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Tuesday, May 24th 2022

The ACP Legal Association

  • OHADAC and ACP Legal

    The partisans of this project, called OHADAC (Organisation for the Harmonisation of Business Law in the Caribbean), decided to meet within the framework of the association ACP Legal, to help interested Caribbean States to implement the project.

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  • OHADAC in brief

    This brochure has been published by the ACP Legal Association.

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OHADAC PRINCIPLES ON INTERNATIONAL COMMERCIAL CONTRACTS

Article 1.1

Freedom of Contract

Parties are free to enter into a contract and to determine its content.

Article 1 of the OHADAC Principles affirms the freedom of contract principle. This is a purely programmatic rule that recognises the private autonomy principle as the basis of contract law.

Freedom of contract is a principle generally recognised in comparative law. In some civil law systems, it is expressly established by acknowledging the freedom of the parties to conclude all contracts, pacts and agreements that they deem appropriate (e.g. Articles 1.547 Honduran Civil Code; 1.839 Mexican Civil Code; 2.437 Nicaraguan Civil Code; 1.106 Panamanian Civil Code; 1.207 of the Puerto Rican Civil Code). The same rule can be found in Article 2 of the Draft Project for Reform of the Law on Obligations prepared by the French Ministry of Justice in 2013 and in international texts harmonising contract law [Articles 1.1 (UP); 1:102 (1) (PECL); II-1:102 (DCFR); 1.1 (CESL). Freedom of contract is also the normative and philosophical principle (will theories) of contract law under common law [Printing and Numerical Registering Company v Sampson (1875), LR 19 Eq 462, 465], where a more liberal approach comprises the fundamental respect for contractual freedom and the minimum of governmental interference with this freedom.

As a programmatic principle, the value of freedom of contract is relative. The wording of this principle in civil law systems is evidence of this relativity. The freedom of contract of parties is restricted by the obligation to follow the law, good morals, public policy and even usage. This limitation is shared by common law systems. Therefore, a common principle comprises the possibility of restricting freedom of contract on the fundamental grounds of the public interests at stake. These restrictions affect the legality of the contract and its object, restrictions of its object in some commercial branches reserved for State monopoly, the existence of public policy statutes on trade protection and free competition, the protection of some parties to the contract or the requirement of certain standards of commercial morality. The mandatory nature or impossibility of derogation of certain rules guarantees freedom of contract as a public interest, insofar as free will is not allowed on rules on valid consent and its voiding reasons.

As mentioned above in the comment to paragraph III of the Preamble, the OHADAC Principles are subject to public policy statutes of national, international and supranational origin that may be legitimately applied on the ground of their geographic proximity and their international public policy scope. The impossibility of derogation of some mandatory rules of the Principles has also been noted.

Finally, it must be observed that the OHADAC Principles are applicable only when the parties have so agreed. Therefore, in cases brought before national courts, the application of the OHADAC Principles will derive from the parties' agreement, the enforceability of which is directly based on the will of the parties. This means that the incorporation by the parties of the OHADAC Principles as an agreement based on the freedom of contract is subject to the limitations imposed on this freedom by the national law applicable to the contract, which will fix the mandatory framework and permit the derogation by the parties. Hence the important point mentioned above that the parties must add the applicable national law of their choice when they adopt the OHADAC Principles.

In arbitral procedures, the OHADAC Principles can work as applicable law on the merits with no submission to any national law. However, as in cases before national courts, the provision included in paragraph V of the Preamble will be applied in any event, since, regardless of the law applicable to the merits, courts as well as arbitrators may take into account public policy statutes from other legal systems closely linked to the contract, in particular the law of the forum and the law of the place of performance of the contract.

Commentary

Article 1.2

Pacta sunt servanda

Contract parties are bound to perform the agreed obligations according to contractual terms.

Like Article 1.1, Article 1.2 of the OHADAC Principles has a basically programmatic character. As a legal institution, the contract is an agreement that creates obligations between the parties and its essence is its binding character or enforceability. The pacta sunt servanda principle evidences this inherent characteristic of contracts.

