Transcript: 

Intro: Hello and welcome to Arbitral Insights, a podcast series brought to you by our International Arbitration Practice lawyers here at Reed Smith. I'm Peter Rosher, Global Head of Reed Smith's International Arbitration Practice. I hope you enjoy the industry commentary, insights and anecdotes we share with you in the course of this series, wherever in the world you are. If you have any questions about any of the topics discussed, please do contact our speakers. And with that, let's get started.

Andrew: Good morning. I'm Andrew Tetley, a partner at Reed Smith in the Paris office. Welcome back to Arbitral Insights. I'm joined today by Eckart Brödermann, who is a professor in Hamburg, long-time involvement in arbitration, and founding partner of his law firm in Hamburg, Brödermann Jahn. The subject that we will be touching on in some depth is the UNIDROIT Principles of International Commercial Contracts, but also hopefully getting to know a little bit more about Eckart for those Music. of you who know him, learning something new, and for those of you who don't, learning about him from scratch. So welcome, Eckart, and thank you for giving your time over for this podcast.

Eckart: Thank you so much. Good morning.

Andrew: Let's start with a short introduction. So tell us a little bit about your background and your association with the UNIDROIT principles of international commercial contracts.

Eckart: My background, in a nutshell, at age 18, I left Germany. I spent four years in your beautiful city of Paris. DEUG, licence, maitrise fully studied in Paris, then moved on to Harvard. At that time, Germany wouldn't recognize any title from Paris. And Harvard said, I don't care whether you studied in Germany or in Paris. So I spent my time there where I started focusing on Chinese law, East Asian Legal Studies program. Thereafter, took the New York Bar, worked in a large law firm in Washington, D.C., Steptoe & Johnson. At age 24, decided what to do at age 40. I don't have any education in my home country, so I went back and started studying for the third time. Since my second studies, I financed everything myself, including loans to finance Harvard, and I always worked part-time in the legal business to finance all that. And ever since, I'm working, I'm loving the law, and I'm giving full speed. But, of course, I learned that the same thing you learn in one country happens to be wrong in the other country. You also learn that the problems of the people and of the companies are all over similar. In the end, we want to realize our dreams, we want to build business, we want to realize business plans, and for that we need tools. And I always have been both on the contracting side and on the arbitration side. Arbitration, I got to grow with the Iran Claims Tribunal in the early 80s and the UNCITRAL Rules. So, with that said, how did I bump into the UNIDROIT principles? In the beginning, I was, as many possibly in the audience have never heard about that, it starts with the word UNIDROIT. UNIDROIT is an abbreviation. It's a French abbreviation for the international organization called International Institute for the Unification of Private Law. And that in French, Institut pour l'Université de Droit, Privé, c'est Unidroit. So in 2001, I was in an arbitration in Switzerland. Huge stuff about orbital slots, relationship to several countries. I kind of also fell into that case as second counsel in the beginning. The case was fired out of Asia, and somewhere on a plane ride from the Caribbean back to Europe, I convinced the later client that it would be good to have not only a criminal lawyer from the Philippines, but maybe also an arbitration expert to join that arbitration. We had a great arbitration. I told him how many millions he would be likely to get. We got that in the end. But we argued under English law, because his company was from Anguilla, and the contract said something to English law, and I think we could have won it. The other side, though, the other side decided to argue in favor of Swiss law, arguing it would be also neutral, which of course is probably nonsense, because having been neutral in World War II has nothing to do with whether the law itself is neutral. And so we had those two argumentation lines and the pathological, so sick, choice of law clause. And it was the arbitrator, the arbitration tribunal, who came forward and said, why under these circumstances don't you consider to agree on the UNIDROIT principles with something really neutral? And that is something which happened to me over my lifetime more than once. And I've heard that anecdote also from a number of colleagues.

Andrew: You mean tribunals and tribunals suggesting the UNIDROIT principles over clashes of applicable law.

Eckart: Absolutely.

Andrew: This has happened to you on more than one occasion then.

