Berger - Unidroit Model Clauses

The role of the UNIDROIT Principles of
International Commercial Contracts

in international contract practice:
the UNIDROIT Model Clauses
Downloaded from https://academic.oup.com/ulr/article/19/4/519/1676769 by guest on 12 April 2021

Klaus Peter Berger*
Abstract
In 2013, the International Institute for the Unification of Private Law (UNIDROIT) drafted
and published the Model Clauses for the UNIDROIT Principles of International Commercial
Contracts (PICC). This article examines the significance, scope, and effect of these Model
Clauses for international contract practice. A basic distinction is drawn between the use
of these clauses before domestic courts and international arbitral tribunals. In addition,
the article explores the use of the PICC as a means to supplement or interpret uniform
law instruments such as the UN Convention on Contracts for the International Sale of
Goods.
Keywords: UNIDROIT Principles, UNIDROIT Model Clauses, CISG, international contracts,
mandatory rules of law
I. Introduction
Since their first edition was published in 1994 and presented at a conference of the
International Chamber of Commerce’s (ICC) Institute of International Business
Law and Practice in Paris in 1995,1 the UNIDROIT Principles for International
Commercial Contracts (PICC) have been a success story for a number of reasons.
First, the PICC introduced the restatement technique—black letter principles and
rules with comments and illustrations—into the field of international contract
law.2 Until then, this technique had only been used by the American Law Institute
in the USA. Second, the UNIDROIT working group that drafted the PICC did not
* Klaus Peter Berger, Prof Dr. Director of Center for Transnational Law (CENTRAL), Institute for
Banking Law, University of Cologne, D-50923 Köln, Germany. Tel: 0049/221/470–2327.
Email: kp.berger@uni-koeln.de.
1
See the conference presentations in International Chamber of Commerce’s (ICC) Institute of
International Business Law and Practice (ed), UNIDROIT Principles for International Commercial
Contracts: A New Lex Mercatoria? (ICC 1995).
2
Michael J Bonell, An International Restatement of Contract Law (3rd edn, Transnational Publishers
2005) 9ff.
! The Author (2014). Published by Oxford University Press on behalf of UNIDROIT. All rights reserved.
For Permissions, please email journals.permissions@oup.com
Unif. L. Rev., Vol. 19, 2014, 519–541

doi:10.1093/ulr/unu028
520 Klaus Peter Berger
struggle, like so many others had,3 with the question of whether the ‘new lex
mercatoria’, ‘transnational law’, or the like could be qualified as ‘law’. Instead, the
UNIDROIT working group adopted what has been called in another, related context
‘Cartesian pragmatism’.4 Rather than getting involved in yet another theoretical
debate of this highly controversial question,5 it drafted an unprecedented, sys-
tematic ‘codification’ of transnational contract law. Although the PICC look
and read like a code—both with respect to their wording and their systematic
structure—they are in fact a ‘paradigmatic source of non-national law’:6

It is impossible to place the UNIDROIT Principles—a private codification of civil law
approved by an intergovernmental institution—within the traditional sources of law.
The UNIDROIT Principles are neither treaty, nor compilation of usages nor standard
terms of contract. They are a manifestation of transnational law.7
Thus, by drafting and publishing the PICC, the UNIDROIT working group has
given a new, extra-legislative meaning to the traditional notion of ‘codification’,8
which demonstrates the modern trend that, in the age of globalization, ‘bottom
up’, privatized rule making has become the rule rather than the exception.9
Third, due to the quality and systematic nature of the text and the worldwide
recognition of UNIDROIT, under whose auspices the working group was acting and
3
Berthold Goldman, ‘Frontieres du droit et “lex mercatoria” (1964) 9 Archives de philosophie du
droit 181ff; Clive M Schmitthoff, ‘The Law of International Trade, its Growth, Formulation and
Operation’ in Schmitthoff (ed), The Sources of the Law of International Trade (Stevens 1964) 3ff;
Roy Goode, ‘Rule, Practice, and Pragmatism in Transnational Commercial Law’ (2005) 54
International and Comparative Law Quarterly 539; Klaus Peter Berger, The Creeping
Codification of the New Lex Mercatoria (2nd edn, Kluwer Law International 2010) 53ff;
Emmanuel Gaillard, ‘Thirty Years of Lex Mercatoria: Towards the Discriminating Application
of Transnational Rules’ (1995) 10 ICSID Review—Foreign Investment Law Journal 208; Jan H
Dalhuisen, ‘Legal Orders and Their Manifestation: The Operation of the International
Commercial and Financial Legal Order and Its Lex Mercatoria’ (2006) 24 Berkeley Journal of
International Law 129; Fabrizio Marrella, La nuova lex mercatoria: Principi UNIDROIT ed usi dei
contratti del commercio internazionale (CEDAM 2003); Orsolya Toth, The Lex Mercatoria in Theory
and Practice (OUP 2014, forthcoming).
4
Philippe Nouel, ‘“Cartesian Pragmatism”: Looking for Common Principles in French and English
Law’ (1996) 24 International Business Lawyer 22, with respect to the negotiations of the English
Channel tunnel contract between England and France.
5
Pierre Lalive, ‘The UNIDROIT Principles as Lex Contractus, with or without an Explicit or Tacit
Choice of Law: An Arbitrator’s Perspective’ (2002) ICC International Court of Arbitration
Bulletin, Special Supplement 77, 79: ‘. . .can [the UPICC] be considered and applied as “rules of
law” as this expression is understood in modern private international law? Let me confess, perhaps
bluntly, that I see little point in yet another theoretical debate on this issue.’
6
Luca G Radicati di Brozolo, ‘Non-National Rules and Conflicts of Laws: Reflections in Light of the
UNIDROIT and Hague Principles’ (2012) 48 Rivista di diritto internazionale private e processuale 841.
7
Joseph Charles Lemire v Ukraine, ICSID Case no ARB/06/18 Decision on Jurisdiction and Liability
(14 January 2010) para 109.
8
For the special meaning and significance of the notion of ‘codification’ in the context of trans-
national commercial law, see Berger (n 3) 252ff.
9
Klaus Peter Berger, ‘Die Neue Lex Mercatoria: First Transnationales Wirtschaftsrecht kodifizier-
bar?’ in Christian Bunke and Anne Röthel (eds), Privates Recht (Mohr Siebeck 2012) 119, 131ff; for
the concept of ‘bottom-up’ law-making, see Janet K Levit, ‘A Bottom-Up Approach to
International Lawmaking: The Tale of Three Trade Finance Instruments’ (2005) 30 Yale Journal
of International Law 125; Janet K Levit, ‘Bottom-up Lawmaking through a Pluralist Lens: The ICC
Banking Commission and the Transnational Regulation of Letters of Credit’ (2008) 57 Emory Law
Journal 1147.
Unif. L. Rev., Vol. 19, 2014, 519–541

The UNIDROIT Model Clauses 521
which has endorsed the final text, the PICC have achieved a degree of acceptance
among parties and arbitrators that comes close to that of a statutory text. It is even
acknowledged that non-legislative reference texts, such as the PICC, may assume a
quasi-normative force of their own for the simple reason that they exist, provided
that they enjoy the respect, trust, and confidence of those who use them in every-
day legal practice:
[T]he abstract authority of a text giving expression to a legal norm consists in the legal
profession accepting it as an ultimate source of the law, without requiring further legal

reasons to do so . . . More specifically, the relative authority of a legal text consists in its
formal weight in legal argument, where different legal authorities are present and may
be in conflict with each other. In such a case, decisions must be made, usually inde-
pendently of the content of the individual norms in question, as to which of those texts
should be taken as the ultimate foundation of legal argument. These decisions depend
on, and are an expression of, the texts’ authority. Indeed, it would be wrong to assume
that the legal authority would be a kind of mysterious quality of a text. Rather, au-
thority is assigned to legal texts by those working with them—that is, by professional
lawyers applying and interpreting such texts in the course of legal argument.10
It is, therefore, not surprising that the Swiss Federal Tribunal has qualified the
PICC as ‘a set of principles and rules . . . comparable to domestic legal systems as
to intrinsic equilibrium, comprehensiveness and general recognition’.11 It is this
hybrid quality of the PICC, their appearance as a binding code, and their quality
as a non-binding soft law instrument that have fascinated many of those who have
worked with them since they were first published in 1994.
II. Why Model Clauses?

