Despite the warm debates on legal nature and proper application of UNIDROIT Principles of International Commercial Contracts (hereinafter referred to as “the UNIDROIT Principles”), its role in governing contractual relationships worldwide recently has significantly grown. Basically, UNIDROIT Principles, being a “soft-law” legal instrument, govern relations between parties to the contract, if persons unambiguously explicitly agreed on such regulation. Nevertheless, recent arbitral and court practice show that it is possible to solve the dispute which has arisen between contractual parties relying on UNIDROIT Principles even there is no explicit parties` willingness on its` application to the particular contract and if the tribunal does not refer to the conflicts of law which oblige to apply national law of the one of the parties. From the practical perspective UNIDROIT Principles became one of the most appropriate tools to be applied when parties fail to select a governing law. Growing impact of the Principles on contractual commercial regulation also could be considered from the perspective of its influence on domestic law, e.g. in Ukraine state court judges often use UNIDROIT Principles to construe or supplement national law if there is a legal gap in national legislation on some legal matter.

There are a variety of reasons why parties apply UNIDROIT Principles instead of national law instruments. Often a set of general legal rules, as the Principles are, provides the contractual parties with the option to find a compromise on what kind of governing law to be applied to the agreement. Especially it is a sensitive part of the negotiation process when there is no agreement between the parties on this essential matter.

In legal scientific doctrine exists an opinion, which was expressed by Tsirat K.¹, that it is impossible to govern international commercial contract only by lex mercatoria and general sets of rules, such as UNIDROIT Principles, without application of any national law, due to the absence of the international treaty, which allows such application. But recent contractual and arbitral practice give grounds to contest such statements arguably. Preamble of the UNIDROIT Principles² specifies that it is possible to govern the contract by Principles if there is an explicit choice of contractual participants. The same approach in choosing the governing law of the contract that is based on parties’ autonomy and reciprocally will is expressed in other soft-law sources³. Thus, no connection is required between the law chosen and the parties or their transaction, as it was mentioned in article 2 (4) of Hague Principles⁴, parties may choose a particular law because it is neutral as between the parties or because it is particularly well-developed for the type of transaction contemplated. Hence, it is arguably mentioned by Nahnybida V.⁵ that in the case of a direct parties` choice, the UNIDROIT Principles will be applied as "rules of law" to the exclusion of any national law, with the exception of mandatory norms that are subject to unconditional application.

An application of UNIDROIT Principles to the case, as the lex causæ

Nevertheless, the most sophisticated issue for theoretical analysis and practical application is the case where the parties' autonomy was not expressed, i.e., when there is no explicit agreement of the parties on applicable law to a particular contract. That legal matter makes essential sense when the dispute between parties arises, since governing law is a legal guide for the tribunal or court which would consider the case. Many arbitration rules such as UNICITRAL Arbitration Rules (article 35)⁶, ICC Rules of Arbitration 2021 (article 21)⁷ contain provision under which arbitrator shall apply rules of law that is the most appropriate to the merit of the dispute in the absence of any such agreement between the parties. In all these documents, there is no indication that the law chosen by the parties must be national (in the meaning of state law), but there is a clause that the arbitrator shall always rule in accordance with trade customs (trade usages) and the terms of the contract. The practice shows that such provisions are being interpreted by the arbitrators as a legal option to use a “soft-law” tool to the merit of the case. The illustrative example of such approach is the recent ad hoc arbitration case Nurhima Kiram Fornan et al. v Malaysia⁸ there was no substantive law agreement and claimant insisted on application of UNIDROIT Principles to the case, as the lex causæ. The arbitrator found such claimant`s pleading arguable, upheld it and issued in 2020 an award under the UNIDROIT Principles after finding “that he should apply general principles of international law to the merits of the dispute and, specifically, the Principles of International Commercial Contracts endorsed by the International Institute for the Unification of Private Law, amended in 2016, to wit, the UNIDROIT Principles”. Such an arbitral decision complies with the UNIDROIT Principles Preamble, which states the legal possibility of its application when the parties have not chosen any law to govern their contract.

An application of UNIDROIT Principles to the contracts which lack choice of law

Despite aforementioned provisions in arbitrations rules, arbitrators also apply the UNIDROIT Principles as the proper law of the contract even in the absence of a direct or indirect reference by the parties to them as the proper law of the contract (the so-called doctrine of "negative choice"). Since parties do not reach an agreement on which substantive law will govern the contract, arbitrators proceed from the doctrine of negative choice and use out of national codes of rules, such as UNIDROIT Principles are. In arbitral award⁹ dated June 13, 2017 (case number 20731) ICC International Court of Arbitration hold, that “since the parties disagreed on the law applicable to the dispute, the Arbitral Tribunal decided to apply the UNIDROIT Principles on the basis of art. 21.1 of the ICC Arbitration Rules (“rules of law which [the arbitral tribunal] determines to be appropriate”)”. Party-in-breach tried to challenge that award in the court of appeal. Grounds for the appeal from the appellant’s perspective was the violation of the limits of arbitrators’ mandate for having applied the UNIDROIT Principles 2010 in order to solve the dispute. The Court of Appeal has rejected the appeal and by that upheld the arbitral award. Previously mentioned case demonstrates that arbitrators consider the parties disagreement regarding the choice of the appropriate law as the impossibility to apply any national law, hence they embody their authority to make a decision in accordance with the norms of non-national origin, which are embodied in the UNIDROIT Principles.

An application of UNIDROIT Principles as a result of arbitrators` interpretation

In the case No. 123 (decision dated 2 September, 2016)¹⁰ International Commercial Arbitration Court at the Ukrainian CCI (hereinafter referred to as the ICAC) has held the tribunal assumed that the parties to the contract had not agreed on the application of any national law. Regarding the agreement between the parties on the application of “international law”, the ICAC noted that the UN Convention on Contracts for the International Sale of Goods, 1980 (hereinafter referred to as the Convention) cannot be applied to the contract, since India is not a party to the Convention and the rules of private international law do not make it possible to apply it, nor other international treaties.

Under such circumstances, ICAC interpreted the wording “international law” used by the parties as an agreement on uniform generally accepted principles of law, and made a conclusion that it is possible to apply the UNIDROIT Principles. According to the Preamble of the Principles, these Principles may be used where the parties have not chosen the law to govern their contract and where the parties have agreed that their contract will be governed by general principles of law, lex mercatoria or similar provisions. In this regard, the dispute connected with return of the advance payment due to the defendant’s non-delivery of goods was considered on the basis of the provisions of the UNIDROIT Principles instead of national law of one of the parties or some international treaty.

In conclusion it is worth to be mentioned that the role of UNIDROIT Principles in international contractual practice will grow and its influence on the development of contractual legal paradigm will increase. Although the Principles have non-binding character, they correspond to recent needs of international trade because as a legal tool they provide an important solution for international traders who are looking for security making a cross-border transaction and neutrality especially when parties to the contract are from different jurisdictions (e.g., sometimes it will be tricky issue to find a satisfactory solution for parties which are from common law and civil law systems). Incorporation of UNIDROIT Principles makes cross-border commercial contract up-to-date from the legal point of view. While choosing the governing law sometimes it will be arguable for parties to apply UNIDROIT Principles rather than national law that could not be rapidly updated to the recent transnational contractual needs. For instance, there is no rule in civil or commercial law of Ukraine which governs the application of contra proferentem principle by operation of law and if its application creates an essential sense for the parties to the contract, it would be reasonable to choose the UNIDROIT Principles as a governing law instead of national legal system.