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GUIDE TO ARTICLE 6

Comparison with Principles of European Contract Law (PECL)


Match-up of CISG Article 6 with PECL Articles 1:102 and 1:103
CISG Article 6

The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.
PECL Article 1:102 [Freedom of Contract]
(complete and revised version 1998)

(1) Parties are free to enter into a contract and to determine its contents, subject to the requirements of good faith and fair dealing, and the mandatory rules established by these Principles.

(2) The parties may exclude the application of any of the Principles or derogate from or vary their effects, except as otherwise provided by these Principles.

PECL Article 1:103 [Mandatory Law]

(1) Where the law otherwise applicable so allows, the parties may choose to have their contract governed by the Principles, with the effect that national mandatory rules are not applicable.

(2) Effect should nevertheless be given to those mandatory rules of national, supranational and international law which, according to the relevant rules of private international law, are applicable irrespective of the law governing the contract.


Editorial remarks

Freedom of contract: Comparison between provisions of the CISG (Article 6) and counterpart provisions of the Principles of European Contract Law

Ulrich G. Schroeter [*]
July 2002

1. Introduction
2. Freedom of Contract under the CISG and PECL
3. Restrictions to the parties' freedom of contract under the CISG and PECL

3.1 Good faith and fair dealing
3.2 Mandatory rules established by the CISG and PECL themselves
3.3 Mandatory rules of national, supranational and international law
4. Restrictions to the parties' freedom of contract in cases where CISG applies solely because of the parties' choice ("opting in)
5. Conclusions

1. Introduction

CISG Article 6 lays down the general rule that the Convention applies to international contracts of sale of goods, subject to a contrary agreement by the parties. Its counterparts in PECL Articles 1:102 and 1:103 likewise address the principle of freedom of contract and its limitations, but differ from CISG Article 6 in a number of respects. These differences primarily follow from the different legal nature of the two sets of rules -- while the CISG in its Contracting States forms part of the substantive law that the courts have to apply (lex fori), the applicability of the PECL in general requires an agreement of the parties that submits their contract to the Principles (PECL 1:101) -- but also reflect the different approaches that the drafters of the CISG and the PECL have adopted with respect to the limitations to the freedom of contract, in particular those limitations arising from so-called mandatory rules of law. As a consequence, the use of PECL Articles 1:102 and 1:103 as an aid to interpret CISG Article 6 is subject to a number of important caveats discussed below. [page 257][*]

2. Freedom of contract under the CISG and the PECL

The principle of freedom of contract, one of the basic principles underlying the international law of contracts in general, has been recognized by both the drafters of the CISG and of the PECL. The wording of CISG Article 6 and PECL Article 1:102(2) is in fact quite similar, and the prominent position of both provisions among the first articles in the Convention and the PECL illustrate the important role of the parties' autonomy.[1]

Articles 1:101(2), (3) and 1:103(1) PECL additionally address a somewhat related issue: the choice of the PECL as the law applicable to the contract. This issue concerns the applicability of the respective set of rules. The question of applicability may also arise under the CISG, albeit in different form: While the PECL are only applicable where the parties have chosen the Principles and the law otherwise applicable allows such a choice, the Convention is applicable as a matter of law whenever the prerequisites of CISG Article 1(1)(a), (b) are fulfilled (and none of the exceptions in CISG Articles 2-5 applies).[2] The parties' choice of the CISG as the law applicable to their contract will therefore lead to the Convention's applicability under CISG Article 1(1)(b) if the rules of private international law of the forum (being situated in a Contracting State) accept the principle of party autonomy,[3] as it will under the private international law rules of most non-Contracting States.[4] [page 258] On the contrary, under CISG Article 1(1)(a), which covers cases where both parties have their places of business in different Contracting States (statistically by far the most important group of CISG contracts), any agreement of the parties or any other indication that the parties were even aware of the CISG's applicability is unnecessary [5] -- the Convention is, unlike the PECL, not merely a model law or Restatement of principles of contract law, but is applicable by law whenever the parties have not excluded its application (so-called "opting out").[6]

3. Restrictions to the parties' freedom of contract under the CISG and the PECL

More important differences exist with respect to the restrictions to which the CISG and the PECL submit the parties' freedom to exclude the respective set of rules [page 259] and modify the effect of their provisions. The Principles list three different categories of restrictions:

3.1 Good faith and fair dealing

According to PECL Article 1:102(1), the parties may determine the contents of their contract "subject to the requirements of good faith and fair dealing." CISG Article 6 does not contain a similar limitation to the freedom of contract. During the 1980 Vienna Diplomatic Conference, a proposal to add a second sentence to the wording of CISG Article 6 stating that "the obligations of good faith, diligence and reasonable care prescribed by this Convention may not be excluded by agreement" was rejected by a substantial majority.[7]

However, the principles of good faith and fair dealing may under certain circumstances also affect the content of CISG contracts: This may, on one hand, be the case where, according to the applicable national law, the validity of the contract or of any of its provisions (CISG Article 4(a)) is subject to these principles. On the other hand, a number of commentators hold that CISG Article 7 similarly requires that the principles of good faith and fair dealing are to be taken into account when determining the parties' rights and obligations under the contract, although this interpretation is subject to dispute.[8]

3.2 Mandatory rules established by the CISG/PECL themselves

Secondly, PECL Article 1:102(1) and (2) subjects the freedom of contract to the mandatory rules established by these Principles. Such rules of mandatory nature are contained in PECL Articles 4:118 (limiting the exclusion or restriction of remedies for fraud, threats, excessive benefit or unfair advantage-taking, mistake [page 260] and incorrect information), 6:105 (dealing with the determination of the price and other contractual terms where it is to be determined by one party and that party's determination is grossly unreasonable) and 8:109 (declaring the exclusion or restriction of remedies for non-performance inadmissible when it would be contrary to good faith and fair dealing to invoke that restriction).

