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GENERAL CONTRACT LAW

GENERAL CONTRACT LAW. Conflict rules: see Ch. 2 Most national legal systems have no specific rules for cross-border transactions or international contracts in general

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GENERAL CONTRACT LAW

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  1. GENERAL CONTRACT LAW • Conflict rules: see Ch. 2 • Most national legal systems have no specific rules for cross-border transactions or international contracts in general • International instruments ? Apart from conventions on specific types of contracts, there is « soft law » and some model laws on specific questions: • Soft law : Unidroit « Principles », PECL (Lando-commission), possible optional instruments*. Conflict rule will determine whether accepted as « law » or merely as contract clauses • Model laws, e.g. Uncitral model law electronic commerce; Draft Common Frame of reference (DCFR) • EU law on specific matters, eg Late Payment Directive • *Examples of existing optional instruments: CISG (opt-out), European trademark, societas europea, international last will, european procedures. On Oct 11, 2011, the EU Commission published a Draft optional sales law (« CESL »)

  2. UNIDROIT PICC • Unidroit Principles for International Commercial contracts • « Principles », i.e. no Convention or Model Law • First edition 1994 (120 art.) • Enlarged edition 2004 (185 art.) • Further enlarged 2010/2011 (211 art.) (Endorsed by Uncitral) • Intended scope of application: international commercial contracts • Regulated matters: Formation (incl. Representation), Validity (defects of consent, specific clauses), Interpretation, « Contents », Performance Non-performance and remedies, Set-off, Contractual Assignment of rights and contracts, Transfer of obligations, Limitations of Actions (Prescription) • Additional chapters 2010/2011: conditional obligations, illegality, plurality of debtors or creditors, unwinding of failed contracts (restitutution) • Not covered: non-contractual assignment

  3. UPICC PREAMBLE • Preamble: Purpose of the Principles • These Principles set forth general rules for international commercial contracts. • They shall be applied when the parties have agreed that their contract be governed by them. • They may be applied when the parties have agreed that their contract be governed by general principles of law, the lexmercatoria or the like. • They may be applied when the parties have not chosen any law to govern their contract. • They may be used to interpret or supplement international uniform law instruments. • They may be used to interpret or supplement domestic law. • They may serve as a model for national and international legislators. • See also 1.4. : applicable insofar as the conflict rule allows it

  4. UPICC– INTERPRETATION AND GAP-FILLING • Art. 1. 6 (Comp. 7 CISG) – Autonomous (& teleological) interpretation (Interpretation and supplementation of the Principles) (1) In the interpretation of these Principles, regard is to be had to their international character and to their purposes including the need to promote uniformity in their application. (2) Issues within the scope of these Principles but not expressly settled by them are as far as possible to be settled in accordance with their underlying general principles. • But also duty to act in good faith: Art. 1.7 (Good faith and fair dealing) (1) Each party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this duty. • And art. 1.9 Usages and practices (comp. 9 CISG)

  5. UPICC– GENERAL PROVISIONS JURIDICAL ACTS • Art. 1.1: Freedom of contract • Art. 1.2: No form required (unless ...) • Art. 1.3: Binding character of contract • Art. 1.7: Duty to act according to good faith & fair dealing • How intention is determined – interpretation of acts: Art. 4.1 and 4.2 • (4.1. for contracts, 4.2 for unilateral acts) – Quid merger clause – No oral modification clause • Usages and practices – Art. 1.9 • Rules on notices in 1.10

  6. E-COMMERCE • Uncitral model law 1996 (1998) deals i.a. with: - « Data messages » cover EDI, e-mail, telegram, telex and telecopy - Art. 5: Information shall not be denied legal effect merely because it is in the form of a data message - Art. 6: Writing < accessible so as to be usable for subsequent reference - Art. 7: Signature - Art. 8: Whether a data message can be an « original » - Art. 13: Attribution of data messages (who is the sender) - Art. 15: Time of (1) dispatch and (2) of receipt • CISG Advisory Council Opinion No. 1 on e-communication under CISG • UN Convention on the Use of Electronic Communications in International Contracts 2005 (in force but only 4 ratifications) • EU Directive 1999/93 on electronic signatures: different degrees of e-signature; legal effects • EU Directive 2000/31, framework directive e-commerce - Art. 9 Treatment of contracts: equivalence (some exceptions) - Rules relating to information duties, conclusion contract, receipt, ...

