At the beginning of November 1996, an event of significance for the American continent's legal environment took place in Venezuela. The International Institute for the Unification of Private Law (Unidroit), the Venezuelan government and the University of Carabobo had taken the initiative of holding a congress in Valencia, which was attended by lawyers from both the North and South, particularly from the American continent. The subject of the meeting was the Unidroit Principles governing international commercial contracts, presented as a new approach to international commercial relationships.

The participants at the Inter-American Congress, audience and speakers alike, were not disappointed.

Two years after their promulgation by Unidroit's Executive Council in May 1994, there has already been occasion to apply the Principles several dozen times. Professor Bonell, former Chairman of the steering committee which devised them, listed seventy applications in arbitral awards, mainly in arbitrations governed by the ICC Rules. In addition, a number of decisions of state courts have contained references to the Principles (see, for example, two judgments of the Grenoble Court of Appeal, dated 24 January and 23 October 1996, to be published in the Revue de Droit Uniforme. In other words, modern lawyers claiming to advise or judge those involved in international trade can no longer ignore them.

Many ideas were put forward at the Congress. In the opinion of Professor Allan Farnsworth of Columbia University, the Principles would constitute a new lingua franca for the drafting of international commercial contracts. This would indeed be a splendid accomplishment. They might also serve as a model for unifying the law in the context of the regional integrations currently under way across the American continent (NAFTA; MERCOSUR). Indeed, why give a specific shade of meaning at all costs to questions that have already been settled by solutions which tend to be generally accepted (Professor Kozolchyk of the University of Tucson, Arizona)?

These two examples show how useful the Principles are for American lawyers. The outside observer is struck by the fact that, despite appearances, the relative linguistic unity of the continent, mainly centred on two languages, has not resulted in stronger legal unification. With the exception of one or two treaties, the scale of the differences between legal systems – especially those of Latin America – is surprising. How much easier legislative unification in Europe would have been had the negotiators been confronted by only two languages!

Rather than trying to trace each idea by summarising the views of its eminent proponent, we have decided firstly to set out a general overview of the substance and interest of the Unidroit Principles and secondly to highlight the particularly enviable fate that the Principles are likely to meet with in America.

I- General presentation of the Unidroit Principles

Most readers will already be acquainted with the Unidroit Principles regarding international commercial contracts. In October 1994 the ICC Institute of International Business Law and Practice, in conjunction with Unidroit, organised a symposium whose works have been published by the ICC (ICC publication n° 490/1). We shall only remind you of its broad outline.

The concept of gathering together the principles governing the conclusion and interpretation of contracts or determining the rights and obligations of parties in the performance of international commercial contracts and grouping them into a body of written rules was born in the early 1970s. In the face of an upsurge in international trade, both players and governments had no option but to face the fact that the widely accepted rules were inadequate. The discovery of the lex mercatoria gave rise to a fear that secret rules, known only to certain insiders or invented by arbitrators in the course of a procedure, would emerge under this title. Hence it became essential that an international organisation with governmental representation should take charge of the task of codifying the acknowledged or commonly admitted solutions. Because of Unidroit's acknowledged authority, based on the dependability and success of its earlier work, its Executive Council's proposal to attempt the process was accepted and financed by the Member states.

The outcome obtained in 1994 was universally welcomed with interest. Indeed, to set out in 119 articles the elements for answering most of the questions likely to be encountered, from negotiation to defective performance of an international contract, is certainly an achievement.

The Principles are presented in a form inspired by the United States' Restatements with fi a briefly worded rule, modelled on the articles of a law, followed by comments which for their part are complemented by one or more practical illustrations, and may thus be used in a number of circumstances. People drafting contracts may derive inspiration from them and may also use them for checking that nothing important has been forgotten. Attorneys, arbitrators and judges may look into them for solutions to problems submitted by their clients or parties under their jurisdiction. Wisdom would have it that to deviate from the rules accepted by the Principles a lawyer has to have serious reasons. In particular, people's confidence in arbitration depends to a large extent on the solutions selected by the arbitrators being foreseeable. Arbitrators would be wrong not to wish to take advantage of the additional clarification and stability that is provided by most of the rules contained in the Principles.

So far as their content is concerned, the Unidroit rules are underpinned by five principles on which the various articles are grounded:

• The first is that of contractual freedom and the freedom in drawing up clauses included in contracts. Article 1.1 expresses this as follows:

"The parties are free to enter into a contract and to determine its content."

• The second principle restates the requirement of good faith in business formulated by several recent international conventions. It is summarised by article 1.7 in the following terms:

"Each party must act in accordance with good faith and fair dealing in international trade. The parties may not exclude or limit this duty."

• The third expresses openness to international commercial practices by extending to all contracts a rule formulated by the Vienna Convention of 11 April 1980 for the international sale of goods. Article 1.8:

"The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. The parties are bound by a usage that is widely known and regularly observed in international trade by parties in the particular trade concerned except where the application of such a usage would be unreasonable."

