First Draft Guide To International Contracts In The Americas

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First Draft Guide To International Contracts In The Americas

Transcript Of First Draft Guide To International Contracts In The Americas

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2017:
91st REGULAR SESSION August 6-16, 2017 Rio de Janeiro, Brazil

OEA/Ser.Q CJI/doc.540/17 corr.1 21 July 2017 Original: Spanish

FIRST DRAFT GUIDE TO INTERNATIONAL CONTRACTS IN THE AMERICAS
(Presented by Dr. José Antonio Moreno Rodríguez)
In response to the initiative of Dr. Elizabeth Villalta, approved by the Inter-American Juridical Committee, the OAS Department of International Law sent a questionnaire to the governments of the Americas on the subject of international contracts, “Questionnaire on the implementation of the Inter-American Conventions on Private International Law”, document OEA/Ser.Q, CJI/doc.481/15. Based on the replies, Dr. Villalta and the Department of International Law drafted a report on the state of the issue entitled “The Inter-American Convention on the Law Applicable to International Contracts and the Furtherance of its Principles in the Americas,” document OEA/Ser.Q DDI/doc.3/16; see also “Law Applicable to International Contracts”, document OEA/Ser.Q, CJI/doc.487/15 rev. 1.
The Inter-American Juridical Committee has decided to move ahead with drafting a guide on the subject, to which end the Department of International Law prepared a highly comprehensive synopsis that covered a range of topics to be addressed, “Furtherance of the Law of International Contracts in the Americas: A guide to the legal principles”, document OEA/Ser.Q, CJI/doc. 510/16, including information highlighted by several jurists in the region who have been kind enough to pledge their assistance where their domestic law is concerned. In addition, Dr. Villalta prepared a comparative analysis of the Mexico Convention (1994) and the Hague Principles, both concerning international contracts, which was also most useful as preparatory material (Law Applicable to International Contracts, CJI/doc.464/14 rev. 1).
Drawing on all this input and with the unfailing support of the Department of International Law, particularly its director, Dante Negro, and Jeannette Tramhel and her team, I have written this first draft of an eventual guide with a view to its possible adoption by the Inter-American Juridical Committee. Likewise, with the efficient support of the Department of International Law, the above material has been translated into English for consideration at the August 2017 meeting of the Inter-American Juridical Committee.

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The question of a prospective guide to international contracts has been discussed at previous meetings of the Committee: at Washington, D.C., in March 2016, and at Rio de Janeiro in October 2016 and March 2017. At those meetings the Committee had the opportunity to consider the different preparatory materials contained in the annexes, including the enriched synopsis prepared by the Department of International Law.
It is not the intention that the draft be approved by the Committee at its August 2017 meeting. However, it is hoped that the Committee will express an opinion on the draft in general terms, and that its members will offer specific observations on different issues addressed therein.
If approval is given for this endeavor to continue, in the near term that would entail collecting the views of numerous experts in the region on the work done. The document will also be submitted to the world’s highest codifying bodies in this area (UNCITRAL, UNIDROIT, and the Hague Conference), so that it can be enriched with their comments or even given some kind of endorsement or other form of institutional support, bearing in mind that the OAS guide is intended to operate in harmony with the universal texts on such matters. Informal contacts have already been made to that end and very well received.
Where appropriate, those comments will be incorporated in the final text of the guide and submitted, in turn, to the Inter-American Juridical Committee for consideration at a meeting next year.
The draft guide presented on this occasion has fewer pages than was initially thought (bearing in mind that most guides adopted by universal codifying bodies are considerably longer). In my opinion, the Committee and, in particular, its Chair and Dr. Villalta, were sound in their guidance that the document not be too long and be as simple as possible.
We have sought to meet that objective with the draft, which, apart from anything else, avoids excessive technicality, continual references, and even footnotes which introduce complexities in certain guides that have been subjected to criticism for that very reason.
The guide also relies consistently on the main instruments in force on the subject, including Rome I (the EU regulation) and, in particular, the Mexico Convention adopted within the framework of the OAS in 1994 and the Hague Principles adopted in 2015 by the Hague Conference on Private International Law. Provisions from those instruments, and even some comments on the Hague Principles, are copied literally in the guide, so as to maintain fidelity with them.
I will provide more details in person about the work done and other matters at the coming meeting of the Inter-American Juridical Committee, for which I am also preparing a PowerPoint presentation that I will forward to you in due course.
PART ONE
INTRODUCTION

