В статье рассматриваются особенности доктрины неприкосновенности договора. Автор ставит вопрос о причинах, по которым необходимо соблюдение согласованных условия контрактов, а также об обстоятельствах, при которых они могут измениться, и последствиях внесения изменений в контракты. Юридические понятия, такие как неприкосновенность, недобросовестность и изменчивость, обеспечивают контекст для представленных в работе аргументов. Кроме того, понимание баланса между жесткими и гибкими условиями контракта требует рассмотрения исторических аспектов договорного права. Так, в статье, в том числе, кратко рассмотрены примеры и исторический контекст обсуждаемого вопроса.
Ключевые слова: договор, pacta sunt servanda, доктрина фрустрации, невыполнимость, невозможность, непредусмотрительность, неприкосновенность, изменчивость, изменение,
Sanctity of Contracts «Is Contract Modification Possible in International Law?»
Abstract. The article discusses the specifics of the doctrine of the sanctity of contracts. The author raises the question of the reasons why it is necessary to comply with the agreed terms of contracts, as well as the circumstances under which they may change, and the consequences of making changes to contracts. Legal concepts such as inviolability, dishonesty, and variability provide context for the arguments presented in the paper. In addition, understanding the balance between rigid and flexible contract terms requires consideration of historical aspects of contract law. So, in the article, among other things, examples and the historical context of the issue under discussion are briefly considered.
Key words: contract, pacta sunt servanda, frustration, impracticability, impossibility, imprevision, sanctity, mutability, modification.
The evolution of contract
The classical elements of a contract referred to in most textbooks are the offer, acceptance, intention to create legal obligations and the doctrine of compensation for damages developed from the provisions of Roman law. It is of significant note that the Corpus Juris Civile provided residence to these legal institutions, a product in part of the casuistic, reactively derived Roman rules, precedents and the centuries-long ruminations of natural lawyers. So that Contractus, Conventio, Pacta, Consensus; in their various Roman law connotations, with constituent elements common to present day contracts either singularly, severally or in rare totality, were the early basis for conceptualizations of the contract in laws of all the nations of Europe, which derived from the same sources[1]. However, the need later for a systematization of general principles of English law saw innovative interpretations and adaptations in the law of contracts, with textbooks emerging[2].
It’s no surprise, then, that they heavily borrowed from the civilian tradition, drawing from Roman law, Domat, Grotius, Pufendorf, Pothier, and Sevigny. By the late 18th century, English translations of Domat’s, Grotius’s, and Pufendorf’s main works were readily available [3].
Notably, early common law cases in contract law align with this tradition. For instance, Adams v. Lindsell (1818)[4] dealt with offer, acceptance, and the requirement that plaintiffs reply «in the course of post». Despite a misaddressed offer letter arriving late, a third party had already entered into a contract with the defendants for wool sale. The Court held that a contract existed before the third-party sale, making the defendant liable for breach of contract.
It is observed generally thus, that in the early 19th century contractual obligations in its latest iterations were attributed mainly to voluntary acts of the will, graduating from the notion of promissory liability with which is associated remedy for breach of promise. So that, in the development of the legal institution of contract, the now classical elements aforementioned, featured prominently with specific assigns — premised upon the state of development of specific doctrines, which echoed learnings of various schools of thought. It is as regards these classical elements of the contract under largely common and civil law, that the important matters of the sanctity of a contract and conditions under which they are subject to change are examined below, as the need to protect property legally intensified with the increase of acquisitions, along with requirements to preserve intention. I do not venture to proffer dispositions of Sharia law, which distinguished comparative lawyer Nagla Nassar does elsewhere[5].
