The Unidroit Principles of International Commercial Contracts

Given the fast-paced international commercial development, organizing international relations has become a necessity. Whereas, the variance in laws, culture and languages pose several obstacles in interpretation of the liabilities arising from international commercial contracts by those involved in law, which usually result in instability of international trade relations due to lack of clarity. Hence, the need for standardizing the rules for interpretation of contracts has become a high priority in order that rights and liabilities of each of the contractual parties would become crystal clear. In this regard, the Unidroit Principles has arisen as a set of unified rules and principles in order to regulate international commercial contracts. 

The Unidroit Principles of international commercial contracts aims at initiating a private international law for commercial contracts which is acceptable and agreed upon by the parties of the international community. Therefore, the Unidroit Principles have become increasingly applicable; currently covering a wide range of international commercial contracts to choose from as the rules of law given the needs and interests of contracting parties, contrary to international agreements which countries usually have reservations before ratifying them. 

Unidroit Principles Objective 

The main objective of the principles is to lay down a unified framework for international trade contracts and to ensure that they are practical, interpreted and applied within as many different countries to encourage adherence to good faith and fair dealing in international contractual relations. Unidroit Principles apply general rules on international trade when parties agree to have their contracts governed by such principles. The principles can also be applied when the parties opt not to choose a particular law to govern their contracts and can be used to interpret or supplement other common international law documents and likewise in interpreting or supplementing national law. There is nothing to prevent the application of Unidroit principles to domestic contracts conclude between individuals, although these principles are specifically designed for international commercial contracts. Yet, any such agreement may be subject to the peremptory norms established by domestic law governing the contract.

Unidroit Principles related to International Trade Contracts

These principles were developed and released by Rome International Institute for the Unification of Private Law with the participation of more than 65 countries. Several Arab countries were also represented at the time. These include Iraq, Egypt, Saudi Arabia and Tunisia. 

Rome Institute did not, in the first place, consider presenting the Unidroit principles as an agreement to be ratified and adhered to by governments. Alternatively, it introduced the principles as exemplary and model principles which different countries may adopt. Given their nature, model laws are not binding to states, as they inherently allow states introduce amendments in line with their national needs and interests. Differently, international conventions are ratified by states after they raise reservations to the application or wording of some of their provisions. 

The main objective of the Unidroit Principles is to lay down common rules to be adopted in different national legal systems over the world. Therefore, the Unidroit Principles adopt legal solutions which are suitable for international trade. As a consequence, the Unidroit Principles have contributed to the unification of the rules of international commercial contracts in a non-legislative and non-binding manner. Unlike most other instruments, the Unidroit Principles covers a wide range of commercial contracts. The application of the Unidroit Principles, however, is subject to the choice of the contractual parties to subject their contract to these principles and the national courts and international arbitration associations to adopt these principles. 

The Unidroit Principles are applied in several cases: 
1) When the parties have agreed that their contract be governed by them. 
2) They may be applied when the parties have not chosen any law to govern their contract. 
3) They may be used to interpret or supplement international uniform law instruments. 
4) They may be used to interpret or supplement domestic law. 
5) They may serve as a model for national and international legislators. 

The Unidroit Principles and Commercial Contracts

The Unidroit Principles covers the contracts concluded between two merchants and exclude contracts concluded between a merchant and consumer or between two consumers. Nevertheless, the Unidroit Principles do not exclude consumer or employment contracts. 

The Unidroit Principles covers contracts wherein one foreign element or more are involved. Whereas, the article one of the preamble of the Unidroit Principles states that, “These Principles set forth general rules for international commercial contracts.” 

The distinction between the international and national contracts are made based on two criteria; the first is legal – where the contract partners’ capacity in considered, i.e. in terms of their nationality, and the second is the economic – when the contract is of an international nature, is pertinent to more than one legal system or related to international trade. Accordingly, the term “international” should be interpreted as a whole, i.e. it covers all contracts wherein a foreign element is involved. In other words, in cases and contracts where all elements thereof are pertinent to one country, cannot be deemed international contracts.

The Unidroit Principles and National Contracts 

There is nothing to prevent the parties of the national contract from choosing to apply the Unidroit Principles or some of them since the provisions of the Unidroit Principles are generally good and new to the Arab legislations, which encourages the parties to the Contract to choose them. 

Application of Unidroit Principles Pursuant to Explicit Will of the Contractual Parties 

Pursuant to the principle that the Contract is the embodiment of an agreement between the contractual parties, and the principle and that Contract is legally binding in accordance with the relevant jurisdiction, the Contractual parties have the right to choose the most suitable law for them without any prejudice to the jus cogens, as follows: 

In commercial contracts, the parties to the contract may incorporate any text or article of the Unidroit Principles into the Contract. They may choose to incorporate some of these principles or all of them and this freedom of choice is only confined by the necessity of both parties to comply with the jus cogens, which is binding on both parties as stated in the following provision:

“Unless otherwise stated in the principles, the parties to the contract may choose to exclude the application of these principles, alter its provisions or modify the impact arising therefrom.” 

The contractual parties are advised to specify the version of the Unidroit Principles they will incorporate to the Contract accurately since there are several copies (1994, 2004, 2010, and 2016). In case of negligence, the version which is valid during the time the conflict has arisen shall be applicable. 

Application of the Unidroit Principles as the Binding Law 

This happens when the contractual parties explicitly agree that the Unidroit Principles shall be the binding law to govern their international commercial contract. However, the local law shall remain applicable and the same applied to the general rules of the State which hears the case or resolves the dispute, which is an advantage of the Unidroit Principles. The Unidroit Principles obtains its binding character from the acceptance of countries’ authorities and the international community as the established law. 