Prior to the publication of the Model Clauses for the Use of the UNIDROIT
Principles of International Commercial Contracts (Model Clauses), a number
of similar clauses for the application of the PICC to international contracts
existed. Since their second 2004 edition, two model clauses concerning the
choice of the PICC as the law governing the contract have been contained in
an asterisk footnote to the preamble of the PICC.12 Model clauses referring to the
PICC were also included in various international model contracts published by
the ICC and the International Trade Centre (ITC), a joint agency of the World
Trade Organization and the United Nations (UN).13 In spite of the existence of
10
Nils Jansen, The Making of Legal Authority (OUP 2010) 43ff, concluding that ‘non-legislative
reference texts may gain similar or even greater authority than legislative codifications’ and com-
plaining that so far ‘legal scholars [in analysing factors determining ‘legal authority’ of such texts]
have mostly focused on factors of pure legal rationality’. Ibid 138, 141.
11
Swiss Federal Tribunal, Judgment (20 December 2005) <http://www.unilex.info/case.cfm?pid=
2&do=case&id=1124&step=Abstract> accessed 14 October 2014.
12
See below III 1 A and B.
13
Alexis Mourre and Emmanuel Jolivet, ‘La réception des Principes UNIDROIT dans les contrats
modèles de la Chambre de commerce international’ (2004) 9 Uniform Law Review 275; Herbert
Kronke, ‘The UN Sales Convention: The UNIDROIT Contract Principles and the Way Beyond’
(2005/06) 25 Journal of Law and Commerce 451, 453ff; Fabio Bortolotti, ‘Reference to the
UNIDROIT Principles in Contract Practice and Model Contracts’ (2005) ICC International Court
Rev. dr. unif., Vol. 19, 2014, 519–541

these clauses, UNIDROIT determined that the PICC, notwithstanding their world-
wide success, were still not sufficiently well known among the international busi-
ness and legal communities across the globe.14 This lack of knowledge prevented
the PICC from reaching their full potential. Accordingly, UNIDROIT decided to
create a working group in 2012 to draft a separate set of Model Clauses for the
PICC.15
From the very beginning, it was argued that the PICC would soon become ‘one
of the favourite handbooks for practitioners, a privileged source of documenta-
tion and information concerning the problems to be encountered [in drafting

international contracts] and for the ways to resolve them.’16 Like every handbook,
the use of the PICC requires that their potential users know that they exist. In
reality, however, there are only very few known cases in which the parties have
agreed on the application of the PICC in their contract, prior to the initiation of
arbitration.17 This fact may have a variety of reasons. A recent study has identified
a range of reasons for the parties’ inadequate choice of law in international con-
tract drafting, which may also apply to the choice of the PICC: ignorance of their
existence, unwillingness to familiarize with its content, choice overload, inability
to make a rational choice between domestic laws and the PICC, and a lack of legal
sophistication.18 The fact remains that, rather than being the rule, the typical case,
of Arbitration Bulletin, Special Supplement 57, 61ff; Michael J Bonell, ‘UNIDROIT Principles 2004:
The New Edition of the Principles of International Commercial Contracts adopted by the
International Institute for the Unification of Private Law’ (2004) 9 Uniform Law Review 5, 11;
Bonell (n 2) 274ff.
14
UNIDROIT (ed), Model Clauses for the Use of the UNIDROIT Principles of International Commercial
Contracts (Rome 2013) 1; see also UNILEX <http://www.unilex.info/dynasite.cfm?dssid=2377
&dsmid=14278> accessed 14 October 2014.
15
The members of the UNIDROIT working group were: Don Wallace, Klaus Peter Berger, Michael
Joachim Bonell, Neil B Cohen, Yves Derains, Lauro Gama, Alexander Komarov, Toby Landau, and
William W. Park. The working group included the following observers: Fabio Bortolotti, Eckart
Brödermann, Andrea Carlevaris, Herbert Kronke, Francesca Mazza, Geneviève Saumier, Renaud
Sorieul, and Hans van Loon.
16
Marcel Fontaine, ‘Les Principes UNIDROIT, guide de la rédaction des contrats internationaux’ in
ICC Institute of International Business Law and Practice (ed) (n 1) 73, 82 (translation from French
by the author); but for a more pessimistic view, see El Allan Farnsworth, ‘An American View of the
Principles as a Guide to Drafting Contracts’ in ICC Institute of International Business Law and
Practice (ed) (n 1) 85, 87ff.
17
Bortolotti (n 13) 58. In a number of cases, the parties agreed on the application of the PICC after
the dispute had arisen. E Allan Farnsworth, ‘The Role of the UNIDROIT Principles in International
Commercial Arbitration (2): A US Perspective on Their Aims and Application’ (2002) ICC Court
of Arbitration Bulletin, Special Supplement 21, 23; in other cases, in which the parties had agreed
on vague notions such as ‘Anglo-Saxon principles of law’, ‘principles of natural justice’, or the
application of ‘general principles of international trade law, as have been applied by national and
international tribunals’, the arbitral tribunals applied the PICC to fill these references with mean-
ing and workable content. Klaus Peter Berger, ‘General Principles of Law in International
Arbitration: How to Find Them—How to Apply Them’ (2011) 5 World Arbitration and
Mediation Review 97, 109ff.
18
For the different types of parties in the context of choice of law, see Gilles Cuniberti, The
International Market for Contracts: The Most Attractive Contract Laws, Université de
Luxembourg, Law Working Paper Series no 2014-02 (2014) <http://ssrn.com/abstract=2393672>
accessed 14 October 2014, 43ff.
Unif. L. Rev., Vol. 19, 2014, 519–541

reflected in paragraph 2 of their preamble, in which the parties agree in their

contract on the application of the PICC, has remained the exception in practice.
While it sounds as if the publication of the Model Clauses is nothing but a mere
‘marketing campaign’ for the further global proliferation of the PICC,19 there is also
an important legal aspect involved in the considerations underlying the drafting
and publication of the Model Clauses. This aspect relates to the soft law character of
the PICC. This soft law character and the flexibility and informality that come along
with it has always been considered to be an intrinsic advantage of the PICC over
uniform law instruments such as conventions or model laws. However, it is pre-

cisely this informality that constitutes a disadvantage of the PICC—their function
as rules governing an international contract depends to a large extent upon the will
of the parties.20 This is the major difference between the PICC and international
uniform law instruments such as the UN Convention on Contracts for the
International Sale of Goods (CISG). Without any further need for an agreement
or other activities by the parties, the CISG applies ‘automatically’21 when the parties
have their place of business in contracting states (Article 1(1)(a)) or when the
applicable rules of private international law lead to the application of the law of
a contracting state (Article 1(1)(b)). There is no such ‘ex lege’ application of the
PICC to international contracts, simply because they are soft law and not a con-
vention. Moreover, because they are not a convention, the PICC are not adopted by
domestic legislatures into their domestic laws. They cannot, therefore, be used if the
conflict rules applied by the arbitrators lead to a certain domestic law. The soft law
approach, which was praised as highly innovative and revolutionary when the
drafters of the PICC adopted it in the mid-1990s,22 shows its weakness when it
comes to the application of soft law in daily practice. As far as the frequency of the
application of the PICC is concerned, their soft law character leads to a competitive
disadvantage in comparison to uniform law instruments such as the CISG, which
have a defined personal scope of application. To be applied in a given case, the
parties must agree on the application of the PICC, unless they want to leave the
application of the PICC to the discretion of the arbitrators. Under the CISG, know-
ledge of the CISG by the parties is required in order to opt out of its application
under Article 6 of the CISG, and opting in is only required in exceptional cases in
which the sphere of application of Article 1(1) is not met.23 This situation is
reversed under the PICC where the parties’ knowledge is required to opt in.24
19
For the need of such campaigns, see Bonell (n 2) 368.
20
See Jérôme Huet in his ‘Synthesis’ of the 1994 ICC conference in ICC Institute of International
Business Law and Practice (ed) (n 1) 273, 276.
21
Loukas Mistelis, in Stefan Kröll, Loukas Mistelis, and Marı́a del Pilar Perales Viscasillas (eds), UN
Convention for Contracts for the International Sale of Goods (CH Beck / Hart / Nomos 2011) Art 1,
para 47, emphasizing that with the increase of contracting States, the application of the
Convention will be automatic in an ever increasing number of cases.
22
See note 1 in this article.
23
Christoph Brunner, UN-Kaufrecht: CISG (Stämpfli 2004) Art 6, para 10.
24
Anton K Schnyder and Pascal Grolimund, ‘“Opting in” oder “Opting out”? Anwendung der
UNIDROIT Principles of International Commercial Contracts in schiedsgerichtlichen Verfahren’
Rev. dr. unif., Vol. 19, 2014, 519–541

III. Types of Model Clauses

The working group endeavoured to reflect the various ways in which the PICC
have been used in international arbitration practice in the Model Clauses. This
approach is meant to ensure that contract drafters receive tools that would enable
them to anticipate these different ways in which the PICC could apply in their
contract. The clauses also enabled drafters to refer to the PICC in a submission
agreement concluded after the dispute has arisen. Based on this drafting ap-
proach, the working group developed the following four categories of Model

Clauses:
(i) the PICC as rules of law governing the contract;
(ii) the PICC as incorporated terms of the contract;
(iii) the PICC as a means to interpret and supplement the CISG; and
(iv) the PICC as a means to interpret and supplement the applicable domestic law.
Each of these categories is explained and elaborated in the following sections.
1. The PICC as rules of law governing the contract

