Dalhuisen on Transnational Comparative, Commercial, Financial and Trade Law Volume 2

Contract and Movable Property Law

Jan H Dalhuisen

• Publisher: Hart Publishing
• Year: 2013
• ISBN:
  9781782251835
• Edition: 5
• Topic: Law
• Subtopic: International Trade Law
• Index: Law

This is the fifth edition of the leading work on transnational and comparative commercial and financial law, covering a wide range of complex topics in the modern law of international commerce, finance and trade. As a guide for students and practitioners it has proven to be unrivalled. Since the fourth edition, the work is now divided into three volumes, each of which can be used independently or as part of the complete work. Volume one covers the roots and foundations of private law; the different orientations and structure of civil and common law; the concept, forces, and theoretical basis of the transnationalisation of the law in the professional sphere; the autonomous sources of the new law merchant or modern lex mercatoria, its largely finance-driven impulses; and its relationship to domestic public policy and public order requirements. Volume two deals with transnational contract, movable and intangible property law. Volume three deals with financial products and financial services, with the structure and operation of modern commercial and investment banks, and with financial risk, stability and regulation, including the fall-out from the recent financial crisis and regulatory responses in the US and Europe. All three volumes may be purchased separately or as a single set. From the reviews of previous editions:
"...synthesizes and integrates diverse bodies of law into a coherent and accessible account...remarkable in its scope and depth. 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
"Dalhuisen's style is relaxed...what he writes convinces without the need for an excess of references to sources...a highly valuable contribution to the legal literature. It adopts a useful, modern approach to teaching the young generation of lawyers how to deal with the increasing internationalisation of law. It is also helpful to the practising lawyer and to legislators."
Uniform Law Review/Revue de Droit Uniforme
"this is a big book, with big themes and an author with the necessary experience to back them up.... Full of insights as to the theories that underlie the rules governing contract, property and security, it is an important contribution to the law of international commerce and finance."
Law Quarterly Review
"...presents a very different case: that of a civilized and cultivated cosmopolitan legal scholar, with a keen sense of international commercial and financial practice, with an in-depth grounding in both comparative legal history and comparative law, combined with the ability to transcend conventional English black-letter law description with critical judgment towards institutional wisdom and intellectual fashions....a wide-ranging, historically and comparatively very deep and comprehensive commentary, but which is also very contemporary and forward-looking on many or most of the issues relevant in modern transnational commercial, contract and financial transactions..."
International and Comparative Law Quarterly This title is included in Bloomsbury Professional's International Arbitration online service.

1 Transnational Contract Law

Part I General

1.1 Introduction

1.1.1 Modern Contract Law: Nature of the Parties or Type of Contract?

In this chapter on contract law, the emphasis will be on: (a) the formation of the contract; (b) its binding force; (c) its interpretation and supplementation (or construction) and the (limited) grounds for correction of its terms; (d) performance and the most current defences; (e) default and excuses including force majeure and change of circumstances; (f) remedies including specific performance (or real execution) and renegotiation in appropriate circumstances; and (g) privity of contract and the exceptions to this principle.

These aspects will be foremost discussed in the context 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 amongst 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 amongst themselves. Closely related to this approach is the development in common law of special fiduciary duties between parties in situations of trust, dependency and confidence. This again suggests different treatment depending on the nature of the relationship.²

It should be noted that in civil law the emphasis is traditionally on types of contracts, not on types of parties.³ This is an important difference. 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 now find greater sensitivity to relationship thinking in civil law as well, but it remains a fact and a natural civil law reflex to apply special protections developed in this way, for example for consumers or workers, across the board also to professional dealings of the same contractual type. This shows that the sensitivity to relationship thinking has not yet been fully subsumed in civil law thinking and that the good faith concept here needs further development and elaboration.⁴

Thus 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, however, overarching notions of contract-like offer and acceptance; the notion of consensus and the role of will or intent and the defences against validity in this connection; and the question of performance, default, remedies and excuses. That is then the general part of contract law. Although it is still conceivable that in this connection the type of contract, like the contract for the sale of goods, has different formation aspects or disclosure duties and especially different remedies against default, again in this approach that is less likely to depend on the types of parties.

Taking the rental agreement in terms of a temporary transfer of user rights in immovable or other tangible assets as a ready example, in common law its basic characteristics are considered to be foremost determined by the type of relationship—be it between (a) professionals amongst themselves, as in the renting of office and manufacturing space; (b) professionals and consumers or smaller companies, 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 council flats 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. 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.