  7. UPICC– FORMATION • Very similar to CISG • 2.1.1.: conclusion of the contract by offer and acceptance or by conduct of the parties that is sufficient to show agreement • Rules on offer and acceptance similar to CISG • Art. 2.1.12 (Writings in confirmation) • Art. 2.1.14 (Contract with terms deliberately left open) • Art. 2.1.17 and 2.1.18 on merger clauses and clauses on modification in a particular form. • Going beyond CISG: Art. 2.1.15 on liability for negotiations (or breaking off) in bad faith • Specificrules for battle of forms (2.1.22) (NB. comparative law: usually knock out; Engl = last shot; NL = first shot)

  8. UPICC– AUTHORITY OF AGENTS • Not in CISG , inspired by Unidroit Convention (1983, not in force) • Deals with « authority », i.e. external relationship • Not internal relationship (eg. agency contract) (2.2.1) • Authority by grant (express or implied) (2.2.2); authority based on belief caused by the principal (2.2.5 (b)) • Direct relationship in case of disclosed agency (2.2.3) • In principle no direct relationship in case of undisclosed agency (2.2.4) • Liability if the agent acts outside authority: positive interest (2.2.6) • Art. 2.2.7 on conflicts of interest, • Art. 2.2.9 on ratification • Art. 2.2.10 on effect of internal termination of autority

  9. UPICC– VALIDITY • Not in CISG • Ch. 3.2. Deals with defects of consent giving rise to a right to avoid the contract (4 grounds) (next slide) • « Negative reflex effect » of rules on non-performance in Art. 3.2.4. Esp. important for sales (CISG rules on non-performance not displaced by UPICC rules on e.g. mistake)

  10. UPICC– VALIDITY • The 4 defects of consent (cont.): • Mistake (3.2.2.): 4 cases of mistake (shared, caused, left in error, contract not yet relied upon) + requirement of material difference, no gross negligence, risk not assumed or to be bourne Caused = normally by giving information (« representations ») turning out to be incorrect • Error in expression or transmission: treated as mistake of the sender (3.2.3) • Fraud (3.2.5.) • Threats (3.2.6) • Gross disparity or excessive advantage (with abuse of circumstances) (3.2.7)

  11. UPICC– VALIDITY • Deals with defects of consent (cont.): • General rules on « avoidance » and its effects (in CISG avoidance means termination; here avoidance means annullment) • Attribution of acts or omissions to third partoies (3.2.8) • Exercise of the right: by notice to the other party (3.2.11) within a reasonable period (3.2.12), not anymore after confirmation (3.2.9) • Effect = retroactive (3.2.14) • Avoidance gives rise to a right to restitution (a non-contractual obligation) (3.2.15) • Possibly damages for precontractual liability (3.2.16)

  12. UPICC– VALIDITY • Ch.3.3. deals with « illegality », or rather with the effect of mandatory rules outside the PICC not specifying their effect on the contract • Rules on restitution in case of violation of mandatory rules in art. 3.3.2.

  13. UPICC– CONTENTS OF CONTRACTS IN GENERAL • Ch. 5 contains various rules • Under interpretation: supplying an omitted term (Art. 4.8) where important for the determination of their rights and duties • Art. 5.1.2: implied obligations stem from (a) the nature and purpose of the contract; (b) practices established between the parties and usages; (c) good faith and fair dealing; (d) reasonableness. • Art. 5.1.3. Duty to co-operate with each other • Art. 5.1.4. Distinction duty result / merely best efforts • Art. 5.1.7. Price determination mechanisms: normal price; unilateral unless manifestly unreasonable; third party decision: exernal factor ceasing to exist • Art. 5.1.8. Contract for an indefinite period: ending by notice with reasonable time • Art. 5.3.1 ff.: rules on conditional obligations

