Resolving International Contract Disputes

By DiMatteo, Larry A. | Dispute Resolution Journal, November 1998 | Go to article overview

Resolving International Contract Disputes


DiMatteo, Larry A., Dispute Resolution Journal


The author examines the effect the U.N. Convention on Contracts for the International Sale of Goods (CISG) has had on international arbitration. He reviews the general principles of good faith and fairness, and explains how these provide the framework for arbitrators to apply CISG provisions as evidence of general principles of international contract law.

The impact of the United Nations Convention on Contracts for the International Sale of Goods (CISG)' on international arbitration has been felt in two areas. First, its adoption as the domestic contract law of the individual signatories will require its application by arbitrators under conflict of law rules.2 Courts and arbitral tribunals will be required to apply its rules when it is determined that it is the law of the case. Second, it may be voluntarily applied as evidence of customary international law. Arbitration tribunals are more likely than courts to recognize it as a source of customary international contract law. It is the product of compromise between three of the world's major legal systemscommon law, civil law, and socialist law.3 Thus, it possesses a universal appeal that many arbitrators will find appealing in their search for a lex mercatoria-type of justification for their awards. It is this second use of the CISG by arbitral tribunals-as evidence of customary international contract lawthat this article is directed.

Basis in International Contract Law

General principles of international law often play pivotal roles in international dispute resolution. "Modern judges and arbitrators tend more to seek to interpret and supplement instruments according to autonomous and internationally uniform principles."4 The CISG, as with most codes, reflects a recognition of generalized principles of law. Professor Clive Schmitthoff, former lecturer at the City of London University, in making reference to the development of an international trade law code, noted that it should possess "principles which should apply to all international trade transactions." A code is most likely to be successful if it recognizes and harmonizes existing general principles of law. The following is a brief review of the general principles of national contract laws and those found in the internationalization of contract law in general.5 The general principles include the duty of good faith and substantive fairness concerns.

From the medieval lex mercatoria to the present, most specific rules of business can be traced to the norms of good faith and fair dealing. The obligation of good faith is found in most national legal systems6Bad faith in the negotiation or performance of a contract will void a provision in a contract that was produced by the bad faith act.' Expansive interpretations of contractual good faith include good faith in negotiations, the duty to cooperate, the duty to adjust from the express terms of the contract, and good faith in the termination of contractual relations. The International Institute for the Unification of Private Law (UNIDROIT) Principles of International Commercial Contracts8 can be seen as a supplementary set of principles to be used in conjunction with the CISG. Article 1.7 of these principles "indicates that the parties' behavior must conform to good faith and fair dealing throughout the life of the contracts, including the negotiation process."9

Fairness in the exchange or substantive fairness concerns have increasingly been accepted as a major norm or principle of contract law at the supranational level. One commentator on international commercial contracts predicts a continuing shift from the strict enforcement of contracts to fairness in the exchange and good faith norms.

Though the principle of sanctity remains strong, relational elements are on the rise.... [There has been] a major shift towards relationalism and a recognition of equitable considerations. Principles of equity have been fully recognized with respect to the duties of good faith, renegotiation, and gap-filling. …

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