EUROPEAN REVIEW OF PRIVATE LAW

VOLUME 16 NO. 4–2008

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european review of private law revue européenne de droit privéeuropäische zeitschrift für privatrecht

ContactMarie-José van der Heijden, e-mail: erpl@kluwerlaw.com

EditorsE.H. Hondius, Universiteit Utrecht, Molengraaff Instituut voor Privaatrecht, Utrecht, The Netherlands.

M.E. Storme, Katholieke Universiteit Leuven, Belgium

Editorial Board

W. Cairns, Manchester Metropolitan University, England, U.K.; Florence G’Sell-Macrez, Université

Paris 1, France; J.F. Gerkens, Université de Liège, Belgium; A. Janssen, Westfälische Wilhelms-

Universität Münster, Germany, and Università di Torino, Italy; R. Jox, Katholische Hochschule

Nordrhein-Westfalen, Abteilung Köln, Germany; D.R. MacDonald, University of Dundee, Scotland, U.K.; M. Martín-Casals, Universitat de Girona, Spain; B. Pozzo, Università dell’Insubria-Como, Italy; S. Whittaker, St. John’s College, Oxford University, Oxford, England, U.K.

Advisory Board

E. Baginska, Nicholas Copernicus University, Torun, Poland; C. von Bar, Institut für Rechtsver-

gleichung, Osnabrück, Germany; H. Beale, Law Commission, London, England, U.K.; R. Clark, Faculty of Law, University College Dublin, Republic of Ireland; F. Ferrari, Università degli Studi

di Verona, Italy; A. Gambaro, Università degli Studi di Milano, Italy; G. Garcia Cantero, Depar-

tamento de derecho privado, Universidad de Zaragoza, Aragon, Spain; J. Ghestin, Université de

Paris, France; M. Hesselink, Universiteit van Amsterdam, The Netherlands; C. Jamin, Université de

Lille II, France; K.D. Kerameus, Ethniko kai kapodistriako Panepistimio Athinon, Athinai, Greece; H. Kötz, Bucerius Law School, Hamburg, Germany; O. Lando, Juridisk Institut Handelshojskolen

Copenhagen, Denmark; Kåre Lilleholt, Universitetet i Oslo, Institutt for privatrett, Oslo, Norway; B. Lurger, Karl-Franzens-Universität Graz, Austria; H.L. MacQueen, Department of Scots Law, University of Edinburgh, Scotland, U.K.; B.S. Markesinis, University College London, England, U.K./University of Texas, Austin, Texas, U.S.A.; V. Mikelenas, Teises Fakultetas, Vilniaus

Universi teto, Lithuania; A. Pinto Monteiro, Universidade de Coimbra, Faculdade de direito, Portugal; C. Ramberg, University of Gothenburg, Sweden; R. Sacco, Università degli Studi di

Torino, Facoltà di Giurisprudenza, Italy; D. Spielmann, European Court of Human Rights, Stras-

bourg, France; L. Tichy, Univerzita Karlova, Prague, the Czech Republic; F. Werro, Faculté de droit, Université de Fribourg, Switzerland; T. Wilhelmsson, Helsingen Ylio pisto, Finland.

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Guidelines for authors

The European Review of Private Law aims to provide a forum which facilitates the development of European Private Law. It publishes work of interest to academics and practitioners across European boundaries. Comparative work in any fi eld of private law is welcomed. The journal deals especially with comparative case law. Work focusing on one jurisdiction alone is accepted, provided it has a strong cross-border interest.The Review requires the submission of manuscripts by e-mail attachment, preferably in Word. Please do not forget to add your complete mailing address, telephone number, fax number and/or e-mail address when you submit your manuscript.Manuscripts should be written in standard English, French or German.

Directives pour les Auteurs

La Revue européenne de droit privé a pour objectif de faciliter, par la constitution d’un forum, la mise au point d’un Droit Privé Européen. Elle publie des articles susceptibles d’intéresser aussi bien l’universitaire que le praticien, sur un plan européen. Nous serons heureux d’ouvrir nos pages aux travaux comparatifs dans tout domaine du droit privé. La Revue est consacrée en particulier á l’étude comparée de la jurisprudence. Les travaux concentrés sur une seule juridic-tion sont admissibles, à condition de présenter un intérêt dépassant les frontières.Nous souhaitons recevoir les textes par courrier électronique, de préférence en Word. Ajoutez l’adresse postale compléte et le numéro de téléphone de l’auteur, un numéro de télécopie et l’adresse électronique.Les textes doivent être rédigés en langue anglaise, française ou allemande standard.

Leitfaden für Autoren

Die Europäische Zeitschrift für Privatrecht will ein Forum bieten, um die Entwicklung des europäischen Zivilrechts zu fördern. Sie veröffentlicht Arbeiten, die für Akademiker und Juristen in ganz Europa grenzüberschreitend von Interesse sind. Vergleichende Untersuchungen aus jedem Bereich des Zivilrechts sind willkommen. Die Zeitschrift befasst sich insbesondere mit vergleichender Rechtsprechung. Artikel, die sich auf ein einziges Hoheitsgebiet konzentrieren, können angenommen werden, wenn sie von besonderem grenzüberschreitenden Interesse sind. Wir möchten ihre Beiträge per E-Mail erhalten und bevorzugen Dateien in Word. Bitte geben Sie ihre Anschrift, Telefonnummer, Telefaxnummer und/oder E-Mailadresse an. Manuskripte sind in korrektem Englisch, Französisch oder Deutsch zu verfassen.

Style guide

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Index

An annual index will be published in issue No. 6 of each volume.

The Feasibility Study’s Rules on Contract Interpretation�

ROBERT HARDY��

In this paper, I use an economic approach to analyse the rules on contract interpretationof the Feasibility Study for a Future Instrument in European Contract Law (hereinafter‘Feasibility Study’). The main findings of this paper are twofold. First, assuming thatprimarily (medium-sized) firms in international transactions will choose the FeasibilityStudy to govern their contract, the subjective (or contextual) approach of Article 56 ofthe Feasibility Study should not have been chosen as the default. Firms typically prefercourts to adhere as closely as possible to the ordinary meaning of the words in theagreement. That is to say, firms typically prefer the textualist (or objective) approach.The textualist theory will not always suit contracting parties. Therefore, parties shouldhave the possibility to contract around the textualist default. Second, Article 57 of theFeasibility Study is less advantageous for contracting parties. In principle – assumingagain that primarily (medium-sized) firms in international transactions will choose theFeasibility Study to govern their contract – courts should use narrow evidentiary baseswhen interpreting contracts. However, courts should also comply with party requests tobroaden the base that is applicable to them.

Resume: Dans le present article, j’utilise une approche economique pour analyser lesregles d’interpretation de l’Etude de Faisabilite pour un Futur Instrument en DroitEuropeen des Contrats (‘L’Etude de Faisabilite’). Les principales constatations sontdoubles. Premierement, en supposant que les entreprises (de taille moyenne) choisirontprincipalement l’Etude de Faisabilite pour gouverner leur contrat dans les transactionstransfrontalieres, l’approche subjective (ou contextuelle) de l’article 56 de l’Etude deFaisabilite n’aurait pas du etre choisie par defaut. Les entreprises preferent en generalque les tribunaux s’en tiennent le plus possible au sens commun des termes du contrat.Autrement dit, les entreprises donnent la preference en general a l’approche textuelle(ou objective). La theorie de l’approche textuelle ne conviendra pas toujours aux partiescontractantes. C’est pourquoi les parties devraient avoir la possibilite de contracter surbase de l’approche textuelle choisie par defaut.

Deuxiemement, l’article 57 de l’Etude de Faisabilite est moins avantageux pour lesparties contractantes. En principe – en supposant encore une fois que les entreprises detaille moyenne choisiront principalement l’Etude de Faisabilite pour gouverner leurcontrat dans des transactions transfrontaliers – les tribunaux devraient utiliser des basesetroites d’etablissement de la preuve quand ils interpretent les contrats. Quoiqu’il ensoit, les tribunaux devraient aussi se conformer aux demandes d’une partie d’elargir labase qui leur est applicable.