  14. UPICC– CONTENTS • Art. 5.2.1. ff. Contracts in favour of third parties; rule on defences

  15. UPICC - PERFORMANCE • Modalities of (performance) of the obligation: • Time of performance (Art. 6.1.1.) • Order of performance (Art. 6.1.4.) in principle simultaneous • Place of performance (Art. 6.1.6) - Monetary obligation: creditor’s place (« obligee ») - Other obligations: debtor’s place (« obligor ») • Monetary obligations: means of payment, currency etc. (6.1.7 ff.). See Topic 10 (International Payments) • Rules where public permission required for performance (6.1.14 ff) • Hardship (change of circumstances) Art. 6.2.1 ff. • Performance as extinction of an obligation • Art. 6.1.12-13: imputation of performance

  16. UPICC – REMEDIES FOR NON-PERFORMANCE • Overview of remedies for non-performance: • Withholding performance (suspension) • Specific performance • Termination (called « avoidance » in CISG) and price reduction • Damages • General principles: • Free choice, no hierarchy of remedies (« pari passu ») (but sometimes fundamental breach required) • Combinability, esp. of damages and other remedies • Largely self-help (unilateral declaration) • By notification (usually within a reasonable time) • Instruments for restraining termination as a remedy: • Additional period for performance (Art. 7.1.5) • The seller’s right to cure (Art. 7.1.4)

  17. UPICC – NON-PERFORMANCE • « Non-performance » of an obligation as general (unitary) concept) (Art. 7.1.1, shift from «(breach of) contract » to « obligation ») • In view of the availalbe remedies distinction between: - non-performance caused by the creditor itself (7.1.2): no remedy - non-performance excused under 7.1.7 (force majeure): only withholding performance, termination and interest on money due - non-performance cured without delay (7.1.4): only withholding performance, damages - non-performance not excused: all remedies • Rule on exemption clauses: only if not grossly unfair (7.1.6)

  18. UPICC – REMEDIES FOR NON-PERFORMANCE • Withholding performance (7.1.3.) (the rule on anticipatory breach as in CISG is missing) (but implied in 7.3.3/7.3.4) • Right to (enforce) (specific) performance - always for monetary obligations (7.2.1) (no exception for cases where you can sell it elsewhere) - in principle for other obligations (7.2.2) unless impossible or unlawful, unreasonably burdensome, reasonably available elsewhere, strictly personal character; must be requested within a reasonable time • Termination (next slide) • Damages (s. further)

  19. UPICC – REMEDIES : TERMINATION (1) • Grounds for termination: - fundamental non-performance (7.3.1. (1) (2)) - after an additional period granted for performance (Nachfrist, 7.1.5. and 7.3.1 (3)) - in case of anticipatory fundamental non-performance: 7.3.3. and 7.3.4. • Mode of termination (7.3.2): - by notice - in case of late or defective performance: within a reasonable time

  20. UPICC – REMEDIES : TERMINATION (2) • Scope of termination: all obligations, unless extended over time and divisible (7.3.6 (2)) • ? Price reduction • Effects of termination: - release from (outstanding) obligations (7.3.5 (1)) - restitution of performances (in kind or in money) (7.3.6. (1)) - surviving clauses (7.3.5 (3)) - damages reserved (7.3.5 (2))

  21. UPICC – REMEDIES : DAMAGES • Except where non-performance is excused (7.4.1.) • General measure of damage: - positive interest (see 7.4.2 (1), incl. lost profit) - includes non-pecuniary loss (7.4.2. (2)) - includes loss of a chance (7.4.3.) - limited by foreseeability test (7.4.4) - restriction where due to creditor or non-mitigation of harm by creditor (7.4.7, 7.4.8) - includes costs of mitigation (7.4.8 (2))

