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Reproduced with permission of 46 American Journal of Comparative Law (1998) 485-508

The Limits of Commercial Contract Freedom:
Under the UNIDROIT "Restatement" and Danish Law

Joseph Lookofsky [*]

1. The Principles as a Restatement and a Source of Contract Law
2. The Content of the Principles: The Limits of Contractual Freedom
3. Concluding Remarks

In his Note outlining our Bristol Conference topic,[1] our General Reporter afforded us considerable latitude in the preparation of our National Reports. We were invited to address the general nature of the UNIDROIT Principles,[2] their content (with a view to comparing it to national/domestic law),[3] as well as the purposes to which the Principles might properly be put.[4]

In the first, more general part of my Report, I discuss the Principles as a kind of Restatement and their use as a source of international commercial law. In the second part, I seek to compare the limits of commercial contract freedom (contract validity): under the Principles and under Danish domestic law.

1. The Principles as a Restatement and a Source of Contract Law

As I wish to emphasize what I see as a significant relationship between the nature of the UNIDROIT Principles and their purposes, I take the liberty of combining my response to these questions under a single heading.

I certainly agree with the General Reporter's assessment that the essential nature of the Principles is "a sort of international Restatement of contract law." Indeed, since my colleagues and I on the University of Copenhagen Law Faculty consider the Principles to be a most significant and persuasive international Restatement, we now make sure that all our students [5] are introduced to the UNIDROIT Principles, inter alia, as part their required courses in Contracts and [page 485] Sales.[6] In this way, we openly acknowledge that the greatest influence on our domestic law of contract now comes from outside.[7]

But if this Restatement-aspect rightly expresses the essential nature of the Principles, it would seem to follow that an important purpose of the Principles should be to serve as just such a Restatement, i.e., as a persuasive source of internationally accepted principles of contract law, lex mercatoria and the like.[8] In this, I suspect, our General Reporter would agree.[9]

And yet, it seems to me that the Preamble to the Principles, as presently drafted, fails to acknowledge this significant source-of-law function.[10] Though the Preamble rightly suggests that, e.g., Danish [page 486] rules of private international law would permit parties to "contract in" to the Principles,[11] that the Principles might provide solutions to certain, otherwise "insoluble" problems,[12] that they could be used by Danish courts to interpret international instruments,[13] and that at least some Principles might serve as a model for Danish legislators,[14] nothing is said about the fact that, e.g., Danish commentators, courts and arbitrators can make good use of the Principles as a Restatement, that is, as a convenient source of general principles of law and/or as a source of the usages and customs of international trade, lex mercatoria and the like.[15]

This source-of-law function (purpose) of the Principles seems particularly important in systems where great reliance is placed on uncodified, essentially judge-made rules of law. In Denmark, for example, where the bulk of our existing contract law is not to be found in statutes, it seems unlikely that our Parliament would make much use of the Principles as a model for future legislation: our Contracts Act (Aftaleloven: which deals only with questions of contract formation, validity and agency) is not currently up for revision,[16] and -- in the absence of any European commandments [17] -- Denmark would hardly elect to codify the rest of its Contract law, let alone enact an even broader Civil Code.[18]

What does, however, seem very likely is that some UNIDROIT Principles will rub off on, and thus become part of our own judge-made contract law. We in Denmark predict, for example, that our domestic rules on liability will drift towards the international formulations in UNIDROIT and CISG.[19] And indeed, as we academics write [page 487] about the Principles (and require our students, the future Danish judges, to absorb the message),[20] our prophesy begins to fulfill itself!

Should such internationalism surprise observers from outside? Denmark's initial "no" to Europe's Union was a shot heard far and, wide,[21] but that general expression of reluctance to yield national sovereignty might also reflect a preference for voluntary internationalism in the field of private and commercial law.[22] As early as 1892, Julius Lassen (the father of our modern law of Obligations), could make the following observations regarding the impact in Denmark of foreign private and commercial law:

"Although the Danish Law of Obligations is essentially national in character, its main principles correspond in large measure to those of European and American law. . . . In the presentation of the Danish Law of Obligations, it therefore becomes natural and necessary to take due account . . . of foreign legislation and legal literature. . . . But just as a certain degree of unanimity in European law will provide important support for the results which Danish legal science has derived from our law's basic principles, so will our results be challenged when foreign practice and science . . . reach conclusions which differ from ours . . ."[23]

Lassen's logic still rings true in our own day and age, particularly in internationally oriented commercial contexts, where Danish doctrine and jurisprudence often make reference to foreign and international sources of law.[24] Therefore, if a given UNIDROIT Principle is perceived to express an internationally accepted -- and persuasively reasoned -- general principle of law, then a Danish court confronted with an international dispute might well be expected to draw inspiration from that particular Principle as (part of) an appropriate solution in the concrete case. Once applied by our courts, the UNIDROIT solution becomes an integral part of the Danish solution, part of our own judge-made law, our applicable rule of law (gældende ret). In this way, that which previously might have represented a [page 488] domestic,[25] perhaps even a parochial solution, becomes internationalized and thus better suited to the modern needs of trade.

To take a concrete example: the next time a Danish court is asked to test the effectiveness (validity) of a peculiarly Danish standard term, i.e., a burdensome term which the foreign contracting party might not expect or understand, then -- if due account is taken of the UNIDROIT Principle persuasively formulated in Article 2.20 -- that surprising term should not be held effective, i.e., it should not be enforced by the court. (Later, I will provide a fuller explanation of this particular prophesy and the existing Danish case law on point.)[26]

In making these arguments and predictions, I fully recognize that the Principles do not simply purport to restate the law. Just as with the highly successful (Second) American Restatement of Contracts,[27] some UNIDROIT Principles are clearly innovative, designed to better meet the needs of international trade.[28]

Yet this innovative aspect of some UNIDROIT Principles will not disqualify the Principles as a source of Danish law. Quite the contrary: just as the various American Restatements are considered persuasive and authoritative by reason of their source,[29] the Principles will be similarly regarded by reason of theirs.[30] Applying the Principles as a non-mandatory source, Danish judges will make use of those innovative and other UNIDROIT articles which they consider persuasive and helpful in the concrete case. In our largely un-codified private and commercial law environment,[31] a Danish judge, basking in the democratic climate of Scandinavian Realism,[32] may sometimes even start with the result, i.e., that solution which seems reasonable [page 489] and fair in the concrete case, and then proceed to reason "backwards" to the ratio, using legal logic and all persuasive sources of law to test the correctness of the decision first intuitively reached.[33]

Now, to the extent that the UNIDROIT Principles reflect -- not just general principles of law, but also -- the usages and customs of international trade,[34] my suggested source-of-law function would seem even more clear-cut. For in Denmark, as elsewhere,[35] the relevant usages and customs of the trade rank even higher on the source-of-law scale than the otherwise applicable gap-filling rule, and that is true irrespective of whether the gap-filling rule is expressed in a statute or not.[36] And since the relevant trade usage for a Danish court in an international context is the international one,[37] the UNIDROIT Principles qualify as a convenient and reliable source, not only for our national courts, but also for international arbitrators applying Danish law, i.e., even when it proves possible "to establish the relevant [gap-filling] rule of the applicable law."[38]

I shall not dwell here on the sometimes elusive, even confusing nature of the lex mercatoria conception. Suffice it to state that the phrase is sometimes used to cover both general principles of law and the conceptually distinct category of general usages and customs of the trade.[39] In any event, I do not feel that the force of the arguments made here is diminished by the fact that the UNIDROIT Principles might be considered to contain elements of lex mercatoria in both these respects.

To sum up: if the Principles represent a codification of general principles of law, lex mercatoria and the like, they may rightly be applied by courts and arbitrators -- not only when the parties have agreed that their contract be governed by the (UNIDROIT) Principles,[40] or when they have agreed that their contract be governed by general principles of law, etc.[41] -- but also when the parties have not [page 490] so agreed.[42] The American Restatement was designed to serve courts and arbitrators as a source of the applicable (American) law; shouldn't this function of the new international Restatement at least be mentioned on the UNIDROIT list?

