Freedom of Contract Under International Commercial Law

This article is mainly dealt with the concept of freedom of contract under the international commercial law. It deals with the significance of the freedom of making contracts. This article covers the major topics of freedom of contract as well as its exemptions. International commercial law is also explained in this article. The principle of contractual freedom or freedom of contracts, its importance, limitations are all dealt under this article.


A contract is an agreement made between two or parties which creates mutual obligations. A contract is said to be an international contract when it is made between countries. The International Commercial Law also called the UNIDROITdeals with the requirements of a contract and its essentials. This article deals mainly with the freedom to make contracts by the states which are governed by the provisions of the international commercial law.

International Contract  

A contract is said to be an international contract when it makes a link with more than one State. When it comes to making a law between the States, there arises a major problem as to which State’s law has to followed. This conflict leads to the problem of determining which of the laws are more appropriate or applicable while making an international contract. Contradictorily, a contract cannot be called international contract if all of the significant elements are linked or connected only with one State. Therefore, it is important to note whether the components of a contract are linked with different territorial units of the same national State (For e.g., New York and Florida in the United States, or Victoria & Queensland in Australia), such a contract will not constitute an international contract. To determine whether a contract is an international one or not, careful case by case analysis is required. An international contract could be a trade contract which is made for the purpose of commercial transaction or for the business purpose. [1] (Cavealieri,2018)

International Commercial Contract

It is a body of applicable legal rules, conventions, treaties, domestic legislation and commercial customary practices, which governs the international commercial or business transactions. A business transaction can be said to be an international one when it involves more than one country. International commercial law is a part of the private international law, whereas its international trade law is equivalent, regulating the trade relations between the States is a part of the international economic law which forms a  branch of the public international law. There arises a rigid propensity for the harmonization & the union of these laws as a result of the rules, morals and conventions appropriate to the cross-border transaction vary or contradict with the cultures. [2] (Picovschi, 2011)  

The International commercial law is the tool which enables the various orders of the economy to establish international commercial relations which are set up by the law. International trade law comprises of several compound matters which consists of various branches of law (such as the business law, company law, commercial law and the international payments law) and taken out from various sources (such as the lex mercatoria, national laws and international conventions)

The Principle of freedom of choice

The choice and the modification of laws must be made either expressly or impliedly in the provisions of the contract or according to the conditions laid down. An expressed or determined choice of law means that it is an agreement formed shall be ruled, interpreted, elucidated and enforced in accordance with the substantive laws of France. An implied or tacit choice of law can be inferred where the provisions of the contract and the circumstances of the matter concerned as a whole or a part makes it clear ultimately & normally agree with the reasonable certainty that the intention of the parties is to subject their contract with that of the laws of a specific State or country.

It must be observed that the parties to a contract has the freedom to assign or decide the laws governing their contractual relations is quite broad. As they may make a choice of either the law which is applicable to the entire contract or a part of it. The latter option is termed as “depeçage” and it has the result of the contract to be governed by more than one national law.[3] (Cavealieri, 2018)

The parties to a contract are free to make the choice of the applicable law and they are not hindered by any limitations (which means that they can allot or assign the law of any State notwithstanding the links, geographical or any other aspects )and they may also alter or modify the choice made on the applicable laws at any time after the contract has been decided. Nevertheless, the parties cannot take the decision as to which of the laws govern or rule their capacity, as the capability of a person (natural person) to act and enter into contracts independently is governed by the laws of the particular State of which he or she is a national. The chosen law of the parties does not even prevent or block the application of other governing laws underpinning the contract’s validity.

Lex mercatoria & UNIDROIT

Besides making a choice of the law of a particular country or a State to govern or rule the contracts and the contractual relations, the parties may also refer to the set of rules already existing which were developed initially by the International Community established on practice, custom and the general legal principles. Similar is the case when the parties give assent that their contracts has to be ruled by or governed by the law of merchants(lex mercatoria) or by the general principles of law. As there arises a difficulty among the parties in a contract to identify, select and agree as to what has to be regarded as the general principle of law, the international organizations have put up significant efforts to arranging or setting up the general principles which are applicable to the international commercial contracts. One of the most accomplished and successful example of codification of general principles for the international commercial contracts is the UNIDROIT principles of International Commercial Contracts. It was enacted in 1994 by the International Institute for the Unification of Private Law (UNIDROIT) and was later on revised in the years 2004, 2010 and in 2016. It represents or lays down a single uniform law instrument displaying the various concepts as for now.

