Although the suggestion put forward has its attractions, it is arguable, given the debate surrounding good faith in Art 7, whether it would be used uniformly in the manner suggested by Koneru. It is more than likely that the liquidated damages issue will be decided by turning to domestic law. Support for this approach can be sought from the deliberations leading to the Vienna Convention where delegates felt that liquidated damages should be left to be addressed by another instrument.

Exemption

The Vienna Convention, in some circumstances, exempts a party from liability. According to Art 79(1), ‘a party is not liable for failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome its consequences’. Relief from liability for damages will depend on the circumstances. Incidents such as the refusal on the part of the manufacturer to supply the goods to the seller182 or increase in prices on the open market183 will be insufficient to trigger this provision. One of the downsides of this provision is that the party who fails to perform because of impediments (obligor) is not liable in damages. This means that other remedies are still available to the other party (obligee), including specific performance. The obligee may elect avoidance provided there is a fundamental breach. This option of avoidance is, however, not available to the obligor. This is different from the English doctrine of frustration184 in which the contract comes to an end in the event of frustration.

Article 79 has come under repeated criticism,185 and parties might prefer to include suitable clauses to address the consequences flowing from impediments, including supervening onerousness, beyond the control of the obligor.186

Conclusion: Recent international initiatives

UNIDROIT Principles of International Commercial Contracts

UNIDROIT, the organisation that drafted ULIS and ULFIS, set about in 1972 to codify international trade law. Shelved for a number of years, a Working Group consisting of academics, judges and civil servants was set up in 1980 to resume work on the shelved project now titled Principles for International Commercial Contracts (hereinafter ‘UNIDROIT Principles’).187 For the purposes of the UNIDROIT Principles, they studied the commercial law of a number of states. In particular, they concentrated on the Algerian Civil Code, 1975, the People’s Republic of China’s Foreign Economic

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Contract Law, 1985, the ubiquitous US Uniform Commercial Code and the Dutch Civil Code and Civil Code of Quebec, both of which were undergoing amendments. Legislative products in related areas of other international organisations, such as the UNCITRAL and the ICC, were also studied closely. In 1994, UNIDROIT188 published the Principles of International Commercial Contracts.189

The UNIDROIT Principles are neither a convention nor a model law.190 They are to be regarded as general rules that aim to achieve a balance between competing interests. The Preamble sets out the circumstance in which the UNIDROIT Principles will play a role. The most obvious is where the parties have agreed that their contract is to be governed by them.191 It is also expected that they will be applied when the parties have agreed for lex mercatoria to apply to their contract or used in interpreting or supplementing international uniform law instruments, such as the Vienna Convention. The drafters also hope that legislators, both at a national or international level, will use the UNIDROIT Principles to draft their legislation. Indeed, it is strange that the UNIDROIT opted to go down the route of producing a non-binding instrument that is unlikely to achieve the expressed objective of the UNIDROIT Principles to establish ‘a balanced set of rules designed for use throughout the world irrespective of the legal traditions and the economic and political conditions of the countries in which they are to be applied’.192 Part of the reason is likely time and flexibility – the time taken to agree to the text of a convention and the delays faced in its implementation.

The UNIDROIT principles are comprehensive and go beyond the Vienna Convention in addressing a number of issues not found in the Vienna Convention. These range from validity of contracts (mistake, threat and misrepresentation, but excluding illegality or capacity) to agency and limitation periods. In a book of this length, it is not possible to examine all of the aspects of the UNIDROIT Principles in detail. A few pertinent observations of the commonalities and some of the differences are subsequently made.

The provisions on formation of contract are, by and large, similar to the Vienna Convention, although there are some differences. The two instruments take different approaches to battle of forms. Whereas the Vienna Convention focused on material alterations, the UNIDROIT Principles’ focus is on substance. According to Art 2.1.22, a contract will be concluded on the basis of the agreed terms and any standard terms common in substance, unless the other party indicates in advance or later without undue delay informs the other party that it does not intend to be bound by such a contract. It is debatable whether this focus on finding common terms by examining the substance of the clauses offers a better solution, since it is assumed it will be easy to agree on the substance from the wording of the terms.

188 UNIDROIT has 59 member states, comprising of countries from both the developing and developed worlds – for example, Australia, Canada, Austria, UK, India, Iran, China, and Bolivia. A complete list is available at www.unidroit.org.