Eckart: Yeah. And to join on neutral ground, in one instance, it was in an arbitration before the Chinese European Arbitration Center. You know, that's something I set up between 2004 and 2008, along with many colleagues in the Hamburg Bar. Today it's called the Asian European Arbitration Center here in Hamburg, focusing on arbitration with Asia. There in Article 35 we even explicitly foresee the option to either choose the state law or the UNIDROIT principles, of course, the CSG. And people decided, yeah, and under those circumstances, we decided to actually agree on the UNIDROIT principles. In the third arbitration I was even the other party, I was counsel and the defendant proposed the UNIDROIT principles instead of the chosen Chinese law. And we said, okay, okay, we agree it's not so much at stake, not so huge figures. So basically, everybody wanted to resolve this efficiently. And from an ex-post perspective today, I know today, which I didn't know then, that about 47.6% or so, according to some statistics of Chinese contract law, is based on the UNIDROIT principles. So basically, in a nutshell, the UNIDROIT principles are general principles of law and really neutral, and this is why we found out we could agree. We had three days in Switzerland. They gave us three days. I had, of course, an English solicitor on the team, who is today a well-known barrister in London, and we analyzed from the civil and common law perspective, and really, in the end, it's not the law that matters. In the end, in that case, it was a case of damages. It's more about quantum, how you convince the arbitrator. It's the facts that count. No llaw gives you any amount. In the English approach, you have this Harley versus Baxendale approach. Is it too remote? That's a test. In French, the test is, is it foreseeable? And from a German perspective, is it adequate? Yeah, the link between the causation and the harm. So whatever it is, you need to convince the arbitrators. So we decided to accept that offer from the Arbitral Tribunal.

Andrew: Excellent. Well, I mean, obviously, this was your first experience or exposure to the principles. And this was some 20, 25 years ago. Tell us a little bit more about what you've been doing. I mean, you've remained engaged with these principles, literally, ever since. And you're known in this space for that and written commentary on it and a very readable book that's in its second edition now. What keeps you interested in the principles? I mean, how much time do you spend in the principles in your day-to-day these days, as opposed to working on either German law or other applicable laws? I mean, how much time do you spend and how much in the arbitration, how much in transactions? How is it in your daily practice?

Eckart: It has always been there. Since 2004, we won this arbitration and the Asian client was so happy that we reinvested all the money which he earned from a foreign state who was on the other side. And we settled in the end and got part in cash and part in satellite rights. So I made a lot of transponder lease contracts under the UNIDROIT principles in different countries, in East Europe, in France, in Germany, in Asia, in the Caribbean. So I got to start working with them. And it's easy. I mean, they are not longer than a normal complex English contract, I think 26 pages or so, if you read all the 211 principles, they're an easy read, they're deliberately written as general rules, and in English, including famous professors like Professor Farnsworth from America, Roy Goode from England, so a number of famous brains, and brains around the globe, but they're easy to read, easy to understand.

Andrew: They certainly are. I mean, I was lucky to be in Hamburg, as you know, your invitation for the 30th anniversary of the principles this year. And the sort of roundtables that we were doing was illustrating that they're easy to understand, easy to get hold of. And, you know, they are being used. Maybe you could tell us a little bit more about who's using them, the reasons for using them, for those who may be listening who might have heard of the UNIDROIT principles but have never actually had any practical experience of them.