� This article is based on scholarly work done in the context of the Economic Impact Group withinCommon Principles of European Contract Law.

��Associate, Stibbe N.V. (Amsterdam), and Member of the Ius Commune Research School; JD, PhD,Maastricht University; LLM, Harvard Law School.

European Review of Private Law 6-2011[817–833] � Kluwer Law International BV | Printed in the Great Britain

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Zusammenfassung: In dem vorliegenden Beitrag wird eine okonomische Herangehens-weise fur die Analyse der Regeln zur Vertragsauslegung der Feasibility study for afuture instrument in European Contract Law (die ‘Machbarkeitstudie’) angewandt. DieHauptaussagen des Beitrages lassen sich sind zweierlei. Als erstes ist festzuhalten, dass,legt man zu Grunde, dass (mittelgroße) Unternehmen bei internationalen Transaktionenvorzugsweise die Machbarkeitsstudie als Vertragsrecht wahlen, die subjektive (oderkontextuale) Auslegung von Artikel 56 der Machbarkeitsstudie nicht als Grundregelfestgelegt hatte werden sollen. Unternehmen bevorzugen ublicherweise, dass Gerichtebei der Auslegung von Vertragen so nah wie moglich an der ursprunglichen Wortlautbe-deutung des Vertrages bleiben. Sie bevorzugen somit grundsatzlich die Wortlautauslegung(oder objektive Auslegung). Allerdings wird eine wortlautgetreue Auslegung nicht immerim Sinne der Vertragsparteien sein. Daher sollte ihnen die Moglichkeit eroffnet werden,eine solche Auslegung vertraglich abzubedingen. Zweitens zeigt sich, dass Artikel 57 derMachbarkeitsstudie fur die Vertragsparteien weniger vorteilhaft ist. Legt man wieder zuGrunde, dass (mittelgroße) Unternehmen bei internationalen Transaktionen vorzugsweisedie Machbarkeitsstudie als Vertragsrecht wahlen, sollten Gerichte grundsatzlich Vertragestreng auf der Grundlage von Beweisen auslegen. Nichtsdestotrotz sollten Gerichte auchdie Wunsche der Vertragspartei hinsichtlich einer Erweiterung der fur die Vertragsauslegungeinzubeziehenden Aspekte berucksichtigen.

1. Introduction

Contractual disputes are often founded in interpretation issues. Interpretationdisputes arise either because parties have foregone to specify their rights and dutiesunder the particular circumstances or because they attach a different meaning to anelement of their agreement. This is mainly due to the fact that besides the ineptnessin the use of words, most contractual transactions do not occur on the spot but overtime: ‘contracts regulate the future and interpretive problems are bound to arisesimply because the future is inherently unpredictable’.1

The problem of interpretation provides a central backdrop for the law ofcontract, which contains many rules and principles designed to address it.2 Com-pared to the economic analysis of contract law in general, however, little attentionhas been paid to the specific field of the economics of contract interpretation.The way a contract is interpreted relates to the actual law governing parties’relationship. There are many factors that influence parties’ decision on what toincorporate in their contract and in what form. One of those factors is the criteriaproposed by the law to be followed by judges when called upon to resolve issues ofcontract interpretation. Economic theory can offer suggestions as to what constitu-tes efficient interpretative criteria.

In this paper, I use an economic approach to analyse the rules on contractinterpretation of the Feasibility Study for a Future Instrument in European Contract

1 R. POSNER, ‘The Law and Economics of Contract Interpretation’, 83. Texas Law Review 2005,p. 1581, at p. 1583.

2 B. HERMALIN, A. KATZ & R. CRASWELL, ‘Chapter on the Law & Economics of Contracts’, inA. Polinsky & S. Shavell (eds), Handbook of Law and Economics I, Elsevier, North-Holland 2007.

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Law (hereinafter ‘Feasibility Study’).3 In section 2 of this paper, I address the issueof contract interpretation in general and link it to the economic issue of contractualincompleteness. Section 3 critically examines the different types of rules of inter-pretation and the incentives they create. In section 4, the Feasibility Study’s ruleson contract interpretation are scrutinized. This paper ends with a conclusion.

2. Incomplete Contracts and Contract Interpretation

Almost everyone enters into contracts every day. From an economic perspective, acontract refers to any agreement under which two or more parties engage in mutualcommitments concerning their behaviour.4 Within the legal context, a contract cangenerally be defined as a meeting of minds that creates effects in law.

Parties contract in order to create a bigger transactional pie in a world whereparties’ incentives are misaligned. The writing of contracts enables parties to hedgeagainst market risks and to coordinate the production of information, rights, duties,and procedures. Contract lawyers seek to translate an economic deal into a legallyenforceable written agreement. This comprises a planning role that involves a rangeof issues such as the resolution of ambiguities by suggesting express terms thatdescribe in greater detail the deal, the allocation of risks for foreseeable andunforeseeable contingencies, the incorporation of legal and non-legal sanctions,and the introduction of mechanisms of dispute resolution. A contract performs thefunction of a governance mechanism: it comprises a clear record of the termsagreed upon between parties and the implied promise to adhere to these terms.

2.1 Incomplete Contracts

Regardless of substantial planning efforts, contracts break down because real worldcontracts are invariably incomplete. In general, a contract is complete when itallocates the rights and obligations of parties efficiently across all possible futurecontingencies.5 A contract qualifies as incomplete if at least one of the followingelements is not fulfilled: (1) the contract does not specify parties’ rights andobligations for all future contingencies or (2) the contract does not exploit all gains

3 Commission Expert Group on European Contract Law (ed.), Feasibility Study for a Future Instru-

ment in European Contract Law, version of 3 May 2011, available at <http://ec.europa.eu/justice/contract/files/feasibility_study_final.pdf>.

4 See also E. Brousseau & J. Glachant (eds), The Economics of Contracts: Theories and Applications,

Cambridge University Press, Cambridge 2002.5 K. EGGLESTON, E. POSNER & R. ZECKHAUSER, ‘The Design and Interpretation of Contracts:

Why Complexity Matters’, 95. Nw. U. L. Rev. (Northwestern University Law Review) 2000, p. 91,at p. 100; I. AYRES & R. GERTNER, ‘Strategic Contractual Inefficiency and the Optimal Choice of

Legal Rules’, 101. Yale L. J. (Yale Law Journal) 1992, pp. 729, 730; A. SCHWARTZ, ‘IncompleteContracts’, in P. Newman (ed.), The New Palgrave Dictionary of Economics and the Law, vol. II,Macmillan Reference Limited, London 1998, pp. 277–278; D. BAIRD, ‘Self-Interest and Coopera-

tion in Long-Term Contracts’, 19. J. Legal Stud. (Journal of Legal Studies) 1990, p. 583, at pp. 583et seq.

