Where the law of a State requires a public permission affecting the validity of the contract or its performance and neither that law nor the circumstances indicate otherwise
(a) if only one party has its place of business in that State, that party shall take the measures necessary to obtain the permission;
(b) in any other case the party whose performance requires permission shall take the necessary measures.
If the validity or the performance of a contract is subject to compliance with public permission requirements, several issues arise as to who has the burden of filing the application (see Article 6.1.14), the time for filing (see Article 6.1.15), the legal consequences of failure to obtain an administrative decision in due time (see Article 6.1.16) and the rejection of the application (see Article 6.1.17).
1. Scope of the permission requirement
The Principles do not deal with the relevance of public permission requirements. What kind of public permission is required, if any, is to be determined under the applicable law, including the rules of private international law.
Courts tend to give effect only to the public permission requirements of the lex fori, and sometimes to those prescribed by the lex contractus. Arbitral tribunals may enjoy wider discretion than courts in deciding which public permissions are relevant to the contract.
Under the relevant conflict of laws rules public permission requirements of the law of other jurisdictions connected with the contract may also come into play (see Article 9(3) of EC Regulation No. 593/2008 (Rome I); Article 11(2) of the 1994 Inter-American Convention on the Law Applicable to International Contracts). Long-arm statutes in some jurisdictions too may impose public permission requirements on licensees or subsidiaries of companies located abroad. This Article assumes that the requirements prescribed by the applicable law are to be observed.
a. Broad notion of “public permission”
The term “public permission” is to be given a broad interpretation. It includes all permission requirements established pursuant to a concern of a public nature, such as health, safety, or particular trade policies. It is irrelevant whether a required licence or permit is to be granted by a governmental or by a non-governmental institution to which Governments have delegated public authority for a specific purpose. Thus, the authorisation of payments by a private bank pursuant to foreign exchange regulations is in the nature of a “public permission” for the purposes of this Article.
b. Timing of public permission
The provisions on public permissions refer primarily to those required by the applicable law or by a regulation in force at the time of the conclusion of the contract. However, these provisions may also apply to public permissions that may be introduced after the conclusion of the contract.
c. Public permission may affect the contract in whole or in part
The provisions on public permissions apply both to those requirements affecting the contract as a whole and to those merely affecting individual terms of the contract. However, where the legal consequences of failing to obtain a public permission differ according to whether such permission affects the contract in whole or in part, different rules are established (see Articles 6.1.16 (2) and 6.1.17).
d. Public permission may affect the validity or performance of a contract
The absence of the required permission may affect the validity of a contract or render its performance impossible.
Notwithstanding differences in the legal consequences of failing to obtain a required public permission, the problems raised in connection with the application for, or the obtaining of, a public permission are the same. As to the further consequences, Article 6.1.17(2) provides that the rules on non-performance apply to a situation where the refusal of a permission makes the performance of a contract impossible in whole or in part.
2. Duty to inform of the existence of a public permission requirement
There is as a rule no duty to provide information concerning the requirement to obtain a public permission. However, the existence of such a requirement must be disclosed by the party upon whom rests the burden of obtaining a public permission when such permission is required under rules which are not generally accessible. Thus, the overriding principle of good faith and fair dealing (see Article 1.7) may require the party whose place of business is located in the State requiring a public permission to inform the other party of the existence of that requirement. Failure to do so may lead a court to disregard the permission requirement altogether or to conclude that the party who failed to communicate the existence of the requirement implicitly guaranteed that it would be obtained.
3. Which party is bound to take measures to obtain a public permission
a. Party with place of business in State requiring public permission
The rule set out in sub-paragraph (a) of this Article which places the burden to apply on the party who has its place of business in the State which requires the relevant public permission reflects current international trade practices. It is that party who is in the best position to apply promptly for a public permission, since it is probably more familiar with the application requirements and procedures.
If a party needs further information from the other to file an application (e.g. information relating to the final destination of the goods, or information as to the purpose or subject matter of the contract), the other party must furnish such information pursuant to the duty of co-operation (see Article 5.1.3). Should that party not furnish such information it may not rely on the obligation of the first party. This duty to cooperate with the other party applies even if the contract stipulates that one of the parties bears the burden of applying for a public permission. Thus, if the parties have incorporated in their contract the term “ex works”, which imposes far-reaching obligations on the buyer, the seller is nevertheless bound “to render the buyer, at the latter’s request, risk and expense, every assistance in obtaining […] any export licence or other official authorisation necessary for the export of the goods” (INCOTERMS 2000, A 2, see also B 2).
b. Party whose performance requires public permission
Sub-paragraph (b) of this Article contemplates those cases where none of the parties has a place of business in the State requiring the permission. It also envisions a contract which is truly international notwithstanding the fact that both parties have their places of business in that State. In either case, the party whose performance requires the public permission is bound to take the necessary measures to obtain such a permission.
1. A, a contractor whose place of business is located in country X, sells a plant on a turn-key basis to B, whose place of business is located in country Y. Acceptance is to take place after performance tests in country Y. On the one hand, A has to apply for all public permissions required in country X, as well as for permissions in third countries (transit, sub-deliveries). On the other, B has to apply for import licences, as well as for all other permissions relating to the site, the use of local services, and the technology imported into country Y. A is also bound to furnish the information and documentation needed by B to obtain import licences and other permissions related to B’s performance. A is not responsible for applying for public permissions in country Y, unless this is agreed in the contract or is required, explicitly or implicitly, by the applicable law or the circumstances of the case (e.g. the applicable law may require certain technical permits in country Y to be applied for by the licensor).
c. Suppletory nature of provisions on public permissions
The purpose of this Article is to determine the party who must apply for a public permission in those cases where it is not clear who is to bear that burden. It is a suppletory rule to be applied when neither the contract, nor the law requiring the permission or the circumstances specify which party is under an obligation to apply for the required public permission.
2. The law of country X subordinates the granting of an export licence for computers to a sworn declaration indicating the country where the computers will ultimately be sent. However, neither the contract nor the law of country X indicates which party bears the burden of applying for a licence. Since it is reasonable to suppose that only the buyer knows what it plans to do with the computers, the policy behind the rule imposing the permission requirement leads to the conclusion that it is the buyer who has to file the application.
4. Nature of obligation to take the “necessary measures”
The party who has to apply for the permission must take the “necessary measures” to obtain such permission, but is not responsible for the outcome of the application. That party is bound to exhaust available local remedies to obtain the permission, provided that they have a good chance of success and that resorting to local remedies appears reasonable in view of the circumstances of the case (e.g. the value of the transaction, time constraints).
Which measures have to be taken depends on the relevant regulations and the procedural mechanisms available in the State where the permission is to be granted. The obligation is in the nature of an obligation of best efforts (see Article 5.1.4(2)).
3. A, a principal whose place of business is in country X, enters into a contract with B, a self-employed agent, whose place of business is in country Y. B, who has no authority to conclude contracts, is to represent A in countries Y and Z. Among other duties, B must exhibit A’s goods at a fair which is to take place in country Z. B must apply for all permissions which are required to undertake these professional activities in countries Y and Z. B’s duty to take “necessary measures” includes that of applying for public permissions required to import A’s goods temporarily into countries Y and Z, as well as any other public permission that would enable B to participate in the fair. However, unless otherwise agreed, B is not required to apply for public permissions required for goods imported through B by customers located in countries Y and Z.