The amount of scholarly attention given to the UNIDROIT Principles of International Commercial Contracts of 1994 is arguably second only to that given to lex mercatoria. Lord Mustill's wise words on the latter,1 marking a debate of twenty-five years, could soon apply to the former, unless there is a downturn in the ratio of academic works to awards. Hence the idea of a survey of ICC Awards based on the UNIDROIT Principles, with particular attention to the unpublished ones. This should provide an opportunity of assessing the quality of the Principles as reflected in their adoption by the business community and arbitrators over a limited period of time (May 1994 - December 1998).

The UNIDROIT Principles were referred to in Awards made in at least twenty-three cases submitted to the ICC International Court of Arbitration up until the end of 1998. Excerpts from certain of these Awards have already been published in various reviews.2 Excerpts from all hitherto unpublished Awards are published in this issue of the ICC International Court of Arbitration Bulletin.

This report introduces the various kinds of applications of the UNIDROIT Principles in ICC 'case law', together with references indicating where the Awards listed have been published. A detailed bibliography relating to the UNIDROIT Principles is appended.

The UNIDROIT Principles are intended to be applied in a great variety of contexts, as mentioned in the Preamble thereto.3 As far as arbitration is concerned, three categories of applications are particularly useful.

Firstly, they may be applied as the proper law of an international contract, by virtue of an express choice of the parties, or where such choice may be construed by the arbitrators as being implicit.

Secondly, notwithstanding a choice of municipal law by the parties, the Principles may be applied whenever it proves difficult to determine specific rules in the applicable national law. A broad interpretation has been made of this practice, in keeping with a modern comparative law approach. Accordingly, the Principles have been used to fill gaps in internal laws so as to give an international interpretation to national rules.4

Thirdly, the Principles may be used to interpret or supplement other international instruments of uniform law, notably the United Nations Convention on Contracts for the International Sale of Goods of 1980 (CISG).

This categorization is reflected in actual practice, as shown in the following table summarizing applications of the UNIDROIT Principles in ICC arbitration. [Page27:]

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I. UNIDROIT Principles as the proper law of an international contract

The UNIDROIT Principles have been used as lex contractus in eight of the twenty-three ICC cases.

Insofar as they are the outcome of comparative law workshops held at UNIDROIT over a thirty-year period, the Principles are looked upon as representing a system of rules of contract law common to the world's main legal systems. This facilitates their application as the proper law of a contract.

A further point worth noting in relation to this category of cases is that the application of the Principles here stems from arbitration at law. Although the least controversial basis upon which the Principles could be applied would be express reference thereto coupled with an arbitration agreement allowing arbitrators to decide a dispute ex aequo et bono or as amiables compositeurs, this has not been the case in any of the ICC Awards. Most of the Awards fall within arbitration at law, where the proper ground has been construed by reference to the rules of law applicable by the arbitrators pursuant to the former Article 13, now Article 17, of the ICC Rules of Arbitration.

Award 7110 is of particular interest for the complexity of the issues discussed and the legal reasoning leading to the application of the Principles. Referring to Article 13(3) of the 1988 ICC Rules, the Arbitral Tribunal first examines the issue of the choice of law. [Page30:] Finding no express choice, it assesses such absence of choice in the light of the specific case at issue and comes to the conclusion that all that can be assumed as far as the parties' intentions are concerned is that each party wished to exclude the application of the national law of the other party.

The Arbitral Tribunal infers an implied choice of law on the basis of the wording of the contracts, where reference is made to principles of 'natural justice'. This is interpreted by a majority of the Tribunal as meaning that the parties intended applying general legal rules and principles befitting the contracts but not deriving from a specific municipal legal system. The Tribunal goes on to find that the UNIDROIT Principles are a leading reflection of such general legal rules and principles applicable to contractual obligations, commanding a broad international consensus and relevant to the contracts at issue. It therefore holds that the contracts shall be governed by, and interpreted in accordance with, the UNIDROIT Principles with respect to all matters falling within the scope of such Principles, and, for any other matters, by such other general legal rules and principles as are applicable to international contractual obligations and over which there is a broad international consensus. This approach is deemed compatible with the laws of the United Kingdom and the Netherlands.

Award 7375 follows the same pattern. Here too the Tribunal finds that the absence of a choice of law provision in the contract should be interpreted as each party's implied intent to avoid the other party's national law, or any other third national law in general, given the Claimant's sovereign status and the absence of any significant connection with a third municipal law. The contract is therefore denationalized, and the general principles of law and the UNIDROIT Principles are applied insofar as they may be considered to reflect generally accepted principles and rules.

II. UNIDROIT Principles as a means of supplementing and interpreting applicable domestic law

The UNIDROIT Principles have been used as a means of supplementing or interpreting domestic law in nine of the twenty-three cases.

According to the comments accompanying the 'black letter rules' in the UNIDROIT publication of 1994, use of the Principles to interpret applicable internal law is justified whenever the relevant rule of the applicable law is difficult to establish and a solution can be found in the Principles.