In this first category, the Model Clauses resemble proper choice-of-law clauses,
thereby reflecting the approximation of the PICC and domestic law, at least in
regard to the way in which reference to them is made in a contract.25 However, the
Model Clauses may function as proper choice-of-law clauses, making reference to
the PICC as the applicable rules of law, only if the dispute is to be decided by an
international arbitral tribunal—that is, if the choice-of-law clause is combined
with an arbitration clause. This is because transnational legal principles and rules,
such as the ones reflected or ‘pre-stated’26 in the PICC, do not enjoy the same
recognition before domestic courts as they do before international arbitral tribu-
nals. As far as the latter are concerned, it is recognized that the reference to ‘rules
of law’, instead of ‘law’ contained in the conflict rule of Article 28(1) of the United
Nations Commission on International Trade Law’s (UNCITRAL) Model Law on
in Ingeborg Schwenzer and Günter Hager (eds), Festschrift Schlechtriem (Mohr Siebeck 2003) 395,
404; Michael J Bonell, ‘The UNIDROIT Principles of International Commercial Contracts and the
Harmonisation of International Sales Law’ in Ian F Fletcher, Loukas Mistelis, and Marise Cremona
(eds), Foundations and Perspectives of International Trade Law (Sweet and Maxwell 2001) at 298,
302, para 21-014.
25
Lalive (n 5) 80: ‘Does it follow that an express choice of the Principles as lex contractus is funda-
mentally different from—and less effective than—a standard choice-of-law clause, designating say
Swiss or English law? The present context allows but a cursory answer to this question, which in
any case should be no’. Julian DM Lew, ‘The UNIDROIT Principles as Lex Contractus Chosen by the
Parties and without an Explicit Choice-of-Law Clause: The Perspective of Counsel’ (2002) ICC
International Court of Arbitration Bulletin, Special Supplement 85, 89: ‘[I]t is clear that where the
parties expressly select the UNIDROIT principles to apply to their contractual arrangements, these
Principles should apply just like the choice of any national law.’
26
For the function of the PICC as a ‘pre-statement’ rather than a ‘restatement’ of transnational
contract law, see Klaus Peter Berger, ‘The Relationship between UNIDROIT Principles and Lex
Mercatoria’ (2000) 5 Uniform Law Review 153, 169.
Unif. L. Rev., Vol. 19, 2014, 519–541

International Commercial Arbitration,27 allows for the application of trans-

national legal rules as the proper law of the contract.28 The same rule and
result is also found in conflict rules of most modern arbitration laws around
the globe, and the conflict rules of many arbitration rules, such as Article 21(1)
of the ICC’s 2012 Arbitration Rules or Section 23.1 of the German Institution of
Arbitration Arbitration Rules. The effect of such a choice is that the selected
transnational law would override even the mandatory provisions of the otherwise
applicable domestic law. Like the choice of domestic law,29 the choice of trans-
national legal principles as the law of the contract always remains subject to the

application of overriding mandatory provisions of other legal systems (‘lois d’ap-
plication immédiate’ and ‘Eingriffsnormen’).30
Domestic courts, however, are usually not authorized to apply transnational
commercial law as the proper law of the contract since domestic courts, by their
very nature, are geared towards the application of domestic laws.31 The restrictive
conflict rules of their lex fori usually do not allow for the application of rules other
than those stemming from a domestic legislature.32 The liberal conflict rules for
arbitrators do not apply to the courts.33 At the same time, this approach reflects
the profound scepticism towards any kind of transnational law, which has been
characterized by an Austrian court as a ‘world law of questionable validity’.34 The
drafting history of Council Regulation (EC) 593/2008 on the law applicable to
contractual obligations (Rome I Regulation) is paradigmatic for this traditional
reluctance of domestic legislatures to allow their courts to apply transnational
27
United Nations Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration 24 ILM 1302 (1985).
28
Gary B Born, International Commercial Arbitration (2nd edn, Kluwer Law International 2014)
2755ff; Radicati di Brozolo (n 6) 847; Emmanuel Gaillard and John Savage (eds), Fouchard/
Gaillard/Goldman on International Commercial Arbitration (Kluwer Law International 1999)
para 1444; Klaus Peter Berger, International Economic Arbitration (Kluwer Law and Taxation
Publishers 1993) 556ff.
29
Rome I Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual
obligations (Rome I), OJ No. L 177/6 Art 9(1): ‘Overriding mandatory provisions are provisions
the respect for which is regarded as crucial by a country for safeguarding its public interests, such
as its political, social or economic organisation, to such an extent that they are applicable to any
situation falling within their scope, irrespective of the law otherwise applicable to the contract
under this Regulation.’
30
Born (n 28) 2961ff.
31
For a more progressive view based on the fact that fundamental State interests remain protected by
the application of ‘overriding’ mandatory rules, which can no more be displaced by non-national
rules than they can by foreign law, see Radicati di Brozolo (n 6) 855ff.
32
But see Art 9(2) of the Inter-American Convention on the Law Applicable to International
Contracts 33 ILM 732 (1994), which provides: ‘The Court will take into account all objective
and subjective elements of the contract to determine the law of the State with which it has the
closest ties. It shall also take into account the general principles of international commercial law
recognized by international organizations’. This reference includes the PICC (n 2). To date, the
Convention has been ratified only by Mexico and Venezuela. See <http://www.oas.org/juridico/
english/sigs/b-56.html> accessed 14 October 2014.
33
Julian D Lew, Applicable Law in International Commercial Arbitration (Oceana Publishers 1978) at
104ff: ‘Whatever restrictions different legal systems may place on the right of the parties to choose
the law to govern their relations, those limitations can only bind the courts of that legal system.’
34
Norsoloiar v Pabalk Tikaret, Vienna Court of Appeal Decision (29 January 1982), reprinted in
(1984) Revue de l’arbitrage 513, 514.
Rev. dr. unif., Vol. 19, 2014, 519–541

legal principles and rules. In the mid-1990s, the idea that the Convention on the
Law Applicable to Contractual Obligations (Rome Convention) should be revised
so as to allow for the parties’ choice of a-national legal rules—more specifically,
the PICC and the Principles of European Contract Law (PECL)—emerged.35 In
response to these proposals, Article 3(2) of one of the EU Commission’s first
drafts of the new Rome I Regulation, which converted the Rome Convention into
primary European Union (EU) law, contained a provision allowing the parties to
choose the principles and rules of the substantive law of contract recognized
internationally or in the Community as the law applicable to a contract.36 This

broad provision would have permitted use of the PICC and the PECL as a valid
choice of law. The EU Commission supported this proposal by reference to the
basic principle of party autonomy as one of the cornerstones of the conflict of laws
in the area of contractual obligations:
To further boost the impact of the parties’ will, a key principle of the [Rome]
Convention, paragraph 2 authorises the parties to choose as the applicable law a
non-State body of law. The form of words used would authorise the choice of the
UNIDROIT Principles, the Principles of European Contract Law or a possible future op-
tional Community instrument, while excluding the lex mercatoria, which is not precise
enough, or private codifications not adequately recognised by the international
community.37
In spite of (or maybe because of) this rather progressive approach to the
idea of the transnationalization of the parties’ choice of law, the reference to
non-state rules was deleted in the final version of Article 3(2) of the Rome
I Regulation.38 This step was made in response to concerns that allowing
parties to choose the PICC would allow them to opt for rules that were not
subject to any legislative scrutiny.39 Paragraph 13 of the preamble of the Rome
I Regulation states that the Regulation ‘does not preclude the parties from incor-
porating by reference into their contract a non-State body of law or an interna-
tional convention’.40 This reveals that the parties’ option to agree on non-national
principles of law was downgraded in the final version of the Regulation from a
genuine choice of law to a mere incorporation by reference (materiellrechtliche
35
Katharina Boele-Woelki, Principles en IPR (Koninklijke Vermande 1995) 15ff; see also Ole Lando,
‘Some Issues Relating to the Law Applicable to Contractual Obligations’ (1996/97) 7 King’s College
Law Journal 55, 61; Fritz Blase, Die Grundregeln des Europäischen Vertragsrechts als Recht grenzü-
berschreitender Verträge (Quadis 2001) 234. See also Convention on the Law Applicable to
Contractual Obligations 19 ILM 1492 (1980) and Ole Lando and Hugh Beale (eds), Principles
of European Contract Law, parts 1 and 2 (Kluwer Law International 2003) [PECL].
36
Commission of the European Communities, Doc COM (2005) 650 final (15 December 2005) 14.
37
Ibid 5.
38
Rome I Regulation (n 29).
39
Goode (n 3) 539, 545: ‘[T]o permit selection of the Principles of International Commercial
Contracts as the applicable law raises an issue of legitimacy, for its effect would be to enable the
parties to displace the domestic mandatory rules of the forum State by a set of rules in the
preparation of which neither business interests nor governments were involved and which were
not subject to any legislative scrutiny’; see also Roy Goode, Herbert Kronke, and Ewan
McKendrick, Transnational Commercial Law (OUP 2007) para 1.40.
40
Rome I Regulation (n 29).
Unif. L. Rev., Vol. 19, 2014, 519–541

