AC International Commercial Transactions Introduction International Commercial Law is a body of legal rules, conventions, treaties, domestic legislation and commercial customs or usages, that governs international commercial or business transactions —> clr. UN Convention on Contracts for the International Sale af Gaads (Vienna Convention an the Sale af Goods, CISG, 1980). We will be looking at the transactions, Le. private aspect of commercial law (not institutional law, nor public law, nor consumer la), Commercial transactions Commercial transactions are about contract law, about international contracts. * How would you define a commercial transaction? Exchange of goods or services between two or more parties, with a commercial purpose. —> contract of exchange of goods or services between a seller and a buyer. <> <= > * What are relevant contractual questions in commercial transactions? 1. Formation of the contract: qualification of the parties; rights and obligations of both parties (subject matter of the contract; price; terms and conditions of the contract); choice of law and jurisdiction clauses; legal capacities of the parlies; termination of the contract (prior withdrawal?); dispute resolution; contract interpretation. 2. Performance of the contract: whal do do in case of non-performance of obligations (remedies in case of liabiltiegidamages; exoneration grounds clauses) —> depends on the freedom of the parties to include additional elements. * What legally relevant distinctions do you see between domestic commercial transactions and international ones? 1. Formation of the contract: existence of company from State A in Slate B's egal framework; applicable legal rules to conclude the contract; whether companies are from States parties to international conventions or nat 2. Execution of the contract: private intematianal law (jurisdiction, chaice of law). * Assume a polato sales contract between a Dutch and a Belgian company: what are ‘the contractual layers youcan find in this contract? ~ express terms contract companies’ general conditions RUCIP 2017 rulesWhat to do if you don't want the RUCIP rules to apply to your contract? You can say this contract should be interpreted according to that specific rule, and that all ather mules must be excluded —> entire agreement clause. Incoterms: cIsG History of lex mercatoria lomediaval timesimicdie ages, the whole political landscape was not organized as it is loday. It was not the period af nation states yel. Thus, merchants were structured in some cities and states and were trading with each other (6.9. silk; spices). For that purpose, they established some trade rules. Yet, it became complicated to travel with allthe amount of money needed to exchange between each other —> certain custams developed through the needs of merchants: they developed pieces of paper representing the money and represented the rights into sort of debts agreements (cheques), They wanted to transfer these pieces of paper ime of defects —> all sorts of customs developed through necessity of merchants, bul they were nol necessarily linked to rules in nation states, they were nat irying to regulale what was happening in ather parts of the world. Halians arranged a sort af yearly gatherings where people (bankers) went to exchange money they gathered through the cheques. AL a certain point, there were also some dispute settlement organs developed in strategic cities: trader centers to settle disputes among merchants —> cusioms were used as their mules There was no comfication at that time. othe 19th with the coming of the nation state and colonization going on in Latin America, Africa and Asia, there was a need of rules among traders to make sure that societies would be well-structured. These rules were kind of contradictory to the freedom of traders. Also, civil law countries started making civil codes —> codification. The development of rules kind of clashed with the lex mereaforia. There was a need, next tat the civil codes, of detailed rules on choice of law. But there was always the idea of the international nature of trade: Jex mercateria, while reduced, did nol disappear Why? Because in the 1950s, arbitration developed, and arbitrators can apply the aw chosen by the parties, can apply agreed practices among parties (cfr. Incoterms) >< Courts would have to apply private interational law. E.g. arbitrators can decide to apply a set of agreed practices considering it as = lex mercatoria » even though itis not the civil law of civil law countries. The Incoterms or Intemational Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICG) relating to international commercial law —> it is not state law so there is no need to ga through a state legislative process. The ICC established thase Incoterms depending on the wishes and needs of commercial parties, depending on the changes in the trade. They are widely used in international commercial transactions or procurement processes and their use is encouraged by trade councils, courts and international lawyers. They are represented through 3-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the global or international transportation and delivery of goods.E.g.: EXW (the buyer must collect goods at the place of the seller), FOB, CIF (the seller must pay for the transport and must also take a minimal insurance for the risks during the transport), DAT E.g.: what happens if the terms of the contract contradict the terms of an Incoterm? So it the contract expressly provides that the buyer must collect goods at place X, while according to EXW buyer must collect goods at the place of the seller —> question of contract interpretation, depending on the freedom of the parties. Incoterms inform sales contracts defining respective obligations, costs, and risks involved in the delivery of goods from the seller to the buyer, but they do not themselves conclide a contract, determing the price payable, currency or credit terms, govern contract taw or define where {itle to goods transfers. Parties know these rules; for every Incoterm, there are 10 obligations for the seller and 410 obligations for the buyer, and parties in principle know that. Incoterms TRANS OST gaUcATIOnS, 2020 Birnefettmeceacss Se ee —> lex mercatoria still plays a role in providing products necessary in trade. What about lex mercatoria today? As from the 19th, more attention was given to national law Today, we are in a chaotic development where we considered that it would be better to go back to international or regional laws. Sa, we still have powerful nation states but diferent layers of rules —> chaalic multilayered system of niles: all these different sources must be considered. But are all these customs laws or nol?Sources of contract terms * express terms * general conditions * soft law * international conventions (e.g. Vienna Sales Convention) * supranational law (e.g. ELI law; MERCOSUR law, OHADA law - CHADA is the organization ‘on African harmonization of business law in French-speaking Western and Central Africa), * national law. Sector conditions; standard clauses; uniform law; model laws; domestic contract law. EU law is rather absent in many fields of commercial transactions; it is better to laok at conventions as harmonization instruments. Vitis always necessary to look at sector conditions. Is there a limited scope? is there mandatory provisions? is there specific questions? Hierarchy of sourees of contract terms * Mandatory provisions It is the applicable framework established by applying conflict of law rules. There are different levels of mandatory rules. national level: within applicable law, it cannot be avoided even nat artficially (e.g. Article 3(4) Rome |; rules on prescriptions). international level: stricter test: rules essential for political, sacial and economic organization of the State; despite the choicefconnecting factor (e.g. Article 9 Rome |: overriding mandatory provisions) * Express terms. * Terms incorporated (general conditions, sector conditions, soft law) * Default rules Itmay be that you aren't party ta CISG, bul yet some rules of CISG may still be in place. From commercial transaction to contract chains Seller in ZAF is the producer af the good —> contract with the buyer who is a retailer in BEL —> contract with a consumer in NDL. The seller contracted with a earrier to lransport the product from ZAF ta the buyer in BEL. Both the seller and the buyer have contracted an insurer The retailer and the consumer exchanged thraugh @ online sales platform. The retailer has contracted with a cartier for the transport of goods.* How would you define a contract chain? Several contracts that are interlinked; terms: in one contract are influenced by terms in a second contract. Company // distribution contract, finanee contract, B2C contracts, B2B services contracts, B2B sales contract, * Why are contract chain relevant for the individual commercial transactions in the contract chain? Risk allocation because these contracts depend on each other in the sense that the first contract between the seller and the buyer influence the rest of the chain. Might it be a problem in the execution of this first contract, the rest of the chain would be impacted The likelihood of a defect to the consumer encased by the buyer Is very little; so the goal of the buyer is to shift the risk to one af the other parties. Consumer protection is given, so the risk eannot be shifted away on the consumer. So the buyer has to turn against the seller (aan-conformify) and the carrier (damage during the transport. Recourse gap if potential liability exceeds possible recourse actions. * What legally relevant distinctions do you see between domestic contract chains and international contract chains? ~ Formation of the contract. Differences in rules/requirements/customs depending on the country; for domestic contract chains, this is nat a problem because all national laws apply to all the actors of the chain >< international contract chains. ~ Execution of the contract: private international law (jurisdiction, applicable law, enforcement).Unie Areween G Different techniques towards uniformity Policymakers can facilitate international contracts though different means: uniform Private law (same substantive rules); private international law (regulate how different national substantive laws integrate with each other —> jurisdiction, applicable law, enforcement procedural rules); soft law instruments; model laws. * What are advantages and disadvantages to all techniques? Uniform private law: common substantive rules, legal certainty >< limited in scape (6.9. whether + good faith » should be included in the CISG; reservations made by States); it does not necessarily respond to the particular needs of parties. E.g. of successful instuments: CISG (ratified by 93 States but contracting parties very often excluded it from their contracts, itis often uses in arbitration but in courts disputes courts are often confronted with a nonapplicability) CMR (transport conventions are mandatory, limited contract freedom), Hague-Visby. E.g. of unsuccessful instruments: Multimodal Transport Convention, Convention on agency the International Sale of Goods —> no sufficient ratifications, no entry into force. E.g.: remained parties to the convention, you are lonely apptying the latest protocol to which countries are parties —> it was a mess with a lot of fragmentation!; some protocols were ratified, others not. Thus, they made an entirely new convention. Prwate international law comman procedural rules in order to regulate integration between various national substantive laws, legal certainty >< it is a very positivist approach, nat sufficient uniformity in the application of rules (e.g. a judge might declare himsel! competent on the basis of Anicle A, and another judge may declared himselt competent on the basis of Article B), domestic law = private international law. E.g.: Rome | Regulation, Hague Principles, Hague Gonventions, In arbitration, we do not pay too much attention to private international law, they prefer mare flexible instruments. Soft law instruments: flexible in the adoption and modification of the rules, there is no need ta gather all States parties for amendments >< interpretation problems.E.9.: Unidroit principles on international commercial contacts; incoterms (UIGP 600); PECL —> all set of contract rules that are applicable in legal systems only if they use them; yet, parties can decide to rely on those soft law instruments. Model laws: flexibility legal certainty >< not all States are parties E.g.: Model franchise disclosure law. * Will uniform private law necessarily