Eckart: Before I do so, may I tell you this episode from Rome. When I wrote this commentary, which you meant, an article-by-article commentary on the UNIDROIT principles, when it was written, the manuscript, I gave it to a friend from Harvard to read, a businessman. He said, I want you to once read it. Is it really understandable to help out whether it's fine? And he came back. He read on the long-distance flight to Hong Kong and back and said, you know, he was amazed by the level of detail of those principles and said, in the future, I'm going to influence everybody whom I can to use them if we need something cross-border, international, neutral. And so that was the episode, and I forgot about it. He married to an Ukrainian, and one of my sons just married also an Ukrainian woman. Before I had to give a speech in Rome, I called him. We spoke first about Ukraine, of course, and then I asked him, by the way, did you ever put this to practice? And he came out with this amazing story that he influenced actually a deal. And it was the biggest transaction, $69 billion transaction in 2023, where a company, New York Stock Exchange, mainly held by Michael Dell from Dell Computers, was sold over to Chinese under the UNIDROIT principles, both the M&A deal under the UNIDROIT principles and the IP contract. So I give you that big contract up front, which puts in a relationship all the daily practice which I have. In the last five years since my commentary came out, I have spent most of my time as kind of external counsel to a Fortune 500 company acting around the globe. And ever since I'm doing that, I'm using them now daily. They're very good for intercompany stuff. They're good for sales stuff. I work a lot in the automotive industry. They have been accepted by opposing counsel who never heard of them, like from Canada, or of opposing counsel who had heard of them but never had looked into them, from Poland, all over. Any industries, all kinds of contracts, over 30 kinds of contracts come to mind. We even used them once to set up a zoo in China. I used them to humanitarian help. I put up a charity through this family link, which helps humanitarian help over to Ukraine. And why should the Ukrainian government accept German law? Why should I accept Ukrainian law, which I can't read? So it may be the best world in the law, but it's neutral. And we agreed on that. So I do these deals also under the UNIDROIT principles. So from small spot deals... Like a donation agreement, to a cooperation agreement to jointly submit to a European public tender, or the complex cooperation deals in automotive. If you set up a new model electronic car to come out in two, three, four years, to be produced for seven years, with spare parts another 15 years, we're talking about 20 years. How to look into the crystal ball, Or I think it's good to work with general principles of contract law and not to outsmart one outsmarting the other.

Andrew: Well, that's right. I mean, certainly it makes perfect sense. And when we were gathering in Hamburg, I mean, the in-house counsel from the companies and organizations that were presenting were explaining that where they're having to deal with multiple suppliers all around the globe, of course, it's simpler to have one set of laws applying to all those contracts. So from the in-house counsel perspective, it simplifies contracting to an enormous degree. So I suppose, how has it been received by the common law world? Because the civil law world and the common law world are sometimes said to sort of stare at each other across a great divide in these sorts of matters. But what's your experience been with common lawyers in this area?

Eckart: I mean, for one, this old episode of 2001 was experienced jointly with a London-based solicitor. Second, one of my biggest instruction arbitration was the Sulu case. It's a case against the state of Malaysia. Old contract 1868, where you could apply anything, was very difficult to detect what type of law. And under the circumstances, the upper tribunal was inclined to apply general principles of law. And the question came up whether one could use the UNIDROIT principles as general principles of law, even in that context. and came out with a $15 billion award, but basically the instructing side was a common law barrister an English-based American barrister Paul Cohen who instructed me of course I took it the English way and said it's my obligation to the court I so I acted in a truly neutral way but in in the same way as I acted in the in the early 2000 because they are really global i mean it's really remarkable if you if you consider that we have hundreds of national court decisions in about 35, 40 countries on all continents where the local court have looked into the UNIDROIT principles and have used the UNIDROIT principles to interpret or even supplement the local law. You have that often in local laws which are not so specific on a certain point. Like Central America, Guatemala, those kind of countries, or East Europe, those kind of countries, but also extremely developed countries with a long-standing routine like Spain. In Spain, you have over 100 court decisions where the local court has used the UNIDROIT principles to supplement national law. And that's, I mean, we're talking about arbitration insights. That way it can help the arbitrators, the tribunals. If we have to cope with some strange law, some law which in that composition of arbitrators, at least some of the co-arbitrators, are not reading every day for breakfast, it helps to read that law. And if you have an interpretation which can be supported because the UNIDROIT principles would come to the same solution, then it really can be a convincing argument. I think if you write a good award, you want to convince both sides that this is the road to go and the road to accept.

