THE UNIDROIT PRINCIPLES 2010: A New Law for the International Commerce and the Shipping Market? Pietro Galizzi – Saipem S.p.A. General Counsel Shipping and the Law 2012 Napoli, 8th October 2012

UNIDROIT: AN OVERVIEW PURPOSE The International Institute for the Unification of Private Law (Unidroit) is an independent intergovernmental Organisation with its seat in the Villa Aldobrandini in Rome. Its purpose is to modernize, harmonize and co-ordinate private and commercial law and to formulate uniform law instruments, principles and rules to achieve those objectives.   Set up in 1926 as an auxiliary organ of the League of Nations (i.e. the current United Nations- ONU), the Institute was re-established in 1940 on the basis of a multilateral agreement, the Unidroit Statute. MEMBERSHIP Membership of Unidroit is restricted to States acceding to the Unidroit Statute. Unidroit's 63 member States from the five continents and represent a variety of different legal, economic and political systems as well as different cultural backgrounds. STRUCTURE There are a Secretariat (Secretary-General and two Deputy Secretaries-General appointed by the Governing Council), a Governing Council (appointed by the General Assembly, consisting in twenty-five members and a President; the latter is appointed by the Italian Government) and a General Assembly (consisting of one representative from each Government).

UNIDROIT: THE PRINCIPLES Principles of International Commercial Contracts The Governing Council of UNIDROIT adopted on 10 May 2011 the third edition of the Principles of International Commercial Contracts (UNIDROIT Principles 2010). Previous versions were drafted in 1994 and in 2004. The UNIDROIT Principles 2010 consists of 11 Articles; they contain limited new provisions on restitution in case of failed contracts, illegality, conditions and plurality of obligors and obligees; with respect to the 2004 edition the only significant change relate to Article 1.4 (mandatory rules). Purpose of the Principles  The Principles set forth general rules for international commercial contracts. They may be applied (i) when the parties have agreed that their contract is governed by general principles of law, the lex mercatoria or the like; or (ii) when the parties have not chosen any law to govern their contract. They may be used to interpret or supplement international uniform law instruments or domestic law. They may serve as a model for national and international legislators.

UNIDROIT: THE PRINCIPLES UNIDROIT Principles shall be applied when the parties have agreed that their contract is governed by them. Parties wishing to provide that their agreement (international commercial also national) be governed by the Principles might use the following wording: “This contract shall be governed by the UNIDROIT Principles (2010) [except as to Articles …]”. Parties wishing to provide in addition for the application of the law of a particular jurisdiction might use the following wording: to Articles…], supplemented when necessary by the law of [jurisdiction X]”.

UNIDROIT: General provisions ARTICLE 1.1. (Freedom of contract) The parties are free to enter into a contract and to determine its content. ARTICLE 1.2 (No form required) Nothing in these Principles requires a contract, statement or any other act to be made in or evidenced by a particular form. It may be proved by any means, including witnesses. ARTICLE 1.3 (Binding character of contract) A contract validly entered into is binding upon the parties. It can only be modified or terminated in accordance with its terms or by agreement or as otherwise provided in these Principles. ARTICLE 1.4 (Mandatory rules) Nothing in these Principles shall restrict the application of mandatory rules, whether of national, international or supranational origin, which are applicable in accordance with the relevant rules of private international law.  ARTICLE 1.7  (Good faith and fair dealing) (1) Each party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this duty.

UNIDROIT: Specific provisions ARTICLE 3.2.6 (Threat) A party may avoid the contract when it has been led to conclude the contract by the other party’s unjustified threat which, having regard to the circumstances, is so imminent and serious as to leave the first party no reasonable alternative. In particular, a threat is unjustified if the act or omission with which a party has been threatened is wrongful in itself, or it is wrongful to use it as a means to obtain the conclusion of the contract. ARTICLE 7.3.3 (Anticipatory non-performance) Where prior to the date for performance by one of the parties it is clear that there will be a fundamental non-performance by that party, the other party may terminate the contract. ARTICLE 7.3.4 (Adequate assurance of due performance) A party who reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurance of due performance and may meanwhile withhold its own performance. Where this assurance is not provided within a reasonable time the party demanding it may terminate the contract.