foster unform outcomes? In principle, yes. But in practice, no because of interpretation of rules —> Vienna Convention on the Law of Treaties, Articles 31-33. Yet, even with this convention, there may be different interpretation problems, E.g.: CMR provides that it applies to every contract of carriage by road yet, there is 09 definition of what a contract is carriage is, so judges have to check for a definition and then often have to. check in their national laws —> every judge set a different definition according to their own national civil laws. E.g.: society evolution, things change and convention might not be adapted to new structures anymore —>- is that convention applica ble to both roads and sees or not? Institutions and concepts /V * Arbitration: a form of alternative dispute resolution (ADR). It is a way to resolve disputes outside the courts. The dispute will be decided by one ar more persons (the "arbitrators", “arbiters’ or “arbitral tribunal’), which renders the “arbitration award", An arbitration award is legally binding on bath sides and enforceable in the courts. * Lncoterms: International Cammercial Terms. Series af pre-defined commercial terms published by the ICC relating ta international commercial law —> it is not state law so there is na need to go through a state legislative process. The ICC established those incoterms depending on the wishes and needs af cammercial parties, depending on the changes in the trade. They are widely used in international commercial transactions or procurement processes and their use is encouraged by trade councils, courts and international lawyers. * Connecting factor: in private intemational law, connecting factors, are facts which tend to connect @ transaction or occurrence with a particular law or jurisdiction. E.g.: domicile, residence, nationality or place of incorporation of the parties; the place of conclusion or performance of the contract; the place where the tort or delict was committed; the flag or country of registry of the ship; the ship owner's base of operations. * Foie majeure common clause in contracts that essentially frees bath parties from liability or obligation when an extraordinary event or circumstance beyond the control ‘of the parties (e.g. war, strike, riot, crime, hurricane, flood, earthquake, volcanic eruption) prevents one or both parties from fulfilling their obligations under the contract. In practice, most force majeure clauses do not excuse 4 party's non-performance ‘entirely, but only suspend itfor the duration of the force majeure UCC: Uniform Commercial Code (USA)* Model law: a proposed series of laws pertaining to a specific subject, that the states may choose to adapt or reject, in whole or in part. Ifa state adopts the model law then it becomes the statutory law of that state So, it is a law adopted by the institution, without the agreement of all States, and if States agree with thase rules then it becomes part of their national law. * UNCITRAL: the United Nations Commission on International Trade Law. It is @ subsidiary body of the U.N. General Assembly responsible for helping to facilitate international trade and investment. It was established by the UNGA in 1966: UNCITRAL's official mandate is « to promote the progressive harmonization and unification of international trade law » through conventions, madel laws, and other instruments that address key areas of commerce, from dispute resolution to the procurement and sale of goods. —> it is the core legal body of the UN system in the field of international trade law. UNCITRAL carries out its work at annual sessions held alternately in New York City and Vienna, where it is headquartered * UNIDROIT formally, the International Institute for the Unification of Private Law. It is an intergovernmental organization that aims to harmonize international private law across countries through uniform rules, international conventions, and the production of model laws, sels of principles, guides and guidelines. Established in 1926 as part of the League of Nations, it was reestablished in 1940 following the League's dissolution through a multilateral agreement, the UNIDROIT Statute. it has 63 member states. UNIDROIT has prepared conventions but has also developed soft law instruments. E.g.: UNIDROIT Principles of Intemational Commercial Contracts, which do not apply as a matter ef law, but only when chosen by the parties as thair contractual regina * CISG: the United Nations Convention on Contracts for the International Sale of Goods. \t is a muttilateral treaty that establishes a uniform framework for international commerce. It was developed by UNCITRAL in 1968, drawing from previous efforts in the 1930s undertaken by UNIDROIT. The purpose of the CISG is to faciltate international trade by removing legal barriers among Contracting States. To that end, it establishes substantive rules that regulate the duties and obligations af bath parties, including the delivery of goods, contract formation, and remedies for breach of contract. Unless expressly excluded by the contract, the CISG is incorporated by default into the domestic laws of Contracting States with respect to a transaction in goods. between their nationals. 93 parties States parties (Guatemala and Laos joined in 2019); 18 signatories. * UCP: unfair commercial practices. The Untair Commercial Practices Directive 2005/29/EC (2005) regulates unfair business practices in EU law, as part of European consumer law. It requires comesponding laws to be passed that incorporate It into each member state's legal systemThe Directive is concerned mainly with the “substantive” law (i.e. the standards of behaviour required of traders). To some extent it leaves to MS the choice of appropriate domestic enforcement procedures and penalties for non-compliance (Articles 11 to 13). * Hague Conierence: the Hague Conference on Private International Law (HOCH) It isan intergovernmental organisation in the area of private international law, that administers several international conventions, protocols and soft law instruments. The Hague Conference was first convened by Tobias Asser in 1893 in The Hague. After WWII, the Hague Conference was established as an international organisation, * (CC: the International Chamber of Commerce. It is the largest, most representative business organization in the world. is over 45 million members in over 100 countries have interests spanning every sector of private enterprise, IOC has three main activities: rule setting, dispute resolution, and policy advocacy. Because its member companies and assaciations are themselves engaged in international business, ICC has unrivalled authority in making rules thal govern the conduct of business across borders. Although these rules are voluntary, they are observed in transactions every day and have become part of international trade. ICC supports the work of the UN, the WTO, and many other intergovernmental bodies, both international and regional * ELI: European Law Institute (based in Vienna, some harmonisation). * AL American Law Institute (great harmonization development). Evaluation + No exam! ~ Five assignments: submit your assignments after the lecture on that topic. - Mandatory presence in class + participation (content, language, arguments in a respective way) - Readings before each class! Date ‘Module Assignment Grade weight 04/03/2020 Applicable law Academic 1586 (17:00) paper/palicy brief (25/03/2020 = Sales law ‘Comparative 15% (17:00) case note CISG 29/04/2020 Cargaclaims Submission 15% (17:00) neutral report cargo daim 98/05/2020 Integrated moot Skeleton 2506 (10% (17:00) court arguments+ written and pleading 1586 oral) 18/05/2020 = Module case 3-page bullets = 10% (17:00) study ‘Throughout dass: 20% participationTime investment 4a Lectures 45 hours Reading for lectures (preparation) 29 hours Working on assignments 68 hours Preparation for module case study 10 hours Total 6 ECTS *27,5 = 165 hours 152 hours (margin: 13 hours)The starting point is the UNIDROIT Principles, which are very similar to civil law principles —> this is one system that we will analyze where we see how different principles of contract law is working; UNIDROIT principles provide tools to find approaches in diflerent legal systems —> example. A. Introduction Check the Preamble of the UNIDRGIT Principles. 1) meeting of the minds: intentions of the parties must meet Written documents are not necessary to form a contract. Parties have to agree, al least, an the gore elements of the contract. Then, you shauld ask if missing information is a gap or if it has been implicitly negotiated by the parties Parties can decide that UNIDROIT Principles are applicable and then can rely on them. 2)we have concluded 4 contract 3) is this always binding? There are certain grounds of invalidity that can make the contract invalid (e.g. contract concluded by a minor) Datec vy UPS problem It seems to be a transport case but in essence it is an issue of contract law. * Clause in the UPS general conditions (max values of the cargo: §50.000) This is the maximum that they can caver themselves or the maximum thal the insurance can cover, * Cargo is stolen during the transport (inside job) * The shipper Datec claims §68.000 (value of the goods). * Suppose you are the lawyer of UPS: whatwauld you agree? If the contract something different is mentioned —> expressed terms will prevail over the general conditions. * What ifa shipper-sends a cargo with a higher value? —>2 questions 1) Did a valid contract come into existence? This question not governed by CMA; CMR requires a valid contract to apply. If yes: contract for the carriage af goods by road —> consequences subject to CMR CMA: Mandatory liability: limited liability (8,83 SDR/ kg) unless willful misconduct (also willful misconduct by agents and servants) 3 unlimited liability. CAP of $50,000 can’t limit liability in case of wilful misconduct ta $50.000: cantrary to art 41 (see aforementioned cases)" If no: no contract for the carriage of goods by road —> consequences subject to national law; assume you are again the lawyer for UPS: what would you argue an this point? 2)What are the consequences of (not) entering into force of valid contract? When you want to invoke fraud (=dol) you need to provide the intention of fraud. In theory, the consequence is that both parties have restitution obligations, they must restitute the goods and go back to the situation that would occur f the contract was nat concluded. But here the goods were stolen, so the parties can claim damages for the stolen goods —> §18.000 of damages (§68.000-80.000). How cauld you claim more? Would UPS ship a bar of gold? UPS can said that if it had known the actual value of the cargo it would not have organize the transporl and thus conclude the contract. So, il should not pay anything —> they do not have to restitute anything at all How did the Court deal with that case in reality? They did not make it a question of contract formation but they transformed it in a issue af breach af the cantract. Buzzing session 1. What are the requirements for a contract to be concluded in your domestic law? 2. What is the difference between validity of the contract and remedies for breach of contract? Vattality Invalidity grounds oceur at the formation of the contract (mistake, errors, threat, fraud, initial impossibility, gross disparity. Consequences: the contract is invalid —> ex func (restitution). Bemedies for breach af contract Grounds: if the party does not perform the contract Consequences: the contract continues to exist; you want what was promised, you want an execution of the contract, even if in reality most of the time at the end yau will go for damages. 