CISG Article 6, on the contrary, names CISG Article 12 as the one provision in the Convention that the parties may not derogate from, thus making Article 12 the only mandatory rule in the CISG.[9] Although some commentators have suggested that other provisions in the Convention (such as Articles 4,[10] 7,[11] 28,[12] 89 et seq.[13]) are also mandatory despite not being mentioned in CISG Article 6, it is submitted that none of these articles restrict the parties' freedom of contract.[14] [page 261]

Thus, the principle of contractual freedom in the Convention goes beyond its counterpart provision in the PECL. The absence of limitations similar to the mandatory PECL rules mentioned above should not come as a surprise as the Convention's scope is restricted to transactions and issues which, within the various domestic laws, are traditionally governed by provisions of a non-mandatory character,[15] while the PECL additionally deal, inter alia, with questions of contractual validity and are also intended to apply to contracts involving consumers.[16]

3.3 Mandatory rules of national, supranational and international law

The third and last category of restrictions to the freedom of contract under the PECL covers the mandatory rules of national, supranational and international law (PECL Article 1:103(1), (2)). According to PECL Article 1:103(1), national mandatory rules are applicable if the law otherwise applicable does not allow their exclusion by way of choice by the parties, and PECL Article 1:103(2) requires courts and arbitrators to give effect to mandatory rules of national, supranational and international law which are applicable irrespective of the law governing the contract (mandatory rules carried by a strong public policy, so-called "directly [page 262] applicable rules" or règles d'application immédiate). The Principles thus demand that, when applying the law, a distinction is drawn between rules of mandatory and non-mandatory nature, between mandatory rules of national, supranational and international law and between "ordinary" mandatory rules and règles d'application immédiate -- decisions that can be difficult to make and will accordingly be often unforeseeable for the parties.[17]

Under the CISG, the situation is different: As far as matters governed by the Convention - either by way of an express provision or by way of its general principles identified in accordance with CISG Article 7(2) -- are concerned, no mandatory rule of national, supranational and international law may be applied.[18] This follows from the fact that the Contracting States have accepted an obligation under public international law to apply the Convention instead of any other legal rule wherever the Convention provides uniform rules.[19] Thus, provisions outside the CISG are -- irrespective of their mandatory or non-mandatory nature -- superseded if their subject matter is already covered by the Convention.

As not all matters which are potentially relevant to international sales contracts are governed by the Convention, mandatory rules of national, supranational and international law are to be given effect whenever a matter is outside the CISG's scope. In this respect, difficult questions may arise under CISG Article 4(a), which stipulates that "except as otherwise expressly provided in this Convention, it is not concerned with [...] the validity of the contract or of any of its provisions or of any usage". This provision seems to leave ample room for the application of mandatory rules that deal with questions of validity. However, CISG Article 4(a) sets out an important -- and often overlooked -- additional condition by requiring courts and arbitrators to establish in advance that the Convention is not itself concerned with the validity question regulated by the otherwise applicable mandatory provision. Accordingly, not all rules of national, supranational or international law [page 263] prescribing that a contract or one of its clauses is void or invalid are applicable to CISG contracts by virtue of CISG Article 4(a).[20]

Under CISG Article 4(a), it has thus to be taken into account not only whether the national provision has an effect on the validity of certain clauses in a CISG contract, but also why the national law imposes the sanction of invalidity. As a result, for instance, the doctrine on vices cachés under French law is inapplicable to CISG contracts although it addresses the validity of contractual clauses limiting the seller's liability as it does so by defining rules on the lack of conformity of the goods on which the Convention itself contains an exhaustive regulation.[21] The same applies to the Common Law validity doctrine of consideration, which conflicts with the express language of CISG Article 29(1).[22] Both examples are indications of one of the Convention's main contributions to the modern law for international sales which has been described by Ernst Rabel as "avoiding the awesome relics of the dead past that populate in amazing multitude" the national sales laws.[23] Other national mandatory rules remain applicable under CISG Article 4(a), but only under the condition that the CISG's provisions and fundamental principles are taken into account when they are applied to a CISG contract: If, for example, the national law declares clauses in general business terms invalid if they are incompatible with the [page 264] essential principles of the rules from which the parties are derogating,[24] the relevant essential principles are those of the Convention.[25]

4. Restrictions to the parties' freedom of contract in cases where the CISG applies solely because of the parties' choice ("opting in")

