European Contract Law- Historical Development, Content and Practical Application in International Arbitration

The Principles of European Contract Law - Historical Development, Content and Practical Application in International Arbitration

                                                                Student: Erika Violeta Andras

LL.M International Arbitration

International Commercial Contracts

1. Historical Development

The Principles of European Contract Law (PECL) have been drafted by the Commission on European Contract Law, which is a group of renowed academics, established in 1982. This group was lead by a Danish professor named Ole Lando (now professor emeritus).In 1974, the Copenhagen Bussiness School organised a symposium on the subject of the EEC preliminary draft convention of the law applicable to contractual and non-contractual obligation. It was there that prof. Lando concluded that private international law did not provide sufficient legal certainty for a commom European market.

         The work on the the Principles of European Contract Law was mostly done in parallel with the UNIDROIT Principles, as most members of the Commission on European Contract Law were also working on previously mentioned principles. This is the explanation as to why the overall appearence of PECL and UNIDROIT principles have similarities concerning the structure, the terminology used and the content. The Principles of European Contract Law are, however, applicable to contracts in direct relation to Europe, whereas the territorial application of the UNIDROIT Principles is international.

The Principles of European Contract Law and the UNIDROIT Principles (and to a certain extent also the CISG), provide extensive regulations, that are meant to be capable of regulating the effects of a legal relationship even to the exclusion of a governing law. They represent a special quality of sources within the lex mercatoria, by not only being codified which means easefulness of assesing, but they are also systematic and general in their scope, and therefore are potentially applicable to all types of contracts and to all legal questions arising in connection with them.

 However, The Principles of European Contract Law have a more ambitious outreach than the UNIDROIT, meaning that their desire is of becoming the primarily used contract law within the European Union, in lieu of different national laws applicable to different states of the European Union, ambition which for the UNIDROIT Principles would be borderline impossible in convincing almost 200 states around the world to renounce their national contract law and adopt as base usage the principles. Thus, it can observed that The Principles of European Contract Law have a more achievable task, given that their application field is centered around the European Union, but nontheless, a task of this caliber requires probably a few more decades of optimisation work.

The harmonisation work in Europe had an important weight of academic work from the very beginning. The Principles are also "soft law", but their main purpose is to serve as a first draft of a part of a European Civil Code. Furthermore, since a common law does not to exist in the European Union, the Principles have therefore been established by a more radical process. No single legal system has been their basis. The Commission has paid attention to all the systems of the Member States, but not every of them had influence on every issue dealt with. The rules of the legal systems outside of the Communities have also been considered.

A first step towards this goal has been made in 2000, when the European Parliament called on the Commission of the European Communities to draw up a study on the question of unification of contract law within the European Union^[1]. Following this, the Commission issued the Communication from the Commission to the Council and the European Parliament on European Contract Law^[2].In this Communication, seeking information from all interested parties, including also businesses, legal practitioners, academics and consumer groups, the Commission wished to have a response as to what extent the development of a common European private law is desirable or even necessary to enhance the internal market. The Commission wished to have a response as to what approach would be preferable in the harmonisation of the European private law (if the result of the first question would confirm that a harmonisation will have positive outcomes). The Communication presented a non-exclusive list of four alternative approaches:

1.  to leave the solution of any identified problems (due to the diversity in the various state laws) to the market;
2.  to promote the development of non-binding common contract principles;
3.  to review and improve existing EC legislation in the area of contract law,
4.  to adopt a new instrument at EC level.

The Communication made extensive reference to the academic engagement in this area: in addition to the Principles of European Contract Law, an enlargement of the scope of the PECL was being worked by the “Study Group on a European Civil Code”, and a draft of a European contract code (“European Contract Code – Preliminary Draft”) has been published by the Academy of European Private Lawyers, also known as the “Pavia Group”.

More than 180 answers arrived for the Communication. The Commission on European Contract Law (the author of Principles of European Contract Law), and its successor, the Study Group on a European Civil Code (preparing a restatement of the law on specific contract types and other areas of private law not already covered by the PECL) presented a joint response. The joint response to the Communication argues extensively in favour of harmonisation, showing that the state laws of the member states differ from one another, and stating that this difference is a barrier to the completion of the internal market primarily because of its unsuccessfulness for businesses to adopt standard conditions of contracts throughout the European Union, and it increases the costs of the transactions and disputes by forcing the operators to assess the law in every single state they operate in. The preferred approach for achieving the desired harmonisation is, according to the Commission and the Study Group, the adoption of a restatement of the law. The Commission and the Study Group propose a legislative status for such restatement, that would put it, in the hierarchy of the sources of law, somewhere between the traditional sources of trans-national law (such as, for example, the Uniform Commercial Code and the UNIDROIT Principles) and binding sources of law. For the achievement of such a status, the Commission and the Group created an amendment of the European private international law. The long term aim is to make the restatement an “optional legal system”, which the parties can voluntarily choose to overview their relationship, and for doing that they need a conflict rule that permits the parties to make such a choice of law. The choice of such an optional legal system, in the vision of the Commission and the Study Group, would mean the exclusion of any applicability of state laws. The restatement, in other words, would not be an addition to the applicable state law, but a replacement.

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