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from trade. The first element signifies that a contract fails to specify the obligationsof parties under a certain state of the world that may or may not occur. The contractwill contain a ‘gap’, and courts will have to decide whether they will fill this gap ordeclare the contract void and unenforceable for matter of vagueness.6 The secondelement implies that the contract fails to efficiently allocate obligations across allstates of the world. In other words, the terms that have been incorporated are notoptimal from an economic point of view.7 Legal scholars tend to relate the incom-pleteness of a contract primarily with the first element, while economic scholarsrelate the incompleteness of a contract with the second element.8

The incompleteness of contracts is grounded in several different factors.Economic scholars attribute the incompleteness of contracts primarily to the factthat perfect markets – the concept upon which they base complete contracts – do notexist: markets ‘fail’. This failure to create maximum efficiency in the market isascribed to factors such as bounded rationality, information asymmetries, and trans-action costs. Bounded rationality encompasses the thought that foresight is infinitelycostly, and, therefore, as the economic literature on contractual interpretationemphasizes, the costs of foreseeing and providing for every possible contingency thatmay affect the costs of performance to either party over the life of the contract areprohibitive.9 Even in a setting of perfect foresight, an interpretive problem may arise.This bounded rationality affects contracting parties, as well as third parties. Thisimplies that while some variables might be perfectly well observable by the parties toa contract, these variables are difficult to measure and specify in such a manner thatthey can be proven to the satisfaction of the court. The variables are non-verifiable.10

6 See, among others, A. SCHWARTZ, ‘Relational Contracts in the Courts: An Analysis of IncompleteAgreements and Judicial Strategies’, 21. J. Legal Stud. 1992, pp. 271 et seq.; A. SCHWARTZ &

R. SCOTT, ‘Contract Theory and the Limits of Contract Law’, 113. Yale L. J. 2003, pp. 540 et seq.;G. HADFIELD, ‘Judicial Competence and the Interpretation of Incomplete Contracts’, 23. J. Legal

Stud. 1994, pp. 159 et seq.; I. AYRES & R. GERTNER, ‘Filling Gaps in Incomplete Contracts: An

Economic Theory of Default Rules’, 99. Yale L. J. 1989, pp. 87 et seq.7 See, among others, S. GROSSMAN & O. HART, ‘The Costs and Benefits of Ownership: A Theory of

Vertical and Lateral Integration’, 94. Journal of Political Economy 1986, pp. 691 et seq.;

O. HART & J. MOORE, ‘Foundations of Incomplete Contracts’, 66. Review of Economic Studies

1999, pp. 115 et seq.; O. WILLIAMSON, The Economic Institutions of Capitalism: Firms Markets,

Relational Contracting, Free Press, New York 1985; E. MASKIN & J. TIROLE, ‘UnforeseenContingencies and Incomplete Contracts’, 66. Review of Economic Studies 1999, pp. 83 et seq.

8 R. VAN BIJNEN, Aanvullend Contractenrecht, Boom Juridische Uitgevers, Den Haag 2005, pp. 87–88.9 See, for example, R. POSNER, Economic Analysis of Law, Aspen Publishers, New York 2003, p. 96;

J. TIROLE, ‘Incomplete Contracts: Where Do We Stand?’, 67. Econometrica 1999, p. 741, at p. 772.10 See, among others, G. TRIANTIS, ‘The Efficiency of Vague Contract Terms: A Response to the

Schwartz-Scott Theory of U.C.C. Article 2’, 62. La. L. Rev. (Louisiana Law Review) 2002, p. 1065,at pp. 1068–1069; O. WILLIAMSON, The Economic Institutions of Capitalism: Firms, Markets,

Relational Contracting, Free Press, New York 1985; B. BERNHEIM & M. WHINSTON, ‘IncompleteContracts and Strategic Ambiguity’, 88. The American Economic Review 1998, pp. 902 et seq.;E. MASKIN, ‘Incomplete Contracts: On Indescribable Contingencies and Incomplete Contracts’,46. European Economic Review 2002, pp. 725 et seq.

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Therefore, even if parties know which performance they desire and can personallyobserve whether this performance has occurred, the written contract is incompletebecause performance needs to be specified in terms of an easily measurable proxy thatcan be readily observed by courts. Bounded rationality and information asymmetriesraise transaction and enforcement costs. These costs include (1) the costs of gatheringand processing information; (2) the costs related with negotiating, specifying, anddrafting an agreement; (3) the costs parties incur in order to ensure that each of themadheres to the agreement and fulfils his or her promise; and (4) the costs related tothe enforcement of the contract by a third party, for example, a court or arbitrator,including the uncertainty and error costs associated with such an enforcement.11

Similar factors, such as transaction and enforcement costs and informationasymmetries, have been used by legal scholars to explain why most contracts areincomplete.12 In particular, lawyers attribute the incompleteness specifically toinevitable ambiguities in ordinary language or to the bounded rationality on thepart of the contracting parties. These factors thus undermine the ability of parties toconstrue complete contracts.13 As Scott states:

[P]arties write incomplete contracts either because (a) the resource costs of writing

complete contingent contracts to solve contracting problems would exceed the

expected gains or would exceed the costs to the state of creating useful defaults, or

(b) the parties are unable to identify and foresee uncertain future conditions or are

incapable of characterizing complex adaptations adequately.14

2.2 Incompleteness, Interpretive Issues, and Methods of Interpretation

The issue of contract interpretation relates to the issue of incompleteness. Whenthe contractual incompleteness is such that the contract remains silent on a parti-cular issue, the parties may bring their case before court and the court will use itsinterpretive skills to attempt to fill the gap. In other situations, the incompletecontract may not be silent but rather unclear. Parties will have said either too littleor too much with regard to a particular element of their agreement. In this case,courts will interpret the vague terms.15 The manner in which courts enforce

11 Compare R. SCOTT & G. TRIANTIS, ‘Harnessing Litigation by Contract Design’, 115. Yale L. J.

2006, p. 814, at pp. 822–823, who refer to search and contracting costs as ‘front-end (transaction)costs’ and monitoring and enforcement costs as ‘back-end (enforcement) costs’.

12 See, among others, R. SCOTT, ‘The Rise and Fall of Article 2’, 62. La. L. Rev. 2002, p. 1009, at

p. 1038.13 Other causes of market failure are imperfect competition, externalities, and organizational failures.

These factors, however, play a less prominent role in defining incompleteness (cf. VAN BIJNEN,2005, n. 8, pp. 117–137). For a more extensive discussion of these factors, see, among others,

R. COOTER & T. ULEN, Law & Economics, Pearson Addison Wesley, Boston 2003, pp. 217–226.14 R. SCOTT, ‘The Case for Formalism in Relational Contract’, 94. Northwestern University Law

Review 2000, p. 847, at p. 862.15 AYRES & GERTNER, 1989, n. 6, and AYRES & GERTNER, 1992, n. 5.

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incomplete contracts is essential to the effort that parties have to make in draftingtheir contracts. Depending on the manner in which courts interpret agreements,parties will exert more effort in their contract drafting or conversely rely on thecourt to supplement their agreement in case of an interpretive dispute.

Two general methodologies that courts use to interpret contracts can bedistinguished and determine the intentions of contracting parties with respect totheir performance obligations: textualism and contextualism.16 Textualism refers toan objective approach to contract interpretation and contextualism, to a subjectiveapproach to contract interpretation. Some authors also employ the term ‘formal-ism’. Formalism can be projected on a scale where a high degree of formalismcorresponds to textualism and a lesser degree of formalism, to contextualism.

Textualism is grounded in the idea of complete contracts, and contextualismis grounded in the idea of incomplete contracts. The theory of complete contractsassumes that parties have incorporated all necessary matters in their written agree-ment. Textualism relates to this theory as it holds that the words of the agreementgovern its interpretation as opposed to inquiries into non-textual sources such asthe intention of parties or surrounding context. The contract in writing is presumedto be a complete and precise statement of the terms agreed between parties, and if itis not included in the written document, it is not part of the contract and vice versa;if it is in the written document, it is part of the contract. The whole of theagreement between parties is thus encompassed in the written document. Thiscorresponds to the idea of completeness, which signifies that the contract specifiesthe legal consequences of every possible state of the world. Completeness impliesthat the contract on face value should not contain any gaps. When a disputeconcerning the interpretation of the terms of the contract does arise, the basis foran interpretive methodology embedded in textualism is to focus on the terms asexpressed in the contract. The court will focus on the plain and ordinary meaning ofthe words as understood by ordinary and reasonable persons.17 Under such anobjective approach to contract interpretation, courts must ascertain the intentionof the parties from the words as expressed in the written agreement. The amount ofinformation or base of materials that the court can take into account to ascertainwhat parties have meant in this case is restricted. An example is the ‘four corners’rule, a basic rule of contract interpretation in American law. The rule bars theparties to a written contract that is ‘clear on its face’ from presenting evidencebearing on interpretation, which is to say, ‘extrinsic’ evidence – evidence outsidethe ‘four corners’ of the written contract itself. The judge alone determines what thecontract means when no extrinsic evidence is presented, the theory being that he/she is a more competent interpreter of a document than a jury is. By placing a

16 The terms ‘contextualism’ and ‘textualism’ originate from the literature on statutory interpretation,where textualism is referred to as a formalist theory of interpretation.

