Lex Mercatoria: Towards an autonomous international commercial law?

Posted by on 4 diciembre, 2014 in Contratación Internacional | 0 comments

I. Introduction

Since the 1960s, a fierce academic dispute is been held within the international legal community regarding an apparent rebirth of the law merchant, popularly known as lex mercatoria, in the twentieth century. Indeed, the old jus gentium lived and disappeared with the break-up of the Roman Empire and later reappeared with the rebirth of the international trade in the eleventh-century Europe . During the medieval period, the merchants developed trade usages and customs that acquired general application throughout the European merchant community being applied in the consuls and specialised merchant courts that settled disputes in trade fairs and ports . Lately some of the trade customs where codified in merchant laws, for instance the Catalan Llibre de Consulat del Mar, and were applied in merchant courts independently of national and local laws. However, although the lex mercatoria existed from the beginning of the human civilisation and was widely practised in the middle ages it has been ignored as a body of law until recently when some prestigious legal scholars started claiming the rebirth of a new lex mercatoria and its suitability for application to international commercial transactions .

As some scholars note, one of the main problems of the debate regarding the existence or not of the lex mercatoria is the scope of the concept itself, when we talk about lex mercatoria or law merchant what exactly are we talking about? Are we talking about a set of legal rules and customs created by the merchants in they day by day practice or legal rules created for merchants by legislators, academics and arbitrators? This question could have many answers ,however the legal community usually uses a mixture of both, thus the debate still remains obscure in its scope. In addition, there is other term that increases the confusion, that is transnational law or transnational commercial law, a term used to describe “all law which regulates actions or events that transcend national frontiers” .

 

II. What is Lex Mercatoria?
Is important to note that the concept lex mercatoria has had different meanings within the academic community specially after the 1962 London Conference on the Sources of International Trade was held, were a systematic discussion of the concept started . In fact we could say that there are as many possible concepts of lex mercatoria as authors dealing with it. However, basically there are two main different conceptions, one is the positivist approach represented by Professor Clive Schmmithoff and other one is the autonomous approach represented by Professor Berthold Goldman .

Clive Schmmithoff argues that within the boundaries of national legal systems, many international conventions and self regulatory rules play an important role and are useful in the regulation of international business transactions, however he does not consider these rules as conforming a legal system different from national legal systems although conforming an autonomous system of law . In the opinion of Clive Schmitthoff, international business law is conformed by national rules and court decisions but also by international instruments and international dispute settlement mechanisms .

In the other hand we have Professor Goldman’s approach to lex mercatoria. In his original conception lex mercatoria is described as “ a set of general principles, and customary rules spontaneously referred to or elaborated in the framework of international trade without reference to a particular national system of law” . As noted by Filip De Ly Professor Goldman advocates that the lex mercatoria conforms an autonomous legal system, different from domestic legal systems, having its own legal sources and rules and using international commercial arbitration as its preferred dispute settlement system .

Unlike Professor Schmmithoff´s conception, Berthold Goldman’s approach challenges the traditional conception on national laws as the main source for the regulation of international business transactions, being, thus, a more controversial theory .

Is the later conception the one which is often understood when the lex mercatoria concept is mentioned rather than the process of harmonisation of international trade law. The harmonisation of international trade law is based in the dominion of the traditional domestic or national laws with the aim to minimise the differences within the different national rules, yet for the lex mercatoria proponents, also known as mercatorists, the laws of individual states are not important at all since the law merchant is an autonomous body of law .Only rules dealing with international trade originating in trade usages qualify. This conception is quite confusing since nowadays lex mercatoria is often mistaken by international conventions like the CISG and the Unidroit Principles on International Commercial Contracts.