3. If you conclude @ contract through Uber, who is your contract party (Uber or the driver)? Uber only acts a mediatory actor, it is not the party with who we have concluded the contract > in the ECJ Uber case, the ECU hold that Uber is a provider of service in the fields of transport. So your contract party is the conductor. But the problem is that there are two options available * Option A —> the prineipfe option: if Uber is sub-contracting with the conductor, then Uber is the principal of the carriage of the transport; and thus the carrier. Then, you can directly claim damages to Uber. * Option 8 —> the agent option: Uber is an agent, it has to provide a decent carrier for your way. In the EC Liber case, Uber argued that It was a communication platform,12 The agent functions Is to conclude a contract an behalf of a third party —> at the step of the formation. Agent is liable only for commission ar negligence —> was the agent negligent? If not, you only have a right of action to the driver Bul itis very difficult to hold the broker liable, because the driver is mast af the time not able to pay you damages, so you have to hald liable the agent in order to have more chances to get your damages. B. Offer and acceptance ~ Contract formation under the Unidrcit principles * A and B enter into negotiations with a view'to setting up a jpint venture for the development ot a new product, After prolonged negotiations without any formal offer or acceptance and with some minor points still to be settled, both parties begin to perform. Subsequently the parties vail to reach an.agreement on these minor points Wasa contract concluded? * Automobile manufacturer A and components supplier B set up an electronic data interchange system which, as soon as A's stocks of components fall below a certain level, automatically generates orders for the components and executes such orders Was a valid contract sonclided? + Contracting without a signature Both parties started perform their obligations, hence we can deduced that a contract was concluded, even though there was no signature —> Articles 2.1.1. and 21.6 UNIDROMT Principles. We have to look if there are comman grounds between the parties and if you don't find information, you turn to the question of the applicable law. A and B negotiate on the sale of 200 tons of cacao, A makes a final offer of §2/kg. Is a valid contract if: * B accepts 2 weeks later? Yes, if we can consider these 2 weeks as a reasonable time period. Reasonable time really depends on the sectov/indusiry in which the contract was concluded, * Would your answer be different in a time of 1 week was sel? Yes, the first possibility is when the time is fixed by the contract * B accepts by email, but on the exact moment it sends the email, a better offer comes in and B immediately calls A with to withdraw? You can withdraw your acceptance before A sees the email, Will 190 tons instead of 200 tons be a material change to the terms of the contract or not? If the other party does not want to agree with this new offer, he can simply refused. But if the party does not check his emails and calls and after he received the 190 tons say oh there was a material change to the contract we concluded, but it is difficult to show that this small difference amounts to 4 material change —> Article 2.1.11 UNDROIT Principles ~ Capacity (Article 3.1.1.) is out of the UNIDROIT Principles Why? Capacity Is part of the law usually reserved to the States —> itis linked to more sensitive areas of law such as family law where it is more difficult to get uniformity in this ideobgical field of law.13 + Non-existing legal relationship is not provided in the UNIDROIT Frinciples. E.g. my father in-law sells construction lands very cheap because | am his son in-law, and then | divorced of my wife, can my father in law annuls the contract and say that the cause of the contract is no more existing? The Court must look at the existence of the cause at the time of the conclusion of the contract —> he was married at the time of the contract formation. + Time of acceptance Article 2.1.7, Article 2.1.8 and Article 2.1.9 ~ Modified acceptance Article 2.1.11 (Madilication acceptance). ~ Are general conditions/standard terms part of the contract? You must establish that these general conditions/standard terms were part of the alfer accepted by the ather party, and thus part of the contract. In the Dutch civil code, the question of acceptances of the offer is included in the legislation and nat lell to the discretion of judges. Article 6:231 Dutch Civil Code For the purpose of this Section: a. ‘standard terms and conditions’ mean oné or more contractual provisions or stipulations, drafied to be included in a number of contracts, with the exception of provisions and stipulations that indicate the essence of the performance under the obligation, as far as these last meant provisions and stipulations have been formulated clear and unambiguous: b. a ‘user’ means the person who uses standard terms and conditions in a contract; ‘©. a ‘counterparty’ means the person who has accepted the applicability of the standard tems and conditions of the user by signing a written document or in another way. + Were the general conditions validity incorporated? Article 2.1.19 (Contracting under standard terms) (1) Where one party or both parties use standard terms. in concluding a contract, the general rules on formation apply, subject to Articles 2.1.20 - 2.122 —> again standard rules on offer and acceptance! = Were the clauses validly incorporated? Offer-acceptance * Effective Incorporation: explicivimplicit incorporation; mere reference; handing over? To have @ reasonable possibility to take notice of standard terms and conditions, an actual knowledge of the party is not required, E.g. Dutch civil code, Article 6.234: handing over; intormation that conditions are available: for inspection by the counter-party at a specific Chamber of Commerce or at the Registry of a specific judicial court, and that they will be sent to him upon first request; transmitting in digital fom. E.g.: in B2C relations, you are supposed to have noted the general conditions, because othenvise you would have asked the other party to give you these general conditions. * Contradicting conditions: last short first shot [knack aut rule?14 Both questions. are governed by the applicable law = Options 1. Terms nat incorporated in the contract (no meeting of the mind) Clauses validly incorporated into the contract, 2, f sel of conditions applies (first shat/ last shod) Contradicting conditions are ruled out (knoek aut rule). C. Formation of a contract under common law Lntroduction Common law is nat codified, common law applies majority to contracts that are not othernise governed by legislation (j,¢. the English Sales of Gaods Act) There is an English Sales of Goods Act. In Nigeria, every law directly applicable in UK, was also divectly applicable to Nigeria. But this has now changed, and Nigeria can decide whether or nat it decides to be bound by these English common law rules. In other common law jurisdictions, it will depend on the national legislation (e.g. commen law will apply the Sales of Goods Act) It is quite rigid: as a result of this rigidity the cule of equity has started being developed, everything is nat only black or white, sometimes there are emotions that must be taken inta account. Especially when it comes to remedies, rules are not common law rules as such, but they do emerge from equity. In common law there are live elements to form a contract: offer, acceptance, consideration, intention to create legal relations, capacity LOffer * Must be definite and contain all the terms essential to the performance of the contract {subject matter, price, and generally the identity af the otferee). * Must be capable of acceptance without more: E.g.: billionaire dad dies and left his daughter 5 houses. You want to make an offer to lend one of these houses, what are you going to mention in your email? Duration of the lending (imagine you say the summer); price. of the lending (imagine the other party answers €100/month}; subject (which house exactly). Is it a real offer? There are some problems, how you would dafine the summer, etc? —>.it is nota offer it is an invitation to treat. lo negotiate, * Distinguish offer from an invitation to treat = test of intention In common law, the terms of the offer must be very clear. So, if you just mention some elements it is only an invitation to treat E.g.: when you pick the juice ina small shop, when is there an offer? Is the price tag already an offer or you should go the cashier first?15 Under common law, advertisement and price tags do not constitute the offer, there are simply an invitation to treat. But when yau take the tem and go to the cashier, you are making an offer - the accepiance is when the cashier takes the money from you In common law, when you display goods in shops, it is the consumer who makes the offer (e.g. Fisher ¥ Bail) Common law allows the possibilty to make an offer to everybody E.9.: Gartil . Carbatie Smoke Bata company developed a medicine against influenza and put in their advertisement that if someones buys the medicine and still has the influenza he will be reimbursed that X amountot money A woman bought the medicine and stil had influenza, 50 this case happens —> by siating this in your advertisement, you made an offer and the woman who bought the medicine accepted it. * Termination - Revocation, rejection, lapse of time, death of the offeree and failure of condition precedent 2. Acceptance * Unconditional agreement to all the terms. of an offer. * It must be by means stipulated in the offer, and ff there Is no means stipulated, by reasonable means. By doing a counteroffer (¢.9. §150 instead of §150) you actually extinguish the first offer, which al the time was the only existing offer —> destruction of the first offer. There is no mare offer to accept. Always remember that common law is very rigid. But f you want to accept it aftermath, there is no more valid offer available because you destroyed il, so you need to make a new offer —> at every point in time, there must be a valid offer if you want to accept the offer. * Acceptance by post is effective al the time and place it is made (Adams Lindsell). * Acceptance by phone, telex or email is becomes effective instantly at the place where itis received. Considerati + Reciprocity: basically, consideration is about reciprocity It is notonly about money —> « a valuable consideration, in the sense of law, may consist either of some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment loss or responsibility, given, suffered or undertaken by the other » |s there consideration for the CD? If yes, what constitutes the consideration (50 cents, the receipts or both?) —> For both. * Rules of consideration * Consideration must move from the promisee, but not necessarily to the promisor. The con ration comes from the offeree. * Ht must be sufficient but not need to be adequate: it does not matter what the value of this consideration ig; any consideration, no matter haw small, will be sufficient.16 Is a « promise nat to complain » sufficient consideration? Common law courts considered that we cannot measure emotions, consideration has to be on measurable valuable, no matter how small. Promise had no economic value E.g.: father's promise to forgo son's indebtedness if son stops complaining, E.g.: is the consideration made by a son to his father = not to disturb him anymore » sufficient ?; is the consideration « if you don't sue us, you will get a discount » sufficient? Also, there cannot be consideration based on an illegal contract, * Past consideration is nat good consideration (Roscorla v Thomas (1842) E.g.: promise that horse was sound and/{ree from any vice. * Exceptions to the requirement of consideration: 1) Promises under seal (deeds). 2) equitable doctrine of Promisscry estoppel 4. Intention to create legal relations The intention of the parties is however rebuttable There is a rebuttal presumption that parties do not intend to create legal relations when they inter into a domestic ar social agreement —> « negative » presumption. There is a rebuttal presumption that parties intend to create legal relations when they enter into a commercial agreement. Instances of rebuttal (mere puff, honor clauses, agreements subject ta contract) —> « positive » presumption. 