Non-state rules as a point of reference

Non-state rules are also used as a point of reference and evidence of international commercial law practice within discussions on domestic law. An example is whether pre-contractual negotiations should be admitted as evidence under English law. English law has always been reticent on this issue although it recognizes that there are exceptions to this general rule. Chartbrook Limited (Respondents) v Persimmon Homes Limited and Others (Appellants) concerned a dispute between two construction companies with

The application of non-state rules 181 regards to a payment.^[1] The Court of Appeal took a wider approach than usual to admissibility of evidence external to the contract, which included prc-contractual negotiations. Lawrence Collins LJ stated that the policy reasons for this exclusionary rule are not self-evident and compelling. He quoted the UNIDROIT Principles (article 4.3) and the CISG (article 8) as evidence that in international commercial practice this is acceptable. The case was appealed to the House of Lords, which held that the payment clause should be constructed so that it was clear to a reasonable person what was meant by it, and that the pre-contractual negotiations should not be taken into account.

About the CISG, the PECL, and the UNIDROIT Principles Lord Hoffmann stated:

Supporters of the admissibility of pre-contractual negotiations draw attention to the fact that Continental legal systems seem to have little difficulty in taking them into account. Both the Unidroit Principles of International Commercial Contracts (1994 and 2004 revision) and the Principles of European Contract Law (1999) provide that in ascertaining the “common intention of the parties”, regard shall be had to prior negotiations: articles 4 [...] But these instruments reflect the French philosophy of contractual interpretation, which is altogether different from that of English law.

The lower court thus used non-state rules to contrast international practice with domestic law, as part of its argument on why pre-contractual negotiations should be admissible. Domestic law is shown as out of sync with international practice. Lord Hoffmann is clearly doubtful of whether the UPICC, PECL, and CISG arc truly representative of an accepted international contract law doctrine and considers these reflections of French contractphilosophy. It is questionable whether he is correet on that account^[2] and the view of Lord Hoffmann was both criticised and supported. This case shows how non-state rules are used in domestic law cases to criticise, support, or broaden national legal practice.

The discussion continued in Proforce Recruit Limited v. The Rugby Group Limited, which concerned the interpretation of what a preferential supplier entails. Lady Arden wrote that consideration should be given to the possibility of admitting evidence from pre-contractual negotiations and she mentioned the CISG and the UPICC in this context:

The UNIDROIT Principles of International Commercial Contracts give primacy to the common intention of the parties and on questions of interpretation requires regard to be had to all the circumstances, including the pre-contractual negotiations of the parties (art 4.3). The UN Convention on Contracts for the International Sale of Goods (1980) provides that a party’s intention is in certain circumstances relevant, and in determining that intention regard is to be had to all relevant circumstances, including preliminary negotiations.

The Square Mile Partnership Ltd v Fitzmaurice McCall Ltd also discussed the issue of pre-contractual negotiations. Lady Arden quotes Proforce Recruit Ltd v. The Rugby as an example of when pre-contractual negotiations can be

The application of non-state rules 183 admitted and she quotes several articles to demonstrate that the CISG and the UPICC arc reflective of international commercial practice.^[3] Although ultimately in this case the court rejects the use of pre-contractual negotiations to interpret the contract it declares that sometimes this could be admissible.

The UPICC, were also used by the Supreme Court of the UK to discuss whether an oral modification of a long-term contract is valid. Two English companies entered into a licence agreement, which contained a no oral modification clause. During the contract the licensee proposed a revised payment schedule. Confusion ensued on whether this modification was accepted by the licensor. When the licensee stopped paying according to the original schedule the licensor terminated the agreement. The licensee then sued for damages. The licensor stated that the no oral modification clause meant that the revised schedule was not valid. The court of first instance agreed with the licensor whereas Court of Appeal reversed the decision and stated that the oral agreement effectively dispensed the no oral agreement clause.

