The "Transnational" Political Economy: - A Framework for Analysis.
copy @ Lex Mercatoria
Both international conventions and national legislations relating to international commercial arbitration are increasingly giving recognition to, and enabling the enforcement of, awards based on the lex mercatoria. And this, it should be noted, is a trend that is gaining momentum. The "localisation" theory - that an arbitrator should apply the substantive law of the seat of arbitration - was widely accepted in the 1940s and 1950s. 58 Again, this favoured the territorial state as having ultimate sovereignty over commercial issues within its jurisdiction.
However, there have been trends towards "delocalisation", the ultimate conclusion of which is the application of a national law. There are various permutations of delocalised arbitration. Carlo Croff, has suggested four. 59 In the order of detachment from municipal laws, these are where the arbitrator, sitting outside of the state of closest connection with the contract: 1) makes use of the conflict of laws rules of the state which would have had jurisdiction over a particular case; 2) makes use a cumulative, or comparative, conflicts of laws system which looks at all of the systems which may be connected with the dispute; 3) employs an international conflict of laws rules or general principles of international law; and 4) proceeds directly to the applicable law without any consideration of conflicts of laws. It should be noted that the issue of delocalisation remains unsettled, as for instance, F.A Mann, holding to the traditional conflicts of laws view, has argued that the arbitrator has to make reference to a "particular system of law". 60 However, there are signs that the lex mercatoria is gaining increased acceptance.
The New York Convention on the Recognition and Enforcement of Foreign Arbitral (1958) place great emphasis on municipal laws in dealing with capacity of contracting parties, the validity of the arbitral award, and the procedural law to be applied to the conduct of the arbitration. However, there is nothing in Article V, dealing with the grounds for refusal of the enforcement of the award that precludes the use of the lex mercatoria. 61 For Croff, this means that the award must be enforced "whether the arbitrator applies an international conflict of laws rule, or settles the dispute directly through the lex mercatoria". 62 Article VII of the European Convention on International Commercial Arbitration (1961) is more explicit, as it provides that if the parties fail to chose a substantive law, "the arbitrators shall apply the proper law under the rule of conflict that the arbitrators deem applicable". This Article further provides that "the arbitrators shall take account of the terms of the contract and trade usages" whether or not the parties have chosen an applicable law. 63 And, a 1992 Resolution on Transnational Rules Adopted at the 65th International Association Conference in Cairo stated that:
The fact that an international arbitrator has based an award on transnational rules (general principles of law, principles common to several jurisdictions, international law, usages of trade, etc.) rather than the law of a particular state should not in itself affect the validity of he award; 1) where the parties have agreed that the arbitrator may apply transnational rules; 2) where the parties have remained silent concerning the applicable law. 64
Perhaps nowhere is the lex mercatoria more explicitly recognised, and the trend towards "fully fledged" delocalisation better illustrated, than in the Inter- American Convention on the Law Applicable to International Contracts (Mexico, 1994). 65 The 1975 Inter-American Convention on International Commercial Arbitration still contained some remnants of the historical aversion of Latin American states even to permitting party autonomy in choosing the proper law of their contract. However, the 1994 Convention accords usages and conventions a prominent place in the absence of an express choice of law by the parties. Article 7(1) gives the arbitrators the discretion to take into account "the parties' behaviour and... the clauses of the contract". Article 9 similarly enables the enforcement of "general principles", as it states that the arbitrator "...shall also take into account the general principles of international commercial law recognised by international organisations". Finally, Article 10 is most explicit. It reads: "In addition to the provisions in the foregoing articles, the guidelines, customs, ad principles of international commercial law as well as commercial usage and practices generally accepted shall apply in order to discharge the requirement of justice and equity in the particular case." The particular significance of this Convention is that states with both common law and civil law traditions, which had been hostile even to the autonomy of parties to chose an applicable law, have adopted a Convention that is at the forefront of developments in accepting the lex mercatoria.
National legislations are increasingly giving force to the lex mercatoria. The Netherlands recently amended its rules, in reaction to the Iran-US Claims Tribunal, to give effect to awards based on transnational rules. The Netherlands Arbitration Act (1986), Article 1054, states that "in all cases the arbitral tribunal shall take into account any applicable trade usages". 66 Under the French Arbitration Decree of 14 May 1981, Article 1496 of the French Civil Code was amended to release arbitrators from any obligation to refer to any national law in order to hand down an award considered to be valid in France. They may apply any law that is applicable, and the French courts reviewing the award is not entitled to interfere with the decision of the arbitrator to apply transnational rules, so long as this choice was consistent with the choice of the parties and does not contravene any mandatory public law provisions. According to Jean-Pierre Ancel, this "represents the outline of a system which applies 'truly international' rules and principles, since they are not part of the French legal system, no more than they are a part of any national legal system". 67 Similarly, the Canadian arbitration law was modified in 1985 to permit arbitrators the flexibility to make use of the lex mercatoria. 68 Both the Vienna Court of Appeal and the English Court of Appeal had set aside arbitral awards that were based on the lex mercatoria, but each of these were overturned by the Austrian Supreme Court, and the Court of Appeal, respectively, since in both cases the application of the lex mercatoria was stipulated by the parties and the awards did not violate any relevant public policy. 69
What all of this shows is that the lex mercatoria is gaining in its coercive force and in its applicability, but not that it is any more effective in settling disputes. Indeed, it has been suggested that, given its imprecision, the application of the lex mercatoria depends more on arbitrator's own views of a particular case than on the "law". It is true that the outcome of each of the "hot oil" expropriation cases of the Middle East that contained as choice-of-law clauses the "general principles of law" produced vastly different outcomes. What this means is that each contract, potentially, can be governed by its own peculiar law. All that the increased recognition of the lex mercatoria means is that the possible number of outcomes that could obtain from its application to fundamentally similar cases has grown exponentially.
