The mere fact that the ‘societas mercatorum’ has an interest in achieving commercial profits through cross-border trade, does not suffice to justify the law-making power of the international community of merchants. The assumption of a transnational legal system requires more than a simple pragmatic policy of reasonable self-interest586 . It would be wrong to assume that there are transactions which have the transaction itself as their sole end, rather than, e.g. the accomplishment of a useful step in a chain from producer to consumer587 . Also, transnational law has to be distinguished from a mere social structure organized through conventional rules588 . In order to be recognized as the basis for a true legal system, the collective expectations of the members of that community with respect to compliance with certain rules of behaviour have to be intensified in a way that these rules and principles are regarded as binding and mandatory upon each member589 . This requires a basic consensus of common values and convictions and the readiness of every member of that community to comply with the relevant rules and principles even at the risk of losing or doing damage to individual interests590 . From an individual perspective, the ‘validity’ of a legal system means nothing more than ‘being motivated through the existence of legal principles and rules’591 . With this mandatory element, the law carries an ‘unfriendly moment’592 in the regulation of social life.
This is also true in international trade where the business persons’ consciousness of the validity of trade usages, customs, contract practices, and similar rules is guaranteed through ‘black lists’, withdrawal of membership rights, forfeiture of bonds, and similar dangers to the commercial reputation593 . Above all, it is the inherent danger of losing commercial good will and standing within the community of merchants – and with it the ‘membership’ of this closely knit community – which provides the necessary incentive to adhere to the self-made law of international business594 . The necessary coordination of the wills of the individual market participants is brought about in the context of ‘conflict avoidance’ during the drafting of the contracts themselves595 . In participating in the contractual consensus (‘consensus ad idem’), each party expresses the confidence that its counterpart will comply with the terms and conditions of the contract596 . Thus, the contract becomes the most important means to implement the will of the parties in practice because, in the absence of any need to ensure consumer protection, international trade and commerce constitutes an ideal climate for the free development of contractual structures597 . The notion of ‘private governance’598 is thus extended to the contract itself. Contractual governance or ‘governance by contract’ occurs at the level of society599 , in our context within the society of merchants who take part in the global exchange of goods, services and money. The contract becomes the means of ‘auto-regulation’ within the de-territorialized and, by virtue of modern IT-technology, de-materialized global marketplace600 .
The realization of this eminent force of the contractual consensus goes back to Grotius and Pufendorf, who realized that the keeping of one’s word is in harmony with the social nature of humans and the principle of good faith601 . Through these authors, this realization then penetrated into classical contract law doctrine602 . The ancient lex mercatoria of the middle ages was thus built on the faith in a given word, thereby allowing the actionability of pacta nuda ‘in curia
mercatorum’603 . At the fairs, seaports, and market towns of the Middle Ages, ‘purchase and sale of merchandise was continually made’ and ‘the law merchant or law of the market was always followed there continuously’604 .
Today, this ancient contract practice forms the basis of the ‘promise principle’ as the underlying idea of modern contract law605 . The trust of one side in the promise of the other (‘my word is my bond’) provides the essential basis for modern international trade transactions606 : ‘The morality of business turns the promise into a categorical imperative’607 . The legal obligation that requires performance from every party to a contract is nothing other than the moral duty to respect one’s word608 . This notion of the contractual consensus, like the classical contract doctrine609 , is characterized by a lack of concern with distributive questions. However, the NLM only applies outside the consumer context. Also, international merchants bear an increased responsibility for the conduct of their business affairs, resulting in a transnational principle which presumes their professional competence610 . It is thus in the field of transnational business activities, where the force of the contractual consensus can flourish and develop its law-making quality, unhampered by consumer protection laws and notions of distributive justice that go beyond the general principle of ‘good faith and fair dealing in international trade’.
A typical example of this process, albeit in a closely knit commercial community, is the diamond trade in Antwerp, Belgium and other places of the world611 . Each day, diamonds worth thousands or even millions of US dollars are traded there. The contracts between the diamond traders, frequently concluded through professional intermediaries, are based solely on the consensus of the parties, the mutual trust in the other party’s performance, a handshake, and a special trading formula. Breach of these informal, unwritten contracts, however, will result in worldwide suspension from trading which will be publicly announced. This provides a strong incentive for the parties to meet their contractual obligations. Similar examples of informal, trust-based contract practices can be found in the commodity trade. When written contracts are required in international, arm’s length transactions, the mutual trust of the parties is made possible and enhanced by the
multitude of standard form contracts and uniform contractual models that are circulated in the worldwide business community.
This understanding of the transnational legal process requires the redefining of the traditional theory of legal sources. In modern business relationships, it is the contract which assumes the genuine function of a source of law:
‘It is the contract which now constitutes a legal change. Tradititional legal concepts do not include the contract among the sources of law. But if we continue to conceive of the contract as a mere application of the law, and not as a source of law, we will preclude the possibility of understanding how the law of our times is changing. The contract is taking the place of the law, even in the organization of society. Some decades ago Millibad wrote that, more than ever, people considered the state as source of all provisions and even as a source of their happiness. Today we must say that this notion is dissappearing. Society now looks after itself and tends towards self-organization . . .
The inadequacy of the law to make changes derives from two characteristics of contemporary economy. The first is the meta-national nature of the economy which is antithetical to the national character of the legal systems. The second is that the economy is in continuous change which demands flexible instruments of adaptation from the law to change, in antithesis to the rigidity of the laws’612 .
This process implies that the contractual consensus which assumes a law-making force of its own, is shaped, influenced and validated by external criteria other than the parties’ self-interests in making a profitable deal613 . This process of external validation may be effected by the parties’ adhesion to certain general or sectorspecific market standards, by the reconciliation of the contract with unwritten cultural and/or ethical standards existing in the parties’ home jurisdictions, in third countries (e.g. the place of performance) or on the regional and global level, or by the transformation of written standards contained in soft law instruments such as Codes of Conduct614 of the relevant industry in which the parties are operating into ‘binary’ contractual obligations. This ‘objectivation’ of the parties’ subjective contractual consent receives additional force if they base their contract not (only) on terms which they negotiate on an ad hoc basis, but on standard forms prepared by industry organizations or formulating agencies operating at the regional or global level, such as the ‘United Nations Economic Commission for Europe (ECE)-General Conditions for the Supply of Plant And Machinery For Export
(LW 188)’ or the International Federation of Consulting Engineers (FIDIC) Conditions or the model contracts for distributorship, agency and international sales issued by the ICC615 .
If the confidence of one side in the compliance with the contractual terms by the other is disappointed, the arbitrators, whose jurisdiction is based on the consensus of the parties, assume the function of a control instance. The parties’ confidence is no longer focused on the counter-party’s will to comply with the contractual terms but on the competence of the arbitral tribunal as a privately constituted and ‘genuine’616 court for international trade. The transfer of the case from the plane of the individual bargain to the arbitral tribunal also leads to a change of perspective. The neutrality of the arbitrators requires them to take an objective view of the case, applying objective commercial standards such as ‘fair dealing’, ‘reasonableness’ and ‘trade usages’, thereby enriching the abstract contractual consensus (‘pacta sunt servanda’) with commercial life617 . The private character of the arbitral process may therefore not be used as an argument to deny the control competence of international arbitrators618 . Rather, the contractual character of their competence guarantees the homogenous character of the transnational legal process in that not only the participation in it but also the compliance control is based on the same legal notion, i.e. the contractual agreement as such. It is not surprising, therefore, that both general contract law and arbitration are characterized by the same principle: ‘in favorem validitatis’619 .
Again, the consensus-based dispute settlement system has important repercussions on the development of transnational law. The drafting practice of international trade, geared towards the ideal of conflict avoidance, reacts to the case law of international arbitral tribunals620 and thereby consolidates and stabilizes the general structure of the NLM which, in turn, is shaped and influenced by international drafting practice.
This phenomenon of ‘consensual regulation of international commerce’621 is well known from the field of investment contracts:
‘It belongs to the regrettable weaknesses of public international law that its norms – frequently still in the status nascendi – are difficult to put in a concrete form. Every arbitral award, every other solution of such a conflict – and every drafting technique adopted to solve such problems – contribute to the finding of the law. One should not be impatient. The ‘actors’ . . . generally know about the consequences of their conduct. Irrational conduct from one or the other side will always have catastrophic consequences for the party . . . there is a major chance for the consolidation of public international law of expropriation because the parties usually behave in a rational manner’622 .
It is at this juncture that the circle of consensual law-making is closed. Dispute settlement through arbitration or other dispute resolution techniques forms the vital link between spontaneous and reactive drafting techniques and the formation and evolution of the NLM. Transnational law may therefore be traced back to the consensus of the participants of international trade623 . This consensus has a legal force of its own without the need of a prior acknowledgment by domestic legislatures.[...]
