Introduction to Business

Law and Ethics

UNIDROIT Principles of International Commercial Contracts

Dr. Ahmet Cemil YILDIRIM, LL.B., LL.M., Ph.D.

Outline
1.A brief historical introduction
2.Advantages of soft-law
3.Emergence of the new lex mercatoria
4.The UPICC and the lex mercatoria
5.Scope and Content of the UPICC
6.The UPICC in Practice
1. A brief historical introduction
• CISG  inter-state law-making  insufficient in content
• 1971  start “UNIDROIT Initiative on the Progressive
Codification of International Trade Law” (later UNIDROIT
Principles of International Commercial Contracts – UPICC)
• Inspired by the ALI’s “Restatement of the law”
1. A brief historical introduction (cont’d)
• Working Groups  The provisions of the UPICC are based on
1.the principles that emanate from arbitral case law,
2.comparative studies
• 1994  the UPICC has been published
• the UPICC were revised and updated in 2004, 2010, and 2016
2. Advantages of soft law
• "instruments of a normative nature without legally binding
force"
1.Soft law is free from the difficulties of inter-state law-making.
 not produced by governments  no political or diplomatic
concerns.
 scientific character dominate their diplomatic character.
2.no need to ratification.
3.can easily be adapted to new needs
3. Emergence of the new lex mercatoria
• lex mercatoria  law of the societas mercatorum
• the expansion of global business in the 20th Century  need
for globally applicable rules for international business
 the “new lex mercatoria” or “the new law merchant”.
Arbitral case law
Rules formulated by international NGOs
3. Emergence of the new lex mercatoria
(cont’d)
• the lex mercatoria was criticized by some
1.in its ambiguity,
2.the lack of predictability of its rules,
3.not a real legal order.
4.It does not even exist.
4. The UPICC and the lex mercatoria
• The mission of the UPICC in the 1990s was to demonstrate:
the presence of the lex mercatoria and
its competence as a legal system.
• The preamble of the UPICC states that the Principles
"may be applied when the parties have agreed that their
contract be governed by general principles of law, the lex
mercatoria or the like."
4. The UPICC and the lex mercatoria
(cont’d)
• Unilex database (www.unilex.info)  536 cases (December
2021)
the presence or competence of the lex mercatoria as a legal
system is not questioned anymore
the UPICC is determining the course of the development of lex
mercatoria.
5. Scope and Content of the UPICC
“PREAMBLE
(Purpose of the Principles)
These Principles set forth general rules for international
commercial contracts.
They shall be applied when the parties have agreed that their
contract be governed by them.(*)
They may be applied when the parties have agreed that their
contract be governed by general principles of law, the lex
mercatoria or the like.
5. Scope and Content of the UPICC (cont’d)

They may be applied when the parties have not chosen any law
to govern their contract.
They may be used to interpret or supplement international
uniform law instruments.
They may be used to interpret or supplement domestic law.
They may serve as a model for national and international
legislators.”
5. Scope and Content of the UPICC (cont’d)

CHAPTER 1: GENERAL PROVISIONS

CHAPTER 2: FORMATION AND AUTHORITY OF AGENTS
CHAPTER 3: VALIDITY
CHAPTER 4: INTERPRETATION
CHAPTER 5: CONTENT, THIRD PARTY RIGHTS AND
CONDITIONS
5. Scope and Content of the UPICC (cont’d)

CHAPTER 6: PERFORMANCE
CHAPTER 7: NON-PERFORMANCE
CHAPTER 8: SET-OFF
CHAPTER 9: ASSIGNMENT OF RIGHTS, TRANSFER OF
OBLIGATIONS, ASSIGNMENT OF CONTRACTS
CHAPTER 10: LIMITATION PERIODS
CHAPTER 11: PLURALITY OF OBLIGORS AND OF OBLIGEES
6. The UPICC in Practice
CASE 1: Arbitral award rendered in SG 126/90 Schiedsgericht
Berlin, 1990
Facts:
EEC seller  machines  GDR buyer
The applicable law  GDR law
reunification of Germany  GDR market opens to western
markets  machines lost all value for the German buyer
German buyer refuses to take delivery of the goods and to pay
the price. The seller starts arbitration proceedings.
6. The UPICC in Practice (cont’d)
The decision of the arbitral tribunal:
 in favor of the German buyer
 reference to the provisions on hardship contained in the
UPICC
• Reference to the provisions of the UPICC relating to hardship
even before their publication in 1994.
6. The UPICC in Practice (cont’d)
CASE 2: Arbitral Award rendered in ad hoc arbitration between
Mohamed Abdulmohsen Al-Kharafi & Sons v Libya, 22.03.2013
Facts:
• A Kuwaiti company and the Government of Libya entered into
a contract  for the construction and management of a large
resort complex in Tripoli
6. The UPICC in Practice (cont’d)
• The applicable law  the law of Libya together with the 1980
Unified Agreement for the Investment of Arab Capital in the
Arab States.
• The Kuwaiti construction company fulfilled its obligations
• the Government of Libya failed to fulfill its obligations under
the contract
• Kuwaiti company started ad hoc arbitration procedures.
6. The UPICC in Practice (cont’d)
Decision of the Arbitral Tribunal:
• The compensation of loss of profits in favour of the Kuwaiti
company.
• The Libyan civil code and decisions by the Libyan Supreme
court confirming the right to compensation for lost profits.
• In support of its decision the Tribunal also referred to Article
7.4.2 of the UNIDROIT Principles on full compensation and to
Article 7.4.3 of the UNIDROIT Principles on the principle of
certainty of harm.