17 Lake v. Simmons [1927] AC 487; Hayward v. Norwich Ins. Ltd. [2001] Lloyd’s Law ReportsInsurance & Reinsurance 410 (CA).

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limitation on the influences to the interpretive process, proponents of textualismattempt to minimize the risk of judicial error.

Contextualism, on the other hand, implies that a court will primarily inquireinto the actual intention of the parties. The common or actual intention of theparties will prevail above the written contractual document, and norms such asreasonableness and fairness will play a strong role in determining the parties’agreements. In this case, the base of information or materials that the court cantake into account in order to ascertain the actual intention of the parties is poten-tially unlimited. The court must discern what parties have actually meant, that is,uncover the expectations of parties, by considering not only the written words of thecontract but also other contextual evidence, which is used to interpret the scope ofthe contract. Courts must then be careful to give weight only to outward manifesta-tions of intent and not to the secret intentions of one party. However, the task ofdetermining what the contract is necessarily extends beyond the ‘four corners’ ofthe written agreement.

Rules on contract interpretation reflect a certain interpretive style by privile-ging certain materials and discounting others. Based on the above, these rules aretermed formalistic when they confine the attention to a subset of materials that mayor may not give rise to the same assumptions as would the whole of the materials.A rule that centres on the objective approach is, for example, the rule of parolevidence, which is common under common law. This rule provides that the writtendocument integrates parties’ agreement and the agreement may not be contradictedor varied by other prior oral evidence. On the other hand, the subjective approachrelates much more to the materials as a whole and an understanding based on thematerials reasonably available.

3. Economic Consideration and Interpretive Strategies

The goal of a doctrine of contractual interpretation is usually to minimize transac-tion costs. Because methods of reducing transaction costs are themselves costly, atrade-off must be made between the benefits associated with the reduction oftransaction costs and the costs of the methods applied to effectuate the reduction.From an economic perspective, the objective and subjective approaches to contractinterpretation can be linked to the issue of optimal information gathering.The choice between the objective (textual) and subjective approaches (contextual)to contract interpretation regulates the information transmission between partiesand between the parties and the court. The interpretation of a contract is an ex postexercise, which implies that the court can only attempt to (partially) verify eventsthat have taken place ex ante. Parties thus can often observe events that cannot beverified by the court. Events may be partially verifiable in the sense that a thirdparty such as a court cannot observe these events with the similar precision as theparties to the contract. More in particular, doctrines relating to interpretation canbe associated with the relationship between contracting parties, the third-party

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enforcer, and the extent to which the burden of information acquisition is allocatedbetween these two parties. A court’s interpretation of the contract is thus dependentupon the information available to it. This information set draws from three poten-tial sources: the information embedded by the parties in the contract itself, theinformation presented by the parties to the court ex post, and the informationavailable to the court based on its general knowledge and experience. Informationcommunicated to the court by the parties is either based on a cooperative strategy inan attempt to maximize the returns from contracting or litigation or on a non-cooperative strategy where each party individually decides what information tointroduce. The introduction of information by the parties themselves is costly.

Posner states that regarding the available information, a trade-off takes placebetween Type I errors and Type II errors.18 A Type I error means that the court willenforce a term that is not part of a contract. A Type II error, on the other hand,means that the third-party adjudicator fails to enforce terms that are part of thecontract. In particular, the interpretive regime of contracts consists of a functionthat specifies how the agent bestowed with the interpretive role, such as the court,understands possible sources of information. A fuller and broader context, in thesense of a broader base of materials, as under the subjective approach, can always bepurchased. This will, however, happen at cost of time, trouble, and the inference ofincentives.19 The introduction of information to the court is costly because it raisestransaction costs for parties. However, the costs of ex post and ex ante informationgathering interact, and more information can also help the court reach a moreefficient decision from an economic perspective. In well-developed markets, courtsshould generally allow the contextual evidence to supplement express terms butshould generally not allow contextual evidence to override the plain meaning of theexpress terms.20 As previously mentioned, an objective approach or more formalistapproach to contract interpretation would be one that limits the influence of certaintypes of information in contrast to a subjective or less formal approach where allinformation available is considered.21

Given all these considerations, it is difficult to draw conclusions on whichinterpretive strategy should be preferred. When the assumptions on the costs andbenefits of information acquisition are restricted, more specific conclusions may bedrawn. Schwartz and Scott, for example, develop a model in which parties benefitwhen contract terms are interpreted correctly on average22 and are quite risk-neutral to interpretive variance around the mean. In such a case, it would beoptimal for the court to make decisions on a minimum evidentiary basis while

18 See POSNER, 2005, n. 1.19 HERMALIN, KATZ & CRASWELL, 2007, n. 2.20 C. GOETZ & R. SCOTT, ‘The Limits of the Expanded Choice: An Analysis of the Interaction

between Express and Implied Contract Terms’, 73. California Law Review 1985, p. 261, at p. 313.21 HERMALIN, KATZ & CRASWELL, 2007, n. 2.22 SCHWARTZ & SCOTT, 2003, n. 6.

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additional interpretative efforts are costly. Other authors, on the other hand,assume that ex ante contract writing is costly and it is possible for parties to writeat least some interpretive rules that may be applied without costs. In this case, it isthus optimal for parties to leave at least some interpretive issues concerning con-tract terms to the courts. If contract-writing costs are sufficiently high, courts mayoverride these terms in favour of another interpretation.

Legal systems and harmonization instruments reflect different approaches thatcan be adopted and that enable the introduction of objective elements in the inter-pretative process. The manner in which issues of interpretation are addressed and thetypes of legal rules that play a role in interpretive strategies are largely dependentupon the legal system in which the dispute is brought before court. Common lawjurisdictions generally take a more objective approach toward the interpretation ofcontracts. Civil law systems, on the other hand, adhere to a rather subjective theory ofcontract interpretation. Civil law systems usually do not place limits on the kind ofadmissible evidence. In addition, dependent on the jurisdiction, courts may be moreor less lenient to supply a term to remedy a contractual gap.

3.1 Types of Interpretive Strategies

Apart from the two aforementioned main interpretive strategies, the textual orobjective approach and contextual or subjective approach to contract interpreta-tion, a range of different interpretive strategies exists that can be used to fill gaps orinterpret vague terms. Economic analysis can help to identify the conditions underwhich various interpretive strategies approximate parties’ intentions and makecourts and parties better off. Economists have proposed a number of interpretivestrategies for courts.23 Some of the main strategies are discussed here. The regimeof contract interpretation influences contracting parties’ behaviour in manyrespects. This concerns decisions to breach, advance precautions, mitigation ofdamages, the gathering of information, allocation of risks, etc. The doctrines con-cerning default rules, for example, relate to the relationship between the parties andthird-party enforcer, but they are also concerned with the contracting parties’informational relationship with each other.

3.1.1 Majoritarian Default Rule

The idea of a complete contract is closely related to the notion of default rules.These are rules that are used to fill a gap in a contract if parties have foregone tospecify their actions under a particular contingency. The function of default rules isto provide guidance to third-party enforcers in interpreting contract terms on whichparties do not otherwise (clearly) agree. A judge may choose to fill a gap in thecontract with a default rule.24 Scholars in the field of law and economics literature

23 GOETZ & SCOTT, 1985, n. 20, pp. 261 et seq.24 GOETZ & SCOTT, 1985, n. 20; SCHWARTZ & SCOTT, 2003, n. 6; AYRES & GERTNER, 1992, n. 5.

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have taken different approaches to the manner in which default rules should be set.One of these approaches has been introduced by Goetz and Scott, who argue thatthe default rules should be set in such a manner that these minimize the cumulativetransaction costs incurred by parties contracting around them.25 In the case whereall parties face similar transaction costs and it is equally costly to contract aroundthe terms, this implies terms that would be favoured by a majority.

