Paraguay: The New Paraguayan Law On International Contracts: Back To The Past?

Last Updated: 3 October 2016
Article by José Antonio Moreno Rodríguez

Professor Joachim Bonell's leadership has undisputedly been decisive for the remarkable developments which in recent decades have led to the gradual harmonization of contract law in the world. Deeply upset when, in 2008, Europe unsatisfactorily modified its conflict-of-laws rules for international contracting (signalling a resounding defeat for the harmonization crusaders in the continent), his unbendable spirit led him to affirm that hope is the last thing to be lost,1 and that the time was ripe to address and resolve this matter adequately on a global scale. Even though I have admired Professor Bonell for many years through his work, I only met him for the first time in The Hague in 2010, and from there on several times in the Netherlands and in Italy, where I became even more impressed with his wit, deep understanding of contract law and relentless determination to advance his beliefs on the subject. The work in The Hague was eventually concluded in 2015 and many of its accomplishments in favour of a less fragmented world in the field of international contracting can be traced back to Professor Bonell, whose principled guidance proved decisive for the fate of the endeavour and for the favourable outcome, which meant a step towards cosmopolitanism. Professor Bonell and many other missionaries (this is how the late Professor Allan Farnsworth described himself in promoting the virtues of universalism in contract law) may have lost the battle, but the defeat was merely pyrrhic: they are destined to win the war. This article, written in honour of the already legendary Professor Bonell, recounts the battle of the crusade, won in the country of Paraguay, together with the huge victory in The Hague.

INTRODUCTION

Some years ago, French legal philosopher Michel Villey, complained that after the ancient Greeks and Romans, not much progress had been made effectively to grasp the notions of law and justice.2 In more "mundane" matters, not long ago Professor Friedrich Juenger of the University of California noted that the old Roman ius gentium and ius commune and the lex mercatoria of the Middle Ages, proved much more effective in private commercial relationships with foreign elements than the conflict-of-laws rules that spread across a multi-state world from the XIX century onwards.3

In 2015, Paraguay promulgated a brand-new law on international contracts. This Law can be qualified as a forward-looking piece of legislation, in line with recent proposals advanced by prestigious codifying organizations of the world and the Americas and taking into account current developments and the necessities of day-to-day commerce. Moreover, it may well pave the way for a return to the old cosmopolitan days, earlier aborted by the "balkanized" conception of an influential stream of "conflictualism" – leading to the application of national law to private international relationships.

In this contribution, its author will present and explain the new Paraguayan Law,4 focusing on its universal spirit – thus leaving behind years of chauvinism in the field of international contracting. The author is convinced that there has been nothing new under the sun since Cicero´s proclamation of the virtues of cosmopolitanism5 (when he stated that the day would come when the law was the same in Rome, in Athens and all around the world),6 and this should be particularly the case with Contract Law in a multi-State world.

I REVERSAL OF TWO CENTURIES OF MISCHIEF

The pendulum is indeed swinging again. We are moving back towards the universal spirit of the old Roman ius gentium and later, of the Middle and Modern Ages' ius commune and lex mercatoria. This was interrupted when the consolidation of modern States led to the nationalization of the law in the nineteenth century, which gave a tremendous boost to the discipline of Private International Law, understood as law intended to solve "conflicts of national laws".

Many factors are contributing to the swift changes of recent times.7 Inter alia, party autonomy is consolidating as a principle in international contracting. This leads to parties avoiding the unpredictable "conflictualism", via relevant provisions in their agreements or a clear choice of the legal regime that will govern them. Additionally, arbitration is consolidating as a widespread means for solving commercial disputes, providing the arbitrators with powerful tools to arrive to fair solutions in trans-border problems, beyond the mere automatic application of national laws in accordance with a conflict-of-laws mechanism.

On a theoretical level, the basis of this orthodox "conflictualism" suffered numerous attacks, and, in practice, it has been demonstrated that the system simply does not work when it comes to providing adequate responses to the necessities of transnational commercial activity.

International organizations have responded to the need to harmonize norms governing trans-border mercantile activities and thus, to leave behind an outdated "conflictualism" in this field.8 Remarkable efforts include those of the International Institute for the Unification of Private Law (UNIDROIT), created in 1926 under the auspices of the then League of Nations;9 the United Nations Commission on International Trade Law (UNCITRAL), set up in 1966;10 and private organizations such as the International Chamber of Commerce (ICC),11 among others proposing uniform norms to govern several areas of international contracting.

