BY- SHATAKSHI VATS

                                                 

INTRODUCTION

The International Institute for Unification of Private Law, presently referred to as the UNIDROIT, is an intergovernmental organisation that seeks to harmonise international law, by inducing uniformity in legal rights and obligations. The organisation is responsible for formulating model codes, guidelines, and regulations for conduct of transactions between international parties.

The organisation was established in 1926[1] with the aim of bringing about standardisation in policies and international legal transactions. It was an auxiliary organ of the League of Nations. In 1940, the body was re-established upon a foundation of the UNIDROIT statute, which is a multilateral agreement by various nations, to adopt promulgated principles and rules of the organisation. The principles are applicable to those nations which have acceded to the UNIDROIT statute.

The UNIDROIT principles on commercial contracts, also referred to as the UPICC, are available in many editions, the latest one having been published in 2016.

The article refers to the broad scheme of the principles, their importance for commercial contracts between international parties, among other aspects.

UNIDROIT PRINCIPLES ON COMMERCIAL CONTRACTS, 2016 (UPICC)

General principles are codified into an unbinding document by the UNIDROIT to form the UPICC. The principles are an attempt to standardise and codify the rules for international commercial contracts. The set of principles seeks to uniformly apply certain rules and regulations, irrespective of the political, legal, and economic conditions that govern various countries.

The latest edition of these principles released in 2016 embodies 211 articles in 11 chapters[2]. This is the fourth edition.  The principles are a significant because they provide for a uniform scheme of law and principles to decide a dispute or disparity arising out of a contract, that involves parties from different countries, furthering UNIDROIT’s goal of globalisation of well-settled legal generalisations and customs.  Also, the principles introduced arbitration as a remedial measure for dispute resolution where parties come from different national backgrounds.

The peculiarity of the UPICC is its effort to maintain the originality of contracts, where they originate or are to be performed. UPICC respect regional customs and traditions, trying to unify legal thinking into one document, to ease the complications that may arise in a complicated contract.

The principles are well accepted in practice by leading legal systems in the world. It has been upheld in various judicial precedents as well as arbitral decisions. The principles seek to harmonise domestic laws governing contracts and international laws in the same regard.


GENERAL SCHEME OF UPICC

The document covers the following topics in general:

  • General provisions relating to international commercial contracts
  • Formation and authority of agents
  • Validity of contracts
  • Interpretation of contracts
  • Content of contracts
  • Third party rights and conditions
  • Transfer of obligations

The article shall seek to cover some of the above aspects.

IMPORTANCE OF UPICC

Trade and commerce give birth to a variety of legal obligations and rights. The parties engaging in such transactions often need to agree upon certain terms and conditions, which are sanctioned by some legal system. However, concerns arise when parties belonging to different legal systems, cannot concur to adopt one law for adjudication of incidental disputes.

Increase in globalisation of trade and reforms therein, arouses a need for uniformity and sanction to govern international transactions. A special feature of these principles is the choice of alternate law that is provided to parties adopting these principles, in case parties cannot adopt a specific choice of law.

The principles are invoked where they are specifically provided for, in contracts, and a governing law has not been chosen by the parties. For their application, it is necessary that internationality exists in the contract. For instance, the principles cannot be invoked where parties belong to the same country. Their obligations and rights shall be sanctioned by the law of the land, pertaining to contracts and not the principles. This was upheld in CJSC Obolon v. Dania Handel A/S [2011][3].

GENERAL OVERVIEW

All provisions uphold the sanctity of the gentry to enter in contracts, as per their free will. The principles also give due acknowledgement to customary practices and trade usages. However, it provides for some mandatory rules like good faith and fair dealing, fraud, threats, illegality of contracts and the limitation periods.

  1. Form of contracts- the principles do not provide for any specific format of an international contract. Due to their very nature, variations and improvisations in international contracts is inherent. However, if domestic law governing one party stipulate otherwise, the contract must adhere to it, and the form shall be accordingly varied. For instance, various statutes governing contractual obligations stipulate that, written contracts are a must to gain legal enforceability. In India, contracts are governed by the Indian Contract Act, 1872.
  2. Validity of contracts- the principles do not consider all conventional grounds for deeming a contract valid. The principles consider mere approval and agreement of the parties as valid, for the purposes of modification, conclusion, or termination of the contract. In fact, the principles do not deem ‘consideration’ as an important requirement for the validity of a contract. This induces flexibility and adaptability in international commercial contracts.
  3. Interpretation of contracts- after establishing the validity of a contract, the next step is to ascertain the terms and conditions of the contract and understand the clauses that it is composed of. The principles stipulate, that the common intention of the parties is of utmost importance while interpreting the clauses. It also provides for the application of the reasonable man’s test, if there is some difficulty in interpretation through mere intention. Certain other issues like mergers clauses and battle of forms are also a matter that requires studying the intention of parties. Battle of forms occurs, when there are 2 pre-existing agreements in between the same parties, such as purchase-supply agreements.
  4. Assignment of rights, transfer of obligations, assignment of contracts- all three acts, require common intention, or a consensus that must be reached by the parties through negotiations.
  5. Agency- the principles provide for formation of a principal-agent relationship, and other incidental matters. At the same time, it considers agency as a tripartite agreement, consisting of the principal, the agent, and the third party.
  6. Termination- the principles require one party to issue a notice on the other party if it wishes to terminate the contract before performance.

CISG AND THE UPICC- FORMING THE BACKBONE OF INTERNATIONAL TRADE

The Contracts for international Sale of Goods (hereinafter, CISG) is the foundation for all global trade. The convention is widely followed, and the UPICC serves as a supplement to CISG. Both further the right to freedom of contract and help in globalisation and resettlement of law between international parties. Quite a lot of concepts are comparable to each other, since they serve the same objective.

CONCLUSION

The UPICC form an important organ of contractual law when it comes to international commercial transactions. Contractual obligations often need to be restructured and supervised, and so is done with the help of existing legal principles. However, there is need for uniformity and standardisation in practices, to make the existing system more flexible and conducive for trade. UPICC forms a bridge to overcome all the problems that legislatures, across the globe have not yet encountered. It serves as cement to fill in all lacunae that exist in contractual laws all over the world.


CITATIONS

[1]<https://www.unidroit.org/instruments/commercial-contracts/unidroit-principles-2016> accessed on 4 November, 2020.

[2]<https://www.unidroit.org/instruments/commercial-contracts/unidroit-principles-2016> accessed on 4 November, 2020.

[3]‘Analysis of the UNIDROIT Principles of International Commercial Contracts (2010)’ <https://www.primerus.com/business-law-articles/analysis-of-the-unidroit-principles-of-international-commercial-contracts- 2010.htm#:~:text=In%201994%2C%20the%20International%20Institute,acceded%20to%20the%20UNIDROIT%20statute. > accessed on 4November, 2020.

Unidroit Principles on Commercial Contracts

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