Ultimately, if the source-of-law function suggested here were to be specified in the Principles' Preamble, this would, in my view, also advance the larger harmonization process, the globalization of private law. It would provide a country like Denmark, proud of its own traditions and unique legal heritage, with an additional justification for progressive (rule-improving) harmonization by consent, a clearly stated alternative to the more wooden, lowest-common-denominator kind of unification sometimes imposed upon us "from above."[43]

I would therefore most respectfully propose that an additional Purpose be added to the Principles' Preamble, one which might be worded something like this:

THEY [THE PRINCIPLES MAY BE APPLIED, EVEN ABSENT THE PARTIES' AGREEMENT, AS A SOURCE OF GENERAL PRINCIPLES OF CONTRACT LAW AND/OR AS A SOURCE OF THE USAGES AND CUSTOMS OF INTERNATIONAL TRADE (lex mercatoria).

Although my colleagues and I at the University of Copenhagen have already begun to make use of the Principles as a source of general contract principles,[44] and though we are already prepared to recommend that Danish courts do likewise, it would, in my view, represent a positive contribution to the internationalization process if the UNIDROIT drafters deemed it appropriate to expressly authorize this use of the Principles, as a Restatement of the law.

2. The Content of the Principles: The Limits of Contractual Freedom

Moving on from nature and purpose to substance, we National Reporters were asked to focus on the content of the UNIDROIT Principles with a view to comparing it to our national legal systems.[45]

Those Reporters who choose to focus on specific topics were asked to make a general introductory statement regarding the degree of compatibility of the Principles as a whole with domestic law. So I start my content-discussion by stating that I find the UNIDROIT [page 491] Principles to be highly compatible with the Danish law of contracts. Indeed, the great majority of the individual UNIDROIT Principles are already recognized in Danish judge-made or statutory law.[46]

Granted, we might name a few Danish innovations more boldly formulated than the corresponding UNIDROIT Principles,[47] just as we might cite other Danish rules too bold (as yet) for any world-wide Restatement of private law.[48] Conversely, the application of some internationally oriented UNIDROIT Principles might sometimes help our judges avoid the pitfalls of an excessively provincial point of view.[49]

And yet, such individual distinctions hardly disturb the overall picture: that of the compatibility between the Principles and Danish law. Thus, both the remedial matrix of the Principles (specific performance, termination, damages) and the conception of force majeure as an excuse from liability (as opposed to discharge of obligation) are quite compatible with Danish and other Scandinavian law.[50] The fact that UNIDROIT liability does not require proof of fault (culpa) [51] hardly represents a significant practical difference, in that Danish law, as regards generic obligations, provides a most significant exception to our fault-based liability rule.[52]

Having made these general observations, I shall now focus on the principles of contractual freedom and pacta sunt servanda, as these [page 492] relate to contract validity under the UNIDROIT Principles and Danish domestic law.[53]

The thing worth examining here is not so much the very general (contractual freedom and binding contract) rules as such, but rather the limitations and exceptions which each system tacks on to its general rules. As the Principles are intended only for commercial use, I will exclude from my comparison Danish rules of law which are restricted to consumer transactions and the like.

We can, of course, start our discussion with the general rules. And when it comes to contractual freedom, Article 1.1 lays down the UNIDROIT black letter law:

THE PARTIES ARE FREE TO ENTER INTO A CONTRACT AND TO DETERMINE ITS CONTENT.

The parties' freedom to enter an agreement and to determine its content is significant, because the parties become bound by the content of their contract, i.e., their self-made rules of inter-partes law.[54] Or, as Article 1.3 puts it:

A CONTRACT VALIDLY ENTERED INTO IS BINDING UPON THE PARTIES.

Binding in this (legal) context means that a court or arbitral tribunal will enforce the contract thus entered -- i.e., the parties' own piece of private legislation -- by providing an injured contracting party with a set of remedies in the event of the other party's breach.[55]

Now these very general maxims of party-autonomy and pacta sunt servanda, made applicable to international commercial contracts governed by the UNIDROIT Principles, have also long been recognized under Danish and other Scandinavian law.[56] This is, at least, the starting point (udgangspunktet), as we in Denmark sometimes say. Indeed, as if to underline the point in a number of specific applications, the UNIDROIT Principles even provide us with numerous ex tuto re-affirmations of the general rule.[57] [page 493]

Of course, no modern legal system has been so reckless as to grant the parties total autonomy or to enforce all promises as binding between them.[58] Therefore, neither the UNIDROIT Principles nor Danish domestic law requires the enforcement a promise made at gunpoint,[59] or promise procured by fraud:[60] contracts induced by these and similar means can be avoided -- in whole or at least in part.[61] None of us wants to reward the extortionist or the swindler with the "benefit of the bargain" -- or anything else.[62]

But the list of UNIDROIT exceptions to party autonomy and binding contracts is much longer than this. As regards contractual freedom (Article 1.1), the Principles not only contains its own list of exceptions from which the parties may not derogate (so-called mandatory rules);[63] it is further acknowledged that mandatory rules of national (i.e., domestic) [64] law may sometimes prevail.[65] By its own terms, the pacta sunt servanda rule in Article 1.3 applies only to contracts validly entered into, and -- as already noted -- we find various rules of invalidity defined in the Principles themselves. Grouping the individual UNIDROIT exceptions for present comparative purposes within two larger pigeonholes which I have labeled (a) and (b) below,[66] and putting aside the ever-present "good faith" caveat,[67] we find that, under the Principles, a contract (or clause) will not bind:[page 494]

(a) if induced by fraudulent representation,[68] threat,[69] or mistake,[70] or

(b) in the case of a surprising standard term,[71] a grossly unfair exemption,[72] a grossly excessive penalty,[73] (other cases of) gross disparity,[74] or hardship.[75]

Granted, virtually all the UNIDROIT exceptions -- those in group (a) as well as those in group (b) -- are also recognized (in one form or another) as limitations upon contractual freedom under Danish domestic law. But the UNIDROIT exceptions still seem rather different, as regards both substance and form.

For one thing, although the three rather traditional defenses to contractual freedom collected here as group (a) are also grouped together in the Principles (under the general heading of Validity),[76] there is no obvious common denominator as regards the five items which I group together here in group (b). Indeed, we find the five group-(b) items spread across four separate UNIDROIT chapters,[77] although I would expect most Danish jurists to view all these as variations on the same basic theme.[78]

Taking first a brief look at the items collected here as group (a), we see the UNIDROIT codification of three traditional -- and thus hardly controversial -- defenses to contract validity. Also the original (1917) version of the Danish Contracts Act contains separate statutory provisions for fraud, threat and mistakes, and these -- at least as regards the clear-cut cases -- all seem more or less compatible with the UNIDROIT view.[79]

Though courts and arbitrators should be equipped with rules for these extreme situations, we see relatively few Danish decisions involving commercial contracts induced by intentionally misleading or coercive conduct, i.e., by fraudulent misrepresentations or threats [page 495] (duress).[80] Also uncommon are the cases we in Denmark put under the heading of (mutual) mistake.[81]

Of somewhat greater practical significance are those cases which Danish theorists categorize as "induced error" (fremkaldt vildfarelse),[82] i.e., the cases Common law jurists label innocent or negligent misrepresentations.[83] For some reason, the drafters of the Principles chose to put these cases -- not alongside the "fraud" category (as in the corresponding judge -- made Danish and Common law rules), but rather in the "mistake" pigeonhole (Article 3.5). My own preference would have been to set up a separate category for non-fraudulent (i.e., innocent/negligent) misrepresentation,[84] as I feel this would put sharper focus on the key considerations when a contact is allegedly induced by one party's clearly erroneous statement: the factors being the degree of culpability exhibited by the representor and the materiality of the misrepresentation made.[85] (I would expect, incidentally, that a party led to contract by the other party's negligent misrepresentation could claim reliance/negative interest damages even if liability for expectation damages were effectively disclaimed.)[86]

Moving along to the mixed bag of UNIDROIT exceptions collected in this paper as group (b), we find much more innovative -- and, for some systems, surely more controversial -- exceptions to the UNIDROIT (contract-freedom) rule. For it seems clear that all five of these exceptions provide courts and arbitrators with the power to [page 496] police the content of commercial contracts, i.e., to deny enforcement [87] of a "surprising" (burdensome) standard term,[88] a grossly "unfair" liability exemption,[89] a grossly "excessive" penalty,[90] a term (or contract) which (otherwise) gives one party an "excessive advantage,"[91] or where the initial "equilibrium" of the contract has been fundamentally altered by the course of subsequent events.[92]

The common denominator here, at least from a Danish perspective, would seem to be judicial censorship based on a qualified "reasonableness" test.[93] Whereas UNIDROIT treats cases of gross disparity and hardship as separate categories (depending upon the point in time at which the disparity occurs), the Danish Contracts Act combines these under a single, much simpler head: § 36 of the Contracts Act, our so-called General Clause.[94] For the same reason, we find no direct Danish statutory analogues for the more specific UNIDROIT provisions on unfair exemption and penalty clauses or as regards surprising (and thus, for the surprised party unreasonable) standard terms. Also these validity sub-sets are considered adequately dealt with by our General Clause, which (in unofficial translation)[95] provides:

1. A CONTRACT CAN BE AMENDED OR HELD UNENFORCEABLE, IN WHOLE OR IN PART, IF ENFORCEMENT WOULD BE UNREASONABLE OR CONTRARY TO ACCEPTED STANDARDS OF FAIR DEALING. ...