Today, these various developments have had an impact on the interpretation of domestic laws, strongly influenced by comparative law.12 Thus, James Gordley speaks of a switch from a positivistic and nationalist approach to a transnational and functional interpretation,13 while Klaus Berger refers to an "internationally useful construction of domestic laws".14

II NOT ONE, BUT TWO TROJAN HORSES

In the aforementioned scenario, the last two decades have seen the inception of two conflictualist instruments with – regardless of their character – a powerful potential to leave behind the orthodoxy of nineteenth century "conflictualism": the Hague Principles on Choice of Law in International Commercial Contracts, approved in 2015, and the Inter-American Convention on the Law Applicable to International Contracts (Mexico Convention) of 1994.

A) THE HAGUE PRINCIPLES

The Hague Conference on Private International Law (hereinafter: the Hague Conference), undoubtedly the most prestigious organization in the world codifying conflict or choice-of-law rules,15 has embarked on drafting Principles on Choice of Law in International Commercial Contracts, now commonly referred to as "the Hague Principles", which it is envisaged will be very influential in the years to come.16

Qualified as "ground-breaking" for being the first legal instrument at a global level to address choice of law in international contracts, the Hague Principles are comprised of twelve Articles, including comments and some examples, all of which are preceded by an introduction and an explanation, intended to cut across the dividing line between common law and civil law, and to be used in both court and arbitration proceedings.

The origins of this idea can be traced back to 1980, inspired by the successful drafting of the so-called Rome Convention of 1980, now Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), governing the law applicable to international contracts.17 These first glimmerings were abandoned after careful consideration of the difficulties of the drafting process and later of the difficulty of securing widespread ratification to make the document effective in the universal arena.

The project was resumed more than two decades later. Feasibility studies started in 2006, and in 2010 a Working Group was formed, comprised of fifteen members (two from Latin America: Lauro Gama and José A. Moreno Rodríguez) together with observers from UNIDROIT (Joachim Bonell), the ICC (Fabio Bortolotti), the ICC Commission of Arbitration (at the time represented by Francesca Mazza), UNCITRAL and the International Bar Association (IBA), among others. The Working Group was chaired by Daniel Girsberger, a renowned Private International Law Professor from Switzerland with broad expertise in arbitration, and diligently coordinated by Marta Pertegás of the Hague Conference Secretariat.

The Special Commission, (a diplomatic meeting with more than one hundred national delegations and observers) held in November 2012 - based on the propositions formulated by the Working Group - proposed a set of rules for the Hague Principles. In April 2013, the General Council Meeting of the Hague Conference, empowered to render final approval of the Principles, "welcomed the work" and "gave its preliminary endorsement" of the document. Likewise, the commentary to these rules received provisional endorsement at the General Council meeting of April 2014. Finally, in March 2015, the final version of the Hague Principles, with its comments and examples, gained formal approval.18

The Hague Principles follow the drafting technique of the UNIDROIT Principles.19 Hence, both instruments contain a preamble, rules or "principles", as well as comments and illustrations, where necessary. The Hague Conference was persuaded by the success of this drafting technique after considering the difficulties of attempting to draft a successful "hard law" international treaty. Like the UNIDROIT Principles, the Hague Principles are expected to guide legislators or contract drafters, and to serve for the purposes of interpretation both in a judicial and in an arbitral setting.

Indeed, we have before us two complementary instruments. Whereas the UNIDROIT Principles deal with substantive contract law issues such as – inter alia – formation, interpretation, content and termination, the Hague Principles address the problem of which law will apply to a contract: one – or several – national laws or even non-State law such as, for instance, the UNIDROIT Principles themselves.

Particular care was taken throughout the drafting process to take into account the developments in the arbitral world, since the Hague Principles are expected to provide useful guidance not only to judges but also to arbitrators in matters related to the complexities of party autonomy and its limits.

The Hague Principles do not deal with issues where choice-of-law is absent. It regulates party autonomy in international commercial settings, with provisions relating to formalities, severability, exclusion of renvoi, etc., including a ground-breaking rule in its Article 3 (with regards to judges as well as arbitrators) which admits the selection of non- State law. Public policy is also contemplated as an exceptional limit to party autonomy.