Verweisung) in which the principles assume the quality of contract conditions that
remain governed by the domestic law applicable to the contract. Obviously, the
EU Commission was hesitant to make the ‘last step’ by allowing parties to agree
on transnational law via a genuine choice of law.
A more promising effort to allow courts to apply the PICC as the proper law of
the contract is reflected in the Hague Principles on Choice of Law in International
Commercial41 Contracts42 (Hague Principles). They were preliminarily endorsed
by the Council on General Affairs and Policy of the Hague Conference on Private
International Law in April 2013.43 This soft law instrument has a global reach and

advocates for the parties’ complete freedom to choose the law applicable to their
contract. Article 3 of the Hague Principles even specifies that the reference to ‘law’
in that context ‘includes rules of law that are generally accepted on an interna-
tional, supranational or regional level as a neutral and balanced set of rules, unless
the law of the forum provides otherwise.’ The wording of this provision, however,
still displays clear traces of the traditional scepticism towards the notion of trans-
national law. The freedom to choose transnational legal principles under the
Hague Principles is not complete but, rather, is qualified in various ways (‘gen-
erally accepted . . . as a neutral and balanced set of rules . . . unless the law of the
forum provides otherwise’). Thus, even the Hague Principles permit the different
treatment and qualification of such clauses before international arbitral tribunals
and domestic courts.44 However, the Draft Commentary on the Hague Principles
clarifies that there can be no doubt that the PICC do qualify as such rules under
the Hague Principles. In doing so, specific reference is made to the footnote to the
preamble of the PICC and the Model Clauses:
Another source of rules of law that would satisfy this first criterion [‘generally accepted
on an international, supranational or regional level’] may come from non-binding
instruments formulated by established international bodies. One example is UNIDROIT,
an inter-governmental organisation responsible solely to its Member States, which
operates on the basis of consensus. The UPICC are an example of rules of law that are
‘generally accepted on an international level’. Moreover, the UPICC expressly provide
that parties may designate them to govern their contract and suggest choice of law
41
Pursuant to Art 1(1), the Hague Principles on Choice of Law in International Commercial
Contracts, online: <http://www.hcch.net/upload/wop/contracts2012principles_e.pdf> accessed
14 October 2014 [Hague Principles], apply to choice of law in international contracts where
each party is acting in the exercise of its trade or profession. They do not apply to consumer
and employment contracts.
42
Radicati di Brozolo (n 6) 859ff.
43
See Council on General Affairs and Policy of the Hague Conference on Private International Law,
Conclusions and Recommendations Adopted by the Council (9–11 April 2013) <http://www.hcch.
net/upload/wop/gap2013concl_e.pdf> accessed 14 October 2014.
44
Draft Commentary on the Draft Hague Principles on Choice of Law in International Contracts
(November 2013) <http://www.hcch.net/upload/wop/princ_com.pdf> accessed 14 October
2014, Art 3, para 3.13 [Draft Commentary on the Hague Principles]: ‘While the Principles do
not generally distinguish between arbitration and court proceedings with respect to choice of
law by the parties, they recognise that a limitation on the freedom to choose rules of law is justified
in judicial proceedings where the law of the forum confines the parties’ freedom to a choice of State
law’. For a critical view of these qualifications and their possible meaning, see Radicati di Brozolo
(n 6) 860.
Rev. dr. unif., Vol. 19, 2014, 519–541

clauses to that end (see the footnote to the UPICC Preamble and the ‘Model Clauses
for the Use of the UNIDROIT Principles of International Commercial Contracts’).45
The Hague Principles, however, like the PICC, are a soft law instrument in-
tended to induce (i) those domestic legislatures that have not yet done so to allow
parties the full, broad, and unlimited autonomy to determine the law applicable
to the contract and (ii) courts to adopt a more liberal approach in the interpret-
ation of the conflict rules of their lex fori. As long as domestic legislatures have not
adopted the provisions contained in the Hague Principles and as long as domestic

courts have not used them to interpret and develop the conflict rules of their lex
fori, the different treatment of choice of ‘law’ before domestic courts and choice of
‘rules of law’ before international arbitral tribunals will remain. The UNIDROIT
working group took account of this intrinsic difference in the qualification of the
choice of the PICC by the parties and offers an alternative clause for the incorp-
oration of the PICC in the terms of the contract.46
A. Exclusive choice of the PICC

The first category of the Model Clauses enables parties to have the PICC applied as
the exclusive proper law of the contract, without reference to any additional or
supplemental body of law: ‘This contract shall be governed by the UNIDROIT
Principles of International Commercial Contracts (2010).’47 With this straight-
forward approach, the Model Clause follows the concept that the drafters of the
PICC envisioned and laid down in paragraph 2 of the preamble, which provides
that the PICC ‘shall be applied when the parties have agreed that their contract be
governed by them’. Since the second edition of 2004, an asterisk footnote is
attached to that paragraph containing an identically worded choice-of-law
clause, but adding the optional text ‘except as to Articles’. The effect of such a
choice before international arbitral tribunals has been described earlier—the
PICC apply to the exclusion of any other domestic law.48 There are many reasons
why parties might wish for the exclusive application of transnational legal prin-
ciples, such as those reflected in the PICC, to their contract. When the PICC were
first published in 1994, it was argued that their neutrality, their obvious virtues
and intrinsic merits—flexibility and broad applicability to all types of interna-
tional contracts—would make it easy for the parties to agree on them as the law
applicable to the contract.49 Parties to an international business transaction
are usually aware of the intrinsic unpredictability of judicial decision making.50
45
Ibid, Art 3, para 3.6.
46
See below note 75.
47
UNIDROIT (ed) (n 14) 6; see ibid 8 for a similar Model Clause to be used for submission agreements
concluded after the dispute has arisen.
48
See text at note 28.
49
Fontaine (n 16) 81.
50
Ole Lando, ‘The Law Applicable to the Merits of the Dispute’ in Sarcevic (ed), Essays on
International Commercial Arbitration (Graham and Trotman 1989) 129, 141: ‘Even the best
lawyer in the most highly developed country is often in doubt. Moreover, predictability is only
one of several social values. Rules which create certainty and predictability also bring about
Unif. L. Rev., Vol. 19, 2014, 519–541

Yet, they often want the arbitral tribunal to apply the applicable law in a less rigid
fashion, detached from the particularities of domestic laws, which may not be apt
to resolve complex issues of cross-border transactions, and guided by the use of
such ‘notions à contenu variable’51 as good faith and fair dealing or the flexible, but
at the same time highly practical, standard of reasonableness. In fact, one of the
reasons for recourse to international arbitration is often precisely in pursuit of an
application of the law that is less formalistic or parochial and, most importantly,
more in tune with the realities of international business.52 From this perspective,
therefore, a combination of an arbitration clause with a choice of the PICC as the

law governing the contract makes perfect sense.
However, the choice of the PICC as the exclusive law governing the contract
must necessarily remain incomplete.53 It is for this reason that the Model Clause
contained in the asterisk footnote to the preamble of the PICC has been char-
acterized as ‘inadequate’.54 Like the CISG for international sales contracts,55 the
PICC do not and cannot constitute an exhaustive body of rules for international
contracts in general. They do not contain solutions for every conceivable problem
and legal issue that could arise in disputes involving such contracts. Like the
CISG,56 the PICC contain ‘internal’ and ‘external’ gaps. In line with Article
7(2) of the first alternative CISG, Article 1.6(2) of the PICC deals with internal
gaps—that is, ‘issues within the scope of these Principles but not expressly settled
by them’. It makes use of the quality of the PICC as a self-contained system of
principles and rules. From their interaction and by way of a dialectical process,
solutions for new issues that are not specifically resolved in them can be
deduced.57 Article 1.6(2) of the PICC provides that such internal gaps ‘are as
far as possible to be settled in accordance with their underlying general prin-
ciples’. Such general principles underlying the PICC include: good faith and fair
dealing in international trade (Article 1.7) (a fundamental principle that may be
regarded as the source of many of the more specific principles and rules contained
in the PICC),58 freedom of contract (Article 1.1), sanctity of contracts (‘pacta sunt
rigidity. The legal process is not and can never be a mere syllogism. It is above all an effort to reach
the most fair and appropriate solution. In this process, which is partly inventive, the arbitrator will
have to take the special circumstances of the case into account.’
51
Chaim Perelman (ed), Les notions à contenu variable en droit (Bruylant 1984).
52
Radicati di Brozolo (n 6) 862, n 61.
53
Schnyder and Grolimund (n 24) 404.
54
R Michaels, in S Vogenauer and J Kleinheisterkamp (eds), Commentary on the UNIDROIT Principles
on International Commercial Contracts (OUP 2009) Preamble, para 46.
55
Franco Ferrari, ‘The CISG’s Interpretative Goals, Its Interpretative Method and Its General
Principles in Case Law (Part II)’ (2013) 13 Internationales Handelsrecht 181, 187ff.
56
I Schwenzer and P Hachem, in Schlechtriem and I Schwenzer, Commentary on the UN Convention
on the International Sale of Goods (3rd edn, OUP 2010) Art 7, para 27; Brunner (n 23) Art 7, para 7.
57
For this approach, see Berger (n 3) 265ff; see Schwenzer and Hachem (n 56) para 30:
‘Gap-filling . . . is an instrument of developing the Convention and adjusting it to new needs’.
58
See Commentary to Trans-Lex Principle no I.1.1 on Good Faith and Fair Dealing in International
Trade <http://www.trans-lex.org/901000> para 4; see also Thomas Neumann, The Duty to
Cooperate in International Sales (Sellier 2012) 116ff.
Rev. dr. unif., Vol. 19, 2014, 519–541

servanda’) (Article 1.3), the principle of upholding the contract (favor contractus)
(Article 7.3.1), the applicability of usages in the relevant trade and practices es-
tablished between the parties (Article 1.9), the right to withhold performance
(Article 6.1.4(1)), the standard of reasonableness (Article 1.9(2), 2.2.5(2),
3.3.2(1), 4.1(2), 4.2(2), 4.8(2) (d), 5.1.3, 5.1.4(2), 7.2.2(b), (c), and (e),
7.3.1(2)(a)), the duty to cooperate in good faith (Article 5.1.3), the principle of
freedom of form (Article 1.2), the principle of full compensation of damages in
cases of breach (Article 7.4.1), the duty to mitigate damages (Article 7.4.8), the
duty to pay interest (Article 7.4.9), the principle of restitution/unjust enrichment

