Guiding Contract Law Across Borders – Part I – Jindal Forum for International and Economic Laws

Introduction

Within the complex realm of global trade, where contracts extend across national boundaries and legal frameworks, determining the relevant law frequently emerges as a primary issue for parties entering into agreements. Choosing the domestic law of one party’s jurisdiction can create complications and ambiguities for both parties. Recognizing this difficulty, parties frequently want an impartial legal structure to regulate their agreements, one that goes beyond national borders and legal customs. The UNIDROIT Principles come into the picture to solve this complexity. The UNIDROIT Principles have been a guiding force for legal consistency in international trade. These are a comprehensive set of rules that can be used in international commercial contracts to help parties and arbitrators resolve disputes when there is no specific domestic law or when parties voluntarily decide to apply these principles.

The UNIDROIT Principles demonstrate the flexibility and adaptation required to address the intricacies of contemporary commerce. The UNIDROIT Principles serve as “soft law,” providing a range of options and solutions that can adapt to various legal traditions and economic settings globally, unlike legally enforceable agreements. They are widely used in international business arbitration due to their relevance beyond geopolitical boundaries. In arbitration, parties have a high level of freedom in choosing the applicable law, making the UNIDROIT Principles a strong choice. Parties can select these principles as the governing law for arbitration tribunals to render their decisions, preventing any mandatory national law having a public law nature —such as laws concerning competition, consumer protection, or taxation, which are designed to uphold public interest and cannot be overridden by private agreements—from being applied. This flexibility allows parties to customize their dispute resolution process to suit their requirements while reducing conflicts of law.

The UNIDROIT Principles provide a thorough framework that deals with practical cross-border commerce issues, including liability allocation and defence measures. Including them as a neutral reference point in contracts offers clarity and uniformity to parties and tribunals, especially when the selected governing law may be new or unorthodox, e.g. in cross-border agreements involving emerging markets where domestic contract law is still developing or lacks comprehensive regulations, the UNIDROIT Principles provide a well-established framework that helps mitigate legal uncertainty. The future of the UNIDROIT Principles in international commercial arbitration seems optimistic. These concepts are acknowledged by arbitration tribunals and judiciaries in civil and common law jurisdictions and are expected to have a growing impact on global business. The UNIDROIT Principles are prepared to offer a secure legal basis for contracts that extend across several countries and cultures as global trade initiatives such as the Chinese “Belt and Road Initiative” continue to promote international trade. The UNIDROIT Principles provide a reliable framework for parties involved in cross-border transactions to navigate complexities with confidence and clarity, ensuring legal certainty and predictability in international commerce.

Forging Consensus: Harnessing UNIDROIT Principles For Contract Drafting and Dispute Resolution

The UNIDROIT Principles apply to contracts when they clearly state their applicability or if parties have not identified a governing law. To apply the Principles, contracts must have an international component, making them international contracts. The Principles include a broad view of ‘international contracts,’ which means transactions without any international aspect will not be classified as such. In the CJSC Obolon v. Dania Handel A/S (2011) case, the Kyiv Commercial Court of Appeal in Ukraine did not apply the Principles because both parties were Ukrainian nationals.

In the Bottling Companies v. Pepsi Cola Panamericana (1997) decision, the Supreme Court of Venezuela confirmed the legality of an Arbitration Clause that specified New York as the arbitration location, even though both corporations involved were Venezuelan. This decision was made due to the subsidiary position of one of the corporations, which was associated with a United States entity. When interpreting the Principles, it is crucial to account for their global scope and primary goal. In situations where specific issues are not directly addressed, a solution is pursued based on the underlying enshrined principles.

The significance of UNIDROIT Principles in contract drafting is crucial as globalization transforms the worldwide business environment. The UNIDROIT Principles provide a unified framework that goes across national borders and legal systems, improving legal clarity, building trust between parties, and aiding in the resolution of conflicts. The UNIDROIT Principles are a reliable partner for enterprises dealing with the intricacies of global trade, offering clear and consistent guidance in creating and understanding international commercial contracts.

B.     Analysis of the UNIDROIT Principles

It is understandable from the above contentions that the UNIDROIT Principles guide international contracts without requiring their mandatory acceptance and implementation. Initially, there was some doubt about departure from exclusively localizing international business transactions within a single national legal system. Instead, there was a shift towards referencing rules and regulations that have supra-national or international aspects. Concerns were raised concerning the vague definition and meaning of these principles, which may result in unpredictability and increased dependence on arbitration for resolving disputes.

The release of the UNIDROIT Principles substantially resolved these difficulties. The principles were carefully designed to create a fair set of standards that may be used worldwide by participants in business, regardless of their legal traditions or economic and political environments. This strategy attempted to greatly reduce, the obstacles related to nationalizing the legal framework controlling transactions between states.

The UNIDROIT Principles are widely recognized for their uniqueness and the benefits they provide compared to conventional instruments of international commercial law. Their main goals are to enhance resources on international trade law for scholars and students and to advocate for measures that support changes in legislative laws to encourage and facilitate trade. The UNIDROIT Principles were translated into various languages, and have been used in legal proceedings and arbitration, evolving from a theoretical idea to a practical tool in international commercial contracts, thus advancing transnational law.

UNIDROIT Principles In Dispute Resolution

The UNIDROIT Principles are essential in contemporary arbitration, providing a flexible set of tools that serve multiple purposes during the arbitration proceedings. They enhance the efficiency and efficacy of arbitration procedures by offering procedural rules that simplify dispute settlement. The UNIDROIT Principles help promote settlement and procedural fairness due to arbitration’s flexibility and anonymity. They provide specific standards for admitting evidence and provide instructions on privilege and attorney secrecy, allowing arbitrators to efficiently oversee hearings while safeguarding the interests of the parties.

The UNIDROIT Principles are essential for dealing with important issues in international commercial disputes, offering arbitrators a detailed structure for resolving intricate contractual conflicts. These principles act as reliable guidance in situations where the selection of legislation is ambiguous or insufficient, surpassing national borders and setting universally recognized benchmarks for equity and predictability. Their adaptable yet principled method allows for party autonomy while assuring adherence to relevant obligatory legislation, enabling arbitrators to comfortably and accurately navigate various legal environments.

The UNIDROIT Principles are often used in arbitral verdicts as broad principles of contract law to supplement international treaties or domestic laws, showcasing their substantial influence. This recognition highlights their role as a standard reference for arbitrators dealing with complex international conflicts. Arbitrators in cases such as Nurhima Kiram Fornan et al. v. Malaysia have recognized the efficacy of these principles in resolving disputes, reinforcing their importance in contemporary arbitration procedures. Arbitration is adapting to global business needs, and the UNIDROIT Principles are crucial for fair and effective international dispute resolution.

Part 1 explores the UNIDROIT Principles as a soft law instrument influencing contract law and investment arbitration. It discusses their role in bridging domestic and international legal frameworks, their impact on arbitral interpretations, and their significance in ensuring consistency, fairness, and predictability in investment treaty disputes. Part 2 examines the UNIDROIT Principles’ role in shaping domestic laws, resolving investment disputes, and complementing global instruments like the CISG. It further explores their adaptability in digital commerce, emphasizing their relevance in contractual interpretation, dispute resolution, and regulatory challenges posed by digital assets and blockchain technology.

Click here to read Part II.

Basil Gupta is an undergraduate student at National Law University, Jodhpur.

Picture Credit: X/@UNIDROITorg