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Principles of International Commercial Contracts Working Group on Long – Term Contracts (excerpts) (also in Spanish)

August 22, 2016 By: udo.reifner Category: Contract Law

Second session Hamburg , 26 – 2 9 October 2015 UNIDROIT 201 6 Study L – Misc . 32 English only January 2016 REPORT (prepared by the UNIDROIT Secretariat)

(Spanish translation Long term contracts. ¿Hacia unos principios Unidroit de los contratos comerciales internacionales de duración? by Elena Carillo)

[The UNIDROIT working group on the principles of commercial long-term contracts has published the envisaged amendments and changes to the principles of intgernational commercial law provides by the INTERNATIONAL INSTITUTE FOR THE UNIFICATION OF PRIVATE LAW (Rome) on the internet. Although Life Time Contracts are excluded it is interesting to see that many of the LTD principles have to be attributed to long-term relations as such while others should be specifically seen in the light of the life time dimension.

In the following we have exerpted some of its principles from the paper (93 pages) with regard to life time contracts from the Annexes where the propositions for changes have been located. The paper provides information on the process of the meetings as well as comments each of these articles. Our own comments are in brackets.]

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. 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.

[LTD excluded: “The idea is rather that of excluding from the scope of the Principles so-called “consumer transactions” which are within the various legal systems being increasingly subjected to special rules, mostly of a mandatory character, aimed at protecting the consumer, i.e. a party who enters into the contract otherwise than in the course of its trade or profession.]

ARTICLE 1.11 (Definitions)

“long-term contracts” refer to contracts which, contrary to simple exchange contracts to be performed at one time, involve, to a varying degree, performances extended over a period of time, complexity of the transaction, and a relationship between the parties.

[Comment “The Principles, both in the black letter provisions and the comments, refer to “long-term contracts” as distinguished from ordinary exchange contracts such as sales contracts to be performed at one time. Three elements typically distinguish long-term contracts from ordinary exchange contracts:

  • duration of the contract,
  • an ongoing relationship between the parties, and
  • complexity of the transaction

For the purpose of the Principles, the essential element is the duration of the contract, while the latter two elements are normally present to varying degrees, but …”]

ARTICLE 7.3.7 (Restitution with respect to long – term contracts to be performed over a period of time )

(1) On termination of a long – term contract to be performed over a period of time restitution can only be claimed for the period after termination has taken effect, provided the contract is divisible.

(2) As far as restitution has to be made, the provisions of Article 7.3.6 apply

ARTICLE 5.1.2 (Implied obligations)

Implied obligations stem from

(a) the nature and purpose of the contract;

(b) practices established between the parties and usages;

(c) good faith and fair dealing;

(d) reasonableness

ARTICLE 5.1.7 (Price determination)

  • Where a contract does not fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have made reference to the price generally charged at the time of the conclusion of the contract for such performance in comparable circumstances in the trade concerned or, if no such price is available, to a reasonable price.
  • Where the price is to be determined by one party and that determination is manifestly unreasonable, a reasonable price shall be substituted notwithstanding any contract term to the contrary.
  • Where the price is to be fixed by one party or a third person, and that party or third person cannot or will does not do so, the price shall be a reasonable price.
  • Where the price is to be fixed by reference to factors which do not exist or have ceased to exist or to be accessible, the nearest equivalent factor shall be treated as a substitute

ARTICLE 5.1.4 (Duty to achieve a specific result. Duty of best efforts)

  • To the extent that an obligation of a party involves a duty to achieve a specific result, that party is bound to achieve that result.
  • To the extent that an obligation of a party involves a duty of best efforts in the performance of an activity, that party is bound to make such efforts as would be made by a reasonable person of the same kind in the same circumstances

[Comment: “Long – term contracts In international contract practice, especially in the context of long – term contracts, when provision is made for parties to work together to resolve issues that may arise, it is common to speak of a duty “to use best efforts” to resolve such issues

ARTICLE 7.1.7 (Force majeure)

  • Non – performance by a party is excused if that party proves that the non – performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.
  • When the impediment is only temporary, the excuse shall have effect for such period as is reasonable having regard to the effect of the impediment on the performance of the contract.
  • The party who fails to perform must give notice to the other party of the impediment an d its effect on its ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, it is liable for damages resulting from such non – receipt.
  • Nothing in this Article prevents a party from exercising a right to terminate the contract or to withhold performance or request interest on money due

ARTICLE 5.1.3 (Co – operation between the parties)

Each party shall cooperate with the other party when such co – operation may reasonably be expected for the performance of that party’s obligations. rather than a duty “to negotiate in good faith.” When the parties to a long – term contract have agreed on such a duty to use best efforts, that duty may amount, for all practical purposes, to a duty to negotiate in good faith (see Article 2.1 .15, Comment 3) ”]

ARTICLE 7.1.2 (Interference by the other party)

A party may not rely on the non-performance of the other party to the extent that such non-performance was caused by the first party’s act or omission or by another event for which the first party bears the risk.

ARTICLE 5.1.8 (Termination of contract entered into for an indefinite period)

A contract for an indefinite period may be terminated by either party by giving notice a reason able time in advance. The rules set out in Articles 7.3.5 and 7.3.7 apply.

ARTICLE 6.3.1 (Right to terminate for compelling reason)

  • A party may terminate a long – term contract if there is compelling reason for doing so.
  • There is compelling reason only if, having regard to all the circumstances of the case, it would be manifestly unreasonable for the terminating party to be expected to continue the contractual relationship. (3) The right of a party to terminate the contract is exercised by notice to the other party.
  • Termination of the contract for compelling reason takes effect as from the time of notice

ARTICLE 7.3.5 (Effects of termination in general)

  • Termination of the contract releases both parties from their obligation to effect and to receive future performance.
  • Termination does not preclude a claim for damages for non – performance.
  • Termination does not affect any provision in the contract for the settlement of disputes or any other term of the contract which is to operate even after termination

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