(Articles 3.2.15 and 3.3.2), and similar fundamental concepts.59
While this treatment of internal gaps in the PICC is in perfect harmony with the
parties’ deliberate choice of the Principles as the exclusive law of the contract,
there are also external gaps in them. Such gaps relate to issues that are outside of
the scope of the PICC and that, therefore, require an approach that is different
from the solution provided for in Article 1.6(2) on internal gaps. It must be noted
that the number of such external gaps has decreased considerably since the PICC
were first published in 1994 because a number of new chapters were added in the
editions of 2004 (on authority of agents, third party rights, set-off, assignment of
rights, transfer of obligations and assignment of contracts, and limitation peri-
ods) and 2010 (restitution in case of failed contracts, illegality, conditions, and
plurality of obligors and of obligees). However, there will always be issues that are
outside of the scope of the PICC. This may be due to the specific nature of these
issues (which may be related to their public policy nature or to the personal
standing of a party to the contract) or due to the fact that no general principle
can be determined for this specific problem because the solutions found in do-
mestic legal systems, arbitral case law, and contract practice are too diverse.
One example for the first scenario is Article 3.1.1 of the PICC. It provides that
the PICC do not deal with the lack of capacity of a party to conclude the con-
tract—for example, ultra vires and related concepts. Another example is reflected
in Article 4(b) of the CISG. This article provides that the CISG is not concerned
with ‘the effect which the contract may have on the property in the goods sold’.
Like the CISG, the PICC do not deal with property law issues. Similar to the
approach taken in the second alternative of Article 7(2) CISG, an arbitrator faced
with a choice-of-law clause relating to the PICC would have to resolve the issue
based on the law applicable by virtue of the conflict rules that are part of this lex
arbitri. In the case of Article 3.1.1, this would be the law of the country where that
party has its seat or whose nationality it holds. In cases where property issues are
at stake, the arbitral tribunal would refer to the lex rei sitae rule as a generally
accepted conflict rule for international property law issues. A third example
59
For the CISG Ferrari (n 55) 190ff; Ulrich Magnus, ‘Die allgemeinen Grundsätze im UN-Kaufrecht’
(1995) 59 Rabels Zeitschrift für ausländisches und internationales Privatrecht 469; Schwenzer and
Hachem (n 56) Art 7, para 31ff; M Perales Viscasillas, in Kröll, Mistelis, and Perales Viscasillas
(n 21) Art 7, para 58ff; for transnational law in general, see the TransLex Principles <http://www.
trans-lex.org/principles> accessed 14 October 2014.
Unif. L. Rev., Vol. 19, 2014, 519–541

relates to contracts that, by virtue of their terms, performance, purpose, or for-

mation, infringe upon overriding mandatory rules of law, such as those relating to
antitrust, bribery, money laundering, or child labour.60 Article 1.4 provides that
nothing in the PICC shall restrict their application, which shall be determined
according to the ‘relevant rules of private international rules’. Consequently,
Article 3.3.1(1), which was included in the 2010 edition of the PICC, stipulates
that the effects of this infringement upon the contract ‘are the effects, if any,
expressly prescribed by that mandatory rule’. In the context of these public
policy issues, the PICC are treated like any other choice of domestic law, which

may be overridden by application of mandatory provisions of third legal systems or
ethical or policy values that form part of transnational public policy. All of these
examples show that, in the case of such external gaps, the parties’ choice of law as
expressed in the Model Clauses cannot be exclusive. Instead, the PICC must neces-
sarily be supplemented by domestic law and/or transnational public policy.
B. Non-exclusive choice of the PICC

The commentary to the Model Clauses correctly states that, because the conflict
rules to which an arbitral tribunal will refer in cases of external gaps may not be
clear-cut and predictable,61 the omission of a reference in the choice-of-law clause
to the rules to be applied in such cases ‘may result in some uncertainty as to the
source of rules that will apply to matters outside the scope of the UNIDROIT
Principles’.62 A proper model clause, however, must achieve completeness by
providing applicable norms for all conceivable circumstances.63 In order to
enable contracting parties to avoid uncertainty as to the applicable legal rules
from the outset, the working group drafted two additional Model Clauses that
contain a specific choice of the applicable legal rules for cases where the arbitral
tribunal is confronted with external gaps.
The first of these Model Clauses combines the choice of the PICC with the
choice of a specific domestic law. It provides: ‘This contract shall be governed by
the UNIDROIT Principles of International Commercial Contracts (2010) and, with
60
These rules can be of national, international or supra-national character. Bernd von Hoffmann,
‘Internationally Mandatory Rules of Law before Arbitral Tribunals’ in Karl-Heinz Böckstiegel (ed),
Acts of State and Arbitration (Carl Heymanns 1997) 3ff; Marcus Commandeur and Sebastian
Gössling, ‘The Determination of Mandatory Rules of Law in International Arbitration: An
Attempt to Set Out Criteria’ (2014) 12 Zeitschrift für Schiedsverfahren 12; Alfred Siwy,
‘Mandatory Rules in International Commercial Arbitration’ in Christian Klausegger and others,
Austrian Yearbook on International Arbitration (CH Beck / Stämpfli / Manz 2012) 165ff.
61
Leo Raape and Fritz Sturm, Internationales Privatrecht, volume 1 (6th edn, Vahlen 1977) 199
(conflict of laws as ‘jump in the dark’); see also Clive M Schmitthoff, ‘Die künftigen Aufgaben der
Rechtsvergleichung’ (1978) 33 Juristenzeitung 495, 497: ‘Private international law, especially the
search for the applicable law, is an artificial barrier to world trade created by men’s hands’ [trans-
lation by the author]; Ernst Rabel, ‘A Comparative Study of the Conflict of Laws (Schriften aus
dem Nachlaß)’ (1986) 50 Rabels Zeitschrift für ausländisches und internationales Privatrecht 303:
‘Indeed, there is no other branch of legal science where controversy and uncertainty hang over so
many basic notions, and means and ways appear so inadequate to the scope’.
62
UNIDROIT (ed) (n 14) 8; see also Michaels (n 54).
63
Michaels (n 54).
Rev. dr. unif., Vol. 19, 2014, 519–541

respect to issues not covered by such Principles, by the law of [State X].’64 The
asterisk footnote to paragraph 2 of the preamble of the PICC contains a similar
clause that provides that the parties’ choice of the PICC as the law governing their
contract shall be ‘supplemented when necessary by the law of [jurisdiction X’].
The commentary to that paragraph states that the meaning of this wording is
identical to the Model Clauses—that is, that the chosen domestic law ‘should
apply to issues not covered by the [PICC]’.65 Similar clauses have been used in
contract practice since the PICC were first published.66 If there is a conflict be-
tween the PICC and the chosen domestic law due to an overlapping application,67

the PICC will prevail as the primary choice of the parties.68
The second category of the Model Clauses may be used in cases where the
parties, rather than agreeing on a blend of transnational legal principles and
domestic law, shy away from the reach of any domestic law69 and choose to
remain within the ambit of transnational legal principles, even with respect to
external gaps of the PICC. In light of the parties’ primary choice of the PICC as the
law governing their contract, this should be the preferred approach.70 To achieve
this goal, the Model Clauses provide: ‘This contract shall be governed by the
UNIDROIT Principles of International Commercial Contracts (2010) and, with re-
spect to issues not covered by such Principles, by generally accepted principles of
international commercial law.’71 The commentary states that the parties, instead
of referring to ‘generally accepted principles of international commercial law’,
may also refer to ‘general principles of law’, ‘generally accepted principles of
international contract law’, ‘the lex mercatoria’, ‘international customs and
usages’, or the like.72 By using such or similar terminology, the parties make it
clear that they do not want external gaps to be governed by any domestic law.
Such a transnational approach to the filling of external gaps has been chosen in a
number of model contracts such as the ICC’s Model International Franchising
Contract73 and its Distributorship Model Contract.74 This is also similar to the
approach taken in paragraph 3 of the preamble to the PICC.
64
UNIDROIT (ed) (n 14) 9; see also 10 for a similar Model Clause to be used for submission agreements
concluded after the dispute as arisen.
65
UNIDROIT Principles 2010, Preamble, Comment 4.a.
66
Bonell (n 2) 275.
67
For this scenario, see Scherer, in Vogenauer and Kleinheisterkamp (n 54) Preamble 2, para 11.
68
Bortolotti (n 13) 59.
69
For the intrinsic limits of this approach with respect to overriding provisions of domestic law, text
at note 30.
70
Schnyder and Grolimund (n 24) 404.
71
UNIDROIT (ed) (n 14) 11; see also 102 for a similar Model Clause to be used for submission
agreements concluded after the dispute has arisen.
72
UNIDROIT (ed) (n 14) 102.
73
ICC Model International Franchising Contract, ICC no 712 (2011) Art 32A: ‘This Agreement is
governed by the rules and principles of law generally recognized in international trade together
with the UNIDROIT Principles on International Commercial Contracts’.
74
ICC Model Distributorship Contract (sole importer-distributor), ICC no 646 (2nd edn, 2002) Art
24: ‘Any questions relating to this Agreement which are not expressly or implicitly settled by the
Unif. L. Rev., Vol. 19, 2014, 519–541