In actual practice the effect of such use in certain instances has been to denationalize national law. In almost all the cases concerned, the UNIDROIT Principles were found to be a useful tool for testing domestic law against a transnational standard. This indeed points to the interesting and characteristic use of the UNIDROIT Principles for comparative purposes in this category of applications. Such use consists in comparing the results obtained from applying the proper law of the contract with those that would be obtained were the Arbitral Tribunal to apply the UNIDROIT Principles. By revealing convergent solutions, such use allows arbitrators deciding disputes of an international nature to affirm, if such be the case, that the solution reached by applying national law is consistent with generally accepted principles of international contracts. This could be called the 'international test' of domestic law, which has become highly relevant to arbitrators in view of the internationalization of contracts and adjudicative procedure. [Page31:]

The potential problem with such use of the UNIDROIT Principles, however, is that it may conceivably offer an excuse for a lack of reasoning in the choice of a domestic law. Arbitrators may thus be tempted to use more or less openly a lex cognita approach, that is, to apply the rules they know best, with the justification that the solution would have been the same had the UNIDROIT Principles been applied. The risk is that, instead of representing a step forward in the evolution of international business law, the UNIDROIT Principles might be used to mask what is in fact a poorly reasoned selection and a strict application of domestic law to an international transaction. This risk does not appear to have materialized.

III. UNIDROIT Principles as a means of supplementing and interpreting international conventions

The UNIDROIT Principles have been used as a means of supplementing the United Nations Convention on Contracts for the International Sale of Goods (CISG) in three of the twenty-three cases.

Even after being incorporated into the various national legal systems, uniform law does not lose its special nature as a body of law developed independently at international level. There is a need for an 'emergency' comparative tool like the Principles, capable of offering solutions where there are gaps in uniform law and where the various national legal systems are unable to provide satisfactory answers.

In all cases such use proves to be in keeping with the original purpose of the UNIDROIT Principles as stated in the Preamble thereto. In Award 8128, the UNIDROIT Principles were applied jointly with the Principles of European Contract Law, while in Award 8769 they were used to determine the proper rate of interest for quantifying damages.6

IV. Exclusion of the UNIDROIT Principles

In three cases, application of the UNIDROIT Principles was considered and excluded.

In Award 8873, the arbitrators were faced with an arbitration clause providing for the application of Spanish law as lex contractus, with an express exclusion of any other legal system. The arbitrators produced a thorough analysis of possibilities of applying the Principles, but found there to be no legal grounds for such application. They further concluded that the UNIDROIT rules on hardship did not represent international trade usages.

The solution contained in Award 9419 echoes the debate on the validity of the UNIDROIT Principles in terms which are familiar to lex mercatoria experts. The arbitrator sides with legal opinion which dismisses lex mercatoria. Accordingly, he considers that neither lex mercatoria nor the UNIDROIT Principles are applicable and opts for a traditional application of conflict of law rules in order to localize the contract in a domestic legal system.

In Award 9029, lastly, the arbitrators faced a choice of law clause in favour of Italian law as the applicable law. One of the parties asked for the UNIDROIT Principles or lex mercatoria to be applied on the basis of the new Article 834 of the Italian Code of Civil [Page32:] Procedure in which reference is made to trade usages. The arbitrators rejected such a broad interpretation in favour of a strict interpretation of the applicable domestic law. Nonetheless, they then went on to show that, had they applied UNIDROIT Principles or lex mercatoria, substantially the same solution would have been reached as by applying the chosen domestic law.

Conclusion

The first four years of reference to the UNIDROIT Principles in ICC arbitral practice show them to have been widely accepted. Cases are evenly split between the use of the Principles as the proper law of a contract and their application as a means of supplementing or interpreting municipal law. They are used somewhat less as a means of filling gaps in international conventions, such use being thus far limited to the CISG.

The Principles may well represent a stepping stone to international commercial law in the coming millennium. They involve a new method of unifying international commercial law which may be referred to as the 'scientific' unification of law. This differs from traditional techniques of legal unification, such as 'hard law' unification by way of international conventions. The Principles are taken up by arbitrators in their legal reasoning not ratione imperii, but imperio rationis. In this respect, they differ also from the third kind of legal unification, namely the 'spontaneous' method, which results from the codification of usages, as in the Incoterms and the UCP 500, on the basis of constant observation of business practices. This requirement is hardly met by the Principles, which, as observed in Award 8873, are 'only' intended to be a world restatement of international contract law. As such, they offer general principles of contract law as a framework for solving any international dispute.

1
'. . . the reported awards do not in all cases seem to sustain the wealth of commentary based upon them' (Lord Mustill, 'The New Lex Mercatoria, The First Twenty-five Years', in Liber Amoricum for The Rt. Hon. Lord Wilberforce, Oxford, Clarendon Press, 1987, pp. 149-183, at p. 177).

2
The Uniform Law Review reports periodically on the status of the publication of awards, academic writings and judicial decisions related to the UNIDROIT Principles.

3
'PREAMBLE (Purpose of the Principles): These Principles set forth general rules for international commercial contracts. They shall be applied when the parties have agreed that their contract be governed by them. They may be applied when the parties have agreed that their contract be governed by "general principles of law", the "lex mercatoria" or the like. They may provide a solution to an issue raised when it proves impossible to establish the relevant rule of the applicable law. They may be used to interpret or supplement international uniform law instruments. They may serve as a model for national and international legislators.'

4
M.J. Bonell, An International Restatement of Contract Law (2nd ed., 1997) at p. 240; F. Marrella, 'La nuova Lex Mercatoria', in Trattato di diritto commerciale e di diritto pubblico dell'economia diretto da Francesco Galgano, CEDAM, Padova, 2000 (forthcoming).

5
Caveat: Uniform Law Review, 1997, p. 812, referring incorrectly to Award '700', contains a summary of the choice-of-law issue dealt with in the first partial Award.

6
Article 7.4.9 of the UNIDROIT Principles provides as follows: '(1)If a party does not pay a sum of money when it falls due the aggrieved party is entitled to interest upon that sum from the time when payment is due to the time of payment whether or not the non-payment is excused. (2)The rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by the law of the State of the currency of payment.(3)The aggrieved party is entitled to additional damages if the non-payment caused it a greater harm.'