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8 Feb 2013

A new publication Freedom of Contract and its Limits: Analysis of International Aviation Transactions written by Dr. Gintautas Šulija has been published in the law quarterly Teisės problemos No 4 (78), 2012.

This article elucidates the concept of freedom of contract and its application in large international business transactions. At the beginning of the article, the theoretical background and historical foundations of this principle have been shortly described. Indeed, there is no reason to refuse to uphold the party autonomy provided contracting parties made a choice genuinely freely. The Lithuanian judiciary and jurisprudence unanimously recognize the principle of freedom of contract, which has also constitutional foundations. Nevertheless, the law stipulates a number of cases where the bargaining between parties might be considered unfair, one party gained excessive advantage or certain material terms of a contract may be refused to be enforced (e.g. the contract has been concluded by means of fraud, hardship, certain overtly unreasonable contract terms were included). 
Based on the experience collected practicing law, the author further observes aircraft lease and finance transactions. Such transactions ordinarily require a very strict compliance from both parties. In particular, payment obligations are ordinarily considered as absolute and unconditional, a defaulting party may have very limited chances to invoke a concept of force majeure or such similar defences as provided in many civil codes of the continental Europe. Indeed, from economic perspective, harsh contractual terms should secure a better compliance and eventually guarantee a lower price for goods or services provided under such harsh contract. Having observed typical terms of aircraft lease and finance transactions, the conclusion has been drawn that the Lithuanian courts must be very sensitive when they decide to invoke mandatory national laws and intervene into international commercial relations. The benchmark of evaluating the fairness of such contractual relations should not be the abstract national notion of fairness or domestic deliberations, but rather internationally recognised industrial market standard. 
If the national judiciary decides to uphold such interventionist approach by non-enforcing or rectifying international business contacts, the Lithuanian jurisdiction would become less attractive for foreign asset management companies. As a result, asset managers would require additional security or they would shift the increased transactional costs on the counterparty.
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