• The fourth basic principle is that of favor contractus. It is illustrated by several provisions. It stems from the idea that an international contract is difficult to negotiate, concerns interests that are often substantial, and may give rise to long, complex and costly lawsuits. Accordingly the authors of the Principles wished to keep the contract "alive" insofar as possible. To this end, they have set in place a very subtly shaded system of sanctions.

For example, termination is only possible provided there has been "essential non­performance by the other party" (article 7.3.1.).

In the absence of such non-performance, the person to whom the obligation is owed must off the person who owes that duty an opportunity to remedy its default.

• The last principle expresses the wish to sanction underhanded behaviour. This applies even at the stage of pre-contractual dealings. Article 2.1.5.:

"The parties are free to negotiate and may not be held liable if they fail to reach an agreement .... (But) a party who starts or continues with negotiations in the knowledge that it has no intention of reaching an agreement is notably deemed to be in bad faith." (For a more detailed presentation of the Unidroit Principles, see our report in the Semaine Juridique 1995, page 189, n°3842).

• At the first few symposia devoted to the Principles, many speakers questioned the regulatory value of the Principles. Today they are gradually gaining value as rules whose source is to be found in established case law. On the American continent, they have a most promising future.

II - The future of the Principles on the American continent

In addition to our comments above, the Principles already have the advantage on the American continent of having been sanctioned by the substantive law. In fa on 17 March 1994, the Inter-American Convention on the law applicable to international contracts, known as the Mexico Convention, was opened for signature. This convention, negotiated under the aegis of the Organisation of American States, has already entered into force following its ratification by Venezuela and Mexico. It is the equivalent of the Rome Convention of 19 June 1980 on the Law applicable to Contractual Obligations which has been in force in Europe since 1 April 1991.

However, it has a more promising future before it than the Rome Convention, since it is open to adherence by any state, even those distant from the American continent. In other words once states as important in the field of international trade as the United States, Canada or Argentina have ratified it, other countries from Asia or Africa will in all likelihood adhere to the convention.

Like the Rome Convention, the Mexico Convention is a universal convention, which may be applied by a judge of a state that is party to it even if the case is between, for example, parties from France and Japan (article 2) provided, the American text specifies, that the contract has objective connections with more than one party state (article 1 para. 2). In other words, in the twenty first century, the Mexico Convention will be the main rival of the Rome Convention.

Yet the two texts are different especially in that the Inter-American Convention authorises the choice of a law that is not the law of a state and, where the parties have failed to choose the law, invites the judge to take "account of the general principles of international commercial law recognised by international organisations." (Articles 9 para. 2 and 10).

Such rules are at variance with article 3 of the Rome Convention whose famous initial provision - "The proper law of the contract shall be the law intended by the parties" - is generally interpreted as prohibiting a contract without a law (in other words a contract not governed by a state law) and as ranking any reference to Principles or to the celebrated lex mercatoria as a mere contractual stipulation. The discrepancy is even greater in cases where the contracting parties have chosen a state Jaw, since Article 10 of the Mexico Convention provides as follows:

"as well as the provisions of the foregoing articles (including article 7 on the choice of law by the parties), where applicable, the rules, customs and principles of international commercial law shall be applied, together with generally recognised commercial customs and practices with a view to ensuring compliance with the conditions imposed by justice and equity in the settlement of actual cases."

The consequence is that the choice of a state law might be corrected as regards its practical applications by recourse to the Principles. The parenthesis, "where applicable" invites the Judge to be cautious ... but recourse to the Principles may turn out very useful in the face of a law that is inappropriate for international trade, as might be the case of French domestic sales law, which was devised by the authors of the Civil Code for rural society in 1804.

Thus it seems to have been demonstrated that, for the states that become parties to the Mexico Convention, the Unidroit Principles, promulgated by an international intergovernmental organisation, are sanctioned as international law likely to be applied even if the contracting parties have made no reference to them. Accordingly they will prevail over the contractual clauses. In addition, they are distinguished from "generally recognised commercial customs and practices." Hence, unlike customs, treated as issues of fact, they must be regarded as genuine rules of law.

These consequences were deemed desirable by several negotiators of the Mexico Convention who were involved in the Unidroit studies. In this connection, the evidence of Professor Parra Aranguren, Judge at the International Court of Justice, was particularly enlightening.

Any reader who is familiar with the ICC Rules of conciliation and arbitration, article 13(5) of which requires arbitrators to take account of relevant trade usages in every case, will have seen with a certain satisfaction that the Judge's task is becoming more closely akin to that of the arbitrator. He may even to some extent wish that arbitrators could from now on have the same range of rules as has been accorded to the judges of states that are parties to the Mexico Convention. Parties to whom the 119 articles of the Unidroit Principles apply enjoy a particular advantage: nourished by an extensive body of existing case law, the Principles comprise a set of legal provisions that are easily accessible to one and all.

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