By Sarah Arora

Abstract

The principle of Pacta Sunt Servanda is a fundamental concept in international law that governs the way nations enter into and abide by their commitments under international agreements. Translated from Latin as “agreements must be kept,” this principle reflects the notion that parties to an international agreement are bound by their promises and must honour them in good faith. This principle plays a critical role in international relations, shaping the way in which states interact with one another and promote the stability and predictability of the international system. 

At its core, the principle of Pacta Sunt Servanda reflects a fundamental respect for the rule of law in the international system. This principle requires that states adhere to their treaty obligations and abide by the terms of international agreements, even when doing so may be inconvenient or difficult. This respect for the rule of law is a cornerstone of the international system, providing a basis for stability and predictability in relationships between states. It allows for the creation of rules and norms that govern state behaviour, and provides a framework for resolving disputes between states when those rules are violated. This paper attempts to analyse the aforementioned principle by discovering its validity and significance in the modern day contract law.

Introduction:

Pacta Sunt Servanda essentially means “agreements must be kept,” which is a fundamental principle of contract law that has been s derived from the widely recognized Roman legal maxim  adopted in international law. The principle asserts that the terms of a contract must be honoured and complied with by the parties who have voluntarily entered into the agreement. 

Pacta Sunt Servanda was initially enforced as an uncodified custom, without any treaty or legislative backing. Nonetheless, it was eventually codified in the beginning of the 19^th century through several multilateral declarations and rulings of international tribunals, which in due course were even being adopted into both the Covenant of the League of Nations, and later the United Nations Charter. It was finally the Vienna Convention on the Law of Treaties of 1969, that first explicitly incorporated the principle of pacta sunt servanda, in its Preamble, as well as Article 26 of the Convention, that states “every treaty in force is binding upon the parties to it and must be performed by them in good faith”. This aforementioned principle of ‘good faith’ compels states to take requisite steps to fulfill the conditions of treaties, and not shirk obligations based on restrictions borne out of domestic municipal law. Despite the central importance of the principle of Pacta Sunt Servanda in international law, there have been instances in which states have failed to honour their treaty commitments. These breaches of international law have often had significant consequences, both for the states involved and for the broader international community. 

Tracing the Evolution and Significance of the Principle

The principle of “pacta sunt servanda” has a rich historical background that dates back to ancient times. In Roman law, it was regarded as a fundamental aspect of contract law. In ancient Greek law, it was known as “synallagma” or “mutual exchange.” Later, during the medieval era, the principle found its way into the canon law of the Catholic Church. The principle was also recognized in the customary law of the European nations, particularly in the law of treaties.

The principle of “pacta sunt servanda” has played a critical role in the development of international law. It is a fundamental principle that underpins the stability of international relations and the rule of law in the international system. The principle has been invoked in many important cases before international tribunals, including the International Court of Justice and the World Trade Organization dispute settlement body.

Scoping the Relevance of Pacta Sunt Servanda in Modern Contract Law

Contracts are an integral part of contemporary commercial and legal transactions. They serve as a binding agreement between parties to undertake certain obligations and responsibilities, which are legally enforceable. The principle of pacta sunt servanda, meaning “agreements must be kept,” is a fundamental principle of contract law that upholds the sanctity and enforceability of contracts and requires parties to a contract to perform their obligations in accordance with the terms of the agreement. The principle is also closely linked to the concept of good faith, which requires parties to act honestly and fairly towards each other.

In contemporary contract law, the principle of pacta sunt servanda is often invoked in disputes over contract performance. For example, if one party fails to perform its obligations under a contract, the other party may seek to enforce the contract by suing for specific performance or damages. The principle of pacta sunt servanda provides a strong basis for such claims, as it emphasizes the importance of honouring contractual obligations.

Dissecting the Nature of the Principle using Case-Laws

One of the most significant cases in recent years involving the principle of Pacta Sunt Servanda was the 2015 Iran nuclear deal. This agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA), was reached between Iran and six other nations (the United States, the United Kingdom, France, Germany, Russia, and China) and was intended to limit Iran’s nuclear program in exchange for sanctions relief. The agreement was widely hailed as a major diplomatic achievement, and its implementation was closely watched by the international community. However, in 2018, the United States unilaterally withdrew from the JCPOA, citing concerns about Iran’s compliance with the agreement and the need for a tougher stance against the country. The decision to withdraw from the agreement was widely criticized by other parties to the JCPOA, who argued that the United States was violating the principle of Pacta Sunt Servanda by failing to honour its commitments under the agreement. In response to the US withdrawal, Iran began to scale back its compliance with the JCPOA, leading to increased tensions between Iran and other signatories to the agreement. The US withdrawal from the JCPOA illustrates the challenges involved in enforcing the principle of Pacta Sunt Servanda in the international system. While the United States was technically within its rights to withdraw from the agreement, many argued that doing so violated the spirit of the agreement and undermined the credibility of the international system. The withdrawal also demonstrated the difficulty of enforcing international agreements when one party is unwilling to abide by its commitments, highlighting the need for stronger mechanisms to ensure compliance with international law.

Another example that elucidates  the importance of pacta sunt servanda can be seen in the case of Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corp., where the German Federal Supreme Court affirmed the principle of pacta sunt servanda in the context of an international contract dispute. In this case, a German shipyard had entered into a contract with an Indian shipping company to build a ship. After the contract was signed, the shipyard encountered financial difficulties and attempted to terminate the contract. The Indian shipping company sued for breach of contract, and the German court ultimately upheld the contract and ordered the shipyard to pay damages. The court emphasized the importance of honouring contractual obligations, even in difficult circumstances. Similarly, in the case of Walford v. Miles, the UK House of Lords held that agreements to negotiate in good faith do not constitute legally enforceable contracts. The court emphasized the importance of certainty in contractual relationships and the principle of pacta sunt servanda.

Conclusion

In conclusion, the principle of pacta sunt servanda is a fundamental aspect of modern contract law, and is widely recognized and upheld by courts around the world. This principle emphasizes the importance of honouring the terms of a contract and promotes the stability and predictability of contractual relationships. It plays a crucial role in facilitating international trade and commerce, as parties to a contract can rely on the commitments made by each other. The significance of ‘pacta sunt servanda’ in modern contract law cannot be overstated, as it serves to promote trust, fairness, and consistency in contractual relationships, and helps to ensure that parties can effectively enforce their rights and obligations under a contract.

About the Author

Sarah Arora is an antepenultimate year law-student pursuing B.B.A LL.B Hons. from Jindal Global Law School. She loves to write poems and articles on issues that arouse her curiosity and inspires her to be better than yesterday.

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