The limited relevance of mandatory rules of national, supranational or international law for CISG contracts that has been outlined above (see 3c, supra), however only extends to international contracts of sale to which the Convention applies by virtue of CISG Articles 1-5. The legal situation is different where the parties have chosen the Convention's rules when the CISG would otherwise not be applicable: Nothing in the CISG precludes such a contractual agreement leading to the applicability of the Convention (so-called "opting in").[26] It can be useful when two parties from non-Contracting States fail to reach agreement on which national law should govern their contract,[27] where "string contracts" or "chain transactions" are at stake which involve parties from CISG Contracting States and from non-Contracting States alike and which may therefore be only partially subject to the Convention, if no explicit choice in favor of the CISG is made,[28] and may be inserted into [page 265] distribution contracts or other frame contracts applying to sales to international and domestic customers alike.[29]

Thus, whenever the CISG applies solely because of the parties' choice and without the requirements of CISG Articles 1-5 having been met, mandatory rules of national, supranational or international law remain relevant and need to be applied by courts and arbitrators,[30] as in these cases the CISG resembles the PECL and other Restatements.[31] Accordingly, in such a setting, PECL Article 1:103 may be used as an aid in interpreting or supplementing the CISG.

5. Conclusions

While the parties' freedom of contract plays a very important role within both the CISG and the PECL, the two instruments are marked by a number of important differences that concern the legal restrictions to the parties' autonomy. The legal nature of the CISG as an international convention has allowed its drafters to go beyond the limits laid down in PECL Articles 1:102 and 1:103.[32] The specific scope of the freedom of contract under CISG Article 6 therefore makes it difficult to use the PECL as an aid to the interpretation of the said CISG provision. [page 266]

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 261-268.]


FOOTNOTES

* The author is a member of the Graduiertenkolleg "Europäisches Privat- und Wirtschaftsrecht" at the Humboldt-University in Berlin.

This comparative is also published at 6 Vindobona Journal of International Commercial Law and Arbitration (2002-2) 257-266. Pagination to that publication is provided to facilitate citation to the Vindobona text.

1. Cf. Michael Joachim Bonell, Article 6, in Commentary on International Sales Law, no. 1.2 (Cesare Massimo Bianca & Michael Joachim Bonell eds., 1987): "the prevailing view in UNCITRAL was in favour of the widest possible recognition of the parties' autonomy;" Kurt Siehr, Artikel 6, in Kommentar zum UN-Kaufrecht, no. 1 (Heinrich Honsell ed., 1997): the drafters of the CISG wanted to grant the parties a wide discretion in drafting their contract; see also Landgericht [Regional Court] Stendal, Germany, 12 October 2000, Internationales Handelsrecht 2001, at 32, where the court stated that CISG Art. 6 affirms the principle of party autonomy; for English translation of the text of this case, go to <http://cisgw3.law.pace.edu/cases/001012g1.html>.

2. For agreements to apply the Convention to transactions that fall outside the scope of CISG Articles 1-5, see 4, infra.

3. In practice, contractual choice of law clauses usually do not point to the Convention as such, but rather to the law of a certain State: If this State happens to be a Contracting State, the CISG will generally apply, as it forms part of the legal system of each Contracting State: see relevant case law, e.g.:

Bundesgerichtshof, [Federal Supreme Court] Germany 23 July 1997, Neue Juristische Wochenschrift (1997) 3309, at 3310 [Case presentation in English available at <http://cisgw3.law.pace.edu/cases/970723g1.html>]; Oberster Gerichtshof, [Supreme Court] Austria 22 October 2001, 1 Ob 77/01[English translation available at <http://cisgw3.law.pace.edu/cases/011022a3.html>]; U.S. Federal District Court [New York], 26 March 2002 (St. Paul Insurance Company et al. v. Neuromed Medical Systems & Support et al.), available on-line at <http://cisgw3.law.pace.edu/cases/020326u1.html >, where the court stated:

"The parties concede that pursuant to German law, the U.N. Convention on Contracts for the International Sale of Goods ("CISG") governs this transaction because (1) both the U.S. and Germany are Contracting States to that Convention, and (2) neither party chose, by express provision in the contract, to opt-out of the application of the CISG. The CISG aims to bring uniformity to international business transactions, using simple, non-nation specific language. To that end, it is comprised of rules applicable to the conclusion of contracts of sale of international goods. In its application regard is to be paid to comity and interpretations grounded in its underlying principles rather than in specific national conventions. See CISG art. 7(1), (2). Germany has been a Contracting State since 1991, and the CISG is an integral part of German law. Where parties, as here, designate a choice of law clause in their contract -- selecting the law of a Contracting State without expressly excluding application of the CISG -- German courts uphold application of the Convention as the law of the designated Contracting state. To hold otherwise would undermine the objectives of the Convention which Germany has agreed to uphold." [citations omitted]

See also Franco Ferrari, Artikel 6, in Kommentar zum Einheitlichen UN-Kaufrecht, no. 22 (Peter Schlechtriem ed., 3rd ed. 2000, with numerous references to international case law).

Whether an "isolated" choice of the CISG as the law applicable to the contract is valid and effective depends on the relevant conflict of law rule. Under the EC Convention of the Law Applicable to Contractual Obligations (Rome, 19 June 1980), this question is heavily disputed; cf. Kurt Siehr, Der internationale Anwendungsbereich des UN-Kaufrechts, 52 Rabels Zeitschrift für ausländisches und internationales Privatrecht (1988), at 612. See also John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, no. 83 (3rd ed. 1999) who argues that full effect should be given to the parties' agreement to apply the Convention.

