The UNIDROIT Principles as Reference for the Interpretation of US Law

Abstract

Countries vary greatly in the extent to which they make use of the UPICC for this purpose. Some countries refer to the UPICC a lot, others very rarely. The United States is in the latter category. The UPICC play a very subordinate role in its law. The number of court opinions referring to them is minuscule, even though both the UCC and the Contracts Restatement were amongst the most-cited references in the drafting of the UPICC. The report demonstrates that there is significant overlap between the UPICC and US contract law and that the UPICC could often serve as welcome models for reform.

One reason for which the UPICC are widely rejected is an underlying idea of contract based on good faith that is in tension with a contract paradigm in the United States that is based on the enforcement of a bargain. An additional reason is that the UPICC presume, mostly, an understanding of contract law as separate from procedure and thereby comes in tension with an understanding of the law as closely related to, indeed created in, procedure, as is US law. The most important reason, however, is the lack of internationalization of US law.

Appendix: List of Cases

1.1 Cardoso v. Carnival Corporation (S.D. Florida 2010)

III. Analysis

Because Plaintiff has failed to demonstrate that the unequal bargaining power complained of in this particular case constitutes a valid defense pursuant to the Convention, reconsideration is not warranted.¹ As I noted in my Order Compelling Arbitration, the Eleventh Circuit has previously held that the same type of unequal bargaining power complained of here—i.e., where a multinational cruise line presents a foreign seafarer with an employment contract on a “take it or leave it” basis—does not “fit within the limited scope of defenses” to the enforceability of an arbitration agreement provided for by the Convention. [DE 32, p. 6] (quoting Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005)). Thus, even assuming the existence of a bargaining advantage, Plaintiff has failed to establish that the disparity complained of constitutes a defense under the Convention,² regardless of whether it implicates the UNIDROIT Principles referenced by Plaintiff. See Bautista, 396 F.3d at 1302; Koda v. Carnival Cruise Lines, Inc., Case No.: 06-CV-21088, [DE 47] at *2 (S.D. Fla. Sept. 7, 2007) (Hoeveler, J.) (noting that UNIDROIT Principles regarding bargaining power are not controlling in cases where enforcement of an arbitration agreement is sought pursuant to the Convention); see also Polychronakis v. Celebrity Cruise Lines, Inc., 2008 WL 5191104, *3 n. 2 (S.D. Fla. Dec. 10, 2008) (King, J.) (concluding that traditional principles of unconscionability and unequal bargaining power were not valid defenses pursuant to the Convention, even where Plaintiff was required to execute the pertinent agreements when he “was well into the voyage, at sea, and in the midst of performing his duties … after any opportunity for negotiation or disembarkation had passed.”).

1.2 Chien v. Commonwealth Biotechnologies Inc. (E.D. Virginia 2012)

*664 The issues raised by Chien on appeal are largely unclear. Indeed, Chien’s brief is a somewhat nubilous discourse on the law of corporations and his view on the effect of the International Institute for the Unification of Private Law Principles of International Commercial Contracts (UNIDROIT Principles) on this present proceeding. […]

*665 ^[9] The core of Chien’s challenge to the Bankruptcy Court’s order is the claim that Chien has the right to represent Fornova’s interests before the Bankruptcy Court. While Chien’s brief is, at times, a wandering missive on corporate agency, his position can be distilled to several discrete theories under which Chien claims the right to represent Fornova: (1) that Fornova is not a corporation under United States law and should be treated as an individual, Appellant’s Br. at 2–4; (2) that Chien has been designated the trustee of Fornova for the purposes of pursuing collection on the debt owed it by CBI, Id. at 4–5, and that the agency principles set forth by the International Institute for the *666 Unification of Private Law (UNIDROIT) mandate that this Court recognize Chien’s right to represent Fornova as its agent, Id. at 6–8; and (3) that Chien’s “free contract” rights, protected under the Fifth and Fourteenth Amendments of the United States Constitution, require that he be allowed to represent Fornova. All of these arguments fail. […]

^[12] Chien places substantial reliance on the UNIDROIT Principles of International Commercial Contracts which he suggests are both informative and binding.⁴ The sections of the Principles to which Chien refers seem to be little more than a restatement of the general structure of the principal-agent relationship. See Appellant’s Br. at 6–7. The provisions that Chien cites fundamentally acknowledge that a principal can grant authority to an agent and that the agent may or may not be able bind the principal in dealings with a third party, depending on what the third party knew, or should have known, at the time of the interaction. Id. at 7. Chien argues that his designation as the agent of Fornova for the purposes of collecting the CBI debt changed “the direct contract relation between CBI and Fornova.” Id. *667 However, as noted above, the agent-principal relationship between Chien and Fornova does not make Chien the “party in interest” in the proceedings before the Bankruptcy Court. The designation may well permit Chien to engage an attorney on behalf of Fornova, but it does not permit him to represent Fornova before the Bankruptcy Court and circumvent the requirement that corporations appear through qualified counsel. After all, the right to proceed pro se “has never been enlarged to include—by appointment or substitution—an agent.” Heiskell v. Mozie, 82 F.2d 861, 863 (D.C.Cir.1936). Chien cites no law to the contrary.