In civil law Caribbean systems, this principle is often explicit in civil codes, indicating that contracts have “force of law” between the parties or using a similar expression (e.g. Articles 1.602 of the Colombian Civil Code; 1.022 Costa Rican Civil Code; 233 Cuban Civil Code; 1.134 French and Dominican Civil Code; 1.519 Guatemalan Civil Code; 936 Haitian Civil Code; 6:248 (6.5.3.1.) Dutch and Surinam Civil Code; 1.546 Honduran Civil Code; 1.796 Mexican Civil Code; 2.479 Nicaraguan Civil Code; 1.109 Panamanian Civil Code; 1.210 of the Puerto Rican Civil Code; 1.159 of the Venezuelan Civil Code). Article 102 of the Draft Project of Reform of the Law on Obligations prepared by the French Ministry of Justice in 2013 also includes it, as well as Articles 1.3 UP and II-1:103 DCFR. Pacta sunt servanda finds a common law equivalent in the principle of “sanctity of contract”, pronounced from time immemorial both in English (Paradine v Jane, 1647) and USA case law (Adams v Nichols, 1837).

As a general principle, enforceability of contracts is subject to exceptions and modifications that are common in comparative law, such as those derived from a change of circumstances (hardship), force majeure and estoppel. This Article thus corresponds to a common ground in the legal systems comprised in the OHADAC area.

However, the Principles are limited to the enforceability of the contracts. In civil law systems it is common to find a general principle that extends the binding character of contracts to obligations that are not grounded on the parties' will or on the contract itself, but on objective reasons related to morality, equity, good faith or fairness [Articles 1.603 of the Colombian Civil Code; 1.023 of the Costa Rican Civil Code; 1.546 of the Honduran Civil Code; 1.519 of the Guatemalan Civil Code; 925 and 926 of the Haitian Civil Code; 6:2 (6.1.1.2) and 6:248 (6.5.3.1) of the Dutch and Surinam Civil Code; 1.135 of the French and Dominican Civil Code; 1.796 of the Mexican Civil Code; 2.480 of the Nicaraguan Civil Code; 1.109 of the Panamanian Civil Code; 1.210 of the Puerto Rican Civil Code; 1.160 of the Venezuelan Civil Code; Articles 3, 11 and 103 of the Draft Project of Reform of the Law on Obligations prepared by the French Ministry of Justice in 2013]. The same extension also applies in the United States (Sections 1-203 UCC and 205 of the Restatement (Second) on Contracts), and has been undoubtedly followed in most international texts on contract law (Articles 1.7 and 1.8 UP; 1:201 and 1:202 PECL; II-1:102.1 DFCR; 2 and 3 CESL).

The OHADAC Principles have opted to omit rules or general principles related to a duty of conduct according to good faith, contractual fairness or cooperation principle during the conclusion or performance of contracts. Firstly, the Principles, as mentioned in the Introduction, do not regulate pre-contractual or negotiation obligations, where consideration of good faith, fairness and cooperation plays a significant role in civil law systems. Secondly, as far as the contract's performance is concerned, the scope of good faith, abuse of law or estoppel reappears in the interpretative question and, especially, in the filling in of gaps, as well as in determining the effects of some clauses, such as integration clauses. The OHADAC Principles aim to remit the regulation of these questions to the respective chapters, but renounce to state general principles that do not respect the minimum common denominator principle, which is the basis of these Principles. Indeed, the scope of fairness and good faith is quite divergent depending on civil law or common law perspectives. In many aspects, coincidences can be remarkable, but while in civil law systems pre-contractual responsibility due to bad faith can be considered as a contractual question, in common law systems, when accepted, their effects are submitted to torts and restitution rules. Moreover, the absence of a general principle does not prevent the consideration of the consequences of acting in bad faith, unfairly or abusively under the interpretation rules included in Section 1 of Chapter 4. As mentioned in the comment on this Article, there is an inevitable margin of appreciation, even before the courts of a concrete national system, when considering context elements that help to conclude obligations established by the parties and, above all, to infer implied terms. Finally, the possibility of including such general principles is not advisable for proportionality reasons. Besides the separation of the OHADAC Principles from principles characteristic of the legal culture of Caribbean common law countries, given that judges in these countries do not have a sufficient experience in applying unfamiliar and too generic rules, its regulation does not guarantee a uniform application in the systems involved either. Civil law systems show different approaches about whether or not to abandon general considerations of good faith or abuse, when it comes to it.