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 that 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, it should be noted in this connection that originally the types of contract of this nature also only operated between a particular type of parties, here merchants in the exercise of their trade. In fact, in common law, the notion of contract at first largely developed in that connection and is primarily a product of commercial law, which again affects its nature. As we shall see, it has led generally to a less subjective attitude to contracting and to determining the contractual content. The notion of will and intent did not acquire here the same importance as it did in civil law either: the common law of contract formation remains based on exchange and bargain (or consideration) and detrimental reliance, not strictly speaking on consensus and intent as we shall see. That may make a great difference, especially in professional dealings where it is not then what parties intended but what they objectively could rely upon or assumed in terms of risk that is here the essence, in which connection 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.

Accepting the importance of the nature of the relationship between the parties on 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 entities of some size, making it their business to engage in commercial or financial dealings amongst themselves and having expertise in their operations.⁶ Smaller companies (or SMEs) may form here an uneasy intermediary class. It sometimes requires a treatment more akin to that of consumers but in other aspects they may be treated or even prefer to be treated as professionals.

Thus in this chapter, the typical concepts and principles of contract law will be considered particularly from the point of view of professional dealings. As just mentioned, it 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. This would not be strange in common law and in civil law the notion of good faith, if properly understood, may become here similarly restraining and may then mean fewer rights. In countries like France, which still have commercial courts, this may also find expression in different court proceedings which may be quicker but also less detailed and involve the peer group as judges.

As for the types of contracts, this is not to say that they should be ignored and after the general part of contract, towards the end of this chapter, two types will be analysed in particular. They are the sale of (movable) goods and contractual forms of agency (mandate). But these contract types will here also be considered from the perspective of relationship thinking where different rules are likely to prevail between professionals.

As far as the sale of goods is concerned, attention will in this connection be focused on the international sale, which has always been a sale between professionals and is or should be structured accordingly, ie differently from consumer sales, which are sales between professionals and consumers (or small companies) or between consumers amongst themselves, usually at the domestic level. These international sales between professionals are to be distinguished especially because ancillary arrangements in terms of transportation, insurance and payment are often necessary and suggest a different layer of, and different concern with, risk and its management. Consumer sales may of course also be international (crossborder) but are not then commonly considered covered by a reference to international sales in this narrower professional sense: see also Article 2(a) of the 1980 Vienna Convention on the International Sale of Goods (CISG or ‘Vienna Convention’).

It is true that in the EU in the 2011 proposal for a Common European Sales Law (CESL) consumers involved in cross-border sales were the inspiration, see section 1.6.13 below, although professionals may also be covered if there is at least one SME amongst them. In EU terms, however, these sales are now considered domestic at the EU level even if purely domestic sales remain covered by the laws of Member States. It will be asked later whether creating two different regimes for smaller participants makes sense especially now that for cross-border sales, even if only within the EU, the impact of ancillary arrangements for transportation, insurance and payment is not further considered. Although in cross-border dealings even within the EU consumers may also have real concerns, they are likely to be still different from those of professionals. None of this is reflected in the proposal, however, which lives in the world of domestic consumer sales even when applying its rules to others; any fundamental distinction appears to have been be abandoned.

As far as contractual agency is concerned, especially in the financial services area, the distinction between wholesale and retail investors using agents or brokers has also become of overriding importance.⁷ Again, it shows the importance of relationship thinking. Agency is not the same in every relationship and, especially in finance, may acquire further specialised features and protectional aspects to be distinguished according to the nature of the parties. In particular, smaller investors are likely to be better protected against their brokers than the larger ones, which, again, has a transforming effect on the contract of agency itself when operating in these circumstances.

1.1.2 The Effect of Globalisation

The significance of distinguishing not only in commerce but also in finance between professional dealings and dealings with consumers or other non-professional parties is in modern times further highlighted by the fact that professional contracts lend themselves increasingly to support by international or transnational legal principles and practices or uniform treaty law leading to the application of transnational law, often also referred to as the modern law merchant or lex mercatoria. The professional law is here perceived to operate in a new transnational commercial and financial legal order, see further the discussion in Volume I, in particular section 1.5.