The Supreme Court stated that whether an oral agreement could nullify a no oral modification clause is a controversial subject under English law. It then quoted Art. 29 of the CISG and Art. 2.1.18 of the UNIDROIT Principles which both state that if the contract is specific about the form of modification any deviation from this would make the modification void. The UPICC add that ‘a part)' may be precluded by its conduct from asserting such a clause to the extent that the other party has acted in reliance on that conduct. ’ The Supreme Court thus used the CISG and the UPICC as examples of how it is not contradictory to have a system that does not impose a specific format for the contract whilst at the same time adhering the parties to the agreement that they made on the format.

In 2013 the Spanish court referred to the UPICC in support of the applicable Spanish law to show that these both used the same solution. A Russian court referred to the UPICC to show that the use of the contra proferentemrule under domestic Russian law was in line with international practice^[4] and the Georgian Supreme Court referred to both the CISG and the UPICC in support of domestic Georgian law with regards to the good faith principle to show that domestic law is in line with international practice.

These cases demonstrate that non-state rules are used as a point of reference for accepted international commercial law practice and doctrine and contrast this against domestic law. These cases did not concern international contracts, but domestic contracts. Therefore, non-state rules find a role in the debate on national laws where they are used to illustrate certain points or as a reference material. Non-state rules are used as internationally accepted practices, standards, or principles of transnational commercial law. They have persuasive value; they are used as legal opinion, scholarship, or doctrine in domestic courts.

Conclusion: non-state rules as a tool of interpretation

Non-state rules are used to interpret domestic law and international conventions. Codified non-state rules, mainly the UPICC, but also the CISG and PECL, and in very specific circumstances the Incoterms serve as general legal principles or are used to find the concrete rules underlying these principles. Scholarly opinions and case law are used as guidelines to discover and apply these principles to the contract or to interpret the law.

Non-state rules have been shown in this chapter to have legal authority through their application as a comparative reference point to demonstrate accepted international commercial law principles This is often done to show that the domestic law and non-state rules propagate the same solution. This shows that domestic law is in accordance with accepted international commercial practice and that therefore the proposed solution is an equitable one for disputes arising from (international) contracts. Non-state rules are used in courts with the purpose to further debates on (national) legal principles by providing a reference point for commonly accepted international principles. In this way non-state rules raise awareness and influence courts, legislators, and policy makers. They arc applied as legal scholarship and doctrine.

Non-state rules are thus used to help interpret the applicable law or to fill any gaps in the applicable law. It is precisely in these functions that non-state rules are applied the most frequently. The courts attribute legal authority to non-state rules if they are applied in these ways. It shows that courts attach value to non-state rules. As non-state rules are perceived to emerge from

The application of non-state rules 185 within the transnational business community, linking the decision of the court with non-state rules gives further legitimacy to the ruling. Not only does the ruling now have legitimacy within the domestic legal system, it also has legitimacy in the transnational commercial law sphere because non-state rules have the support of the business community, although it should be kept in mind that the extent of such usage depends on the applicable law and the lex fori. Not just because the legislative systems are different in their recognition of non-state rules as sources of law, but also because legal scholarship and judicial reasoning differs between legislations. Overall, it is clear that non-state rules play a key role in defining accepted international commercial law principles and practices.