2. The PICC as the incorporated terms of the contract

For those cases where the parties apply the PICC as contract terms rather than as
the law of the contract, the working group drafted the following category into the
Model Clauses: ‘The UNIDROIT Principles of International Commercial Contracts
(2010) are incorporated in this contract to the extent that they are not inconsist-
ent with the other terms of the contract.’75 The effect of this clause is that the
PICC will override the non-mandatory rules of the proper law of the contract,
which applies due to a choice-of-law clause of the parties in the contract or, absent

such a choice, due to the application of the conflict rules of the court’s lex fori or
the arbitral tribunal’s lex arbitri. Mandatory rules of the proper law of the contract
and overriding mandatory rules of the third legal system or transnational public
policy will, however, prevail over the PICC. The wording of the Model Clauses
makes it clear that the same applies to contract clauses that are in conflict with
individual provisions of the PICC. Given that the principles and rules in the PICC
are rather broad, while the provisions contained in the contract will typically be
tailored to the specificities of the transaction for which the contract was con-
cluded, such conflicts will likely be rare in practice. Thus, the hierarchy of legal
rules applicable under the Model Clauses76 follows this order:
(i) rules of transnational public policy;
(ii) mandatory overriding rules of third legal systems;
(iii) mandatory rules of the proper law of the contract;
(iv) contract terms other than the PICC;
(v) PICC; and
(vi) non-mandatory rules of the proper law of the contract.
3. The PICC as a means to interpret and supplement the CISG

The PICC and the CISG, in spite of their different legal character, are two com-
plimentary instruments77 that are both influenced by the same transnational
spirit. The PICC’s function as interpreting and supplementing the CISG has
been envisaged from the very beginning.78 It is, thus, not surprising that since
they were first published, the PICC have been used as a means to interpret and
provisions contained in this Agreement shall be governed, in the following order: a) by the prin-
ciples of law generally recognized in international trade as applicable to international distributor-
ship contracts; b) by the relevant trade usages; and c) by the UNIDROIT Principles of International
Commercial Contracts, with the exclusion—subject to Article 18.2. hereunder—of national laws.’
Similar clauses are contained in the ICC Model Commercial Agency Contract, ICC no 644 (2nd
edn, 2002); ICC Model M and A Contract I: Share Purchase Agreement, ICC no 656 (2004); ICC
Model Selective Distributorship Contract, ICC no 657 (2004); ICC Model Contract for the
Turnkey Supply of an Industrial Plant, ICC no 653 (2003). See Bortolotti (n 13) 62ff.
75
76
Michaels (n 54), emphasizing that a proper model clause must achieve completeness by providing
applicable norms for all circumstances and indicate the hierarchy between these sources.
77
Bonell (n 2) 302ff, paras 21-014ff.
78
Huet (n 20) 277.
Rev. dr. unif., Vol. 19, 2014, 519–541

supplement the CISG.79 This function has been expressly endorsed by the United
Nations Commission on International Trade Law, thereby attaching additional
weight to the role of the PICC in the CISG context.80 A typical example for this
function of the PICC would be the apodictic and highly controversial interest
provision of Article 78 of the CISG. It states that a creditor is entitled to interest
but leaves open the important questions of the interest rate and the time from
which interest runs. To fill this gap, arbitrators may refer to Article 7.4.9 of the
PICC. Thus, in ICC Award no. 8128,81 rendered in 1995, the arbitrator referred to
Article 7.4.9(2) of the PICC for guidance to determine the rate of interest when

applying Article 78 of the CISG. The ITC’s Model Contract for the Commercial
International Sale of Perishable Goods contains a choice-of-law clause combining
the CISG and the PICC.82 It was therefore natural that the working group drafted a
Model Clause allowing the parties to provide for such a purpose of the PICC in their
contract: ‘This contract shall be governed by the United Nations Convention on
Contracts for the International Sale of Goods (CISG) interpreted and supplemented
by the UNIDROIT Principles of International Commercial Contracts (2010).’83
This important supplementary function of the PICC is specifically mentioned
in paragraph 5 of the preamble to the PICC. It states that the PICC ‘may be used to
79
Fabian Burkart, Interpretatives Zusammenwirken von CISG und UNIDROIT Principles (Nomos 2000)
211ff; Scherer (n 67) para 44; Brunner (n 23) Art 7, para 9; Michael J Bonell, ‘The UNIDROIT
Principles as a Means of Interpreting and Supplementing International Uniform Law’ (2002)
ICC International Court of Arbitration Bulletin, Special Supplement 29, 30ff; Farnsworth
(n 17) 25ff; see also ICC Award no 11638 (2002) <http://www.unilex.info/case.cfm?id=1407>
accessed 14 October 2014; ICC Award no 12097 (2003) <http://www.unilex.info/case.
cfm?id=1403> accessed 14 October 2014; ICC Award no 11265 (2003) <http://www.unilex.
info/case.cfm?id=1416> accessed 14 October 2014; ICC Award no 11849 (2003) <http://www.
unilex.info/case.cfm?id=1159> accessed 14 October 2014; ICC Award no 12460 (2004)
<http://www.unilex.info/case.cfm?id=1411> accessed 14 October 2014; but for a more restrictive
approach (the PICC do not reflect ‘principles on which the CISG is based’), see Schwenzer and
Hachem (n 56) Art 7, para 36.
80
See Report of the UNCITRAL on the Work of Its Fortieth Session (25 June–12 July 2007) <http://
www.uncitral.org/uncitral/en/commission/sessions/40th.html> accessed 14 October 2014 paras
210ff: ‘The Commission recognized that the UNIDROIT Principles 2004 complemented a number of
international trade law instruments, including the United Nations Convention on Contracts for
the International Sale of Goods (1980) . . . The United Nations Commission on International
Trade Law, Expressing its appreciation to the International Institute for the Unification of
Private Law (UNIDROIT) for transmitting to it the text of the 2004 edition of the UNIDROIT
Principles of International Commercial Contracts . . . Taking note that the UNIDROIT Principles
2004 complement a number of international trade law instruments, including the United Nations
Convention on Contracts for the International Sale of Goods (1980), . . . Commends the use of the
UNIDROIT Principles 2004, as appropriate, for their intended purposes.’ Perales Viscasillas (n 59)
Art 7, para 61, emphasizing that this endorsement is not limited to the use of the PICC by the
parties.
81
ICC Award no 8128 (1995) at 1024 with note by Dominique Hascher (1028ff); see also ICC Award
no 8817 (2000) 354, 357; ICC Award no 8769 (1999) 75.
82
ITC Model Contract for the Commercial International Sale of Perishable Goods (2002) Art 14:
‘Insofar as any matters are not covered by the foregoing provisions, this Contract is governed by
the following, in descending order of precedence: The UN Convention on Contracts for the
International sale of Goods, The UNIDROIT Principles of International Commercial Contracts,
For matters not dealt with in the above mentioned texts, the applicable law at . . . or in the absence
of a choice of law, the law applicable at the Seller’s place of business through which this Contract is
to be performed’. Bortolotti (n 13) 63.
83
UNIDROIT (ed) (n 14) 17; see also 18 for a similar Model Clause to be used for submission agree-
ments concluded after the dispute has arisen.
Unif. L. Rev., Vol. 19, 2014, 519–541

interpret or supplement international uniform law instruments’. UNIDROIT’s of-

ficial commentary makes it clear that this purpose reflects the need for an
autonomous interpretation of uniform law instruments such as the CISG.84
International uniform law instruments, such as the CISG, always risk being
diluted and ‘domesticated’ once their terms are transformed into a domestic
legal system and made subject to that particular jurisdiction’s traditional methods
of construction, despite its international origin and nature.85 This has always been
considered to be a major weakness of the creation of international uniform law
through international conventions or model laws.86 In addition, it is a natural

consequence of the legal process that different courts will interpret identical
uniform rules differently.87 It is, therefore, of the utmost importance to construe
and apply provisions of uniform law from a comparative perspective, even after
their transformation into domestic law.88
It is for this very reason that Article 7(1) of the CISG provides that in the
interpretation of the CISG, ‘regard is to be had to its international character
and to the need to promote uniformity in its application’. Article 7(2) of the
CISG, in line with Article 1.6(2) of the PICC, provides that ‘[q]uestions concern-
ing matters governed by [the CISG] which are not expressly settled in it [that is,
internal gaps89] are to be settled in conformity with the general principles on
which it is based’. In this context, the PICC perform the important function of
providing a collection and ‘codification’ of ‘broad principles of general accepta-
tion’90 and ‘excellent evidence’ of an internationally accepted solution.91 As such,
they may serve as guidelines for an autonomous and comparative method of con-
struction and of gap filling of the CISG and other instruments of uniform law in
the area of international contract law. Reference to the PICC as a restatement of
84
UNIDROIT Principles, Preamble, Comment 5.
85
Cf the statement of Lord Diplock, in Fothergill v Monarch Airlines Ltd, AC [1981] 251: ‘The
language of an international convention is addressed to a much wider and more varied judicial
audience than is an Act of Parliament dealing with purely domestic law. It should be interpreted as
Lord Wilberforce put it in Buchanan’s case, unconstrained by technical rules of English law, or by
English legal precedent, but on broad principles of general acceptation’.
86
Cf Georg Schwarzenberger, ‘The Principles and Standards of International Economic Law’
(1966-I) 117 Recueil des Cours 1, 9ff: ‘As is proved by the practices of multilateral conventions
which depend for their application on national organs, in particular courts, the attempts made at
the unification of diverging national laws have proved less promising than expected. The strength
of centrifugal trends in the application of conventions such as those on carriage by sea and air bears
on this skepticism’.
87
Franco Ferrari, ‘Interprétation uniforme de la Convention de Vienne de 1980 sur la vente inter-
nationale’ (1996) 48 Revue internationale de droit comparé 813, 831.
88
Jan Kropholler, Internationales Einheitsrecht (Mohr Siebeck 1975) 287ff; Frank Diedrich,
Autonome Auslegung von Internationalem Einheitsrecht (Nomos 1994) 73ff; Marianne Roth and
Richard Happ, ‘Interpretation of Uniform Law Instruments According to Principles of
International Law’ (1997) 2 Uniform Law Review 700, 702ff.
89
See text at notes 58 and 59 in this article.
90
Clive M Schmitthoff, International Trade Usages (ICC-Publishing 1987) 33.
91
Ulrich Magnus, ‘Wesentliche Fragen des UN-Kaufrechts’ (1999) 7 Zeitschrift für Europäisches
Privatrecht 642, 648; Brunner (n 23) Art 7, para 9.
Rev. dr. unif., Vol. 19, 2014, 519–541