The ability to contract became a necessity of the laissez-faire, unobtrusive non-state intervention in the early 19th century, with the state allowing persons of their own «free will» to enter into contracts, thereby creating rights and obligations liberally. The state’s role was first limited to enforcement of the expectations, but subsequently expanded under objective interpretations, which took less account of the parties’ subjective will, and established principles of fairness and appropriate liabilities for non-performance. In short, sophistry and economic balance of rights and obligations attended contract, eliminating such excuses for non -performance as based on mistake, urgency of need leading to contract formation on grossly unfair grounds and duress. In other words, objective assessments intervened and the observed trend was that of a move from the well-guarded sanctity of the transaction according to the parties’ intentions and comprehension; to one of fairness of the transaction, its reasonable valuation and with the dissecting for analytical purposes; of the intentions.
That this has been so, both through the limitations of mandatory law imposed by legislation and through the judicial process of construction of the terms of the contract, is a phenomenon that needs hardly any extensive documentation. The reality is, a party in dire need hardly ever premises its actions on market valuation, on its ability to understand the language of complex legal agreements and texts, or standardized contracts, the latter which in the first case weighs heavily in favour of one side and expresses that party’s will in a biased manner.
Pacta sunt servanda, Clausula rebus sic stantibus and Conditions of contract modification
Logic dictates that good contracts in law are founded on predictability of transparent transactions, involving legal persons of sound mind capable to enter into such transactions generally. As such, the grounds for excuse of part or non-performance are envisaged as possible, but are different in various legal systems, and the extent of excusability correspondingly require strict circumscription, with circumstances taken into account including phenomena such as the lack of foresight, impracticality, impossibility, acts of God, acts of the state, the unavoidable, unconscionableness, without the fault of another party, increased burden and hardship.
The fact is, after the formation / conclusion of a contract, numerous problems may arise. Those, which hinder the performance of the contract, are treated differently under respective legal systems based on the degree of difficulties and factors, which may excuse non-performance to a pre-determined or post-event extent. These national approaches, both judicial and legislative closely interconnected, have been amalgamated by the arbitral tribunals in the omnibus and synthesized new concept of clausula rebus sic stantibus or «fundamental change of circumstances» to appraise the implications of varied changes on the performance of contracts[6], the key requirements for the invoking of which are substantive impairment of contract performance or purpose, unforseeability of the supervening event, and the causation between the event and performance impairment. Appearing in international law first as a customary norm, this principle as an exception to that of pacta sunt servanda- «good faith», has found legal consolidation in international covenants within which it is codified dressed in Roman attire, but sewn and altered by merchants of recent vintage.
Pacta sunt servanda emanated out of the Roman law where some forms of promises (contractus) were actionable while others (pacta nuda) were not[7]. The principle supports legal certainty of outcomes.
Imprevision — treats with the issue of the unforeseeable as a result of supervening circumstances, which render performance significantly more onerous although possible, for one of the parties.
The rigidity with which the French law subscribes to pacta sunt servanda traditionally, is manifest in the Cour de cassation’s watershed case of Canal de Craponne (1876)[8], which demonstrates that if performance was still possible, the change of circumstance grounds was not accorded relief, since pacta sunt servanda was general and absolute.
Force majeure «Acts of God» exceptions such as floods, earthquake. and unpredictable, uncontrollable events such as strikes and explosions, are subject to negotiation by parties as regards the effects these may have on the execution of their obligations in their contractual relations. A party in such instances (Articles 1147 and 1148 French Code Civil) exempts debtors from damages resulting from these acts unless there was an assumption of liability.
Fait du Prince- is an act of the State, which following the unilateral amending of the essential conditions of the contract, the State is obliged to compensate the other party, providing that the action was unforeseeable when the contract was concluded, the action is beyond the scope of the contract and the action taken was specific to the operator.
Commercial impracticability- a common precept of American common law, as reflected in the Uniform Commercial Code (UCC), specifically under Section 2- 615 the UCC, entails that a Seller is excused form performance if it has become impracticable because of unforeseen circumstances not contemplated by either party, resulting in it becoming unfeasible and expensive.
Frustration — when a serious event after the contract’s formation occurs rendering the contract performance impossible, or transforms the obligation to perform into something radically different from that originally undertaken, the purpose is said to be frustrated in English common law..