The instrument has an enormous potential thanks not only to the prestige of the Hague Conference and in view of the global reach sought, but also due to the fact that its ample admission of party autonomy endorses non-State law in a "conflictualist" text. Conditions are created, therefore, for a return to the cosmopolitan spirit of the old days, since parties can choose non-State law such as, for instance, the UNIDROIT Principles, and need not confine themselves to the dictates of the current orthodoxy of selecting State laws. Because of this, it may well be qualified as a Trojan Horse in favour of universalism in a choice-of-law text, with fecund potential consequences.

The Principles enjoy the legitimacy of having been advanced by an international organization that has been working with diverse stakeholders for many years. Additionally, one must account the simplicity of its dispositions and balanced regulation it includes on public policy, which contemplates the interest of commerce in expanding party autonomy and, at the same time, States' interest in exceptionally restricting choice-of-law when it is manifestly incompatible with the latter.

B) THE MEXICO CONVENTION

Non-State law is also admitted in the Inter-American Convention on the Law Applicable to International Contracts of 1994 (hereinafter: the Mexico Convention), advanced by the Organization of American States (OAS).20 This instrument draws upon the Rome Convention of 1980 on the subject, albeit expressly accepting, in contrast, the applicability of non-State law for the Americas21 — Professor Diego Fernández Arroyo´s article stating that "some roads lead beyond" being more than appropriate.22

The Mexico Convention comprises thirty Articles (like its European source) regarding scope, party autonomy, absence of choice and, as a novelty, the possibility of applying non-State law. The "Trojan" effect of this Convention emerges, furthermore, from an equitable formula included in the text that empowers adjudicators to assess transnational transactions in accordance with a universal criterion of justice rather than with a more limited view, subject to one or many national laws, as will be seen.

However, even though it was welcomed by relevant legal scholars,23 the Mexico Convention itself has so far only been ratified by Mexico and Venezuela, unlike other continental instruments which enjoy widespread reception. Speculation is rife as to why the Convention was not ratified by more countries, and while it is undeniable that some of its aspects may be subject to criticism, it defies common sense to attribute this poor reception to its openness to transnational law, considering all the aforementioned developments and other highly relevant accomplishments in this sense brought about by arbitration in the region – Unless, of course, the problem is that the legal establishment is not sufficiently aware of the consequences of these achievements, which would lead to the ratification of the Mexico Convention, fully in tune with these contemporary trends.

In fact, in a contribution written by the author of this article in collaboration with Mercedes Albornoz, it is stated that the current work of the Hague Conference should in part contribute to the concrete reception of the Mexico Convention —through the incorporation mechanism finally opted for— by a greater number of recipient countries.24

Finally, another reason which influenced the Convention's limited adoption, is ignorance of other modalities for its reception besides ratification. An alternative would be, for instance, simply copying its provisions into a national law on the matter,25 as has been done in Paraguay.

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Footnotes

1 M. J. BONELL, El reglamento CE 593/2008 sobre la ley aplicable a las obligaciones contractuales ("Roma I") – Es decir, una ocasión perdida, in Cómo se Codifica hoy el Derecho Comercial Internacional. J. Basedow / D.P. Fernández Arroyo / J.A.Moreno Rodríguez (eds..), CEDEP y La Ley Paraguaya, 2010, p. 218.

2 M. VILLEY, Filosofía do Direito, São Paulo, Editorial Martins Fontes, 2003, p. 51 et seq. The text contained therein is a translation of work published in France in the mid-eighties of the twentieth century.

3 See, in particular: F.K. JUENGER, The Lex Mercatoria and Private International Law, Louisiana Law Review, p. 1133 et seq. In general, see the marvelous book: F. K. JUENGER, Choice of Law and Multistate Justice, New York, Transnational Publishers Inc., 2005.

4 See, both in Spanish and English, here: https://www.hcch.net/en/publications-and-studies/details4/?pid=6300&dtid=41.

5 As reiterated by R. GOODE, Reflections on the Harmonization of Commercial Law in, Commercial and Consumer Law, Chapter 1, R. Cranston / R. Goode (eds.), reproduced with minor changes in Uniform Law Review, 1991, p. 54 et seq.