transnational contract law92 makes the decision-making task of the arbitrator, who
is faced with the need to interpret or fill internal gaps in the CISG, considerably
easier.93
It is important to note, however, that the purpose and scope of the Model
Clauses go beyond Article 7(2) of the CISG since the Model Clauses contain a
choice of the CISG by the parties to the contract. Such a choice is necessary only in
those cases where the otherwise applicable domestic law has not incorporated the
CISG, such that it would not ‘automatically’ be applicable through the objective
requirements contained in Article 1(1)(a) or (b) of the CISG.94 The effect of such

a choice, which should not be confused with the parties’ choice of law of a con-
tracting state,95 is similar to that of the PICC being incorporated as terms of the
contract if it is to be determined by domestic courts.96 The CISG applies not due
to its quality as an international convention that has been adopted into a domestic
legal system but, rather, as a result of the parties’ contractual agreement—that is,
as a soft law instrument. While this reduces the legal authority with which the
CISG applies to the contract, the authority of the PICC increases in that they may
be used to fill not only internal, but also external, gaps—that is, cover issues,
which are outside the scope of the CISG.97 This would, of course, be subject to the
caveat that neither the provisions in the CISG nor those in the PICC violate the
domestic law that would otherwise be applicable to the contract. Before interna-
tional arbitral tribunals, however, such a choice may be qualified as a proper
92
ICC Award no 9797 (2000), excerpt reproduced in Marrella (n 3) 424: ‘The UNIDROIT Principles of
International Commercial Contracts are a reliable source of international commercial law in
international arbitration for they contain in essence a restatement of those “principes directeurs”
that have enjoyed universal acceptance and, moreover, are at the heart of those most fundamental
notions which have consistently been applied in arbitral practice’. See also Michael J Bonell, ‘A
“Global” Arbitration Decided on the Basis of the UNIDROIT Principles: In re Andersen Consulting
Business Unit Member Firms v. Arthur Andersen Business Unit Member Firms and Andersen
Worldwide Société Coopérative’ (2001) 17 Arbitration International 249, 252.
93
See Otto Sandrock, ‘How Much Freedom Should an International Arbitrator Enjoy? – The Desire
for Freedom from Law v. The Promotion of International Arbitration’ (1992) 3 American Review
of International Arbitration 30, 50ff: ‘The arbitrator [who wants to apply transnational legal prin-
ciples] would . . . face a formidable task of comparative research. Instead of having to consult, after
application of the appropriate rule of conflict of laws, the rules of one single—no
more—national system of law, he would have to assume the rule of a full-fledged comparatist
in charge of a research into perhaps a multitude of different national jurisdictions whose rules
might be phrased in a language of which he is not in command. There might be fields of law, it is
true, where such comparative research would have already been done, where a specific rule would,
therefore, be easily detectable or where arbitral awards would have already flattened some paths in
the jungle of the different national laws to be consulted. But an unforeseeable number of legal
questions for which such research has never been carried out, would still have to be answered by
arbitrators who, despite their often unusually extensive experience with foreign and international
laws, would mostly be ill equipped to perform this kind of a more academic function’. But see
Gaillard (n 3) 208ff, who argues that transnational legal principles cannot be determined in ad-
vance but only on an ad hoc basis—that is, once a dispute has arisen.
94
See text at note 21 in this article.
95
Schwenzer and Hachem (n 56) Art 6, para 32.
96
Brunner (n 23) Art 6, para 10; Ulrich Magnus, in Staudinger, Wiener UN-Kaufrecht (Sellier 2013)
Art 6, para 64; but for a different view qualifying the parties’ choice of the CISG as a proper choice
of law, see Schwenzer and Hachem (n 56) Art 6, para 35; ‘Dutch Hoge Raad’ (1992) Nederlandse
Jurisprudentie 205.
97
UNIDROIT (ed) (n 14) 18; for this function, see Schwenzer and Hachem (n 56) Art 7, para 36 in fine.
Unif. L. Rev., Vol. 19, 2014, 519–541

choice of the CISG as lex contractus overriding the mandatory provisions of the
otherwise applicable domestic law.98
Another interesting effect of the approach pursued with this category of the
Model Clauses is a hierarchy of the gap-filling rules caused by the interplay of
Article 7(2) of the CISG and Article 1.6 of the PICC. Gaps in the CISG are to be
filled by the rather specific, concrete, and authoritative rules contained in the
PICC, while gaps in the PICC must be filled with unwritten general principles of
law, which an arbitral tribunal must identify on an ad hoc basis, unless it refers
back to such collections as the TransLex Principles.99

4. The PICC as a means to interpret and supplement the
applicable domestic law
Shortly after the first edition of the PICC was published in 1994, it was argued that
the list of options contained in the PICC preamble was not exhaustive and that it,
therefore, should be considered whether the PICC’s purpose was limited to pro-
viding guidelines for the interpretation and construction of international uniform
law instruments. It was suggested that the international spirit and comparative
wealth contained in the PICC could also be used to develop a method for the
‘internationally useful’ construction of domestic laws.100 This option had not
been considered by the drafters of the 1994 edition.101 A survey of the actual
practice under the 1994 PICC revealed that in almost half of the reported cases
where judges or arbitrators had referred to the PICC they had been used to
interpret or supplement the otherwise applicable domestic law.102 The father of
the PICC himself acknowledged that this role of the PICC, though not expressly
stated in the preamble of the 1994 PICC, was widely acknowledged in legal
writings.103 Therefore, it was included as a fifth option in the preamble of the
2004 PICC. The working group has drafted a Model Clause that corresponds to
98
See text at note 28 for the similar problem of the choice of the PICC.
99
The TransLex-Principles are part of the TransLex research platform operated by the Center for
Transnational Law (CENTRAL) at <www.trans-lex.org> accessed 14 October 2014.
100
Klaus Peter Berger, The Creeping Codification of the Lex Mercatoria (Kluwer Law International
1999) 183ff; see also Matthias E Storme, ‘Applications possibles et caractères généraux des prin-
cipes de droit uniforme des contrats’ (1995) 72 Revue de droit international et de droit comparé
309, 316ff, stating that in this respect the UNIDROIT Principles are less explicit than the Lando
Principles; see also Johannes Christian Wichard, ‘Die Anwendung der UNIDROIT-Prinzipien für
internationale Handelsverträge durch Schiedsgerichte und staatliche Gerichte’ (1996) 60 Rabels
Zeitschrift für ausländisches und internationales Privatrecht 269, 299ff.
101
Bonell (n 79) 29.
102
Michael J Bonell, An International Restatement of Contract Law (3rd edn, Transnational
Publishers 2004) 294ff, pointing out that the domestic laws governing the individual contracts
in the cases in question were far from being only those of less developed countries but included,
inter alia, the laws of Australia, England, Finland, France, Greece, Italy, the Netherlands, New
Zealand, Switzerland, and the state of New York; see also Norbert Horn, ‘The Use of
Transnational Law in the Contract Law of International Trade and Finance’ in Klaus Peter
Berger (ed), The Practice of Transnational Law (Kluwer Law International 2001) 67, 76, referring
to a ‘surprisingly great number of cases’.
103
Michael J Bonell, ‘The UNIDROIT Principles and Transnational Law’ in Klaus Peter Berger (ed),
The Practice of Transnational Law (Kluwer Law International 2001) 23, 37.
Rev. dr. unif., Vol. 19, 2014, 519–541

this purpose of the PICC: ‘This contract shall be governed by the law of [State X]
interpreted and supplemented by the UNIDROIT Principles of International
Commercial Contracts (2010).’104
Many arbitral tribunals have adopted the technique of the international useful
construction of domestic law.105 In ICC Award no. 8486 of 1996,106 the sole
arbitrator, having before him a dispute between a Dutch and a Turkish party,
was confronted with the Turkish respondent’s allegation that exchange rate fluc-
tuations in his country had discharged him from his payment obligation vis-à-vis
the claimant under the hardship provision of Article 6:258 of the applicable new