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I. Rationale
1. The Inter-American Juridical Committee (CJI) of the Organization of American States (OAS) has decided to prepare this Guide for international contracts in the Americas.
2. Different studies prepared by the CJI and the Department of International Law of the OAS have shown that in different countries of the Americas, major lacunae exist in the law on international contracts.
3. In due course, to remedy this, in 1994, the Inter-American Convention on the Law Applicable to International Contracts (the “Mexico Convention”) was adopted at the Fifth Inter-American Specialized Conference on Private International Law (CIDIP-V) of the OAS. However, only two countries, Mexico and Venezuela, ratified it. The latter country also incorporated several of the provisions of the Mexico Convention in the international contracts section of its own law on private international law.
4. The Mexico Convention was formally adopted in two languages: English and Spanish. One problem identified were the defects of its official English translation. In fact, the Convention has not been incorporated by any English-speaking common law country.
5. Despite its small number of ratifications, the document was taken into account in preparing the Principles of the Hague Conference on Private International Law on choice of law in international contracts, adopted in 2015 by that eminent global organization.
6. Different provisions of the inter-American instrument have been incorporated nearly verbatim in the Paraguayan law on international contracts (Law 5393, of 2015). Earlier, it had also been the inspiration for the contract regulation provisions of the 1998 Venezuelan Law on Private International Law.
7. It is now over 20 years since the adoption of the Mexico Convention and, of course, the Hague Principles also incorporated subsequent developments that paved the way for clarification of certain matters or the introduction of innovative solutions. This raises the following questions: What’s next for the Americas? Should we call only for additional ratifications of the Mexico Convention? Should the Convention be amended in light of new developments? Should a model law, or guidelines for drafting one, be prepared? Since the enactment of the new Paraguayan law on the law applicable to international contracts, support for implementing the last suggestion has been gaining ground.
8. Following the distribution of a questionnaire among the OAS member states, and among recognized specialists on private international law, the CJI of the OAS reviewed all these options. The replies reflect the perception that, evidently, the Hague Principles have had more impact than the Mexico Convention and the provisions of the former could be useful in amending the inter-American document.
9. However, considering that the Mexico Convention, prepared in 1994, has only been ratified by two countries, the real question is whether the process of achieving a new revised convention would be worth the effort. One possible answer is that an improved document might be better received by the legal community in the Americas and, in

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addition, this would afford an opportunity to correct the English translation of the original instrument, which was criticized by English-speaking jurists at the time.
10. But the negotiation and adoption of a convention is a highly complicated and costly process, whereas other types of instruments, such as model laws or legislative guidelines, have been shown to be viable means of harmonizing solutions of private international law. Ultimately, it would be much more effective for states of the Americas to adopt national laws consistent with practices endorsed by the OAS and the Hague Conference, generally applicable to international transactions, rather than promoting the adoption of treaties such as the Mexico Convention and any amendment thereof, which would affect only the contracting parties of the States that have ratified it.
II. Objectives of this Guide
11. This Guide has different objectives. It was first conceived as a legislative guide that might be useful to OAS member states in their efforts to modernize their domestic legislation in keeping with the fundamental principles of the Mexico Convention. Evidently, it might also inspire any regional integration efforts in this area.
12. Subsequently, the Guide’s objectives were amplified. Since this Guide explains the different provisions of the Mexico Convention, it was thought that it might also be useful to countries possibly considering ratification of the inter-American instrument.
13. Another aim of the Guide is to provide an official text that might pave the way for greater willingness on the part of the region’s countries to receive the solutions of the Mexico Convention, whether by ratifying it or by adopting a law incorporating its provisions.
14. This Guide may of course be highly useful to contracting parties that refer to them in drafting their agreements, taking account of matters addressed herein.
15. The Guide should also be useful to judges in their interpretive work. Many international contract-related matters are not covered in national private international law regimes of different States. Hence, although many countries adopt the principle of party autonomy, this Guide illustrates different derivations of that principle not developed in national law. For example, the Guide discusses what happens when the parties voluntarily change the applicable law subsequent to its selection.
16. No less important is the function this Guide may fulfill for arbitrators. Many regulations allow arbitrators great discretion in the area of private international law, since, unlike domestic judges, they do not have a forum whose rules they must follow in this subject. Therefore, this Guide has many advantages. First it explains today’s internationally-accepted solutions in the subject of international contracts. This is no small thing since one reason why the Mexico Convention has encountered stiff resistance is the lack of information regarding its content and implications. Guidelines may overcome this obstacle.
17. Secondly, the Guidelines are an instrument available to legislators that take into account recent developments reflected in The Hague Principles, and also cover matters