The 1994 edition of the UNIDROIT Principles consisted of 120 articles which were divided into seven chapters. The 2004 edition of the Principles has not changed this basic structure but has lead to the addition of three new chapters and new subsections in Chapters 2 and 5148 . The 2004 edition consists of 185 articles. The first chapter (‘general provisions’) of the UNIDROIT Principles contains basic legal notions and principles that deal with such fundamental notions as freedom of contract, freedom of form and proof, pacta sunt servanda, good faith
and fair dealing and the primacy of usages and practices in international trade. The other chapters contain provisions relating to the conclusion of contracts, the effect of contracts, the construction of contractual stipulations149 , the contents of contracts, performance and the legal consequences of non-performance. The structure of the Principles follows the American Restatement of the Law of Contracts150 in that a basic rule or a general legal principle formulated as blackletter law is followed by a short commentary-like explanation and explanatory illustrations. However, in contrast to the Restatement (2nd) of the Law of Contracts, there are no ‘notes’ specifying the comparative references (statutory provisions of domestic laws, court judgments, arbitral awards, conventions, doctrinal writings, etc.) on which the wording of the relevant rule or principle is based. The drafters intentionally left out such references to national legal systems in order to emphasize the international character of the UNIDROIT Principles, which are detached from any domestic legal system151 . Also, the omission of comparative references was intended to avoid highlighting the fact that in the preparation of the Principles, some legal systems played a more significant role than others152 . The first version of the American Restatement also did not contain any references to the practice of the common law in the various American states153 . However, in order to enhance its acceptance, such notes were included in the second edition of the Restatement. It was for this very reason that the ‘Principles of European Contract Law’ drafted by the Lando Commission contain comprehensive comparative references154 . A collection of comprehensive comparative references may attach increased legitimacy and authority to a list of general principles and rules of international commercial law and may serve as a starting point for their differentiation and diversification155 . This issue will be looked at in more detail when the ‘Creeping Codification’ through the drafting of lists of general principles and rules of the NLM is discussed156 .
A particular characteristic of many of the provisions contained in the Principles is the attempt to uphold the contract as much as possible157 . The assertion of the Principle ‘in favorem validitatis’ reflects a general concern of economic
practice perceived in the general international law of contracts (‘favor contractus’)158 and also in the area of international commercial arbitration159 . Whether formulated as a comprehensive regulatory framework of the parties or drafted by reference to general conditions of trade, the contract detaches the legal relationship between the parties from the ‘otherwise’ applicable domestic law. Due to its selfsufficient character the contract becomes the ‘substitute law’ for the parties160 . Influenced by Anglo-American drafting techniques, the comprehensive contractual arrangements ‘autonomize’ the parties’ legal relationship from the direct application of substantive law161 . In both long term business relationships and arms’ length bargains, the parties have a vital interest in upholding their contract. The validity of the contract becomes all the more important since aspects of consumer protection do not play any role in this context162 . From the perspective of legal theory, the principle of ‘favor contractus’ correlates with the general significance of the contractual consensus of the parties as the driving force behind the creation and evolution of transnational commercial law163 .
A survey of those provisions which reflect the principle ‘favor contractus’ may give an indication of the significance which it has played in the drafting of the Principles. These provisions include acceptance of a contractual offer by performing an act without notice to the offeror (Art. 2.6)164 , the modification of contractual terms by writings in confirmation (Art. 2.12), contracts with terms deliberately left open (Art. 2.14), the battle of forms (Art. 2.22), the validity of a mere contractual agreement without consideration (Art. 3.2), the validity of a contractual relationship in spite of initial impossibility (Art. 3.3), the rule of interpretation ‘favor negotii’ (Art. 4.5), the rule to supply an omitted contractual term (Art. 4.8) and finally the right of the non-performing party to cure (Art. 7.1.4). Also, the principles on re-negotiation in case of hardship (Arts 6.2.1 et seq.165 ) and of excuse of non-performance in case of force majeure (Art. 7.1.7)166 are inspired by the principle of ‘favor contractus’167 . The last two principles are characterized by their inherent vagueness and lack of clarity. They are workable in practice, only
when they are embedded in a comprehensive legal system which is based on such fundamental legal notions as ‘pacta sunt servanda’168 .
The differentiation between ‘general principles’ (‘principes généraux’; ‘allgemeine Rechtsgrundsätze’) and ‘rules’ (‘règles’, ‘Regeln’)169 or between ‘general principles’, ‘rules’ and ‘standards’170 is an integral part of legal theory. According to the doctrine of legal sources, all these terms may be grouped under the heading of ‘norm’171 . This does not mean, however, that the UNIDROIT Principles obtain the quality of a legal norm in the proper sense. Like the American Restatements172 they are merely drafted like norms so that the principles relevant to the drafting of norms of domestic law may always be applied here by analogy.
Whereas with respect to a rule, there are definite guidelines directing what conditions must be met before the rule can be applied, and there is a determined central area of application surrounded by a fringe of vagueness, i.e. a more or less wide, less distinct peripheral scope of possible applications173 , general principles are much less precise even at their core, the guidelines for their application are unclear and formulated in a general and vague manner174 . General principles do not necessarily have pre-set conditions for application. Instead, they merely constitute ‘rules of optimal application’ which means that they may be complied with in varying degrees. The required degree of compliance depends not only on the actual but also on the legal options open to the target group. Application of general principles therefore requires a substantial process of weighing up contradictory principles and rules175 . General principles are therefore always subject to a continual discussion about their effectiveness and scope176 .
General principles of law express a general truth which serves as a basic guideline for the application of the law, whereas rules are the practical formulation of the principle and, for reasons of expediency, may vary and depart from the principles from which they spring. This teleological aspect reduces the level of foreseeability with respect to cases in which general principles are applied, as well as their practical workability. However, general principles of law also have the important task of explaining the function of individual legal institutions in the context of a legal system. They assist the legal institutions in that they appear not only as a (simple) group of standards and rules, but as a group with meaning and therefore as a ‘system’177 . Reference to general principles of law, therefore, allows for a certain degree of self-control of the decision-maker in that the solution found for an individual legal problem has to be integrated into the network of coherent general principles enunciated so far178 . It is for this reason that in the judgments of domestic courts, general principles of law today take the place of standard references to vague blanket clauses of substantive law, thereby investing the courts with a kind of ‘quasi law-making power’, enabling them to find more modern, more contemporary solutions for the legal problems of today179 .
The UNIDROIT Principles make use of this dialectic between a rule and a general principle of law. They keep to very definite rules with a clearly defined scope of application. In addition to the provisions relating to the conclusion of contracts (Arts 2.1 et seq.), the following articles should be mentioned in this context: Articles relating to the mode of payment (Arts 6.1.7 et seq.), to the currency of payment (Art. 184.108.40.206), to the costs of performance (Art. 6.1.11), to the right to withhold performance (Art. 7.1.3), to a party’s right to require payment (Art. 7.2.1), to a party’s right to claim damages for non-performance (Art. 7.4.1), to the calculation of damages (Art. 7.4.6), and to the rules governing the calculation of interest claims (Art. 7.4.9). The latter provision is of utmost economic relevance, given the enormous amounts that are frequently in dispute in international commercial cases180 . However, the UNIDROIT Principles are not restricted to the reproduction of the technicalities of conclusion of contracts by offer and acceptance181 and the performance of contracts and possible secondary claims. Instead, a number of general principles in the form of general clauses take precedence in the first chapter
over the specific provisions in Chapters 2–7 and are then worked through by the UNIDROIT Principles as a central theme, making assessments and comparisons between rules and general principles possible. This is in accordance with the general experience that in the field of law of contracts, the application of the law always oscillates between the strict principle ‘pacta sunt servanda’ and general fairness considerations and is therefore largely dependent on the consideration of a number of flexible principles182 .
In addition, general principles perform an important gap-filling function183 . Art. 1.6(2) of the Principles takes up this idea and states that issues within the scope of the Principles but not expressly settled by them ‘are as far as possible to be settled in accordance with their underlying general principles’. These general principles are either expressly contained in the individual articles of the Principles (‘good faith’, ‘reasonableness’ etc.) or must be derived from specific provisions by way of autonomous interpretation, detached from any domestic laws184 . This concept of an autonomous uniform interpretation without reverting to any domestic law, constitutes an important leading principle in international uniform law. It formed the basis of Art. 17 of the Uniform Sales Law and Art. 7(2) CISG185 both of which were drafted on the basis of corresponding provisions of domestic legal systems186 . UNIDROIT’s official commentary to the Principles accordingly makes it clear that in order to promote uniformity in the application of the principles, gaps should be filled ‘whenever possible, within the system of the principles itself before resorting to domestic laws’187 . Through this statement, the Working Group directly recognized the ‘openness’ of the ‘system’188 and the important function of the general principles contained therein.