In case of a majoritarian default, parties know that courts will apply a term thatmaximizes the probability of efficient trade. Accordingly, they would be more willingto enter a contract in the first place, despite high transaction costs, than they wouldunder an alternative rule. In choosing a majoritarian default rule, the negative con-sequences of high transaction costs are reduced. In a system of a majoritarian default,the courts minimize transaction costs by choosing a mix of express and implied termsthat most contracting parties would prefer. The majority of parties might want thecourt to use implied terms because this saves contracting costs. Alternatively, amajority might believe that relying solely on express terms may be less reliable thanrelying on well-established implied terms. An example of a majoritarian default rule isthat contracting parties in a certain trade are bound by trade usages even when theyare not familiar with them. Such a majoritarian default encourages parties in theparticular area of trade to develop such usages and familiarize themselves quickly withthem. The implied majoritarian default reduces the need for prolix documents.The majoritarian default rule acts like a public good in that it creates a standard setof terms. When an interpretation dispute arises, the majoritarian rule can be appliedto the interpretation of express terms. In this sense, a plain meaning rule may alsocreate an incentive for parties to learn the common meaning of words. This reducesthe need for and costs of elaborate definition and explanation.26

The disadvantage of the majoritarian default theory is that empirics arenecessary in order to define majoritarian rules. It is essential for the legislator andjudges to uncover which rules are favoured by the majority of parties. This isdifficult to achieve. In addition, it is necessary to determine when parties willcontract around the majoritarian default. Goetz and Scott argue that default rulesshould be chosen to provide terms that would minimize cumulative transactioncosts incurred by parties contracting around them.27 In the special case where allparties face similar contracting costs and it is equally costly to contract around allterms, terms would be favoured by the majority. If some terms, on the other hand,are costlier to contract out of or into than others, it is harder for parties to specifymultifactor standards than simple rules. In this case, ceteris paribus, the defaultshould be set to terms that are easiest for parties to escape.28 This is a transaction

25 GOETZ & SCOTT, 1985, n. 20.26 G. COHEN, ‘Implied Terms and Interpretation in Contract Law’, in B. Bouckaert & G. De Geest

(eds), Encyclopedia of Law and Economics, vol. IV, Edward Elgar, Cheltenham 2000, p. 78.27 C. GOETZ & R. SCOTT, 1985, n. 20.28 SCHWARTZ & SCOTT, 2003, n. 6.

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costs reducing approach to default rules. Moreover, Posner states that the respon-sibility for choosing default rules puts an unrealistically high informational burdenon the courts.29 However, although it is true that literalism places a lighter burdenon courts, it does not mean that literalism is superior to the majoritarian approach.The choice between the two approaches is an empirical question about which I haveno evidence. Schwartz stresses the complexity of the choices that the majoritarianapproach requires courts to make, but he discounts the benefits to parties, who saveon transaction costs to the extent that courts succeed, and can design their contractsto minimize risk to the extent that courts fail.30

3.1.2 Hypothetical Standard

Posner states that the goal of contract interpretation and the manner in whichcourts should interpret contracts is to save transaction costs.31 Therefore, theincentive should be to save transaction costs by completing a vague norm in themanner that parties would have agreed upon if they would have taken the effort towrite a complete contract. Of course, it is difficult to discern which terms partieswould have used. In this case, it is important to ascertain the actual intention of theparties, and the courts will use a broad base of materials in order to do so.

This approach seems to relate very much to the subjective approach to con-tract interpretation. In order to distil the actual intention of the contracting parties,the court will indeed need to take into account the whole of the background materialsor context in which the transaction is set. Only in this manner will the court be able tocome within reach of the actual intention of parties ex ante. Account should be takenof the fact that in this case, a Type I error (see above) is more likely to arise, that is,the court will risk enforcing a term that is not part of the contract.

Benson argues in this respect that it is highly unlikely that anyone can knowwhat rule parties to an actual contract with individual differences in bargaining power,information, risk aversion would have agreed to ex ante.32 In addition, legislators andjudges, depending on their background and specialized knowledge, will have differentviews on what parties would have agreed to if they had addressed the issue. Bensoninstead argues that default rules are in fact established by collective action and that itis very difficult to discover what percent of relevant contracting parties would haveproposed the particular default rule if they had considered the issue.

3.1.3 Penalty Default

Strategic interpretation has as goal to reduce irrationality and information asymmetry.33

The strategy is to choose a ‘penalty default’: a meaning of a word that most parties to a

29 SCHWARTZ, 1998, n. 5.30 SCHWARTZ, 1998, n. 5.31 POSNER, 2003, n. 9.32 P. BENSON (ed.), A Theory of Contract Law, Cambridge University Press, Cambridge 2007.33 SCHWARTZ & SCOTT, 2003, n. 6; SCHWARTZ, 1998, n. 5.

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particular contract would not use. This strategy, which would give parties an incentiveto write a less ambiguous contract than they might otherwise, has two motivations.First, it discourages parties from externalizing the cost of interpreting the contract byway of the courts. If parties are clearer, courts will have less work to do. Second, itdiscourages parties from opportunistically concealing information from each other. Ifone party knows about the ambiguity of a particular word and prefers the majoritarianmeaning and the other party does not know about the ambiguity, then the first partywould have no incentive to disclose the ambiguity to the second, unless a penaltydefault rule held the informed party to the less favourable meaning. Ayres and Gertnerstate that textualism may be considered as a type of penalty default rule in the sense thatit prevents strategic obfuscation by limiting judicial inquiries to the face of the text.34

The third-party enforcer should not seek to consult contextual elements. Anotherexample offered by Ayres and Gertner is the doctrine of contra proferentem, thedoctrine under which ambiguous terms are interpreted against the interest of thedrafting party. This rule serves as an incentive for the drafter to choose clear languageand will disclose to the other party the meaning of the relevant terms. Penalty defaultsthus are terms that operate as a penalty for non-disclosure. This can also be considereda type of information-forcing approach.

3.1.4 Efficiency

Another strategy is for the court to enforce whatever term would be efficient in theparticular case. One can derive this term by asking the question, ‘Supposing thattransaction costs had been zero at the time of contracting, what would the partieshave done?’. Buyer and seller would have anticipated their dispute about the mean-ing of a vague term and either chosen a more precise term (if trade is still efficient)or not made a deal (if trade is not still efficient). What they would have donedepends on the costs and values of the trade. The difference between this strategyand the majoritarian default is the difference between a standard and a rule.The court chooses whatever is efficient for the contract in dispute rather thanenforcing whatever term is efficient for the majority of parties who enter similaror identical contracts. This approach thus advocates choosing default rules for theirsubstantive efficiency. This approach is especially appealing in settings with net-work externalities, adverse selection, and bounded rationality in the contractingenvironment. Under these conditions, parties are then reluctant to depart fromfamiliar and widely used terms. Korobkin, for example, illustrates that cognitiveand social-psychological factors induce parties to stick to default contract terms thatthey would actually be better off contracting around.35 Kahan and Klausner haveargued that the network externalities that we find in the corporate and businessenvironment regarding contracting practices are due to the regular use of

34 AYRES & GERTNER, 1992, n. 5.35 R. KOROBKIN, ‘The Status Quo Bias and Contract Default Rules’, 83. Cornell Law Review 1998,

pp. 608 et seq.

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standardized forms.36 The value of these forms depends on the population of theusers that have invested their expertise in the production of these forms.

Which rules are considered efficiency-enforcing default rules depends verymuch on the context. This perspective supposes that the third-party enforcer canchoose from a wide range of available defaults and imply whichever term is efficientin a particular situation. Kahan and Klausner argue that efficiency effects may becreated by the regular use of standardized forms. Another element that plays a rolehere is that this perspective assumes that the court is able to enforce efficient terms.However, the court is also affected by bounded rationality, information asymme-tries, and cognitive biases, which may lead to interpretive errors. In addition, thecourt would need to acquire both ex ante and ex post information on the contractualsetting in order to determine the most efficient outcome or term at the time of thedispute and taking into account the turn of events that have lead to the dispute inthe first place. In short, high expectations are placed upon the third-party enforcerunder a strategy of efficiency.

