Dalhuisen on Transnational and Comparative Commercial, Financial and Trade Law Volume 3

Transnational Contract Law

Jan H Dalhuisen

• Publisher: Hart Publishing
• Year: 2022
• Print ISBN: 9781509949533
• eBook ISBN: 9781509949502
• Edition: 8
• Topic: Law
• Subtopic: Contract Law
• Index: Law

"It stands alone in its field not only due to its comprehensive coverage, but also its original methodology. Although it appears to be a weighty tome, in fact, in light of its scope, it is very concise. While providing a wealth of intensely practical information, its heart is highly conceptual and very ambitious... likely to become a classic text in its field." ( American Journal of Comparative Law ) Volume 3 of this new edition deals with the transnationalisation of contract law. It compares common law and civil law concepts, noting the origin of the one in commercial law and of the other in consumer law, and identifies the different attitudes to protection, risk management, and risk distribution. The volume also explores future directions in international commerce and finance, as well as the potential, effects, and challenges of e-commerce, the blockchain, and the emergence of the smart contract. The complete set in this magisterial work is made up of 6 volumes. Used independently, each volume allows the reader to delve into a particular topic. Alternatively, all volumes can be read together for a comprehensive overview of transnational comparative commercial, financial and trade law.

Part I

General

1.1.Introduction

1.1.1.Modern Contract Law: Nature of the Parties or Type of Contract? Relationship Thinking and the Professional Contract

In this Volume on contract law, the emphasis will be on: (a) the formation of the contract; (b) its binding force; (c) the choices parties have made in terms of their roadmap and risk management, (d) the interpretation and supplementation (or construction) of these choices and the (limited) grounds for correction of the terms; (e) performance and the most current defences; (f) default and the most current excuses like force majeure and potentially change of circumstances or hardship; (g) remedies including specific performance (or real execution) and ordinary or expectation damages, or renegotiation in appropriate cases; and (h) privity of contract, its meaning, and the (limited) exceptions to this principle.

These aspects will first and foremost be discussed from the point of view of the nature of the relationship between the parties rather than of the type of contract they conclude. This broadly conforms to the common law approach,¹ which, in the application of each of these aspects, takes into account the types of parties that conclude or have concluded the contract. In this approach, it is possible that among professionals a contract is concluded, performed, or excused in a manner quite different from that obtaining in similar contracts in their relationship with consumers, or between consumers among themselves. Closely related is the development in common law of special fiduciary duties between parties in situations of trust, dependency, and confidence, adding potentially precontractual, contractual and post contractual duties, but again relationship specific. It re-emphasises different treatment depending on the nature of the relationship and not primarily the type of contract.² The essence is that professional parties are supposed to spell out in their agreement what they want and not rely on the general part of contract law but on the contract and its descriptions and protections, the reason why the common law contract is usually longer, also in the determination of the excuses and the remedies. Party autonomy is here stronger in the professional sphere and the general law will not lightly intervene in the relationships created by such parties and adjust their risk management whilst, in the absence thereof, it will let the chips fall where they fall bar extreme situations. As we shall see, the civil law is here more indulgent and takes a consumer law protection attitude also in professional dealings.

In this connection it is also relevant and related that in civil law the emphasis is traditionally on types of contracts, not on types of parties.³ This is another important difference and makes more sense in an anthropomorphic or consumer environment where the parties may be less aware of what they are legally doing. That was the background of the civil codes which maintained and do maintain here a unitary system applied to all. As we shall see, only under the modern concept of good faith interpretation of the parties’ contractual rights and duties and under the (related) concept of abuse of rights, may one find greater sensitivity to relationship thinking and more appreciation that the professional contract is different. However, it remains a fact and a natural civil law reflex to apply special protections developed in this way for consumers also to professional dealings of the same contractual type. It is the default rule, which suggests a great weakness in civil law thinking, and shows that the sensitivity to relationship thinking has not yet been fully subsumed in civil law and that the good faith concept here needs further development and elaboration to propel a true private law concerning professional dealings,⁴ which, it will be submitted, is at the same time likely to be transnationalised. As will be shown throughout, in a proper analysis, this is not so much a question of overriding higher principle but rather of a liberal interpretation technique which confirms relationship thinking while singling out professional dealings in particular, and accepts other sources of law to be recognised besides established texts and case law, among which fundamental and general principle, and custom and market practices operating in the professional sphere may play an important role.