The need to weigh legal principles against legal rules becomes obvious when such provisions in the UNIDROIT Principles are applied which, though having the characteristics of rules, allow wide scope for teleological considerations by using broad legal language which requires extensive interpretation and elaboration. The following are examples of such provisions: Duty to pay damages in case of breaking off of negotiations in bad faith (Art. 2.15(2)), supplying an omitted contract term (Art. 4.8), possible sources of implied contractual obligations (Art. 5.2), the duty to cooperate with the other party in the performance of that party’s obligation (Art. 5.3), which, if it can reasonably be expected under the circumstances, may even amount to a duty of active cooperation notwithstanding contractual
The general principles which serve as important reference points for the assessment process described above are: the principle of party autonomy as the Magna Charta of international contract law (Art. 1.1), the principle of ‘pacta sunt servanda’ (Art. 1.3), the notion of ‘good faith and fair dealing in international trade’ which the parties have to observe during the negotiations of the contract and for the whole duration of the contract and which may not be excluded or limited by them according to Art. 1.7 of the UNIDROIT Principles191 .
The notion of good faith in particular belongs to the common core of the legal systems of the civil law countries192 and is also acknowledged by the American UCC and the Restatement (2nd) of Contracts193 and other common law jurisdictions such as Australia194 . The German Federal Supreme Court has stated ‘that the notion of good faith is a supranational legal principle that is inherent in all legal systems’195 .
English courts, however, have always rejected the idea of a general principle of good faith ever since Lord Mansfield described the notion of good faith as ‘the governing principle . . . applicable to all contracts and dealings’ in 1766196 . In the English courts’ view, such a general principle of law would run counter to the parties’ respective positions during contract negotiations and over the duration of the contract and would also be impracticable197 . Thus, the English House of Lords
has ruled that an express agreement that parties must negotiate in good faith is unenforceable198 . From the perspective of a functional comparative analysis199 , however, the assumption of a general principle of good faith and its inclusion in the UNIDROIT Principles is justified200 and has also found its way into Art. 7 CISG. The reason for this is that English courts have applied the principle of good faith as an ‘implied term of the contract’ in individual cases201 , thereby indirectly acknowledging the existence of a principle of ‘good faith in the performance of the contract’202 . Also, the principle of good faith lies at the roots of such important legal institutions of the common law systems as ‘promissory estoppel’ or ‘estoppel in pais’203 . Finally, it seems that under the influence of European law, especially with respect to the EU Directive on Unfair Terms in Consumer Contracts, implemented in the Unfair Terms in Consumer Contracts Regulations 1994, and continental legal traditions, the long-standing hostility against the principle of good faith will soon be overcome by English lawyers and courts204 .
Thus, it may be said that the principle of good faith is a perfect example for the basic drafting approach of the UNIDROIT Working Group, which has always been rather pragmatic than purely dogmatic205 .
In any event, the influence of the Principles in this respect has already been felt. In an unpublished award of 1996, an arbitral tribunal made reference to the Principles in order to demonstrate to the parties that the enforceability of the parties’ agreement to negotiate in good faith under the applicable New York law was in line with international contract practice206 .
Within the UNIDROIT Principles, the notion of good faith is qualified in that it is mentioned in Art. 1.7(1) simultaneously with the idea of ‘fair dealing in international trade’207 . This was done in order to make it clear from the outset that the conduct of the parties is not to be measured according to the subjective standards of their bilateral (or multilateral208 ) contractual relationship, or according to the standards of their respective domestic legal systems, but rather according to a far-reaching, objective standard to be found among businesspersons in international trade, amounting to a ‘fairness in the market place’209 . This objective understanding of the notion of good faith in international business is not only in line with the approach taken in § 1-201 (b) (20) UCC and § 2–103 (1) (j) UCC210 , but is also reflected in English legal practice where the principle of good faith is always seen in the context of the standards of honesty, fairness and reasonableness that prevail in the relevant legal community211 . In any event, the standard reflected in Art. 1.7 of the UNIDROIT Principles has to be understood in a transnational sense. It is detached from the particularities of domestic legal systems and has to be seen in the socio-economic environment in which multinational enterprises usually operate212 . This confirms the general observation that it is impossible to compile a common stock of concrete rules, principles, and applications that are related to the
principle of good faith. Instead, this broad and vague notion always has to be interpreted and applied in a context-oriented manner213 .
In spite of its general and vague character, Art. 1.7 of the UNIDROIT Principles may rightly be characterized as the Magna Charta of international commercial law. The principle of good faith and fair dealing performs a central function in the interpretation of the Principles and in transnational commercial law in general214 . By stating in general terms that each party must act in accordance with this standard, the article makes it clear that even in the absence of special provisions in the Principles, the parties’ behaviour throughout the life of the contract, including the negotiation process, must meet certain requirements which are generally accepted within the international business community215 .
The Magna Charta of international trade law does not stand alone within the system of the UNIDROIT Principles. It is supplemented by the parties’ commitment to trade usages to which they have agreed216 or which are widely known to and regularly observed in international trade by parties and to practices which they have established between themselves (Art. 1.8)217 . The general terminology used in this article was adopted from Art. 9 CISG218 and Art. 9(2) of the Uniform Sales Law219 . The basic difference between the approach chosen in the Principles and in the Uniform Sales Law is that the standard of reasonableness which leads to the exclusion of the application of trade usages, has been changed. The heavily criticized220 subjective test of the Sales Law (‘ . . . usages, which reasonable persons in the same situation as the parties’ usually consider to be applicable to their contract . . . ’) is replaced by an objective test of reasonableness (‘ . . . except where the application of such a usage would be unreasonable’).
This principle of ‘reasonableness’ plays a dominant and recurrent role in almost all of the provisions of the UNIDROIT Principles even though, contrary
to the ‘Principles of European Contract Law’ of the Lando Commission221 , the UNIDROIT Principles do not contain a blanket clause which defines the notion of reasonableness. Under the Uniform Sales Law222 and the CISG, the ‘reasonableness test’ (‘reasonable person’; ‘reasonable time’; the juxtaposition of ‘reasonable’ and ‘unreasonable’) has been used as a general criterion for the evaluation of the parties’ conduct in those cases where there is no specific provision to be applied to their legal relationship223 . The Dutch Civil Code also contains specific provisions on the standard of reasonableness which it links to the principle of good faith (‘redelijkheid en billigheid’, Arts 6:1, 6:248, 6:285 BW)224 . The notion of ‘reasonableness’ thus provides the classical standard which attaches an objective quality to the principle of good faith225 . The standard thereby performs an important prohibitive function which, under German law, is effected by the prohibition of the improper exercise of legal rights under the blanket clause of good faith contained in Sec. 242 of the German Civil Code226 .
Inclusion of this standard in the general section of the UNIDROIT Principles reflects the particular character of international commercial law. It is composed not only of clearly defined legal duties but also and to a large extent of general standards and duties of conduct (‘obligations de comportement’)227 . They allow for the adaptation of the law to the changing circumstances of international trade and commerce. Under the standard of ‘reasonableness’, it is irrelevant whether or not a party has acted upon what it honestly believed to be reasonable. Instead, it is decisive whether one has put forth his best efforts, exercised due diligence in performing one’s contractual obligations, upheld the common contractual goals, avoided abuse of rights required under the contract, and facilitated the other party’s performance228 . The flexibility and ‘souplesse’ of the standard of reasonableness also reflects its major virtue: It allows arbitrators and judges to focus on the search for a fair and ‘equitable’ solution to international commercial disputes229 . At the same time, the standard provides a further230 indication for the ‘openness’ of a legal system in general and of the NLM in particular, proving the quality of
transnational commercial law as a ‘law in action’. The standard of reasonableness has its origin in a sociological understanding of the contract231 which is also the basis for the idea of an institutional development of the law through the international community of merchants232 . This view is confirmed by the fact that reasonable behaviour usually means nothing more than keeping one’s word in all circumstances or at least in the manner (commonly) intended by the parties233 . The idea of reasonable conduct is therefore inextricably linked to the principle of ‘pacta sunt servanda’ and to the notion of a general transnational liability for breach of confidence as a basic pillar of the NLM234 .