2. IN MAKING THE DETERMINATION REFERRED TO IN PARAGRAPH 1, CONSIDERATION SHALL BE GIVEN TO THE CIRCUMSTANCES AT THE TIME OF CONTRACTING, THE CONTENT OF THE CONTRACT AND CIRCUMSTANCES WHICH HAVE LATER OCCURRED.

Because § 36 of the Danish Contracts Act is a truly general clause, applicable to virtually all instances of unreasonableness, in consumer and commercial contracts alike, all five of the separate situations covered by individual UNIDROIT Principles in group (b) [page 497] above would surely fall within the broad contours of our General Clause.

Granted, § 36 was designed, inter alia, to provide consumers with the protection of a broad mandatory rule. And if we compare the number of judicial applications in consumer contexts, we might well conclude that Danish courts have applied § 36 in commercial cases with considerable restraint. And yet, the General Clause is properly characterized as a significant and distinctive feature of our general law. The legislative history of the provision clearly indicates that also parties in commercial relationships deserve protection against unfair terms,[96] and Danish courts have acted accordingly: the General Clause has been used in various commercial contexts to police both procedural and substantive unfairness in contracts between merchants.[97]

Introduced in Denmark in 1975, the General Clause rendered irrelevant (and therefore replaced) a number of more specific statutory provisions, inter alia, rules which permitted Danish courts to police a clearly unreasonable "penalty" (liquidated damages) [98] clause or a "default" clause which would deny the party in breach restitution in the event of termination.[99] A key function of the General Clause is indeed to authorize judicial "censorship" of clauses like these, i.e., clauses which -- in one way or another -- unreasonably upset the contractual balance between breach and remedy.[100] And given the 1995 amendment to the original 1975 statute,[101] which empowers courts and arbitrators to amend (as well as set aside) unreasonable contracts, the Danish assault on the traditional citadel, the "idol" of freedom of contract, now seems complete.[102]

In sum, as regards commercial contracts, it seems fair to say that the total substantive content of the Danish General Clause seems at least equal to the sum of what I might label the "5 UNIDROIT parts." [page 498]

Thus, a Danish court is authorized to apply § 36 to deal with (serious) cases of commercial contract imbalance, i.e., where the content of the contract gives one party an excessive advantage, irrespective of whether this is due to the status of the contracting parties (so-called disparity in bargaining power) or not. And the result according to UNIDROIT Article 3.10 is precisely the same, the somewhat misleading Gross disparity -- label notwithstanding:[103] if one party has misused its superior bargaining power, then that factor (among others) will be relevant in the concrete case, but the main focus of both the Danish and the UNIDROIT rules is the content of the objectional contract or term.[104] For similar reasons, the more narrowly drafted UNIDROIT provisions designed to regulate surprising (standard) terms,[105] (unreasonable) exemption clauses and (excessive) penalty provisions all fall within the purview of our much broader General Clause.[106]

In Denmark, as already noted, we see an increasing interaction, a kind of symbiosis between international and domestic rules of law.[107] As an important example, the more specific UNIDROIT (in)validity Principles, designed to police international commercial contracts, have recently been cited in Danish doctrine as providing new outside support for the commercial application of our General Clause.[108] Indeed, the relevant UNIDROIT Principles may not only provide us with concrete guidelines for the commercial application of our own -- very general and overt -- validity rule,[109] but also with [page 499] important guidelines for the commercial application of our traditional covert censorship techniques (discussed below).

In making these essentially superstructural observations concerning the regulation of private contractual freedom under the UNIDROIT Principles and Danish law, I am not here suggesting that the overall validity-solution provided by one rule-set is necessarily superior to that of the other. The more general Danish approach is better suited to its broader purpose: the policing of consumer and commercial contracts alike. The more specific UNIDROIT limitations have the advantage of highlighting instances of commercial contract unfairness, in that (even Danish) courts and arbitrators may be more willing to use these kinds of tools than to brandish the far more general Danish clause, that seemingly uninhibited limitation on the freedom-of-contract rule.[110]

(Since even the more specific UNIDROIT approach to contract regulation does not necessarily preclude all risk of too-frequent application (censorship), I am tempted to express, at least parenthetically, some reservations as regards the UNIDROIT validity-Principle relating to contract termination and adaption by reason of Hardship.[111] The risk, as I see it, is that this particular UNIDROIT innovation [112] may provide arbitrators -- and ultimately, perhaps even courts -- with convenient grounds to "split the baby" or rewrite the parties' contract in cases where this would not advance the cause of economic efficiency (or fairness) in international trade.[113] In other words, I fear that this specific UNIDROIT validity-formulation poses a greater threat to rightfully binding contracts than does, e.g., the much more abstract and elastic authority of the Danish General Clause.[114] The fact that some parties, in some cases, voluntarily draft hardship clauses or re-negotiate their international contracts and grant each [page 500] other hardship concessions does not necessarily provide support for a gap-filling Hardship rule.[115] The custom among those merchants who seek to preserve their contractual relationships ought not be generalized into a rule applicable even in situations where one contracting party has lost the other party's trust. I would therefore respectfully suggest that the UNIDROIT drafters re-think the hardship problem in light of Lisa Bernstein's helpful distinction between relationship-preserving norms and end-game norms.)[116]

Finally, to add a touch of "real life" and specificity to my National Report, I wish to comment upon two commercial cases previously decided by the Danish Supreme Court. The first example (Beauty Box) is intended to demonstrate that -- quite apart from the black-letter validity-solutions provided by the UNIDROIT Principles, judge-made law will continue to play a significant role on the complex commercial contract stage. The second example (Warehouse Fire) should show how an arguably provincial Danish solution might benefit from a dose of lex mercatoria, the codified solution which the Principles now provide.

Beauty Box.[117] With a view to producing a new model beauty box for sale in England, Danish Buyer (B) places an order in September, 1977 with Danish Seller/manufacturer (S) for 3 spray-casting tools, to be delivered "latest January 4, 1978, guaranteed."[118] S's confirmation form refers to certain standard Nordic terms for the delivery of plant and machinery (NL);[119] these provide that S must cure any defects, but they disclaim all liability for "lost profits." The goods delivered in January are defective, and, after the failure of S's repeated attempts to cure, B cancels the contract and claims damages for expected profits (beauty box sales in England) lost.

The question in Beauty Box is a familiar one: whether the seller's standard liability disclaimer should take precedence over the applicable gap-filling liability rule.[page 501]

(Note that though the sales contract -- and thus the applicable sales law -- in Beauty Box is domestic, [120] the same domestic principles available to police the terms of that contract in 1986 would also be available in an international context, e.g., in a CISG sale today.[121] Note also that, in harmony with the UNIDROIT and CISG gap-filling solutions,[122] the Danish SGA would hold S liable without fault, for profits foreseeably lost,[123] whereas in the other Scandinavian countries,[124] the domestic Sales Acts now differentiate between fault and no-fault liability, depending on whether compensation for "direct" or "indirect" loss is claimed.)[125]

In Denmark, even a commercial contract can be policed for fairness, if need be by using our General Clause.[126] But in commercial cases, our courts continue to give preference to more traditional, judge-made rules of law. Preferring covert techniques to overt (General Clause) policing in a commercial context, courts and arbitrators in Denmark are likely to employ a series of tests. [127] The first of these asks whether the (standard) clause in question has been incorporated (vedtaget) into the overall contract between the parties. If this hurdle is passed, courts employ an interpretation test to determine whether the term applies to the dispute at hand. Finally, as regards incorporated terms held applicable, i.e., if all else fails, courts can resort to validity conceptions, the § 36 reasonableness-test.

