The Autonomous Contract

Reflecting the borderless electronic-commercial environment in contracting

1. Introduction

"Globalization is unstoppable. Even though it may be only in its early stages, it is already intrinsic to the world economy. We have to live with it, recognize its advantages and learn to manage it.

That imperative applies to governments, who would be unwise to attempt to stem the tide for reasons of political expediency. It also goes for companies of all sizes, who must now compete on global markets and learn to adjust their strategies accordingly, seizing the opportunities that globalization offers." 1

At a national level, jurists as lawmakers over time magically create their own reality, that is, the world in which they work, and are certified as oracles. 2 They are proud of their traditions in which they are specialists and about which they tend to be protective. Commercial men as contracting parties, with greater ease, instantaneously, through an expression of their will, (by the wave of their pens, if not by mere incantations), can choose to make any one of several alternative parallel worlds their reality. The various dogmas and beliefs held as sacrosanct by individual sovereign legal parishes, are not necessarily so hallowed by the business community. 3 The fact that the desired “law” may generally be selected by an expression of the will of the parties, means that they can elect out of any of these fettered systems. This paper is unsentimental about legal systems, its loyalty is placed elsewhere, in the contract, and its ability to find solutions to the needs of the parties it serves. An eminent economist has suggested that the study not of contract law, but rather of contract practice is the key to understanding the economic properties of contracting that are necessary to work out sensible uniform laws for commercial purposes. 4 That view is shared in this paper. However, even within the frame of law and economics 5 (to which only passing reference is made in this paper) it is necessary to be mindful of the limitations of the desirability of absolute freedom of contract. 6 And to recognise the fact that the international business community as a whole may benefit from a degree of control over such freedom. 7 This possibility is recognised by more modern schools of law and economics such as the Institutional Approach. 8

The autonomous contract is a concept based on three ideas, that provide lenses or perspectives with which to view the needs of the international business community as they affect and are affected by a polymorphous set of interrelated issues and areas of law: (i) The “autonomous contract” as an expression of the will that “governs” international commerce . The extensive freedom of contract granted the parties in international commerce, ensures that the contract determines the nature of the business relationship and most matters that govern it, including the “law” selected (subject to the mandatory provisions of applicable governing law), and the means of dispute resolution. In a real sense the contract is at the top of the hierarchy of legal instruments that govern the parties' relationship. This ensures that the selection of “law” and means of dispute resolution is a market driven affair that will be based on their ability to provide the parties with the greatest utility. Contractual autonomy as a function of freedom of choice in the global economy . (ii) The “autonomous contract” as seeking the means to transcend national boundaries . Economic activities have become increasingly global and the “law” that provides for them should do so in the same dimension. The quest is to find or achieve a uniform legal order that is preferably delocalised, transcends state boundaries, provides cross-border transparency and world-wide effect. 9 This idea is discussed in relative terms, the more transnational and transcending of state law, the greater the uniformity achieved, or the more a-national the “law”, the more autonomous the resulting contract. 10 Areas of particular interest are: uniform substantive rules of law; uniform interpretation of such rules and the contract; and the global enforcement of decisions. Seeking a foundation for contract that is more autonomous of individual states, with the aim of attaining greater efficiency, consistency and predictability in international business transactions, and thereby, insofar as it is possible, to transcend the relevance of borders . (iii) “The autonomous contract” designed to be virtually self-contained and “self-governing” . The contract could become a transnational medium of regulation onto itself, being designed as a one-stop reference, containing all the material required for its functioning, governance and the resolution of any disputes arising under it. Technology of the electronic age together with developments in international law would allow a contract to be incorporated and presented together with all material that was to have a binding authoritative effect in relation to it, (excepting the mandatory law). 11 The self-contained autonomous contract as one possible solution to the efficient achievement of global predictability .