In the context of the UNIDROIT Principles, the reasonableness test is of particular relevance for all those provisions which require a flexible interpretation and application in individual cases. They include those relating to the application of usages and practices (Art. 1.8(2)), the time of acceptance in case no time has been fixed by the offeror (Art. 2.7), the interpretation of the contract in cases where no common intention of the parties can be determined (Art. 4.1(2)), the determination of the quality of performance which is neither fixed by, nor determinable from, the contract (Art. 5.6), the determination of the contract price where the contract does not fix or make provisions for determining the price (Art. 5.7235 ), the determination of the time of performance absent an agreement by the parties (Art. 6.1.1(c)). The reasonableness test is also relevant for those articles dealing with ‘hardship’ (Art. 6.2.2) and ‘force majeure’ (Art. 7.17). In the context of these provisions, the standard of reasonableness frequently takes the place of party agreements, thereby reflecting the drafters attitude of the existence of a general standard of conduct in international trade. However, the abstract and general provisions contained in the UNIDROIT Principles do not themselves provide this standard. Therefore, the construction of international contracts and the determination of the conduct of the parties depends upon a close interaction between the criterion of good faith (Art. 1.7) and the objective test of fair dealing in international trade and reasonableness on the one hand, and the usages and practices of international trade (Art. 1.8) on the other. A contract as well as a unilateral statement or conduct of a party shall be interpreted under the UNIDROIT Principles according to the intention of the party or parties and, where no such intention can be established, according to the meaning that a reasonable person of the same kind as the parties or party would give to it under the circumstances (Arts 4.1 and 4.2). Art. 4.3 of the Principles states that in applying the standard, all the circumstances, including preliminary negotiations between the parties, practices which
the parties have established between themselves, the conduct of the parties subsequent to the conclusion of the contract, the nature and purpose of the contract and, most importantly, ‘the meaning commonly given to terms and expressions in the trade concerned’ shall be considered. With this latter provision the UNIDROIT Principles refer to Art. 9(3) of the UniformSales Law236 . The UNIDROIT Principles refer the judge or arbitrator who has to interpret the contractual stipulations to the meaning of typical trade clauses as reflected in the INCOTERMS issued by the ICC237 . The Principles are therefore even more detailed than the CISG which contains a reasonableness test in Art. 8(2) but has not adopted a provision such as Art. 9(3) of the Uniform Sales Law which refers the judge or arbitrator to the meaning of contractual stipulations commonly given to terms and expressions in the trade concerned238 .
Further examples from commercial reality may serve to illustrate the functioning of this principle.
Schlechtriem provides the example of Internet communication not envisaged by the drafters of the Principles. In this case, the question may arise as to the time within which the recipient of an Internet sales confirmation has to object. Does it run only from the time the Internet message is reproduced in tangible form or from the moment of receipt in the addressee’s computer? In this case, good faith and fair dealing require that the ‘undue delay requirement’ of Art. 2.19 has to be interpreted so as to give the recipient a reasonable opportunity to take notice of the recorded message regardless of whether and when it is printed239 .
It is also said that, from the perspective of international business practice, Art. 3.10 of the Principles, dealing with a party’s right to avoid the contract or individual terms of it in case of excessive advantages for one party, would allow a seller who offered products at a low price because it had temporary cash-flow problems to ask the court at a later date to increase the contractually agreed price on the grounds that when the contract was made, this party was under ‘economic distress’ and had an ‘urgent need’ for cash (Art. 3.10(1)(a))240 . This view would indeed go against free market principles and the fundamental rule of pacta sunt servanda in that it overrules the natural distribution of bargaining powers within each contractual equilibrium241 . However, Art. 3.10 is not intended to provide the parties with a means to escape their contractual commitments. Even a considerable disparity in the value of the price of performance and counter-performance is not sufficient to permit avoidance of the contract242 . The application of this provision
requires much more than this. Under the circumstances of the case and in the light of reasonable business practice, the disequilibrium ‘has to be so great as to shock the conscience of a reasonable (business) person’243 . This, of course, does not apply to mere cash-flow problems of one of the parties to the contract.
The same is true for the hardship provision of Art. 6.2.2. It is alleged that this provision allows the adaptation of the contract in case of currency fluctuations or because of an unexpectedly high failure rate under warranty244 . Again, this would contravene usual business practice and again, the answer to these objections must be that the hardship provision has to be read and construed in a context-oriented manner. Thus, Art. 6.2.1 expressly states that ‘where the performance of a contract becomes more onerous for one of the parties, that party is nevertheless bound to perform its obligations subject to the following provisions on hardship’. In other words, in cases of doubt, the principle of pacta sunt servanda prevails and performance must be rendered as long as it is possible and regardless of the economic burden it may pose on the performing party245 . This principle is a constituent element of international commercial contract practice246 and is also reflected in the ‘ICC Guide on Force Majeure and Hardship’247 . Currency fluctuations are a common element of commercial reality. They are usually regarded as typical business risks which cannot be shifted to the other party in case the contract does not contain a special provision and the pricing structure does not imply a certain ‘currency risk premium’248 .
Finally, it has been argued that the provisions on public permissions (Arts 6.1.14 et seq.) are impracticable and not in line with international business practice. Art. 6.1.17(1), which states that the refusal of a permission affecting the validity of a contract renders the contract void, is alleged to be unacceptable since it would enable a state-controlled entity to evade its contractual duties simply by arranging for the refusal of the public permission. Also, it is claimed that in such cases there should be some claim for non-performance for the aggrieved party249 . This objection is unjustified for two reasons. First, the public entity’s conduct in this case would violate the general principle of good faith (venire contra factum proprium) which has to be observed in the interpretation of the Principles according to Art. 1.7. Also, Art. 6.1.7(2) calls for the application of the rules on non-performance in
cases of refused public permissions that render the contract void, thus opening the way for a claim for damages under Art. 7.4.1.
These examples reveal that the black-letter law of the Principles cannot be applied in a mechanical way without having regard to the general framework and thrust of the Principles as clarified in the official commentary250 . Instead, the provisions always have to be construed in the light of their underlying guiding notions, of which ‘pacta sunt servanda’ and ‘reasonableness’ are the most important.
The generality of the principles and rules contained in the UNIDROIT Principles, the complex assessment process and the weighing of interests that is necessary for their proper application are by no means proof of a lack of practicability. Rather, they are indications for the quality of international commercial law as a ‘law in action’ which is in a state of constant evolution through international practice. In the context of international commerce and trade, this important function is performed by international arbitrators striving to reach equitable and reasonable solutions for commercial disputes251 . It is through their decision-making that the UNIDROIT Principles ‘are filled with life’252 . This reflects the general experience that general principles of law and standards of conduct do not have legal effects in abstracto, but have to be integrated into a law-finding and norm-creation process253 . In the context of transnational commercial law, this is the functional comparative methodology and the institutional creation of the law254 .
The TransLex Principles, reprinted in Annex III to this Study and available at www.trans-lex.org, provide a unique online tool for the Creeping Codification of the NLM through the Internet. The TransLex Principles are based on the methodological approach and comparative research described in this Study. The functional comparative methodology647 and the case law of international arbitral tribunals648 form the two pillars on which the legitimacy of the TransLex Principles is based. They contain legal principles, standards and rules as constitutive elements of a transnational commercial legal system. This online approach to the Creeping Codification of the NLM serves three specific purposes:
formulating of the rules and principles in black letter text so as to allow the user to apply the NLM in legal practice;
reproducing the comparative law references for each principle or rule to help to save the time and money that practitioners and academics must invest in comparative research required to determine the contents of transnational law; and
displaying the relevant materials in full-text versions immediately below the black letter text of each principle and rule to enable the user to make his own judgment about the ‘comparative persuasiveness’ of these sources.
The first version of the lists which form the basis of the TransLex Principles was published in 1992649 . The list contained thirty-nine principles and rules of the NLM together with numerous comparative law references. The list was unstructured and not organized in any way. Its sole purpose was to prove the contents of the NLM at that specific point in time. The English version of the list, which was published in 1993, contained forty-four principles and rules650 .
It was Norbert Horn, one of the most important proponents of the NLM doctrine in Germany651 , who brought up the idea that the list could be more than just an unsystematic compilation of principles and rules of the NLM:
‘One is puzzled by the list . . . because of its form: A concise listing of individual legal notions and legal principles. Almost each of them would deserve a scientific treatment of its own . . . The reader acknowledges with great interest the – according to my knowledge up to now most comprehensive – listing of such basic notions and legal principles. In my opinion, the list, in and of itself, constitutes an advancement of legal knowledge’652 .
The original German version of the first edition of this book, which was published in 1996, contained the third version of the list, now with sixty-nine principles and rules of the NLM653 . Again, the list had no structure and was not organized in chapters or subdivisions. It was in that treatise that the idea of the ‘Creeping Codification’ of the NLM was developed and presented654 . The English version of the German treatise, which was the first edition of this book, was published in 1999. It contained a new version of the list with seventy-eight principles and rules of the NLM.
There was an intrinsic problem with all lists published between 1992 and 1999. Their growth and character as a mere unorganized compilation of principles and
rules reduced their utility. That problem ran counter to the very purpose of the lists, namely the codification of the NLM in a way that makes them easily accessible for practitioners and academics around the globe.