However, the concept of lex mercatoria brings along another idea; namely the fact that national commercial laws are not suitable to regulate and resolve the unique problems of international business transactions . This concern is well expressed by Professor Clive Schmmithoff in his introduction to the London Colloquium on the New Sources of the Law of International Trade at King’s College:

The evolution of an autonomous law of international trade, founded on
universally accepted standards of business conduct, would be one of the most
important developments of legal science in our time. It would constitute a
common platform for commercial lawyers from all countries, those of planned
and free market economy, those from civil law and common law, and those of
fully developed and developing economy, which would enable them to cooperate
in the perfection of the legal mechanism of international trade.

Indeed the rapid development of international trade after the Second World War soon showed the limitations of the traditional regulation of international contracts . The traditional and complex system of private international law did not give quick and easy solutions for the international business community. Thus the states started a process of harmonisation by means of international conventions and model laws based in the practice of international trade. This process, however, is time consuming due to the different cultural and legal backgrounds of the states involved in the negotiation of these instruments .

Regarding the sources and elements of the lex mercatoria the question is once more problematic, due to the different conceptions above mentioned. Professor Goldman recognises two, the customs of international trade and the general principles of law . Professor Schmmithoff includes mercantile customs but only if formulated by international bodies like the International Chamber of Commerce (Incoterms) and international conventions . Professor Lando provides the most extensive list of lex mercatoria elements including; 1) public international law, 2) uniform laws which have been adopted for international trade, 3) the general principles of law recognised by the commercial nations, 4) rules of International Organisations, 5) the customs and usages of international trade, 6) standard form contracts and 7) the reporting arbitral awards . From these sources a number of principles have been extracted to form the lex mercatoria, some of these principles are: 1) the pacta sunt servanda doctrine ( agreements of the parties must be observed, 2) the entitlement to non performance upon sustantive breach by the other party, 3) a good faith obligation in the parties dealings, 4) a duty to mitigate damages 5) the doctrine of rebus sic stantibus ( termination of obligations when underlying facts substantially change) and 6) the duty to renegotiate to overcome unforeseen difficulties in performance .

 

III. Lex Mercatoria criticised

The objections to the lex mercatoria approach are both of a conceptual and practical nature. It is argued that no law can be developed outside the boundaries of a national legal system or that at least a state cannot provide a legal sanction to rules that are not based in the sphere of a nation state . From the practical perspective, it is argued that the lex mercatoria approach provides little certainty not providing a reliable set of rules .

Focusing the debate further, as Felix Daseer points out the real question regarding the concept of lex mercatoria is “whether we have to apply any national law at all according to the traditional conflict- of -law concepts or whether we may simply and exclusively apply rules that were developed for international business transactions outside the traditional framework of national laws and international conventions” .

Lex mercatoria is seen with quite scepticism by some academics and practitioners being specially sceptical about the substance or positive rules of the lex mercatoria itself. The critics of lex mercatoria object its lack of generality and predictability being a sort of vague and not completed collection of trade usages with no binding force at all . These sceptics or “traditionalists” criticise the lack o a satisfactory evidences proving the existence of an autonomous international trade law created by the commercial actors . Furthermore they deny the existence of the lex mercatoria as a body of law:

What is a law without a legal system supporting it? Just because the lex mercatoria is theoretically available as a source for interpretation or amplification of contractual clauses does not make it law. It is, in my own view, not a system of lex mercatoria but rather, at most, a set of principia mercatoria .

For these authors “the unpredictability of the concept not only disqualifies it from implied application ¬to international commercial contracts but also impugns its very existence” . Even the defendants of the lex mercatoria admit that it is incomplete not providing suitable tools to successfully regulate issues like validity, capacity or contract form . In addition, critics argue that lex mercatoria cannot constitute a systematic body of rules due to diversity of the international merchant community and its interests . Another argument is that although national legal systems may not have predetermined answers to all legal issues that arise in international trade, they do have the ability to respond those issues in a more solid and predictable manner being able to satisfy the trade’s most pressing demands .