4. In States that have not ratified the Convention, the courts do not apply CISG Article 1(1)(b) -- which, for lack of ratification, does not form part of the lex fori -- but look to the national private international law rules. Cf. C.J.G. Morse, Conflict of Laws, in Benjamin's Sale of Goods, no. 25-025 (Anthony Gordon Guest ed., 5th ed. 1997): "It is therefore possible that a United Kingdom court may have to apply the Vienna Convention on the International Sale of Goods 1980, if the law applicable under the Rome Convention is found to be the law of a country which is a party to that Convention and that country would regard that Convention as applicable." A choice of law clause will thus for all practical purposes yield identical results in Contracting States and non-Contracting States.

5. Alfonso-Luis Calvo Caravaca, Articulo 6, in La Compraventa Internacional de Mercaderias: Comentario de la Convencion de Viena, at 100 (Luis Díez-Picazo y Ponce de León ed., 1998); Ferrari, supra note 3, no. 23; Burghard Piltz, Internationales Kaufrecht (1993), § 2 no. 108.

6. Ferrari, supra note 3, no. 6; Ulrich Magnus, Artikel 6, in Julius von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Wiener UN-Kaufrecht (CISG) (1999), no. 2.

7. The Canadian proposal (A/CONF.97/C.1/L.10) as orally amended aimed at revising the draft of CISG Article 6 to read as follows: "The parties may exclude the application of this Convention or, subject to Article 11 [became CISG Article 12], derogate from or vary the effect of any of its provisions. However, except where the parties have wholly excluded this Convention, the obligations of good faith, diligence and reasonable care prescribed by this Convention may not be excluded by agreement." See U.N. Official Records (1981), p. 86.

CISG Art. 6 thus goes beyond the language of the Uniform Commercial Code § 1-102(3) which contains a restriction similar to the one mentioned above, cf. E. Allan Farnsworth, Review of Standard Forms or Terms Under the Vienna Convention, 21 Cornell International Law Journal (1988) 439, at 441 note 8 [available on-line at <http://cisgw3.law.pace.edu/cisg/biblio/farns1.html>].

8. To the present writer, this interpretation of CISG Article 7 seems doubtful. In this respect, see John Felemegas, Editorial remarks on CISG Article 7, available on-line at <http://cisgw3.law.pace.edu/cisg/text/e-text-07.html>.

9. Rolf Herber, Artikel 6, in Commentary on the UN Convention on the International Sale of Goods, no. 5 (Peter Schlechtriem ed., 1998); Vincent Heuzé, La vente internationale de marchandises (1992), no. 97; Honnold, supra note 3, no. 74; Helga Rudolph, Kaufrecht der Export- und Importverträge (1996), Art. 6 no. 1; Siehr, supra note 1, no. 11.

10. Bonell, supra note 1, no. 3.4.

11. Bonell, supra note 1, Article 7, no. 3.3, who argues that "any legislation has to be interpreted in accordance with the criteria specifically laid down in it or generally adopted within the legal system from which it emanates." This approach accepts that the parties to an international sales contract are free to choose between the application of CISG and the application of a particular domestic law, but insists that once the contracting parties have accepted that their contract of sale is to be governed by the CISG, the provisions of the Convention must be applied in accordance with CISG Article 7, which provides the Convention's in-built interpretation rules.

12. Bonell, supra note 1, no. 3.4; Ferrari, supra note 3, no. 9; Magnus, supra note 6, no. 28; Gert Reinhart, UN-Kaufrecht (1991), Art. 28 no. 3.

13. Ferrari, supra note 3, no. 9.

14. Derogating from CISG Article 4 would make little sense, as it would lead to the Convention being applicable to questions of contractual validity and transfer of property on which it contains no rules (Ferrari, supra note 3, no. 11; Rudolph, supra note 9, no. 1).

An agreement by the parties on principles of interpretation other than those in CISG Article 7 is allowed under the parties' right to modify the Convention's provisions according to their own preferences (Ferrari, supra note 3, no. 10; Magnus, supra note 6, no. 55). Professor Bonell's argument against allowing parties to do away with CISG Article 7 via the autonomy given to them in CISG Article 6 (see supra note 11) seems, in the last analysis, unconvincing: CISG Article 6 expressly states that the parties may not only accept or exclude the Convention's application in toto, but also derogate from or vary the effect of any provision they consider undesirable despite the fact that the drafters of the CISG included it. Whenever such a contractual modification of one of the CISG's articles occurs, a court judgment or arbitral award applying the Convention to that particular contract cannot insofar be regarded as a persuasive precedent (which is to be taken into account by other courts under CISG Article 7) as it does not deal with the interpretation of the CISG's original rules, but merely with a modified version of the Convention. A scenario involving a contractual derogation from CISG Article 7 does in this respect not differ from cases where modifications of other provisions are at stake: Should the parties -- which, it is submitted, will rarely occur in practice -- choose to have, e.g., the CISG "as interpreted by German courts" or "as construed according to the principles of English law" govern their contract, this constitutes an admissible use of their party autonomy according to CISG Article 6, but deprives any judgment or arbitral award dealing with this contract of sale of its future persuasive value under CISG Article 7(1).