In 1999, CENTRAL began to consider the use of modern communication technology for the implementation of the concept of the ‘Creeping Codification’ of the NLM. The idea of publishing a CD-ROM with the text of the list and the numerous full-text materials supporting each principle655 was quickly abandoned. It was obvious that this technology would not be able to keep pace with the dynamic development of the NLM. Instead, the idea was born to set up a ‘codification platform’ on the Internet. To prepare for this project, a list was published by the Research Team in a CENTRAL publication on transnational law in late 1999 which was, for the first time, subdivided into fifteen chapters and which contained – also for the first time – the black letter text of each principle and rule contained in the list656 . In May 2000, the CENTRAL Team, having conducted a global survey on the use of transnational commercial law in international practice, announced that it would ‘publish a comprehensive Online Database on Transnational Commercial Law in early 2001’657 . While the Internet has been regarded as a typical area of business life for which transnational legal structures have developed into a kind of ‘lex informatica’ or ‘lex electronica’658 , the CENTRAL Research Team regarded the Web as the only technical environment through which the Creeping Codification of the NLM could be implemented. The CENTRAL Research Team quickly realized that the unique character of the World Wide Web avoids the defects inherent in traditional means of codification. The absence of a territorial localization of the Web conforms with the transnational character of the NLM, whose primary goal is to detach commercial law from the territorial constraints of domestic legal systems. The ‘Open-Access’ environment and global scope of the Web complies with the nature of the NLM as a ‘public domain law’. Also, the Web permits easy and free access to the NLM on a global scale. Unlike printed texts, the technical options available on the Web, coupled with modern IT- and database technology, allow for easy everyday access, use, as well as the quick and continuous updating and dynamic evolution of the TransLex Principles. Through the Internet, CENTRAL can take account of the special character of the Creeping Codification concept
which is as flexible, spontaneous, and highly volatile as the NLM itself659 . The use of the highly flexible technical environment of the Web assuages concerns that any attempt to ‘catch’ the NLM, which is floating in the transnational sphere, and to force it back into the straightjacket of a code-like list might ultimately result in compromising not only the autonomy, but also the inherent flexibility and highly dynamic character of the NLM660 .
A senior member of the CENTRAL Research Team, Holger Dubberstein, a lawyer and expert in IT and database programming, programmed the database as an Internet-based codification platform. The result of his excellent work, the ‘Transnational Law Database’ (Tldb, www.tldb.de)661 was launched at an international conference on ‘Transnational Law in the Age of Globalization’ held at Münster University on October 26, 2001. At the conference, one of the speakers, Gralf-Peter Calliess, stated:
‘ . . . in terms of providing free and easy access to systematic knowledge of Lex Mercatoria and thereby enabling self-reference, the CENTRAL Transnational Law Database launched today could be a milestone on the road to the New Law Merchant’662 .
After CENTRAL moved from Münster University to the University of Cologne in April 2002, the Tldb was renamed into ‘Transnational Law Digest & Bibliography’ in order to emphasize the ‘Digest-like’663 quality of the platform, while maintaining the acronym ‘Tldb’. The platform was also transferred from a ‘.de’– to a ‘.net’-domain (www.tldb.net) to underline the transnational character of the codification platform.
Over the next seven years, various problems in the handling of the Tldb manifested. The front-end of the Tldb became too complex, sacrificing the user-friendliness of the platform. At the same time, the back-end program which the members of the
CENTRAL Team used to prepare and upload new documents became outdated and its use proved to be very time consuming. Also, the feedback from the users indicated that the message behind the acronym ‘Tldb’ was not readily understood by those academics and practitioners who were not familiar with CENTRAL and its research activities.
For all of these reasons, the decision was made at CENTRAL in early 2008 to set up a completely new online codification platform – TransLex – to which the list and the materials contained in the Tldb would then be transferred. The programming of TransLex was done by two members of the team with considerable experience in database programming, Ulf Krause and Oliver Froitzheim. The new TransLex-logo has four colours. These four colours represent the four areas of the TransLex platform at www.trans-lex.org:
TransLex Principles: a list of almost 130 principles of transnational law, the ‘New Lex Mercatoria’.
TransLex Bibliography: a comprehensive bibliography on transnational law.
TransLex Materials: a collection of texts of international conventions, model laws, restatements, domestic statutes, soft law instruments and many other materials.
TransLex Links: a collection of selected links which are relevant for research in transnational law and international business law.
TransLex was launched at the final rounds of the Willem C. Vis Arbitration Moot Competition in Vienna in early April 2009. In fact, many student teams who have participated in that competition in the past have made extensive use of the Tldb, and the teams who participated in the final rounds of 2009 showed great interest in the new TransLex platform.
Like the UNIDROIT and Lando Principles664 , the TransLex Principles are of a multi-functional nature. They may be used:
to determine the applicable rules in a dispute if the parties have chosen ‘transnational commercial law’, ‘general principles of law’, ‘the lex mercatoria’ or the like;
to determine the applicable law, if, absent a choice of law by the parties, the arbitrators decide to apply this concept to the dispute before them;
to allow for an autonomous interpretation of and for the filling of internal gaps in international conventions and other uniform law instruments;
to allow for the ‘internationally useful’ construction of domestic law in international disputes;
to ascertain the disputed meaning of key legal terms of transnational commerce, e.g. ‘force majeure’, ‘hardship’, ‘best efforts’, ‘time is of the essence’, ‘FOB’, ‘CIF’ etc.;
to supplement or correct a future European Civil Code in international commercial disputes;
to provide legal know-how about modern commercial law to developing and transition countries; and
to provide information about transnational law to other sciences (politics, economics, sociology) which are exploring the clash between the territorial limitations of the law and the transnationalization of international commerce and trade in an era of globalization665 .
Apart from its online character, the list contained in the TransLex Principles differs from the lists published in the four books mentioned above in various respects.
A first major difference relates to the content and structure of the list. As of October 2009, the TransLex Principles contained 128 principles and rules of the NLM. The list begins with very general principles of good faith and the standard of reasonableness. It also contains very detailed and specific rules on such issues as agency, contract interpretation, the consequences of non-performance, force majeure and hardship, interest claims, unjust enrichment, expropriation, international commercial arbitration, and conflict of laws. The scope of the list thus goes far beyond international contract law. The principles and rules contained in the list, either on their own or in their combination, allow for the resolution of the vast majority of international business disputes. TransLex therefore does away with the longstanding criticism that the tremendous amount of academic attention devoted to it has only given rise to a very limited number of workable principles. Unlike their predecessors which were published between 1992 and 1999, the TransLex Principles are not an unorganized compilation of principles and rules of the NLM. Instead, they are structured in fourteen chapters which are accessible through a drop-down menu. This is an example of the increasing systematization of the NLM described above666 . Such systematization is by no means a new phenomenon. Even the ancient predecessors of the list, like the ‘Rôles d’Oléron’ 667 , were not an unsystematic compilation of rules and principles. Rather, they contained a coherent set of rules corresponding in broad terms to the chronology of a sea voyage668 .
By clicking on a principle of his choice, the user of the TransLex Principles gets instant access not only to its black letter text, but also to hundreds of comparative law references (doctrine, arbitral awards, court decisions, national legislation, international restatements, model laws, model terms), most of them
in full-text versions. It is one of the main tasks for the members of the CENTRAL Research Team to collect on a continuous basis new materials and upload them onto the platform. Reproduction of these sources has always been a key feature of the four lists published before the Tldb was launched and is also a key feature of TransLex. Apart from its online character and scope, which is not limited to contract law, it is that feature which distinguishes the TransLex Principles from the UNIDROIT and Lando Principles669 . The experience with the American Restatement of the Law of Contracts670 reveals the tremendous significance which these references have. It was for this reason that the Lando Commission decided to include notes with comparative law references (without, however, reproducing their full texts) in its Principles of European Contract Law and not to follow the example of the UNIDROIT Working Group671 . The references guarantee the transparency which is necessary for a worldwide acceptance of the TransLex Principles and the rules and principles contained therein672 .
The documents which constitute the comparative law references are reproduced on the platform in PHP-format but can be downloaded as formatted and unlocked pdf-files. A sophisticated search engine developed specifically for the TransLex Principles by the CENTRAL technicians and equipped with a large variety of search filters allows the user to search for specific principles, rules or documents. When searching for a principle or rule, the search engine always produces the black letter text of the relevant principle as the first search result. While working with TransLex, users can suggest further references through the ‘suggest a reference’-feature that was programmed into the platform for every principle or rule. This feature, together with the idea of a blog-like discussion forum on transnational law which will be implemented in the future, realizes the idea of a ‘worldwide data-communication network’ that was suggested in the German version of the first edition of this book673 . TransLex also contains a ‘genesis’ function which is intended to create transparency of the ‘codification’ process by explaining the history of a given principle or rule throughout the codification process within TransLex. Embedded in the programming of the platform
but not yet activated is an ‘annotation’ feature which allows the CENTRAL Team to issue annotations and comments for individual principles or rules contained in the list.