However these gaps in the law merchant are not serious obstacles for the proponents of lex mercatoria. Lex mercatoria´s advocates, predominantly representatives of Western industrialised states and private interests, stress the self regulatory abilities and capacities of merchants . In fact, the purpose of modern lex mercatoria like its medieval predecessor is to facilitate the international transaction rather than create a solid and positivist traditional body of law. As Claire Cutler points out referring to the mercatorists:

In asserting, either explicitly or implicitly, that the purpose of commercial regulation is to facilitate economic exchange, they believe that the best way to achieve economic efficiency and certainty is to give maximum scope to the principles of merchant autonomy, freedom of contract, and private dispute settlement (arbitration) and to recognise the fundamental role played by commercial custom .

One question arises here, is there transnational corporate elite community pushing for the establishment of an international or global law order and advocating for the superiority of the private ordering of global corporate relations? .

 

IV. The Lex Mercatoria and International Commercial Arbitration

International arbitration has exploded in recent years as an alternative solution for the settlement of disputes within the international business community being more and more disputes brought to arbitration. Nowadays many practitioners and academics believe that arbitration should be the sole acceptable dispute resolution process especially when parties with different nationalities have rejected recourse to their national legal systems when a dispute arises . The apparent neutrality of arbitration separated from the influences of sovereignty has been the best asset for its growth . Dezelay and Garth argue that international commercial arbitration began to adopt its importance as a pre-eminent tool for resolving international disputes around the 1970s for some particular historical reasons.

The cold War era and the tension between the North and the South gave rise to the need for legal rules and dispute settlement processes independent from domestic laws due to the implicit sovereign issues attached to them . However, in theory, states still retained some control over the arbitration in that they could affect procedures and applicable law through the imposition of public policy considerations, nevertheless the courts have been interpreting such control very liberally to, somehow, protect the principles of international comity . Thus, international commercial arbitration seems to be the proper place for the application of lex mercatoria, but, is lex mercatoria applied in the arbitration practice? traditionally only national laws may function as the law applicable to international commercial contracts.

Lex mercatoria proponents concede that the application of the law merchant is confined to arbitration. Domestic courts and judges are bound to apply either their national law or the laws of another sovereign state to the exclusion of any a-national set of rules .

In an study carried out by Felix Dasser since the late 1980s regarding the application of lex mercatoria in arbitral awards, covering a time-span of about 50 years, fewer than 30 arbitral awards were founded exclusively based on a non-national legal system that “ could somehow be packed under the notion of a lex mercatoria in an extremely broad sense of the term, including natural law, general principles applied by international tribunals and the like” . Dasser concludes that this percentage of arbitral awards is marginal although not in absolute terms due to the secretiveness of commercial arbitration. Since arbitral awards are not normally published the number of undetected cases is unknown. He founds that the concept of non-national law, be it lex mercatoria or something else was virtually absent in the arbitration of trade associations where the overwhelming majority of international commercial arbitration cases are decided .

There is another question regarding the enforceability of arbitral awards based in non national legal standards. Generally speaking arbitral awards are not enforceable simply on their own, they need the intervention of courts to enforce them although apparently the self-enforceability was defended by the mercatorists at the beginning of the lex mercatoria movement . This state support can be called in two ways: first, in the form of an appeal at the place where the award was made, and secondly in form of recognition and enforcement tools in another country if the need for such enforcement arises for the winning party . Felix Dasser concludes that all the awards studied where enforceable under the universally recognised 1958 New York Convention on Recognition and Enforcement of foreign Arbitral Awards (NYC) .