Commentary

Article 1.3

Declarations and notices

1. Declarations and notices of the parties must be given by appropriate and effective means. They will be effective when they reach the addressee.

2. A declaration or notice reaches the addressee immediately when it is delivered to it is made orally and in its presence.

3. A written declaration or notice reaches the addressee when it is delivered to its place of business or mailing address, or when it is received in its fax receiver or e-mail server.

Several rules in the OHADAC Principles deal with the need and effects of declarations and communications unilaterally made by the parties for different purposes. Following a very common line in harmonised international texts on contract law (Articles 1.10 UP; 1:303 PECL; I:1:109 DCFR; 10 CESL), the Principles state a set of guidelines, which are mere assumptions that can be modified, corrected or excluded by the parties through different regulations or according to their usual practices.

In the absence of such agreements or usages, it is presumed that notices must be made in a form appropriate to the circumstances, including the very function of the notice and through effective means of communication. The effectiveness of notice is based on the most widespread criterion in international trade that is the “receipt” principle. As explained in detail in the commentaries on the offer and acceptance, “emission” and “dispatch” principles are not practical in current circumstances of international trade, because they lead to uncertainty and potentially unreasonable and unfair consequences. It seems preferable that notices take effect as soon as they are received by the addressee, i.e. a time that can be considered to neutral and foreseeable.

Obviously, the “receipt” principle cannot lead to the “knowledge by addressee” principle, insofar as dispatch as well as knowledge depends on subjective and optional acts of the sender or the addressee respectively, which leads to uncertainty and unpredictability. That is why paragraphs 2 and 3 define the time when a notice is deemed to have been received by the addressee, depending on how the notice has been made, either orally (when notice is instantaneous) or written, in which case the effective knowledge by the addressee is not necessary and it is sufficient that the notice has come into the area under the addressee's control. Thus, the notice will be presumably received, if a courier or postal worker has delivered the written communication to the addressee's mailbox or has delivered it personally to an agent of the addressee who is in the establishment. In case of dispatch by fax, a correct transmittal in the fax machine is enough, even when the fax has not been physically received due, for instance, to a lack of paper or malfunction of the addressee's terminal. Likewise, an electronic communication is effective when the message comes into the recipient's e-mail server without it being necessary that the addressee has seen, opened or read the message.

Commentary

Article 1.4

Computation of time

1. When a period of time is expressed in days, the day of the contract, event, decision or notice from which the period begins is not computed.

2. When a period of time begins from a determined day, such a day is computed within the period.

3. Periods of time expressed in months or years shall end on the day of the last month or year corresponding to the same day fixed for the beginning of that period. When the final month does not include that day, the period shall end the last day of the month. When the period is expressed in months and days, months are firstly computed and days are computed afterwards.

4. Unless otherwise stated, periods of time set by the parties refer to natural days, including official holidays and non-working days. When the period of time for performance ends on an official holiday or non-working day at the place of performance or at the place where the party who has to perform is established, it will be presumed to be extended until the next working or business day.

5. The time zone will be that corresponding to the place of establishment of the party who sets the time. If setting of time is not attributable to any party, as to the performance of obligations the time zone will be that corresponding to the place of performance or, failing that, to the place where the party who has to perform is established.

The OHADAC Principles include a set of presumptions or criteria on determination of computation of time according to common practice in international trade and to rules generally admitted in harmonised international texts on contract law (Articles 1.12 UP; 1:304 PECL; I-1:110 DCFR; 11 CESL). These rules are available for computation of periods agreed by the parties as well as of those stipulated in these Principles, unless otherwise established.