Under CISG Article 28, a court is not required to grant specific performance if, under its "own law", it would not do so. If the parties, by explicitly derogating from CISG Article 28 in their contract, have agreed on one or both parties' right to specific performance, it can be assumed that the court would carry out the agreement of the parties (Amy H. Kastely, The Right to Require Performance in International Sales: Towards an International Interpretation of the Vienna Convention, 63 Washington Law Review (1988), at 642 [available on-line at <http://cisgw3.law.pace.edu/cisg/biblio/kastely1.html>]; Ole Lando, Article 28, in Commentary on International Sales Law, no. 3.1 (Cesare Massimo Bianca & Michael Joachim Bonell eds., 1987)).

While the parties cannot modify the Contracting States' obligations under public international law arising from CISG Articles 89 et seq., they may modify the Final Provisions' effect on their own contract, e.g., by agreeing on the Convention's applicability although the prerequisites of CISG Article 100 are not met: CISG Articles 89 et seq. are thus subject to the parties' freedom of contract as far as they deal with the Convention's sphere of application (see Siehr, supra note 1, no. 11).

15. Bonell, supra note 1, no. 2.1; Calvo Caravaca, supra note 5, at 93; Honnold, supra note 3, no. 74.

16. Cf. Ole Lando & Hugh Beale, Introduction, in Principles of European Contract Law, Parts I and II (2000), at xxv. Purchases by consumers are excluded from the Convention's scope by virtue of CISG Article 2(a), although the CISG will apply if the seller neither knew nor ought to have known that the goods were bought for personal, family or household use -- a type of situation that may become more common as more consumers purchase goods over the internet. Sales by consumers are, on the contrary, not excluded from the Convention's scope (Herber, supra note 9, Article 2 no. 11; Magnus, supra note 6, Artikel 2 no. 18).

17. The vagueness of the term "mandatory" was also criticized during the discussions within UNCITRAL; see Honnold, supra note 3, no. 79.

18. Fritz Enderlein & Dietrich Maskow, International Sales Law (1992), Art. 6 no. 3.1 [available on-line at <http://cisgw3.law.pace.edu/cisg/biblio/enderlein.html>]; Herber, supra note 9, no. 24; Manuel Lorenz, Artikel 6, in International Einheitliches Kaufrecht: Praktiker-Kommentar und Vertragsgestaltung zum CISG, no. 20 (Wolfgang Witz, Hanns-Christian Salger & Manuel Lorenz eds., 2000); Magnus, supra note 6, no. 55; Reinhart, supra note 12, Art. 6 no. 8; Rudolph, supra note 9, no. 6.

19. This has been aptly described by Professor Honnold as "the commitment that Contracting States make to each other: We will apply these uniform rules in place of our own domestic law on the assumption that you will do the same" .(Honnold, supra note 3, no. 103.2); see also Calvo Caravaca, supra note 5, at 100.

20. Ferrari, supra note 3, Artikel 4 no. 13; Herber, supra note 9, no. 13; Honnold, supra note 3, no. 65; Magnus, supra note 6, Artikel 4 no. 18. For an interesting discussion on how drafters of standard terms should deal with the interaction between the national rules on validity and the Convention, see Farnsworth, supra note 7, at 443 et seq.

See also Bundesgerichtshof, [Federal Supreme Court, Germany], 31 October 2001, Neue Juristische Wochenschrift (2002) 370, at 371 where the court ruled on the CISG's requirements for the inclusion of standard terms and conditions into contracts of sale. [Case presentation, including English translation and commentary available at <http://cisgw3.law.pace.edu/cases/011031g1.html>]. The court held that CISG Article 8(2) requires the user of standard terms to transmit the respective text to the other party or make it available in another way, and justified its interpretation inter alia with the assumption that "a control of the content of standard terms and conditions under national law (CISG Article 4(a)) is not always guaranteed." While the decision is likely to receive some criticism for imposing excessively strict requirements for the inclusion of standard terms, it indicates a tendency to limit the scope of the validity exception in CISG Article 4(a) in favor of the Convention's own rules.

21. Bernard Audit, La vente internationale de marchandises: Convention des Nations-Unies du 11 avril 1980 (1990), at 115 et seq.; Heuzé, supra note 9, no. 100.

22. Audit, supra note 21, at 32, 74; Heuzé, supra note 9, no. 201; Honnold, supra note 3, no. 204.1 et seq.; see also Peter Schlechtriem, Artikel 29, in Kommentar zum Einheitlichen UN-Kaufrecht, no. 3 (Peter Schlechtriem ed., 3rd ed. 2000).

23. Ernst Rabel, The Hague Conference on the Unification of Sales Law, 1 American Journal of Comparative Law (1952), at 61. See also Honnold, supra note 3, no. 30: "One may delight in legal antiques and in the patina of ingenious circumlocutions that have had to substitute for fundamental reform but these aesthetics may not be appreciated by a modern merchant and, more especially, by his trading partner from a different legal tradition."