189The text of the UNIDROIT Principles is available at www.unidroit.org.The work is on-going, and the working group of recent has addressed various topics, such as agency, assignment of contractual rights and contracts for the benefit of third parties. In April 2004, the UNIDROIT adopted the 2004 version of the UNIDROIT Principles which contained sections on authority of agent, third party rights, set-off, assignment of rights, transfer of obligation and assignment of contracts, and limitation periods. The text of the UNIDROIT 1994 was also suitably adapted to meet the needs of electronic contracting. More recently, the UNIDROIT adopted the 2010 version of the UNIDROIT Principles.The new version has a new Chapter 11 devoted to plurailty of obligors and obligees and covers issues such as obligee’s rights against joint and several obligors and availability of defences and rights of set off. Further details are available at ww.unidroit.org.

190For instance, the Model Law on Electronic Commerce and the Model Law on Electronic Signatures drafted by the UNCITRAL. See Chapters 3 and 4 for an examination of these model laws.

191For model clauses to incorporate the UNIDROIT Principles see Model Clauses for the Use of the UNIDROIT Principles of International Commercial Contracts, 2013, International Institute for the Unification of Private Law.

192‘Introduction’ to the UNIDROIT Principles.

What stands out in the Principles is the expectation that both parties will act in accordance with good faith and fair dealing.193 This is a fundamental principle, and, where the UNIDROIT Principles are applicable to a contract, the parties cannot contract out of this fundamental principle, even though party autonomy is recognised.194 Good faith, however, is undefined. Inconsistent behaviour can be said to be one aspect of lack of good faith, and Art 1.8 specifically prohibits a party from behaving inconsistently where it has caused the other party to have an understanding and that other party reasonably acted in reliance on that, to its detriment. Equally, the inclusion of unexpected or surprising terms in contracts shows lack of good faith and fair dealing. Article 2.1.20 deals with this by providing that, if standard terms contain a term that the party would ‘not reasonably have expected it, that term will be ineffective, unless it has been expressly accepted by that party’.

Unlike theVienna Convention, the Principles do recognise that parties enter into pre-agreement and, therefore, include special provisions on this issue. Article 2.1.15 preserves the parties’ freedom to negotiate and failure to agree. However, negotiations carried out in bad faith or negotiations broken in bad faith attracts liability and the affected party can sue for losses caused. As opposed to good faith, some indication of what constitutes bad faith is provided in Art 2.1.15. In particular, it will include situations in which a party enters into negotiation or continues negotiations never intending to reach agreement, as for instance where a trader about to set up a factory for manufacturing widgets enters into negotiations with another for the purchase of widgets simply to find out the pricing policy without ever intending to enter into a contract for the purchase of widgets. The commercial world is full of duplicitous behaviour, and it is good to see the inclusion of a special provision relating to bad faith in negotiations.

One of the features that stands out with the UNIDROIT Principles is Chapter 4 on Interpretation. Although some aspects for the interpretation of contracts, such as common intention of the parties and trade usages, are found in the Vienna Convention,195 Chapter 4 of the Principles highlights other various well-established techniques for interpretation of contracts, such as the use of the reasonable person standard where the common intention of the parties cannot be established (Art 4.1) and the contra proferentum rule (Art 4.6).

In relation to performance of the obligations under the contract, the expectation is that both parties will meet their obligations. Nevertheless, the UNIDROIT Principles take a pragmatic approach in the event of hardship where the equilibrium of the contract has been altered for a number of reasons – for example, where the risk of the events was not assumed by the disadvantaged party or the events become known to the disadvantaged party after the conclusion of the contract. In these

193Art 1.7. Good faith is also referred to in Arts 4.8 and 5.1.2. See Farnsworth,‘Duties of Good Faith and Fair Dealing under the UNIDROIT Principles: Relevant International Conventions and National Law’ 3 (1995) 3 Tulane Journal of International Comparative Law 47.

194Art 1.5.

195See Art 8, Vienna Convention. In Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, the House of Lords in relation to taking prenegotiations for ascertaining the ‘common intention of the parties’ stated their views on Art 8 as follows: ‘[T]hese instruments [the UNIDROIT Principles on International Commercial Contract (1994 and 2004 revision) and the United Nations Convention on International Sale of Goods, 1980] reflect the French philosophy of contractual interpretation, which is altogether different from that of English law. As Professor Catherine Valcke explains in an illuminating article (“On Comparing French and English Contract Law: Insights from Social Contract Theory”) (16 January 2009), French law regards the intentions of the parties as a pure question of subjective fact, their volont psychologique, uninfluenced by any rules of law. It follows that any evidence of what they said or did, whether to each other or to third parties, may be relevant to establishing what their intentions actually were. There is in French law a sharp distinction between the ascertainment of their intentions and the application of legal rules which may, in the interests of fairness to other parties or otherwise, limit the extent to which those intentions are given effect. English law, on the other hand, mixes up the ascertainment of intention with the rules of law by depersonalising the contracting parties and asking, not what their intentions actually were, but what a reasonable outside observer would have taken them to be. One cannot in my opinion simply transpose rules based on one philosophy of contractual interpretation to another, or assume that the practical effect of admitting such evidence under the English system of civil procedure will be the same as that under a Continental system.’ (at para. 39).