Impossibility- the doctrine of impossibilty applies with full force when the subject matter has been destroyed and cease to exist, without the any fault of the parties to the contract; the contract is discharged.
Hardship- constitutes another device for objectionable non-compliance in part or whole, as described in Article 6.2.2 of the UNIDROIT principles, once the conditions therein are met, notwithstanding which, the posture from which this embarks is that of contracts are to be observed in good faith.
The origins of the theory of hardship are found in how Roman law evolved. The basic principle was that if performance of a contract was possible, but a fundamental change in the circumstances surrounding the contract had rendered performance much more burdensome, so that continued performance by the party affected would amount to an undue hardship, then the affected party could invoke the principle of clausula rebus sic stantibus[9]. In addition, article 6.2.2 of the Unidroit Principles specifies additional conditions that a hardship event must meet in order to consider providing assistance.
The French civil law legal institution of imprevision is equated to the English concept of Hardship, which implies that any disruption of the contract equilibrium allows the disadvantaged party to demand a good faith effort at renegotiation in order to restore the balance, or to have the contract terminated by the court if renegotiation fails. The hardships are manifested mainly in an increase of cost of performance, and reduction of benefits accruing to a party. Unconscionability rules featured prominently in England, and historically were informed by Money Lenders’ dispositions of usurious engagements by contract, with rates exceedingly high and default treated disdainfully drastic. The contractual equilibrium was necessarily addressed with the passage of subsequent legislation to address these imbalances. These acts of unconscionable character, may be informed by professional incompetence and commonly so, that it results in lack of vetting transparency at the instance of Parliaments or legislature generally. Such contracts may not be treated as void, but rather may be tailored to address the objectionable terms, grant relief, but remain intact.
Mutability of contracts
While the legal nature of State contracts as to whether they are public or private remains a contentious issue, it is established however, that public law regulates the relations between the State as a sovereign representing the citizens’ collective interests and private persons with their own profiteering aspirations, which on the surface points to a symbiotic relationship, though a biased one; as opposed to private law, which governs the relations between private persons of supposedly equal stature. It is typical for the contracts themselves to contain provisions on the choice of law and jurisdiction of dispute resolution.
The mutability of contracts concerns its ability to be changed, an examination of which can be effectively conducted from the vantage of its pacts sunt servanda quality and exceptions that may relieve a party from the performance of its contractual obligations. Thus, as discussed above, in Anglo-American common law the exceptions tantamount to supervening impossibility or impracticality of performance, the non-occurrence of which was a basic assumption, which softened the earlier legal stance that where there is a positive contract to do a thing, the contractor must perform or pay damages for not doing so, and in English law, if a contract becomes legally or physically impossible to perform, or events subsequently occur which have such an effect that enforcing the contract in the changed circumstances would amount to enforcing a new contract, both parties will be relieved from further performance of their obligations by virtue of the doctrine of frustration.
Notable cases often cited in those regards are Krell v. Henry (1903)[10], and Taylor v. Caldwell (1863)[11]. In Krell the defendant agreed to hire a flat on days, which it was announced there would be a coronation procession passing. There were no express terms in the contract on the coronation processions or any other purposes for, which the flat was hired. A deposit was paid upon the signing of the contract. However, the procession did not take place on the announced dates and the defendant declined to pay the balance of the agreed rent. In applying Taylor v. Caldwell (1863) and the frustration doctrine, the court found that both parties recognized that the days of the procession was the foundation of the contract and found in favor of the defendant. The plaintiff was not entitled to recover the balance of the rent fixed in the contract.
To see how these principles have conditioned performance of public contracts in English common law, a cogent reference case is that of Amphitrite v. The King (1943)[12]in which the principle was amply formulated to mean that a government cannot by contract hamper its freedom of future executive action in matters which concern the welfare of the State from which it cannot escape. In the U.S.A, under the premise that the state seeks to secure the health and good safety and order the government may exercise its policing power, exercised reasonably and not arbitrarily, and not necessarily with payment of compensation, although when the act involves taking as opposed to regulating, compensation is paid. Horowitz v. US (1925)[13]proves edifying in these regards, establishing that the United States when sued as a contractor cannot be held liable for an obstruction to the performance of the particular contract resulting from its public and general acts in the capacity of a sovereign.