A second major difference relates to the way in which the principles and rules are formulated in the lists. This difference is due to the different purposes of the book- and the online-lists. The purpose of the book-lists was limited to furnishing proof of the existence of the ‘constituent elements’ of the NLM674 . Therefore, those lists simply reflected the technical term of the relevant principle (e.g. ‘bona fides’, ‘pacta sunt servanda’, ‘hardship’, ‘force majeure’) and provided comprehensive comparative references for each principle and rule contained in the lists. The booklists did not contain the black letter text of the principles and rules contained therein. That approach was changed in the online-lists. The change was prompted by the UNIDROIT and Lando Principles which attempted for the first time to formulate the black letter text of the rules and principles of international contract law in a restatement-like fashion.
Contrary to the international restatements, however, the text of the TransLex Principles is not carved in stone but has always been, still is, and will always be subject to constant review, textual refinement and adaptation to new developments in international business practice by the CENTRAL Research Team. This is another indication of the special character of the Creeping Codification which relates not only to the continuous expansion of the lists, but also to the constant improvement of principles and rules already included in the lists. The changes are also reflective of the different underlying purpose of the online-lists. Rather than being mere archives of the nomenclature and abstract contents of the NLM, the online-lists are also intended to provide the international practitioner with a workable tool to apply the NLM in practice.
Three examples reflect the textual changes which many of the principles and rules contained in the online-lists have undergone over the past years. In the first version of the Tldb, the ‘good faith principle’ was formulated in the following words675 :
‘No. I.1 – Good faith and fair dealing in international trade
The parties must act in accordance with the standard of good faith and fair dealing in international trade.’
In the current version of the TransLex Principles, the same principle is formulated in a broader fashion:
‘No. I.1.1 – Good faith and fair dealing in international trade
(a) Parties to international business transactions must act in accordance with good faith and fair dealing in international trade. This standard applies to the negotiation, formation, performance, and interpretation of international contracts.
(b) The standards and requirements imposed on the parties by this Principle vary depending on the individual circumstances involved, such as the trade sector in which the parties are operating, their size and degree of professional sophistication, and the nature and duration of the contract.’
The textual and structural changes reflected in the two versions are not due to a change in the substantive meaning of the principle. Rather, they are intended to provide more guidance to international legal practice for the application of this very general and basic legal principle. At the same time, the new subsection (b) makes it clear that the application of the good faith principle is never a purely mechanical process, but always requires a determination of what is deemed to be a proper conduct of a party on an ad hoc basis, taking into account all circumstances of the concrete case676 . This analysis must include the nature of the contact itself. Thus, the reference to the ‘duration of the contract’ in subsection (b) is meant to indicate that the time factor may play an important role as an ‘amplifier’ for the parties’ duties imposed on them by the good faith principle. Thus, in long-term, ‘relational’677 contracts, the principle of good faith will almost always impose increased duties of good faith on both parties as compared to ‘one off’ exchange contracts.
A second example relates to the principle of nominalism. In the Tldb, that principle was phrased in the following words678 :
‘No. IX.3 – Nominal-Value Principle
Unless otherwise agreed by the parties, each party bears the risk of currency depreciation (nominal-value principle).’
In the TransLex Principles, the same principle is formulated as follows:
‘No. V.2.3 – Nominalistic Principle
Unless otherwise agreed by the parties (e.g. in ‘‘value-stabilization clauses’’ or ‘‘index-linking clauses’’), a claim for payment in a certain currency entitles the creditor only to the contractually specified amount of that currency (nominal value), irrespective of any fluctuations of the currency in which the debt is expressed between the date of concluding the contract out of which the claim arises and the date of payment.’
Again, the textual changes do not reflect a change in the substantive meaning of the principle. Rather, they were influenced by a recent study on force majeure and hardship in international contract law679 .
Finally, the ‘force majeure’ principle, which has always been a key principle in the lists, was formulated in the original version of the Tldb in the following words680 :
‘No. 3 – Force majeure
If non-performance of a party is due to an impediment which is beyond the reasonable control of that party and could not have reasonably been foreseen by that party at the time of conclusion of the contract, such as war, civil war, strike, acts of governments, accidents, fire, explosions, natural disasters etc., and neither the impediment nor its consequences could have been avoided or overcome by the non-performing party (‘‘acts of God’’, ‘‘force majeure’’, ‘‘höhere Gewalt’’), that party’s non-performance is excused. If nonperformance is temporary, performance of the contract is suspended during that time and that party is not liable for damages to the other party. If the period of non-performance becomes unreasonable and amounts to a fundamental non-performance, the other party may claim damages and terminate the contract.’
In the TransLex Principles, the same principle has undergone substantial textual and structural changes:
‘No. VI.3 – Force majeure
(a) If non-performance of a party is
i) due to an impediment which is beyond the reasonable control of that party and
ii) could not have reasonably been foreseen by that party at the time of conclusion of the contract, and
iii) neither the impediment nor its consequences could have been avoided or overcome by the non-performing party (‘‘Acts of God’’, ‘‘Force Majeure’’, ‘‘höhere Gewalt’’), and
iv) the non-performing party did not assume, explicitly or implicitly, the risk of the occurrence of the impediment that party’s non-performance is excused.
(b) If non-performance is temporary, performance of the contract is suspended during that time and that party is not liable for damages to the other party. If the period of non-performance becomes unreasonable and
amounts to a fundamental non-performance, the other party may claim damages and terminate the contract.
(c) Unless otherwise agreed by the parties expressly or implicitly, Force Majeure events under subsection (a) above are impediments such as
i) war, whether declared or not, civil war or any other armed conflict, military or non-military interference by any third party state or states, acts of terrorism or serious threats of terrorist attacks, sabotage or piracy, strike or boycott, acts of governments or any other acts of authority whether lawful or unlawful, blockade, siege or sanctions, or
ii) accidents, fires, explosions, plagues, or
iii) natural disasters such as but not limited to storm, cyclone, hurricane, earthquake, landslide, flood, drought etc., or
iv) any event of a similar nature.
(d) Where the obligee has been prevented by a Force Majeure event as defined in (a) above from causing a limitation period to cease to run, the limitation period is suspended so as not to expire before one year after the relevant impediment has ceased to exist.’
As in the case of the good faith and nominalistic principle, most of the changes made do not reflect a change in the substantive meaning of the force majeure principle. Rather, the CENTRAL Research Team recognized that the text of the force majeure principle in the Tldb was not very user-friendly. To address that concern, the prerequisites and legal consequences of the force majeure principle were expressed in different subsections. The practical examples of force majeure events were likewise moved to a separate subsection and grouped into different subcategories of events. That subsection provides an example of changes that go beyond mere textual or structural improvements. Many of the examples contained in the current version of that subsection have been added as a consequence of the creeping codification process. For example, ‘piracy’ was added very early after the launch of the Tldb to take account of the increasing use of piracy, e.g. in the Gulf of Aden, offshore Lagos in Nigeria and in other places of the world681 . The events ‘acts of terrorism or serious threats of terrorist attacks’, contained in subsection (c) (i), were added to the list as a reaction to a change in the force majeure drafting practice of many companies after 9/11. However, the wording of the introductory phrase of that subsection (‘such as’) and of subsection (iv) (‘any event of a similar nature’) make it clear that the list of force majeure events contained therein is nonexhaustive. Therefore, the changes made did not cause a change in the substantive content of the force majeure principles. Rather, they served to clarify its extended scope in international contract practice as a reaction to the changed realities of the global economic environment.
It becomes obvious from this description of the technical features of the Creeping Codification process why the term ‘codification’ used in the context of the Trans- Lex Principles must not be confused with the traditional notion of codification by domestic legislatures682 . There is a natural temptation to fall into this trap because the code, once thought quintessential to private law in the state, is translated into realms outside the state683 . Some even argue that the use of traditional ‘codification’ techniques might serve to alleviate concerns684 raised by the proponents of the positivistic, monistic and state-centred theory of legal sources against the NLM doctrine685 .
That view must be rejected for three reasons. First, traditional codification techniques are being increasingly criticized today. They are useful as technical tools to ensure legal certainty and uniformity of legal rules within a given jurisdiction. However, codification is not considered as an efficient means of reshaping society or improving the law686 . Reshaping and improving the law, however, are essential objectives for any codification of the NLM as law in action. It must also be noted that in today’s multi-facetted society, which is developing at high speed, the idea of the ‘code’ has been disenchanted687 . The recent developments in the EU which have lead to the creation of the DCFR688 , a code-like compilation of principles and rules of European private law, reveal that, in view of these intrinsic limits of traditional codification techniques, the term ‘codification’ may assume a new meaning in the near future689 . Such a development can be observed in the area of public international law where the notions of ‘codification’690 and ‘progressive development of the law’ tend to merge, thereby giving a new and
progressive meaning to the traditional notion of ‘codification’ known from domestic law-making691 . It is argued that even at the state level, such redefinition and modernization of the notion of ‘codification’ may involve the use of modern IT-technology:
‘Codification – perhaps it comes back in a completely new way, detached from the traditional literary understanding of lawmaking and statutory texts; perhaps as a database which is systematized and can be used in a systematic way through computer programs692 .’