5. Capacity of the parties Common law is quite strict as well as regards capacity. The parties must be ¢apable of entering inta the contract (age of validity under common law is 21 yo). Persons of unsound mind, drunk persons and companies. have limited capacity. For companies, it is quite anti-consumer protection actually: under common law, companies can only contract what is falling within their object, which is mentioned in their own rules. D. Battle of the forms Battle of forms under civil law 80, there are contracting conditions between the different approaches: last short / first shot / knock out rule, Which one is applicable in your country? First shot: the first set of general conditions transferred to the other party counts, unless the other party explicitly reject the application af the standard terms and conditions to which was referred firstly. Last short: the last set of general conditions transferred to the other party counts. Knock-out rule: parties are in agreement on the main terms and that all standard terms which are not in conflict, will form part of the agreement.7 * UNDROIT Principles have favored the knock out rule. Article 2.1.21 (Conflict between standard terms and non-standard terms) In case of conflict between a standard term and a term which is not a standard term the latter prevails Article 2.1.22 (Battle of forms). Where both parties use standard terms and reach agreement except on those terms, a contract is concluded on the basis of the agreed terms and of any s 8 clearly indicates in_ advance, or later and without undue delay informe the other party, that it does nal intend to be bound by such a contract + Dutch civil code (first shot rule): Article 6.225. Where offer and acceptance refer to the application of different standard terms and conditions, the second reference is withoul effect if it does not explicitly rejects the application of the slandard terms and conditions fo which was referred firsily. Battle of forms under common law * Mirvor-image rule: acceptance must exactly mirror the offer —> the terms of the last offer constitute the terms of the contract = last shot rule * If the acceptance differs from the offer, no contract results, no matter how trivial the qualification or condition. * The invalid acceptance becomes a counteroffer, which must be accepted by the initial offeror to a contract to ensue In. common law, itis quite the apposite, the counteroffer will destray the first offer, There needs to be a new offer accepled by the ather party. * A counter offer destroys the original offer — Hyde v. Wrenah (1840) offer to sell farm for £1,000, response to buy at £950. Owner refused to sell at that price, claimant later tried to buy at initial price. * Raises a problem in sale of goods contracts often layered with boilerplate terms on each side. * The last shot rule - corollary of the mirror image rule Where the parties exchange series of forms containing various terms and go ahead to perform the contract, the contract will be upheld on the terms contained in the last form that passes between the parties. E. Validity (and grounds of invalidity) Validity under civil law ~ Validity of a contract + validity of clauses. Validity of a contract (the entire contract is affected, contract law regulated this issue of law) # validity of clauses of the contract (many rules depending an the field of lan, ¢.9. consumer law, employment law) * Validity contracts.18 Grounds for avoidanee under the Unidrait principles. ~ Grounds for avoidance under common law. * Validity clauses * Consumer contracts? - UNIDROIT Principles * Mistake (3.2.1 and 3.2.2): recipient of information misjudge/misunderstand. Mistake is not always a ground for avoidance: it is justified only if you could have make this mistake and if the other party made the same mistake. * Fraud (3.2.5) * Error in expression / transmission (3.2.3): involuntary error in expression. * Threat (3.2.6) * Gross disparity (3.2.7) E.g.: in Balgian law, itis only for real estate and only if the disparity amounts to 7/12 of the total amount, * Illegality (3.3) Capacity is nat included in the UNIDROIT Principles. Why do business men not like grounds of invalidity forcontracts. In general, commerce wants cerlainty and predictability, they went the contract to be the law of the parties. If all of sudden i fails, it will have an impact on the contract but also on the business of the party. Mistake will look as it is justified from the commercial party as they don't want this. ground of validity to be recognized, - Consequences * Exercise of the right: by notice to the other party (3.2.11) within a reasonable periad (3.2.12), not anymore after confirmation (3.2.9) * Effect = retroactive (3.2.14) * Avoidance gives rise to a right to restitution (a nan-contractual obligation) (3.2.15) * Possibly damages for pre-contractual liability (3.2.16). Validity under common law ~ There are three types of mistake in common law: * common mistake: where both parties make the same mistake (¢.g. parties ‘contracted a subject which was not recognized at the time)E.g.: al the time of the contract, the goods you want to sell. already belong to the buyer. 19 * mutual mistake: where each party is mistaken but about different things, * unilateral mistake: only one party is mistaken - In order to have an impact on the contract, the mistake must precede the contract, and include the contract, ~ Mistake of law (law used in the contract) OF f€¢t (intention of the partiasy? The old position is that restitution is only available for mistake of facts: it affects the consent of the parties and thus the validity of the contract. However, the remedy available is restitution. But then what about an error of law? The ald pasition is that we are all supposed to know the law, and that if you make a mistake of law, it is just a negligence trom your part The new position is that this distinction has been abolished and that restitution must be available in both instances. - A mistake only vitiates a contract if it renders the performance of the contract essentially and racically different fram what the parties had supposed it to be It should nat be a minor mistake. + Misrepresentation Itentails thal the eore of the contract is not existent, there was no meeting of minds. * A misrepresentation Is an untrue statement of fact by ones party which induces the other to enter into the contract. * There is misrepresentation if one party 1) makes an untrue statement; 2) it was a ‘settlement of fact; 3) it induced the innocent party to enter into contract. * Types of misrepresentation: it is quite similar to the fraud under the Unidroit Principles fraudulent misrepresentation negligent misrepresentation - innocent misrepresentation: you were not aware * Consequences: misrepresentation renders @ contract voidable (restitution) and the innocent party have a right to punitive damages. The difference between void contract (retroactive) + voidable contract (the other party sill have the discretion to decide to continue the contract). * Misrepresentation can also be problem of non-disclosure E.g.: insurance contract, there is a questionnaire to decide which kind of insurance should be given to person A If person A mentions in the questionnaire that he does not have heart problems (while he knows that he has some) and that, after, ne makes a heart atlack, tha insurance could check the questionnaire and say oh but you said you don't have heart issues, 50 there is a misrepresentation —> you did not disclose that information * Duress and undue influence* A contract is voidable where it has been oblained by duress or undue influence 20 * Itis comparable to the threat under the UNIDROIT Principles. * Duress exists where illegitimate pressure was exerted on & contracting party which induced the party to enter the contract. E.g.: the party has a gun in trent of your head to push you to contract * The courts will find undue influence where one party uses their influence over the other to persuade them to make a contract. There mus! be a relationship of power between the two parties. E.g.: relationship between a lawyer-client; professor-student; paranis-child —> in those relationships, undue influence is presumed (rebuttable presumption} When do you have the right to avoid the contract? It should be done in a reasonable time. But when dogs it start? The time starts counting when you are no more under | when you are free of that influence * While duress is express, due influence can be identified afterwards, ~ Megality * Contracts illegal under common law are those contracts: to commit a crime preventing the administration of justice which are sexually immoral invalving corruption of public offices ~ in restraint of trade (on the activities of the company, or employees): when the business itself is reduced, the court is more lenient to accept the illegality * Illegality generally renders a contract unenforceable (ie. the gains and loses lie where they have fallen). You cannot order restitution for a contract you cannot enforce. Golden rule for illegality: make sure you are always in the better postion —> the effect of mistake, misrepresentation, duress and undue influence of the consent. So illegality does not have such consequence24 Il. Contract obligations, liabilities and remedies What happens when we go from (non-) performance to claim? As regards obligations, we should ask whether there is a breach af obligation. To answer this, we must first know what was the obligation? The main source of obligation is offen the contract, but you can also find source of obligation in law (see for example obligation of delivery in conformity CISG) When looking at the contract, we can distinguish between express and implied obligations: * Article 5.1.1 UPICG (Express and implied obligations) The contractual obligations of the parties may be express or implied. * Article 5.1.2 UPICC (implied obligations) Implied obligations stem from (a) the nature and purpose of the contract; (b) practices established belween the parlies and usages; (c) good {ath and fair dealing; (d) reasonableness. But when is something an implied obligation? E.g.: price is agreed upon in the contract, but the contract is silent on time for payment —> sector usages might impose an implicit obligation on parties. * Indication and description of the main obligations - depending on the type of contract (sale, service contract) - Description of the goods or services, quality, etc... - Madalities of performance - Price and modalities of payment (lime, currency, . * Rules on additional obligations, including e.g. information duties, licenses to be obtained, insurance, rélation with third parties (suboontractars), ete When we have find the obligations, we need to know what was the standard for performance: an obligation of bes! effort or an obligation to achieve 2 specific «esull? —> Atlicle 51.4 IPICC : duly achieve a spectic resull # duly of best efforts (1) To the extent that an obligation of a party involves a duty to achieve a specific result, thal party is bound to achieve that result.22 (2) To the extent that an obligation af a party involves @ duty of best efforts in the performance of an activity, thal party is bound to make such efforts as would be made by a reasonable person of the same kind in the same circumstances. Duty of best effort requires that the debtor exerts the efforts that a reasonable person of the same kind would exert in the same circumstances, but does not guarantee the achievement a specific result —> you do nt need to behave as superman, you need lo act as a normal person This difference also has a link to liability: * Duty to achieve a resulf: liability in case of non-compliance unless exoneration ground available —> importance of exoneration grounds. * Duty of Best effort: negligence or fault in the performance of the obligation are required —> smaller role for exoneration grounds, mainly in case of “exonerating event" often. Anyways no fault or negligence * See Article ERPL: force majeure mainly only relevant where there is a strict liability (e.g. German contract law) itis a specific question of contract interpretation. It will often be the case that the contract does not provide that it is an obligation to result —> Article 6.1.5 (Determination of kind of duty involved) In determining the extent to which an obligation of a party involves a duly of best efforts in the performance of an activity or a duty to achieve a specific result, regard shall be had, among other factors, to (a) the way in which the obligation is expressed in the contract; (b) the contractual price and other terms of the contract; (c) the degree of risk normally involved in achieving the expected result; (d) the ability of the other party to influence the performance of the obligation Example: « brands invest 3% of the annual markeling budget in marketing campaigns for the shopping center » If we locks at these factors, we can say that this clause is probably an obligation of result because this 3% investment doesn't entail an attempt, it is fully within the contro! of the brand and dossn' include a high risk or any possibilty for the shopping center to influence this. On the contrary, if there was a certain required effectiveness of this campaign, this would lead to the interpretation as an obligation of best effort Determination of quality of perlounance We now what the obligation and the behavioral standard is. New, the next question is whal is the requires @llalilyrabiiissetrermnrinice® * Article 5.1.6 UPICC (determination of quality af performance)* Where the quality of pertormance is neither tixed by, nor determinable trom, the ‘contract a party is bound to render a perfarmance of a quality that is reasonable and not less than average in the circumstances. 