Browsing by Subject "contract interpretation"

With the rise of globalisation, international trade has increased. As a consequence, cross-border contracts have become more frequent which has led international commercial actors to use a common style when drafting contracts. The world has many different legal cultures and traditions, as a result of which legal concepts are tied to different assumptions, presuppositions, legal procedures, languages, ideas and social and cultural contexts. Further, the values and norms of these cultures have long historical ties. These different cultures have influenced national contract drafting style and contract law and, in the context of international contracts, they have influenced contractual interpretation. If we are solely looking at the practice of contracting parties, it does appear that international contract practice exists, as international agreements are drafted in accordance with the common law drafting style. They are often drafted without considering the applicable law which results in the parties aiming for self-sufficient contracts that minimise the effects of national laws. The parties often include boilerplate terms in the contract, draft in a detailed manner, and aim to exclude external influences. A common tool used by international commercial actors is choosing arbitration as the dispute resolution mechanism, as this removes the case from the national litigation procedure and offers flexibility. The problem is that perfect contracts are nearly impossible to achieve due to market failures and cost efficiency. Contractual negotiations are seldom exhaustive and do not consider all possible outcomes, as negotiations often focus only on a few contractual terms. Therefore, jurisdictions have developed rules to correct and address possible imperfections and shortcomings. Default rules, adjustments and contractual interpretation supplement economic life and complement these incomplete contracts. The problem that can be identified to the existence of international contract practice is that contract laws and interpretation have evolved within national contexts. This means that the interpretation does not necessarily take into account the international character of cross-border contracts. The interpretation of contracts is attached to certain assumptions, and these assumptions are not the same throughout the world. The assumptions can also affect the behaviour and understanding of the contracting parties, lawyers and arbitrators. The fact that national systems have different mechanisms for addressing specific legal problems and social needs does not preclude the existence of international contract practice, provided that the solutions adopted are compatible. However, at present there are still many differences in interpretation which has the possibility of leading to different outcomes in different legal systems, even if a contractual clause is worded similarly. Utilising arbitration is not enough to correct this divergence, as the contracting parties almost always choose national law as the applicable law, the arbitrators must still apply law correctly, and the arbitrators might have internalised a jurisdiction’s approach to law and interpretation. Transnational sources of law are also not adequate to overcome the issue of interpretation. Transnational sources of law may provide neutral language and a compromise between legal traditions. They are not tied to specific national systems so they can have regard towards the international character of cross-border contracts. However, they do not provide sufficiently precise guidance or a complete system that could correct the impact of national jurisdictions. These sources cannot be said to provide adequate guidance on the interpretation of contracts. This master’s thesis does not seek to claim that international contract practice cannot emerge outside the confines of national legal systems, but rather it presents that if similarly worded contracts do not have uniform effect, the result is a mixture of national and international practices. Without uniform effect, international contract practice cannot be said to exist. It is therefore necessary to examine the interpretation of contractual clauses in domestic courts and arbitration and consider whether similarly worded clauses and different rules lead to different outcomes depending on the applicable law. The possibility of divergent interpretation can explain why international commercial parties prefer detailed contracts and wish to detach the contract from the governing law. However, in the current framework, it is not possible to completely eliminate the effects of the applicable law. Autonomous and standard contracts continue to be governed by national laws, they are subject to mandatory rules, and they are interpreted with ways established in the different legal systems and traditions.