Acknowledgement of the Unidroit Principles by the Arbitration Tribunals

The Arbitration tribunal is obliged to acknowledge the contractual parties freedom to choose the binding law to resolve the disputes. The choice of the Unidroit Principles during the execution of the Contract and the parties may choose thereof during proceeding with the arbitration procedures provided no prejudice to other parties. The parties may agree explicitly to choose the Unidroit Principles as the biding law. The parties may agree to apply the Unidroit Principles by way of reconciliation. The two parties may also choose two parties non-national legal rules. 

The Extent of the National Court’s Acknowledgment of the Parties Choice of the Unidroit Principles as the Binding Rule

This issue is based on the rule of the rules of choice of law and whether they oblige the two parties to choose a law of a certain country or they, by any means, allow the choice of nonnational legal rules. Therefore, when the Unidroit Principles are the binding law, courts do not acknowledge them as the law chosen by both parties, but rather apply them as part of the contract. Hence, the contract will remain subject to the governing law which is determined by virtue of the rule of choice of law. This is because these principles are part of the commercial law governing international trade. 

The Unidroit Principles is not an agreement ratified by countries to be considered part of its national law. Accordingly, the court complies to applying them unless they conflict with another jus cogens in the national law. 

Opt-out Option to Unidroit Principles 

Since the Unidroit Principles is not an agreement ratified by states, they are written texts at the disposal of all those involved in international trade. 

Partial Award no. 7110 of ICC Arbitration Tribunal affirmed that the Unidroit Principles are deemed an essential part of the commercial law. It reads: “The Unidroit Principles shall be a central component of the general rules and principles regarding international contractual obligations and shall receive wide international acceptance, to formulate the governing law of contracts, namely: 

1) The Unidroit Principles are a restatement of international legal principles applicable to international commercial contracts drafted by a distinguished group of international experts representing all global legal systems, without the intervention of states or governments. This has led to high quality and neutrality of such principles primarily on the basis of their fairness and appropriateness for international commercial transactions falling within their purview. 
2) The Unidroit Principles cover both the international sale of goods and supply of services. 
3) These principles do not include vague principles or general guidelines; the Unidroit Principles are mostly constituted by clearly enunciated and specific rules coherently organized in a systematic way. 
The report also included the following statement “(i)… The Contracts are governed, as a result of a preliminary finding, by general rules and principles regarding international contractual obligations enjoying wide international consensus, i.e. they are not governed by any discrete domestic or national law. In consequence, in the present case, no clash between any discrete municipal law and the Unidroit Principle is possible.”

In a conflict resolution, the California court decided that, invoking the Unidroit Principles shall not exceed the limits of mandate given to the tribunal. The above mentioned court ruling was made in response to an appeal lodged by one of the members of the dispute before a national court regarding the tribunal exceeding their mandate, which made the court’s ruling a contravention to New York Agreement. The national court’s rejection of the appeal is an implied acknowledgement that the Unidroit Principles form a part of the general principles of the international law and the commercial convention which the two parties have agreed to apply. 

Application of the Unidroit Principles if parties fail to select an applicable law

An international commercial contract is sometimes free from any reference to the applicable law, probably because the two parties never thought about it or they decided to agree on the applicable later, if any disputes arise.

National Courts and Tribunals’ Rulings 

1) Application of the Unidroit Principles when both parties fail to agree on a governing law.

In the Arab world, a judge is usually obliged to apply the law of the common homeland of the two parties or the law of the place of contract, which means that it is not possible to apply the Unidroit principles in this case. 

In European countries, the Rome Convention of 1980 on the law applicable to contractual obligations obliges the judge in the countries that have ratified the Convention to apply the law of the state with which the contract has a strong association in the absence of a choice of an applicable law. A strong association refer to (Regional geographical association).

2) The extent of the tribunals application of the Unidroit Principles when the two parties fail to agree on the governing law. 

The tribunal may apply the Unidroit Principles in case of the parties fail to select the applicable law since the Unidroit Principles is more suitable for international commercial contracts being the most suitable for international commercial contracts. The International arbitral tribunal of the international Chamber of Commerce decided the aforesaid for several reasons: 

1- The non-selection of the applicable law means, by way of contrast, they choose not to apply the national law.
2- The Unidroit Principles were drafted in accordance with the different general commercial rules. 
3- The United Nations Commission on International Trade Law (UNCITRAL) ratified the Unidroit Principles. 
4- Some of national legislations explicitly states that the tribunal is illegible to apply the legal rules which they deem suitable in case the two parties fail to select the applicable law subject to the contract concluded between them. 

The Extent of Applying the Unidroit Principles to Interpret or Bridge Gaps in the Uniform Law

Some Jurists called for applying the Unidroit Principles to interpret or bridge gabs in the international agreements, which is far better than resorting to the national law since the Unidroit Principles is an international legal instrument drafted for the interest of the international commerce. Furthermore, the Unidroit Principles includes detailed texts more than those found in international agreements. Therefore, there is nothing preventing referring to the Unidroit Principles to confirm a solution adopted by the United Nations Convention on Contracts for the International Sale of Goods or to confirm the General Principles which are derived from the aforesaid convention. 

The Extent of Applying the Unidroit Principles to Bridge Gaps in the National Law 

Some jurists are of the view that the Unidroit Principles for year 2010 contributes to interpreting and bridging gaps in the national applicable law either through agreement of the two parties or referring to the various choice of law rules.

Courts Exercise of Judgment Several courts confirmed that the Unidroit Principles can be used to interpret and supplement the national law in more than one court. Arbitration Rules Several arbitration awards were issued including some texts from the Unidroit Principles to confirm the solutions included in a national relevant law.