23 E.g: if you buy 10 tons of potatoes you shouldn't expect them to be all nice “fries quality potatoes", but you should also not settle for 10 tons of 8 2 cm potatoes. It should be something in-between, You cannot axpect/demand this from the furnisher. * Compare with Article 35 CISG: ordinary purpose. * In general such aspects/elauses will obviously be dealt with in the contract Problem: which conditions? Assume that you want to purchase camping pods (big camping houses). You have contact with a supplier, you have a loan with the bank, but the next question is whether the village will allow you to do so. So, the question is haw can yau now conclude the contract and ensure a time slot while you are still not sure about the exploitation permit by the municipality —> you are uncertain whether condition will be given to exploit a camping. |! is a matter of @anizgeiseoneinvans, A typical condition is the condition of getting financing. —> Article 5.3.1 UPICC (Types of condition): A caniract or @ caniracital abligation may be made conditional upon the ecoutrence of a fulure uncertain evenl, so that the contract or the contractual obligation only takes effect if the event occurs (suspensive condition) or comes fo an. end if ihe event occurs (resolutive condition). So, there are two options: * either the contract provides that the ebligation is conditional/subject to an event (¢.9. 2 loan being granted) then the abligation only enters inta farce when thal even accurs {@.g. when the loan is granted) —> « birth » of the contract (susperisive condition). * of the contract provides that the obligation terminate if this happens —> « death » of ‘the contract (resolutive condition). Importantnotes on « conditions » * In UPICC a condition makes a contractual obligation ganditional = in common law a condition has a totally different meaning * fone obligation is made conditional upon the performance by the ather party, it is not acondition, but instead t determines the order of performance af parties. Thus, the condition should always depend on an external event, and nol on the performance of the parties. Article 5.3.2 UPICC (Effect of conditions): Unless the parties otherwise agres: (a) the relevant contract or contractual obligation takes effect upon fulfilment of a suspensive condition; (b) the relevant contract or contractual obligation comes fo an end upon fulfilment of a resolutive condition. Unless otherwise agreed, this means that the condition only takes effect ex nune —> it is not retroactive,>< with the nullity of the contract where the contract is put to an end ex func. 24 "B. Liability and exonerations What are the liability ground in contract/law? Liability mainly deals with the question “is the debtor liable"? What are the exoneration grounds available? These exonerations grounds can be considered as a ping-pong game. This mainly relates to what has been said supra on the breach of obligation, This also depends upon the type af obligation (obligation of resut + obligation of best effort). But an obligation of best effort often may also entail an obligation of result E.g.: if you receive instructions to act in a certain way (for example, updates on the project must be given cn a weekly basis}, this could be an obligation of result while the general abligation is an ebligation of best effort. A specific type of obligation of result is the Service Level Agreement (SLA) where the service provider guarantees a certain service level agreement. This type of agreement is common in [T-contracts & maintenance contracts. E.g.: SLA provides that the server liability should be online 96% of the time. So, if server is 4% of the time offline, the hosting company cannot be held liable. Cf course if you have an online shop specialized in Christmas articles, which is offline between December 15 and December 31, it would be a great loss of benefits, but the company cannot be held liable. The essence of this part lies with exoneration grounds. In case of faull-based liability, these exoneration graunds will often be internalised in required behavioural standard. So, the Lest tor udges would be « can you expect fram a reasonable business men that he performs his obligation despite this X or ¥ even taking place? » * Where can we find QROBSRaUOH GHOUNGSED |n Bor example, transport law contains a wide list of exoneration grounds; UPICC mainly provides rules an hardship; act creditor & force majeure. |n GGHERESIEIEES clauses providing for a very broad, sometimes total exoneration, or for an exoneration in case of specific events. What is here important is whether legislators put a halt to such broad exoneration grounds, or whether the principle of pacia sunt servanda applies as well. * Article 17 CMR + Starting point: Article 17(1) provides for a presumed liability. But. Article 17(2). The carrier shalt, however, be ralia vet of ability if the loss, damage or datay was caused by the wrongful act or neglect of the claimant, by the instructions of the claimant given otherwise than as the result af a wrongful act or neglect on the part of the carrier, by inherent vice of the goods acthrough circumstances whieh jhe carrier could nat avnid and the25 3. The carrier shall not be relieved of liabiliy by reason of the defective condition of the vehicle used by him in ardor ta perfarm the camiage, or by reason of the wrongtul act or neglect of the person from whom he may have hired ihe vehicle or ef the agents er servants of the fatter. 4, Subject to article 18, paragraphs 2 to §, the carrier shal be relieved of ability when the toss or damage arises from the special risks inherent in one more of the following circumstances: (a) Use af open unsheeted vehicles, when their use has been expressly agreed and specified in the consignment note; (2) The lack of, or defective condition of packing in the case of goods which, by their nature, are lable to wastage or ta be damaged when nat packed or when nat property packed: (o) Handling, loading, stowage ar unloading of the goods by the sender the consignee or person acting on behall of the sender or the consignee; (d) The nature of certain kinds of goods which particularly expases them ta total or partial loss or ta damage, especially though breakage, rust, decay desiccation, leakage, normal wastage, or the action of moth or ve min; (0) Insuificiency or inadequacy of marks or numbers on the packages; (g) The carriage of livestock. Article 17 allows for (G0Ia@0es of general exoneration grounds: * Those resulting from (amuetwataereretiter (Which here includes the goods). "Those resulting fom 2° ISRNRRUEMY he, ceumstances which te carder coud not avoid and the consequences of which he was unable to prevent) Agsin @GRNSINBEREMOUEINSIERGETES) imposed by courts: when is something unavoidable and unforeseeable? force majeure CEEEUSMIGAEOMA —> rather (very) strict Reason: the risk/ liability exposure dossnt disappear, it shifts to the creditor " Are there some exoneration grounds in UPICG? The starting point is the principle of pacta sunt servanda applies, even in case the contractual balance shifts (6.2.1 UPICC), unless hardship (6.2.2) or the event is caused byt itor. In we talk about haralship? Thera is harcishio where the occurrence of events fundamentally alters the equilibrium of the contract either because the cast of a party's performance has increased or because the value of the performance a party receives has diminished, anct (a) the events occur or become known to the disadvantaged party after the canclusion af the contract;(b) the events could not reasonably have been taken into account by the disadvantaged party at the tine of the eondusion af the contra ct: 26 (c) the events are beyond the control of the disadvantaged party; and (d)) the risk of the events was not assumed by the disadvantaged party. There is 2 EL TASTNIMCEEMARIEUR: force majeure requires performance to be impossible # hardship has lower threshold: foreseeability and unavoidability must here only result in a fundamental change in the contractual balance, withoul rendering perlormance impossible. Artic @@WRIGD provides rule on force majeure. If both could apply, affected party can choose which one it wants ta invoke. —> could a hardship defense for COVID 19 be successful if the contract was concluded after the first epidemic in China? What re the elseroNMSraSIIED As a rule, parties should renegotiate the contract. If this is impossible, they should go before court to obtain a court decision. Article 6.2.3. UPICC. (1) In case of hardship the disadvantaged party is entitled to request renegotiations. The request shall be mace without undue delay and shall indicate the grounds on whic it is based, (2) The request for renegotiation does not in itself entitle the disadvantaged party to withhold performance: (3) Upon failure ta reach agreement within a reasonable time either party may resort to the court. (4) If the: court finds hardship it may, if reasonable, (a) terminate the contract at a date and on temsto be fixed, or (b) adapt the contract witt a view to restoring its equilibrium, © A party may not rely on the nanperformance of the other party to the extent that such nor-performance was caused by the first party's act or omission or by another event for which the first party bears the risk. * Compare with 17.4.and 17.2 CMR (except for the force majeure exception). (3) Non-performance by a party is excused if that party proves that the non-perfommance was due to an impediment beyond its antral and that it could nat reasonably be expected ia have taken the impediment into account at the time of the conclusion of the contract or to have avoided or avercome it or ts consequences. (~ 17.2in fine CMA) (2) When the impediment is only temporary, the excuse shall have effect for such periad as is reasonable having regard to the effect of the impediment on the performance of the contract. E.g.: imposed production stops in the context of COVID19, don't trigger a general discharge from liability.(3) The party who fails to perform must give noties io the other party of the impediment and its effect on its ability to pertarm. If the notice is not received by the ather party within a reasonable time after the party who fails to perform knew or aught to have known of the impediment, i & liable for damages resulting from such non-receipx. oF (4) Nothing in this Acticle prevents a party from exercising a right to terminate the contract ar to withhold performance or request interest on money ate The principle is again CRROGEEWERBERA ut, there are some imils to excessive exaneration clauses: * GRIGGAIRPERCNMEWNIBENI clauses leading ta an erosion of the essence of the contract (e.g. French case law: ““secured marke! place"-platfarm, cannot exonerate from obligation trom verifying identity af parties on platfarm ») * Emerging consumer law in B2B-context (see formation and validity) “ Avice 7.16 FICC guppptegemets) A clause which limils or exclides one party's liabilily for nor-perlarmance or which permits one party to render performance substantially different from what the other party reasonably expected may not be invoked if it would be grossly untair to do so, having regard to the purpose of the contract. The rule = the broader the clause, the more likely it will be crossed out. It is often a factual question. Sometimes, counter evidence is not possible. E.g.: prolongation for frost days in construction contracts. Even if the delay wasn't caused by the fost days, stil the date for finalisation of the works is delayed by 1 day par frost day. Are remedies available in contract law? In case of damages: = Does the contract specify anything on recoverable damage? Limitation clause: widated damages clause - What does the law say on recoverable damage? ~ What is the damage | incurred? (If relevant)28 A. Contract termination - Performance The sia rule in common law is the ee CETTE UNITED no matter how much efforls you pul into. This. rule is so strict that even if me dl jou failed to rfonm does. not result in a It should be an exactly match contract, or nothing - Cutter v Powell Thete are however a number f So te = bsSIW Peon ESTE @ Substantial performance Wha with only incl or remediable defects, he can claim contract sum from the other party, less the cost o remedying the defects - Lord Mansfield - Boone v Eyre (1777) KB. It is however only applicable where the term of the contract that has been(@fSaehed lop the partial E.g.: failure only as to time of delivery in a sales contract where time is not of the essence. Under common law, QS is 2 term which goes-to the root of the