Andrew: You're talking about helping tribunals. Let's just dwell on that a second because the audiences who tune into our podcasts are interested in arbitration. Why do the principles and arbitration exist? Why do they make good bedfellows? Why should someone thinking of the principles then think arbitration or vice versa? What are the advantages of combining arbitration and the UNIDROIT principles?

Eckart: You have pre-arbitration and post-starting of arbitration. I think that's the two episodes. Let's first concentrate on the first episode. That's the contracting stuff. And that's what we call simplified global contracting. Actually, I came up with that idea, and I gathered all kinds of people around the globe, and in the end, it was the in-house counsel from America who came up with this language, simplified global contracting. And for me, that's really combining the two pillars on which any contract is standing. On the one hand, the choice of the arbitration forum, and the other one, the choice of the rules of law. And the arbitration clause, in my mind, is the most important clause of the contract because it determines which brains decide in the end if ever there is a dispute. And arbitration regimes also usually give you the freedom to choose rules of law, as we have this in Article 28 of the Uncitral Model Law, as opposed to state law. So we have the opening to the soft law within the arbitration of private international law.

Andrew: That's right. I mean, with the arbitral framework, the pillar, one of the pillars, essentially what you're doing is you're converting the soft law of the principles into hard law, because in an arbitral forum, one can do this. In the leading arbitral institutions, you're allowed to select principles that are not a state law, whereas in a state court, that's not possible the state courts in principle have to apply their own laws

Eckart: I've never looked at it that way but basically that's that's exactly what's happening through the hard law basis that you may choose rules of law you really turn the soft law into hard law correct and if you combine thus an arbitration with the choice with choice of the UNIDROIT principles it's a it's a functioning easygoing system so this is why I think it's a good friend a good bed pillar. The second stage is after the arbitration, once the arbitration has started. So we already had this one set of examples where you agree later on on the arbitration, even if you look at the model clauses, which you find referred to in a footnote of the preamble of the UNIDROIT principles, they always provide clauses both for pre- arbitration, and post-arbitration, how to agree on them. So that's the second scenario. Then you have those strange cases. It reminds me of a case which I had as an arbitrator in Stockholm. Parties had chosen something like international commercial law. So quite often you find those funny choices of the parties. And it shows the intention to stay away from too tough state law. In the end, parliaments make local law with regard to the local needs and the local voters and consumers. So that's distinct from the good faith company-to-company, business-to-business law. So in that situation, the UNIDROIT principles, again, are a very helpful tool to kind of give some flesh to what has been chosen with international commercial law. So that's the second way as an arbitrator. The third way is what we already hinted at, that you have some state law that applies, and you look into the state clause and you tweak it a little bit. For example, let's say, as an example, in a damage scenario, if the other party who was basically damaged contributed to that damage somehow, or it did not take any action to mitigate the damage where it could easily have done so, that's principles which, from a continental perspective, our perspective, that would be a matter of good faith to do that. And from a common law perspective, it would also be reasonable and practical to expect that somebody acts that way. So sometimes, you know, between common and civil law, we discuss about a lot of this notion of good faith, but we are too much discussing about words. In the end, when we go deep, we very come to similar solutions. Here, the UNIDROIT principles really have developed language deliberately in neutral language, so it's not so much like common or civil law. It's really an autonomous legal set of rules. Then you can use that and 747, 748 of the principles are great on the duty to mitigate damage or the need to consider if the other party contributed to the damage.

Andrew: Yes, I mean, in French law, you have fault of the victim and in English law, mitigation, the duty to mitigate. But the outcome that's being sought is not so different, perhaps. And that's what the principles of sort of gather this together and put it in a neutral language so that people... I mean, I think one of the questions we had in the conference, 30-year conference, was about how some of the words used might trigger particular reactions in common lawyers that might not be triggered in a civil lawyer. So it is, the words are obviously important.