4

Chien identifies four decisions that he asserts is evidence that “US District Court adapted [sic] Unidroit.” Appellant’s Br. at 8. None of these decisions supports the general proposition nor do they inform the applicability of the UNIDROIT Principles to the requirement that corporations be represented by counsel. See Matthews v. Princess Cruise Lines, Ltd., 728 F.Supp.2d 1326, 1331 (S.D.Fla.2010) (referencing the UNIDROIT principles in the context of procedural unconscionability and the enforcement of arbitration provisions); Krstic v. Princess Cruise Lines, Ltd., 706 F.Supp.2d 1271, 1277 (S.D.Fla.2010) (same); Ministry of Def. & Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Def. Sys., Inc., 29 F.Supp.2d 1168, 1173 (S.D.Cal.1998) (finding that the Iran–United States Claims Tribunal’s reference to the UNIDROIT principles was proper since the dispute implicated “general principles of international law”).

1.3 Escobal v. Celebration Cruise Operator Inc. (S.D. Florida 2011) (Order Denying Plaintiff’s Motion for Rehear’g)

Further, the Court rejects Plaintiff’s argument that the arbitration provision should be deemed unenforceable because there is a disparity in the parties’ bargaining power. The Eleventh Circuit and other district courts have rejected similar unequal bargaining power arguments on the basis that plaintiffs failed to establish that such an affirmative defense exists under the Convention. Bautista, 396 F.3d at 1303 (compelling arbitration despite argument that plaintiffs were put in difficult “take it or leave it” situations when presented with the terms of employment); Krstic v. Princess Cruise Lines, Ltd., 706 F. Supp. 2d 1271 (S.D. Fla. Mar. 25, 2010). So too here, Plaintiff fails to persuade the undersigned that unequal bargaining power makes for a defense under the Convention. Indeed, cases involving similar facts have rejected unequal bargaining power as a defense under the Convention, regardless of the UNIDROIT Principles that Plaintiff offers as a model for asserting such a defense. See Krstic, 706 F. Supp. 2d at 1277–78; Koda v. Carnival Corp., Case No. 06-CV-21088 (S.D. Fla. Sept. 7, 2007) (declining to adopt UNIDROIT’s definition of unequal bargaining power and compelling arbitration under the principles of Bautista).

1.4 Koda v. Carnival Corporation (S.D. Florida Sep 2, 2007) (Order Denying Plaintiff’s Motion for Rehearing)

*1 Plaintiff bases his motion on the allegation that “there are several points which this Court appears to have overlooked which [it] respectfully ask[s] the Court to now address.” (Pl.’s Mot. for Reh’g at 1.) Specifically, Plaintiff directs the Court to UNIDROITS’s definition of unequal bargaining power and the Jones Act, which Plaintiff argues that courts, including Bautista, fail to meaningfully consider. The Court assures Plaintiff that it has considered these arguments when issuing its earlier Order. UNIDROIT does indeed provide a definition of unequal bargaining power; however, it is one that the Court is not bound to adopt when faced with the Eleventh Circuit’s decision in Bautista to compel arbitration in cases such as this. The Court also took into consideration that the UNIDROIT Principles are not binding unless expressly provided for in a contract.

1.5 Krstic v. Princess Cruise Lines, Ltd. (Corp.)(S.D. Florida 2010)

*1277 Thus, even assuming the existence of a bargaining advantage, Plaintiff has failed to establish that the disparity complained of constitutes a defense under the Convention,⁶ regardless of whether it implicates the UNIDROIT Principles referenced by Plaintiff.⁷ See *1278 Bautista, 396 F.3d at 1302; Koda v. Carnival Cruise Lines, Inc., Case No.: 06–cv–21088, [DE 47] at *2 (S.D.Fla. Sept. 7, 2007) (Hoeveler, J.) (noting that UNIDROIT Principles regarding bargaining power are not controlling in cases where enforcement of an arbitration agreement is sought pursuant to the Convention);

1.6 Matthews v. Princess Cruise Lines, Ltd. (S.D. Florida 2010)

1331 Thus, even assuming the existence of a bargaining advantage, Plaintiff has failed to establish that the disparity complained of constitutes a defense under the Convention.⁸ See Bautista, 396 F.3d at 1302; Koda v. Carnival Cruise Lines, Inc., Case No.: 06–CV–21088, [DE 47] at *2 (S.D.Fla. Sept. 7, 2007) (Hoeveler, J.) (noting that UNIDROIT Principles regarding bargaining power are not controlling in cases where enforcement of an arbitration agreement is sought pursuant to the Convention)

1.7 Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc. (S.D. California 1998)

