Role of Pacta sunt servanda
HISTORY
Few rules for the ordering of Society have such a deep moral and religious influence as the principle of the sanctity of contracts: Pacta sunt servanda. In ancient times, this principle was developed in the East by the Chaldeans, the Egyptians and the Chinese in a noteworthy way. According to the view of these people, the national gods of each party took part in the formation of the contract. The gods were the guarantors of the contract and they threatened to intervene against the party guilty of a breach of contract. So the making of a contract was bound up in religious formulas and that a cult of contracts actually developed.
For the Islamic people, the principle, Pacta sunt servanda, has also a religious basis: "Muslims must abide by their stipulations." This is clearly expressed by the Koran in many places, for example, where it is said: "Be you true to the obligations which you have undertaken. . . . Your obligations which you have taken in the sight of Allah. . . . For Allah is your Witness."
For the people of the Mediterranean area, the common interest in commerce was added to the religious motive. The juridical sense of the Romans recognized that a well-regulated trade was possible only if contracts were kept. Then, as earlier, contracts were considered as being under Divine protection. But their psychological basis then was, above all, the necessity of a legal regulation of international contractual relations.
Christianity exercised a great influence on the sanctity of contracts. Its basic idea demanded that one's word be kept, as is clearly expressed in the Gospel according to St. Matthew. Later, the Fathers of the Church set forth in detail the notion of the sanctity of contracts.

ANALYSIS & IMPORTANCE IN INTERNATIONAL LAW

It is arguably the oldest principle of law. The obligatory nature of treaties is founded upon the customary international law principle that agreements are binding. This principle is pacta sunt servanda. It is a crucial general principle of international law. It is the idea that international agreements are binding. Without Pacta sunt servanda, no international agreement would be binding or enforceable. Pacta sunt servanda is directly referred to in many international agreements governing treaties, including the Vienna Convention on the Law of Treaties (1969), which concerns treaties between states, and the Vienna Convention on the Law of Treaties Between States and International Organizations or Between International Organizations (1986).

The law of treaties rests upon this principle since the whole concept of binding international agreements can only rest upon the presupposition that such instruments are commonly accepted as possessing that quality. The importance of treaties within the international legal system requires no repetition. They constitute the means by which a variety of legal obligations are imposed or rights conferred upon states in a wide range of matters from the significant to the mundane. Treaties are founded upon the pre-existing and indispensable norm of pacta sunt servanda or the acceptance of treaty commitments as binding.

Treaties may fall within the following categories: multilateral treaties, including the specific category of treaties concerning international human rights; treaties concerned with territorial definition and regimes; bilateral treaties; and treaties that are treated as ‘political’ in the circumstances.

Treaties are known by a variety of differing names, ranging from Conventions, International Agreements, Pacts, General Acts, Charters, through to Statutes, Declarations and Covenants. All these terms refer to a similar transaction, the creation of written agreements whereby the states participating bind themselves legally to act in a particular way or to set up particular relations between themselves. A series of conditions and arrangements are laid out which the parties oblige themselves to carry out.

To accept consent as the basis for obligation in international law, comes a question as to what happens when consent is withdrawn. The state’s reversal of its agreement to a rule does not render that rule optional or remove from it its aura of legality. It merely places that state in breach of its obligations under international law if that state proceeds to act upon its decision. Indeed, the principle that agreements are binding (pacta sunt servanda) upon which all treaty law must be based cannot itself be based upon consent. The international legal order is an example of a simple form of social structure which consists only of the primary rules, because of its lack of a centralised legislature, network of recognised courts with compulsory jurisdiction and organised means of enforcement. Accordingly, it has no need of a basic norm or in Hart’s terminology a rule of recognition, by reference to which the validity of all the rules may be tested. Following this idea, Hart concludes that the rules of international law do not as yet constitute a ‘system’ but are merely a ‘set of rules’. Of course, future developments may see one particular principle, such as pacta sunt servanda, elevated to the state of a validating norm but in the present situation this has not yet occurred. This approach can be criticised for its over-concentration upon rules to the exclusion of other important elements in a legal system such as principles and policies and more especially as regards international law, for failing to recognise the sophistication or vitality of the system. In particular, the distinction between a system and a set of rules in the context of international law is a complex issue and one which is difficult to delineate.