contract, it is an essential term of the contract. Breach of a condition entitles the innocent party to a claim of damages and repudiation of the contract # a warranty is a minor term that of a contract, that is not essential to the existence of the contract Breach of a warranty entitles the innocent party to claim damages but nat to seek repudiation of the contract fe.o. aterm as to time of deliverv).A contract is several where it can be @MSIDIO NNO SIaGes Of pEMOMEnEED 29 E.g.: where payment becomes due at various stages of performance rather than in one lump sum when performance is complete —> severable contract. E.g.: the contract comprises of related but independent tasks performed in a sequence. For example, contract for the sale ot some bags of potatoes, but al the same time you contract with the seller to deliver the goods, paying him separately for such delivery —> sale of the good = actual delivery of the good. If that seller does Sale but fails to deliver, even though it may seem as a single contract, because the payment for the purchase of the good is different from the payment of the delivery of the good —> severable contract. This however does not apply if the seller simply forgets to deliver. E.g.: whether a contract is entire or severable is a question af construction. Where, after part performance, a party is prevented from completing the contract by some (@URGRREINERpaly: the party is prevented to complete the performance In this situation, the performing party can claim quantum meruit payment (i.e. payment for the work already done). This payment will not be stipulated under the contract, but is is based on the percentage of work already done * Voluntary acceptance of part performance A party voluntary accepts part performance: this could be done expressly or established by conduct. ill only infer an agreement to accept and pay for part-perfarmance where the ig the promise had a genuine choice. Sa, the innocent party must really have 8 financially convenient choice to decide belore terminate the contract ar accept this part performance. An event of (USES is an occurrence thal makes the performance of a contract Shiela tlsel | is not sufficient to be financially not convenient, it should be impassible (e.g. destruction of the subject matter of a sale). The e121! must ROLE due to the fauit of ether of the parties, The event must occu TTR —> 2 ‘frustrating event’ occurring before or during contract negotiation gives rise to a situation of mistake + not frustration GBS destruction or unavailability of something essential to contract performance (e.g. destruction of the subject matier of a sale}, impassibility of stipulated methad of performance (Nickoll and Knight v Ashton Edridge & Co (1901) NEGEMPEW orld War cases; trading with an enemy country. fe Chunmtn thet namie murfare ane manen anmere wn ew meunrenretnl ie elinccheret are weWGI ILS Ua TIMINGS PONUT AGG HUIS UNE as Ul GUILN GIGI y UrsetuverrnejyouUs * Events foreseen or foreseeable * Selfinduced frustration: if the party has himself made something become impossible, it would not be an event of frustration 30 The (GGGFENVIE® is that any loss. resulting from frustration should ie where it fell, because itis not the fault of either the party But )- He there has been total failure of consideration, money advanced should: recoverable - restitution So, in cases where one of the parties has. given something towards the contract, the court will allaw him to recover the money already paid as deposit + but it would not be the case where there are mutual performances of the parties. The most common event of discharge or termination of contract is when a party breached his obligations under the contract. *“GRGHAIBEREHMic fective performance, performance other than as stipulated under ‘the contract, non-performanes. E.g. a party partly perterms. * @RTEPAISRMBTEEED: where a party shows, either by words or conduct, that he shall not perform the contract when it falls due —> the party no longer has. the intent to perform his obligations under the contract E.g. the buyer buys some goods but before the date stipulated for the delivery, thus before the performance, the seller already informs that the delivery could not take place. The seller has shown, through his conduct, that he intended to breach the contract. In case of an anticipatory breach, the innocent party can sue immediately and does not need to wait for performance to fall due. Effects of breach The effects of breach depends on the nature ofthe term breached. * @EESEHTGHETEORAHOD ~ innocent party can repudiate as well as seek damages Because a Condition is 4 term that goes to the root of the condition, » GREERSTEWEPEAD- innocent party can only seek damages. enuinnite * Parlies can agree to terminate the contract through agreement. Thal agreement to terminate made subsequent to the contract must have all the elements of a fresh contract - offer, acceptance, cansideration, capacity, and intention to create legal relations —> that agreement is considered as a fresh contract. Grounds may be included in the contract* Importance of consideration When one party has performed part of the contract, and the other party has not performed and they naw agree to terminate the contract, the party who has not performed must givé consideration to the contract. a1 When neither of the parties has performed the contract, it is considered that the non- performance on each side is the consideration for the agreement. The breach of a contract exposes the parlies in wrong to some liability, Sometimes, a party can seek to limit his Habilty exposure. Usually, exclusion and limitation clauses are made by parties who have higher bargaining power under a contract * ‘0 @RCMSATEISUESESERSHORXEWGSTEINRBIM for certain breaches * A (QINNGTERUSESEEKSTOIIMINABHIr cer'ain breaches * Exemption covers both exclusion and limitation. * Generally, common law judges react to exclusion and limiting clauses by disapproving those clauses —> judicial attitude is one of general disapproval * Yet, common law courts have nevertheless made efforts to regulate the applicability of these clauses: 1) Ask whether the exclusion/limitation clause has been incorporated into the contract If often happens that these clauses appear at the back of receive or notice, but not included in the documents embodying the primary terms of the contract. The courts really ask whether this exclusion/limitation clause has been incorporated in the contract = Forms of incorporation: signature, notice, previous dealings —> is this exclusionsimitation clause indeed incorporated in the contract? + Signature: LEsirang v. Graucob [1934] 2 KB 394 —> have you read that document you have signed? ~ If there the clause is contained in a notice, it must be given before or al the time of contract and should be contained in a document which a reasonable person will expect to contain the terms af the contract - Previous course of dealing: if there has been dealings between the parties and the inclusion parties has formed a part of these previous dealings, then it cannot be considered as being part of the current dealings between the parties. 2) Interpretation: does the clause exclude or limit the particular liability in question? Mostly, courts often try to say that exclusion/limitation in question does not fall under the clause. One of the rules that has been used by courts is the contra preferentem rule. when there is an ambiguity in an exclusion/limitation clause, that ambiguity would be interpreted against the patty claiming such exclusion:Gan you @xerpl YOUrS@i ITO & NaOINTY afsing om & iumaarenat Teac £ A fundamental breach goes to the roots of the contract. The GIGQBOSHIGANS that a party cannot exclude liability for a fundamental breach, because it would mean that the party exonerates himself from the whole contract, from the purpose of entering intathe contract. 32 But the ABWEBBEMGABI: that a party can exclude liability for fundamental breach, provided that the clause by which you exclude liab lity is adequately/properly worded __» cf Suisse Atlantique Société d’Armement Martine SA v NV Fotterdamsche meer Sample exclusion clause « Notwithstanding any provision of this contract, the seller shall ot be liable for any damage to the gonds or joss of profit by buyer arising from late delivery of the goods for reasons other than the failure of the seller to dispatch the goods at the dats agreed by the parties. Exclusion clause concerns all liability. Usually, an exclusion clause will also state but the situation in which that exclusion would apply (i¢. only where the losses arise from late delivery other than the failure of the seller}: should there be any damages to goods as the result of the seller, then this clause would not be applicable Sample limitation clause « The seller shall be liable for any damage to the goods in the course of transportation to the place of delivery, arising from his negligence or that of his servants and agents, pmvided that the amount of such liability shall not exceed 50% of the total sum payable: under the contract. » A limitation clause packed the lability of a contracting party ©. Commorilaw remedies for breach of contract + Damages * Ta compensate the innocent party for the loss suffered as a result of the breach * Generally only available to remedy pecuniary losses In very few cases, non-pecuniary losses can be remedied by damages if relaxation or luxury is the only or major component of the contract. * Limitations on award af damages: - Causation - Remoteness > Possibilité of mitigation = Account of profit * Action for an agreed sum — an action for debt = Restitution in cases of unjust enrichment~ Equitable remedies for breach of contract * Specific performance * Injunction 33 Specific questions on COVID-19 Today, we really see these questions within the media: the question of defense in case of nan-performance af companies + Under what circumstances could the debtor invoke Covidi9 as unforeseen Circumstances, Hardship, Impossibility and Force Majeure in the different regimes mentioned inthe articles? Some of you went again to @SUMSESNORIMWElGRy of the contract. It is important to * Article 6.111 and 8:108 PECL * Art, 6.2.1 and 7.222 UPICC * Act. 275 and 313 BGB (Germany) * Art, 1148 CC (France) * §2-615 UICC (US law) * Art PO CISG: Categorisation of legal gmaunds (GRBBESTHERSNUNISRESEEMIENOUMSIANESD could actually be related to the two main categories of harciship (performance not impossible but more exonerous) and force majeure (performance became temporary or definitely impossible) Hardship /imprecision Force majeure 6.2.1 UPICC 79 CISG 6.111 PECL 7.A.7 UPIGG 275 BGB 8:108 PECL IJ untoreseen circumstance s: 1148 GC (France) BGB + 6.111 PECL 2-615 UCC ‘impossibility General preconditions for both hardship and force majeure|i must be an extemal-event, beyond the control of the debtor; i must be unforeseeable. “You must prove thal Ihe vitus ascured alter the time of the canclusion of the contract: 34 II the contract was concluded in mid-February, Covidt9 was already existing so it could have been foreseeable, Bul the imporlant question is « is # the mere occurrence of the disease or is it the fact that the disease became an epidemic? » ~ The mere occurence of the disease does not automatically make it impossible to invoke Covid!9 as an unforeseeable external event because a mere disease does nat necessarily make the perlarmance of a contract impossible —> force majeure Can be invoked. - Ifthe contract was concluded when Covid19 was recognized as a pandemic —> force majeure cannot be invoked if the disease became an epidemic. But if we could nat know at the time of the conclusion of the contract that Cavid19 will become an pandemic, then force majeure can still be invoked, E.g.: social distancing rule, you can only have 2 constructors in your house —> force majeure, delay in the supply because we are only 2 furnishers and not 4 anymore because af the social distancing rule —> force majeure ~ The event must become known ater the conclusion ofthe contract Assuming that the contract was concluded before the COVID-19 outbreak, this is feasible. Is the outbreak the event, or the global pandemic, which only started late February? “The event could net have reasonably been taken into consideration COVID-19 was not known, and neither were the effects of it known prior to the outbreak. Tha party could not have considered its effect prior to the outbreak. Depends on the required time of performance: if short after first incidents in china, it might evidence that your supply is too tight. * The events beyond the corto