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not expressly addressed therein, but on which the Mexico Convention contains provisions, specifically on where no choice of law has been made. 18. Lastly, the Guidelines may provide judges, arbitrators, and parties with a powerful interpretative tool, given the troubling uncertainties that still persist in the area of international contracts. The instrument sets out solutions contained in both The Hague Principles and the Mexico Convention, explaining their complexities.
PART TWO
GENERAL CONCEPTS
III. Private International Law and Uniform Law 19. The private international law discipline has been subject to major development in the last 200 years with the consolidation of nation-states. Among other matters, the subject addresses issues of applicable law in private inter-national legal transactions. In some federal systems, such as those in North America, the conflict of laws discipline also addresses issues arising in the application of the law of different states within the Union. Since the integration processes of recent decades, private international law has also addressed issues of applicable law that may arise between community law and the potentially impacted national law. 20. In the traditional private international law approach, known as conflict of laws, the prevailing technique is to refer to conflict of laws rules or indirect rules which, although not applying directly to the case, indicate which law should be applied in analyzing the merits. 21. To that end, conflict of laws rules are based on connecting factors. In international contracts, the applicable law will be determined based on personal aspects, such as domicile, residence, or nationality; or property aspects, i.e., where the movable and immovable property is situated; or circumstances of the fact or act, such as proximity, place of occurrence, or place of performance. For example, if the conflict of laws rule indicates that the formalities of the contract are governed by the law of the place where the contract was concluded, this becomes the connecting factor. This is also the case with the latest domicile of the originator, if the conflict of laws rule establishes this as the connecting factor. 22. Conflict of laws rules are to be contrasted with substantive or material rules regarding the substantive law applicable to a given legal situation, which need not be invoked. This uniform law approach is also known as universal or transnational. 23. Whereas the conflict of laws method is based on the location of the international legal transaction under a given national law, uniform law is based on solutions reflecting substantive, transnational, or universal norms.
IV. Early codification of private international law in the Americas

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24. The concept of universal law had gained particular strength in the Middle Ages, and, in the modern age, uniform private civil and commercial law (ius commune and lex mercatoria) arose.
25. Nationalist movements in Europe and the Americas ended the development of the universal law concept. Throughout the jurisdictions of civil law tradition, nation-states adopted civil and commercial codes, whereas the countries of Anglo-Saxon tradition consolidated their autochthonous law based on legal precedent.
26. That, in turn, gave particular impetus to private international law as a discipline for solving the conflict of law puzzle at times when national solutions seeking to address the issue were disconcertingly contradictory.
27. The German jurist Savigny was highly influential in the mid-19th century with his idea of unifying these formulae in an international treaty binding on all nations that ratified it. While discussions were under way as to how to implement this idea in Europe, the Americas took the lead.
28. One of the 1889 Treaties of Montevideo, signed in that city, specifically the Treaty on International Civil Law, addresses the question of choice of law applicable to international contracts. However, it incorporated highly controversial solutions where no choice of law had been made and said nothing about party autonomy, which is now a broadly accepted principle in private international law. These early Treaties of Montevideo remain applicable between Argentina, Bolivia, Colombia, Paraguay, Peru, and Uruguay.
29. In 1940, new treaties were signed in Montevideo, ratified only by Argentina, Paraguay, and Uruguay. They reaffirmed the earlier solutions where no choice of applicable law has been made. These treaties also provide that each State itself must determine whether it accepts the principle of party autonomy, a matter which, in the absence of clear provisions thereon in domestic legislation, became highly controversial in Brazil, Paraguay, and Uruguay.
30. Many other States of the Americas, such as Brazil, Chile, and Venezuela, have not incorporated the Treaties of Montevideo. Instead, they ratified the 1920 Bustamante Code, adopted at the Sixth Pan-American Congress, held in Havana, Cuba, in 1928. This Code governs different matters of private international law, including the law applicable to international contracts, setting out a solution differing from that of the Treaties of Montevideo where no choice of applicable law has been made. The instrument has also raised many questions as to whether it establishes the principle of party autonomy. The Bustamante Code has been ratified by Bahamas, Bolivia, Brazil, Chile, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Nicaragua, Panama, Peru, and Venezuela.
V. European regulation of conflict of laws in international contracts
31. A treaty in this subject was signed in Europe only in 1980. This is the Convention on the Law Applicable to Contractual Obligations, also known as the Rome Convention, accompanied by an official report prepared by jurists Giuliano and Lagarde, of great