6 See citation and the virtues of this in G. GILMORE, The Ages of American Law, New Haven and London, Yale University Press, 1977, p. 33. Berman speaks of an eventual new ius gentium. See in: H.J. BERMAN, Is Conflict of Laws Becoming Passé? A Historical Response, Emory University School of Law, Public Law & Legal Theory Research Paper Series, Research Paper No. 05-42, http://papers.ssrn.com/abstract=870455, p. 43.

7 I have addressed this topic in several previous works, such as, recently: J.A. MORENO, Los Contratos y La Haya: ¿Ancla al Pasado o Puente al Futuro?, in Contratación y Arbitraje, Contribuciones Recientes, CEDEP, Asunción, 2010, p. 5 et seq. http://jmoreno.info/v1/wp-content/uploads/2014/11/Los-Contratos-y-La-Haya1.pdf.

8 Bonell highlights as a characteristic of our times the multiple initiatives towards unification or at least harmonization of national laws (M.J. BONELL, International Uniform Law in Practice – Or Where the Real Trouble Begins, in The American Journal of Comparative Law, 38, 1990, p. 865 et seq.

9 See in: www.unidroit.org.

10 See in: www.uncitral.org.

11 See in: http://www.iccwbo.org.

12 The influence of comparative law in domestic laws is emphasized in K. ZWEIGERT / H. KÖTZ, An Introduction to Comparative Law, 3rd ed., New York, Oxford University Press Inc., 1998, p. 19. As stated by Zimmermann, we are living in an age of post-positivism. The narrowness, but also the security, of a national codification, or common law, is increasingly left behind and we are moving towards a new ius commune (R. ZIMMERMANN, Roman Law and the Privatization of Private Law in Europe, in Towards a European Civil Code, A. Hartkamp et al. (eds.), 2011, Kluwer, The Netherlands, p. 51; see also, in regard to German law: R. ZIMMERMANN, The German Civil Code and the Development of Private Law in Germany, in Oxford University Comparative Law Forum 1 in ouclf.iuscomp.org, 2006, after note 144. In France, even the "internists", albeit refusing to be labelled as comparatists, resort to comparison, whether consciously or not (B. FAUVARQUE-COSSON, Development of Comparative Law in France, in The Oxford Handbook of Comparative Law, Oxford / New York, Oxford University Press, 2006, p. 59. For developments in England, see: S. VOGENAUER, Sources of Law and Legal Method in Comparative Law, in The Oxford Handbook of Comparative Law, Oxford / New York, Oxford University Press, 2006, p. 876. In the United States, see: D.S. CLARK, Development of Comparative Law in the United States, in The Oxford Handbook of Comparative Law, Oxford / New York, Oxford University Press, 2006, p. 179.

13 J. GORDLEY, Is Comparative Law a Distinct Discipline? in 46 The American Journal of Comparative Law, 1998, p. 607.

14 See citation in the very interesting article by V. RUÍZ ABOU-NIGM, The Lex Mercatoria and Its Current Relevance in International Commercial Arbitration, in Revista DeCITA, Derecho del comercio internacional, temas y actualidades, Arbitraje, 02.2004, p. 111.

15 The Hague Conference is the oldest of the Hague international legal institutions (H. VAN LOON, The Hague Conference on Private International Law, in 2 The Hague Justice Journal, 2007, p. 4; in this article the former Secretary General of the organization describes its important work). 16 See, for instance, in L. RADICATI DI BROZOLO, Non-national rules and conflicts of laws: Reflections in light of the UNIDROIT and Hague Principles, in XLVIII Rivista di diritto internazionale privato e processuale, 2012/4, pp. 841-864.

17 See in: M. PERTEGÁS / I. RADIC, Elección de la ley aplicable a los contratos del comercio internacional. ¿Principios de La Haya?, in Cómo se Codifica hoy el Derecho Comercial Internacional, J. Basedow / D.P. Fernández Arroyo / J.A. Moreno Rodríguez (eds.), CEDEP y La Ley Paraguaya, 2010, p. 341 et seq.