As regards the first stage of this 3-stage rocket, our incorporation-standard remains essentially uncodified and therefore highly flexible.[128] Interpreting Danish cases, commentators re-state the law like this: the more burdensome the (standard) clause, the greater the [page 502] requirements for incorporation.[129] Though some standard terms might -- by virtue of their recognition and use within a given context -- be more readily incorporated, courts and arbitrators should be reluctant to hold parties to provisions not negotiated on their behalf or otherwise unfamiliar to them.[130]

Assuming a Danish court holds a given clause to be incorporated in the parties' overall agreement, the next step (hurdle) is to consider how that clause should be construed, e.g., whether a repair-or-replace clause remains the buyer's exclusive remedy if the seller later proves unable to repair or replace. We can get some help here from the contra proferentem idea, [131] but our courts seem driven (not just by syllogistic reasoning and legal logic, but also) by a desire to reach a commercially reasonable result. Given the general premise that a merchant-promisor ought not be permitted to speak with a forked tongue, a strong promissory commitment (in Beauty Box: "delivery latest January 4, 1978, guaranteed") made by S at the start of the contracting process ought not be easily obliterated by disclaimers laid down later, in fine-print standard terms.[132]

So in this case, the standard remedy and disclaimer, even if held incorporated, will be interpreted within the total contractual context. This seller's strong promissory commitment is backed up by a single, limited method of enforcement: the promise to repair or replace. Where, as here, S cannot seasonably cure, the agreed remedy fails to achieve its essential purpose.[133] Because we cannot turn back the clock, enforcement of the disclaimer (the letter of the private agreement) would deny B a minimum adequate remedy.[134] Indeed, in this kind of situation, an award of consequential damages may provide the only fair means of contract enforcement.[135] [page 503]

And so, in the real Beauty Box case (UfR 1986.654 H) the Danish Supreme Court found S liable, upholding the High Court's award of 300,000 Dkr. in damages, 200,000 of this compensation for estimated profits lost. The High Court decision emphasized the interrelationship between the clear nature of Seller's commitment and the degree of Buyer's (justifiable) reliance.[136] Like the High Court, the Supreme Court emphasized the Seller's failure to cure [137] and rejected Seller's claim regarding an allegedly agreed remedy pursuant to the NL standard terms.[138]

All this, I think, tends to confirm that black-letter rules of validity (like our 36) are potentially helpful, but also that they do not provide a totally self-sufficient matrix for policing each and every commercial contract/clause. At least in our Danish contract climate, no restatement or statutory codification can wholly supplant the need for judge-made rules of law.

Looking now at the flip-side of the codification coin, I would like to illustrate how Danish courts might use the new, black-letter UNIDROIT Restatement to supplement and further develop the existing judge-made Danish law. Once again, I build my discussion around a concrete paradigm inspired by a Danish Supreme Court case:

Warehouse Fire.[139] Swiss owner (O) contracts to store his goods, worth millions, in W's warehouse in Denmark. The contract consists of W's standard order-confirmation which contains a fine-print footnote in Danish referring to the "NSAB" standard terms (the General Conditions of the Nordic Freight Forwarders, also mentioned in fine-print English footnotes in W's previous writings to O).[140] Later, W's entire warehouse is destroyed by a fire attributed to "causes unknown." When sued by O's property-insurer, W (who is [page 504] under insured) [141] denies all liability, contending that the NSAB terms put the burden of proving W's alleged negligence on O.

Now, before considering the applicability of the NSAB terms to this specific bailment, a word should be said about the general gapfilling rule. Although liability in Denmark is ordinarily predicated on culpable breach, [142] the bailee (depositaren) in a bailment (depositum) contract will usually bear the burden of proving that he is not at fault.[143] Therefore, if the cause of the Warehouse Fire cannot be established, Danish law says that, absent contrary agreement, the bailee (or his insurer) should shoulder that "risk." And this is, I suppose, the same sort of risk allocation which merchants elsewhere would be likely to expect.[144]

But let the bailor -- i.e., O in Switzerland -- beware! For if the Nordic NSAB terms are deemed incorporated into this bailment contract, they may well be .interpreted as (re)reversing the usual (default) burden of proof, with the result that bailor O in Switzerland would then bear the Warehouse Fire risk.[145]

As previously indicated, Danish courts often resolve the "incorporation" issue by a flexible, multi-factor kind of test: [146] Are the standard terms actually enclosed with the contract or merely mentioned by reference (as here)? Is the reference to the standard terms [page 505] conspicuous or, as in this case, in fine-print? Is the contract language understandable to both parties, or is it (as here) in a foreign legal tongue? Last, but not least, the content of the contract should be considered, along a sliding scale: the more burdensome or unexpected the standard term in question, the greater the requirements for incorporation.[147] And note that whereas the NSAB would qualify as an "agreed document" as between Nordic suppliers, [148] that need not imply that the NSAB should be held incorporated with equal ease, by mere reference, vis-a-vis the Swiss party here.[149] In fact, if the NSAB is read (interpreted) to mean that the bailor must bear the Warehouse Fire kind of risk, then O (or O's insurer) can only recover damages if the NSAB is held not to have been "agreed to" by him.

Now, although most of the incorporation factors just listed would seem to work in favor of the Swiss bailor (O), the real Warehouse Fire case (UfR 1995.856 H) was resolved in favor of the Danish bailee (W). In its brief ratio, the Supreme Court emphasized one particular fact: in connection with previous transactions between the parties, O had received communications from W containing (very fine print) English-language footnotes referring to the NSAB standard terms. Against this background, the Supreme Court reversed the court below (Landsretten), holding that the Danish-language footnote in the form used to confirm O's Warehouse Fire bailment was sufficient to incorporate the entire NSAB "agreed document" as part of the contract concerned. Then, in a seemingly distinct piece of reasoning, the Supreme Court proceeded to interpret the relevant NSAB terms as placing the burden of proving fault on the bailor O (and thus O's insurer).[150] So in the end, O's insurer was left with the risk of the "unexplained" fire and O's Warehouse Fire loss.

A surprising result? Perhaps for some. But it should be noted that some Danish commentators had previously criticized the Supreme Court for scrutinizing the (however burdensome) content of an "agreed" document like the NSAB.[151] In any case, the Danish concept of precedent is flexible, in that great importance is placed on the specific controversy between the parties in question. And recalling that Danish judges are sometimes said to reason "backwards" (to [page 506] justify the "right" result), [152] we might view the decision in Warehouse Fire -- not so much in terms of prior case law regarding standard terms [153] but rather as a decision between these particular parties, in their concrete situation, a decision perhaps in part influenced by altruistic concerns. By holding the entire NSAB -- including the rule which alters the usual burden of proving fault -- "incorporated" as part of the contract between these parties, the Court has decided to let this loss "lie where it falls". Rather than render a hard-nosed judgment against the not-proven-negligent and under-insured warehouseman (W), the court leaves the parties in this arguably "close case" where it found them, with O's deep-pocket insurer now holding the bag.[154]

The real reason(s) behind the decision to hold the NSAB terms "incorporated" in Warehouse Fire? We commentators should be cautious, since we can but speculate and guess. And yet, given the advent of the UNIDROIT Principles in 1994, we cannot help but wonder what might have happened if this new international Restatement had been available as a relevant source.[155] Might the advancement of the international black-letter codification of the Surprising terms principle (Article 2.20) have made a difference, perhaps even persuaded the Supreme Court to deny enforcement of the -- arguably surprising and burdensome -- NSAB term?[156] [page 507]

3. Concluding Remarks

To some extent, my characterization (in Part 1 of this Report) of the UNIDROIT Principles as a new source of Danish law may ultimately work to undermine some validity observations just noted in Part 2. For as the Principles come to serve as an increasingly authoritative source of internationally accepted general principles and lex mercatoria, they will come to supplement -- indeed, become an integral part of -- our (largely unwritten) domestic rules. In the long run, some existing differences between the two rule-sets will surely iron out.

My colleagues and I are now working actively in pursuit of this result. The Principles are already being taught at the University of Copenhagen,[157] where we produce the majority of Denmark's jurists, and that fact alone should help ensure that the next generation of Danish advocates and judges will be most willing to embrace the international view.

