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By Matteo Punzo, Aceris Law
The International Institute for the Unification of Private Law (UNIDROIT) has played a significant role in shaping the landscape of international commercial contracts through its publication of the UNIDROIT Principles of International Commercial Contracts (UNIDROIT Principles). These Principles, first introduced in 1994 and subsequently revised in 2004, 2010, and 2016, aim to establish a neutral set of international rules governing contract interpretation, validity, performance, and negotiation.
The UNIDROIT Principles have become a reliable source of international commercial law in international arbitration, primarily because they embody widely accepted principles that form the foundation of arbitral practice. They serve as a valuable tool for arbitrators in resolving disputes, especially concerning contract interpretation, as they provide a comprehensive summary of commonly accepted principles derived from civil law codes and case law across various jurisdictions.
One of the main advantages of the UNIDROIT Principles is their ability to address the challenges posed by parties from different legal systems and cultural backgrounds. In international contracts, it is common to encounter parties with diverse approaches and legal traditions. The Principles help bridge these gaps by offering a set of rules that can be recognised and applied by the laws of any country, regardless of whether they are based on common law or civil law traditions. Although the Principles tend to correspond closely with civil law systems, they are designed to encompass principles applicable to both legal systems.
When negotiating and drafting international contracts, notably in the context of construction projects, the UNIDROIT Principles prove particularly useful. They can serve as a checklist of critical contractual issues and offer model clauses that parties can incorporate into their agreements. Furthermore, parties may choose the UNIDROIT Principles as the governing law for their contracts in various scenarios: when neither party has sufficient power to impose its domestic law; when the parties cannot agree on the choice of a third country's domestic law; when a comprehensive set of rules is required; or, when the parties seek clarity through a clear and easily understandable legal framework.
The influence of the UNIDROIT Principles extends beyond contractual negotiation and drafting. In international dispute resolution, the Principles play a significant role in supporting arguments presented by parties in their claims or defences. Arbitral tribunals also refer to the Principles in their decisions, either explicitly or implicitly. It is worth noting that the majority of decisions referring to the Principles are arbitral awards, many of which remain unpublished.
Indeed, arbitral tribunals often rely on the UNIDROIT Principles to supplement or interpret domestic law. When the applicable law and arbitration rules permit the application of ‘rules of law,’ the arbitrators may choose to apply domestic law while using the UNIDROIT Principles to supplement or interpret it. This approach proves helpful when a contract connects with multiple domestic laws, and the tribunal aims to account for the resulting legal diversity. During the proceedings, the parties may also agree to apply the UNIDROIT Principles as a complement to the applicable domestic law.
Arbitral tribunals occasionally consider the UNIDROIT Principles as part of applicable trade usages. Moreover, they help address situations where provisions of the domestic law applicable to a contract may need to be clarified or unsuitable for an international context. In such cases, the UNIDROIT Principles provide guidance and a reliable framework for resolving disputes effectively.
Certain principles reflected in the UNIDROIT Principles are more frequently relied upon by arbitral tribunals. These include good faith and fair dealing, main principles of contract interpretation, cooperation between the parties, hardship, withholding performance, prevention of harm, mitigation of harm, and interest for failure to pay orders. Good faith stands out as the most commonly used principle, with the UNIDROIT Principles offering specific applications and guidance related to this fundamental concept.
It is important to note that the UNIDROIT Principles are considered ‘soft law.’ They are non-binding rules that serve as a flexible instrument for harmonising contract law across different legal systems. Although not legally binding, their adoption and acceptance by various legal practitioners and scholars worldwide have conferred a significant degree of authority upon them. The Principles are often viewed as a reflection of general principles of law recognised by civilised nations, which hold persuasive value in resolving international disputes.
In addition to their widespread use in international commercial arbitration, the UNIDROIT Principles are also relevant in investment arbitration. Investment tribunals may consider the Principles to supplement applicable domestic or international law, mainly when arguments are based on internationally accepted contract interpretation and application standards.
In conclusion, the UNIDROIT Principles of International Commercial Contracts represent a vital resource for international arbitration. They provide a neutral set of rules for contract law, facilitating the interpretation, supplementation, and application of domestic laws. Although not legally binding, these Principles have gained broad acceptance and are frequently relied upon by arbitral tribunals to fill gaps in applicable law and resolve disputes effectively. Their versatility and comprehensive coverage make them an indispensable tool for parties involved in international contracts and arbitrators faced with complex cross-border disputes.
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