18 The relevant documents can be accessed on the Hague Conference site at: http://www.hcch.net.

19 In fact, the Hague Principles reveal a drafting technique similar to the UNIDROIT Contract Principles of 1994, revised in 2004 and 2010, inspired in turn by the American Restatements, which purport to "re-state" the law in particular fields, and in the case of the former, modernize the law in areas where the current state of affairs is unsatisfactory (see H. KRONKE, Most Significant Relationship, Governmental Interests, Cultural Identity, Integration: 'Rules' at Will and the Case for Principles of Conflict of Laws, in IX Uniform Law Review, 2004/3, p. 473). This is also the spirit of the Hague Principles. They should not only reflect the status quo, but provide for desirable solutions for improving the state of affairs in international contracting in any areas where it is deemed necessary.

20 Since 1975, the OAS has been organizing its Specialized Conferences on Private International Law (CIDIP, for its Spanish acronym), which have generated 26 international instruments (including conventions, protocols, uniform documents and model laws), which shape the Inter-American Private Law framework. The first of these Conferences [CIDIP-I] was held in Panama City, Panama, in 1975. The most recent Conference [CIDIP-VI] was held at OAS headquarters in Washington, D.C., US, in 2002. The first half of [CIDIP-VII] took place on 7-9 October, 2009 where the Model Registry Regulations under the Model Inter-American Law on Secured Transactions was adopted (http://www.oas.org/dil/private_international_law.htm). An assessment of the CIDIP work can be found at D.P. FERNÁNDEZ ARROYO, Derecho Internacional Privado Interamericano, Evolución y Perspectivas, Santa Fé, Rubinzal, Culzoni Editores, 2000, p. 55 et seq.

21 Articles 9 and 10, which lead to an openness towards transnational law (see J.L. SIQUEIROS, Reseña General sobre la Quinta Conferencia Especializada Interamericana sobre el Derecho Internacional Privado, CIDIP-V, in Cursos de Derecho Internacional, Serie Temática, Volumen I (Parte I): El Derecho Internacional Privado en las Américas, 1974-2000, Secretaría General, Subsecretaría de Asuntos Jurídicos, Washington, D.C., 2002, p. 516. This matter is addressed again below.

22 This in a publication in French later translated into Spanish and published in Argentina (D.P. FERNÁNDEZ ARROYO, La Convención Interamericana sobre Derecho aplicable a los contraltos internacionales aprobada por a CIDIP-V, in Revista Jurisprudencia Argentina, Buenos Aires, nº 5933, 1995, pp. 820-824).

23 In fact, the modern solutions offered by the Mexico Convention have been applauded (see R. HERBERT, La Convención Interamericana sobre Derecho Aplicable a los Contratos Internacionales, RUDIP, Year 1-No. 1, p. 45; J. TÁLICE, La autonomía de la voluntad como principio de rango superior en el Derecho Internacional Privado Uruguayo, Liber Amicorum in Homenaje al Profesor Didier Opertti Badán, Montevideo, Editorial Fundación de Cultura Universitaria, 2005, pp. 560-561), stating that it deserves to be ratified or incorporated into the internal laws of the countries through other means.

24 J.A. MORENO RODRÍGUEZ / M.M. ALBORNOZ, Reflexiones emergentes de la Convención de México para la elaboración del futuro instrumento de La Haya en materia de contratación internacional, published in Spanish at www.eldial.com.ar. In English: Reflections on the Mexico Convention in the Context of the Preparation of the Future Hague Instrument on International Contracts, in 7 Journal of Private International Law, Hart Publishing, 2011/3, p. 493.

25 This was the case of Venezuela (E. HERNÁNDEZ-BRETÓN, La Convención de México (CIDIP V, 1994) como modelo para la actualización de los sistemas nacionales de contratación internacional en América Latina, in DeCITA 9, Derecho del Comercio Internacional, Temas y Actualidades, Asunción, CEDEP, 2008, p. 170). On the Venezuelan Law, see T.B. DE MAEKELT / C. RESENDE / I. ESIS VILLAROEL, Ley de Derecho Internacional Privado Comentada, T. I y II, Caracas, Universidad Central de Venezuela, 2005. In particular, in Volume II, the work of J. OCHOA MUÑOZ / F. ROMERO, on the applicable law to international contracting and the lex mercatoria (pp. 739-832).

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