The Nature of State contracts with aliens in international law
In the circumstance, it can be surmised to good effect, that the sanctity of contracts is informed by the principle of pacta sunt servanda subject to certain qualifications. However, executive modifications of contractual obligations while possible, may not be arbitrarily engineered and varying of terms and conditions are subject to payment of compensation. These modifications when made are for the public good and on a lawful basis. As such, sanctity of contract is not absolute, and is situated within the state’s exceptional prerogative powers, albeit, with the perceived possibility of payment of compensation.
These prerogative powers bring to the fore questions of sovereignty versus mutability of the contract. The compensation requirement for contract adjustments in international law is captured and reflected in the principle of «Permanent sovereignty over natural resources», adopted by UN General Assembly Resolutions 1803 (XVII)[14], affirming that the exploitation of the natural resources in each country shall always be conducted in accordance with national laws and regulations, inclusive of situations of nationalization, whereby the expropriating state has to determine the amount of possible compensation and mode of payment.
In December 1974, the UN General Assembly in regular session adopted the Charter of Economic Rights and Duties of States[15], to promote the establishment of a new international economic order, which will constitute a binding international instrument for a new system of economic relations. At Article 2 (c), it explicitly underscores the importance of appropriate compensation under the domestic laws of the expropriating country, unless it is freely agreed by all states concerned that other peaceful means be sought based on sovereign equality and in accordance with the free choice of means.
The principle of pacta sunt servanda underwent significant interpretive evolution, as a result of the impact of newly emerging states from colonialism, for whom there is the non-automatic continuity of bilateral and multilateral agreements in force as described in the Vienna Convention on State Succession to treaties 1978[16], notwithstanding the Convention’s debatable codification of customary law status, and the different treatment it accords to seceding States, and States emerging as a result of dissolved entities such as Unions, for whom continuity is automatic.
This has impacted the mutability of contracts, as indeed has the principle of rebus sic stantibus codified in Article 62 of the Vienna Convention on the Law of Treaties 1969[17]. The argument here remains however, as to whether the sanctity of unjust and inequitable contracts should be preserved as sacrosanct, in their unconscionable cloak.
Various approaches over the years have been fashioned as guidelines to courts and tribunals based on doctrines promulgated to devise universally applicable multijurisdictional approaches. These rules and principles of arbitration evolved with time and benefited from the jurisprudence of courts, precedents and analogs in their findings.
Effects of unilateral contract modification
A few illustrations it is hoped, will suffice.
In the only Arbitration proceedings in which the Soviet Union participated, in 1930, the case of London based Lena Goldfileds v. the Soviet Union[18]; the sanctity of contracts was well recognized. The Soviet Union was ordered to pay damages to Lena Goldfields involved in the exploitation and of goldfields for periods of 30 and 50 years. The USSR claimed adjustments were necessary to promote and implement its new five-year plan, which created the total impossibility for Lena of either performing the Concession Agreement or enjoying its benefits. The three-man ad hoc Tribunal found the conduct of the Government to be in breach of the contract.
In 1963, the Ad hoc Tribunal in Sapphire International Petroleums Ltd. v. National Iran Oil Company (NIOC)[19], who had entered into a contract to expand and export Iranian Oil, the state of Iran refused to effect payment for prospecting work, claiming that the Canadian company did not notify of the undertaking. The Tribunal found that this was failure on the part of Iran to carry out its contractual obligations, on the basis of ex aequo et bono (judicial discretion) matters of compensation for loss profit «lucrum cessans» were considered, and the law considering damages «damnus emergens» were the general principles of law, and that the obligation to honour a contract was derived from the principle of pacta sunt servanda.
