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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 3.3

Illegality

These Principles do not limit or prevent the application of overriding mandatory rules or international public policy rules of national or international origin, which determine the illegality or opposition to public policy of the object, or the content or the performance of the contract or of some of its obligations.

Although private autonomy governs contract law in comparative legal systems within the Caribbean, all these legal systems without exception depict hypotheses of public policy limitations which restrict freedom of contract related to validity, object and performance of contract obligations and cover a wide range of cases such as cartel or collusion agreements against antitrust rules, sales of res extra commercium (e.g. cultural goods), contracts the performance of which implies a crime or that are simply contrary to morality and public decency.

Civil law systems usually require, as a validity condition, the existence of a “legal object” (Articles 631.2º of the Costa Rican Civil Code; 1.251 of the Guatemalan Civil Code; 1.565-1.567 of the Honduran Civil Code; 1.827 of the Mexican Civil Code; 1.122 of the Panamanian Civil Code; 35 and 69 of the Proposals for Reform of the French law on obligations of 2013), a “legal cause” (Articles 1.108 and 1.133 of the Dominican and French Civil Code; 903 of the Haitian Civil Code; 1.874 of the Nicaraguan Civil Code; 1.141 of the Venezuelan Civil Code), or both (Article 1.502 of the Colombian Civil Code). Illegality of the object, content or performance can sometimes lead to the absolute nullity or inexistence of the contract, but in other cases the consequence may merely consists in unenforceability, severance or adaptation of the contract. Divergence also characterises remedies, refund and return of benefits.

For its part, English law does not refer specifically to the legality of the object, but rather to unenforceability when obligations are illicit or illegal (the difference is not always very clear), or when they are legal are objectionable or contrary to morality or public policy. The effects of illegal, illicit or objectionable character are diverse depending on its consequences in contract formation or performance, as in civil law systems. Diversity of cases, categories and effects make them very difficult and even impossible to reduce them to harmonised and uniform rules.

Unlike other international texts on contract law, the OHADAC Principles opt for not including a special regulation of illegality of contracts, reiterating the rule in Paragraph III of the Preamble. There are several reasons for such an option, besides the complexity and diversity of the legal systems involved in the treatment of different cases of illegality.

First, as inferred from the Preamble and Chapter 1, the main objective of the OHADAC Principles points to facilitating for the parties a legal framework alternative to domestic law, through its incorporation or choice by the parties. The OHADAC Principles on international commercial contracts are not a national regulation, so that they are only applicable when parties expressly subject the regulation of their contractual obligations to these Principles. Otherwise, the Principles can only be considered as the law applicable to the merits in arbitral procedures.

In cases when controversies arise before judges and national courts the reference in the contract to the OHADAC Principles generally do not entail the specific effect of the law applicable to contract; in other words, they will not supersede the application of the domestic law applicable by virtue of the conflict-of-laws rules, unless and as far as this domestic law recognises that the Principles represent the will or private autonomy of the parties within the limits imposed by the overriding mandatory rules on international contracts from this domestic law.

Indeed, most of the private international law systems in force in Caribbean countries in OHADAC territory state that parties can only choose a domestic law as the law applicable to contracts. It is only in the arbitral sphere where there is greater flexibility in establishing the law applicable to the merits allow us to consider a choice of a non-national law as a true choice of the applicable law of the contract. The possibility of considering the OHADAC Principle as the law applicable to contract is only possible (and with serious doubts) before Mexican and Venezuelan courts, which are the only two States that ratified the Inter-American Convention on the law applicable to international contracts (CIDIP V) held in Mexico on 17 March 1994.

Secondly, regardless of the fact that the OHADAC Principles are considered to be applicable rules as the parties choose, and therefore within the strict scope of their contractual freedom, it is common in international contract law that parties cannot prevent the application of overriding mandatory or public policy rules from domestic national, international or supranational law, in force in the country of the courts' seat (lex fori) or even in a third State closely connected with the contract, especially in the country where obligations are or must be performed. This private law principle, widespread in comparative law and increasingly accepted in arbitral procedures (except lex fori in certain cases), is included in Article 9 of the Regulation (EC) No. 593/2008, of the European Parliament and the Council of 17 June 2008 on the law applicable to contractual obligations in force in the United Kingdom, France and the Netherlands and also in Article 11 of the Mexico Convention itself, in force in Mexico and Venezuela.

The regulation proposed in other international texts which could be a source of inspiration is not however convincing. The third edition of the UNIDROIT Principles (2010) incorporated in chapter 3 a new Section 3 on illegality inspired by Section 178 of the Restatement (Second) of Contracts, whose particular function in the USA legal system cannot be easily transplanted into a body of legal harmonised rules or soft laws. That is why this Section of the UNIDROIT Principles has been strongly criticised. Firstly, the regulation of this section leads to the same results as the one proposed in the OHADAC Principles in cases where the legal system that imposes the mandatory rules on illegality clearly and expressly sets out the consequences of this illegality on the validity and performance of the contract. In the broad sense, it is rare for a system to envisage cases of unlawfulness and illegality without providing for an express solution, whether in the law or in case law, about its effects on the validity and performance of the contract. But even in such cases, a subsidiary solution in the UP aimed at determining the consequences of this illegality, consists in applying the special rules stated in that Section or the more general rules of the UP on restitution. The remedies proposed are also so vague, open and imprecise that they lead practically to the same result as when there are no regulations. In practice, the same approach and the same concerns are found in Section 15 of the PECL and in rules included in Articles II-7:301 and II-7:304 DCFR.

This is because when judges or arbitrators who have to interpret a contract that is subject to the OHADAC Principles are faced with an overriding mandatory rule of national, international or supranational character establishing the illegality of the contract object, contents or performance and takes into account the admissibility of applying this mandatory rule, by virtue of its content and nature as well as its connection with the contract (lex fori, applicable domestic law in the absence of choice, law of the country of performance, law of the market affected, law of origin of a cultural good, etc.), they will apply this mandatory rule and determine the effects on the contract provided in the law. If these effects are unclear in the legal system that establishes illegality, there is no impediment to the judges or arbitrators applying the general rules of the OHADAC Principles chosen by the parties in order to determine the consequences of illegality on the validity and the performance of the contract, as well as the remedies set out in the Principles themselves insofar as they are reasonably suited to the objective and content of the mandatory rule that has been violated.

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OHADAC principles on international commercial contracts.pdf