Secondly, the idea of traditional codes and codification techniques is closely linked to the nation state, while transnational law is intended to de-nationalize international business law. Thirdly, while codification is not per se inconsistent with the NLM693 , the traditional notions of ‘legislature’ and ‘codification’ have no place in the context of the NLM doctrine. The NLM is created ‘bottom up’ by the international business community. It is not imposed on the parties to international business transactions ‘top down’ by a formal law-making process694 . Therefore, neither CENTRAL, UNIDROIT, nor any other academic or non-academic institution or organization can claim to be the ‘legislator’ of the NLM.
In fact, there is no single institution or formulating agency which possesses a ‘law-making monopoly’ for the NLM similar to that which state legislatures possess for domestic law and the reception of international law instruments. Rather, CENTRAL, through its TransLex Principles, acts as the ‘formulator’ or ‘chronicler’ of modern transnational commercial law. By formulating the principles and rules contained in the list and linking them to the comparative law materials, including arbitral case law and international Restatements such as the UNIDROIT and Lando Principles, in which they are reflected and which are reproduced on the platform, the TransLex Principles establish a presumption, i.e. prima facie evidence that the principles and rules reproduced in the list do in fact form part of the NLM695 . It is for this reason that it has been suggested that the name of the NLM should rather be ‘principia mercatoria’696 . It is precisely through this presumptive effect of the list that the Creeping Codification aims at making the application of transnational commercial law by international arbitrators easier.
That task that has been aptly described by an international arbitral tribunal as follows:
‘It is always a more difficult and more demanding task for a tribunal to decide a case by the only reference to, and guidance by, general principles of law, lex mercatoria etc., instead of simply having regard and applying the solution as provided for in a particular national law, its case law and doctrine; this is so because an arbitrator, who can simply apply a national law, may not have to scrutinize and to be concerned about the ‘‘validity’’ and ‘‘applicationworthiness’’ of a particular provision; he may and will simply apply the law (sometimes adding his own regrets: dura lex sed lex). However, an arbitrator who has to reflect on those rules and principles which truly deserve to be called ‘‘general principles’’, or forming part of the lex mercatoria (thus being carried by an international ‘‘communis opinio vel necessitas’’), will have a much more difficult and responsible task to accomplish’697 .
The purpose of reproducing the comparative references in the TransLex Principles is not limited to providing the basis for the comparative persuasiveness of the principles and rules contained therein. They also serve as a comparative substratum for the further evolution of the list in general and for the development of specific rules from mere ‘candidates’698 to genuine components of the NLM. It lies in the very nature of the Creeping Codification process that the list is constantly updated and developed in order to provide an accurate ‘snapshot’ of the NLM. This specific character of the Creeping Codification was the major reason why the Web was chosen as a technical basis to implement this concept.
The process of adding a principle or rule699 starts with a concrete legal problem that appears in an international business transaction which became public through a dispute before an international arbitration (with a resulting award that was published) or a domestic court decision. The corresponding legal principle or rule is then developed on the basis of the functional comparative methodology, i.e. using a topical, problem-oriented comparative approach700 . This process accounts for the dual nature of the list, embracing both general principles of law as an abstract set of principles and the legal and/or commercial convictions of the international community of merchants. The process also considers the plurality of legal sources which account for the development of the NLM and which include public international law, uniform laws, the general principles of law, the rules
developed by international ‘formulating agencies’, un-codified customs and usages, standard-form contracts, and published arbitral awards701 . These sources constitute the ‘raw material which has to be distilled into formally enacted or declared rules in order to become binding’702 , in order to become part of the NLM as an autonomous legal system.
As far as the discovery of general principles of law and legal rules is concerned, the UNIDROIT Principles and the Lando Principles of European Contract Law may serve as a starting point for the comparative analysis. The restatements are not a source of the NLM in the proper sense703 , but they provide an initial indication for the existence of certain legal principles and rules on the transnational plane704 . Other lists of principles705 may also be included in the research but must be meticulously verified, as some do not contain any comparative references706 , while others merely repeat the contents of other lists without verifying the comparative legitimacy of the individual rule, principle or standard. An example is the list set up by Mustill, himself an opponent of the NLM doctrine.
In order to ensure this legitimacy, the research must include classical legal systems from civil and common law countries and ‘hybrid’ legal systems such as the civil code of the Canadian province of Quebec, the laws of Scotland, South Africa or of the US state of Louisiana and the special laws of foreign trade contracts of the countries of the former Eastern Bloc and of the People’s Republic of China707 . Also, the comparative analysis includes Part I of the Civil Code of the Russian Federation promulgated on January 1, 1995708 . The value of this law for comparative research is based on the fact that it is drafted upon the major codifications of civil law of continental Europe709 . The drafting process of the new Russian
law was dominated not so much by Anglo-American legal notions and ideas but by the legal systems of Germany, the Netherlands and Italy. As a consequence of this comparative drafting approach, the new Russian law takes account of recent developments and statutes in the field of private law in Europe710 . Apart from its contents, the new Russian law is of particular significance for comparative research because it performs an important integrative function in the former Soviet Union. The law constitutes the beginning of a far-reaching and unified codification movement in the field of private law. Uzbekistan and Kazakhstan have adopted the Russian draft711 , and the Republic of Kirgistan has promulgated a new civil code that is based on a previous draft of the Russian law712 .
The results derived from this comparative research may then be verified on the basis of international conventions such as the CISG713 and its predecessors, The Hague Sales Laws, and with reference to conventions of public international law, such as the Vienna Convention on the Law of Treaties of 1969. The CISG plays a pivotal role in this verification process for two reasons. First, the Convention is itself a first step towards the codification of the NLM in the field of international sales contracts714 . Secondly, many of the principles and rules contained therein have been derived from the practice of international arbitral tribunals which in turn are a driving force behind the development of an autonomous and transnational commercial legal system715 .
The second aspect in the development of the list relates to the question of whether general principles or rules are in fact supported by the conviction of the general community of merchants716 . Here, the verification process has to include the case law of international arbitral tribunals and those legal instruments which have been drafted by reputable international institutions, such as the ICC, and which constitute an amalgamation of commercial competence and experience. These ‘code-like’717 instruments include the ‘Uniform Customs and Practices for Documentary Credits’ issued by the ICC and in effect in a revised version since July 1, 2007 (UCP 600)718 , ‘Uniform Rules for Demand Guarantees’719 ,
and the INCOTERMS720 . Reference can also be made to the various projects of UNCITRAL, such as the Convention on Independent Guarantees721 or the work on a Standard Communication Agreement Pertaining to Electronic Date Interchange (EDI and EDI-Lite) as reflected in the UNCITRAL Model Law on Electronic Commerce722 . The various cross-border payment-schemes such as SWIFT, CHIPS723 or CHAPS may provide important indications as to the existence of a commercial usage in the field of interbank payment724 . Standard Contract Conditions such as the ‘General Conditions For The Supply of Plant and Machinery For Export’, drafted by the United Nations Economic Commission for Europe in March 1953725 and the ‘ORGALIME General Conditions for the Supply of Mechanical, Electrical and Related Electronic Products’726 must also be included in the comparative research. Finally, the verification process has to focus on international standard form contracts and general conditions of trade such as the FIDIC Conditions727 . The FIDIC-Red Book has greatly influenced the shaping of international construction law, as the new World Bank guidelines for procurement, which are incorporated into the World Bank’s loan agreements with its borrowers, prescribe the use of ‘Standard Bidding Documents’, the principal document of which is almost entirely based on the FIDIC Red Book. This, of course, has given new authority to the influence of FIDIC on the shaping of international
construction contract practice and also on the evolution of transnational commercial law in this area728 .
The restatements of international contract law presented by UNIDROIT and the Lando Commission have paved the way for the codification of transnational commercial law. Today, informal and pragmatic rule-making prevails over formalized and overdogmatized doctrinal discussions. For the first time, a private group of academics and practitioners was able to show that the idea of a transnational commercial law is not an abstract subject developed in the academic ivory tower729 , but a practical working tool for the international practitioner. These projects have transformed the until now amorphous concepts of transnational commercial law into concrete and workable principles and rules for use by contracting parties, arbitral tribunals, and even national courts and legislatures730 . Focusing on the question of how to codify the NLM instead of being trapped in endless doctrinal discussions on the existence of this legal system has led the NLM doctrine out of the status of stagnation in which it had been trapped in the past. The perspective has changed dramatically. The question is no longer ‘lex mercatoria: yes or no’? but rather ‘lex mercatoria: when and how’?731 .