ofthe disadvantaged party The parties have no ability to control a viral outbreak, “The risk was not assumed by the disadvantaged party There was no knowledge ot COVID-19, the party could not have assumed the tisk prior to the outbreak. + that The main difference between hardship and force majeure is that hardship concerns a difficulty that results in great imbalance # ferce majeure concerns an impossibility to perform Itis about 4 specific contract it is impossible to answer this question in concreto —>Rene gatiation (if no agreement, court can Fore majeure: Discarge / suspension decide a new equilibrium) obligation 36 Hardship /imprecision Force majeure Possibly, new torms may be impased by the Temporary force majeure: Discharge / court suspension other obligations Ifthere is no consent between the parties: Right to-terminate is not automatic as it is not termination (or termination by the court) desirable in long term contract Remember: validity of the contract is not an issue here: invalidity relates to defect in the formation. Here there was a valid contract, which can only be terminated. The invalidity of the contract will not be an effect of hardship or force majeure. + Confronted with Covid19, your company asks you to write an exoneration and a limitation clause which cover the hypotheses of viruses, without them resulting in a general discharge from liability. Please write a clause. * What are the available models? The parameters to decide whether these instruments may be relevant are: Doss the clause encompass cases such as COVID19? Is the outcome sufficiently predictable? * Usefulness of UPICC/PECL? UPICC and PECL provide a definition of force majeure and hardship, but these models do not say anything about diseases —> they do not enumerate events qualifying as force majeure or hardship. This can be prablematic with borderline cases: E.g.: quid with SARS-Cov which was mainly an epidemic in Asia —> could you invoke force majaure/ hardship in such cass? It was not occurring in Europe, but it was in China. Problem with economic: force majeute/ quantification of hardship —> when wil the contractual equilibrium be fundamentally altered/ when is performance impossible? * Usefulness ICC force majeure / hardship clause? ICC Farce Majeure Clause refers to the situation of epidemic as a force majeure event. In the absence of proof te the contrary and unless otherwise agreed in the contract between the parties expressly or impliedly, a party invoking this Clause shall be presumed to have established the conditions described in paragraph 1 fa] and [b] of this Clause in case of the occurrence af one or more of the iallawing impediments:[e] act of God, plague, epidemic, natural disaster —> it shits the burden af proof (change ping pang game): in case af epidemic affecting performance, it is presumed that the eencitions for force majeure are fulhited unless the erecktor evidences this is not the case. Could we have an economic force majeure? Do you need an absolute impossibility or could it alsa be an economic impassiblity? ICC Clause could be complemented by 36 saying that if the loss is more than 300% then it is a force majeure because It it really gels excessive, E.g.: threshold foreconomic force majeure would be “costs+ 300% amaunts to impossibility”. The ICC Hardship Clause does not contain a specific list af characterization, there is no precise list of events, It refers to “evenis beyond reasonable conto! which is thus broader than the scope of force majeure. But when is the equilibrium of the contract fundamentally alters? E.g.: supply costs +50'%, Maybe at also allocation key extra costs: « 50/50 division; unless price*2 —> right to terminate for either party » Generally, unforeseen circumstances, hardship and force majeure are not known as doctrines under common law —> they are not implied in common law contracts But common law enforces them as labels for clauses when the parties choose to make provisions for them in their contract —> they ai will apply in interpreting eemnemee oo peeren ue apietetiee ee exclust clause, that ambiguity would be interpreted against the party claiming such exclusion. But this rule is not limited to exoneration/imitation clauses. COVID-19 will upheld as an be an exonerstion ground under common law in two instances: ~ If the parties made provision for it (epidemics and pandemics) as an exoneration Qiound under their contract (and not as an hardship or force majeure) = If the impact of Covid19 makes it impossible or illegal 10 perform the contract —> an event of frustration So what is important is not the Covid19 itself but the ES RSINGRETEDN the E.g.: border closure preventing delivery; border closure preventing the exporting of tace masks becoming illegal in some countries, if the contract was tor the supply of face masks. If Covid 19 arises under the contract (ie. parties provided that this event could happen),the effect will be as stipulated under the contract) \I Covidt@ arises as an effect of frusiation. ‘re contrac: becomes terminated! But in the case of folal failuve of consideration, there will be restitution of monies advanced, a7 1.1.Lpon the occurrence of an event whieh: a. renders the performance of this contract impracticable, fundamentally differant trom what the parties agwed to, or illegal; b. increases the cost of performance by either party to more than 40% of the cost contemplated under the contract or the market price at the time of contracting: ©. exposes either of the parties to risk of physical, mental or general health hazards Porlormance of the contract shall, if such event is temporary, be postnoned till such time as performance shall be possible, and if permanent (or if not permanent but can only be performed after such time as shall render performance uneasonable), be discharged. 1.2, Upon delay or discharge of this contract pursuant to Glause 1.1. a & ¢ above, neither party shall be liable ta the ather for payment of damages for loss sutfered or any liability arising from delay or non-performance. However, a party shall promptly pay to the other, such monies as may have been advanced under the contract but tor which consideration has not been fumished, 1.3. Upon delay or discharge of the contract pursuant to Clause 1.1. b above, the performing party shal be liable to the ather party for losses suffered as a result of the delay or discharge up to a limit of 50% of the increase in the cast of performance, 1.4, Events contemplated under Clause 1 inclide but are not limited to war, civil unrest, industrial strikes, border closure, travel ban, and an outbreak of a communicable disease or such other heaith hazards that satisfy the condition in 1.1, above,38 IIL Applicable Law to Commercial Transactions A. Choice of the parties - Terminology * Private international law x conflict of laws Conllict of laws is the terminology used in the USA PIL is perceived as a broader term (e.g. especially in the UK they both use PIL and contliot of laws) —> PIL includes three big chapters (applicable law, jurisdiction, recognition and enforcement) = conflict of laws only focuses. on applicable law. We will only look at the « applicable law » part. * Choice of law This term is more limited than the term conilict of laws which refers to the field of law related to the applicable law. Choice of law basically refers to the law chosen by the parties in their contract. * Proper law/governing law: law that gavernsiregulates the contract * Lex loci contactus: law of the place where the contract was made * Lex foci solutionis: law of the place where the contract was performed / supposed to be performed. * Characterization: looking at the facts and trying to categorize /characterize them into legal boxes For example, in commercial contract law, we can have an emplayment contract, sales contract (@.g. sale of an immovable property}, insurance contract, merger contract, service contract; investment contract; agency contract, carriage/tansport contract (e.g. carriage by sea, rail, alr, road). It js important to categorize the facts inta the right legal box because the legal rules that will be derived from the categorization may very widely, E.g.: somebody crashed into me while | was driving? What happened? In which box of the law does ittix? Facts —> legal box = contract law. But whatkind of contracts it? But tort law. * Connecting factor: facts, once set in a legal box, should be related to factor that leads to choose the applicate law e E.g.: the domicile of the party involved; place of the accident; the place of work; place of delivery: place of the contract: place of the provision of the service: place where the contractwas performed; place of residence or business. If you characterize wrong you will choose the wrong connecting factor and hence you wil rely on the wrang applicable law. Alternative connecting factors: when connecting factors. give several possibilties. * Forum law: the law of the court where you are having the dispute 3g - Context: private international law Reasons for applying foreign law * Comity: « @ practice among states, courts of different jurisdictions involving the “mutual recognition of legislative, executive, and judicial acts » States recognize the sovereignty of other States with their own laws, and expect reciprocity in return The doctrine of international comity has been described variously « as a chaice-olaw principle, a synonym for private international law, a rule of public international law, a moral obligation, expediency, courtesy, reciprocity, utility, or diplomacy » * Reciprocity: relation’policy in commercial dealings between countries by which corresponding advantages are granted by each country to the citizens of the other. * Vested rights: a right belonging completely and unconditionally to a person and which cannot be impaired or taken away (as through the application of a foreign law). If you have acquired rights in one country and then you move to another country, you should be able to keep those rights and thus to be subject to the law linked to the State where you acquired those rights, * Justice —> von Savigny is the father of PIL in Europe; German scholar who considered PIL as a branch of international law. He came up with the idea thal every ‘egal relation should be pul in its natural place (sit; box}. Then of course it is a mullilateralist approach: he considered that all nations should follow the same logic about characterization and the connecting factors. The problem is that nations states (e.g. France, Germany) started coditying their own private laws. This was thus in conflict with the idea of multitateralisen developed by von Savigny. The_US approach to conflict of laws 1) Vested Rights —> Joseph Story is the after of conflict of laws in the USA: he alsa had a mulllateralist approach, he relied a laton the idea of comity. Yel, its ideas differed trom the one of Van Savigny. He tried to find the applicable law but he did not have specific theories as Von Savigny had. —> Joseph H. Beale: he wrote the first Restatement (vested rights theory): car accident implies @ tort implies @ contract implies the creation of rights —> the place where those tights were created will determine the applicable law.Restatements of the Law are a set of treaties on legal subjects that seek to inform udges and lawyers about general principles of common law. There are now faur series of Restalements, all published by the American Law Institute (i.e. an organization of iudges, legal academics, and practitioners founded in 1923) Within the ALI, they sit together and tried to understand dhow US courts approach a certain matter, whether there is a common ground, what is the majority view or what are the common lines that could be identified. Within the US, there are 50 states 40 with 50 different legal systems, especially in the field of tort law + in the field of contract law, there is the Uniform Commercial Code (UCC) —> all the 50 States decided to implement the UCC, which therefore reduces many problems in contract law. Uniform laws are model laws, which try to prevent the problem. But there are not directly applicable —> they are applicable if the State decides to adopt it First Restatement (1934): strict, clear and certain rules. Criticism; formaiistic, oversimplified and inflexible. The main writer was Joseph H. Beale. 