4. Application to the Feasibility Study’s Rules on Interpretation

Article 56(1) of the Feasibility Study reveals that the ‘contract is to be interpretedaccording to the common intention of the parties even if this differs from the literalmeaning of the expressions used in it’. This encompasses a subjective (or contextual)approach to contract interpretation. Paragraph (1) seems to follow the approach ofthe civil law systems, where the common intention prevails over the plain meaningof words or the text within the four corners of the document. However,Article 56(3) of the Feasibility Study adopts a more objective approach: the contractis to be interpreted according to the meaning that a reasonable person would give toit if an intention cannot be established under Article 56(1) and (2). Article 58 alsoadopts a more objective approach: ‘Expressions used in a contract are to be inter-preted in the light of the contract as a whole’. The rules mentioned in the FeasibilityStudy generally appear as reproductions of the rules contained in the Draft CommonFrame of Reference37 and the Principles of European Contract Law.38

The traditional view in relation to contract interpretation is that but for thecost, contracting parties would write complete contracts. Contract law – and this isalso true for instruments such as the Feasibility Study – may increase efficiency incases where contracting costs prevent parties from solving contracting problems.The justification for defaults is thus that it does for contracting parties what they

36 M. KAHAN & M. KLAUSNER, ‘Path Dependence in Corporate Contracting: Increasing Returns,

Herd Behavior and Cognitive Biases’, 74. Washington University Law Quarterly 1996, pp. 347 et seq.37 C. VON BAR et al. (eds), Principles, Definitions and Model Rules of European Private Law: Draft

Common Frame of Reference (DCFR), outline edition, available at <http://ec.europa.eu/justice/

contract/files/european-private-law_en.pdf>.38 Commission on European Contract Law (ed.), Principles of European Contract Law (PECL),

available at <http://frontpage.cbs.dk/law/commission_on_european_contract_law/>.

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would have done for themselves had their contracting costs been lower. Accordingto Schwartz and Scott, there are three criteria for a good default: the default must be(1) conditioned on only a few possible states of the world, (2) relatively simple inform, and (3) efficient for a wide variety of contract parties.39 The third criterion ispossibly most difficult to satisfy. Usually, parties in large economies are heteroge-neous, and default rules would be too expensive to create if efficient solutions wereparty-specific.

However, parties that choose the Feasibility Study to govern their contractualrelationship are unlikely to qualify as being heterogeneous. It seems to me that, if atall, medium-sized firms in international transactions will choose the Feasibility Studyto govern their contract. Large companies will not make use of an optional instru-ment such as the Feasibility Study. In the case of international transactions, they willbe able to (or at least they will try to) ‘dictate’ the terms and conditions of the contractand/or make a choice for one of the existing national contract laws.40 In addition,large firms are able to operate nationally through their subsidiaries, which impliesthat strictly speaking, they often do not even contract across borders. Small firms donot typically trade across borders. Also, consumers will likely not make use of themodel rules in the Feasibility Study. Consumers tend to shop mostly locally (i.e., closeto their place of residence), independently of whether they have to cross a border ornot.41 Thus, it will be medium-sized firms that may make use of the Feasibility Studyin the future. This is a major difference with the existing national contract laws (thesecontract laws need to contain default rules for a multitude of contract parties).

Against that background, I do not believe that the subjective approach ofArticle 56(1) should have been chosen as the default approach. I agree withSchwartz and Scott that firms probably typically prefer courts to adhere as closelyas is possible to the ordinary meanings of the words that the parties used, that is, inmy opinion, firms typically prefer the textualist approach.42 At the same time, thetextualist theory will not suit all parties all of the time. Therefore, parties shouldhave the possibility to contract around the textualist default. It should be noted,however, that ultimately, the preference of firms between the objective and sub-jective approaches is an empirical question on which I have no real evidence.

Article 56(2) of the Feasibility Study incorporates a penalty default rule:

If one party intended an expression used in the contract to have a particular

meaning, and at the time of the conclusion of the contract the other party was

39 SCHWARTZ & SCOTT, 2003, n. 6.40 See also J. BASEDOW, ‘Un droit commun des contrats pour le marche commun’, 50. Revue

Internationale de Droit Compare 1998, pp. 7 et seq.41 ‘Verkehrsverhalten im Kanton Zurich 1994’, Statistische Berichte des Kantons Zurich, Heft 1/1996,

cited by G. WAGNER, ‘The Economics of Harmonization: The Case of Contract Law’, 39. Common

Market Law Review 2002, p. 995, at p. 1016.42 SCHWARTZ & SCOTT, 2003, n. 6.

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aware, or could be expected to have been aware, of this intention, the expression

is to be interpreted in the way intended by the first party.

Article 63 of the Feasibility Study may also be characterized as a penaltydefault rule:

Where . . . there is doubt about the meaning of a term which has not been

individually negotiated, an interpretation of the term against the party who

supplied it is to be preferred.

Article 57 establishes a matrix of relevant matters that may be taken intoaccount when interpreting the contract, including the circumstances in which thecontract was concluded (e.g., preliminary negotiations), the conduct of the parties,the interpretation that has already been given by the parties to terms or expressions,the meaning commonly given to terms or expressions in the branch of activityconcerned, the nature and purpose of the contract, usages, and good faith and fairdealing.

Good faith and fair dealing impose moral standards of conduct on parties,which may override the explicit terms of the contract if these do not satisfy require-ments of decency, fairness, or reasonableness. Any attempt to provide a single,unifying definition of good faith and fair dealing becomes reductive. This is especiallytrue for an instrument such as the Feasibility Study, as definitions of decency, fair-ness, or reasonableness will be even more difficult to formulate in a multinationalcontext. Parties’ conduct must thus be evaluated on a case-by-case basis by courts,which may result in judicial errors. Especially in the context of the Feasibility Study,judicial errors seem likely since – assuming parties chose to have their contractgoverned by the Feasibility Study – national courts of, for example, EU MemberStates would have to evaluate decency in, presumably, international contexts.

In law and economics, a good faith and fair dealing obligation is consideredan implied contractual term that prohibits opportunistic behaviour. Opportunisticbehaviour occurs when a party behaves contrary to the other party’s understandingof the contract, but not necessarily contrary to the agreement’s explicit terms,leading to a transfer of wealth from the other party to the opportunistic party.I believe good faith and fair dealing should be a rule that parties are free to contractaround. This is not explicitly mentioned in the Feasibility Study, and parties thatwould choose to apply the Feasibility Study to their contract thus explicitly have tostate this in their contract, which raises transaction costs.

Critics of the doctrine of good faith and fair dealing in contract law haveargued that the doctrine creates too much uncertainty. However, it is not certainthat this argument holds for relational contracts in general or for internationalcontracts in particular. In long-term agreements, any uncertainty that results fromthe judicial construction of the good faith or fair dealing requirement may be

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overshadowed by the uncertain risks of entering into the relationship in the firstplace. In theory, parties can contract around any contingency, but their inability topredict the future places inherent limits on their ability to manage risks throughcontracting. The longer and more intense the relationship is, the more difficult it isfor parties to foresee potential problems. The chance that one party will act in badfaith raises the cost of entering into the contract in the first place, potentiallyrendering the cost of negotiations prohibitive. Therefore, the doctrine of good faithand fair dealing can act as insurance against these risks and reduce transactioncosts.

In relation to the other ‘relevant matters’ of Article 57 of the FeasibilityStudy, I am of the opinion that courts, in principle, should use narrow evidentiarybases when interpreting agreements. Again, I assume that the Feasibility Study willprimarily be used by medium-sized firms in international transactions. On the otherhand, courts should also comply with party requests to broaden the base that isapplicable to them. This implication differs from Article 57.