UNIDROIT lays down, sets up and provide the  substantive rules for the purpose of governing, inter alia(among other things), the validity, interpretation, content, both performance as well as the non-performance, allocation and the termination of contracts.

In the first edition of 1994, the aim of the UNIDROIT was to set up a balanced set of rules for the purpose of use throughout the world in spite of the economic, political and legal traditions of the State’s in which they are to be implemented. It is also stated in their preamble that in addition to performing as the model for the international and national law makers or legislators, they are appropriate or relevant when the parties to a contract have given assent that their contract will be regulated by them  and will be applicable when the parties have given assent that their contract will be regulated by the general principles of law, such as the lex mercatoria or any other likewise. It will also be applied when the parties to a contract has not made a choice on any law to regulate or govern their contract as it may be used to elucidate or increase the international uniform legal tools, or to construe and augment the domestic law. [4] (Picovschi, 2011)

 Freedom of Contract

Article 1.1 of UNIDROIT or the International Commercial Law states freedom of contract. The article states that the parties are free to enter into a contract as well as to determine the contents of the contract.  The freedom of contract is a basic principle which comes within the setting of an international trade. This principle is of foremost importance under the concept of international trade. The businessmen have the right to take free decision with regard to whom they wish to supply the goods and from whom they wish to get it supplied in addition to that they can decide the practicability to agree freely with regard to the terms of the individual transactions as they are the foundation of  an open, market based economical order.

The doctrine of ‘Freedom of Contract’ evolved during the19th century. The doctrine is often regarded to Anson’s ‘classical model of contract law’ and this aspect continues to be the dominant prominent principle of common law contract jurisdictions nowadays.

The doctrine of ‘freedom of contract’ is based mainly on two presumptions. They are as follows: 

1)  The parties to a contract are free to enter into contracts with anyone they wish (‘party freedom’)and on whatever basis the parties agree between them (‘term freedom’). These are often expressed as the parties ‘being sovereign’.

2)  It is a presumption that the parties have ‘equality in contract’ so that each has the same bargaining strength when entering contracts and that the state should intervene as little as possible into contracts and let the parties decide with whom, and on what terms, they make contracts.

In order to assist the parties to make the best contracts, the laws governing contracts should be simple and the lowest possible number to make them effective.[5](Muscatello,2013)

There has been so many debates and discussions regarding the freedom of contracts that currently prevail. The top businesses mainly use a team of lawyers for the purpose of drafting standard contracts for the common use which these are the major reasons for conflict with the principles of both the terms ‘freedom’ and ‘the equality in contract’. Such contracts are often introduced to the other party who will take or leave it. There has also been an immense speculation by the law makers to safeguard the consumers from the worst surplus of the commercial dealing strength. The evolution of the statute to safeguard the consumers from their dealing strengths is basically known as the ‘consumer welfarism’. However, this aspect is contrary to the freedom of contract.

Freedom of contract resumes to invade the most common law countries as a doctrine which supports or encourages the market economy and commercial transactions. The doctrine of freedom of contract is not just a set of legal rules, but can be more specifically termed as a ‘notion’. It means that the doctrine is considered as essential and sets up guideline in taking decisions as to what is allowed and what is not. A contractual agreement are often governed by rules for instance are mainly said to be based on the doctrine of freedom of contract ;where a party to a contract makes an offer freely based on his own decisions; his terms; which the other party or the recipient must give consent and approval to the terms of the contract thereby to form a binding contractual agreement. In common law jurisdictions made currently, this can be considered as an example of one of the ways that the freedom of contract mainly influences the rules which govern the contract law. [6] (Cavealieri, 2018)

The Principle of Contractual Freedom 

In contract law, there is a provision for freedom of contract or contractual freedom. This is a general principle. It allows the parties in a contract to make the choice of the law to be applied in such relationships, but there is also a disagreement as to the appointment of judge by the jurisdictional clause or the appropriate arbitrator. The doctrine of contractual freedom is applicable to the international commercial contracts. This freedom of contract sustains that it will consider the provisions of the contract as the law of parties to enter into the contract. The freedom of contract has certain limitations; i.e.;-mandatory rules. These rules are mandatory internal legislative rules. Therefore, they are mandatory on the international level. If either party to a contract commits a breach to these regulations, the prescribed laws take priority or importance over the law chosen and applied to the contract.