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circumstances, the parties can renegotiate, but, if they fail to reach agreement, they are free to resort to the courts who may, if they find hardship, terminate the contract or restore the equilibrium.196 In relation to non-performance, the remedies found in the Vienna Convention, such as cure, repair and replacement of defective performance and additional period for performance, are included in the Principles. Article 7.3.1 addresses the issue of the right to terminate the contract but does not use the phrase ‘fundamental breach’. Instead, it talks of fundamental non-performance, and, to decide whether a failure to perform an obligation amounts to a fundamental non-performance, it lists a number of relevant factors. These include: whether the non-performance is intentional or reckless; whether strict compliance with the obligations that have not been performed is of the essence under the contract; and whether the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance.

As stated, the UNIDROIT Principles are innovative and undergo periodic revisions. The 2004 version includes provisions on set-off (Chapter 8), assignment of rights, transfer of obligations and assignment of contracts197 (Chapter 9) and limitations periods (Chapter 10)198. All in all, the Principles provide a well-rounded set of rules to govern international commercial contracts.

UNIDROIT has been following the progress of this instrument and, based on questionnaires sent by the organisation, it seems they have been well received. The UNIDROIT Principles have served as a source of inspiration for legislators revisiting their civil codes and inspired parties to choose the principles to govern their contract.199 There is also evidence that arbitration tribunals are applying the UNIDROIT Principles besides referring to them as part of lex mercatoria.200 This positive report suggests that this instrument may have wider impact than initially thought.

Principles of European contract law

Although the political, social and economic objectives of the member states of the European Union are broadly similar, it is well known that the legal systems of the member states vary from the common law system of Britain to the civil law tradition of the continent. Since differences in legal approaches can form a barrier to trade,201 in 1982, the Commission on European Contract Law,202 consisting of practitioners and academics from the member states of the European Union, began work on the Principles of European Contract Law (PECL).203 Other than referring to the domestic

196Arts 6.2.1, 6.2.2 and 6.2.3.

197There are two international conventions in this field: the UNIDROIT Convention on International Factoring, 1998, and the UN Convention on the Assignment of Receivables in International Trade, 2001. These conventions have not had a wide impact. For more on the Assignment of Receivables Convention, see Bazinas, ‘Multi-Jurisdictional Receivables Financing: UNCITRAL’s Impact on Securitization and Cross-Border Perfection’ (2002) 12 Duke Journal of Comparative and International Law, 365; Deschamps ‘The Priority Riles of the United Nations Receivables Convention’ (2002) 12 Duke Journal of International and Comparative Law, 389.

198This seems to be largely modelled on the UN Convention on the Limitation Period in the International Sale of Goods 1974 with some significant departures on issues, such as when the limitation period starts to run. For more on the UN Convention on Limitation Period in the International Sale of Goods, see Smit ‘The Convention on the Limitation Period in the International Sale of Good: UNCITRAL’s first born’ (1975) 23 American Journal of Comparative Law 337.

199See Bonnell, ‘The UNIDROIT Principles in practice – the experience of the first two years’, available at http://www.cisg.law.pace. edu/cisg/biblio/pr-exper.html. See also Baron, ‘Do the UNIDROIT Principles of International Commercial Contracts form a new lex mercatoria?’, available at http://www.cisg.law.pace.edu/cisg/biblio/baron.html.

200Ibid.

201As Lando observes:

. . . many businessmen are afraid. Fear of the unknown and incomprehension keep many potential exporters and importers away from the European market. The existing variety of laws hampers the mobility of the European businessman. It is a non-tariff barrier to trade [‘Principles of European Contract Law’, available at www.kclc.or.jp/english/sympo.EUDialogue/lando.html].

202 The Commission is a non-governmental organisation and is not a European Community institution, although it has received subsidies from the Community.

203The text of this instrument is available at www.jus.uio.no. See also Lando and Beale (eds), The Principles of European Contract Law, Pts I and II, 1999, Kluwer; Hesselink,‘The Principles of European Contract Law: some choices made by the Lando Commission’ (2001) Global Jurist Frontiers Article 4, available at www.bepress.com.