Other empirical enquiries have been made before regarding the hypothetical use of the law merchant between the practitioners. One of them has been made by the University of Cologne’s CENTRAL Research Project on Transnational Commercial Law, sponsored by the Volkswagen Foundation, and led by Professor Claus Peter Berger. In a research entitled ” The Role of Merchants, their Lawyers and their Arbitral Tribunals in the Evolution and Development of Transnational Commercial Law” a world wide empirical study was conducted regarding the viability of transnational commercial law as a third legal order. 2733 questionnaires were sent to different in-house lawyers of major companies, attorneys from major law firms, international arbitrators and law professors working in the field of international commercial law with the intention to clarify if transnational law is being used and accepted by international legal practice in the field of contract negotiations, contract drafting and in the area of dispute settlement through international commercial arbitration. After the enquiry two conclusions were brought, first transnational law is being used in international legal practice specially between continental lawyers, practitioners from common law jurisdictions are more reluctant to accept it. Secondly, they conclude that there is a substantial gap between the assumptions of lawyers who discuss the theory of transnational commercial law and the assumptions and viewpoints of international legal practice. In this sense Professor Berger concludes that,

‘These results of the CENTRAL Enquiry pose new challenges to those who are involved in the proliferation of knowledge about international business law around the globe. They face the formidable task of spreading the knowledge about transnational law on a world-wide basis. As one addressee stated, ‘knowledge about transnational law belongs to the arsenal of every internationally oriented lawyer’. Thus, ‘marketing strategies’ are required for the success of the new law merchant. Law school courses, continuing legal education, law review articles and moot courts are possible ways to solve the problem’ .

Regarding the use of the lex mercatoria by international arbitrators it’s very interesting to show one of the responses given to the CENTRAL’s enquiry by an eminent arbitrator,

‘In these arbitration cases as well as on many others, I did invoke in my briefs, memorial or arguments…rules of transnational law or the lex mercatoria, but on practically all occasions, although all these cases were won, the arbitrators, if I remember correctly, preferred in general to avoid any reference to transnational law or lex mercatoria! I may add…that according to my experience, most of the distinguished arbitrators I have been dealing with preferred to invoke “general principles of law” or “legal principles common to the parties” opposed in the case rather than one of these new concepts! …On a number of occasions, the arbitrator have indeed resorted to these somewhat new legal concepts but they left them nameless. They have sometimes upon the suggestion of one or other member of the tribunal, avoided to mention these formula expressis verbis. They were apparently afraid to open the door to an appeal for nullity of the award by the losing party’ .

In this sense, Professor Berger concludes that practitioners tend to avoid the term ‘lex mercatoria’ preferring to make reference to other concepts an more recently to codifications like the Unidroit Principles of international Commercial Contracts since their publication in 1994 .

In many cases lex mercatoria has been applied when parties did not make a choice of law to regulate their contract. In these cases arbitrators have taken the decision to apply lex mercatoria instead of national laws to avoid sticky conflict of law problems like in the ICCA award in Case No. 3540 (Oct. 3, 1980) . However, arbitrators have adopted different approaches regarding the application of lex mercatoria in this sense, some being more reluctant than others. For instance the arbitrator in ICCA Case No. 4237 decided:

‘It is argued in the literature that international arbitrators should, to the extent possible, apply the lex mercatoria. Leaving aside that its contents are not easy to determine, neither party has argued that a lex mercatoria should be applied. Rather, each party strenuously argued on the basis of a national law …. Accordingly, the arbitrator shall follow the implied desire of the parties to apply a national law .

Seems to be important to fix what the commitments of an international arbitrator are. As M. Mustill notes, an international arbitrator should keep in mind all the time that he is concerned with international commerce with all of flexibility, practicality and open mindness that this implies . In the opinion of Andreas Lowenfeld is important to determine if parties opting for international arbitration as their mode of dispute settlement, have simply made a choice of forum with the expectation that that choice has not effect on the substance of any dispute that may arise, or whether this option implies consciously some difference in the source of law as well as in the decision making process. In his opinion the later is more likely to be the truth, international arbitration seeks horizontal conformity . In addition the law of international trade proves limited in the practice;

`For international commerce, we have only fragments of a written uniform commercial code as the century comes to an end. But an unwritten law understood among merchants does exist, and goes a long way to filling a comparable need… International arbitrators do seek to achieve just results within a legal framework, and that framework is by definition wider than the frontiers of any state.´ .