Article 61 of the Feasibility Study states that ‘An interpretation whichrenders the terms of the contract effective is to be preferred to one which wouldnot’. I am of the opinion that this rule is generally useful and corresponds with thepreferences of most contracting parties. I do note, however, that these rules maylead parties to invest less resources in contract drafting.

Finally, I believe Articles 60 (‘Terms which have been individually nego-tiated prevail over those which have not’) and 59 (‘Where a contract document is intwo or more language versions none of which is stated to be authoritative and wherethere is a discrepancy between the versions, there is a preference for interpretationaccording to the version in which the contract was originally drawn up’) containrules that parties generally prefer. These rules are likely to lower transactions costs.

5. Conclusion

In this paper, I have used an economic approach to analyse the rules on contractinterpretation of the Feasibility Study. My main findings are twofold.

First, I do not think the subjective approach of 56(1) should have beenchosen as the default approach. I assume that primarily medium-sized firms ininternational transactions will choose the Feasibility Study to govern their contract.As explained, firms, in my opinion, typically prefer courts to adhere as closely aspossible to the ordinary meaning of the words in the agreement. That is to say, firmstypically prefer the textualist approach. The textualist theory will not always suitcontracting parties. Contracting parties should have the possibility to contractaround the textualist default.

Second, I am critical of Article 57 of the Feasibility Study. In principle –assuming again that primarily medium-sized firms in international transactions willchoose the Feasibility Study to govern their contract – courts should use narrowevidentiary bases when interpreting contracts. Nevertheless, courts should also

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comply with party requests to broaden the base that is applicable to them. Thisapproach is different from that of the Feasibility Study.

Summary

In this paper, I use an economic approach to analyse the rules on contract inter-pretation of the Feasibility Study. The main findings of this paper are twofold. First,assuming that primarily (medium-sized) firms in international transactions willchoose the Feasibility Study to govern their contract, the subjective (or contextual)approach of Article 56 of the Feasibility Study should not have been chosen as thedefault approach. Firms typically prefer courts to adhere as closely as possible to theordinary meaning of the words in the agreement. That is to say, firms typicallyprefer the textualist (or objective) approach. The textualist theory will not alwayssuit contracting parties. Therefore, parties should have the possibility to contractaround the textualist default. Second, Article 57 of the Feasibility Study is lessadvantageous for contracting parties. In principle – assuming again that primarily(medium-sized) firms in international transactions will choose the Feasibility Studyto govern their contract – courts should use narrow evidentiary bases when inter-preting contracts. However, courts should also comply with party requests tobroaden the base that is applicable to them.

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List of Contributors

EWOUD HONDIUSProfessor of European Private LawMolengraaff Institute for Private LawUtrecht UniversityJanskerkhof 123512 BL UtrechtThe NetherlandsTel: (030) 253 71 67Fax: (030) 253 72 03E-mail: E.H.Hondius@uu.nl

OLE LANDOProfessor of LawCopenhagen Business SchoolHowitzvej 13, 3. sal2000 FrederiksbergTel.: +45 3815 2638Fax:+45 3815 2610E-mail: ol.jur@cbs.dk

PROF. DR MARCO LOOSProfessor of Private Law & EuropeanConsumer LawUniversity of Amsterdam,Faculty of LawCentre for the Study of EuropeanContract LawPO Box 10301000 BA AmsterdamThe NetherlandsE-mail: m.b.m.loos@uva.nl

NATALI HELBERGERSenior ResearcherInstitute for Information LawUniversity of AmsterdamKloveniersburgwal 481012 CX AmsterdamThe NetherlandsTel.: +31 20 - 525 36 46Fax: +31 20 - 525 30 33E-mail: helberger@ivir.nl

LUCIE GUIBAULTAssistant Professor of Copyrightand Intellectual Property LawInstitute for Information LawUniversity of AmsterdamKloveniersburgwal 481012 CX AmsterdamThe NetherlandsTel.: +31 20 - 525 39 47Fax: +31 20 - 525 30 33E-mail: L.Guibault@uva.nl

CHANTAL MAKAssociate Professor, CSECLOudemanhuispoort 4-61012 CN AmsterdamRoom: A109Tel.: 0205253474/0205253519E-mail: C.Mak@uva.nlWebsite: http://home.medewerker.uva.nl/c.mak/

CHIARA CRAVETTOPhD candidate,Universita degli studi di MilanoAvvocatoC.so Duca Degli Abruzzi,1510129 Torino (TO)ItalyE-mail: chiara.cravetto@unimi.it

PROF. AVV. BARBARA PASAProfessore Associato di Diritto privatoComparato Docente di Sistemi giuridicicomparati, Facolta’ di Giurisprudenza,TorinoIndirizzo: Dipartimento di ScienzeGiuridiche Via S. Ottavio 5410124 Torino (I)ItalyE-mail: barbara.pasa@unito.it

European Review of Private Law 6-2011[1041–1043] � Kluwer Law International BV | Printed in the Great Britain

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PROF. DR ANNICK DE BOECKAssociate professor Hogeschool-Universiteit Brussel (KUB)Visiting professor UniversiteitAntwerpenAffiliated Researcher KULeuvenLawyerBelgiumE-mail: annick.deboeck@ua.ac.be

ERIK MONSENProfessor i rettsvitenskap / Law ProfessorDet juridiske fakultet,UiB / Law Faculty, University of BergenP.b. 7806, 5020 BergenProfessor IIUniversitetet i Stavanger, Handelshøgs-kolen / UiS Business SchoolTel: þ47 5558 9649Fax: þ47 5558 9571E-mail: Erik.Monsen@jur.uib.noWebsite: www.uib.no/jur

ROBERT HARDYLawyerLatham & Watkins LLPBoulevard du Regent, 43-44Brussels B-1000BelgiumDirect Tel.: þ32.2.788.6304Fax: þ32.2.788.6060Email: robert.hardy@lw.comWebsite: www.lw.com

PROF. DR THOMAS PFEIFFERProrektor fur internationaleBeziehungen Vice-Rector forInternational Affairs andDirektor des Instituts fur auslandischesund internationalesPrivat- und Wirtschaftsrechtder Universitat HeidelbergAugustinergasse 969117 HeidelbergGermanyTel.: þ49 (0)6221-54-2240Fax: þ49 (0)6221-54-3632E-mail: pfeiffer@ipr.uni-heidelberg.deWebiste: www.ipr.uni-heidelberg.de

ILSE SAMOYProfessor of Private LawLeuven UniversityBelgiumE-mail: Ilse.Samoy@law.kuleuven.be

TAM DANG VUInstitute for the Law of ObligationsTiensestraat 41 - Box 34453000 LeuvenRoom: 03.28Tel.: +32 16 325388E-mail: tam.dangvu@law.kuleuven.be

SANNE JANSENAssistentInstituut voor VerbintenissenrechtKULeuvenTiensestraat413000 LeuvenBelgiumE-mail: Sanne.Jansen@law.kuleuven.be

REGINE FELTKAMPProfessor of Private LawProfessor V.U.B.Edmond Tollenaerestraat 56-76B - 1020 BrusselBelgiumTel.: þ32.2.427.39.00Fax: þ32.2.425.39.00Mobile: þ32.476.380.592E-mail: rfeltkamp@mac.com

FREDERIC VANBOSSELEAttorney at the Brussels Bar(KOAN Legal Strategies)BelgiumE-mail: fvb@koan.eu

SONJA KRUISINGAAssociate ProfessorMolengraaff Institute for Private LawUtrecht UniversityJanskerkhof 123512 BL UtrechtThe NetherlandsTel.: (030) 253 71 94Fax: (030) 253 72 03E-mail: S.A.Kruisinga@uu.nl

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PROF. KARE LILLEHOLTDepartment of Private LawBox 6706 St. Olavs plassNO-0130 OsloNorwayTel.: þ47 2285 9604Mobile: þ47 9971 5468Fax: þ47 2285 9620E-mail: kare.lilleholt@jus.uio.no

PROF. JACQUES HERBOTSKatholieke Universiteit LeuvenBelgiumE-mail: jherbots2009@yahoo.com