This has led some, such as William Parks to become concerned that, "some arbitrators will be tempted to use the lex mercatoria as a fig leaf to hide an authorised substitution of their private normative preferences in place of the parties shared expectations under the properly applicable law". 70 Mustill agreed, "the release of judicial control is at least as likely to encourage the arbitrator to apply no law at all, as to apply the lex mercatoria." 71 For Bond, "the lex mercatoria may end up becoming the last refuge of incompetent or lazy arbitrators". 72 Clearly, this would ultimately undermine the stability and predictability that the proponents of the lex mercatoria seek in detaching international commerce from the arbitrary application of municipal laws.
The defense of the lex mercatoria can only be that the greatest unpredictability would arise if arbitrators were forced to chose between, for example, the law of Kuwait or New York, or between France and Venezuela. 73 Some critics may retort that if the arbitrator announces his intention to use a particular national law, the parties may then determine their chances of success and decide whether to proceed or to settle. 74 While this may be practicable in international trade disputes, it may be manifestly unjust to proceed in this way in a dispute concerning foreign investment. For, foreign investors may not have the luxury of settling their dispute amicably with a host state - some have not even been present at arbitration - if the latter has exercises its power of eminent domain to change the laws relating to the investment.
Notwithstanding, it should be recognised that there does seem to be a growing normative consensus among host states on the need to attract capital and to alleviate the fears of investors that their assets may be subject to expropriation. Whether it be within the network of bilateral investment treaties in public international law between states, or in contracts between private foreign investors and host states, nearly all states now agree to settle any potential arbitration under the ICSID, whose Article 42 accords arbitrators the freedom to apply the law of the contracting state party to a dispute, as well as international rules of law. This growing normative consensus will be elaborated in the concluding section of this paper.
58. Keohane, "Reciprocity in International Relations", in Keohane, International Institutions and State Power, Westview, 1989, p.146-147.
59. There is also the interesting question of whether the lex mercatoria could form an "international regime" in the sense of shared norms, rules, and decision-making procedures. Again, this is a tangential discussion that, while interesting, would require a good deal of space to elaborate.
60. Highet, op. cit.
61. See Jan Paulsson, "Delocalisation of International Commercial Arbitration: When and Why it Matters", International Commercial Law Quarterly, Vol.32, 1983, pp.53-61, esp. p.57.
62. See John R. Crook, "Applicable Law in International Arbitration: The Iran-US Claims Tribunal Experience", American Journal of International Law, Vol.83, 1989, pp.278-311.
63. The Questech decision, in 9 Iran-US C.T.R, 122-123; quoted in Gaillard, op. cit., p.111.
64. See A.F.M. Maniruzzaman, "Conflict of Laws Issues in International Arbitration: Practice and Trends", Arbitration International, Vol.9, No.4, 1993, pp.371-403.
65. See Croff, "The Applicable Law in an International Commercial Arbitration: Is It Still a Conflict of Laws Problem?", International Lawyer, Vol.16, 1982, pp.613-645). A.F.M Maniruzzaman lists the latter three, in op. cit.
66. F.A. Mann, "England Rejects 'Delocalised' Contracts and Arbitration", International and Comparative Law Quarterly, Vol.33, 1983, pp.193-198.
67. The Convention is reproduced in Carr and Kidner, op. cit., esp. p.304.
68. Croff, op. cit.
69. This is reproduced in Carr and Kidner, op. cit., esp. p.310.
70. Cited in Gaillard, op. cit., p.36.
71. See Friedrich K. Juenger, "The Inter-American Convention on the Law Applicable to International Contracts: Some Highlights and Comparisons", American Journal of Comparative Law, Vol.42, No.2, 1994, pp.381-393.
72. Cited in Alan Redfern and Martin Hunter, International Commercial Arbitration, 2nd. ed., Sweet and Maxwell, London, 1991, p.120.
73. Jean-Pierre Ancel, "French Judicial Attitudes Towards International Arbitration", Arbitration International, Vol.9, No.2, 1993, pp.121-129, at p.127; Lando, op. cit., p.756.
74. Dreatta, Lake and Nanda, op. cit., p.16.