24. See for example § 307(2) Nr. 1 of the German Civil Code.

25. Herber, supra note 9, no. 28; Robert Koch, Wider den formularmäßigen Ausschluss des UN-Kaufrechts, Neue Juristische Wochenschrift (2000), at 910; Lorenz, supra note 18, no. 14; Magnus, supra note 6, Artikel 4 no. 26; Piltz, supra note 5, § 2 no. 140; Harry Schmidt, in AGB-Gesetz, Anh. § 2 no. 12 (Peter Ulmer, Hans Erich Brandner & Horst-Dieter Hensen eds., 9th ed. 2001); Walter F. Lindacher, in AGB-Gesetz, Anh. § 2 no. 75 (Manfred Wolf, Norbert Horn & Walter F. Lindacher eds., 4th ed. 1999).

In Oberster Gerichtshof, [Supreme Court, Austria], 7 September 2000, Recht der Wirtschaft (2000), no. 9, the court held that the parties can derogate from CISG Article 49(1) and restrict the buyer's rights under the condition that these clauses are valid under the applicable domestic (here: German) law according to CISG Article 4. However, even if the changes are valid according to the rules of the applicable domestic law, such rules must not contradict the fundamental principles (Grundwertungen) of the CISG. The Court stated that one of the CISG's fundamental principles is the right for the buyer to avoid the contract, which the buyer must have as ultima ratio where the seller after an additional period of time still has not delivered the goods or where the goods in spite of the seller's remedies are still essentially useless. This right to avoid the contract can only be validly restricted if the buyer at least retains the right to damages. [Case presentation available in English at <http://cisgw3.law.pace.edu/cases/000907a3.html>].

26. Audit, supra note 21, at 41; Enderlein & Maskow, supra note 18, Art. 6 no. 3.2; Herber, supra note 9, no. 31; Honnold, supra note 3, no. 79 et seq.; Lorenz, supra note 18, no. 21; Reinhart, supra note 12, Art. 6 no. 9. For the discussions during the 1980 Vienna Diplomatic Conference, see U.N. Official Records (1981), p. 252 et seq.

27. Calvo Caravaca, supra note 5, at 100; Reinhart, supra note 12, Art. 6 no. 89.

28. Audit, supra note 21, at 41; Honnold, supra note 3, no. 82; Lorenz, supra note 18, no. 21; Burghard Piltz, Entscheidungen des BGH zum CISG, Internationales Handelsrecht -- Beilage zu der Zeitschrift Transportrecht (1999), at 14.

29. Audit, supra note 21, at 40; Heuzé, supra note 9, no. 125.

30. Audit, supra note 21, at 41; Bonell, supra note 1, no. 3.5.1; Calvo Caravaca, supra note 5, at 101; Enderlein & Maskow, supra note 18, Art. 6 no. 3.2; Herber, supra note 9, no. 31; Heuzé, supra note 9, no. 127; Honnold, supra note 3, no. 84; Reinhart, supra note 12, Art. 6 no. 9; contra Lorenz, supra note 18, no. 21; Siehr, supra note 1, no. 15.

31. Honnold, supra note 3, no. 84; Magnus, supra note 6, nos. 62, 65; Rudolph, supra note 9, no. 9.

32. See also Rudolph, supra note 9, no. 1: CISG Article 6 grants the parties more freedom than most national laws do; Farnsworth, supra note 7, at 441 note 8 (for the U.C.C.).


Comment and Notes on PECL 1:102 and 1:103

Like the commentary to the UNIDROIT Principles and the U.S. Restatements, the comments to the PECL help explain the text. The PECL notes identify civil law and common law antecedents and related domestic provisions. With the permission of the Commission on European Contract Law, these comments and notes are presented below. The source of this material is Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 99-103.


COMMENT AND NOTES: PECL Article 1:102: Freedom of Contract

(1) Parties are free to enter into a contract and to determine its contents, subject to the requirements of good faith and fair dealing, and the mandatory rules established by these Principles.

(2) The parties may exclude the application of any of the Principles or derogate from or vary their effects, except as otherwise provided by these Principles.

Comment

Like the national legal systems of the European Union, the Principles acknowledge the right of the citizens and their enterprises to decide with whom they will make their contracts and to determine the contents of these contracts.

This rule is, however, subject to important restrictions:

First, the parties’ freedom to decide the terms of their contract is subject to the principles of good faith and fair dealing. A party cannot enforce an agreed contract or contract term which is unconscionable towards the other party. See also Article 1:201.

Second, the freedom is restricted by the mandatory rules of these Principles: see for instance Articles 4:118, 6:105 and 8:109.

Third, both the freedom to lay down the terms of the contract and the freedom to decide with whom to contract may be limited by the mandatory rules of national law which are applicable to the contract, see Article 1:103.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

The freedom of the parties to make the contract and provide the contract terms they wish, is recognized in all the Member States. It is provided in art. 2(1) of the GERMAN Consitution and art. 5 (1) of the GREEK Constitution and in art 3 of the Greek CC; in the old DANISH code “Danske Lov” of 1683 art. 5.1.1; in FRENCH, BELGIAN and LUXEMBOURG CCs arts. 1134(l); ITALIAN CC art. 1322, NETHERLANDS BW art. 6:2s48, PORTUGUESE CC art. 405; and SPANISH CC arts. 6 and 1255. Under AUSTRIAN law freedom of contract is derived from § 859 of the ABGB. In the [page 99] Member States where no statutory provision can be invoked, freedom of contract is a basic principle. However, freedom of contract exists only within the limits set by the mandatory rules. In modern law considerations of policy, notably the need to protect the weaker party to a contract, have led to a restriction of contractual freedom by statute, see notes to Article 1:103. [page 100]

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COMMENT AND NOTES: PECL Article 1:103: Mandatory Law

(1) Where the law otherwise applicable so allows, the parties may choose to have their contract governed by the Principles, with the effect that national mandatory rules are not applicable.