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value for the interpretation of its provisions. The Convention entered into force in 1991.
32. Today, the instrument, with some changes, has become Regulation (EC) 593/2008, known as Rome I, and is binding on nearly all European Union countries.
33. Rome I virtually reproduces the provisions of the earlier convention, with some modifications and additions. It has 29 articles, preceded by 46 preambulatory clauses that assist its interpretation. It covers matters of law applicable to international contracts, establishing the principle of party autonomy or freedom to choose the applicable law, and the limits thereof, as well as establishing criteria where no choice of applicable law has been made.
34. The Rome Convention became relevant not only because it was adopted by the European bloc, but also because of its impact on the project to prepare the Mexico Convention in the Americas and, more recently, together with the solutions of Rome I, on the preparation of an instrument addressing at the global level the question of the law applicable to international contracts, i.e., the Hague Principles.
VI. Unification of law today
35. Many factors are contributing to this trend. For example, party autonomy, i.e., the ability of the parties to choose that law to govern in cases of conflict of law, is being consolidated as a principle of the law applicable to international contracts.
36. This is often leading parties to seek to avoid the conflict of laws mechanism through detailed stipulations in their agreements or clear choices of the law to govern them.
37. Arbitration is also being consolidated as a normal method of resolving commercial disputes, providing their arbitrators with suitable tools for reaching appropriate solutions to cross-border problems, beyond mere concern for mechanical application of national laws in accordance with a conflict of law system.
38. In addition, an ever-expanding web is being spun of rules resulting from global, regional, and local processes implemented in the public and private spheres whose aim is to unify substantive legal rules.
39. However, the phenomenon is not occurring at the normative level alone. Efforts are also under way to create uniform interpretative techniques and to reconcile understandings of the technical operation of the different legal systems, to that end taking advantage of the contributions of comparative law.
VII. Unification and harmonization tools
40. The terms unification and harmonization are often used interchangeably. However, strictly speaking, unification implies the adoption of common legal norms in more than one country or region; whereas harmonization denotes greater flexibility, since it does not necessarily refer to uniform texts, but rather alignment of legal criteria based on common foundations, model laws, or uniform principles.
41. In addition, unification and harmonization may refer to both conflict of laws norms and to substantive or uniform norms.

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42. International treaties, as instruments by which States traditionally adopt common standards, are most appropriate for achieving unification, but their drawback is the difficulty of their ratification, given the peculiarities of each country; as well as their inflexibility in adjusting to changes in commercial activity, which would, in turn, require a cumbersome treaty modification process.
43. It should be noted that difficult negotiations between countries of different legal traditions often involve compromise and, that, as a result, the treaty’s final text will contain concessions which, in addition to being less than apt, mean that unsatisfied parties ultimately refuse to ratify it. In efforts to obtain ratifications, different mechanisms are devised, such as reservations, which ultimately subvert unification and create an illusion of unity. In addition, drafters usually exclude topics for which there is no consensus, meaning that although treaties continue to abound, they are very limited in scope.
44. Moreover, many international commercial conventions seek to set down in law commercial uses, customs, or practices. But they are not drafted by members of the community whose uses they supposedly establish, but rather by States, and, not infrequently, conventions fail to gain acceptance precisely because they do not reflect the practices or perceptions of the dominant commercial community.
45. Another mechanism devised, the uniform law, such as the Geneva Law for Bills of Exchange and Promissory Notes (1930) and the Geneva Law for Cheques (1931), today is often disregarded because it impinges on the sovereign authority of States to legislate, since uniform laws are conceived for integral incorporation of the proposed text.
46. To remedy this difficulty, the concept of the model law was devised, drafted by eminent organizations that recommend them. However, often meaningful unification is not achieved through their use, since national legislators may correct them, adapt them, or even disregard their solutions. The more general the subject matter, the greater the likelihood that this will occur.
47. Additional soft law methods exist whose aim is harmonization, such as legislative guides setting out desirable regulations, as well as guides, such as this instrument, among others.
48. International organizations have echoed the needs for unification of norms governing cross-border commercial activity, as is discussed below.
VIII. United Nations Commission on International Trade Law
49. Known globally by its English acronym (UNCITRAL), the organization was created in 1966 and now has 60 member states from the different continents elected by the UN General Assembly.
50. UNCITRAL was conceived to reduce or eliminate international trade barriers created by disparities of national law. Its general mandate is to further the progressive harmonization and unification of international commercial law, in different areas, such as electronic commerce, transport, insolvency, secured transactions, and international