Finally, it has been discussed if the arbitration clause allowing the arbitrators to decide ex aequo et bono is a reference to the use of the lex mercatoria by the arbitrators. For Professor Dalhuisen, this does not necessary mean a reference to lex mercatoria, it appears to bind arbitrator to the fundamental principles but no necessarily to the other elements of the lex mercatoria. In his opinion mandatory rules of a national system that clearly has a direct link with the case might not be ignored and may still have to be given their due importance . This may be different in the case of amiable compositeurs who have the duty to find a sensible solution more freely

V. The New Trends

As mentioned above, one of the main problems of lex mercatoria is to know which the substantive rules that conform them are. Actually one of the main arguments of the lex mercatoria´s critics is the difficulty in determining the content and rules of the law merchant and hence, opening the debate to the usefulness of the lex mercatoria.

However, recent initiatives and efforts have tried to codify, to an extent, these set of transnational commercial rules in an effort to contribute to the harmonisation of international commercial law . These initiatives have created practical and informal tools far from the formal academic postures and arguments creating what have been called “the new new lex mercatoria” .

In a short period of time, between 1994-1995, two important codifications where made probing that the lex mercatoria can be codified in “norm-like principles and rules together with commentary-like explanations, thus providing international legal practitioners with a means to apply the lex mercatoria in every day legal practice” . These are the UNIDROIT Principles of International Commercial Contracts (1994) and the European Principles of Contract Law.

In 1994 the International Institute for the Unification of Private Law (UNIDROIT) published its Principles of International Commercial Contracts, setting up ‘general rules’ for international commercial contracts. One year after the publication of the UNIDROIT Principles the Commission on European Contract Law -also called the ‘Lando Commission’ in honour of its chairman Professor Ole Lando- published its Principles on European Contract Law . Both set of principles contain rules that cover many aspects of contract law being endorsed with very clear and defined content .

Focusing in one of the main problems of the lex mercatoria doctrine, these principles try to give a ‘corpus’ to the lex mercatoria rules and principles, trying to release the endless discussion regarding the very existence of the lex mercatoria, and giving a set of practical rules for the practitioners . Direct references to lex mercatoria are made in UNIDROIT and EU Principles of Contract law. They assume the Principles to be part of it if the lex mercatoria concept is made applicable to the contract. The principles are also binding if the parties in their contract specifically provide so . They can be used as means of interpreting national or international uniform law, as a reference for national and international legislators and as the governing law to the contract, however neither the UNIDROIT Principles nor the EU Principles are binding, not being endorsed in any international convention or the like . In fact article 1.5 states that:

‘The rules laid down in the Principles are in general of a no mandatory character, i.e. the parties may in each individual case either simply exclude their application in whole or in part or modify their content so as to adapt them to the specific needs of the kind of transaction involved’ .

However, these principles have been considered as new sources of the modern lex mercatoria being able to be applied not only in international commercial arbitration but in domestic courts as the law governing the contract. Overall the importance of these principles is well expressed by L. Yves Fortier when he states that:

‘Surely, the most important attribute of these collections is that they exist. They can be filed with a judge or an arbitrator, can be referred to by page and article, and may be located and reviewed easily by all those who wish to understand and apply them. As such, they possess the sort of `definitive’ and `provable’ qualities required of a system of law if it is to provide an understandable, workable framework to govern the dealings of parties to international commercial transactions’ .

In fact as Professor Dalhuisen notes, modern legal thinking at least in the professional commercial framework, requires a greater degree of imagination and flexibility as well as a willingness to think more in legal guidance rather than clear-cut rules and corrective legal frameworks .

 

VI. Lex Mercatoria and the Globalisation Process

There is abundant literature about the changing role of the modern nation-sate. Nevertheless important factors of the nation-state still remain like the sovereignty and the territoriality of its public law . However, today the role of the state is contested and mandatory law or the legal rules that are not subject to contrary agreement by the parties are a source of concern by those engaged in international trade . As Dieter Martiny notes there is a tendency to reduce to an extent the effects of those provisions, in addition the existence of global markets is producing a loss of national control with some indicators expressing the decline of the nation-state .