Dutch Civil Code. The arbitrator was, thus, faced with a task that is typical in
international transactions: the reconciliation of the principle of ‘sanctity of con-
tracts’ with the doctrine of excuse from performance, as reflected in the notions of
force majeure and hardship. To justify his decision that these doctrines, even
under Dutch law, only apply in very rare and extraordinary circumstances, the
sole arbitrator referred not only to Dutch legal writings but also to Article 6.2.1 of
the PICC. Thus, with reference to them, the arbitrator arrived at a restrictive and
internationally useful interpretation of Dutch domestic law. Interestingly enough,
he found support for this approach in Dutch legal doctrine. A Dutch scholar
maintains that in interpreting Dutch legal rules in international contexts, and the
provisions on hardship and force majeure contained in the new Civil Code in
particular, Dutch judges should draw inspiration from the PICC.107 This ap-
proach completes the circle. The PICC have not only inspired the Dutch
104
UNIDROIT (ed) (n 14) 20; see also 22 for a similar Model Clause to be used for submission agree-
ments concluded after the dispute has arisen.
105
Klaus Peter Berger, ‘Vom praktischen Nutzen der Rechtsvergleichung’ in Klaus Peter Berger,
Werner F. Ebke, Siegfried Elsing, Bernhard Grobfeld, Gunther Kühne, Festschrift Sandrock
(Verlag Recht und Wirtschaft 2000) 49, 62ff; Scherer (n 67) para 54; François Dessemontet,
‘L’utilisation des Principes d’ UNIDROIT pour interpréter et compléter le droit national’ (2002)
ICC International Court of Arbitration Bulletin, Special Supplement 39, 47ff; ICC Award no
11869 (2000) <http://www.unilex.info/case.cfm?id=1659> accessed 14 October 2014; ICC
Award no 12112 (2000) <http://www.unilex.info/case.cfm?id=1660> accessed 14 October
2014; ICC Award no 12745 <www.unilex.info/case.cfm?id=1665> accessed 14 October 2014;
ICC Award no 8223 (1998) <http://www.unilex.info/case.cfm?id=662> accessed 14 October
2014; ICC Award no 8908 (1998) <http://www.unilex.info/case.cfm?id=663> accessed 14
October 2014; ICC Award no 9593 (1998) <http://www.unilex.info/case.cfm?id=666> accessed
14 October 2014; ICC Award no 10021 (2000) http://<www.unilex.info/case.cfm?id=832>
accessed 14 October 2014.
106
ICC Award no 8486 (1996) at 1047 (English translation in (1999) XXIV Yearbook Commercial
Arbitration 162); see also Klaus Peter Berger, ‘International Arbitral Practice and the UNIDROIT
Principles for International Commercial Contracts’ (1998) 46 American Journal of Comparative
Law 129, 140ff; Klaus Peter Berger, ‘The Lex Mercatoria Doctrine and the UNIDROIT Principles of
International Commercial Contracts’ (1996–97) 28 Georgetown Journal of Law and Policy in
International Business 943, 983; Olaf Meyer, Principles of Contract Law und nationales
Vertragsrecht (Nomos 2007) 229ff; Charles N Brower and Jeremy K Sharpe, ‘The Creeping
Codification of Transnational Commercial Law: An Arbitrator’s Perspective’ (2004) 45
Virginia Journal of International Law 199, 214; Marrella (n 3) 447ff; Schnyder and Grolimund
(n 24) 402; Scherer (n 67) para 54, n 100; for a similar approach to the interpretation of the Italian
lex causae, see ICC Award no 8908 (1998) <http://www.unilex.info/case.cfm?id=663> accessed
14 October 2014.
107
Cf Martin Kuijer, ‘Een vergelijking van “hardship” uit de UNIDROIT -regeling met de onvoorziene
omstandigheden uit de artikel 6:258 van het BW’ (April 1996) 45 Ars Aequi 16, 19.
Unif. L. Rev., Vol. 19, 2014, 519–541

legislature when drafting the new Code, but arbitrators have also resorted to them
when interpreting the new law. Thus, in this case, the PICC stand at the very
beginning and at the very end of the legal process, confirming their central pos-
ition as a standard reference point for judges, arbitrators, and counsel.
IV. The ‘Caveat’ Note

The last category of the Model Clauses discussed earlier reveals some general
problems that the new Model Clauses drafted by the UNIDROIT working group

might cause in practice. The first problem relates to the question whether it is
useful to fix the court’s or arbitral tribunal’s authority for an internationally
useful construction of the applicable domestic law ex ante and in a broad and
general manner in the choice-of-law clause in the contract or in a submission
agreement concluded after the dispute has arisen. Would it perhaps make more
sense to rely on the court’s or tribunal’s ability to pursue this approach ‘spon-
taneously’ and ‘selectively’—that is, on an ad hoc basis during the proceedings
and with respect to specific legal issues that have emerged during the arbitration,
after views on this point, with respect to a specific legal issue that has become
relevant for the resolution of the dispute, have been exchanged between the
parties and the judges or arbitrators? The answer to this question will most prob-
ably depend on the quality and sophistication of the applicable law on which the
parties have agreed, the parties’ knowledge of this law, their prior experience with
the particular domestic law in a dispute resolution scenario, the risk that arbi-
trators might be appointed that have little or no natural inclination to adopt an
internationally useful construction of the applicable law, as well as the subject
matter and significance of the dispute.
While this is a question that needs to be answered against the factual and legal
background of each individual case, there is a more general and fundamental
question that remains to be answered, irrespective of the particularities of a given
case: will the UNIDROIT Model Clauses, by the mere fact that they exist, prove
counter-productive in situations in which no such clause has been agreed upon
and an arbitral tribunal considers whether to apply the PICC—for example, with
respect to the international useful construction of the applicable domestic law,
such as the sole arbitrator in ICC Case no. 8486108 or as a reflection of trade usages
as was considered by the arbitral tribunal in ICC Case no. 8873?109 Transnational
legal rules are characterized by their flexibility and informality. The drafting of
choice-of-law clauses, however, which has hitherto been known only from do-
mestic laws, has a natural tendency to ‘formalize’ the application of the body of
legal rules to which these clauses refer. The mere existence of the Model Clauses
may, thus, convey to non-experts—contract drafters are more often than not
108
See note 106.
109
ICC Award no 8873 (1997) <http://www.unilex.info/case.cfm?id=641> accessed 14 October
2014; see also Schnyder and Grolimund (n 24) 403.
Rev. dr. unif., Vol. 19, 2014, 519–541

non-lawyers110—the wrong perception that the PICC may only be applied in

cases where the contract in dispute contains one of the Model Clauses. This concern
was raised by a member of the working group specifically with respect to
the doctrine of the internationally useful construction of domestic law during
the deliberations of the Model Clauses. The working group took this concern ser-
iously. As a result of the discussions in the working group, the following
‘caveat’ note—printed in bold letters—was added to the introduction to the
Model Clauses:

Important
Parties should be aware that the purpose of the Model Clauses is merely to allow them
to indicate more precisely the way they wish the UNIDROIT Principles to be used during
the performance of the contract or when a dispute arises. Therefore, even if parties
decide not to use these Model Clauses, judges and arbitrators may still apply the
UNIDROIT Principles according to the circumstances of the case as they have been
doing so far.111
V. Conclusion
It was envisaged at the 1995 Paris conference of the ICC’s Institute of
International Business Law and Practice112 that the PICC might gradually develop
to become rules of law if they would be regularly relied upon by contractual
parties.113 At first sight, it appears that with its idea of drafting and publishing
‘Model Clauses for the use of the UPICC’,114 UNIDROIT has in fact carried the
process of ‘creeping’ approximation of the PICC as a soft law instrument and
domestic law to the next level. While deliberately avoiding the traditional ter-
minology ‘choice-of-law clause’, these clauses convey the idea that the PICC are
more than just a systematic compilation of principles and rules of transnational
commercial law. While this may be a welcome side effect of their publication, the
true purpose of the Model Clauses is to provide specific guidance for contract
drafters as to how the parties may agree in their contract or submission agree-
ment, on their use as the rules governing their contract, either on their own or in
combination with other supplementary rules, or as a means to interpret and
supplement international uniform law instruments such as the CISG. Only
time will tell whether the Model Clauses will serve this purpose and provide a
110
Cuniberti (n 18) 48: ‘Finally, a fourth category of international commercial parties undoubtedly
exists: parties who simply fail to fully appreciate the importance of their choice of law to govern
their contracts because they are unsophisticated from a legal point of view. It would be absurd
to believe that all parties concluding contracts, even international commercial ones, fully com-
prehend the importance of the law they select. Most of them are, after all, businessmen and,
although some may have some legal training, most will not and some will have no higher
education at all.’
111
112
See note 1.
113
Huet (n 20) 280ff.
114
UNIDROIT (ed) (n 14).
Unif. L. Rev., Vol. 19, 2014, 519–541

further boost to the PICC. In any event, it is of utmost importance to understand

that the purpose of the Model Clauses is not to formalize in any way the appli-
cation of the PICC in arbitration and contract practice. The success of the PICC
has been, and will continue to be, based both on their informal, code-like struc-
ture and on their truly transnational character.
Rev. dr. unif., Vol. 19, 2014, 519–541

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The role of the UNIDROIT Principles of

International Commercial Contracts

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II. Why Model Clauses?

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reflected in paragraph 2 of their preamble, in which the parties agree in their

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III. Types of Model Clauses

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1. The PICC as rules of law governing the contract

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International Commercial Arbitration,27 allows for the application of trans-

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A. Exclusive choice of the PICC

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relates to contracts that, by virtue of their terms, performance, purpose, or for-

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B. Non-exclusive choice of the PICC

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2. The PICC as the incorporated terms of the contract

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3. The PICC as a means to interpret and supplement the CISG

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interpret or supplement international uniform law instruments’. UNIDROIT’s of-

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IV. The ‘Caveat’ Note

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non-lawyers110—the wrong perception that the PICC may only be applied in

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further boost to the PICC. In any event, it is of utmost importance to understand

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