Therefore it can be seen that the laws represent a barrier on the parties entering into a contract with these intricate regulations. This legislation is mandatory in certain subjects which carry regulatory laws in French and European law; consumer law and insurance law. [7] (Picovschi, 2011)

Exemptions on the contractual freedom

The exemption is stated in Article 7.1.6 of the UNIDROIT. It states that a clause which limits or excludes one party’s liability for non-performance or which permits one party to render performance substantially different from what the other party reasonably expected may not be invoked if it would be grossly unfair to do so, having regard to the purpose of the contract. 

Taking into regard the approach adopted in most of the national legal systems, the article 7.1.6 states the assumption that in the application of the doctrine of the contractual freedom (which is mentioned in article 1.1) exemption clauses are valid principles.

Following the approach adopted in most national legal systems, this Article starts out from the assumption that in application of the doctrine of freedom of contract (i.e.; Article 1.1) exemption clauses are in principle valid. Anyhow, a party may not induce or cause such a clause if it would be awfully unjust to do so. 

This will be the major case where the term is implicitly unfair and its implementation would lead to an obvious disparity between the execution of the parties. Furthermore, there may arise situations in which even a term which is not grossly unfair may not be dependent upon: for example- in cases where the aggrieved party could not preclude or prevent the consequences of the restrictions, in cases where here is grossly neglectful or irresponsible conduct has taken place as well as in cases where there is exclusion of liability by taking out suitable or accurate insurance. In all the cases, the purpose of the contract has to be considered and what is rightfully presumed from the performance of the contract. [8] (Muscatello, 2013)

Two such examples are as follows:

-A, an accountant, manages to prepare the accounts of B. In the contract, it has stated a term which excludes any liability of A for the results arising from any inaccuracy from A’s performance of the contract. Here due to a serious mistake on the part of A, B pays more taxes than which was due. In this case A may not depend upon the exemption clause which is immanently unjust.

-In another illustration, A, a warehouse operator, who enters into a contract with B for the observation of its premises. There is a term in the contract which limit’s the liability of B. Due to some thefts which occurs in the terminal which results in a loss which exceeds the amount of limitation. Even though the term which is agreed upon by the two professional parties; it is just and fair and therefore it may not be relied upon by B, if the thefts were committed by the servants of B in the course of their employment. [9] (Muscatello, 2013)


To conclude, it is to be noted that the International commercial law  deals with a provision of contractual freedom or freedom of contract and is of significant importance as it forms the basis of the commercial and business transactions between the Nations. Article 1.1 of the International Commercial Law or UNIDROIT deals with the freedom of contract which is followed by an exemption which is stated in Article 7.1.6 of the UNIDROIT. This doctrine of contractual freedom evolved in the 19th century. This article also deals with the presumptions of the contractual freedom and the exceptions in detail.


Cavealieri, R., & Salvatore, V. (2018). An introduction to International Contract Law (G. Giappiachelli,Ed.)

Lawyers, P. (2011, February 24). International Commercial Contract: Part 2. Picovschi Lawyers.

Muscatello, S. (2013, December 2). Article 1.1 (Freedom of contract). Www.Unidroit.Org.

Frequently Asked Questions (FAQ’s)

1)   What is an international contract?

2)   Which article of the international commercial law deals with the freedom of contract?

3)   Is there any exemption or limitation for contractual freedom under the international commercial     law?

4)    What is the significance of the freedom of choice under the international commercial law?

5)    What is the principle of contractual freedom?

[1] Cavealieri, R., & Salvatore, V. (2018). An introduction to International Contract Law (G. Giappiachelli, Ed.).

[2] Lawyers, P. (2011, February 24). International Commercial Contract: Part 2. Picovschi Lawyers.

[3] Cavealieri, R., & Salvatore, V. (2018). An introduction to International Contract Law (G. Giappiachelli, Ed.).

[4] Lawyers, P. (2011, February 24). International Commercial Contract: Part 2. Picovschi Lawyers.

[5] Muscatello, S. (2013, December 2). Article 1.1 (Freedom of contract). Www.Unidroit.Org. #:~:text=The%20right%20of%20business%20people

[6] Cavealieri, R., & Salvatore, V. (2018). An introduction to International Contract Law (G. Giappiachelli, Ed.).

[7] Lawyers, P. (2011, February 24). International Commercial Contract: Part 2. Picovschi Lawyers.

[8] Muscatello, S. (2013, December 2). Article 1.1 (Freedom of contract). Www.Unidroit.Org.

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