Before turning to how the various national laws may affect the interpretation and application of an international contract (which will be the subject of Part 3 of this book), some methodological questions must be addressed. Should an international contract be governed by a national law different from the one that inspired its drafting? Should an international contract be governed by a national law at all? Rather, should not an international contract be subject to a harmonised, transnational law? The thesis of this chapter is that the applicable law should be chosen according to the general conflict rules, even though this would lead to a situation where the contract is governed by a law different from the law that inspired it. Furthermore, the contract is ultimately subject to a state law, even though the underlying transaction is international. These two aspects are dealt with separately in Sections 1 and 2 below.

Does the drafting style imply a choice of the applicable law?

The first question regards the choice of the applicable law. An international contract is potentially governed by the laws of at least two different countries, those with which the legal relationship has a connection: these could be the countries where the parties have their respective place of business, the country where the contract is to be performed or other countries with which the contract had other connections.

Preliminary observations

Even in international matters, there is no such thing as ‘lawless contracts’ under French law, although it is perfectly admissible in international arbitrations to provide that the arbitral tribunal shall rule in ‘amiable composition’, which does not require the tribunal to apply a law except for fundamental rules of due process and international public policy. However, by virtue of the principle of contractual freedom, a contract governed by French law may also refer to other norms and customs, e.g., the trade practices of the shipping industry. The general observations contained in this chapter must therefore be adapted to the specific business norms and customs that may apply to a given contract according to the field of activity involved.

These general observations should also be qualified to take into account the general approach of French judges towards contracts. The Civil Code does contain a few rules of construction in Articles 1156–1164. One should, however, point out certain qualifications regarding their exact scope and effect:

Introduction

The general starting point in Finnish contract law, as it usually is in countries with market economies, is pacta sunt servanda and that each party must carry his or her own risk as to how the contracted obligations will develop. The Finnish Contracts Act of 1929 is almost completely identical to the Danish, Norwegian and Swedish Contracts Acts, which have served as models for the Finnish Contracts Act. Moreover, the Sales of Goods Acts in Finland, Norway and Sweden are, with the exception of some minor differences, identical. However, Finland has no comprehensive civil code like, e.g., the German BGB or the French Civil Code. Instead, the general principles of contract law are not codified, which makes case law and doctrine important as legal sources in the field of contract law in Finland. In substance, the principles of Finnish law on contracts are the same as in the other Scandinavian countries.

The basic principles of Finnish contract law that seem relevant in this context are good faith and loyalty in contractual relationships and fairness. The underlying idea is to conceive a contractual relationship as a cooperative project for the parties instead of an arrangement which entitles a party to a contract to pursue only his or her own interests. In general, these principles impose a duty to also take into consideration the interests of the other party.

Part 1 showed that international contracts are often written on the basis of common law-inspired models and do not regard the applicable law as a guide to the drafting. Before turning to how the various national laws may affect the interpretation and application of an international contract (which will be the subject of Part 3), some methodological questions must be addressed. The circumstance that international contracts are drafted without taking into particular consideration the requirements and assumptions of any particular contract law may seem hard to reconcile with the necessity of interpreting and applying international contracts in accordance with a particular law.

Taking contract practice as a starting point, the observer could be tempted to question whether an international contract shall be subject to a law that was not considered during the drafting. However, when seeking solutions that adequately cater to the peculiarities of international contract drafting, it is necessary to bear in mind their feasibility and effectiveness. Does the drafting constitute a sufficiently clear basis for selecting the governing law? Are harmonised sources available on a transnational level and capable of fully regulating the interpretation and application of contracts, thus making national contract laws redundant?

In Chapter 3, Giuditta Cordero-Moss analyses the implications that the style of contract drafting may have when choosing the governing law. Chapter 3 verifies to what extent generally acknowledged rules, trade usages or transnational restatements of principles may contribute to overcoming the tension between the style of the contract and the law governing it.

Overview of the book

This book addresses the question of whether the drafting style of international contracts may actually achieve rendering the contract self-sufficient. The drafting style, including the recurrence of boilerplate clauses in all types of contracts and irrespective of the governing law, seems to aim at detaching the contract from any elements external to the contract itself, including the applicable law. This drafting style is originally based on the common law approach to contracts, but is now adopted in most international contracts even when they are not subject to a law belonging to the common law family. The analysis follows three different stages, each dealt with in a different part of the book.

Part 1 of this book contains contributions by attorneys practising in international business, who explain the circumstances that lead to writing commercial contracts in a way that disregards the structure and tradition of the applicable law. This may be explained first of all in light of the fact that commercial contracts are often the result of an extensive process of negotiations. In Chapter 1, David Echenberg describes how the dynamics of negotiations contribute to the development of contracts that are not tailored to any specific state law. Lawyers drafting contracts for multinational companies will often be subject to the company's internal policy that tends to be standardised in order to facilitate internal risk assessment and knowledge management.

This book applies the method of comparative law to the practice of international commercial contract drafting and therefore gives a quite unusual combination of theory and practice. The underlying idea reflects my own path in the world of international commercial contracts.

For the first part of my career I was, for more than a decade, an in-house lawyer of multinational companies, first in Italy and then in Norway. For all those years I have been drafting and negotiating financial and commercial contracts that were meant to be operative in a variety of countries, from various continental European countries to Russia and what has become the former Soviet Union. It struck me that all contracts were written mainly on the basis of the same models, quite irrespective of the law to which they would be subject. The models were obviously inspired by the common law contract practice, even though the contracts were not meant to be governed by English law. Queries arising out of this observation would be quickly dismissed on account of the expectation by the other contractual party, and even more by involved financial institutions, that recognisable models would be used. Also, these models were deemed to have proven successful in the past. Any ambition to verify the compatibility of the models with the applicable law would be limited to asking local lawyers to render a legal opinion on the enforceability of the contract.