The formation and operation of a new transnational law including contract law in this informal manner in its own legal order is seen in this book as conflict avoidance, it being a natural response to the globalisation of the market place and to the cross-border nature of much international commercial and financial business, which is indeed normally conducted through professionals and is losing its typical domestic connections, also in law. This may always have been clearer in the international sale of goods but it is now a much more pervasive insight and notably also concerns international services and financing operations. For the independent legal order that is here created, the cultural, sociological and economic forces or efficiency considerations that back it up, and the new law merchant or lex mercatoria that emerges in it, its nature and the operation and hierarchy of norms from different legal sources that support it, reference may again be made to the discussion in Volume I.⁸

Indeed, in the view presented in this book, the modern lex mercatoria in the transnational commercial and financial legal order in which its operates depends for its formation and operation on different sources of law, much as public international law does under Article 38(1) of the Statute of the International Court of Justice. It concerns here especially fundamental legal principle,⁹ custom and practices,¹⁰ general principle¹¹ and party autonomy.¹² There may also be treaty law which must then find its place amongst these other sources of law and it may not be assumed that it automatically overrules them, see further the discussions in Vol. 1, section 1.4 which are here only briefly summarised.

In the international sale of goods, some uniform international sales law for professional dealings was created formally through the 1980 CISG after an earlier attempt in the Hague Conventions of 1964. This treaty law, which has already been mentioned, provides only a partial coverage of the subject whilst important trading nations like the UK, Portugal and Brazil have not ratified it and the larger commercial practice remains sceptical and mostly excludes its application, mainly because of the subjective nature of the key notions of fundamental breach (Art 25) and force majeure (Art 79) and the unilateral right of the buyer to reduce the price (under Art 50), notions, however, that return in CESL. But there is more generally also the point that in its approach to contract formation, the Vienna Convention is intent- and will-based in the nineteenth-century civil law manner, which has a further subjective impact on the defences, the notion of breach and the excuses as we shall see. It has already been said that this may not be what business wants or can handle. There is also a lack of understanding as to how this text relates to the other, more immanent, sources of law, which is poorly covered in Articles 4, 7 and 9. In the typical civil law codification tradition, these sources are rather ignored or their existence denied, but at the international level it must be doubted whether treaty law has that power and can do so. In any event, these sources of law are likely to return in the interpretation and supplementation of the text.

Furthermore, much of the thinking behind the Convention, at least in the area of formation, dates from 1939 and still appears to have as its main perspective the spot sale of an individual item between natural persons or small companies. The modern emphasis internationally is at least as much on duration or repeat contracts between large international companies concerning multiple deliveries with a substantial service element as we shall see. As to the details of the Convention, it may further be observed that the ancillary arrangements and special risks in transportation, insurance and payment are hardly determining in its set up, which remains based on delivery ex works and presents as such a variation of domestic sales law, another reason probably why in practice the Convention has not proved the success that is often claimed for it. In fact, there are serious problems with the academic model of the international sale it uses and tries to make operational. The concept of internationality itself is here also poorly understood.

This is to demonstrate that treaty law of a private law nature covering international dealings is no panacea and may well create more problems than it solves. Its success is foremost dependent on the legal practice recognising itself in the result and this is often not the case in what is mostly no more than some academic compilation. It has the further disadvantage that it is difficult to update and change as it will involve many countries. This may be the reason why in other areas of private law, formal uniform treaty law has remained even more incidental.¹³ As just mentioned, an informal but broader creation of transnational law is now becoming apparent in the international professional sphere and is no longer centred on this uniform treaty law but rather on a variety of other (immanent or bottom-up) sources of law amongst which any treaty law must find its place. The resulting modern lex mercatoria does not yet present here one coherent pattern of rules but a hierarchy of norms from these different sources, in which, besides fundamental legal principle, the terms of the contract itself, custom or established practices, uniform treaty law, and general principle, even national law may still figure, although the last only residually (and then as part of the transnational law).¹⁴ See more particularly the discussion in Volume I, sections 1.4.13 and 3.1.2.

Domestic law may remain more relevant for all non-professional dealings, therefore especially for dealings with consumers and employees, even if operating trans-border, but also for dealings with smaller licensees, franchisees and distributors, even though within the EU there has been some harmonisation of the law in some of these areas as well, whilst CESL introduces what is in essence a consumer sales law for purchases cross-border in the EU. Its need, purpose and approach have already been questioned and these issues will be revisited in section 1.6 below. There is also the question of quality. Most of these EU efforts on behalf of consumers,¹⁵ and to a lesser extent workers,¹⁶ do not have a bearing, however, on cross-border activities at all and are then arguably better left to local law if only as a matter of subsidiarity, even though companies in their cr...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Table of Cases
• Table of Legislation and Related Documents
• Chapter 1: Transnational Contract Law
• Chapter 2: Transnational Movable Property Law
• Index