On a few selected points, the Principles as presently formulated might arguably be amended and improved. Perhaps the views expressed in this paper can provide the UNIDROIT drafters will some Danish food for thought.[page 508]


FOOTNOTES

* Joseph Lookofsky is Professor of Law, University of Copenhagen.

My thanks to Professor Herbert Bernstein for commenting on an earlier draft of this paper, presented here as an updated/amended version of my Danish National Report to the 15th International Congress of Comparative Law (Section II.A.2) held in Bristol, England, 26 July - 1 August 1998.

1. "A New Approach to International Commercial Contracts: The UNIDROIT Principles of International Commercial Contracts." General Reporter: J.M. Bonell.

2. General Reporter's Note outlining Bristol topic II.A.2 (supra), no. 2.

3. Id. no. 3.

4. Id. no. 4.

5. Ours is a small country, but our Law Faculty is large, with more than 4,000 students currently enrolled in our 5-year (cand.jur.) program.

6. As our (700) first-year students learn about contract formation and contract validity under Danish private and commercial law, they also learn about many of the corresponding UNIDROIT Principles (in Chapters 2, 3 and 4); see M.B. Andersen, Grundlaeggende aftaleret (Basic Contract Law) (1997) at p. 96 f. (re. Culpa in contrahendo), p. 99, 107 (Duty of confidentiality), p. 125 (Notice), p. 158 (Writings in confirmation), p. 172 (Merger clauses), p. 242 (Intention of the parties), p. 351 (Good faith and fair dealings), p. 272 (Surprising terms), p. 278 (Battle of forms) and p. 332 (Exemption clauses).

Next, as these first-year students move on to study Danish (domestic) sales contracts, other basic UNIDROIT Principles (in Chapter 5, 6 and 7) become relevant, since the rules in our Sales Act of 1906 (Købeloven) often reflect the rules applicable to contracts in general: see Joseph Lookofsky, Køb: Dansk indenlandsk købsret (Danish Domestic Sales Law) (1996) p. 24 (re lex mercatoria) p. 27 (Right to terminate), p. 33 (Full compensation) and p. 34 (Mitigation of harm).

In the second and third years of the mandatory (B.A.) curriculum, where the private-law focus is on general contract law, Chapters 5-7 of the UNIDROIT Principles will permeate the upcoming textbooks, just as the Principles are already cited in our mandatory module on international sales: see (re lex mercatoria) Joseph Lookofsky, Understanding the CISG in Scandinavia (1996) 2-11.

Finally, those of our upper-level (cand.jur.) students who -- together with ERASMUS and other foreign students -- take the elective course in English in Comparative Commercial Law get a closer look at the Principles, e.g., to find solutions which can accommodate differing domestic/national views.

7. See Andersen, id., at 67.

8. A panel of United Nations Commissioners referred on several occasions to the UNIDROIT Principles as a source of general principles of international law: see Bonell, "First Practical Experiences with the UNIDROIT Principles," in An International Restatement of Contract Law 253 (1997).

Though Common and Scandinavian jurists would characterize the Principles as a secondary source of law (see E.A. Farnsworth, Contracts 1.8 (2d ed. 1990), a German jurist noting the distinction between Rechtsquelle and Rechtserscheinungsquelle might prefer to characterize the Principles as an "expression" of general contract law and lex mercatoria.

9. See Bonell at id. I would also base this inference on the questions asked by our General Reporter in his Note, no. 4: "Are they [the Principles] used in judifical proceedings -- before State courts or arbitral tribunals -- in support of a particular argument developed in a statement of claim or defence? Are there State court decisions or arbitral awards which refer to the Principles in support of a particular solution adopted?"

10. In its Introduction to the Principles (p. ix), the Governing Council of UNIDROIT explains that only the "most important" practical applications are explained in the Preamble. To be sure, the first sentence of the Preamble states that the Principles "set forth general rules for international commercial contracts," but the Comments (1-3) reveal that the main thrust of this sentence is to delimit, by definition, the purposes set forth in the (5) sentences which follow.

11. Such contracting in, suggested by the second and third sentences of the Preamble, is permitted in Denmark -- if not by virtue of the 1980 Rome Convention (which arguably applies only in situations involving a choice between the "laws of different countries"), then -- by virtue of the general, judge-made Danish PIL rules: see Joseph Lookofsky, International privatret på formuerettens område (2d ed. 1997) at 62.

12. See the fourth sentence of the Preamble and Comment 5 thereto. As regards arbitrators' use of lex mercatoria see Joseph Lookofsky, Transnational Litigation and Commercial Arbitration (1992) at 578-79. My own estimation is that Danish courts are not ready to depart from the usual lex fori solution outlined in the Comment.

13. See id., fifth sentence and Lookofsky, Understanding the CISG (supra n. 6) p. 29 with n. 112.

14. See the sixth sentence of the UNIDROIT Preamble and infra n. 16.

15. See supra n. 10.

16. Chapters 2 and 3 of the Principles might, however, provide some inspiration if our century-old Contracts Act at some point were to be revised: see infra, n. 46.

17. Directive or Regulation.

18. For a critical assessment of the "European Civil Code" project, see Joseph Lookofsky in Ugeskrift for Retsvæsen 1997 B, p. 251 ff.

19. See Lookofsky, Køb (supra n. 6) at 126 f. (advocating a simplification of 24 of the Sales Act and, more generally, the abandonment of the distinction between liability in specific and generic sales). See Andersen, supra n. 6, at p. 69 (predicting that CISG Art. 79 may change the general domestic liability rule).

20. See supra, text with n. 6.

21. See, e.g., Lookofsky, "The State of the Union -- in Contract and Tort," 41 Am. J. Comp. L. 89 (1993).

22. See id. at 100 f.

23. Julius Lassen, Obligationsretten 20-21 (1st ed. 1892). Translation by the present author.

24. See Henrik Zahle, Dansk fortatningsret (Danish Constitutional Law) 2 (2d ed. 1996) p. 285, citing Mogens Koktvedgaard, Lærebog I immaterialret (3d ed. 1996) 171-72: "Obviously, a little country like Denmark cannot maintain patent principles which differ significantly from those of the main industrial nations" (translation mine). Re the CISG Article 7(1) requirement that Danish and other national courts take account of the international view, see Lookofsky, "At fremme en ensartet anvendelse af CISG," Ugeskrift for Retsvæsen 1996 B 139-40.

25. Within the sales contract context, the term domestic is to be preferred over the term "national" law, because use of the latter term tends to obscure the fact that by the act of CISG ratification in any given country, the "international" (CISG) sales law becomes part of that country's own (national) legal system: see, e.g., Herbert Bernstein & Joseph Lookofsky, Understanding the CISG in Europe (1997), p. 1 with n. 5.

Similarly, within the larger general contract law context, it seems appropriate to compare the UNIDROIT Principles with a given country's domestic contract law. Of course, if a country were to pass national legislation for international commercial contracts based the UNIDROIT model (see the UNIDROIT Preamble), the Principles would become part of that country's own (national) law.

26. See infra, text with nn. 139 and 156.

27. Re the essentially normative nature of 351(3) of the (Second) Restatement of Contracts, see Joseph Lookofsky, Consequential Damages in Comparative Context. From Breach of Promise to Monetary Remedy in the American, Scandinavian and International Law of Contracts and Sales (1989) p. 189 f.

28. Bonell, "Unification of Law by Non-legislative Means," 40 Am. J. Comp. L. 617 (1992).

29. The American Law Institute -- a prestigious organization of lawyers, judges and law teachers.

30. Re the special Working Group which drafted the Principles, see the Introduction to the Principles, p. vii.

31. See generally, Tamm, "The Danes and Their Legal Heritage," in Danish Law in a European Perspective 33 (Dahl, Melchio, Rehof & Tamm ed., (1996).

32. Id.

33. For a concrete example from Danish case law, see Lookofsky, Consequential Damages, supra n. 27, at 192 with reference to Patrick Atiyah, An Introduction to the Law of Contract (1981) at 46.

34. Re this as a synonym of lex mercatoria, see Comment 4(b) to the Principles' Preamble.

35. See, e.g., re American law, Farnsworth, supra n. 8, 7.13.

36. Regarding the precedence which trade custom takes e.g., over the rules set forth in the Danish Sales Act, see 1, para. 1 of the Act and Lookofsky, Køb, supra n. 6, at 15, 20.