For the time being, civil law remains more focused on the type of contract, such as contracts for the sale of goods, rental agreements, service contracts and the like.⁵ It also has more general notions of contract, such as offer and acceptance; the notion of consensus, the role of will or intent, including the defences against the binding force of the contract; and the question of performance, default, remedies and excuses. That is then the general part of contract law. It is still conceivable that in this approach the type of contract, like the contract for the sale of goods, has some different formation aspects or disclosure duties and especially different remedies against default, but again that is less likely to depend on the types of parties, more on the type of contract.

Taking the rental agreement in terms of a temporary transfer of user rights in immovable assets as an example, in common law, its basic characteristics are considered to be foremost determined by the type of relationship—be it between (a) professionals among themselves, as in the renting of hotel or office and manufacturing space; (b) smaller companies and consumers, as in the renting of apartments and small offices; (c) land owners and agricultural tenants; (d) local authorities and citizens, as in the renting of housing in the social sector; (e) companies and shareholders, as in the renting of group facilities; and (f) parents and children, as in the renting of housing bought for student accommodation. In proper relationship thinking of this nature, there follow in this way six different contracts, one for each type of relationship (rather than one type for all), which may operate quite differently depending further on how parties have written up their deal, and this attitude seems quite naturally also to be extended into the elaboration of the more general contract law concepts, as in the question when a contract is concluded, what kind of defences may be used, and what kind of excuses are available, again more so, it would seem, than in the civil law of contract, even in its modern, good faith-imbued, variant. In the case of consumer contracts, see note 1 above, the traditional common law analysis of offer and acceptance may then even be ignored altogether.

Common law traditionally showed some interest in the type of contract only in commercial law as in the sale of goods, transportation, and insurance. One may detect here continental influence. The reason is that these contract types have their origin in the law merchant, which was developed in England for trade with the Continent and showed some Roman law affinity, but this is not the normal common law attitude, important as these types of contracts are, also in common law. In any event, they remain sector specific operated between a particular type of parties, here merchants in the exercise of their trade, even if now also ‘borrowed’ for consumer dealings, but probably differently operated and interpreted there.

In fact, even in the law of sales in common law, precisely because of the commercial origin of all contract law, one spots a different orientation. A can of milk is here bought in order to produce milk products rather than for consumption purposes. That suggests a different perspective to the contract and property law aspects. In modern terms, it is likely to be part of a supply chain with interconnected sales, supply, and production arrangements.⁶ It is also noteworthy in this connection that in the 1980 Vienna Convention on the international sale of goods (CISG), see Part II below, the sales agreement is perceived principally to operate in the commercial sphere and it does not cover consumer dealings. They are different even though in the formation section of the Convention, in the notion of breach, and in the excuses and interpretation/supplementation paragraphs, as we shall see, this seems forgotten whilst anthropomorphic nineteenth-century notions of contract formation and operation of the civil law type prevailed, largely focusing on intent and a subjective notion of breach and force majeure excuses in the consumer fashion.⁷

This may be the true reason for the CISG’s lack of acceptance in the international commercial practice, not helped by the absence of any concept of the combination of goods, services, information, technology and software in large production and distribution chains concerning classes of assets in full transformation and movement. In this connection it may be usefully repeated that in common law the notion of contract largely developed as product of commercial law, which typically affects its nature, although narrowed at first by its incorporation into the common law, but subsequently much helped in equity as we shall see. It has led generally to a less subjective and anthropomorphic attitude to contracting and to determining the contractual content—it is considered a road map and risk management tool (although in common law it may now be different for consumers but that was a more recent development). One may consider that this basically different attitude is also the deeper reason why the UK did not ratify the Vienna Convention as being an imperfect expression of commercial law.

Notably the notion of will and intent did not acquire the same importance here as it did in civil law and from there also in the CISG: the common law of contract formation remains based on exchange and bargain (or consideration) or conduct and detrimental reliance, not strictly speaking on consensus and intent. That may make a great difference, especially in professional dealings where it is not primarily what parties intended but what they objectively could rely upon or assumed in terms of risk that becomes the essence of contract formation and operation, in which connection the professional claimant must show also that s/he has put his/her money on the table or started to perform before s/he has a cause of action. Common law is here factual in the sense that the law does not appear to operate or present a particular legal model but only attaches legal consequences to some acts.⁸

The type of relationship of the parties is again likely to play an important role. One consequence is that professional contracts once concluded are less vulnerable to defences and excuses, unless in the first instance there are equitable remedies in terms of misrepresentation, see section 1.4.2 below, or in the latter instance excuses covered in the contract itself like a force majeure or hardship clause, see section 1.4.3 below. The cry ‘I did not mean it, I cannot help it, it is not my fault’ goes less far in the common law. As the professional contract is foremost a road map and risk management tool, intent is not then a formation issue but is only relevant where clear choices have been made which even so will be explained objectively or according to what market practices or the peer group understand. It is an instruction manual where one does not ask either what the drafters meant. It is a performance issue.