The rule in paragraph 1 on computation of days follows an express approach in many civil law systems where it is common to determine that computation of time begins the day after the crucial circumstance which determines the beginning of the conclusion of the obligation or after which the obligation became enforceable occurs. This rule is also known in common law systems, but with some qualifications. Indeed, when parties have not agreed on or there is not a reference to a concrete day, the rule seems reasonable. Thus, if it is stated that “Party X must pay in the period of fifteen days after receipt of the goods”, it must be interpreted that such a period begins the day after the day of receipt and ends at the end of the fifteenth day. However, the beginning of the period is more controversial when parties establish a start date. For example, if the parties state that “Party X must pay in a period of fifteen days from first of March of a certain year”, at least under English law there is a tendency to consider the first of March as included within the period. This interpretative rule seems reasonable and is therefore included in paragraph 2.

However, it was not deemed necessary to include a rule on the determination of the start time and end time of the computation of a period calculated in days. Although it is generally admitted that the start time is the first hour of the day while the end time is the last hour of the day, in some cases, it could be reasonable to interpret that the expiry time will not be the last hour of the day (midnight), but the last hour when the receipt of the notice or the performance of an act could be reasonably expected according usual business hours. Consequently, this question remains open to interpretation on a case-by-case basis.

The rule included in subparagraph 3 concerning cases when periods are calculated in months or years instead of days is also a common feature. In these cases, once the start date has been set, the period is deemed to have expired on the same day of the month or year when the period ends. Thus, if a six-monthly period begins on the first of March, it will expire on the first of September. This rule aims to prevent interpretation of word “month” by synonym of “thirty calendar days”, which is only a reasonable criterion when the period is determined by monthly portions (e.g. half-month). Moreover, the rule corrects the possible consequences of the irregular number of days in a month. For instance, a six-month period that begins on 31 March will expire on 30 September, that is, on the last day of the sixth month. This is a rule that provides legal certainty for computation of monthly and annual periods.

The first rule included in sub-paragraph 4 is also clear and widely used. The period of calculation makes no distinction between working days, non-working days or official holidays, i.e. every day is considered in the same way as a calendar day. The rule is commonly expressed in civil law systems and is also known in common law [Dodds v Walker (1981), 1 WLR 1027)]. The preophylactic rule that goes with it is also generally accepted. It meets the need to enable performance on schedule and to avoid unnecessary claims of force majeure to justify a delay in performance. Thus, if the expiry date of a deadline concerning the performance of an obligation coincides with a non-working day or an official holiday, the period shall be extended until the next working day when the obligor could normally perform his obligation. Compared with more restrictive solutions, such as provided by Article 1.12 (2) UP, it seems reasonable that such an option be possible when the last day is a non-working day in the obligor's place of establishment or in the place of performance, since in both cases a non-working day can seriously hinder performance within the given time limit.

Finally, it is usual in international trade for the parties and the place of the performance to be situated in different time zones. The Principles include in the first sentence of paragraph 5 a well-known rule derived from Article 1.12 (3) UP, which states that in the absence of agreement, the relevant time zone is the time zone of the party set the time limit. However, it is not always possible to determine who sets the time limit. This can be determined, for instance, in determining the expiry of an offer, but not in the case of negotiated contracts when parties have jointly fixed a period of performance of some obligations. This assumption is usually not considered in harmonised texts of international contract law. The OHADAC Principles consider that the most reasonable solution in such a case is the time zone of the place of performance, whenever possible. In certain cases, either because the place of performance is not defined or because the obligation has to be performed in several places with different time zones, the final solution consists in choosing the time zone of the party that must perform the obligation.

Example 1: A firm from Berlin sends an offer to a firm in New York, indicating that it must be accepted before 2 p.m. on 22 September. The period must be considered according to Berlin time.

Example 2: In a sale of goods it has been agreed by the parties that goods must be delivered before 2 p.m. on 22 September in a New York port. The period must be considered according to New York time.

Example 3: In the same contract of sale of goods it is agreed that payment must be made before 2 p.m. on 27 September with no further indications about the means and place of payment. The time limit must be considered as using New York time, since it is buyer's place of establishment.

Commentary

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OHADAC principles on international commercial contracts.pdf