The range of legal entities contracting internationally, as well as the range of types of agreements entered into by companies, is very broad indeed. This introductory chapter will focus generally on companies transacting internationally for one-off contracts for the sale and purchase of goods and services.

Business is about assuming and managing risks, including legal risk. This reality is mirrored in the negotiation process. Contracts can be viewed as the final result of a dynamic process seeking to take into consideration all the imponderabilities of transnational business. Of course, the negotiation process contemplates the enforceability of contractual provisions under the relevant applicable law. That said, the reality is that not all contractual provisions are created equal and there are factors that will impede a complete review, including time restraints and budgetary concerns. There are also the ‘unknown’ factors, stemming from cultural gaps or linguistic limitations in some cases, or simply from the state of the law in others, to mention only a few. Finally, there are contracts that can be considered as the ‘unseen unknowns’.

Section 1 of this chapter outlines the starting point and some of the elements of the negotiation process, seeking to explain why, in practice, there may be gaps between ‘standard contracts’ and ‘national legal requirements’. Section 2 briefly reviews the findings.

Introduction

The majority of this chapter is taken up with an analysis of how English law regulates the types of clause that are the principal focus of this book. Before that analysis can be undertaken, it is necessary to make a few preliminary observations about the general approach of the courts to the policing of ‘boilerplate’ clauses.

Content

Freedom of contract remains the core principle at the heart of the English law of contract. The content of a contract remains almost entirely in the hands of the parties to it. There are few ‘default’ provisions which will be included in the absence of any express agreement of the parties. Prominent examples are the terms implied by statute in contracts for the sale of goods that the goods will comply with any description, or sample, and will be of ‘satisfactory quality’ and ‘fit for purpose’. Such terms will often be excluded by the contrary agreement of the parties, so that it is ultimately the intention of the parties which prevails. In some instances, the parties may be quite happy to rely on the minimal content supplied by the operation of law, e.g., some building contracts, particularly in the residential context, may be entirely oral, or at the very least will remain informal and contain no more than the express obligation of the employer to pay the price and the implied obligation of the contractor to carry out the work with reasonable skill and care.

Danish contract law in general

Denmark has no civil code but rather a variety of fragmentary statutes dealing with some special types of contract. The two central pieces of legislation in the area, købeloven (the Sales of Goods Act) and aftaleloven (the Contracts Act), date back to 1906 and 1917, respectively. New provisions protecting consumers have been added to the two Acts, but otherwise, with a few exceptions, they both look as they did when they were first enacted. These old Acts are some of the finest examples of the legislative cooperation between the Nordic countries in the first half of the twentieth century.

When Denmark joined the 1980 United Nations (Vienna) Convention on Contracts for the International Sale of Goods (‘CISG’), the veneration for the two old Acts and the Nordic tradition was great and embodied in the fact that Denmark did not join the Convention's Part II (Formation of the Contract) and that Denmark and the other Nordic countries invoked the so-called ‘neighbouring country reservation’. The effect of the latter is that, according to the general rules on the conflict of laws, the national Sales of Goods legislation applies to inter-Nordic sale contracts.

The special status of the old (no longer joint) Nordic Sales of Goods Act from 1906 is also embodied in the fact that it is a general assumption in Danish legal theory and practice that, by and large, the Sales of Goods Act reflects the non-statutory, general principles of contractual obligations and thus that the rules of the Act, with a few exceptions consisting mainly of rather ‘technical’ rules, are an important paradigm for the default rules applicable to those types of contracts that are non-statutory, for example, most service contracts and the purchase of real property.

Using a certain language to write a contract does not necessarily mean that the legal system that is expressed in that idiom is applied. This is clearly shown by the fact that often the parties to a contract that is written in the English language expressly choose a governing law that is not expressed in English, be it the law of the state to which one of the parties belongs, the law of the state where the contract shall be performed or the law of a third state, which is deemed to be neutral and therefore preferred by both parties. Therefore, it should not be surprising to see commercial contracts written in English, but structured in the same way as a contract would be structured under the law that the parties have chosen to govern their relationship. These contracts would be developed and written according to the legal technique and legal tradition of the governing law, and only from a linguistic point of view would they be expressed in English. The process of drafting would not necessarily have to take place in two tiers, first writing the contract in the original language and then translating it into English. It could very well be possible to think and structure the contract according to the criteria of the governing law and write it directly in English, although the difficulties of expressing legal concepts in a foreign language are well known, that is, of separating the means of expression from the object that is expressed.

Introduction

Frustration of purpose is a defence to the enforcement of a contractual obligation. Legal systems generally provide this defence when an unforeseen event undermines a party's purpose for entering into a contract. In many legal systems frustration of purpose is often treated and discussed jointly with the related doctrine of impossibility, which concerns situations where unforeseen events render impossible (practical impossibility) or far more burdensome (economic impossibility) the performance of the obligations specified in the contract. Although different in their substance, the economic analysis of the doctrines of frustration and impossibility share a common logic. In the following analysis we shall therefore treat these doctrines together.

When unexpected contingencies occur during the performance of a contract, there may be a divergence between what the parties have expressly agreed upon in the contract and what they have implicitly assumed was their contractual obligation in terms of assumption of risk. In other words, when there is a period of time between the conclusion of the contract and the performance of the parties, there may be a fundamental change of circumstances that makes the performance of the contract far more burdensome, or even physically impossible, for one party, or that completely frustrates the purpose of the contract for one party. The event that causes the change is, as said, unexpected or unforeseen and is not explicitly referred to in the parties' agreement. If it were in the parties' agreement, the general rules on breach of contract would apply.