In Shakespeare's play the Merchant of Venice, Shylock, a Jewish moneylender, is an alien in the Venetian Christian community. He reaches an agreement with the merchant, Antonio, to lend his friend three thousand ducats and be repaid within three months. In case of default, the bond grants Shylock a legal claim for one pound of Antonio's flesh. The backdrop for this aberrant covenant is the great disdain Shylock and Antonio hold towards each other, their different religious backgrounds, the deep loathing each one possesses for the other, and their lack of mutual trust. Eventually, the loan is not reimbursed, and Shylock ends up pleading its effectuation. He passionately appeals for a strict enforcement of the bond, but later on he is disheartened. Apparently, the parties have not negotiated the likely risk of bleeding in the incision process. This lack of contractual stipulation invalidates the loan agreement as it stands and renders it unenforceable since human flesh cannot be cut without the drop of blood.
Though melodramatic, Shakespeare's play reinforces the perception of contract as an act of social agents. It portrays the alienation experienced by an outsider who seeks justice in another's legal system. More so, it highlights the need of such persons for detailed agreements that minimise uncertainty and ambiguity. Contrariwise, if the agreement had been founded on mutual trust and shared assumptions, the parties would have had a better chance of resolving their disputes in more balanced ways than Shakespeare's account. This reading of the play asserts that contracts are binding promises embedded in specific legal, social and cultural meanings. Parties who come from diverse life experiences, who are unversed in each other's repertoires and discourses, who lack trust in the other party, are reasonably expected to favour a completely stipulated agreement over an incomplete one, in an attempt to compensate for the lack of commonalities and shared expectations.
In this well-crafted book, Gianluigi Passarelli acknowledges the challenges posed by diversity and incomplete commercial contracts. His book is confined, though, to the conflict of laws arena and the paradigm case of international contracts which do not specify the applicable law (21). The problem, he sets out to examine, is how supranational legislators, and EU lawmakers in particular, should address the silence of these agreements. Originating in a doctoral study, the book offers four multi-sectional chapters organised in a dissertation-like structure. It commences with an introductory overview and methodology presentation, followed by theoretical analysis of underlying considerations and tentative balances, a thorough exploration of different policy approaches and lastly a concluding chapter. On a content level, the book probes two competing approaches to the problem at hand. One approach values the flexibility of open-ended contracts and embraces interpretive instruments to resolve the contract imperfection. The second approach values certainty and proposes predetermined terms as ready-to-use complements to the incomplete contracts.
Passarelli illustrates the first approach by reference to the US Restatements on the Conflict of Laws and the European Convention on the Law Applicable to Contractual Obligations 1980 (Rome Convention). The Rome Convention, for example, offers a general principle which applies the law of the country ‘with which’ the contract ‘is most closely connected’ (Article 4) (77–8). It also offers the ‘characteristic performance rule’ which mainly refers to the law of the performing party's place of residence (Article 4(2)) (80). The exemplary instrument, however, is the ‘escape clause’ (Article 4(5)). This clause is an interpretive tool which applies the law of any other country with the ‘closest connection’ to the matter at hand. The ‘escape clause’, notes Passarelli, has three interpretations: the ‘weaker presumption’ one which allows leniency in choice and application, the ‘strong presumption’ one which utilises the clause only in exceptional cases (83–7) and the ‘pragmatic’ interpretation which mostly relies on the ‘commercial expectations’ of the parties (89). With these instruments, the Rome Convention offers flexibility, enhances the parties’ autonomy and reinforces ‘the role of the interpreter’ in his or her quest for answer (91).
The second approach is illustrated by the Regulation (EC) No 593/2008 of 17 June 2018 on the applicable law to Contractual Obligations (Rome I Regulation). This approach replaces the Convention's flexibility with predetermined ‘hard-and-fast rules’ that can be ‘readily foreseen by the parties’ (97–8). Thus, for instance, the Regulation lists the applicable law for many types of contracts such as ‘sales of goods’, ‘provision of services’, ‘tenancy’, ‘franchising contracts’ and ‘distribution contracts’ (Article 4). It also embraces a narrow interpretation of the ‘escape clause’ considering it a ‘last resort’ to be used in exceptional cases only (128). In doing so, the Rome I Regulation narrows the court discretion and turns the whole process to a very technical and formalistic one, notes the author (168).
Passarelli argues that these predetermined rules would eventually ‘lead to inequitable’ results. They may, for instance, invite frequent application of ‘some national laws (in particular where the stronger contractual parties are located)’ (193). They could also cause ‘unfairness, which may develop from power imbalances during the resolution of economic conflicts’ (198). Passarelli urges EU lawmakers, and supranational ones in general, to yield to market forces and rely on flexible interpretive tools to reach suitable case-by-case solutions. His proposition clearly favours a laissez-faire policy, one which places confidence in a minimal legal regimentation of the economy and in the vital roles of the parties and the interpreter. And though he does not oppose a complete contract, he contests legislative policies which enforce paternalistic terms to reach one.
Intriguingly, while economic literature acknowledges the high transaction costs of incomplete contracts and offers solutions, such as allocating control or granting proprietary rights, to resolve gaps and uncertainties, Passarelli, who utilises economic vindications to uphold his thesis, suggests accepting ‘incompleteness’. He contends that it diminishes transaction costs by leading parties to focus on main terms and spend less time drafting ‘the perfect contract’ (41–5). Debatable as it seems, he urges policymakers to enhance commercial trust between the parties (46) and place confidence in socially accepted norms and economic practices (such as ‘past practices’, ‘trade usages’ and ‘customs’ (59–61, 68)) to diminish the conflict of law hurdle (26). Citing a leading scholar in law and economics, Passarelli reiterates Richard Posner's view which underscores the ‘general loss of confidence in the ability of legal scholars to solve the problems of modern society’ (17) and places trust in (presumably, the supranational) ‘market's ability to self-discipline and protect economic interest of the market actors’ (72).
Though the Rome I Regulation is widely perceived as a welcomed harmonisation step aiming at diminishing transaction costs and competitive disadvantages stemming from legal diversity, professional advice costs and possible litigation costs for small and medium-size enterprises, the book warns against this perception. The book argues that the ‘exaggerated harmonisation’ effort made in the Rome I Regulation would not spare those costs, but could, in fact, increase them by producing information complexities, classification problems and unfair balances (54). Furthermore, it would obviate the benefits of a recurring ‘trial and error’ learning process offered by case-to-case adjudication needed to constantly improve legal policies (25, 30, 33). These benefits cannot be reaped during legislative preparatory work deliberated beforehand. For these reasons, the book favours a more flexible approach to the problem (70–1, 99).
On the whole, Passarelli's study will be a welcome one, especially by scholars of private international law, EU law and globalisation law. His research is very timely given the growing turn to global commerce as a driver to local economies, and the mounting need to address legal hurdles produced therewith. Admittedly, reaching suitable and fair balances between parties with minimal legal regimentation is a demanding task, nevertheless, the book's thesis remains both bold and plausible. Its arguments are worthy of deliberation by policymakers. There are minor editorial errors which, I presume, would be corrected in a second edition of the book. However, I believe the book will be appreciated by all readers who value a discursive style of writing, intellectual argumentation and informative bibliography.