In LIAMCO (Libyan American Oil Company v. Libya 1977)[20], the investor requested that the tribunal find nationalization measures aimed at terminating the concession be found null and void. In November 1973, LIAMCO initiated arbitration proceedings pursuant to Clause No 28 of the Concession Agreements, requesting as a principal relief the restoration of its concession rights together with all the benefits accruing from such restoration, and as an alternative relief, the payment of adequate damages. The Tribunal, holding that restitutio in integrum was impossible, found that the Claimant was entitled to indemnification for (lawful) nationalization of its assets and concession rights. Noting the «confused state» of international law as to appropriate standard on compensation for nationalization, the Tribunal used Equity as the «general principle of law» and adopted the formula of «equitable compensation».
Many indeed are the cases adjudicated by tribunals that have established and recognized permanent sovereignty over natural resources as a customary principle of international law, that aspects of these rights may be surrendered briefly by way of contractual engagements of States with alien private persons, and that the creation of a legitimate expectation follows as of necessity upon contracting, hence the investors’ right to protection of their investment whether by way of , inter alia, Bilateral Investment Agreement (BIA), stabilization clauses, bar on introduction of new legislation less favourable than those existing at the time of contracting, have been invoked and inserted as safeguards, bolstering the provision of assurance the principle of pacta sunt servanda intended to provide.
Conclusion
Whether of a municipal or international public or private law nature, legally formed / concluded contracts are intended to be strictly observed in accordance with the natural law principle of pacta sunt servanda thereby preserving its sanctity. The mutability of contracts is premised on its ability to be impacted by change, the conditionalities determining the change status may assume the character of natural supervening events, legislative interventions or safeguards in agreements such as a fundamental change in circumstances- rebus sic stantibus or its municipal expressions, among which are: imprevision, force majeure, fait du prince; commercial impracticality, impossibility, frustration, or hardship. The restoration of the original state of intention, contractual obligations and rights have been the focus of arbitrations, to which the variation of terms for continuance of the engagement attest, notwithstanding which, a breach for non-performance of contracts in whole or in part, may attract penalties in international public law in the form of damnus emergens and / or lucrum cessans.
Contract modification is possible, however, the sanctity of the contract is a primary consideration.
Reference
1. Collins, H. The Law of Contract (2nd ed.). London: LexisNexis UK; Dayton, Ohio: LexisNexi, 1993. — 441 p.
2. Harold C.F. Berman J. Law and revolution: the formation of the Western legal tradition. – Cambridge: Mass,1983. — 657 p.
3. Horn, N. Adaptation and renegotiation of contracts in international trade and finance. – Boston: Kluwer, 1985. — 421 p.
4. Mitchell J. D. B. Limitations on contractual liability of government agencies. I //The Modern Law Review. – 1950. – p. 13. – No. 3. – pp. 318-339.
5. Nassar, N. Sanctity of Contracts Revisited: A Study in the Theory and Practice of Long-Term International Transactions. — Dordrecht, Boston, London: Martinus Nijhoff Publishers, 1995. — 336 p.
6. Nussbaum A. Arbitration between Lena Goldfields Ltd. and the Soviet government // Cornell LQ. – 1950. – Vol. 36. – p. 31.
7. Ripinsky S., Williams K. Damages in international investment law. – London: British Institute of International, British Institute of International and Comparative Law (BIICL), 2008. – 600 p.
8. Schwartz A., Scott R. E. Contract Theory and the Limits of Contract Law // The Yale Law Journal. — 2003. – P. 541–619.
9. Simpson, Northern Ireland Legal Quarterly. — LQR, 1975. – 254 p.
10. Zimmerman, R. The Law of Obligations, Roman Foundations of the Civilian Tradition/ — Oxford University Press, 1996. — 1241 p.
Информация об авторе:
Ланселот Дж. Уиллс – аспирант кафедры международного права Российского университета дружбы народов имени Патриса Лумумбы, начальник отдела таможенной нефти Налогового управления Гайаны.