The practicability and utility of an “autonomous contract” (e.g. one founded in a-national law) is dependent on its ability to serve the international business community as a suitable risk management tool and to result in improved transaction costs. Much discussion is focused on the underlying supportive structure for contracting and how a predictable and efficient means of contracting world-wide might be achieved. There is a relationship (sometimes co-operative at others competitive) between the efforts of interested international organisations and governments to provide services to the international business community on which they can choose to base the substance of their contracts and the resolution of disputes arising thereunder. Given the scope of the subject matter of the paper, only a broad outline and general framework can be developed. The discussion though occasioned by and made more current by the nature and growth of electronic-commerce, is a broader one that holds true for all contracts that have a transnational aspiration and as such is of general relevance to international commerce. The wider frame is adopted under the assumption that solutions should, as far as possible, be technology neutral. Section 2 of this paper looks at the various means available to the international business community to cope with the multitude of states in which they conduct business. It suggests a correlation between the search to establish reliable internationally uniform business methods and having greater autonomy from state law. The autonomous contract in the second sense, seeking the means through greater autonomy of individual state to reflect a desired borderless transnational environment in contracting. Section 3 looks at the difficulty in achieving predictability in international disputes, which is a requisite for commercial contract planning, and which all legal orders, especially those that are autonomous of state, must satisfactorily cope with if they are to succeed. Section 4 looks at possible alternative ways of improving uniform predictability and/or efficiency of dispute resolution, that would result in greater autonomy or lead to the further transcending of state law.

 1. Maria Livanos Cattaui, The global economy - an opportunity to be seized in Business World the Electronic magazine of the International Chamber of Commerce (Paris, July 1997) at http://www.iccwbo.org/html/globalec.htm

 2. Tangential support for the simile from Hans Petter Graver, “Den juristskapte virkelightet og juristrollen” in Jussens Venner (1986) p. 314-324.

 3. René David suggests the primary constraints on development are “conservatism, routine, prejudice and inertia” cited by the UNCITRAL Secretariat, The Future Role of UNCITRAL - Promoting Wider Awareness and Acceptance of Uniform Texts , in Uniform Commercial Law in the Twenty First Century - Proceedings of the Congress of the United Nations Commission on International Trade Law (New York, 1992) pp. 249-259 on p. 252, referred to later as 25th UNCITRAL Congress . See also René David comments in International Encyclopedia of Comparative Law , Vol. II, Chap. 5 (Tübingen, 1971) pp. 24 and 25.

 4. Ronald Coase, Industrial Organization: A Proposal for Research (1972) in The Firm, The Market and the Law (Chicago, London, 1988) pp. 57-74, comp. Coase's Nobel Lecture The Institutional Structure of Production , AER 82 (1992) pp. 713-719. For a web site inspired by the work of Coase see The Center for Research on Contracts and the Structure of Enterprise at the Katz School, University of Pittsburgh http://crcse.business.pitt.edu/ also the New Institutional Economics Network http://sykuta.business.pitt.edu/nie/

 5. For an introduction to the different approaches to law and economics see Nicholas Mercuro and Steven Medema, Schools of Thought in Law and Economics: A Kuhnian Competition in Robin Malloy and Christopher Brown (ed.) Law and Economics New and Critical Perspectives (New York, 1995) pp. 65-123.

 6. See Michael Trebilcock, The Limits of Freedom of Contract (Harvard, 1993).

 7. Discussed very briefly in section 2.3.4 of this paper in relation to protective principles.

 8. Which is pursued by Wisconsin University and Michigan State University. Mercuro and Medema (1995) pp. 65-123 at pp. 95-108.

 9. The concept of the autonomous contract becomes attractive when looked upon as the collective embodiment of elusive characteristics that the business community seeks upon which to base their transactions, and includes: harmonisation, transnationalism and a-nationalism for our purposes insofar as it furthers the other two objectives.

 10. An a-national uniform transnational legal framework for contracts that is independent of, but supported by governments.

 11. Though parties can “legislate” an extensively autonomous contact, they cannot “legislate” a contract that is entirely. Areas such as “validity” are defined differently within different jurisdictions, and international contracts can be subject to laws on currency control; export and import control; hazardous substances; antitrust | competition rules; anti-boycott; anti-bribery, etc. Similarly, mandatory rules on such matters as good faith, fair dealing, unconscionability, fraud, duress, extortion, interest, penalty clauses, etc. In specialised fields, such as consumer contracts, contracts with local sales representatives and specialised industries, such as banking and insurance, one also encounters national laws that parties cannot modify by their contract “legislation”. See also article by Jan Ramberg Autonomy of Contract and Non-Mandatory Law in Scandinavian Studies in Law (1993) pp. 141-149.

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