^[7] Cubic also disputes the Tribunal’s reference to the Principles of International Commercial Contracts published in 1994 by the Unidroit Institute (“UNIDROIT Principles”) and the Tribunal’s references to principles of fairness such as good faith and fair dealing. Cubic claims that reference to such international and equitable principles also violates Article V(1)(c) because this law exceeds the scope of the Terms of Reference. The reference to the UNIDROIT Principles does not exceed the scope of the Terms of Reference. One of the issues presented to the Tribunal was whether general principles of international law apply to this dispute. That Cubic disagrees with the Tribunal’s response to the question posed by the Parties is not a reason to find that the Tribunal addressed issues beyond the scope of the Terms of Reference. The same is true for Cubic’s assertions with regard to the Tribunal’s references to equitable principles of contract law.⁴

As stated earlier, this Court’s discretion in reviewing a foreign arbitration award is quite circumscribed. See Ministry of Defense, 969 F.2d at 770. The Tribunal’s reference to and application of the UNIDROIT Principles and principles such as good faith and fair dealing do not violate Article V(1)(c). The Tribunal applied these principles to differences contemplated by and falling within the terms of the submission to arbitration and therefore the Award does not violate Article V(1)(c).

1.8 Rodrigues v. Royal Caribbean Cruises, Ltd. (S.D. Florida 2010)

*4 Indeed, cases involving similar facts have rejected unequal bargaining power as a defense under the Convention, regardless of the UNIDROIT Principles that Plaintiff offers as a model for asserting such a defense. See Kristic, 2010 WL 154083 at *3; Koda v. Carnival Corp., Case No. 06-CV-21088 (S.D. Fla. Sept. 7, 2007) (declining to adopt UNIDROIT’s definition of unequal bargaining power and compelling arbitration under the principles of Baustista).

1.9 Singh v. Carnival Corporation (S.D. Florida 2013)

*4 Singh asserts that he need only show that the unconscionability defense “can be applied neutrally on an international scale” in order to be permitted to raise the defense under Article II. In his quest to establish this, Singh invokes the UNIDROIT Principles of International Commercial Contracts (“UNIDROIT Principles”), “a collection of black letter commercial laws, list[ing] various internationally recognized defenses to any contract, including unequal bargaining power.” D.E. 11 at 10 (citing Art. 3.10, Gross Disparity).²

Although the Court certainly understands Singh’s efforts to bring the unconscionability defense within the ambit of Article II, the Court is not persuaded by Singh’s argument. First, presently, 148 countries are signatories to the Convention. See Kevin R. Owens, Mayer Brown, Myanmar: Myanmar Agrees to Become a Signatory to the New York Convention, www.mondaq. com/x/228430/Building+Construction/Myanmar+Agrees+To+Become+A+Signatory+To+The+ New+York+Convention (Mar. 21, 2013). But only sixty-three countries are members of UNIDROIT. See UNIDROIT, http://unidroit.org./dynasite.cfm?dsmid=103284 (last visited Mar. 25, 2013). Even assuming a 100% crossover between the two universes of signatories,³ fewer than half of the Convention signatories have ascribed to the UNIDROIT Principles. Thus, even if the UNIDROIT Principles set forth an objectively determinable definition of “unconscionability”—which they do not, despite admirable efforts to do so and an improvement over the utter lack of any principles, that construction of “unconscionability” has not been accepted by more than half of the Convention signatories. As a result, Singh has not demonstrated the existence of a “universal definition of the unequal bargaining power defense that may be applied effectively across the range of countries that are parties to the Convention.” See Bautista, 396 F.3d at 1302.

*5 Second, as noted above, while the Court admires, respects, and appreciates the diligent efforts of UNIDROIT to develop universal principles of contract interpretation and finds the UNIDROIT Principles to have value, the Gross Disparity provision contained within the UNIDROIT Principles does not provide an objective standard for discerning unconscionability. For example, although the Gross Disparity article prohibits contracts where one party has an “excessive advantage,” in explicating the meaning of this term, the UNIDROIT Principles state,

As the term ‘excessive’ advantage denotes, even a considerable disparity in the value and the price or some other element which upsets the equilibrium of performance and counter-performance is not sufficient to permit the avoidance or the adaptation of the contract under this Article. What is required is that the disequilibrium is in the circumstances so great as to shock the conscience of a reasonable person.

UNIDROIT Principles, Art. 3.2.7, Comment 1. Of course, a “disequilibrium … so great as to shock the conscience of a reasonable person,” while clothed in the language of an objective standard, is hardly, in practical application, capable of objective ascertainment across the 148 countries who are signatories to the Convention. What shocks the conscience in one country is not necessarily the same as what shocks the conscience in another country.

Third, other judges have similarly concluded that the UNIDROIT Principles do not solve Bautista’s concern for a “universal definition of the unequal bargaining power defense that may be applied effectively across the range of countries that are parties to the Convention.” See, e.g., Krstic v. Princess Cruise Lines, Ltd. (Corp.), 706 F. Supp. 2d 1271, 1277-78 (S.D. Fla. 2010) (Gold, J.); Koda v. Carnival Corp., Case No. 06-21088-CIV-HOEVELER (S.D. Fla. Sept. 7, 2007), D.E. 47 at 2. For all of these reasons—and particularly because of the emphasis in international arbitration on the need for universally applicable defenses under Article II of the Convention, the Court concludes that Singh has not established that he may invoke the defense of unconscionability under Article II of the Convention.