Since it can hardly be denied that nationalisation is a perfectly legitimate measure for a state to adopt and clearly not illegal as such under international law, the problem arises where foreign property is involved. Not to expropriate such property in a general policy of nationalisation might be seen as equivalent to proposing a privileged status within the country for foreign property, as well as limiting the power of the state within its own jurisdiction. There is no doubt that under international law, expropriation of alien property is legitimate. This is not disputed.
However, certain conditions must be fulfilled. The question, of course, arises as to the stage at which international law in fact becomes involved in such a situation. Apart from the relevance of the general rules relating to the treatment of aliens noted in the preceding section, the issue will usually arise out of a contract between a state and a foreign private enterprise. In such a situation, several possibilities exist. It could be argued that the contract itself by its very nature becomes ‘internationalised’ and thus subject to international law rather than (or possibly in addition to) the law of the contracting state. The consequences of this would include the operation of the principle of international law that agreements are to be honoured (pacta sunt servanda) which would constrain the otherwise wide competence of a state party to alter unilaterally the terms of a relevant agreement. This proposition was adopted by the Arbitrator in the Texaco v. Libya case in 1977, where it was noted that this may be achieved in various ways: for example, by stating that the law governing the contract referred to ‘general principles of law’, which was taken to incorporate international law; by including an international arbitration clause for the settlement of disputes; and by including a stabilisation clause in an international development agreement, preventing unilateral variation of the terms of the agreement.

With reference to international agreements, "every treaty in force is binding upon the parties to it and must be performed by them in good faith." Pacta sunt servanda is based on good faith. This entitles states to require that obligations be respected and to rely upon the obligations being respected. This good faith basis of treaties implies that a party to the treaty cannot invoke provisions of itsmunicipal (domestic) law as justification for a failure to perform.
The only limit to pacta sunt servanda are the peremptory norms of general international law, called jus cogens (compelling law). The legal principle clausula rebus sic stantibus, part of customary international law, also allows for treaty obligations to be unfulfilled due to a compelling change in circumstances.

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[ 1 ]. Robert Redslob, Histoire des Grands Principes du Droit des Gens (1923)
[ 2 ]. C. Wilfred Jenks, The Common Law of Mankind (1958)
[ 3 ]. Michel de Taube, loc cit. 321 et seq.
[ 4 ]. Second section, Ch. 23, qu. 1, c. 3
[ 5 ]. ICJ Reports, 1997, pp. 7, 78–9; 116 ILR, p. 1.
[ 6 ]. Tunkin, Theory of International Law, pp. 93–5
[ 7 ]. http://www.trans-lex.org/129500
[ 8 ]. McNair, Law of Treaties, vol. I, chapter 30
[ 9 ]. [1939] AC 160; 9 AD, p. 264
[ 10 ]. Yearbook of the International Law Commission, 1968, vol. II, pp. 92–3.
[ 11 ]. http://www.jstor.org/stable/2203309
[ 12 ]. Eg. of the union of Egypt and Syria to form the United Arab Republic between 1958 and 1961 and the union of Tanganyika and Zanzibar in 1964, where the treaties of the component territories continued in force within those territorial limits
[ 13 ]. Ibid. 11
[ 14 ]. for example, that both the International Monetary Fund (on 15 December 1992) and the World Bank (on 25 February 1993) found that the former Yugoslavia had ceased to exist
[ 15 ]. M. Weller, ‘The International Response to the Dissolution of the Socialist Federal Republic of Yugoslavia’, 86 AJIL, 1992, p. 569
[ 16 ]. M. Craven, ‘The EC Arbitration Commission on Yugoslavia’, 66 BYIL, 1995, p. 333.
[ 17 ]. De Sanchez v. Banco Central de Nicaragua and Others 770 F.2d 1385, 1397; 88 ILR, pp. 75, 89
[ 18 ]. AMCO v. Indonesia (Merits) 89 ILR, pp. 405, 466
[ 19 ]. World Bank Guidelines on the Treatment of Foreign Direct Investment, 31 ILM, 1992, p. 1363
[ 20 ]. 53 ILR, p. 389
[ 21 ]. C. Greenwood, ‘State Contracts in International Law – The Libyan Oil Arbitrations’, 53 BYIL, 1982, pp. 27
[ 22 ]. From the Vienna Convention on the Law of Treaties, signed at Vienna on May 23, 1969
[ 23 ]. Ibid 22