The civil law comes from the opposite direction: it being nineteenth-century anthropomorphic, it operates in the world of the individual or natural person, not in the corporate environment or that of the legal personality or the modern commercial sphere, which then hardly existed, and is thus based on intent and fault whilst in sales we buy a can of milk to drink. All is gone thereafter, no proprietary rights are left, at most there may be some health concerns, with which the contract may be largely concerned, or product liability. Again, in modern terms this is consumer law which determines the nature of the civil law contract with its intent base and statutory contract descriptions and strong legal defences and excuses derived from the general law, where subjective notions of blame or fault play an important role when it comes to non-performance. It means that the law, not the contract terms, distributes risk unless the parties want it otherwise. That is not the common law approach in contract, at least not in professional dealings. It was already said that this anthropomorphic approach was then extended into the corporate sphere and commercial dealings and no proper distinctions were made. Again, there was and is no relationship thinking but in principle a unitary approach for all types of dealings.

Other aspects also need to be considered. The common law of contract is undeniably also embedded in a legal environment that is not at the free disposition of the parties, like issues of capacity, validity, and legality. Extra-contractual duties also exist, like, in cases of dependency, fiduciary duties, and there may also be pre-contractual disclosure and negotiation duties, contractual duties of care and cooperation, and post-contractual renegotiation duties. They were already mentioned but again very likely depending in their urgency on the type of relationship between the parties. Another is the one of legal dynamism. These duties emerge all the time and suggest that the contract is dynamic and the rights and duties thereunder or deriving therefrom are not fixed at the time of the conclusion of the contract as the notion of conduct and reliance also confirms. Duration contracts in particular are not static and likely also to be formally or informally amended. Public order and public policies may further intrude to protect, for example, consumers, the environment or public health, and are likely to constantly develop further. Ultimately justice, social peace and efficiency may also have to be considered and may not automatically follow from the observation of the rules. Globalisation and the impact of the operation of the transnational commercial and financial legal order and its own lex mercatoria with its different sources of law and own hierarchy between them then also need consideration.

Accepting the importance of the nature of the relationship between the parties for their contractual rights and duties, the emphasis in this book will be mainly on contracts in the professional sphere, therefore on contracts between professionals, especially in international commerce and finance. They are (a) entities of some size, (b) making it their business to engage in commercial or financial dealings among themselves, (c) having expertise in these operations, (d) meaning to add value and (e) doing so for a profit.⁹ Smaller companies (or SMEs) may form an uneasy intermediary category. They sometimes require a treatment and protection more akin to that of consumers but in other aspects they may be treated or even prefer to be treated as professionals. On the whole they are best off to copy them: what the professional does not want or excludes is seldom good for the SMEs. They operate in the same value adding environment.

As just mentioned, considering contract law particularly from the point of view of professional dealings, this may give rise to lesser refinement in terms of defences and excuses, but also in terms of disclosure, negotiation and renegotiation duties and on occasion even to some rougher (and quicker) forms of justice as well, especially when the contract is a roadmap and risk management tool and may then need a more literal interpretation. Again, this is not strange in common law where risk redistribution is not inherent in commercial law; to repeat, in civil law the notion of good faith, if properly understood, may become here similarly restraining in professional dealings and may then mean fewer rights, but it has quite some way to go. In countries like France, which still have commercial courts, this even now may find some expression in different court proceedings, which may be quicker but also less detailed. They involve the peer group as (lay) judges who may favour an approach that goes against greater legal sophistry. In international commerce and finance, we have international arbitration which may show the acceptance of a similar direction.

In this book, there will be some special attention for only two contract types: the sale of goods and contractual agency. As far as the sale of goods is concerned, it follows that attention will in this connection be focused primarily on the international sale, which has always been a sale between professionals and is or should be structured accordingly, that is, differently from consumer sales and the CISG will be critiqued in particular from this perspective. These international sales between professionals are to be distinguished also because ancillary arrangements in terms of transportation, insurance and payment are often necessary and suggest a different layer of, and different concern ...

Table of contents

• Cover
• Dedication
• Title Page
• Preface
• Contents
• Table of Cases
• Table of Legislation and Related Documents
• Part I General
• Part II Contracts for the International Sale of Goods
• Part III Contractual Agency
• Index
• Copyright Page