ANNE KEIRSEProfessor of Private LawMolengraaff Institute for Private LawUtrecht UniversityJanskerkhof 123512 BL UtrechtThe NetherlandsTel.: (030) 253 71 92Fax: (030) 253 72 03E-mail: A.L.M.Keirse@uu.nl

PIETRO SIRENAUniversita degli Studi di SienaVia P.A. Mattioli 1053100 SienaItalyTel.: þ39-0577.23.52.66Fax: þ39-0577.23.52.08E-mail: sirena@unisi.it

ANGEL CARRASCO PERERAProfessor of Civil LawUniversity of Castilla-La ManchaToledo, SpainE-mail: Angel.Carrasco@uclm.es

KAROLINA LYCZKOWSKADoctoral ResearcherUniversity of Castilla-La ManchaToledo, SpainE-mail: karolycz@gmail.com

PROF. DR. WINFRIED TILMANNOf CounselDusseldorfKennedydamm 24Dusseldorf 40476GermanyTel.: Work: þ49 211 1368 352Fax: þ49 211 13 68 100E-mail: winfried.tilmann@hoganlovells.com

REBECKA ZINSERDeputy DirectorGerman-Sino Institute of Legal StudiesLaw of the Universities Goettingenand NanjingE-mail: dcir.nanjing@gmail.com.

MARLENE STEININGERResearch AssistantAustrian Academy of SciencesInstitute for European Tort LawReichsratsstrasse 17/2A-1010 ViennaAustriaTel.: (þ43) 4277 29666Fax: (þ43) 4277 29670E-mail: marlene.steininger@oeaw.ac.at

VANESSA WILCOXResearch AssistantAustrian Academy of SciencesInstitute for European Tort LawReichsratsstrasse 17/2A-1010 ViennaAustriaTel.: (þ43-1) 4277 29660Fax: (þ43-1) 4277 29670E-mail: vanessa.wilcox@oeaw.ac.at

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european review of private law revue européenne de droit privéeuropäische zeitschrift für privatrecht

ContactMarie-José van der Heijden, e-mail: erpl@kluwerlaw.com

EditorsE.H. Hondius, Universiteit Utrecht, Molengraaff Instituut voor Privaatrecht, Utrecht, The Netherlands.

M.E. Storme, Katholieke Universiteit Leuven, Belgium

Editorial Board

W. Cairns, Manchester Metropolitan University, England, U.K.; Florence G’Sell-Macrez, Université

Paris 1, France; J.F. Gerkens, Université de Liège, Belgium; A. Janssen, Westfälische Wilhelms-

Universität Münster, Germany, and Università di Torino, Italy; R. Jox, Katholische Hochschule

Nordrhein-Westfalen, Abteilung Köln, Germany; D.R. MacDonald, University of Dundee, Scotland, U.K.; M. Martín-Casals, Universitat de Girona, Spain; B. Pozzo, Università dell’Insubria-Como, Italy; S. Whittaker, St. John’s College, Oxford University, Oxford, England, U.K.

Advisory Board

E. Baginska, Nicholas Copernicus University, Torun, Poland; C. von Bar, Institut für Rechtsver-

gleichung, Osnabrück, Germany; H. Beale, Law Commission, London, England, U.K.; R. Clark, Faculty of Law, University College Dublin, Republic of Ireland; F. Ferrari, Università degli Studi

di Verona, Italy; A. Gambaro, Università degli Studi di Milano, Italy; G. Garcia Cantero, Depar-

tamento de derecho privado, Universidad de Zaragoza, Aragon, Spain; J. Ghestin, Université de

Paris, France; M. Hesselink, Universiteit van Amsterdam, The Netherlands; C. Jamin, Université de

Lille II, France; K.D. Kerameus, Ethniko kai kapodistriako Panepistimio Athinon, Athinai, Greece; H. Kötz, Bucerius Law School, Hamburg, Germany; O. Lando, Juridisk Institut Handelshojskolen

Copenhagen, Denmark; Kåre Lilleholt, Universitetet i Oslo, Institutt for privatrett, Oslo, Norway; B. Lurger, Karl-Franzens-Universität Graz, Austria; H.L. MacQueen, Department of Scots Law, University of Edinburgh, Scotland, U.K.; B.S. Markesinis, University College London, England, U.K./University of Texas, Austin, Texas, U.S.A.; V. Mikelenas, Teises Fakultetas, Vilniaus

Universi teto, Lithuania; A. Pinto Monteiro, Universidade de Coimbra, Faculdade de direito, Portugal; C. Ramberg, University of Gothenburg, Sweden; R. Sacco, Università degli Studi di

Torino, Facoltà di Giurisprudenza, Italy; D. Spielmann, European Court of Human Rights, Stras-

bourg, France; L. Tichy, Univerzita Karlova, Prague, the Czech Republic; F. Werro, Faculté de droit, Université de Fribourg, Switzerland; T. Wilhelmsson, Helsingen Ylio pisto, Finland.

Founded in 1992 by Ewoud Hondius and Marcel Storme

ISSN 0928-9801

All Rights Reserved. ©2011 Kluwer Law InternationalNo part of the material protected by this copyright notice may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the copyright owner.

Typeface ITC Bodoni TwelveDesign Dingoj | Peter Oosterhout, Diemen-AmsterdamPrinted and Bound by CPI Group (UK) Ltd, Croydon, CR0 4YY.

european review of private law revue européenne de droit privéeuropäische zeitschrift für privatrecht

Guidelines for authors

The European Review of Private Law aims to provide a forum which facilitates the development of European Private Law. It publishes work of interest to academics and practitioners across European boundaries. Comparative work in any fi eld of private law is welcomed. The journal deals especially with comparative case law. Work focusing on one jurisdiction alone is accepted, provided it has a strong cross-border interest.The Review requires the submission of manuscripts by e-mail attachment, preferably in Word. Please do not forget to add your complete mailing address, telephone number, fax number and/or e-mail address when you submit your manuscript.Manuscripts should be written in standard English, French or German.

Directives pour les Auteurs

La Revue européenne de droit privé a pour objectif de faciliter, par la constitution d’un forum, la mise au point d’un Droit Privé Européen. Elle publie des articles susceptibles d’intéresser aussi bien l’universitaire que le praticien, sur un plan européen. Nous serons heureux d’ouvrir nos pages aux travaux comparatifs dans tout domaine du droit privé. La Revue est consacrée en particulier á l’étude comparée de la jurisprudence. Les travaux concentrés sur une seule juridic-tion sont admissibles, à condition de présenter un intérêt dépassant les frontières.Nous souhaitons recevoir les textes par courrier électronique, de préférence en Word. Ajoutez l’adresse postale compléte et le numéro de téléphone de l’auteur, un numéro de télécopie et l’adresse électronique.Les textes doivent être rédigés en langue anglaise, française ou allemande standard.

Leitfaden für Autoren

Die Europäische Zeitschrift für Privatrecht will ein Forum bieten, um die Entwicklung des europäischen Zivilrechts zu fördern. Sie veröffentlicht Arbeiten, die für Akademiker und Juristen in ganz Europa grenzüberschreitend von Interesse sind. Vergleichende Untersuchungen aus jedem Bereich des Zivilrechts sind willkommen. Die Zeitschrift befasst sich insbesondere mit vergleichender Rechtsprechung. Artikel, die sich auf ein einziges Hoheitsgebiet konzentrieren, können angenommen werden, wenn sie von besonderem grenzüberschreitenden Interesse sind. Wir möchten ihre Beiträge per E-Mail erhalten und bevorzugen Dateien in Word. Bitte geben Sie ihre Anschrift, Telefonnummer, Telefaxnummer und/oder E-Mailadresse an. Manuskripte sind in korrektem Englisch, Französisch oder Deutsch zu verfassen.

Style guide

A style guide for contributors can be found in volume 19, issue No. 1 (2011), pages 155–160, and online at http://www.kluwerlawonline.com/europeanreviewofprivatelaw.

Index

An annual index will be published in issue No. 6 of each volume.