(2) Effect should nevertheless be given to those mandatory rules of national, supranational and international law which, according to the relevant rules of private international law, are applicable irrespective of the law governing the contract.

Comment

If allowed by the law applicable, as determined by the choice of law rules of the forum before which the substance of a dispute between the parties is brought, or which tries the validity of an arbitration clause, the validity of an arbitral award or the enforcement of a foreign arbitral award under the New York Convention of 15 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, the parties may choose to have their dispute governed by the Principles as if they were a legal system. This has the effect that, subject to paragraph (2), the mandatory and non-mandatory rules of the Principles govern those issues which they cover, or which are within the scope of the Principles, see Article 1:106(2).

Illustration 1: A Swedish seller S and a French buyer B have made an contract in France for the sale of an aeroplane. The seller is an aircraft manufacturer, the buyer a professional which will use the aeroplane in its business but which has no expert knowledge of aircraft. They have agreed that their contract should be subject to the Principles; it would otherwise be subject to French law. They have also agreed that the seller shall not be liable for hidden defects, a clause which in French law would be invalid under the mandatory French rules on the seller’s liability for vices cachées. Under Article 8:109 of the Principles it would not be contrary to good faith and fair dealing for the seller to invoke this clause. The case is brought before an arbitrator sitting in France.

As the doctrine on vices cachées does not fall under the category of rules in French law which are mandatory irrespective of the law governing the contract, and since under French law the parties may choose the Principles to govern the contract, the arbitrator should uphold the clause.

Issues which are not covered by the Principles will be governed by the law applicable to the contract.

Furthermore, under paragraph (2) a court or an arbitrator must give effect to national rules which are mandatory irrespective of which law governs the contract, the [page 100] so-called directly applicable rules (règles d’application immédiate), see article 7 (1) and (2) of the Rome Convention on the Law Applicable to Contractual Obligations (hereinafter the Rome Convention). These are rules which are expressive of a fundamental public policy of the enacting country and to which effect should be given when the contract has a close connection to this country.

Illustration 2: Under the rules of country X on restrictive trade practices, the agreement between supplier S of country Y and distributor D, which prohibits D from selling to co-operative supermarkets in X, is illegal and subject to penal sanctions. In spite of the fact that the parties have agreed that the distributorship contract is to be governed by the Principles, which in Article 1:102 provide for freedom of contract, the Courts of X will and, it is submitted, the courts in other Union Countries and arbitrators, wherever they sit in the Union, should give effect to the said rule in X, which is directly applicable.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

1. Mandatory rules

The parties’ freedom of contract is curtailed by the so-called mandatory rules. A rule is mandatory when the parties cannot deviate from it when they make their contract. It is non-mandatory when they may deviate from it. The distinction between mandatory and non-mandatory rules, from which the parties may deviate when they make their contract, is well know in the CIVIL LAW. In French law mandatory rules are called lois de police or règles d’ordre public or, depending upon their effects, régles de droit impératives; non-mandatory rules are called régles de droit supplétives. In DUTCH, mandatory rules are called, depending on the effect of the rule, ‘regels van openbare orde’ or ‘dwingende rechtsregels’, and non-mandatory rules ‘aanvullende rechtsregels’ or ‘regelend recht’. In GERMAN, mandatory rules are called ‘zwingende Rechtsvorschriften’, non-mandatory rules ‘abdingbare’ or ‘dispositive Rechtsvorschriften’. In ITALIAN, non-mandatory rules are ‘norme dispositive’ and mandatory rules are ‘norme imperative’; in SPANISH, ‘normas cogentes’ and ‘normas dispositivas’ are used similarly, see CC art. 1255.

The distinction between the two sets of rules was formerly unknown - or nameless - in the COMMON LAW. It is now becoming known, see e.g., the ENGLISH and SCOTTISH Unfair Contract Terms Act 1977 and Sale of Goods Act 1979, the IRISH Sale of Goods and Supply of Services Act 1980. It has also been named, see the Rome Convention on the Law Applicable to Contractual Obligations of 19 June 1980 (UK Contracts (Applicable Law) Act l990, Irish Contracts (Applicable Law) Act 1991 Schedule 1, Article 3 (3) where the term mandatory is used.

If the question whether a statutory provision is mandatory or non-mandatory is not laid down in the statute, it is for the court to decide the issue.

2. The Principles and mandatory rules

(a) Parties have agreed that the arbitrator shall apply the Principles

Where the parties have submitted their dispute to arbitration, it is widely held that they may also agree to let the Principles govern their dispute. This means that no national legal system will be applicable to the contract and that national mandatory provisions which are not directly applicable rules or rules of public policy (see note 3 below) will not apply. It is expressly provided in the UNCITRAL Model Law art. 28(1) that the arbitrator shall decide the dispute in accordance with such rules of law which are chosen by the parties as applicable to the substance of the dispute. Such rules of law include non-national principles as those of the Principles of European Contract Law. The Principles will then govern the existence and validity of the contract as well as its effects and interpretation.