Sociological research is indicating that the international business community and their lawyers are aware by the challenges created by the globalisation. One of their answers to these challenges is the international self-regulation including international commercial arbitration processes, leading to the application of non national legal rules and customs . Conflict of laws rules do not produce satisfactory results, in some cases the contract cannot be localised in any country (open sea) or is related to too many countries . Lex mercatoria approach tries to resolve these problems produced by the increasing globalisation of the economic interchanges.

Filip de Ly, one of the most known mercatorists, gives some arguments to support the legitimacy of the lex mercatoria as a tool to approach globalisation . First, is that national legal rules are not adapted to be applied in international trade. Conflict of laws rules do not produce satisfactory results, in some cases the contact cannot be localised in any country (open sea) or is related to too many countries. Secondly the lex mercatoria approach can also be justified by practical means. For instance, proof of foreign law could be difficult in some cases of international litigation or arbitration, each legal system having its own rules to tackle these problems.

Thirdly, the lex mercatoria may be applied for psychological reasons in international commercial arbitration. It can act as a support an guidance when interpreting international conventions and rules. In the cases that one or more states are involved, it has the advantage of the neutrality to deal with these state contracts where delicate political considerations should be taken. In addition, it can be used in party appointed arbitrator’s deliberations as a way to find unanimity or majority within the arbitral tribunal. In this sense it can be used as a tool to avoid deadlocks. Fourthly De Ly argues that the big law firms and the smaller boutique firms ( Swiss niche firms) which represent the new generation of technocrat arbitrators have strong interest in promoting lex mercatoria because as a product of the market in which they act they are seen by clients as expertise regarding that product, while the local bars cannot provide that expertise. Finally the liberal underpinnings of the lex mercatoria are important to take into account. The proponents of lex mercatoria argue that parties and arbitrators should be freed from the state interference specially regarding the substance of the dispute .

 

VII. Some Conclusions

Lex mercatoria as something similar to an independent legal order does exist at least in the arbitral practice, but it plays a marginal role . The question remains in determine which are the rules of this autonomous legal order although some initiatives like the Centre for Transnational Law ( CENTRAL) are in the business of detecting the transnational practices that conform the lex mercatoria . As a concept it has several meanings. First it is a substantive international set of rules as proposed by Schmitthoff, this conception is generally accepted world-wide . Secondly is a system autonomous from the national laws based in trade practices and customs, this conception is accepted and influential within scholars, national arbitration laws and ICC arbitrations although having a marginal effect in other instances. Third is a method for dispute resolution adjudication, in this sense it remains more as a theory than a reality .

What it seems interesting and fascinating is the lex mercatoria approach and proposal to tackle the modern challenges that international traders face nowadays. In addition it challenges the traditional role of the states as the main producers of law in the believe global transactions should be regulated by transnational legal systems. In addition, inside the lex mercatoria approach there is an inherent proposal to avoid national commercial laws in the benefit of a new jus commune. However, this cosmopolitanism is not revolutionary at all and it is more suitable for international business. As David Rene notes:

The Universities in each country no longer taught anything but national law. This gave birth to a new and revolutionary concept. Law came to be regarded as national phenomenon, controlled by politics and bound up with the existence of the state. The idea of common law disappeared. The existence of natural law, its force drawn purely from the idea of justice, and independent of all state-authority, was challenged: and this idea came to seem more moral than legal, even to those remaining faithful to it. In the eyes of international lawyers, private international law itself ceased to be anything but a regulation of international commercial relations by the will of the national legislature in a particular state. It became simply a national system of conflict of laws: its object is and can only be, to say which national law governs a particular transaction .

 

Bruno Manzanares

Tradelex Abogados

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