  22. UPICC – REMEDIES : DAMAGES • Calculation of damage: • late payment: interest (plus further damage) (Art. 7.4.9); interest rate in 7.4.9 (2, place of payment); dies interpellat pro homine (7.4.10) • reasonable substitute transaction: price difference (plus further damage) (Art. 7.4.5) • current price (Art. 7.4.6) • Agreed payment for non-performance: clauses binding unless grossly excessive in relation to actual harm (7.4.13) • NB. An ‘indemnity’ is an autonomous obligation to pay an amount (not as compensation for non-performance of another obligation)

  23. UPICC – SET-OFF • Requirements: - Obligations of the same kind between 2 parties – incl. monetary debts in different but freely convertible currencies (8.2.) - Can be set-off by notice (8.3.) by one party where: - its own obligation (« active obligation ») is payable (entitled to perform) (8.1.(1)a) - the obligation of the other party (« passive obligation ») is: (a) due (8.1.(1)b) and (b) ascertained or arising from the same contract ((8.1.(1) b and (2)) • In UPICC no « retroactive » effect (8.5 (3)) (but in some cases a partly similar rule, cfr. set-off & prescription; set-off & assignment) • UPICC does not deal with contractual set-off (netting) but does not exclude it • Different models in national laws: either automatic if stricter conditions are met, or by unilateral declaration. Unidroit Principles chooses last model.

  24. UPICC – ASSIGNMENT OF RIGHTS • Assignment = transfer of a right (property) • Scope of Ch. 9.1: - contractual assignment of contractual rights - not: rights embodied in a negotiable instrument (9.1.2.) • Limits to assignability - where significantly more burdensome (9.1.3.) - partially assignable ? If divisible (9.1.4) - no-assignment clauses have NO effect (1) for rights to payment of money and (2) in case of good faith of assignee (9.1.9)

  25. UPICC – ASSIGNMENT OF RIGHTS • Requirements for assignment: - existence of the right ? For future rights assignment takes place with retroactive effect as soon as the right comes into existence (9.1.6) - mere agreement assignor / assignee (neither notice nor consent required for the transfer as such) (9.1.7) • Duty to perform of the debtor: - according to (order of) notice (9.1.10 and 9.1.11) - The assignee may demand adequate proof of assignment (9.1.12)

  26. UPICC – ASSIGNMENT OF RIGHTS • All defences available + set-off available at time of notice (9.1.13)

  27. UPICC – NEW DEBTORS • Ch. 9.2. Substitution or addition of debtor • 3 Types (9.2.5) - substitution: original debtor discharged - subsidiary liability of the original debtor - solidary liability of old & new debtor (« joint and several » in Eng. law) • Several more specific institutions or instruments can be classified in this scheme. • Independent new debtors ? See e.g.: documentary credit, independent guarantees

  28. UPICC – PLURALITY OF PARTIES • Ch. 11.1. Plurality of debtors (2 types): - either separate debtors - or « joint and several » (= solidary debtors) • Art. 11.1.3. ff deal with the availability of defences, effcets of performancce and set-off, release, etc. for the other debtors. • Art. 11.1.9 ff. deal with the apportionment of shares and the internal relationship between solidary debtors (contributory claim + subrogation) • Ch. 11.2. Contains rules on plurality of creditors (3 types) - separate - joint and several - joint

  29. UPICC – LIMITATION OF ACTIONS • System of a double period: 3 / 10 years (10.2) - 3 years from (constructive) knowledge (after the obligee knows or ought to know the facts as a result of which the obligee’s right can be exercised) - 10 years from the day the right can be exercised • Renewal of limitation period by acknowledgment (irrespective of 10 years) (10.4) • Suspension in case of proceedings (judicial, arbitral and similar): 10.5 to 10.7 – without a one year extension !? • Prolongation until one year after impediment (force majeure, death or incapacity) ceases: 10.8 • Effects of expiration: - « weak effect » (art. 10.9); no restitution because not « undue » (10.11) - set-off possible until assertion of prescription (10.10) - not ex officio by the judge

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