• [1] Chartbrook Limited i>. Persimmon Homes Limited 2008 EWCA Civ 183 Court of Appeal (Civil Division). The contract stipulated that Persimmon Homes would build apartments on land owned by Chartbrook and then sell these apartments. The payment Chartbrook would receive was broken down in two parts a) a minimum guaranteed residential value and b) a balancing additional residential payment. With regards to the latter the contract stated that this would be: ‘23.4% of the price achieved for each residential unit in excess of the minimum guaranteed residential unit value less the costs and incentives.’ The dispute arose as Chartbrook believed that this payment would be net proceeds of the sale of each housing unit whereas Persimmon reasoned that Chartbrook would either receive this payment or the minimum guaranteed residential value; whichever one was greater. This was discussed in the pre-contractual negotiations. 2 ‘Nor is the exclusionary principle accepted in international instruments dealing with private law contracts, such as the UNIDROIT Principles of International Commercial Contracts (Art 4(3)) and the UN Convention on Contracts for the International Sale of Goods (1980).’ 3 Chartbrook Limited (Respondents) v Persimmon Homes Limited [2009] UKHL 38 House of Lords.
• [2] Indeed, commentators hold that there are aspects of the CISG, which are much closer to the common law than to civil law. The CISG follows for instance the breach of contract law approach that comes from common law and not the cause orientated approach that is prevalent in civil law (Ingeborg Schweitzer, and Pascal Hachem, ‘the CISG- Successes and Pit falls’ (2009) 57 The American Journal of Comparative Law 457, 462). 2 For support of Lord Hofffmann’s point see: Lord Hope of Craighead, ‘The Role of the Judge in Developing Contract Law’ (2011) 15 Jersey and Guernsey Law Review 6 which supports that the UNIDROIT Principles in the matter of pre-contractual negotiations run contrary to the common law for practical reasons (Lord Hoffman argued that it would be difficult to separate pre-contractual negotiation from statements of consensus and aspiration) as well as because of the fundamental matter of the absence of a general theory of good faith in English contract law. Professor Eric Clive criticised Lord Hoffmann’s position in a blog entry made on the University of Edinburgh blog on European Private News which is available at: http://www.epln.law.ed.ac.uk/2010/04/22/interpretation-and-pre-contractual-negotiations-is-english-law-genetically-incompatible-with-european-private-law/ (2015); Professor Clive argues that these instruments are not contrary to the common law because the roots of the ideology underlying these are not inconsistent with English common law. 3 Proforce Recruit Limited v. The Rugby Group Limited 2006 EWCA Civ 69. The High Court made a summary judgment and stated that evidence with regards to pre-contractual negotiations could not be considered. The Court of Appeal held that pre-contractual negotiations can be used to interpret the clause and referred the case to trial. LJ Mummery said that the expression preferred supplier status has no obvious meaning and could therefore only be interpreted in the context of the whole agreement and all the surrounding circumstances. 4 Proforce Recruit Limited i>. The Rugby Group Limited 2006 EWCA Civ 69.
• [3] The Square Mile Partnership Ltd v Fitzmaurice McCall Ltd [2006] EWCA Civ 1690 Court of Appeal (Civil Division), 18.12.2006 Lady Arden observed: 'The Proforce case has been the subject of academic discussion: see in particular A. Berg, Thrashing through the Undergrowth [2006] 122 LQR 354 and MJ. Bonell, The UNIDROIT Principles and CISG - Sources of Inspiration for English Courts? [2006] 11 Uniform Law Review 305. Mr Berg makes the important point that the meaning of commercial contracts needs to be clear, and that the admission of evidence as to pre-contractual negotiations (or post-contractual conduct) “will often make it more difficult and time-consuming for a party to a commercial contract to ascertain his legal position.” Professor Bonell expresses the view that the approach in the UNIDROIT principles and the CISG reflect the trend at international level.’ 2 Rock Advertising Limited i> MWB Business Exchange Centres Limited [2018] UKSC 24; See also: Kabab-Ji S.A.L. v. Kout Food Group [2020] EWCA Civ 6. 3 Lord Sumption: ‘These widely used codes suggest that there is no conceptual inconsistency between a general rule allowing contracts to be made informally and a specific rule that effect will be given to a contract requiring writing for a variation.’ 4 Grupo Santa Monica Sports v. Real Club Deportivo de la Coruna, Audiencia Provincial de A. Coruna (Section 4), 18.02.2013.
• [4] Commercial Court of the Moscow Region, Ministry of the Internal Affairs of the Russian Federation v. Sberbank, 28-12-2017 http://www.unilex.info/principles/case/2155. 2 Georgia Supreme Court, AS-668-668-2018, 2.07.2018 http://www.unilex.info/principles/case/2236; The Georgian Supreme Court made the same reference in several other cases, including also to the PECL. See for instance: AS-559-2019, 04-12-2019 and AS-1548-2019, 14.02.2020.