UNIDROIT: Specific provisions ARTICLE 6.2.2 (Definition of hardship) There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished, and (a) the events occur or become known to the disadvantaged party after the conclusion of the contract; (b) the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract; (c) the events are beyond the control of the disadvantaged party; and (d) the risk of the events was not assumed by the disadvantaged party. ARTICLE 6.2.3 (Effects of hardship) (1) In case of hardship the disadvantaged party is entitled to request renegotiations. The request shall be made without undue delay and shall indicate the grounds on which it is based. (2) The request for renegotiation does not in itself entitle the disadvantaged party to withhold performance. (3) Upon failure to reach agreement within a reasonable time either party may resort to the court. (4) If the court finds hardship it may, if reasonable, (a) terminate the contract at a date and on terms to be fixed, or (b) adapt the contract with a view to restoring its equilibrium.  

UNIDROIT: CASE STUDIES ANTICIPATORY NON-PERFORMANCE IN A SHIPBUILDING PROJECT: Scope of work: Shipbuilding contract in South Korea; Client: Portuguese company; Contractor: South Korean company; Law of the contract: English law; Problem: Before the performance fell due, it became clear from the circumstances that the contractor would not meet its fundamental obligation to complete the vessel in time.   The contract was governed by English law, which tend to impose to wait for the expected performance, and thereby to face the actual non-performance of the counterparty, before allowing the termination of the contract. It would have been possible to craft an anticipatory breach argument, but it would not have been without risk, especially if litigation ensued.

UNIDROIT: CASE STUDIES (ANTICIPATORY NON-PERFORMANCE IN A SHIPBUILDING PROJECT) UNIDROIT Principle: the anticipatory non-performance UNIDROIT principle -Article 7.3.3, expressly allows the termination of the contract: "where prior to the date for performance by one of the parties it is clear that there will be a fundamental non-performance by that party, the other party may terminate the contract." Article 7.3.3 establishes the principle that a non-performance which is to be expected is to be equated with a non-performance which occurred at the time when performance fell due. Solution: In the mentioned case, the anticipatory non-performance principle would have allowed the Client to terminate the contract. Advantages: The Client would have avoided the payment of the contract price and achieved more accurate and dynamic programming of its activities and future planning of its assets so to meet the needs of its clients, especially in terms of timely performance and guarantee of the effective delivery of services.  

UNIDROIT: CASE STUDIES THREAT IN A SHIPBUILDING PROJECT: Scope of work: Shipbuilding contract; Client: Portuguese company; Contractor: European company; Law of the contract: English law; Problem: Due to continued significant delays, Client decided to terminate the contract and to transfer the ship to other yards. Before delivering the vessel, Contractor obtained the signature of a settlement agreement, providing for significant amounts on its account. Once the ship was transferred, Client, claiming it had signed this agreement under threat of non-delivery of the vessel, refused to pay the settlement amount and then had to deal with a complicated dispute. English law theoretically recognizes the right to avoid a contract in case of “duress” (that is violence, expanded by case law to include psychological violence also of economic interests), but this has actually been recognized in only a few cases. Similarly, under Italian law, even if psychological violence is a theoretical cause of cancellation of the contract, this is seldom applied in business transactions.

UNIDROIT: CASE STUDIES (THREAT IN A SHIPBUILDING PROJECT)   UNIDROIT Principle: the UNIDROIT threat principle Article 3.2.6 provides for that “A party may avoid the contract when it has been led to conclude the contract by the other party’s unjustified threat which, having regard to the circumstances, is so imminent and serious as to leave the first party no reasonable alternative”. For the purpose of application of Article 3.2.6, threat is clarified to be not necessarily against a person or property but potentially also affect reputation or purely economic interests. In case of threat, the right of a party to avoid the contract is exercised by sending a notice to the other party, without the need for any intervention by a court. Solution: The above UNIDROIT Principle would have allowed the Client the right to avoid the contract in said circumstances. Advantages: Client would have easily avoided the payment of the settlement amount, thereby reaching a reasonable and fair solution of the case at hand.

CONCLUSIONS   UNIDROIT Principles 2010 can be used as a really fair and reasonable regulation for all commercial contracts, including shipping agreements; This is particularly relevant when bearing in mind current importance of the “sustainability” (where fairness with all stakeholders is a must) in the international market and environment; Saipem’s current proposal is to insert in Saipem contracts the following wording: “This contract shall be governed by English Law, supplemented when necessary by UNIDROIT Principles 2010”.

The end Thank you for your attention! Any question? Thanks to Valentina Sartorelli for her assistance Pietro Galizzi – Saipem S.p.A. General Counsel Shipping and the Law Napoli, 8th October 2012