Information about the author:
Lancelot G. Wills — Postgraduate student of the International Law sub-faculty of the Patrice Lumumba People’s Friendship University of Russia, Head of the Customs Petroleum Unit of the Guyana Revenue Authority.
[1] Harold C.F. Berman J. Law and revolution: the formation of the Western legal tradition. – Cambridge: Mass,1983. – P.18.
[2] Simpson, Northern Ireland Legal Quarterly. — LQR, 1975. – P.91.
[3] Zimmerman, R. The Law of Obligations, Roman Foundations of the Civilian Tradition/ — Oxford University Press, 1996. — 1241 p.
[4] Adams v. Lindsell Citation. 106 ER 250. URL: https://www.casebriefs.com/blog/law/contracts/contracts-keyed-to-murphy/the-bargain-relationship/adams-v-lindsell/ (дата обращения:25.04.2024)
[5] Nassar, N. Sanctity of Contracts Revisited: A Study in the Theory and Practice of Long-Term International Transactions. — Dordrecht, Boston, London: Martinus Nijhoff Publishers, 1995. — 336 p.
[6] Nassar, N. Sanctity of Contracts Revisited: A Study in the Theory and Practice of Long-Term International Transactions. P. 193.
[7] D. 2.14.7.4: «nuda pactio obligationem non parit».
[8]Arrêt de la Cour de Cassation, 6 mars 1876 (Décision attaquée : Cour d’ appel d’Aix, 31 décembre 1873). URL: https://mafr.fr/IMG/pdf/canal_de_craponne.pdf (дата обращения:25.04.2024).
[9] Horn, N. Adaptation and renegotiation of contracts in international trade and finance. – Boston: Kluwer, 1985. – P.17.
[10]Krell v. Henry 2 K.B. 740 (1903). URL: https://www.casebriefs.com/blog/law/commercial-law/commercial-law-keyed-to-lopucki/performance/krell-v-henry-2/ (дата обращения:25.04.2024).
[11]Taylor v. Caldwell 122 Eng.Rep. 309 (1863) . URL: https://www.casebriefs.com/blog/law/commercial-law/commercial-law-keyed-to-lopucki/performance/taylor-v-caldwell-2/ (дата обращения:25.04.2024).
[12] Mitchell J. D. B. Limitations on contractual liability of government agencies. I //The Modern Law Review. – 1950. – p. 13. – No. 3. – P. 318.
[13] HOROWITZ v. US , 267 U.S. 458 (1925) . URL: https://caselaw.findlaw.com/court/us-supreme-court/267/458.html (дата обращения:25.04.2024).
[14]General Assembly Resolution 1803 (XVII). Permanent sovereignty over natural resources. URL: https://legal.un.org/avl/pdf/ha/ga_1803/ga_1803_ph_e.pdf (дата обращения:25.04.2024).
[15] Charter of Economic Rights and Duties of States : resolution / adopted by the General Assembly. URL: https://www.refworld.org/legal/resolution/unga/1985/en/26537 (дата обращения:25.04.2024).
[16] Vienna Convention on Succession of States in respect of Treaties 1978. URL: https://legal.un.org/ilc/texts/instruments/english/conventions/3_2_1978.pdf (дата обращения:25.04.2024).
[17]Vienna Convention on the Law of Treaties 1969. URL: https://legal.un.org/ilc/texts/instruments/english/conventions/1_1_1969.pdf (дата обращения:25.04.2024).
[18] Nussbaum A. Arbitration between Lena Goldfields Ltd. and the Soviet government // Cornell LQ. – 1950. – Vol. 36. – p. 31.
[19]Sapphire International Petroleums Ltd. v National Iranian Oil Company. URL: https://www.biicl.org/files/3940_1963_sapphire_v_nioc.pdf (дата обращения:25.04.2024).
[20] Libyan American Oil Company (LIAMCO) V The Libyan Arab Republic. URL: https://www.biicl.org/files/3939_1977_liamco_v_libya.pdf (дата обращения:25.04.2024).