37. Accord Jacob Nørager & Søren Theilgaard, Købeloven (1993) at 30.

38. Compare the Preamble to the Principles, fourth sentence.

39. See, e.g., Comment 4(b) to the Principles' Preamble, Lowenfeld, "Lex Mercatoria: an Arbitrator's View," 6 Arbitration International 86 (1988), and Lookofsky, supra n. 12, at 578.

In cases where the relevant Principle reflects a widely known and regularly observed custom or usage, Article 1.8 of the Principles might seem redundant, though not as regards a special usage in a particular trade.

40. See Preamble to the Principles, fourth sentence.

41. Id., third sentence.

42. At least to the extent that the parties have not expressly contracted out of the Principles.

43. See Lookofsky in Ugeskrift for Retsvæsen (1997 B) at p. 254-55 citing, inter alia, the views expressed by Professor Bonell at the 1997 Hague conference "Towards a European Civil Code." See also supra, text with n. 18. Compare Lando, "En europæisk lovgob på formuerettens område," in Julebog 1996 (Copenhagen Business School) pp. 9-21, advocating a Thibault-like solution: the imposition of a European Civil Code from above (fra oven).

44. See supra, text with n. 6.

45. General Reporter's Note, no. 3.

46. The rules on Remedies prove a significant example: not only does the overall remedial matrix of the Principles correspond with that of Danish law, so do the contents of the key individual provisions. See generally Lookofsky, supra n. 27, Part 4 and the text infra with nn. 50-51.

One UNIDROIT Principle clearly at odds with Danish law is Article 2.4: as a starting point, UNIDROIT offers may be revoked prior to acceptance, whereas in Denmark (and elsewhere in Scandinavia), offers are binding as a general rule, but according to the Contracts Act (Aftaleloven), and absent contrary agreement, an offer is automatically binding for a reasonable time. Just as I would recommend that Denmark withdraw its reservation to CISG Part II, so as to bring our sales contract formation rules in line with those of the other (non-Scandinavian) CISG States (see generally Lookofsky, Understanding the CISG, supra n. 6, Ch.3), I find the general UNIDROIT solution preferable, at least in the international context, to that of current Danish law.

47. See the discussion infra comparing 36 of the Contracts Act (the "General Clause").

48. Re limitation of liability for "disproportionate" loss under 24 of the Danish Liability Act, see Lookofsky, supra n. 27, p. 187 ff. and infra, text with note 154. The more traditional UNIDROIT "foreseeability" rule in Article 7.4.4 has a Danish (judge-made) adækvans analog: see Lookofsky, id. at 168 ff.

49. See the discussion infra with nn. 139-56 re the Warehouse Fire case.

50. For a comparison of Scandinavian and American doctrine, see generally Lookofsky, supra n. 27, Part 3 (Excuse) and 4.1 (Remedial Matrix).

51. See Article 7.4.1.

52. See generally Lookofsky, supra n. 27, p. 136 ff. and infra, text with n. 123. Conversely, the UNIDROIT distinction between de moyen and de résultat duties (Article 5.4) confirms that fault-considerations are sometimes relevant even in a no-fault system of law, see Lookofsky, id. at 146.

53. Regarding my preference for the term "domestic", see supra, text with n. 25.

54. See Lookofsky, supra n. 27, at 31.

55. If there were no remedy for breach, the contract could not be called (legally) binding: see Lookofsky, id. Within the UNIDROIT regimes, the remedies are set forth in Articles 7.2.1 ff.

56. See 5-1-1 of the Danish Code (Dansk Lov of 1683). The Danish general rule here applies to virtually all kinds contracts, however classified: commercial and non-commercial, domestic and international, etc.

57. Article 2.17 (Merger clauses) re-sends the message: a clause which states that it contains "the entire agreement between the parties" means what it says (i.e., is binding). Similar signals appear in Article 2.18 (Written modification clauses), Article 5.4 (Duty to achieve a specific result. Duty of best efforts), and Article 6.2.1 (Contract to be observed).

Against this background, one might have expected that the UNIDROIT drafters would acknowledge that a clearly formulated "express condition" is binding (e.g., a clause which entitles buyer to terminate upon seller's failure to give notice of the port of shipment on the contractually specified date), but the wording of Article 7.3.1(b) -- and the Comment thereto -- seems to treat what the parties have actually agreed as but one "factor" (among many) in the "fundamental breach" equation.

58. Farnsworth, supra n. 8, at 12.

59. Which the Principles label "threat" (Art. 3.9). For a Common lawyer, the term is "duress."

60. Article 3.8.

61. See Article 3.16. The fact that the Principles reserve the term "avoidance" for this validity context represents a terminological improvement over the CISG: see Lookofsky, supra n. 27, at 121.

62. Lookofsky, supra n. 27, at 33.

63. Those provisions in the Principles which are mandatory are usually (though not always) expressly indicated as such. See Comment 3 to Art. 1.5.

64. See supra text with n. 25.

65. See Article 1.4.

66. Compare U. Drobnig, enumerating four different types of causes of "Substantive Validity," 40 Am. J. of Comp. L., 635, 637 (1992). Compare also the UNIDROIT validity matrix set forth by Bonell, "Policing the International Commercial Contract Against Unfairness," 3 Tul. J. Int'l & Comp. L. 73 (1995). Unlike Professor Bonell (id. at 78), I prefer to categorize Article 2.20 as a rule which polices substantive (not procedural) unfairness; while Bonell (id. at 81) includes in his analysis the Article 1.8(2) rule on Usages, my list includes only limits on the parties' contractual freedom; finally, unlike Bonell, I include the Hardship rule in my analysis, as this limitation is within the ambit of our General Clause. See also infra, text with notes 87-88 and 112-116.

67. Thus, a contract or term will not bind (be enforced) if enforcement to the letter would condone one party's bad faith: see Art. 1.7 (Good faith and fair dealing), expressly deemed mandatory by para. (2).

Example: the offeror, as the master of the offer, is free to fix the time-period for acceptance at 48 hours but he must then ensure that he can receive the offeree's acceptance during the entire 48 hour period. Art. 1.7 of the Principles, Illustration 1.

68. Or non-disclosure: see Article 3.8 and the discussion infra.

69. Re threat (duress) see Article 3.9.

70. In the case of mistake under UNIDROIT, the parties can contract out: see Article 3.5 and the discussion infra.

71. See Art. 2.20 and the discussion infra.

72. See Article 7.1.6 and the discussion infra.

73. See Article 7.4.13 and the discussion infra.

74. See Article 3.10 and the discussion infra.

75. See Article 6.2.3 and the discussion infra.

76. Chapter 3. Accord: Drobnig, supra n. 66, at 640 (re the "fairly classical" provisions on defects of consent) and Bonell, supra n. 66, at 74-75.

77. Article 2.20 (Surprising terms) is in Chapter 2: Formation; Article 3.10 (Gross disparity) is in Chapter 3: Validity; Article 6.2.3 (Effects of hardship) is in Chapter 6: Performance; and Articles 7.1.6 (Exemption clauses) and 7.4.13 (Agreed payment for non-performance) are both found in Chapter 7: Non-Performance.

78. See generally discussion infra and compare the view of Professor Bonell, supra n. 66.

79. See 28 and 29 (threat/duress), 30 (fraud), 32 (mistake). The three rules, as originally drafted, still apply under the current version of the Act, as most recently amended in 1995.

80. For a comparison of the rules regulating economic duress (threats to terminate or not perform) under American and Scandinavian law, see Lookofsky, supra n. 27, at 34-35.

81. See, e.g., Illustration 1 of UNIDROIT Art. 3.5 (contract for the sale of a car which neither party knew had in the meantime been stolen).

82. See Lynge Andersen, Madsen & Nørgaard, Aftaler og mellemmænd 189 (1997).

83. See e.g., Farnsworth, supra n. 8, 4-10 - 4-15.

84. I.e., cases where the party seeking to avoid the contract cannot prove that the other party's misrepresentation was made with intent to deceive.

85. These Danish criteria accord essentially with the American rules: see sources cited supra in nn. 82-83.

86. See Articles 3.7, 3.18 and 7.1.6 and compare generally Lookofsky, "Loose Ends and Contorts in International Sales: Problems in the Harmonization of Private Law Rules,""39 Am. J. Comp. L. 403, 407 (1991).