Eckart: Let me take one critical point. I know a lot of common law lawyers who totally support them. And sometimes I meet on common law lawyers who really have never looked into the UNIDROIT principles. They just work with pre-made judgments. And the one point I hear sometimes is that there is hardship in there. So basically, they do provide in Section 6.2 the possibility under certain extreme scenarios, which rarely happen because pacta sunt servanda is a basic principle. And there are very rare exceptions. That's been discussed since Cicero, since Roman times, since 2,000 years. We have this friction between pacta sunt servanda, a bindingness of contracts on the one hand, and when you can tweak out of it under very rare extreme exceptions. And in those situations, you should give notice, you should negotiate, and do that in good faith. And in the very extreme, the UNIDROIT principles do permit that you can go to the arbitrator. And we've seen that in this extreme, yeah, not climate change, in all kinds of extreme gas-related contracts, etc. But what I've done during COVID, and I've written tons of contracts under COVID. I mean, how do you do in the middle of COVID, 20-year contract, where of course the pandemic can come back. And of course it would not be unforeseeable because in an abstract way, we can all foresee it could come back. So in those situations, I very often put that just on the screen. And then we discussed, how do you want it? I mean, it's all about party autonomy. The UNIDROIT principles always come along with the section Article 1.5 that you can change within reason what you want to do. And then we discuss it. Do we want to change in the facts on when it's triggered? Because, for example, we want to trigger it even in the pandemic, even if it's not unforeseeable, so we can tweak there, or we can tweak on the other end. And I've seen everything. Sometimes we've agreed that, okay, it's okay, the arbitrator may decide. Sometimes we decided, no, we don't want this. Let's just negotiate, and we don't come to terms. Tough luck. So, but that's a decision to then take, and I think it's good that's in there, because it inspires people to really concentrate and negotiate these points.

Andrew: Well, there's no doubt that it focuses mind, and I suppose the other point to be made, for those who perhaps aren't familiar with the principles is that you know party autonomy is at the heart of it in the principles and there's very little in the principles that that trumps party autonomy

Eckart: Yeah there's very very little and if you if you look at the very big picture we have the roman law of year 532 roman emperor Justinian compiled all of that then it developed over the centuries, you have Battle of Hastings, Magna Carta 1215. Common law develops through all the judgments, which we know more or less, which are a little bit opaque from a civil law perspective. And then came the Americans after World War II, and they took all of that common law, and they added salt and pepper. The principle of good faith and fair dealing was added to common law in the Uniform Commercial Code, and UNIDROIT principle is just internationalizing that concept. Right.

Andrew: Well, that's probably a wonderful way to finish on the principles. Just before we finish our podcast, though, tell us a little bit about what you do when you're not thinking about the principles of, you know, UNIDROIT principles.

Eckart: First, I have the luck that I met the right person, my wife, in the right moment in 35 years. So I have a very nice family life four children, a lot of happiness there. Then we have a great sailing boat. I met my wife already in Norway when sailing. So on board, she's a skipper and we have a lot of fun and we're about to sail again to Sweden this year. And then I started playing golf also during COVID. So lots of sports, lots of fun, a lot of music.

Andrew: Well, it sounds like it's, well, certainly when I was in Hamburg, I had a fantastic time and it's a lovely city to live in. So it's been fantastic speaking with you and hearing about the principles. And for those who haven't heard about them before, I hope you found that insightful. I certainly have. I keep learning things every time I talk to you, Eckart. And thank you very much again for your time, giving over to this. Thank you very much. 

Eckart: Thank you so much.

Outro: Arbitral Insights is a Reed Smith production. Our producers are Ali McCardell and Shannon Ryan. For more information about Reed Smith's global international arbitration practice, email arbitralinsights@reedsmith.com. To learn about the Reed Smith Arbitration Pricing Calculator, a first of its kind mobile app that forecasts the cost of arbitration around the world, search Arbitration Pricing Calculator on reedsmith.com or download for free through the Apple and Google Play app stores. You can find our podcast on podcast streaming platforms, reedsmith.com, and our social media accounts at Reed Smith LLP. 

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