The restatement projects have also done away with the well-known concern raised by international practitioners that the NLM is far too abstract to be used in practice. However, the drafting of the restatements is not the final word in the discussion on possible ways to codify transnational commercial law. In view of its particular legal nature, the NLM depends upon a new codification technique which provides sufficient openness and flexibility in order to take account of the rapid development of international trade and commerce. The Restatements of UNIDROIT and of the Lando Commission have nevertheless introduced a static element into the NLM doctrine. At first sight, this consequence seems to be inevitable since every codification necessarily implies the fixing of the law in statutory form. The restatements take account of this problem in so far as they contain provisions which allow the development of new solutions in accordance with their underlying general principles. Yet, these ‘opening clauses’ are only of limited use. They may help in individual cases but they also reveal the essential weakness of the restatement technique in that they contain an implied acknowledgment of the fact that transnational commercial (contract) law may not be put in statutory form. This need for openness and flexibility in a transnational commercial legal system is of another quality than in domestic legal systems, and the idea of a self-contained
character of the major codifications of the last century has been abandoned732 . The NLM as ‘law in the making’ requires a degree of codificatory flexibility and subtleness that goes far beyond that which the restatements may provide.
The idea of the ‘Creeping Codification’ of transnational law through an online codification platform avoids this essential weakness of the restatement technique. Contrary to the restatements, the updating and development of the TransLex Principles does not require a formalized procedure but is an ongoing process. The highly flexible, open-access environment of the World Wide Web, combined with the innovative technical features of modern database technology, allows for the quick and continuous updating and evolution of the list. Any adaptation of the list to the progressive development of transnational commercial law is instantly visible and accessible for the users around the globe. Due to the highly flexible and volatile character of the NLM, any attempt to codify this legal system can only produce a ‘snapshot’ of the reality of transnational commercial law, i.e. a reflection of the content of the NLM at a given moment in time. Since the TransLex Principles constitute an Internet-based codification platform, they can cope with that intrinsic problem of the NLM much better than any other, more traditional codification technique which must necessarily remain static and inflexible.
The TransLex Principles portray with a very high degree of precision the status of the NLM at any given point in time. At the same time, the highly dynamic character of the NLM is reflected in the technique of the Creeping Codification of transnational law which avoids the ‘petrification’ of the law which necessarily goes along with any traditional codification process.
Unification and creation of the law on the transnational plane are neither fashionable phenomena nor are they mere indications of the ‘trends of the time’1 . Instead, they reflect the commercial realities of modern international business practice. The increasing number of Codes of Conduct and other instruments of private governance2 show that the privatization of rule- and law-making has become a reality in international business. The Academic DCFR3 and the Resolution of the EU Parliament of December 12, 20074 , which puts particular emphasis on the non-binding, soft law character of the DCFR, prove that even within the work towards a European Civil Code, the persuasive force of a compilation of non-statutory legal principles has been accepted as an efficient means to achieve the ambitious goal of the unification of European private law.
International business has always shown a tendency to favour practice-made rules of a transnational character. Thus, in the international construction industry, a suggestion has been made that a ‘neutral lex mercatoria’ should be applied in public sector procurement in order to create a true ‘level playing field’ for competition for public work and to test the prospects for a general informal harmonization of international construction law5 . Arbitral case law also confirms that the transnational spirit of international arbitration provides fertile ground for the application of this concept in international commercial practice and that international arbitrators become increasingly aware of this phenomenon6 . The development of a
‘lex petrolia’ for the international oil industry7 , a ‘lex numerica’ or ‘lex informatica’ for international data interchange8 , ‘lex sportiva’ for international sports law9 or a ‘lex constructionis’10 for the international construction industry reveals that the transnationalization of commercial law has already transcended the traditional boundaries of general contract law11 .
Legal theory has to take account of this phenomenon in order to avoid any claims that it is out of touch with reality or antiquated. Therefore, modern conflict of laws doctrine faces the formidable task of redefining the relationship between autonomous international commercial law on one side and domestic law on the other12 . Formulating this task also reflects the paradox of traditional conflict of laws doctrine. It was private international law, withdrawn from the competence of domestic legislatures by Savigny and handed over to legal science and the courts for further development13 . Their economic inefficiency and the resulting legal uncertainty triggered the autonomous and decentralized evolution of the law through the international community of merchants14 .
In spite of the comprehensive and all-embracing approach towards the NLM as an autonomous ‘third’ legal system between domestic laws and public international law, every attempt to deal with transnational commercial law, as the basic and most controversial question of international commercial law, remains no more than an ‘approach towards a new understanding’15 of transnational commercial law. It is true that the discussion on the existence of an autonomous transnational commercial law raises a multitude of methodical, theoretical and
practical issues which touch upon basic notions of legal theory and transnational decision-making. This Study has shown that the dogmatic arguments against the NLM ‘are fading away’16 .
At the same time, the discussion on the viability of a transnational commercial legal system needs to be objectified. While any outright rejection of the theory fails to take into account commercial realities, any emphatic acclamation of the concept of commercial transnationalism lacks persuasiveness in that it fails to provide verifiable legal arguments. This resembles the initial scientific treatment of the phenomenon of reception of law in the early ius commune. At that time, there was a similar concern that the new legal situation would attract ‘illusionists and visionaries’17 . With respect to the NLM, this danger is increased by a sometimes lax and careless treatment of the concept of an autonomous world trade law. This is especially true with respect to the ‘negative choice of law’ of the parties18 . Without a further inquiry into the motives and the will of the parties, the assumption of a ‘negative choice’ amounts to a fictitious agreement on the applicable law. This idea is often misused, even in international arbitral practice, to indicate the parties’ will to have their contract transnationalized, thereby justifying the application of the NLM19 . The NLM doctrine, the respect of which for the autonomy of the parties is one of its most prominent features, would be doomed to fail from the outset if its application would be based on such a violation of the will of the parties.
It has been emphasized in the Introduction to this Study that they need ‘definitive’ and ‘provable’ legal standards to negotiate their agreements or to resolve disputes, thereby reducing transaction costs20 . Legal theory and legal practice alike, however, are confronted with the codification dilemma in the field of transnational commercial law. The NLM is a ‘law in action’ and depends upon a maximum degree of flexibility and openness. Its rules and principles cannot be fixed in ‘statutory’ form in the proper sense. The UNIDROIT Principles as well as the Principles of European Contract Law drafted by the Lando Commission reveal this dilemma. They provide a serious new indication for the consolidation of legal convictions pertaining to the existence of a transnational commercial legal system21 . The great importance of these collections is that they exist. They can be taken to the court or the arbitral tribunal, can be referred to by page and article number, and people who are referred to their provisions can locate and review them without difficulty22 . At the same time, however, they do not present the flexible
codification method that takes account of the peculiar character of the NLM which, being an open legal system, requires a codification technique that corresponds to the highly dynamic nature of the NLM.
The alternative presented in this Study is the idea of ‘Creeping Codification’ of the NLM through the TransLex Principles. This innovative approach is intended to provide international legal practice with an easily, freely and globally accessible Web-based platform to allow for the application of the NLM in everyday arbitration and drafting practice. If the ‘[t]he Internet is becoming the town square for the global village of tomorrow’ (Bill Gates 200323 ) then the World Wide Web must be regarded as the ideal forum for the codification of the NLM. It is the online character of the TransLex Principles which avoids the ‘petrification’ of the law that necessarily goes along with any traditional codification process. Unlike domestic law-making procedures, the Creeping Codification of the NLM is an ongoing, spontaneous and dynamic process which is never completed. This process requires a codification technique with a corresponding openness and dynamism. This dynamism can be guaranteed only through the use of the Internet. The open-access public domain created by the Internet, combined with modern database technology, provides the ideal substratum for the constant development and enrichment of the NLM through the process of Creeping Codification.
That process must not be confused with the traditional notion of codification by domestic legislatures. There is not and cannot be a single ‘legislator’ of the NLM which is created ‘bottom up’ by the community of merchants. Rather, by putting the principles and rules of the NLM in the form of black-letter rules with a synopsis of the relevant comparative law references, the TransLex Principles establish a presumption, i.e. prima facie evidence, that the principles and rules reproduced in the list do in fact form part of the NLM. With this approach, the TransLex Principles aim at alleviating the burden of arbitrators and contract lawyers who need to be concerned, in their daily work and in every single case, with the ‘validity’ and ‘application-worthiness’ of a particular principle or rule of the NLM.
Today, in an age of self-regulation and private governance, ‘Cartesian pragmatism’24 prevails over theoretic trench fighting about the nature and doctrinal underpinnings of the NLM doctrine. In economics, the ‘Economics of Governance’ theory concludes that private ordering is central to the performance of any economy, regardless of the particular conditions of lawfulness because in many instances, business actors can devise more satisfactory solutions to their problems and disputes than can professionals (lawmakers, courts) who are constrained to apply general rules on the basis of limited knowledge of the problem or the dispute25 .