Parties to a contract do not tend to agree on the application of the domestic law of the other. They usually choose a “neutral law”, the law of a third country. However, this choice often leads to apparent inconveniences since the chosen law is foreign to both parties. Indeed, understanding its content may require time-consuming research or costly consultations with lawyers on the selected law. The UNIDROIT Principles of International Commercial Contracts (the “UNIDROIT Principles”) are helpful in such circumstances.
The UNIDROIT Principles were first published in 1994 by the International Institute for the Unification of Private Law (UNIDROIT), a treaty organization based in Rome, Italy. The Principles are intended to provide parties and arbitrators with a set of rules that can be applied to international commercial contracts when no specific national law applies or when parties have chosen to apply the UNIDROIT Principles themselves.
The UNIDROIT Principles as an Appropriate Set of Rules for International Commercial Arbitration
Unlike binding instruments, the UNIDROIT Principles is a “soft law” instrument. It offers a range of possibilities of which parties are not always fully aware. The UNIDROIT Principles provide “a balanced set of rules designed for use throughout the world irrespective of the legal traditions and economic and political conditions of the countries in which they are to be applied”.[1]
Parties in international commercial arbitration are generally permitted to choose “soft law” instruments, such as the UNIDROIT Principles, as the applicable law under which the arbitral tribunal will render its award. The UNIDROIT Principles would apply within their scope to the exclusion of any mandatory national law that would apply. The latter refers to mandatory rules having a public law nature, such as anti-trust or environmental protection rules. However, it should not give rise to any conflict of law in practice.[2]
The Applicability of the UNIDROIT Principles
The UNIDROIT Principles may apply even if a contract is silent as to the applicable law. In international commercial arbitration, if the parties have yet to choose the law governing their agreement, the latter shall be determined by the relevant rules of private international law. Such practices are flexible and permit the arbitral tribunal to apply “the rules of law which they determine to be appropriate”.[3]
Regarding content, the UNIDROIT Principles include rules on several practical cross-border trade issues.[4] It generally covers aspects for which parties in international commercial arbitration do not want to allocate their time. It has, for example, rules on available defences of a jointly and severally liable obligor (Art. 11.1.4) and a default rule regarding the possible limitation of liability towards third-party beneficiaries (Art. 5.2.3).
The UNIDROIT Principles can also serve as a neutral reference point for parties and tribunals. Where parties have not specified a governing law, the UNIDROIT Principles can be used as a default set of rules to govern the dispute. Similarly, where parties have chosen a governing law, the UNIDROIT Principles can be used as a reference point to interpret and supplement that law. This can be particularly useful in cases where the applicable law is unfamiliar to the tribunal, or where parties have chosen a non-standard governing law.
The model clause for the inclusion of the UNIDROIT Principles as the governing law of a contract (and potential future disputes) is simply:
This contract shall be governed by the UNIDROIT Principles of International Commercial Contracts (2016).
The Future of the UNIDROIT Principles in International Commercial Arbitration
Several arbitration tribunals have recognised the UNIDROIT Principles over time, in addition to national law, and so have the judiciaries in multiple civil and common law jurisdictions.[5]
The UNIDROIT Principles can be expected to play a growing role as a neutral legal regime of choice in international contracts, especially when the contract has a connection with a jurisdiction whose law has been influenced by the UNIDROIT Principles. A possible prominent field of application for the UNIDROIT Principles is the Chinese “Belt and Road Initiative”, entailing contracts in over more than 60 jurisdictions.[6]
[1] E. Brödermann, Introduction to the UNIDROIT Principles of International Commercial Contracts (2016).
[2] Model clauses for the use of the UNIDROIT Principles of International Commercial Contracts.
[3] UNIDROIT International Institute for the Unification of Private Law, UNIDROIT Principles of International Commercial Contracts, https://www.unidroit.org/wp-content/uploads/2021/06/Unidroit-Principles-2016-English-i.pdf (last accessed 26 February 2023).
[4] The reference to an international standard of good faith and fair dealing (Art. 1.7), time-zone management (Art. 1.12(3)), language (Art. 4.7), currency issues (Arts. 6.1.9-6.1.10, 7.4.12, 8.2), public permission requirements (Arts. 6.1.14–6.1.17), a rule on payment by funds transfer (Art. 6.1.8), a rule on interest rates in case that there is no average bank short-term lending rate (Art. 7.4.9(2)), a rule favouring the upholding of the contract with terms deliberately left open (Art. 2.1.14), counter-balanced by several default rules on quality (Art. 5.1.6), price (Art. 5.1.7), time (Art. 6.1.1), order and place of performance (Arts. 6.1.4, 6.1.6)
[5] E. Brödermann, Introduction to the UNIDROIT Principles of International Commercial Contracts (2016).
[6] E. Brödermann, Introduction to the UNIDROIT Principles of International Commercial Contracts (2016).
