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Some questions on the UNIDROIT Principles

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  1. Introduction
  2. UNIDROIT Principles
  3. Would the solutions be any different under the CISG - if the choice of law provision did not exclude the application of the CISG?
  4. What would the solutions be according to the Principles in case a dispute arises and the claims are dealt with before the arbitral tribunal?
  5. Conclusion

More specifically, though, the problem is about force majeure and hardship, as well as the relationship between the two concepts. The contention between the parties is essentially whether the provisions in the contract on force majeure cover the variation of price, and this may be broken down into two constituent questions: firstly, does force majeure cover hardship? Secondly, does the 70% rise in the price of the raw material constitute hardship? The combined response to these two questions will tell us not only whether a non-performance may be excused, but also how it may be excused?basically, whether X will be entitled to a renegotiation of the contract or not. The two criteria of force majeure according to Article 7.1.7 of the UNIDROIT Principles are: 1) ?the non-performance was due to an impediment beyond [the non-performing party's] control?; and 2) ?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? (in other words, unforeseeability). On the other hand, hardship may be said to be a specific instance of force majeure where, in addition to the latter's two criteria, there must be an ?occurrence of events [that] fundamentally alters the equilibrium of the contract either because the cost of a party's performance has increased or because the value of the performance a party receives has diminished?.

[...] As established in the case Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd, clauses on liquidated damages will generally be upheld unless the sum is of an unconscionable amount. This is decided by comparing the sum agreed upon with the actual harm suffered, as well as by way of judicial discretion. Thus, whether the award would be substantially different under English law would depend largely on the adjudicator. But at the very least, there is no clearly articulated rule as to whether the liquidated damages clause constitutes a price floor or a price ceiling. [...]

[...] There is no substantial difference as to outcome between English law and the UNIDROIT Principles, as both essentially leave it to judicial discretion. The main difference is that the UNIDROIT Principles lay out rules for the procedure, in particular providing a somewhat greater protection to the debtor (i.e. non-performing party) should the actual harm suffered be higher (since specific sum may be reduced? but not increased under Article 7.4 .13). Ultimately, though, both are equally effective economically speaking since the results are similar. [...]

[...] Firstly, Article of the UNIDROIT Principles states: ?Where one party or both parties use standard terms in concluding a contract, the general rules on formation apply, subject to Articles - 2.1 .22.? Next, since Article of the UNIDROIT Principles states that by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act without notice to the offeror, the acceptance is effective when the act is performed?, we may assume that, a contract has come into existence since both parties have been carrying it out for more than three years. The legal question then is the conditions required for a standard form clause to be applied. For it to apply, the standard form must be valid and must prevail. For the standard form to be valid, X has to be the offeror and the offeree or accepting party. [...]

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