As regards the measure of damages in the case of a mistake such as that described in the Illustration to Article 3.18, the UNIDROIT drafters might want to elaborate a bit: for if B justifiably relies on A's skill and judgment in selecting the software, I would assume that B can claim full expectation damages for breach if the software proves inappropriate. In such case, even if the software contract is covered by the Principles, e.g., by reason of the parties' contracting in, the court or arbitrator would do well to look to the general principle expressed in Article 35(2)(b) of the CISG. Indeed, if this is an international sale of software between parties residing in CISG States, the problems of conformity (fitness-for-purpose) and damages for breach would -- absent contrary agreement -- be directly regulated by the CISG, see Bernstein & Lookofsky, supra n. 25, 2.5.

87. In most of these cases, to deny enforcement means that the objectionable term can be ignored, as if it did not exist; in the case of Hardship, the (unenforceable) contract can be modified so a reasonable balance between the parties is restored.

88. Note that although Art. 2.20 is located in the chapter on contract "Formation," the rule is formulated so as to deny effect to the individual ("unexpected" and thus unreasonable) standard term. See also text infra with n. 105.

89. See Article 7.1.6 and the discussion infra. The fact that exemption clauses are valid "as a rule" (Drobnig, supra n. 66, at 642) does not change the fact that a grossly unreasonable exemption clause is invalid (does not bind).

90. See Article 7.4.13 and the discussion infra.

91. See Article 3.10(1) and the discussion infra.

92. See Article 6.2.3 and the discussion infra, text following n. 110.

93. See supra, text with n. 78.

94. Discussed immediately below.

95. This is my translation of the revised rule which took effect in 1995. Compare my translation of the 1975-version of 36 in Consequential Damages (supra n. 27) at 36.

96. See Stig Jørgensen, Foreløbig redegørelse om formuerettens generalklausuler (1974) at 20 and P.B. Madsen in Scandinavian Studies in Law (1984) at 90.

97. See the following Danish cases reported in Ugeskrift for Retsvæsen: 1978.678 B, 1979.931 Ø, 1981.870 V, 1987.526 H, 1987.531 H, 1988.1036 H and 1988.1041 H. Re these cases and similar commercial applications of the General Clause by other Scandinavian courts, see Andersen, Madsen & Nørgaard, supra n. 82, s. 237-42.

98. In Danish: konventionalbod (previously regulated by the original 36). We do not make the Common law distinction between penalties and liquidated damages, but -- now, by reason of the new 36 -- only a reasonable konventionalbod is binding.

99. Previously regulated by 37 of the Contracts Act (now repealed).

100. See (re Swedish law) Grönfors, Aftalslagen (1995) p. 227 and (re Danish law) Lynge Anderson, Madsen & Nørgaard, supra n. 82, p. 232.

101. Which gave Danish courts the power to amend, not just set aside, unreasonable contracts -- a power already provided in the corresponding Finnish, Norwegian and Swedish Contracts Acts.

102. Accord Lynge Anderson, Madsen & Nørgaard, supra n. 82, p. 234. For a most eloquent exposition of the English assault, see Lord Denning MR in George Mitchell v. Finney Lock Seeds [1983] 1 All ER 111 (idol of freedom of contract shattered by the Unfair Contract Terms Act 1977).

103. The explanation for the hybrid (Gross disparity) label is found in the UNIDROIT legislative history of Article 3.10, in that the rule represents a compromise between two prior draft provisions ("Unequal Bargaining Power" and "Gross Unfairness") designed to deal separately with the conceptual categories of procedural and substantive unconscionability: see Bonell, supra n. 66, at 85-87. See also the following note.

104. Since "gross disparity" of bargaining power tends to signal (not substantive, but) procedural unconscionability (see, e.g., Farnsworth, supra n. 8, 4.28), I would respectfully suggest that Article 3.10 be re-labeled.

105. A Principle which, in my view, is ultimately directed at the content (fairness in context) of the surprising term; see supra, nn. 66 and 88, and infra re the Danish Warehouse Fire case.

106. As previously noted (text supra with note 98), the General Clause replaced some specific provisions corresponding to certain individual UNIDROIT Principles. In Denmark, apart from the EU Directive on Unfair Contract Terms, we do not have -- and see no need for -- specific legislation designed to regulate standard terms of agreement. Re the application of German domestic legislation to standard terms in international sales, see Bernstein & Lookofsky, supra 25, 7.2, and text infra n. 144.

107. See supra, text with nn. 19-25.

108. See Andersen, supra n. 6, at 332, citing, inter alia, the UNIDROIT Principles as authority for the application of a reasonableness-test to exemption clauses in contracts between merchants.

109. Beyond this, we might also cite the Principles as outside support for another proposition: that, even as between merchants, 36 of the Danish Contracts Act may be applied as an internationally mandatory rule, i.e., "such that the rule must be applied whatever the law applicable to the contract" -- in a international commercial context, at least to the extent that the scope of 36 and the corresponding five individual UNIDROIT validity-elements (supra nn. 71-75) coincide.

Re internationally mandatory (overriding) rules under the 1980 Rome Convention on the Law Applicable in Contractual Matters see e.g., Lookofsky, supra n. 11, pp. 77-79; Allan Philip, EU-IP (1994) p. 180 f; and Jonathan Hill, The Law Relating to International Commercial Disputes (London 1994) para. 11.3.3.

110. For a situation suited to application of Art. 2.20, see text infra with n. 139 (Warehouse Fire).

111. Article 6.2.3. See generally Maskow, "Hardship and Force Majeure," 40 Am. J. Comp. L. 657 (1992).

112. For, on this point, the Principles can hardly be described as a Restatement, at least not a Restatement of generally accepted principles of law. Compare Professor Calamari's exposition of Italian law in "Hardship and its Impact on Contractual Obligations: A Comparative Analysis," 20 Saggi Conferenze E Seminari, Rome (1996). Compare also Perillo, "Force Majeure and Hardship Under the UNIDROIT Principles of International Commercial Contracts," 5 Tul. J. Int'l & Comp. L. 5, 9-10 (1997).

113. E.g., in cases like that suggested in Illustration 1 to UNIDROIT Art. 6.2.3.

114. At least as things now stand in Denmark, we do not interpret 36 as amending the economic force majeure threshold otherwise applicable between merchants and codified in 24 of our Sale of Goods Act (Købeloiven). See Gomard, Almindelig kontraktsret (2d ed. 1996) p. 186.

115. But see Perillo, supra n. 112, at 11.

116. See Bernstein, "Merchant Law in a Merchant Court: Re-Thinking the Code's Search for Imminent Business Norms," 144 U. Pa. L. Rev. 1765, 1796 (1996): "In the grain and feed industry, when disputes arise between merchandisers with a long-standing trading relationship, they will ordinarily just "split the difference" in an effort not to damage their relationship. This is an example of a relationship-preserving . . . norm. NGFA [grain and feed] arbitrators, however, rarely "split the difference."

117. Based on the Danish Supreme Court decision reported in Ugeskrift for Retsvæsen 1986.654 H.

118. Compare Ugeskrit for Retsvæsen 1987 at 655 (leveringstid: senest den 4. januar 1978) and 656 (påtegning: garanteret leveret senest den 4. januar).

119. In Ugeskrit for Retsvæsen 1986.654 H, the standard terms referred to were those in the 1970 version of Nordiske Leveringsbetingelser NL 70.

120. Both B and S have their places of business in Denmark, the contract is to be performed in Denmark, etc. Even today, i.e., now that Denmark is a CISG State, the fact that B's ultimate objective is to sell his product in England would not affect the applicability of the Danish Sales Act (Købeloven) to this sale.

121. Like the Danish Sales Act, the Vienna Sales Convention is generally "not concerned" with validity. See CISG Article 4 and Lookofsky, Understanding the CISG, supra n. 6, 3-10.

122. See UNIDROIT Articles 7.4.1 and 7.4.4. Regarding the basis and measure of CISG liability, see Lookofsky, id., 6-14 and 6-15.