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payments, among others. This Guide makes frequent reference to the following UNCITRAL instruments:
A. 1980 Convention on Contracts for the International Sale of Goods (Vienna Convention)
51. Preparation of a uniform law for the international sale of goods began in 1930 in another organization known by the acronym UNIDROIT. The initial draft convention was presented in 1964, at the Hague Conference on Private International Law, which adopted two conventions: one on the international sale of goods and the other on preparing contracts for the international sales of goods. These texts were widely criticized at the time for reflecting primarily the Western European legal traditions. Work subsequently done by UNCITRAL, in which the topics of the two earlier conventions were combined, included modifications that were able to achieve greater acceptance by countries with different legal systems.
52. This resulted in the United Nations Convention on Contracts for the International Sale of Goods (1980), also known as the 1980 Vienna Convention or CISG. Its original signatories included States from all geographic regions, of differing levels of economic development and differing legal systems. Today, the CISG is widely accepted, and has been ratified by 85 countries worldwide. The CISG is in force in all countries of the Americas except Bolivia, Venezuela, Suriname, Panama, Nicaragua, Belize, Guatemala, and Costa Rica. In the Caribbean, it is in force in Cuba and Dominican Republic.
53. The CISG is a uniform law treaty which, in its 101 articles, summarizes principles, rules, and uses applicable to the contract at the epicenter of international commerce. It governs aspects of formation of contracts for the international sale of goods, as well as substantive rights of the buyer and seller and matters related to fulfillment and nonfulfillment of those rights.
54. Under Article 6 of the CISG, the parties may exclude its application or, subject to limitations, abrogate or vary the effect of its provisions. Since the CISG recognizes the principle of party autonomy, this may be achieved by, for example, choosing the law of a non-contracting State or the domestic substantive law of a contracting State (for example, the Civil and Commercial Code of that State) as applicable to the contract.
55. The Vienna Convention may be applied, even if it has not been ratified, as an expression of transnational law or lex mercatoria when judges are authorized to apply universal law. In addition, not only has this convention been adopted by a large number of countries, but it has also inspired notable subsequent initiatives to prepare uniform contract legislation. Over 800 decisions applying it have been reported. And an estimated two-thirds of world commerce is–or may be, if the parties do not voluntarily exclude it–governed by this convention.
56. Many court decisions and arbitral awards citing the Vienna Convention may be consulted on UNCITRAL’s web site: www.uncitral.org, click on CLOUT.
B. UNCITRAL arbitration texts

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57. The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the 1958 New York Convention, was established in the United Nations framework and has now been ratified by over 150 countries from all five continents. The instrument antedates the establishment of UNCITRAL, but is now within the scope of the Commission’s group working on arbitration topics.
58. Although the New York Convention does not directly cover the topic of the law on international contracts submitted to arbitration, it recognizes the importance of the parties’ choice of the law governing the validity of the arbitration clause, as well as that governing arbitration procedure. By analogy, it is understood that the clauses on the choice of law applicable to the merits must also be observed.
59. Inspired by and with the New York Convention as background, the model law on arbitration was prepared and adopted by UNCITRAL in 1985, partially modified in 2006, and today many of its solutions are followed by several countries of different continents.
60. That model law was presented as an instrument to guide processes to reform and modernize national legislation in this area in the quest to institute a uniform system reflecting the global consensus on the most important aspects of the use of this dispute resolution mechanism.
61. The instrument governs the different stages of arbitration procedure, from the arbitration agreement, the composition, competence, and scope of intervention of the arbitration tribunal, to recognition and execution of the arbitral award. Article 28 of UNCITRAL’s model law covers the law applicable to contacts submitted to arbitration, and establishes the principle of full party autonomy, including choice of law of a non-contracting state, as well situations where no choice of law has been made, and to the effect of uses applicable to the case.
62. In 2006, UNCITRAL adopted a group of amendments to the original instrument that, in particular, modernize formal arbitration agreement requirements and establish a fuller legal regime for precautionary measures in support of arbitration.
63. The New York Convention has been ratified by nearly all countries of the Americas, and the model law has been copied or its provisions have inspired much legislation in the Hemisphere.
IX. International Institute for the Unification of Private Law (UNIDROIT)
64. Also known as the Rome Institute, or more widely as UNIDROIT (its French acronym), this organization was created under the auspices of the League of Nations, in 1926, between the two World Wars. UNIDROIT’s purpose is to modernize and harmonize the international commercial law framework, focusing on private law and, only exceptionally, on public law, when related to private law or in cases of unclear distinction between the two.
65. UNIDROIT’s member states include 13 OAS member states (Argentina in 1972; Bolivia in 1940; Brazil in 1940; Canada in 1968; Chile in 1951; Colombia in 1940;
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