2) Interest analysis —> Brained Currie: he criticized the first Restatement as being too inflexible, it is just removing the question while not really settling it. It is non-sense to have strict rules because there is government interests —> interes! analysis, So, governmental policies should be taken info account, there are true and false conflicts; the most interested State's law must apply; in mast of the cases, there will be a preference for forum law. Judges know their awn laws betler bul they also know mare what are the policies behind their own laws, they can easier understand why a specific State has a specific law, and not the other States —> they can easier understand the policies of the laws of their own State. (Cf, Babeock v. Jackson (1963): group of friends driving trom NY to Canada made an accident in Ontario, In Ontario, there was a guest statute providing that the guest cannot claim against the driver, + there was no such law in NY. On the basis of the First Restatement, the law of the tort should have been applicable = Canadian law. Yet, the NY Court considered that Ontario cid not have any interest in the case (the Guest Statue is for Ontario citizens and insurances). For the NY Court, we have to look at the interests and underling policies where the NY law has interests —> NY law applicable —> guest can claim damages against the driver Second Restatement (1971): it moved away from a very fixed and inflexible approach looking at the closest connection; the most significant relationship —> flexibility. The main writer was Reese. Bul this alsa led to critics and let to another approach: the better law approach 3) Better law approach We should look at what is the best possible law for that specffic person. It is similar to the governmental policies approach but it takes into account the interests. of vulnerable persons —> interests of the persons involve. Private international law approaches. Unilateralist approach: from own leoal svstem's approach: « scope rules » —> CurrieE.g.: Article 3 of the French Givil Gode is PIL rule that states when the French PIL is applicable; they do not provide when laws of other States are applicable. Mlulliateralist approach: not starting from awn legal system; predetermined « neutral connecting factors » —> van Savigny, Stary. Why fs it only supposed to be « neutral »? Is there @ policy behind connecting factors? Thete may always be reasons why a State chooses a specific connecting factor. If you 4 look at the Hague Sales Convention and Rome |, they actually have different rules. So, this points out that there may have been different policy choices in wring those rules. E.g.: approach of von Savigny accerding to which the applicable law in contract law-should be the law of the place of performance. Application of foreign law. * Curia novit ius: the court know its own laws as well as foreign law (civil law systems) * Foreign laws amount to facts (common law systems) E.g. in England, quid if the Court is faced with the application of the Singapore law? First, parties have the responsibility to check what the Singapore law is and to prove the foreign law. If the parties do not manage to identify the content of the foreign law, the English courts will agply their awn laws —> division of tasks. + Choice as conflict rules (introduction Could parties start a contract without chaosing a law? There is a paradax here: to create a contract you need several elements (meeting of the minds, rights and obligations, clear) —> legal construct. However, choice of law allows the parties to decide on whatever they are bound. So, there is a problem because parties can choose everything, but they are bound by several elements to create a contract, Party autonomy also allaw patties to choose for another applicable legal system. Is party autonomy a construct of national contract law or is more than that? Party autonomy is.a legal construct, which allows the parties ta choose the applicable law. National mandatory rules: rules that cannot be derogated fram (e.g. consumer laws, prescription periods). The fact that you cannat change/remave some elements in your contract may lead parties to decide another applicable national law. Articles 3.3 and 3.4. Rome | provide that there are mandatory cules of national legals system that will be still applicable, even if the parties have chosen a different applicable law. In some legal systems, prescription is procedural = in other legal systems, prescription is substantive (you lase your right) —> characterization # overriding mandatory provisions: rules that cannot be derogated at the level, na matter which national law parties decide to ap ply. ernational ‘Article 9 Rome | orovide that the overridina mandatory orovisions of the forum mustalways apply (Art. 9.2). Moreover, the Court may apply the overriding mandatory provisions ofa foraign law f the contract would Be unlawful under that law. —> is the contract that derives from the law or the law that derives fram a contract? There is a theoretical debate among scholars: the contract is the source of the law itself, unless your other source is overriding mandatory provisions >< the contract derives from contract law that provides for the elements of a valid contract 42 —> now, we have come to accept that parties have autonomy in choosing their applicable law. But there are same limits. Naw, we have accepted that the applicable law to a fort can also be the law chosen by the parties, not only the place af the tort Choice as conflict rules today What can parties to a contract choose as applicable law? * national law of one of their States? In some cases, national Aw may not be the most appropriate solution for the parties. One of the reasons why the parties would choose of their national law is because they would benefit from thal law, ftom the requirements of that law E.g.: the carrier that may be late in the delivery would choose a law that is less strict * national law of a third-State? Yes, according to Article 2 of the Hague Principles on Choice of Law in International Commercial Contracts (PCLICC) parties can choose a law which has no connection with the parties ar their transaction. * non-state law? There is no glabal agreement on this question, we have to look through the various PIL instruments. Unfortunately, PIL is nat an international area of law as von Savigny would have required, but each Slate has its own PIL. softlaw (UNIDROIT Principles, PECL)? general principles of law? lex mercatoria? According to Article 3 of PCLICC, parties can do so. Yet, these principles are soft-law, there are not a convention —> in themselves, there a source of inspiration for courts and national legislators. Also, #f legislators would like to implement the PCLICC, they can choose what elements they want to include so itis totally possible that the legislator implements the PCLICC, with the exelusion of, far example, Article 3 Article 3. = The jaw chosen by the parties may be rules of law that are generally accepted on an intemational, supranational or regional level as a neutral and balanced set ai rules, unless the law of the forum provides otherwise. » But at what point does it become generally accepted? What are neutral and balanced set of rules? Caurts and authors will have to ok on that.According to Article 3 of Rome |, it is not clear whether parties can choose @ non-state law. What does « the law chosen by the parties » mean? Some authors argue that UNIDROIT Principles is law and that Article 4 Rome | is explicit in referring to governing laws and countries so this means that Article 3 Rome | is broader and is not limited to state-law >< other authors argue that it should be a state law since Article 4 Rome | anly refers to governing laws and countries. The prapasal of the Commission was however very clear in this regard and provided thal parties could refer to non-state law. Yet, al the stage of the Council, some 43 MS disagree with the proposal and argued that it should be limited to state laws. So, the final version of the regulation had to remove that part, Article 3 (2), The parties may also choose as the applicable law the principles and rules of the substantive law of contract recognised internationally or in the Community However, questions relating ta matters governed by such principles or rules which are not expressly settled by them shall be governed by the general principles underlying them oc failing such principles, in accordance with the law applicable in the absence of a choice under this Regulation. inal proposal of the Commission, there was an explanatory memorandum They made clear that they do not want a general reference to lex mercatoria as itis not precise enough, but they want to include UNIDROIT Principles, PECL and possible future optional instrument (cfr. the Common Frame of Reference). Yel, rectal 18 of Rome | provides that parties are not precluded from incorporating by reference into their contract a non-State body of law ar an international convention —> choosing the applicable law = incorporating a law in the contract Rec 3. This Regulation does not preclude parties from incarporating by reference into their contract a nan-State body af law or an international convention. At the same time of the negotiations, @ group of researcher draft a Common Frame of Reference which could be a very good start for a European civil code. Then, the Commission, with the removal of the broad Article 3. wanted to keep open the possibility that if thay manage ta adopt that common frame, parties could have the possibility to rely on that instrument. Yet, this proposal did nat survive in Council Rec 14, Should the Community adopt, in an appropriate legal instrument, cules of subsiantive contract Jaw, including standard terms and conditions, such instrument may provide that the parties may choose to apply those rules. You can incorporating UNIDROIT Principles only for certain aspects of the contract, such as the place of payment or delivery + if you are allowed to choose UNIDROMT Principles as the applicable law, t applies to all the elements of the contract, except the overriding mandatory rules. Cc Inter-American Convention (1984); Hague Ageney Convention (1978); Hague Sales Convention (1986); Hague Securities Convention (2008): all of them have the principle that parties can choose the applicable law —> PIL conventions. Cf Vienna Sales Convention - CISG (1980): unlike the above instruments, a PlL instrument, it is also about substantive law. ig nat onlyWhat about contract validity? * Formal validity: form in which the contract should be (e.g. contract must be in writing; land contract must be in writing + registered; in some systems, lease contracts must be in writing but sale contracts not; in other systems, sale contacts must be in waiting too; it must be signed by witnesses, it must be notarized). * Substantive validity: meeting of the minds of the parties; the issue of capacity (which forms part of person law or corporate law + contract law). 44 To decide issues of formal and substantive validity the putative chosen law will be chosen (=supposed applicable law, i.e. the law applicable if the contract would have been valid) > Art, 3(5) Rome | + Arl. 12 Inter-American Convention In order to assess the validity of the contract, they will look for the supposed applicable law. For thal, judges will bok at several provisions since it cannot be said thal the entire contract is invalid, They will separate the contract into several clauses in order to assess them as regards the supposed applicable law (e.g. English law). So even if there is an issue as regards the validity of the contract, they will consider each clause of the contract, separately, and check which law is the applicable law. ~ Limitations to choice Which limitations? When do they apply? Why da they apply? There are always policy reasons behind limitations/averriding mandatary provisions. * abuse of law/fraud * public policy arguments of a State, even if the parties have chosen for another applicable law E.g.: sales contract of sex toys between a Duich company (seller) and a Saudi-Arabian company (buyer) where the law applicable is the Dutch law When the sex toys arrived in Saudi Arabia, they are blocked because itis contrary to the State's public policy. * you can choose the applicable law but you cannot derogate from the protection that consumers would have had under the law of their residence * insurance limitations: —> provisions on applicable law are influenced by the public policy of States B. Default rules in the absence of choice of the parties: assigned applicable law The legislatorithe law will assign the applicable law in the absence of choice by the parties. When do we need an assigned applicable law? When the parties made no choice agreed by both parties or when the choice is invalid. Con theninh there in a martin af tha mineia an tha meriormmnan af thea mantent thee