the resolution, scholars are in favor of the acceptance of the express resolutory clause, because although there is no rule that authorizes the express resolutory clause, there is no one that expressly prohibits it.23 The rule also establishes the possibility of requesting compensation for damages that may result from the breach of contract.

5.6

ARTICLE 7.4.9 (Interest for Failure to Pay Money)

The breach of the obligation to pay money creates for the debtor the obligation to pay damages, which in the absence of an agreement to the contrary, always consist in the payment of the legal interest. This is stipulated in Article 1277 of the Civil Code. According to the majority of scholars, no damages shall be paid in addition to interest, unless otherwise provided by law. This is the case of Article 1655 (the partner who has been obliged to contribute a sum of money and did not do so in a timely manner, will be liable for the interest and also for the damages and losses, if applicable) and Article 1821 (the guarantor who has paid will have recourse against the principal debtor will be entitled to the interests of what was paid and even to the compensation of damages, if any) of the Civil Code. The interest—for damages derived from the voluntary breach of a monetary obligation—can be either: the contractual interest, fixed by the parties, and the legal interest, set by the legislator at 3% per year (Article 1746 of the Civil Code). In civil matters, the contractual interest cannot exceed one-half the current market interest at the time of conclusion of the contract, unless otherwise provided by the Law. In case of excess, the judge will reduce it to the market interest (Article 1746 of the Civil Code). In commercial matters, paradoxically, even by agreement the 22 23

Maduro Luyando (1993), pp. 513–515. Gorrín (2007), p. 431 et seq., p. 460.

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current market interest cannot be exceeded, provided that this does not exceed 12% per year (Article 108 of the Commercial Code). In addition to the foregoing legal limits, it is necessary to take into account that the Act on Fair Pricing considers as usury the action of any person who through an agreement, whatever the form used to record the operation, hides or reduces, or obtains for himself or for a third party, directly or indirectly, a benefit that implies a notoriously disproportionate advantage to the consideration he performs on his part (Article 59). In any case, if the debt earns compensatory interest and a breach occurs, all interest that is earned after default will become moratory. The breach excludes other type of interests.

5.7

ARTICLE 7.4.10 (Interest on Damages)

According to Venezuelan law, non-monetary obligations do not earn interest. However, in case of performance of a court ruling ordering the fulfillment of an obligation to do (hacer) or not to do (no hacer) that cannot be performed or which performance becomes too onerous, the judge will determine the credit in an amount of money and proceed as if it were a pecuniary obligation (Article 529 of Code of Civil Procedure). One of the consequences of this transformation is that the obligation –now a monetary obligation– could earn interest.

6 If There Is a Statutory or Case-Law Rule (Such as a Code Provision or Jurisprudential Line of Decisions) Dealing with the Same or Similar Issue Addressed by Those Selected Provision of the UPICC, Please Reproduce the Full Text of Such a Provision or Case-Law Rule, Indicating Any Relevant Difference You Find Between the Domestic Rule of Contract Law and the Selected Rule of the UPICC, Also Indicating Whether the UPICC May Be Relied Upon by the Courts of Your Country as a General Principle of Contract Law Interpreting and Supplementing National Contract Law We have not found case law in which the UPICC have been relied upon by the courts of Venezuela as a general principle of contract law interpreting and supplementing national contract law.

Use of the UPICC in Order to Interpret or Supplement National Contract Law:. . .