123. See (re generic obligations) Lookofsky, supra n. 27, at 142-45 and (re adequate loss) id. at 150-53.

124. Finland, Norway and Sweden.

125. This statutory innovation which in the view of at lest one foreign observer seemed doomed from the start (see Lookofsky, supra note 27, at 195-203) has recently been judged a "Catch 22"-failure in those countries where the rule has been applied: see Sandvik, "Direkt- och indirekt förlust enlight "moment 22" I köprätten," JFT (1997) 256.

126. See supra, text with n. 95.

127. See Lookofsky, Køb, supra n. 6, Chapter 9 and Andersen, supra n. 6, at 271 and 324. For a similar analysis in English, see Lookofsky, Understanding the CISG, supra n. 6, Chapter 7.

128. Compare UNIDROIT Articles 2.20.22. Re the "Battle of Forms" in Danish law, see Lando in Ugeskrift for Retsvæsen 1988 B p. 1.

129. Accord Bernhard Gomard, Obligationsret 2. Del (1995) p. 226 f and Lookofsky, Køb (supra n. 6) at 169. See also (for English law) G.H. Treitel, The Law of Contract (8th ed. 1991) s. 225: "Unreasonableness . . . can certainly be relevant to the process of incorporation of a clause in a contract, in the sense that the degree of notice required for this purpose increases in proportion to the unusualness of the clause."

130. The basic concept here seems very similar to the aforementioned UNIDROIT (Article 2.20) approach. Regarding the application of the German ABGB 3 in an international (CISG) contract context, see Bernstein & Lookofsky, supra n. 25, 7-2 with notes 25-26. See also Lookofsky, Køb (id.), section 9.2, arguing that the standard terms conditions (Nordiske leveringsbetingelser) often used by Scandinavian sellers of machinery and plant equipment do not have the character of a reasonably balanced "agreed document."

131. The UNIDROIT Principle codified in Article 4.6 has long been well-established in Danish judge-made law. The new rule in 38(b) of the Contracts Act is intended to effectuate (part of) the EU Directive on Unfair Contracts Terms: see Andersen, supra n. 6, at 257.

132. Accord: UNIDROIT Article 2.21.

133. On this point, the American label fits the corresponding Danish conception like a glove: see Lookofsky, supra n. 27, at 204-05.

134. Id.

135. Id. at 223-24.

136. See Ugeskrift for Retsvæsen 1986 at 660 (det fra sagsøgerens side var klart tilkendegivet, at sagsøgeren lagde afgørende vægt på levering tidligt I 1978, og dette blev ganske sæligt fremhævet ved [sagsøgtes] erklæringen af 16. november) (emphasis added by present writer).

137. Id. at 660 and 661.

138. See Ugeskrift for Retsvæsen 1986 High Court decision at 660-61 (for det første usikkert, om de kan anses for vedtaget . . . heller ikke [fremdraget] ved en henvisning . . . ikke godtgjort, at [NL 70] betingelser var almindeligt anvendte ved levering af værktøjer til sprøjtestøbning) and the Supreme Court holding at 661 (ansvarsfras-krivelse . . . ikke . . . omtalt under salgsforhandlingerne og ikke . . . indstævnte bekendt).

139. Based on the Danish Supreme Court decision reported in Ugeskrift for Retsvæsen 1995.856 H. The actual case also involved claims against the bailee (W) by several Danish bailors. See also Lookofsky, Køb (supra n. 6) at 168 and Andersen, supra n. 6, at 275 f. For present purposes, I have chosen a more narrow paradigm to focus on the international contract concerned.

140. As indicated infra, these English-language footnotes came to play a key role in the real Warehouse Fire case, notwithstanding the fact that these very fine print references were contained in unrelated correspondence (concerning W's price increases).

141. In the real case (id.), the destroyed goods (owned by O and other plaintiffs) were valued at 80 million Crowns (Dkr.). W was insured for 2 million Dkr. in this regard.

142. Re the significant (general obligation) exception to the fault-liability rule, see supra with n. 123.

143. See Gomard, supra n. 129, at 165-66.

144. See the decision of the German Bundesgerichtshof (BGH) of 7 February, 1964, BGHZ 41, 151, translated in R. Schlesinger et al., Comparative Law (5th ed. 1988) at 718 ff. The BGH has subsequently re-affirmed its 1964 holding: see, for example, BGH, 24 June 1987, BGHZ 101, 172, 184; BGH, 13 March 1996, NJW 1996, 1537, 1538. A clause in a standard form purporting to re-allocate the (reversed) burden of proof is invalid, even in a form contract between merchants, by virtue of 24 and 9 of the AGBG; see Bernstein & Lookofsky, supra n. 25, p. 135 with n. 56.

See also Treitel, supra n. 129, p. 222: "the bailee will generally be in a better position than the bailor to know how the goods were lost; and . . . the bailor should not have the burden of proving facts peculiarly accessible to the other party."

Article 5(1) of the United Nations Convention on the Liability of Operators of Transport Terminals in International Trade (1991) provides: "The operator is liable for loss resulting from loss of or damage to the goods, as well as from delay in handing over the goods, if the occurrence which caused the loss, damage or delay took place during the period of the operator's responsibility for the goods as defined in Article 3, unless he proves that he, his servants or agents or other persons of whose services the operator makes use for the performance of the transport-related services took all measures that could reasonably be required to avoid the occurrence and its consequences."

145. Prior to the decision in Warehouse Fire, supra n. 139, most authorities interpreted the NSAB bailment provisions as imposing a direct (ligefrem) burden of proof upon the owner (bailor). This was confirmed in the Court's decision, noted infra.

146. See the discussion of techniques used in connection with the Beauty Box case, text supra with nn. 127-132.

147. See supra with n. 129 and Anderson, Madsen & Nørgaard, supra n. 81, at 80.

148. This was the Supreme Court's holding as regards other, inter-Nordic bailment contracts at issue in the real Warehouse Fire dispute, see supra n. 139 and Ugeskrift for Retsvæsen 1995 at 874.

149. At least some Scandinavian standard terms seem to overly favor the interests of the supplier of goods and services; see Lookofsky, supra n. 27, at 214-15 and Køb (supra n. 6) at 170-71.

150. This was indeed the effect of the holding in the real case, supra n. 139, though the Court phrased its reasoning in more complex terms.

151. See Lynge Anderson, Madsen & Nørgaard, supra n. 82, at 81 (criticizing the decision reported in Ugeskrift for Retsvæsen 1980.96 H).

152. See text supra with n. 33.

153. See text supra with nn. 146-147.

154. The Danish High Court (Landsretten), the court of first instance in the real Warehouse Fire case, held W liable for O's loss and refused to apply 24 of the Danish Liability Act -- a rule which could have been applied so as to reduce or eliminate the liability imposed. The Supreme Court, which held O not liable, did not need to rule on this point.

Designed to prevent compensation for "disproportionate" loss, 24 provides: "Liability may be reduced or eliminated when the imposition of same would be unreasonably burdensome or when other exceptional circumstances make such reduction or elimination reasonable. In making this decision attention shall be given to the extent of the injury, the nature of the liability, the injuring party's situation, the injured party's interests, existing insurance, and other circumstances" (translation and emphasis mine).

The same principle has been applied in other commercial settings, inter alia, so as to reduce or eliminate damages otherwise payable for breach. See, e.g., Ugeskrift for Retsvæsen 1995.602 V. For a description of the case reported in Ugeskrift for Retsvæsen 1984.23 H see Lookofsky, supra n. 27, at 193 ff.

155. Note that the real Warehouse Fire case (supra n. 139) was decided by Vestre Landsret (the Western High Court of Denmark) and appealed to Højesteret (the Supreme Court) in February 1993, i.e., well before the publication of the UNIDROIT Principles.

Regarding the use of the Principles as a source of judge-made domestic law, see generally supra, Part 1 of this Report.

156. See text supra with nn. 87-88. It would seem that under this (Art. 2.20) UNIDROIT Principle, the NSAB risk allocation would not be effective as against the Swiss party, since this particular "surprising" and burdensome term had not been "expressly accepted" by the bailor (O).

Note that the Danish Maritime and Commercial Court has more recently refused to give a forum clause contained in a Danish seller's standard terms effect, precisely because the content of that clause was deemed suprising and burdensome vis-à-vis the Danish buyer: the clause would have made Germany (domicile of the seller's seller) the exclusive forum for the resolution of disputes arising under the (Danish) parties' agreement. See the decision in Ugeskrift for Retsvæsen 1998, at 728.

157. See supra, text with n. 6.


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