Provisions similar to art. 28(1) the are found in s. 46(1) of the ENGLISH Arbitration Act l996 (see Note to Article 1:101 above), art. 1496 of the FRENCH Code of Civil Procedure, art. 1054 of the DUTCH Code of Civil Procedure, art. 1700 of the BELGIAN Judiciary Code and art. 834(1) of the ITALIAN Code of Civil Procedure. There is reason to believe that the [page 101] courts of the other Member Countries will give effect to arbitral awards in international commercial disputes where the arbitrators, following an agreement by the parties, have applied the Principles. Art. 33 of the PORTUGUESE law on voluntary arbitration of 29 August 1986 provides that in an international dispute the parties may choose the “direito” applicable to the contract, which permits them to choose the lex mercatoria and therefore also the Principles, see Collaço 61 and dos Santos 48. This also seems to be the view in DENMARK and SWEDEN, see Lando, Lex mercatoria 567.

(b) Parties have not agreed which rules of law the arbitrator shall apply

Where the parties have not chosen the rules of law applicable to the merits of the dispute, some laws will permit the arbitrators to apply the rules of law which they deem appropriate. This is true of FRENCH, ITALIAN, BELGIAN and DUTCH law, see the provisions cited above. The arbitrators may then choose to apply the lex mercatoria and may let the Principles govern the existence and validity of the contract as well as its effects and interpretation.

In ENGLAND, however, it is the prevailing view that the arbitrators must in such circumstances choose a law of a state, see section 46(2) of the Arbitration Act 1996. This also seems to be the attitude of the UNCITRAL Model Law art. 28(2) which has been adopted by SCOTLAND.

(c) Can the mandatory provisions of the Principles be avoided?

The mandatory provisions of the Principles cannot be excluded by parties who have chosen to have their contract governed by them. This is in harmony with FRENCH law where it has been held that parties who have agreed to have their contract governed by a treaty which is not ipso iure applicable to the contract may not exclude the mandatory provisions of the treaty, see Cass. Com. 4 February 1992, Revue critique de droit international privé l992 495 with the note by Paul Lagarde.

If the parties choose to incorporate the Principles in a contract which is governed by a national law, the mandatory rules of that law will govern the contract. Whether in such a case the parties may exclude the mandatory provisions of the Principles will depend on the circumstances. Such a manoeuvre may be an evasion (fraude à la loi) which is contrary to the ordre public of the forum country.

See notes to Article 1:201 on the good faith principle.

3. "Ordinary" mandatory rules and mandatory rules carried by a strong public policy

In spite of the fact that the Rome Convention does not bind arbitrators, some of the principles on the application of mandatory provisions embodied in the Rome Convention will probably be applied by arbitrators.

The Convention impliedly makes a distinction between “ordinary” mandatory rules, see arts. 3(3), 5(2) and 6 (1), the so-called “directly applicable rules”, which are applicable irrespective of which law governs the contract, see art. 7, and the rules of “international public policy”, see art. 16. The rules of the second and third category express a strong public policy of the enacting state.

If the parties’ or the arbitrators’ choice of the Principles is a choice of law, an arbitrator need not apply national mandatory rules of law of the first category. He or she must, however, apply the mandatory rules of the Principles. If this choice is only an incorporation, see note 2(b) to Article 1:101, he or she must apply the mandatory rules of the national law applicable to the contract. The same holds true of a court which applies the Principles by virtue of an incorporation, see note 2 supra.

The laws of most Member States will probably allow the parties, if they so wish, to make their choice of the Principles a choice of law. However, it is the prevailing view in GREECE that where the merit of the dispute is to be governed by Greek law, the parties’ choice of the Principles or other non-national source of law will only operate as an incorporation of the relevant rules, see Greek CC Proc. art. 890(1).

However, a State court and an arbitrator in the Union will always give effect to the directly applicable rules and the public policy of the forum country, see arts. 7(2) and 16 of the Rome Convention.

When applying the law of a country, a state court may also give effect to the directly applicable rules of another country with which the situation has a close connection, see art. 7(1) of the Rome Convention. A court sitting in Belgium and applying Dutch law may, for instance, give effect to a directly applicable rule in French law with which the situation has a close connection. Five Member States, GERMANY, IRELAND, LUXEMBOURG, PORTUGAL and the U.K., have used an option in the Convention not to apply art. 7(1). However, the law applicable to the contract may direct the court in these countries to give effect to a directly applicable rule in another country. If, for instance, a court finds that English law is applicable to the contract, it will, under certain circumstances, give effect to a statutory prohibition of the law of the foreign place of performance, see [page 102] Dicey & Morris 1243 ff. When applying German law to a contract, German courts may give effect to a foreign statutory prohibition see Kropholler § 52, IX.

Whether he or she is sitting in one of the five countries or not, an arbitrator who applies the Principles may choose to give effect to a directly applicable rule or a rule of public policy of a country to which the situation has a close connection also when the law of this country would not have been the law applicable to the contract. Since he must see to it that the award is made enforceable the arbitrator will probably give effect to a directly applicable rule of law in the country where the award is to be enforced. If he or she does not do so, the award may be refused enforcement by a court in that country. [page 103]

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