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7 If There Is No Such a Rule of Contract Law in Your Jurisdiction, Please Indicate, with Reasons, Whether Any of Those Selected Provision of the UPICC MAY, in Your View, Be Relied Upon as a Source of Interpretation of the Law of Contracts in Force in Your Country, or for the Purpose of Supplementing Gaps in Your National Contract Law In Venezuela, hardship is not expressly regulated. This has led to several discussions among commentators and case law regarding the requirements and effects of the doctrine on hardship. In this sense, the UPICC would be very useful. In effect, commentators and case law have been discussing whether favoring the principle of contract intangibility, which would maintain the obligation to be performed as it was agreed, despite the adverse consequences for the debtor, or admit the hardship doctrine, which would lead to modification of the essentials of the executed contract or to contract termination. Although some scholars have rejected the possibility of an external intervention in the contract terms, either terminating it or modifying it, stating that hardship has no very solid foundations, nor are there clear concepts in relation to the requirements, which would justify the violation of the principle of intangibility of the contract,24 other scholars and case law have admitted the application of the doctrine. In this regard, it has been asserted that if requiring the debtor to deliver what he has promised is an act of justice; on the contrary, it would be unfair to demand that he delivers something that, due to extraordinary and unpredictable events, has become a different thing than the agreed one. Additionally, Venezuelan law does not expressly prohibit the application of the hardship doctrine, which could be justified on the general principle of good faith,25 a principle that would help to reduce the rigor of performance of the contract as agreed upon if the circumstances have materially changed. In those cases in which the parties have expressly foreseen that their contract will not be altered by cost increases or other subsequent modifications, such a contract must be fulfilled exactly as it was contracted. Something similar would occur in those cases in which the parties have expressly foreseen an alteration in the economy of the contract, incorporating value clauses or clauses to adjust benefits for supervening events or changes in inflation rates. Thus, the hardship doctrine would only apply in those cases in which the effects of certain variations on the contract have not been expressly foreseen in the relevant contract. For its part, the Civil Chamber of the Supreme Court of Justice admitted that regardless of the lack of a express recognition of the hardship doctrine in our Civil Code, the party that intends to terminate a contract as a consequence of the excessive 24 25

Mélich-Orsini (2006), pp. 448–449. Urbaneja (1972), pp. 38–40.

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“hardship” (onerosidad) for performance under the agreed terms, must invoke the hardship doctrine as an exception if performance is requested. In that case, the defendant may raise the defense when answering the complaint, as stated in Article 361 of the Code of Civil Procedure.26

8 Please Include Those Rules of the UPICC (Other Than Those Included in the Given List) Which Have Been Relied Upon by Courts or Arbitral Tribunals for the Purpose Interpreting a Similar Provision of Your National Contract Law or in Order to Supplement (Thus Serving as a Gap-Filler) the National Contract Law in Force in Your Jurisdiction We are not aware of courts or arbitral tribunals resorting to the rules of UPICC for the purpose interpreting a similar provision of Venezuelan contract law or in order to supplement Venezuela contract law.

References Barrios H (1982) La interpretación del contrato por el juez en el Derecho interno y en el Derecho internacional privado. In: Libro Homenaje a José Mélich Orsini. Caracas, Instituto de Derecho Privado, Facultad de Ciencias Jurídicas y Políticas, Universidad Central de Venezuela, Vol. I, p 15 et seq Gorrín G (2007) Desnaturalización de la cláusula resolutoria expresa. In: Derecho de las obligaciones en el nuevo milenio, (Coord. I. de Valera), Caracas, Academia de Ciencias Políticas y Sociales, Asociación Venezolana de Derecho Privado, Serie Eventos N 23, p 431 et seq Hernández-Bretón E (2001) Las obligaciones convencionales en la Ley de Derecho Internacional Privado, Libro Homenaje a Gonzalo Parra Aranguren, Volume II, p 325 et seq Linnenborn O (1999) Die Derogation der venezolanischen Gerichtsbarkeit durch eine Schiedsvereinbarung. IPRax, p 192 et seq Maduro Luyando E (1993) Curso de Obligaciones, Derecho Civil III, Caracas, UCAB, Manuales de Derecho, 8ª ed Maduro Luyando E, Pittier Sucre E (2001) Curso de obligaciones. Derecho Civil III, Caracas, Universidad Católica Andrés Bello, Manuales de Derecho, 11 ed Mélich-Orsini J (2006) Doctrina general del contrato, Caracas, Academia de Ciencias Políticas y Sociales, Centro de Investigaciones Jurídicas, 2006, Serie Estudios, N 61, 4ª ed Official Gazette No. 40.787 (2015) 12 November 2015

26

Supreme Court of Justice, Civil Chamber, Decision No. 0241, 30 April 2002 (Arturo Pacheco Iglesia et al. vs. Inversiones Pancho Villas, C.A.), in: http://historico.tsj.gob.ve/decisiones/scc/abril/ RC-0241-300402-00376-00164.HTM.

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Rodner JO (1983) Las obligaciones en moneda extranjera (El régimen de cambio en Venezuela). Editorial Sucre, Caracas Rodríguez Matos G (2004) La buena fe en la ejecución del contrato. In: Libro Homenaje a Andrés Aguilar Mawdsley. Tribunal Supremo de Justicia, Caracas Urbaneja LF (1972) Concepto sobre la teoría de la imprevisión en los contratos privados. Academia de Ciencias Políticas y Sociales, discurso de incorporación, Caracas